Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 DENTSPLY SIRONA Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. I would now like to introduce your host for today's conference call, Mr. John Sweeney. You may begin, sir.

Thank you, operator, and good morning, everyone. Welcome to our first quarter 2020 earnings conference call. I'd like to remind you that an earnings call press release and slide presentation related to the call are available on our website at www.dentsplysirona.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we will make certain predictive statements that reflect our current views about future performance and financial results. We base these statements on certain assumptions and expectations of future events that are subject to risks and uncertainties. Our most recent Form 10-K lists some of our most important risk factors that could cause actual results to differ from our predictions. And with that, I'd now like to turn the program over to Don Casey, Chief Executive Officer, DENTSPLY SIRONA.

Thank you, John, and thank all of you for joining us on the call today. We hope you and your families remain safe and healthy. Before we begin discussing our business results for the quarter, I wanted to express our gratitude to all the frontline healthcare workers who have been so important in dealing with this unprecedented challenge. This, of course, includes dentists who have continued to provide emergency services for people throughout the world during this global healthcare pandemic. Their commitment to patients and their safety is an inspiration to all of us at DENTSPLY SIRONA. Typically, this call would focus on first-quarter results and outlook. Given the current circumstances we are operating under, Jorge and I will spend most of the time outlining our action plan over the short term and importantly, the steps we are taking to better position the company for the long term. The first quarter got off to a solid start. Our efforts to accelerate new products while delivering against our restructuring objectives resulted in solid performance in January and February. These results were in line with our previous expectations. As we discussed in the Q4 call, we anticipated a negative impact in the first quarter due to the COVID-19-related issues that we were seeing at the time, primarily in Asia Pacific. In mid-March, the COVID-19 response expanded throughout Europe and North America causing a significant change in the business environment that impacted Q1 results. Across the world, government actions resulted in most dental practices being either shut down or limited to emergency procedures only. Patient flow was also limited by restrictions designed to slow the pandemic. During all of this, I would note that our Wellspect Healthcare business was unimpacted by the disruption we saw in the dental markets. At DENTSPLY SIRONA, we moved quickly to address five key priorities. The first was ensuring the safety of our employees. The second was to be able to continue delivering a high level of customer service and look to new ways to stay connected with our customers. The third priority was to improve our liquidity position. The fourth, the company took aggressive actions to control both SG&A and supply chain costs to match the changing market conditions. Our final priority was to identify and continue driving on the critical strategic initiatives that will position DENTSPLY SIRONA for the future. We believe that our quick actions have been effective and will form the basis for recovery when the market improves. The trajectory of the recovery is still not very clear at this point in time as different regions and countries have taken a variety of approaches to managing both the shutdown, as well as the reopening. We believe that the restart will be a gradual process as dentist offices adapt to the new environment and patient confidence in visiting dental offices increases. Longer-term, we are confident that the attractive market dynamics in the dental industry remain. Furthermore, DENTSPLY SIRONA’s financial strength, broad portfolio, and global presence give us confidence that we have a solid position that will enable the company to succeed in the future. Moving now to Slide 8, first-quarter revenues were $874 million, down 7.6% and down 4.3% on an organic basis as the impact of the Coronavirus expanded beyond Asia Pacific and into North America and Europe. Adjusted operating income margin came in at 14.9%, down 50 basis points versus the prior year reflecting the lower level of sales in March. Non-GAAP EPS for the quarter was $0.43, down 12.2% versus the prior year and operating cash flow was an outflow of $10.7 million. I will now turn the call over to Jorge, who will review the quarter.

Thank you, Don and good morning. I hope everyone is doing well and staying safe. These are obviously unusual times. Today, we will try to offer as much data and color as we have about Q1 and current trends. But as you can imagine, there are more limitations than normal in trying to predict future trends within a reasonable range. Although we are beginning to see signs of economic reactivation in a few geographies, we are still experiencing a great deal of uncertainty with regards to the pace of recovery for the rest of the year. I will start with the results for the quarter and then I will share details regarding the actions we have taken to navigate the current market conditions and ensure that we remain adaptive and ready to mobilize the enterprise to meet both short-term and long-term goals. On Slide 10, we show our first quarter 2020 P&L. Overall results were in line with our expectations. Beginning with the top line, organic revenue was down 4.3% versus last year. Technology and Equipment organic sales grew 4.8% and the Consumable business declined 15.2%. Foreign exchange represented a headwind of approximately 1.9% in the quarter, mainly due to the strengthening of the U.S. dollar relative to the Euro. Gross profit was $498.1 million or 57% of sales, down 10 basis points as compared to the prior year quarter. The main driver of this decline was negative manufacturing cost absorption due to COVID-19-related lower levels of sales. SG&A of $367.4 million represents an improvement of 6.9% as compared to the prior year. This improvement was driven primarily by restructuring cost saving measures, timing of the Bi-Annual International Dental Show in 2019, and the rapid response we implemented to match our spending with revenue trends in line with the current market slowdown. SG&A, as a percent of sales was 42%, up 30 basis points as compared to the first quarter of 2019. The rate increase was mostly related to a lower top-line base this year. Operating income declined 10.2% to $130.7 million. The tax rate in the first quarter was 24.4%, up 40 basis points as compared to the prior year due to income mix variances. Non-GAAP EPS was $0.43, down 12.2% versus the prior year quarter. One final note on the consolidated P&L for the first quarter. The GAAP operating loss of $139.9 million was driven by a non-cash goodwill impairment of $156.6 million, and an intangible impairment of $38.7 million. The impairment was the result of new demand projections for the equipment and instruments reporting units due to the ongoing COVID-19 impact on customer demand. Moving on to Slide 11 where we review first-quarter Consumables segment performance. Reported sales were $354 million, down 16.8% and organic sales were down 15.2%. Our Consumable business was tracking in line with our expectations for the first two months of the quarter but then it declined significantly in all regions in March as the impact from COVID-19 began to reach material levels. All of our product groups in Consumables were negatively impacted by the temporary closure of offices resulting from either government or healthcare policy-related guidelines. Consumables’ operating income margin was 17.4% in the quarter, down from just under 25% last year. The decline in margin was the result of lower volume and unfavorable absorption costs, partially offset by the positive impact of our cost reduction measures including COVID-19-related actions.

On slide 12, we highlight our Technologies and Equipment first-quarter performance. Net sales were $520.3 million, down 10 basis points compared to the prior year. Organic sales for the quarter were 4.8% higher than last year. This increase was driven primarily by Digital Dentistry, boosted by strong sales of our new products, Primescan and Primemill. The Healthcare business saw strong growth in the quarter as demand for Wellspect medical supplies maintained a positive trajectory throughout the entire quarter. All areas in technology and equipment including implants experienced lower sales versus last year, a result of the lower demand environment due to the COVID-19 pandemic. Technologies and Equipment operating income margin was 21.4%, up 760 basis points, compared to the prior year. This improvement was driven by the favorable product mix due to higher volume in CAD/CAM products and productivity improvements, partially offset by the impact of lost volume due to COVID-19. On Slide 13, we show our business performance for the first quarter on a regional basis. U.S. sales of $301 million declined 4.1% compared to the prior year. This represents a decline in organic sales of 1.2%. In the U.S. market, we experienced growth in Technologies and Equipment, which was more than offset by the decline in organic sales in the Consumables segment. European sales were $373 million, down 5.7% compared to the prior year. Organic sales were down 2%. Technologies and Equipment posted organic sales growth, while Consumables sales were down in the quarter. Rest of the world sales were $201 million, down 15.3% and organic sales were down 12%. From a product perspective, T&E sales grew and Consumables sales declined in the first quarter. On Slide 14, we show our cash flow performance. In the first quarter of 2020, cash flow from operations was a use of $10.7 million, compared to cash flow generation of $29.3 million in the prior year quarter. This performance was driven by a lower level of sales and a higher level of investment in working capital. In terms of capital expenditures, we spent $25.6 million in the first quarter, down from $33.9 million last year. As a result of the impact of COVID-19 on our normal operating cadence, we expect capital expenditure this year to be lower than we had anticipated in our planning process. Having said that, we continue to execute on our key projects. We will ramp back up to normal levels as soon as appropriate. Given the current circumstances, it is unlikely we will spend our targeted amount of $140 million to $150 million in fiscal year 2020. Free cash flow was an outflow of $36.3 million in the first quarter, compared to an outflow of $4.6 million in the prior year. We returned a total of $162.1 million to shareholders during the quarter, including dividends of $22.1 million and share repurchases of $140 million. Let’s go now to Slide 15, where I will talk about some of the initiatives we have implemented to ensure that our balance sheet and liquidity remains strong throughout this cycle. First, let me highlight that the global nature of our business provides a natural hedge to market disruptions as they cycle through regions around the world. Additionally, our Wellspect Healthcare business fared well as demand patterns in that space did not follow the dynamic experience in dental during the first quarter.

In response to the economic situation and the related lower dental demand environment, we implemented a set of actions including the following: We began by adjusting production output and we’ve reduced spend temporarily in many areas. While our goal is to match with situations in demand and cost reductions, it is hard to do it immediately given the high velocity of revenue decline we experienced in late March and early April. We also moved quickly on various financing initiatives to enhance our liquidity and ensure the funding of the strategic projects. We added $354 million in committed lines of credit. Included in our credit revolving facility of $700 million, and cash on hand, this brings our total available liquidity to $1.3 billion. As part of our overall liquidity strategy, we also decided to draw down $700 million from our credit lines. We have no immediate need to put this cash. The drawdown is entirely a function of our risk management plan given the uncertain macroeconomic environment. In addition to committed lines of credit, our investment-grade rating gives us the ability to tap through the capital markets for long-term funding if we so choose. With respect to business trends for the remainder of the year, I’d like to make a few comments. First, let me start with current volume trends. While we see positive signs of reactivation in the dental space in certain regions, sales trends in the second quarter remain substantially lower when compared to last year and pre-crisis levels.

In the U.S. and Europe, with some minor exceptions, dental practices limited their activity to emergency procedures. Consistent with our data published on the category, at least initially in the North America and EMEA regions, we are seeing volume of 60% to 80% for the month depending on the region. In the U.S., COVID-19 really began to impact dental offices in mid to late March. As a result of the implementation of several social distancing guidelines, we saw a sharp drop-off in patient traffic, which persisted through the end of the quarter and into April. In the last week or so, states have begun to allow offices to open and conduct non-emergency procedures. However, there are still many gating factors including the availability of personal protection equipment, overlapping regulations, association recommendations, and patients’ willingness to go back to the dentist. In Europe, each market behaved slightly differently throughout the course of the pandemic. For example, Italy and Spain were impacted earlier and more severely than others. In Germany, dental offices generally remain open. However, we did see a follow-up in patient traffic and associated revenues across all of Europe in April. With regards to other geographies, we are beginning to see some signs of recovery. On our last earnings call, we said that we had an exposure of approximately $60 million to $70 million in sales in China, Japan, Korea, and Taiwan stemming from Coronavirus. Since then, the dental market in China has played out pretty much as we anticipated. It is a slow rollback, but China is now tracking a lot better than what we saw in January and February. Japan did a little bit better than expected. More dental offices in Japan remain open, but patient traffic is low. My sense is that the rest of the world generally appears to be further along in the process than the U.S. and Europe. But let’s remember that this region represents approximately 20% of our revenue base. Last point I want to highlight regarding trends is that, in light of the economic and business uncertainties caused by COVID-19, we are not in a position to produce reliable updates to guidance at this time. In closing, we believe that the financial strength of DENTSPLY SIRONA at the onset of this crisis, combined with the operational, financial and strategic actions we have taken so far position us well to remain the partner of choice that our customers need in this difficult economic environment. With that, I will now turn the call back to Jorge.

Great. Thanks guys. Good morning. Appreciate the time. Jorge, I’ll start with you. I guess, last call, you gave us some really helpful color on decremental margins specific to the 1Q loss revenue on APAC and I get it things were moving around very quickly. But, as we sit here today, as some of the initiatives you put in place, is there any color that you are able to give on the decremental margins as we start thinking about things for 2Q and 3Q?

Hey, good morning. Thanks for the question. As both Don and I indicated, at this point, it’s very difficult to provide any sort of guidance for the next few quarters. What I can tell you is, if you look at the numbers for Q1, we came in very much as we were expecting. And we were able to take up some actions to try to protect our margins despite the rapid decline in revenue. But as you can imagine, it’s really hard to match those revenue decline and costs, at the same time to match them in the short-term. We will continue to do as much work as we can. We are – as Don indicated and I indicated some of the actions we are taking and we’ll try to balance our margins into the future as much as we can. But at this point, given all the uncertainty, it’s hard for me to tell you where we think we are going to be in Q2 or Q3.

Okay. Fair enough. And then, Don, for you, a lot of helpful color on what you think is coming back quicker. What procedures do you think are coming back quicker than others? But can I push in any granularity from a geographic standpoint? In other words, any data on what China looked like in the month of April versus January or what Germany looks like versus Italy? Anything that you might be able to pass along as we try to think about some of the leading indicators coming out of this?

Yes. Hey John. Thanks for the question. Hope you are safe and healthy. I think Jorge kind of gave you a bracket on what we think the globe looks like and obviously there are countries that are higher in that and lower. I mean, if you look at Italy and Spain, they’ve been shut down hard. Obviously, Asia Pacific is opening up. We are starting to see stuff in the U.S. open up. But there are two things, John, maybe I’ll give you a little help. I suspect we are going to get questions about why did Consumables seem to come down faster in the Q than what we saw in Technology and Equipment. And I would tell you that some of the stuff that we see is, there is a difference between retail and wholesale, while interestingly when you begin to see startup, you might see a reverse of that trend where the things that they stopped buying very quickly are the things they are short on. So that’s the first thing that we see. The second point that we are trying to make is, I think a lot of the discussion has been about what dental offices are open, check one, and then check two is, where are they in terms of emergency procedures versus moving into more elective procedures. And I actually think there is a variable that – and that is the one where we're having the toughest time with is, how fast do patients come back, because what we are seeing in Asia Pacific is that the offices open faster than patient traffic returns. So, the conversation in our mind has to be, it’s numbers we are starting to really work and track is, okay, the office is open, how are they operating as a percent of normal. Are they operating at 20%, 50% or 100%? And for us, it’s really been become a function of by country tracking actually utilization versus offices open. So, in our mind, that’s something that we are all going to have to track and get a little bit more sophisticated around.

Fair enough. Thanks guys.

Thanks, John.

Our next question comes from Steven Valiquette with Barclays. Steven, your line is open. You can ask your question. If your phone line is muted, could you please unmute the line?

Let’s go to the next question please. Kevin.

We’ll get Steve back in the queue shortly.

Our next question comes from Tycho Peterson with JPMorgan.

Hey. Thanks. Don, how are you thinking about CapEx once practices resume? Obviously, a lot of dentists or individual practitioners with high fixed costs are feeling the economic pain. So I am curious if you can touch on their appetite for CapEx. We also heard one of your competitors talk about increased interest in intraoral scanners as a way to reduce the risk of infections versus impressions. So, I am curious if you are seeing any evidence of that? And then, ultimately what is the studio relationship with DSOs? How locked have they been in the middle of the pandemic?

Yes. Thanks, Tycho. It is interesting as it’s almost counterintuitive we’d sit there and say, okay, challenging economic times that dentists are going to cut their capital spending back. Not what we’ve actually seen in terms of interest and we can track a couple of things by region. What are people looking at in our online things? Where we’ve been successful creating one-on-one sales? Pitches, if you will, that are done virtually and it’s all been around Technology and Equipment. And I’m not going to come out and say, I think Technology and Equipment is going to lead. But what we’ve been encouraged with so far right now is that the interest in digital production, if you will and intraoral scanners is a great example. It’s just a real game-changer from an economic perspective. I think, I don’t know if we want to refer to this as a pause, a time off or what not, what we have seen is dentists have really been thoughtful about, okay, I’ve had four weeks, six weeks to work with my staff to think about what should my practice be when we return. I’ll tell you, Tycho, the interest in digitizing the office has become a topic that after infection control, it’s actually the second most popular topic they were seeing by country. If you really go through it, if you are going to do impression material and then you are going to send that to a lab, you are potentially looking at a procedure that has two or three interactions with the patient, versus care side which is basically, one, you come in, you get scanned and you leave with a crown. The economics and the workflow productivity are really important. So, I’m not trying to be deliberately dense, but I do think it’s counterintuitive. But we are pretty optimistic about how our technology and equipment group will perform versus what I think expectation is.

And maybe a follow-up on the productivity. We have heard the guidelines, the CDC guidelines and otherwise have really impacted the practice efficiency, I think in some areas down 20%, 30% in terms of the number of patients that can be seen. How much of an issue is that from your customers? And then, you mentioned the volume is up 60% to 90% in April. Can you give some geographical color? Is that a U.S. comment? Thanks.

I’ll answer the first question – the second question first. I actually think, I think we said 60% to 90% and that’s a global comment, as part one. And then, the CDC guidelines, Tycho, you almost have to look at, there is – at least in North America, there is three sets of guidelines. There is the OSHA guidelines, the CDC and then there are ADA recommendations. And right now, I don’t think we reliably know what the ultimate impact on productivity is going to be is because I think people are getting used to it. We’ve been talking to dentists – literally we talked to – I was with a group of about 1300 yesterday. I think they are getting used to it. I don’t view the change in workflow as a permanent decrease in the number of patients. What the dentists are telling us is, and most of them have only been open for a week or two. They’ve got to do a couple of things, I mean, first is, how do you do waiting room management? Whether it’s having people wait in cars and they get text when they come in. How do they perform the questionnaires, the questionnaire done in the office or not? And then, there is a whole discussion about cleaning and what conspicuous cleaning and infection protocols look like. I think ultimately, dentists have been, if you go all the way back to, like, HIV, AIDS, and if you look at when hepatitis became an issue, dentists have gotten pretty good infection protocol they’ll adapt. I don’t look at the current changes as permanent decrements in the capacity, if you will, of the dental offices. And then, in the DSOs, it’s really interesting. The DSOs, I think have been taking a very measured response, we are going to open, if you look at the big three and even if you kind of go to the, kind of the second size, kind of the 50 to a 100, they’ve been pretty cautious. We are going to do emergency procedures only and then we are going to open it up. Right now, they really haven’t opened up like hygiene, if you will. There has been a lot of discussion about ultrasonic root planing and production of aerosols. As a result, I think they are going to gradually bring the hygienist back and they’ll focus on mechanical scaling and root planning. Our conversations with all of them have been, hey, look, it’s going to be a gradual return. It’ll start with emergencies. We’ll get into critical elective procedures, i.e. root canals and things like that. They’ll bring hygienists back. They are optimistic that they’ll be able to bring hygienists back in the summer. They’ll just do it stepwise.

Okay. Thank you.

Thanks, Tycho. Be safe.

Our next question comes from Michael Cherny with Bank of America.

Good morning. Thanks for all the color so far. Don, I want to pick on the Equipment question a little bit. In terms of the goodwill impairment, you said it was tied to readjusting, reassessing the level of demand. What was the process you went through in terms of looking through and risk weighting the order book in terms of the decision to take that approach? Clearly, what all your comments seem to think that there is some level of temporary nature to this, who knows how long the temporary nature will be. But in terms of that impairments, can you just walk us through a little bit more what the thought process was behind what you saw across your book of business to get there?

Michael, good morning, this is Jorge. Let me take that question. So, every quarter, companies have to go through an analysis of their entire balance sheets. And so, this quarter, we follow the normal process and when you look at the asset value or the value of all of your reporting units, some units have more headroom than others with respect to goodwill and intangibles and so forth. When we did our normal process in this quarter, one of the reporting units saw that historically had, had a smaller headroom as we did some sensitivity analysis and looked at probabilities of outcomes for the foreseeable future. We concluded that one specific reporting unit, equipment and instruments. This is not the digital aspect of our business, not Cad/Cam, it’s on the equipment and instruments piece. We concluded that based on our sensitivity analysis, potential range of outcomes for the future. It was prudent time we had to adjust our carrying value for that specific unit. And that’s how we came to this conclusion. I don’t think as a result of any significant change to our views of equipment in general for the future; it’s very specific to one reporting unit and it is as a result of many scenario analyses and sensitivity analyses that we do.

Thanks, Jorge. Just one quick additional question. How do you think about the value of something like One DS and the role that you have of that program against the backdrop of this current demand pause? And how is the look coming out on the other side?

Yes, Mike. It’s been very interesting that, originally, we thought, okay, our sales guys aren’t going to be able to talk to dentists and dentists are going to forget about things like One DS and it’s been the exact opposite. Our average calls per day in Europe and average calls per day in North America have actually increased, because there is not a lot of windshield time. And then, the number one thing out of the bag right now in talking to them, hey, doc, had you signed up for One DS? And if they had, this is where you are and, hey, as we think about reopening in May or June or July, this is the easiest way for you to maximize One DS. So, I was looking up to have a conversation with most of our U.S. sales leaders last week. And they feel that there is an excellent level of awareness of One DS and the idea of starting up restarting is an opportunity for them to – again, we’d take advantage of what’s a terrific program. And again, Michael, just, I think there was a – I remember, we at mid-winter having a lot of conversations about One DS. Again, we are not asking people to purchase incremental to what they normally purchase, we are just asking them to switch what they purchase to DENTSPLY SIRONA. And that’s going to give them a real opportunity for meaningful discounts on the equipment side of the business. And we’ve been – again we think our strategy is right. We are obviously adopting the message to be a little bit more focused on like the restart, but we think we’ve got some pretty good tools in place around office productivity and things like One DS to let people to start up.

Thanks.

Our next question comes from Erin Wright with Credit Suisse.

Great. Thanks. So, two quick questions. One, can you remind us of your experience during the most recent recessionary environment? And how this may or may not play out differently in your view? And then, in states such as Texas, and others that have started to open up at limited capacity, are you actually seeing the practices open? Are they waiting to feel more comfortable? Are they waiting for sufficient PPE supply? What percent of dental practices are still closed in the U.S.? And looking at the employment numbers this morning, I mean, dental practices are obviously an area of under pressure. How realistic is it that things can really recover this year? Thanks.

Thanks, Erin. It’s interesting. If you go back to 2008 and we’ve done it, our business is a little bit different. You kind of had SIRONA at the time which is very early. So, they were growing very rapidly. We’ve looked at the total equipment market and basically, what our experience was that, as long as we stayed focused on productivity, we didn’t see a real drop-off in technology and equipment. On the consumable side, Erin, again, I’m not the greatest historian, but we’ve been doing a lot of work going back and looking at that and actually the nice thing of that part of the DENTSPLY history is we can go back to 2001 as well. Typically, what we see is that, with the unemployment numbers, you are obviously heading to a recession. People actually use their health benefits. Whether it’s co-brother keeps people around for 12 to 18 months, people recognize that they may be entering a time period where there are not benefits and they tend to use their benefits up. So, our experience says that dental actually lags the economic news in terms of it doesn’t – we don’t see an immediate decrement. But on the same side, on the backside of a recovery, we recover a little slower, because you’ve got to get people back in jobs to get their benefits. In terms of Texas, and obviously we are tracking stuff by state. Without giving you too much specificity, the offices are opening. I mean, the dentist will tell you that they are opening. We don’t have exact numbers by the exact state. That’s a represented sample, but what we see is that the dentists – they open, their offices haven’t been open in four to six weeks. So there is almost a cleaning out. They have to retool their – what the dentists have been telling us they have to retool their waiting room, because there has got to be social distancing, stuff like magazines and a lot of the stuff in waiting rooms have to be taken out. They have to put where you go out and you pay. They’ve got to be installing shields and what not? So, they are opening and they are actually doing a lot of adjustments, if you will. But then, Erin, what we’ve seen in Asia Pacific which is starting to be echoed and what we are hearing from the U.S. dentists, the offices will open faster than patient traffic returns to normal. Everybody we’ve talked to said they don’t have as much PPE as they would like, but it’s getting better every day. And our discussions with our distributors say that, as we get into the summer, they should be able to manage that. So, adding that all up, you sit there and you say, the offices will open, the PPE situation is – we think a short-term issue that’s not going to really result in slowing of traffic. And it’s going to be much more a variable of when patients return to the full norm. And then, look, we saw the Jobs Report. And obviously, it should be concerning to all of us. Our sense of it is that, again, history would tell us that we are a lag in terms of people will tend to use their healthcare benefits and then, obviously, when we come out of it, we come out a little bit slower. So, hope that’s helpful.

Thank you.

Our next question comes from Elizabeth Anderson with Evercore.

Hello. Thanks for the question. I was just wondering if you guys are seeing anything in terms of changes in payment terms or discounts from customers that are requesting, are you guys offering that?

Thanks, Elizabeth. I’ll take that one and if Jorge needs to answer any color. Look, we are working with our dealer partners all around the world to help the dentists. We are putting programs together and we will put programs together as dentists can open up. But in terms of a lot of changes in payment terms, and that we are seeing or impacts on our AR, to-date, we haven’t seen it and it’s an area of focus for us. Over time, you’ll let change but it may. But ultimately, right now, we feel pretty good about it. We are putting programs in place, it would be – if we do offer extended terms of what not, that would be self-paying, because we would take that out of if that’s a marketing charge, we would cut another marketing program. I don’t know what you want to add, Jorge.

I would say, in these types of circumstances, it’s not unreasonable to expect that there will be some aging of materials. We are working very, very closely with all of our customers and having good conversations and as Don indicated, so far, we haven’t seen a big impact. But I think some of that will happen over time. But I think the trends are good so far.

Got it. And just as a bigger picture question, DENTSPLY is obviously one of the dominant players in the manufacturing industry which is generally very fragmented. How do you see over the longer term, the possible change in the competitive situation shaking out?

It’s interesting. We’ve been asked a lot about – like, is this going to accelerate consolidation, whether it’s on the DSO side or the manufacturing side. Ultimately, we think the trends that had been going on are going to continue. I think this location is really going to probably accelerate things. Again, I think some of the smaller companies without as big a balance sheet may press a lot harder than what they are holding. So we view it as an opportunity. We think the consolidation is going to accelerate and we think we should be a net winner in that situation.

I just ask you to put it on mute if you are not talking at this time.

Thank you.

Thanks, Lisa. Lisa that might be the last fun thing, you know in mid-winter when we got to see a bunch of you guys we’ll have a big dental show before everything shut down.

The next question comes from Nathan Rich with Goldman Sachs.

Hi. Good morning. Don, sorry to go back to the April comments. But, I’d be curious to know how Consumables versus Technology kind of trended in April relative to that 60% to 80%. Did you kind of see similar trends in both segments or one hold up better than the other?

Hey Nate, hope you are doing well. In April, they performed about the same. There are two things I would point out though when we try to give you a little bit of color. If you look at how the quarter finished and if you look at there is a change in how Consumables perform versus Technology and Equipment, actually the quarter numbers on T&E were actually pretty good. Basically, there is a lag effect between what goes on at retail and how wholesale manages that. So, we think you saw Consumables get pulled down, because that’s the lever that the dentists pull the fastest and obviously our dealer partners could react to that. But what we are seeing is countries started up and we’ve seen this in Asia Pacific and other stuff. You see a reverse of that. So, you would see things they didn’t order as they were shutting down or things they need to open up. So, over a longer period of time, we don’t think there is a change in trend. We think there may be a change in timing around Consumables’ decrement and how fast Consumables will come back up. And then, again, in April, on a global basis, they performed pretty similarly. There was not a big change, which we actually are a little bit optimistic about, because we are seeing capital expenditures in places that were not disrupted.

Okay. Great. And then, looking at the stages of recovery that you outlined, I appreciate there is a lot of uncertainty. But do you have a sense of how long it could take to kind of progress through those stages? And is that something that we could see be a bit more gradual and potentially extend into next year?

It’s a hard question to answer. Could it extend into next year? Yes. The only thing we were trying to do with the stages and – as we sit inside, what are we trying to do and what we said, we’ll take care of our patients. Let’s make sure we are talking to our customers. Jorge said a couple of times, we are trying to sync manufacturing to demand and as such, you don’t just call up on a Monday and turn a plan on. So, we’ve been trying to be thoughtful about that. So the stages, we actually have outlined those stages and we’ve outlined the regions. And right now, where we are is, pretty much everywhere around the world, people are doing emergency procedures and we tend to think the emergency procedures is 10% to 20% of all procedures. We are starting to see move back to elective in all around the world and that’s the important stage for us to start seeing in North America and EMEA. And as I’ve said a couple times today, not to beat a dead horse, but we think offices will open faster than patient traffic returns. And whether this is a three-month return to normal from consumers or six months or a nine-month, it’s really, really difficult to say, which is why we’ve kind of declined on providing specificity around quarter-to-quarter.

Makes sense. Thanks for the comments.

Thanks, Nate. Be safe.

Our next question comes from Jeff Johnson with Baird.

Thank you. Good morning guys. Don or Jorge, either one I guess, I would like to ask a cash flow question to start. Just, how should we think about buybacks and M&A in this environment? I know the M&A topic was broached earlier in the call here. But just as you think about conservation of capital versus going on the offensive in some areas or even using cash on buybacks in that, just how should we think about the next couple quarters?

Yes, morning. Thanks for the question. Again, I’m going to refrain from talking about the next two quarters, P&L, cash flow or capital deployment, but I would tell you, from a philosophy perspective, our capital allocation thinking has not changed from a long-term perspective. At this point, we are not changing that. In the short term, given the market dislocations that we are all facing, there are priorities that are higher right now and cash conservation is a very important priority. Now, we want to preserve cash, so that we can actually invest in things that really matter for us to be competitive as – or even more competitive as we come out of the end of the cycle. So, reinvesting in our business, we are not stopping that. We – as I indicated in my prepared remarks, we are – we have kept our investment priorities very much in touch. We have important projects around the world that yield significant value in the future and we are still investing in those. As we have more data points over the next several months and quarters, we will readjust the priorities and we will try to go back to a more normalized balanced approach to our capital deployment.

Thank you. And then, Don, maybe one last question just kind of broader market thoughts. You do sell some sterilization equipment. I am assuming there is going to be an increased focus with these offices on a lot of products like that. Are there any other products in your portfolio or in the R&D pipeline that you could tact towards and think about kind of an emerging secular trend in the offices, number one? And number two, as these offices spend more on PPE, and that looks questionable on whether or not reimbursement will incorporate that higher PPE cost, does that squeeze out the focus on premium consumables in your portfolio? How do you respond to kind of an environment where costs in other areas you don’t compete might be going up for these guys?

Yes. Thanks, Jeff. There are a couple of things in there. Let’s pull apart. We do sell some infection control stuff. It’s not huge just in terms of the size of the overall portfolio. But I would tell you, there are going to be some stuff that we are starting to see. We’ve got high-volume evacuation equipment Purevac and some other stuff that we think is going to do pretty well. We’ve had a lot of interest, again, we are kind of judging interest in stuff by what the dentists are actually attending webinars. And aerosol management is a topic that's gotten a fair amount of interest. The second thing I would tell you is, one of the things that we made a big deal about with Primescan was that it’s a sealed system and disinfecting that is relatively easy versus things that we had done in the past. As a matter of fact, we now have come up and it’s – we think it’s going to result in something that’s very important to us. We have a temporary shield that makes, it goes right over the probe and it’s disposable. So we think that’s very good. We’ve also moved very quickly into single-use packaging which we think allows you to sterilize something. So that it will aid the dentists. So, when you look at our ENDO and a lot of our implant products moving to single-use packaging is we think is something that we’ve been able to do, because we have the manufacturing expertise and everything we are hearing is that’s very important. In terms of, does the incremental PPE cost create downward price pressure on premium consumables? Yes, it could. Hey, look, I think the dentist office is going to be taking a hard look at their economics from top to bottom. One of the things that we will stress and something we’ve always stressed is, now is the time when you are really going through a challenging time to change your reliable brands that you’ve been using in important procedures. And, look, we’ve been competing against a private-label or white-label set of competitors for a long period of time and we feel that we can kind of hold around. And a lot of that’s going to be innovation. And then, the last kind of question you asked in there and I think I try to unpack all that is, do we think infection control should be an area of future R&D development? Yes, it’s always been an area we’ve looked at. I mean, we have a lot of infection. Our doc unit and other things and as part of our innovation package that we are looking at. Will it take on a higher priority? Too early to say, Jeff. But I would tell you, right now, and I said this in my prepared remarks and Jorge mentioned it was around cash flow, we are going full out, right now and one of the reasons we are trying to protect liquidity is because we believe that ultimately, the digitization of dentistry is going to be as important as any trend. Short-term, everyone is going to have to get used to PPE and infection control at different levels. But that puts pressure, say, there is a decrement in overall time that the dentist can spend with patients because of incremental PPE requirements.

Thank you.

Thanks, Jeff. Stay safe.

Our next question comes from Brandon Couillard with Jefferies.

Hey thanks. Two quick questions for Jorge. First, just on the P&L, could you just help us understand the flexibility of the P&L, how much of the cost structure is variable? And then, what are the prerequisites that you want to see before restoring guidance? Because I can envision visibility remaining low for some period of time. Thanks.

Thank you for the question. Yes, on the first part, with respect to fixed versus variable, I think in the short term, typically, I would say for our business, you could have between 25% to one-third of our costs being variable in nature. And as you go through a cycle, a lot of the fixed costs that you have can become variable. And that is part of what we are trying to figure out now and as part of that analysis, we actually have already made some decisions that essentially change some of our fixed cost into variable in the short term. I will do more of that and I think most companies are trying to figure that out. The idea, as I indicated before is, trying to match as close as possible, our revenue with our cost structure. And that is why we have been as a company always very much focused on margins and so, we have to balance, not margins, we need to balance that with the investment for the future. There is a number of scenarios that we are looking at to ensure that what are the decisions we make end up resulting in the best interest of the company for both the short term and the long term. With respect to guidance, I think, I don’t know exactly when we are going to be in a position to do that. But let me tell you a few elements that I think would be important for us. I think as we have more conversations with our customers, with our dealer partners and with just the overall all the stakeholders in this industry, we’ll understand better of the cadence of a potential recovery will start having a better understanding for future orders and how dentists are going to manage their capacity and how they are going to reopen. That’s going to be – it’s very important element in this analysis, of course. Then we have to look at overall macroeconomic conditions what is happening with overall economies and unemployment levels and there is a series of elements that I think we all are going to be looking at and at some point will know, okay now, the range of potential outcomes for the next six to twelve months is within a reasonable range and at that point, we will be in a position to share that range with all of you. Clearly, we are not at that point right now.

Okay. Thank you.

Our next question comes from John Kreger with William Blair.

Hi. Thanks very much. Don, two quick ones. You mentioned, I think that you tend to think that emergency procedures are maybe 10% to 20% of a typical practice. How is your ENDO business holding up? I would think that’s mostly emergency-related.

Yes. The ENDO business is mostly emergency-related. And by the way, John, when we say okay, there is okay in normal times and then there is post-COVID-19 normal times. But if you were to look at the business that’s been the most consistent through this, the ENDO business has been the most consistent through this process.

Great. Thanks. And then, maybe you could go back, as you mentioned, seemingly normal times back in Chicago in mid-winter, what was your early experience like around the Primemill launch? Just curious if you were seeing uptake mainly from people that had some of your older mills and so those are upgrade sales or were you actually seeing maybe a bit of a resurgence in convincing practices to go full chairside?

Yes, I would tell you, the Primemill, the response to Primemill was really good. We were very excited and look, mid-winter was a great example of that. Our emphasis on Primemill was, how do we sell full chairside systems. I mean, that’s our first lever that we always go to how do you sell full chairside and we were pretty successful. I mean, if you look at the pricing and if you look at how we package that, it was designed for us to be pretty aggressive around selling full chairside, and we were pretty successful about that. Coming out of it, John, coming out of the COVID challenge, we are going to be banging very hard on the idea that full chairside where you have an opportunity to take care of a patient in one visit. It’s going to be pretty important and if you look at the speed advantages of Primemill, we think it’s going to be a pretty important part of our overall story. But we were very excited about the initial reception to Primemill.

Great. Thank you.

Our next question comes from Kevin Caliendo with UBS.

Hi. Thanks for taking my call. I guess, this is for Jorge. Can you talk a little bit about the sales and accounting cycle for equipment, sort of how you record the revenues? And any chance that changes going forward, meaning is it possible you make it, I know, you already have payment terms and extended payment terms and alike. But is there anything that could change with that going forward post-COVID? And then, the second question I had was, just getting back to the first quarter, I think you said, January and February were tracking in line with expectations. Can you tell us what you thought consumables and equipment would have done, ex COVID? Thanks.

Good morning, Kevin. The way we record our equipment sales is similar to the way we record every other sale within the company including consumables. So, it’s – there is no deferral of revenue – we – it’s a straight up sales. So there is nothing we do different in that case. Can that change in the future? At this point, we are not thinking about that. There are some companies that provide financing for equipment. We don’t do that way. So, that’s not in our plans right now. The January, February overall as Don indicated and I indicated, based on our internal planning based on our internal forecast, we came out of a strong Q4 2019 and we were seeing trends in Q1 or we would expect Q1 to perform very much in line. The technology business was doing extremely well with Primescan, the launch of Primemill was doing very well in both January and February and Consumables trending also very much in line with our expectations for the first two months of the quarter. And then, towards mid-March, is when we started to see a drop in decline in the Consumable business. The Technology business Cad/Cam in particular continued to perform well throughout the first quarter and as Don indicated, now going into April, May, both segments are trending in a similar way.

And the only thing I would add, Kevin, is, Consumables – if you look at the difference and we’ve said this in our prepared remarks, in the quarter, it looks like T&E kind of kept going and Consumables came down faster. We think that was a function of timing and not a function of demand. If you think about what goes on at retail versus wholesale, obviously, as our dealer partners began to see challenges in the dentist office and the dentists would stop ordering. The thing you stop ordering is the things you use most frequently. So, we think Consumables were impacted as fast as there. What we are seeing is, as places like Asia Pacific open up, you see a reversal of that. You see actually people come back in on the consumable first and it’s – so we look at the disparity in performance as much more of a function of timing than underlying demand stuff. And I will tell you, we were very happy – I think Jorge said, extremely well. Very happy with how the quarter was going on both the Technology and Equipment side and the Consumables side. We had started to see some good trends in the fourth quarter around Consumables which are carrying over into the first quarter.

That’s helpful. Thanks so much guys.

Thank you.

Thanks, Kevin.

Our next question comes from Glen Santangelo of Guggenheim.

Yes. Thanks for taking my question. Hey Don, I just want to follow-up on some of the comments you actually just made with respect to Asia-Pac for example. It sounds like globally the volumes are trending down 60% to 80%, but is it intuitive as you would think that maybe APAC is doing a little bit better, since they closed earlier and opened first and then EMEA and then maybe North America sort of last and assuming that's the case, I am kind of curious specifically about the reboot in Asia-Pac. And you talked about maybe certain areas of digital that you'd expect to come back faster, maybe not being as economically sensitive as we think with maybe implant and ortho may be coming back a little bit slower. Could you talk about the reboot on the Equipment side in Asia-Pac and what you are seeing? And I don't know if there are any numbers you feel comfortable putting around that?

Yes, Glen. Thanks for the question. Here is what – Asia-Pac, first you got to kind of think about Asia-Pac as not Asia-Pac. In our mind, there are almost three chunks to this. What went on in China? How do you think about kind of things that have reopened Hong Kong, Taiwan, and Korea, and then, Japan is a big business for us. By the way, I think Jorge said in the prepared remarks and on an aggregate basis, that’s less than 20% of our total portfolio. But what has gone on in China, again, it’s exactly what our prepared remarks were, that we are seeing consumables come back, we – again, you are going to see a kind of functional procedures come back pretty quickly. At least, on our side, we are not seeing ortho and implants as the first things back. And we’ve been pleasantly surprised at how technology and equipment has performed kind of in line with everything. In terms of like, kind of that next group, when you think about Korea, Hong Kong, Taiwan, they seem to be a little bit further in front. Again, the businesses are performing kind of in line with each other. And again, in our mind, that’s kind of a little bit counterintuitive because the expectation would have been that Technology and Equipment would have come up slower. We are seeing good solid demand. Now, again, we have worked very, very hard to talk about the economic benefits of the workflow, efficiencies and other things. And that’s – it’s resonated well with the patients – excuse me, with the doctors in that area. Japan was kind of a third circumstance where they never really shut down the dental office as you saw a slowing in patient demand and what we saw was, Technology and Equipment and Consumables performed similarly, implants kind of slowed. So - and that – in our mind, almost Japan is a little bit of an outlier. So we’ve been watching how China mimics kind of the Korea, Hong Kong, Taiwan and if those are a harbinger of the future, you see dentist offices opened, you see patients recovery a little slower than how fast the dentist office open. You see functional come back the fastest.

Thanks for the details.

Thanks, Glen. Stay safe.

Our next question comes from Yi Chen with H.C. Wainwright.

Thank you for taking my question. Do you expect the recovery trajectory for dentistry practice to be similar between different regions although in different countries?

Yes, Yi Chen, I think the answer is probably yes. Again, we are trying – I wish that we could see Q2, Q3 more clearly. What we have seen is that, on the way down things looked very similar all around the world. As things shut down, how it impacted businesses, it looked very similar. What we are starting to see at least in Asia Pacific, which is a wide variety of circumstances, it seems to be coming up in a similar way. The thing that we can’t predict though, is how fast does this all come back.

Okay. Does Dentsply plan to provide any service to help dentists practice return to normal operations sooner, such as facilitating the COVID-19 testing, particularly saliva-based testing in dentist office?

No. I think it’s essential that doctors get access to PPE and if they feel appropriate, if they want to test their staffs that they are going to need access to point-of-care. But it’s not an area of expertise for us.

Okay.

It’s just not something we do.

Okay. Thank you.

Thanks, Yi Chen.

And I am not showing any further questions at this time. I would like to turn the call back to John Sweeney.

Thank you very much for joining us today. We look forward to updating you on our next earnings conference call. Have a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.