investor presentation - jefferies · dependent than medical market medical consumable medical...

INVESTOR PRESENTATION

F O RWA R D L O O K I N G S TAT E M E N T S

This presentation contains forward-looking information (within the

meaning of the Private Securities Litigation Reform Act of 1995)

regarding future events or the future financial performance of the

Company that involve substantial risks and uncertainties. Actual

events or results may differ materially from those in the

projections or other forward-looking information set forth herein as

a result of certain risk factors. These risk factors include, without

limitation; the continued strength of dental and medical markets,

the timing, success and market reception for our new and existing

products, uncertainty with respect to governmental actions with

respect to dental and medical products, outcome of litigation

and/or governmental enforcement actions, volatility in the capital

markets or changes in our credit ratings, continued support of our

products by influential dental and medical professionals, our ability

to successfully integrate acquisitions, risks associated with foreign

currency exchange rates, risks associated with our competitors’

introduction of generic or private label products, our ability to

accurately predict dealer and customer inventory levels, our ability

to successfully realize the benefits of any cost reduction or

restructuring efforts, our ability to obtain a supply of certain

finished goods and raw materials from third parties and changes in

the general economic environment that could affect the business.

Changes in such assumptions or factors could produce

significantly different results.

For additional information regarding the factors that may cause

actual results to differ materially from these forward-looking

statements, please refer to the Company's most recent Form 10-K

and its subsequent periodic reports on Forms 10-Q filed with the

Securities and Exchange Commission.

2 0 1 5 D E N T S P L Y I N V E S T O R P R E S E N T A T I O N 2

N O N - G A A P F I N A N C I A L M E A S U R E S In addition to the results reported in accordance with US GAAP, the Company provides

adjusted net income attributable to DENTSPLY International and adjusted earnings per

diluted common share (“adjusted EPS”). The Company discloses adjusted net income

attributable to DENTSPLY International to allow investors to evaluate the performance of

the Company’s operations exclusive of certain items that impact the comparability of results

from period to period and may not be indicative of past or future performance of the

normal operations of the Company and certain large non-cash charges related to purchased

intangible assets. The Company believes that this information is helpful in understanding

underlying operating trends and cash flow generation.

Adjusted net income and adjusted EPS are important internal measures for the Company.

Senior management receives a monthly analysis of operating results that includes adjusted

net income and adjusted EPS and the performance of the Company is measured on this

basis along with other performance metrics.

The adjusted net income attributable to DENTSPLY International consists of net income

attributable to DENTSPLY International adjusted to exclude the net of tax impact of the

following:

(1) Business combination related costs. These adjustments include costs related to

integrating and consummating recently acquired businesses and costs, gains and losses

related to the disposal of businesses or product lines. These items are irregular in timing

and as such may not be indicative of past and future performance of the Company and are

therefore excluded to allow investors to better understand underlying operating trends.

(2) Restructuring, restructuring program related costs and other costs. These adjustments

include costs related to the implementation of restructuring initiatives as well as certain

other costs. These costs can include, but are not limited to, severance costs, facility closure

costs, lease and contract terminations costs, related professional service costs, duplicate

facility and labor costs associated with specific restructuring initiatives, as well as, legal

settlements and impairments of assets. These items are irregular in timing, amount and

impact to the Company’s financial performance. As such, these items may not be indicative

of past and future performance of the Company and are therefore excluded for the purpose

of understanding underlying operating trends.

(3) Amortization of purchased intangible assets. This adjustment excludes the periodic

amortization expense related to purchased intangible assets. Beginning in 2011, the

Company began recording large non-cash charges related to the values attributed to

purchased intangible assets. As such, amortization expense has been excluded from

adjusted net income attributed to DENTSPLY International to allow investors to evaluate

and understand operating trends excluding these large non-cash charges.

(4) Credit risk and fair value adjustments. These adjustments include both the cost and

income impacts of adjustments in certain assets and liabilities including the Company’s

pension obligations, that are recorded through net income which are due solely to the

changes in fair value and credit risk. These items can be variable and driven more by

market conditions than the Company’s operating performance. As such, these items may

not be indicative of past and future performance of the Company and therefore are

excluded for comparability purposes.

(5) Certain fair value adjustments related to an unconsolidated affiliated company. This

adjustment represents the fair value adjustment of the unconsolidated affiliated company’s

convertible debt instrument held by the Company. The affiliate is accounted for under the

equity method of accounting. The fair value adjustment is driven by open market pricing of

the affiliate's equity instruments, which has a high degree of variability and may not be

indicative of the operating performance of the affiliate or the Company.

(6) Income tax related adjustments. These adjustments include both income tax expenses

and income tax benefits that are representative of income tax adjustments mostly related

to prior periods, as well as the final settlement of income tax audits, and discrete tax items

resulting from the implementation of restructuring initiatives. These adjustments are

irregular in timing and amount and may significantly impact the Company’s operating

performance. As such, these items may not be indicative of past and future performance of

the Company and therefore are excluded for comparability purposes.

Adjusted earnings per diluted common share is calculated by dividing adjusted net income

attributable to DENTSPLY International by diluted weighted-average common shares

outstanding. Adjusted net income attributable to DENTSPLY International and adjusted

earnings per diluted common share are considered measures not calculated in accordance

with US GAAP, and therefore are non-US GAAP measures. These non-US GAAP measures

may differ from other companies. Income tax related adjustments may include the impact

to adjust the interim effective income tax rate to the expected annual effective tax rate.

The non-US GAAP financial information should not be considered in isolation from, or as a

substitute for, measures of financial performance prepared in accordance with US GAAP.

D E N T S P L Y I N V E S T O R P R E S E N T A T I O N 3 2 0 1 5

A B O U T D E N T S P LY I N T E R N AT I O N A L

Leading professional dental consumables company

$3 billion revenue base

90+% value-added consumables portfolio

Global infrastructure

Sales in more than 120 countries

Large sales force in both distributed and direct channels

Operations in more than 40 countries

Innovation & education

R&D: over 50 clinical studies

30+ significant new products annually

Clinical educator: train ~250,000 each year

Consolidator in a fragmented market

Selective; reinvest for growth

Financially strong

Deploying free cash flow: repurchases, dividends, M&A

$7.5 billion market cap


T H E G L O B A L M A R K E T

Dental

~$21 billion; $17 billion in consumables

Less volatile than broader economy

Market typically grows 1 to 2 times GDP

Fragmented

Top 10 competitors: only 60% of

market

End-user customer: generally 1 to 3

dentists per office

Less government reimbursement – dependent than medical market

Medical

Consumable medical devices

Focused on Urology segment: $1 billion

addressable market

Primarily single-use catheters


22%

22%

17%

15%

13%

6% 5% Preventive

Restoratives

Large Equipment

Implants

Prosthetics

Orthodontics

Endodontics

M A R K E T O P P O R T U N I T Y

Developed markets - 18% of global population

~1.2 billion people

Over 65: +20% spending per patient

Retaining natural dentition longer

Link to medical health

Emerging markets - 82% of global population

~5.5 billion people

Access to dental care improving

Middle class population to double by 2020

Discretionary spending power

Dental markets:

Grow 1-2x underlying GDP growth


4 0 . 2

5 4 . 6

7 1 . 5

8 0

8 6 . 7

2 0 1 0

2 0 2 0

2 0 3 0

2 0 4 0

2 0 5 0

U S P O P U L AT I O N A G E 6 5 A N D O V E R I N M I L L I O N S

D E N T S P LY ’ S G L O B A L F O OT P R I N T


N O R T H A M E R I C A 37%

L A T I N A M E R I C A 4%

E U R O P E 45%

M I D D L E E A S T &

A F R I C A 3%

A S I A 6%

J A P A N 3%

A U S T R A L I A 2%

P E R C E N T O F 2 0 1 4 S A L E S B Y R E G I O N

E X C L U D I N G P R E C I O U S M E T A L C O N T E N T

U N PA R A L L E L E D P RO D U C T L I N E B R E A D T H P E R C E N T O F 2 0 1 4 S A L E S

E X C L U D I N G P R E C I O U S M E T A L C O N T E N T

28%

49%

13%

10%


C H A I R S I D E C O N S U M A B L E S

Restorative, Preventive

S P E C I A LT I E S

Implants, Endodontics,

Orthodontics

P R O S T H E T I C S

Artificial Teeth, Denture Bases,

Crown and Bridge, CAD/CAM

M E D I C A L

Urology, Surgery, Instruments

B A R R I E R S TO E N T R Y: C O M P E T I T I V E A D V A N TAG E

Fragmented Market

~3,600 highly trained product-specific

sales and technical staff

Complexity and global scale in

manufacturing

Established brand names

Extensive patent portfolio

Strong relationships: dental schools and

end-users

Professional services: clinical education,

opinion leadership


M A R K E T L E A D I N G I N N O V AT I O N

Solutions that improve/deliver:

Clinical effectiveness

Clinical efficiency

Patient-preference

Committed to Innovation:

30+ significant new products

annually

50+ clinical studies ongoing

Enhancements to existing

products

Consistent investment: internal

projects, licensed technology and

acquisitions


P RO F E S S I O N A L S E R V I C E S

Strong key opinion leader support & customer reach

Approximately 250,000 dental professionals trained

in clinical programs

~5,500 programs annually in more than 34 countries

on 6 continents

Leveraging both web-based and classroom CE


I N N O V AT I O N & L E A D I N G B R A N D S


PREVENTIVE RESTORATIVE PROSTHETICS ENDODONTIC IMPLANTS ORTHODONTIC UROLOGY

L E A D I N G B R A N D S

N E W P R O D U C T S

S P E C I A L T I E S C O N S U M A B L E S M E D I C A L

P E R F O R M A N C E L E V E R AG E P O I N T S

Market improvement

US: signals of improvement

Europe: ~45% of sales

Currency: Euro and EM

Internal changes: on track toward 20% adj. operating margin

Expecting +240 bps over 3 years; 80bps in 2014

Reinvest for growth

Innovation

Clinical

Sales force

M&A

Flexibility to deploy capital: ~$460MM 2014 FCF*

Internal investment

Acquisitions

Share repurchases


* Represents cash flow from operations less capital expenditures.

TA R G E T S & D R I V E R S O F G ROW T H

Targets of:

3-6% average internal growth (10%- 20% premium to dental market growth)

20% adjusted operating margin in 2017

ROIC in the range of 12-15%

Cash flow growth drivers:

Market opportunities

Dental: premium to GDP

Emerging markets: 2014 ~16%

Global efficiency program:

Global procurement

Better asset turnover and utilization

SG&A leverage

Reinvestment

Innovation

Acquisitions

Sales and marketing


R E C E N T R E S U LT S


Q1 2015:

Sales, ex PM, declined 8.4%

Currency translation headwind -9.7%

Constant currency growth +1.3%

Internal growth +1.3%

Adjusted operating margin expanded 100 bps to 18.7%

Operating cash flow increased 2% to a first quarter record $66 million

Free cash flow up 26% to $49 million

EPS on an adjusted basis flat at $0.59

Adjusted EPS grew ~6% ex. currency impact

Currency ~3.5 cent headwind

C U R R E N C Y R AT E C H A N G E S


-13.5%

2.5%

-17.5%

-1.6%

-10.9%

-6.9%

-15.4%

-2.2%

-8.6%

-21.4%

-11.9%

-22.0% -20.0% -18.0% -16.0% -14.0% -12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0%

EUR/CHF

EUR/SEK

SEK

KRW

JPY

GBP

EUR

CHF

CAD

BRL

AUD

2015 Current Rates vs. 2014 Average Rates Negative values indicate foreign currencies are weakening vs. USD

Negative values indicate EUR is weakening vs. foreign currencies

A D J U S T E D O P E R AT I N G M A R G I N *


1 9 . 8 %

1 7 . 7 % 1 7 . 5 % 1 7 . 6 % 1 8 . 4 %

2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4

* A non-GAAP measure that excludes certain items.

For a reconciliation to the GAAP measure, refer to our SEC filings including 8-K’s and annual report on form 10-K

A D J U S T E D E P S * & E A R N I N G S G ROW T H


* A non-GAAP measure that excludes certain items.

For a reconciliation to the GAAP measure, refer to our SEC filings including 8-K’s and annual report on form 10-K

$ 1 . 9 2 $ 1 . 8 9 $ 1 . 9 4 $ 2 . 0 3 $ 2 . 2 2

$ 2 . 3 5 $ 2 . 5 0

2008 2009 2010 2011 2012 2013 2014

S T RO N G F I N A N C I A L P O S I T I O N


Q1 2015 2014 2013 2012

Cash and cash equivalents $ 1 0 0 . 6 1 5 1 . 6 7 5 . 0 8 0 . 1

Total assets $ 4 , 6 5 3 . 1 4 6 5 0 . 3 5 , 0 7 8 . 0 4 , 9 7 2 . 3

Total debt, current and long term $ 1 , 3 2 6 . 5 1 , 2 6 5 . 7 1 , 4 7 6 . 0 1 , 5 2 1 . 0

Net debt1 $ 1 , 2 2 5 . 8 1 , 1 1 4 . 1 1 , 4 0 1 . 1 1 , 4 4 0 . 9

Equity $ 2 , 1 7 4 . 3 2 , 3 2 2 . 2 2 , 5 7 8 . 0 2 , 2 4 9 . 4

Net debt to total capitalization2 3 6 . 1 %

3 2 . 4 %

3 5 . 2 %

3 9 . 0 %

Net debt to adjusted EBITDA3 2 . 1 x 1 . 9 x 2 . 5 x 2 . 6 x

1 Long-term debt and notes payable minus cash and equivalents

2 Net debt plus total equity

3 Calculated using adjusted operating income, TTM, and adding depreciation

B A L A N C E D C A P I TA L D E P L OY M E N T


2 . 1 %

4 . 5 %

0 . 5 %

1 0 . 8 %

1 6 . 4 %

0 . 1 %

0 . 6 %

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

A C Q U I S I T I O N G R O W T H B Y Y E A R

0 . 5

0 . 0

0 . 2

4 . 0

2 . 6

2 . 5

1 . 9

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

L E V E R A G E R AT I O : N E T D E B T / E B I T D A

Priorities: next $1 billion of FCF

Reinvest for internal growth

Fund R&D projects

Geographic expansion

Field sales representatives

Acquisitions

Repurchase shares

Increase dividend

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