Good day, ladies and gentlemen, and welcome to the Q1 2019 Dentsply Sirona Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for this conference call, Mr. John Sweeney Vice President, Investor Relations. You may begin.

Thank you, Kevin, and good morning, everyone, and thanks for joining us today. Welcome to our first quarter 2019 earnings conference call. I'll remind you that the earnings press release and slide presentation related to the call are available on our website at www.dentsplysirona.com. Our earnings call presentation and many of the numbers discussed today will be non-GAAP financial measures and there are reconciliations provided in our press release and in our earnings deck. But before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's conference call, we'll make certain predictive statements that reflect our current views about the future performance and financial results and we base those statements on certain assumptions and expectations of future events that are subject to risks and uncertainties. Our most recent Form 10-K and Form 10-Q list some of the most important risk factors that could cause actual results to differ from our predictions. And with that, I'll now turn the call over to Don Casey, Chief Executive Officer, Dentsply Sirona.

Thanks, John, and thank you for joining us on our earnings call. We're going to cover two areas today. The first is the performance for the recently completed quarter, the second area is to provide an update on how we are executing against the restructuring plan we provided in November. As we will discuss, our performance for the quarter was solid. We're also pleased to report an important progress made in delivering against the plans we laid out. The organization continued to work aggressively to delivery for our customers, partners, employees and our shareholders. Let's start with a brief review of our financial performance for the quarter. As you can see on slide 6, internal growth was 3.9%. This was driven by a faster-than-anticipated ramp up in production of PrimeScan. This acceleration allowed for stronger-than-anticipated sales for the quarter and led to robust Technology & Equipment sales in the U. S. and Rest of World. In the first quarter, we had to an adjusted operating income margin of 15.6%, up 110 basis points as compared to prior year. And this in turn drove a first quarter adjusted EPS of $0.49, up 9% as compared to the prior year. Operating cash flow was $29.3 million, lower than last year, mainly due to restructuring and legal settlement charges and the timing of cash flows. I will now hand it over to Nick, who will review of our financials and outlook for the remainder of the year.

Thanks, Don, and good morning, everyone. We reported across two segments, Consumables and Technology & Equipment. As we previously told you, in the first quarter of 2019, we changed our two reporting segments to align with how the newly structured organization works. Orthodontics and Instruments moved from the Consumables segment into the Technology & Equipment segment and lab move from the Technology & Equipment segment into the Consumables segment. The segment information we are reporting today reflects the revised structure for all the periods shown. Looking at slide 8, our Consumables segment accounted for 45% of our revenue for the first quarter and represents a diverse portfolio of products that provide steady growth and stable margins. In the first quarter, consumable revenues ex-precious metals were $414 million, down 4.9% as compared to the prior year and down 0.6% on an internal growth basis. Consumable revenue growth was impacted by one less selling day in the first quarter of 2019 causing a 1.5% drag on growth rate. We saw strong consumer growth in Q4 of 2018, so the relative lower growth in the first quarter may reflect some normal quarterly variation. Consumable margins declined 80 basis points as compared to the prior year to 25.5%. The reduction in the Consumable operating income margin was due to higher supply chain costs versus prior year. On slide 9 we highlight our Technology & Equipment segment which accounted for 55% of revenue in the first quarter. Our T&E segment has unique digital capabilities that are proven transformational in dentistry. This segment also includes our Wellspect HealthCare business. First quarter T& E revenues were $521 million, up 2.1% versus prior year and up a healthy 7.9% on an internal growth basis. All of our T&E product categories, equipment and instruments, digital, implants, and health care…

Thanks Nick. In addition to our financial results, I wanted to provide an update on the progress we are making on our restructuring and how we are positioning Dentsply Sirona for sustainable long-term growth. Our restructuring plan is focused on accelerating growth, improving margins, while simplifying the organization. The foundation of that plan starts with creating a compelling vision for the company and building a world-class solution team. Significant progress is made during this quarter in several areas. Our strategy is provided on slide 15 and it is designed to take advantage of Dentsply Sirona's unique assets and position in the market. Our success will also rely on providing singular leadership to the organization. Over the last months, new talent has been added to augment proven leaders and the company is now operating against our new model with clear direction and accountability. These changes have been important and the organization feels it. The energy and commitment I've seen on our major trade shows like IDS and on a recent trip to Asia and participating in multiple kickoff meetings has been great. In addition to our strategy, slide 15 outlines our key priorities of the restructuring. Our most important priority is to build the foundation for sustainable growth. That foundation is built around innovation, clinical education, expanding in the growing markets, and salesforce effectiveness. Given the importance of growth I would like to review the progress we are making against each of these initiatives. Moving now to slide 17, you will see that innovation is critical to growth and accelerating it has been a major priority of this leadership team. As part of our restructuring we've made a change in our approach moving from a bottoms-up individual SBU approach to R&D -- to a portfolio approach. The company now looks across…

[Operator Instructions] Our first question comes from Tycho Peterson with JPMorgan.

Hey, thanks. Maybe I'll start with Consumables. I think backing out the Easter headwind; they were still only up about 1% versus down 1% and 1.3% comp. Can you maybe just talk to that dynamic a little bit more? I know you called out some IDS impact, so just curious what's your view on Consumables right now?

Thanks, Tycho. A couple of things. Whenever we have one of the businesses that that isn’t performing at where we expected, we spent a lot of time looking at it. But I tell you around Consumables, right now a couple of things. First, we're very comfortable with where we are forecasting for the year. As you mentioned -- look IDS, we had some products that we are launching that actually gets shift in the back half of the year which we think we'll give some good momentum there. We noted that there was a day that was different year-on-year. As you really peel it back, one of the things that we keep focused on is what are we to be to develop plans to accelerate it and whether its new products or whether it's things like our SFE program. We're pretty optimistic that we will see good momentum around Consumables as we get through that the year. And Tycho the one thing I point out -- and we don't talk about this enough, but I was trying to put it in script as rest of world. I mean right now our rest of world Consumables business has grown 4%. We're seeing good margin there. And as that continues to grow and become more important to our overall business, we see an opportunity a little bit of momentum there. So, Consumables, we're very focused on it, comfortable with the year. I think we've got plans in place and we'll go from there.

And then on PrimeScan, obviously, good traction out of gate here. A couple of questions here. Just as we think about the Omnicam upgrade path, if you could touch on that. And how should we think about PrimeScan drive the incremental CEREC sales, are you starting to have some of those discussions?

Yes. I mean, I would tell you our priority right now on PrimeScan is to make sure that we are selling whole systems and we are bringing new doctors into the CEREC Doctor. Community. I mean that's been the priority. And to-date, we've seen good success. We've been gratified also that a lot of our current CEREC doctors have wanted to come back and update their whole system. But look right now we are seeing very, very good sales around PrimeScan. We're going to evaluate whether we want to do an omni-upgrade in the back of the year. At this point, we have not made that decision. But as we see how the year plays out and we see what demand is versus our ability to actually produce this, we'll make that decision as the year goes on. But right now we're pretty happy with what we're seeing in terms of the mix on PrimeScan versus -- the full unit versus DI and we're also pretty happy with what we're seeing in terms of incremental doctors coming into the community.

Okay. And then just one quick one for Nick before I hop off. The operating margin forecast, you kept it unchanged despite the upside in the quarter. Was there any kind of pull-forward on some of the cost actions or why didn't operating margin targets come up a little bit?

Yes Tycho. Thank you. We feel pretty good about the full year number. Q1 was really good. There's some timing on expenditures that we expect now to happen more in Q2, Q3. So, overall, pretty good feeling on the outlook and the plans to reduce the OpEx to the lower level versus prior year.

Okay. Thank you.

Our next question comes from Steven Valiquette with Barclays.

Thanks. Good morning guys. Congrats on the results. Just a quick question for me around PrimeScan as it relates to clear aligners and interoperability with other third-party software and case submission capabilities. I guess more specifically just want to hear more about how you balance the strategy of using PrimeScan to drive sales of your own clear aligners versus just maximizing sales of PrimeScan itself by just aligning for the case submissions in relation to competing clear aligner products like in Invisalign. Thanks.

Yes. Again thanks for the question. From a strategic standpoint, we decided that the best thing we can do is focus on what is best for the dentist. And basically what our KOLs and everyone is telling us is look, keep the systems open and we are committed to doing that. And whether that's our mill, whether that's our DI units or other things, we believe that's the right way to go. In terms of -- and I know you've seen some of this stuff, if you're Midwinter or you’re at IDS, it was interesting how we put PrimeScan and then you could not leave the PrimeScan display without going in and seeing SureSmile. And we launched new software there at both Midwinter and IDS. And it’s a very good reaction. Our GP software has been very, very well received. And right now we feel very good that a year after its acquisition, we're in a position that we're going to be able to rollout SureSmile. We feel pretty good about the fact that it's root to crown program. We feel -- the fact that we were able to integrate PrimeScan with that software right out of the gate is indicative of how we want to run Dentsply Sirona in the future.

Okay. The other quick question here just on PrimeScan sales in the quarter. Just hoping to hear hopefully on a confirmatory basis that you have strong visibility placements into the actual end market versus how much of your sales in the first quarter here was just driven by sales into the distribution channel. Just hoping to hear that there's overly strong correlation on end market placements as well.

Yes. I think after 2018, one of the priorities we came out, we've got to be focused on inventory movement down to the weak. And we feel, particularly in the U.S., with our dealer partners that we had extremely good visibility. And we feel at this point right now that there is not an inventory build at all. Actually -- and talking to the dealer partners, right now, we are in enviable position of -- this stuff is moving very, very quickly and we're actually working aggressively to make sure that they have enough products in all their districts to actually be able to demo. So, right now, the product is moving very, very well. There has not been an inventory build and one of the systems that we really feel strongly that coming out 2018 is we've got to have visibility into the Technology & Equipment inventory down to the weekly and daily basis we do have that.

Okay, that's helpful. Thanks.

Our next question comes from John Kreger with William Blair.

Hi thanks. Question about Europe. I think typically coming out of IDS; you'd expect kind of a surge of equipment sales in Q2 and Q3. Are you expecting that this time around?

Yes, John, IDS is interesting. We're starting to look at it based on what we're seeing is almost a bifurcation where it's become a shopping event and not as much of a buying event. And I know you guys are there. Look, we feel extremely good about the fact that we had 160,000 dentists from around the world that we were able to launch our new products to, whether that's PrimeScan, whether that was Surefil, whether that was SureSmile. I mean we had nine major launches. TruNatomy, we introduced a imaging system that's particularly appropriate for Europe. So, we feel the audience there was great and lots of hands on experience. What we are seeing though is look they were shopping, they're learning about the products and we expect that we will start seeing buying patterns spread out through the year as opposed to looking at IDS as a specific buying event. As we've gone back and looked at it and what we're hearing across the market that seems to be pretty consistent with what we're hearing. So, look we think IDS was really important to us. If you look at 2018 and the lack of new products we had and compared that to 2019, we were kicking off what we think is a very aggressive portfolio. The fact that we were able to lean and really talk to -- almost 20% of the dentists from around the world show up at that event in one shot. We think that's important to us. And look I think sales will take care of themselves over the rest of the year and particularly when we launched some of the Consumable stuff that we're not even shipping to the third and fourth quarter, we're going to see somewhat of a delayed impact on that. But we felt good that IDS was a good launch platform. I think in the future, it's going to be interesting to watch whether that becomes more of a shopping event than a buying event.

Interesting. Okay. Thank you. And then one other follow-up on your salesforce effectiveness comments. It sounded like you wrote-out the new structure in the U.S. in the first quarter. What should we be thinking about in terms of other major countries and when you'll be moving forward with that?

Yes. Right now the next on the docket is the dock which what we refer to Germany, Austria, and Switzerland. We're in the process of moving that in China. China and dock are both kind of Q2, Q3 and Japan is -- we're in the process of putting the foundation down. That will be a kind of back half of the year into 2020 event. In some of the other regions, particularly in Europe, we tend to look at that as kind of third quarter event, but right now, the biggest thing for us John is obviously U.S. is a really important market for us. We did that late in the quarter and got everybody in swim lanes now. The nice thing about salesforce.com is that we can see how fast things are moving and we can monitor that. So, a lot of change. So far we're happy with what's going on. But look we're going to watch that like a hawk over the next two quarters and we'll roll it out -- what we learn in the U.S., we can also spill out in the rest of the world.

Great. Thank you.

Next question comes from Erin Wright with Credit Suisse.

Hi, this is Erin. So, going back to a little bit of a previous question here, but on the distributor stocking versus end market demand trends and the impacts sort of the quarter, I guess should we continue to see the momentum quarter-to-quarter on the equipment side? Or should we see some volatility or lumpiness there normalizing for the destocking that happened last year? Just want to make sure that there are no surprising or air pockets due to distributor stocking, particularly as it relates to the PrimeScan launch. Thanks.

Yes, thanks Erin. We don't like surprises. Let's -- and we really don't like air pockets. So, look as we laid out our guidance for the year, we feel that first, we have to take into account a very significant change and how inventories was managed at the dealers in the -- beginning in the second quarter, rolling through the third and fourth. We feel we understand that and it's reflected in what we're reflecting in our guidance right now. Look I would tell you the positive surprise was we got more machines than we thought which abled us to get off in the first quarter. And I'm telling you we're very happy with the response and to be honest, the response has been a little bit stronger than we thought coming right out of the gate. As we looked in the back half of the year, we don't see big changes in terms of dealer destocking or other things. I think it's been a challenge for us to just make sure that we correctly model the inventory destocking and what that impact looks like on comparative quarters. But we feel that we've done that and reflected in the guidance.

Okay, great. And then can you speak to the strategy around continuing to sell Omnicam as well as a PrimeScan, assuming that they are marketed at somewhat of a tiered offering? Could you speak to the opportunity on that front? And how that strategy will play out? Thanks.

Sure. In the short-term, we don't have PrimeScan approved all over the world, so we're still waiting for registration in critical markets. So, Omni will continue to be an important product in several parts of the world where it might be a year plus before we get the registrations. And then second, a year ago, we were not competing in the DI business. I mean sure, CEREC had done a lot and it had DI capabilities, but one of the strategic changes that I credit the team for making is, this market is growing. It's important and we believe DI is de facto going to become a standard of practice in the dentist office and we better compete there. We feel right now that we're offering multiple price tiers with different performance and right now, we're committed to that strategy. What we're seeing -- and again, we've been very gratified is that the capabilities of PrimeScan just the ease of use -- Erin, I know you've actually used this, this product is really, really good product. So, we're going to continue offering Omni. We may have gotten the Omni/Prime mix off a little bit, but Omni will continue to sell and make Omni, it's important the rest of the world, we're going to make it available in this market. So far though we've been seeing people are really, really excited about the new product.

Okay, great. Thank you.

Our next question comes from Jeff Johnson with Baird.

Hi guys. This is Jason on for Jeff. Thanks for taking the question. I just wanted to start on orthodontics, just didn’t hear a lot of commentary on that business and how it performed broadly. So, if you can provide any color on how that business is running, especially with the SureSmile clear aligner and then give any metrics on how that's been staring in the really in dental community.

Yes. Thanks Jason. We're pretty happy with our performance right now. We're not giving a lot of specifics to it. But look in our mind, SureSmile was important -- first buying OR [ph] metrics which we did about a year ago, and it's taking us little while to integrate it and get all the products we need available to us. We feel we've got that. We think orthodontics will be a future story as opposed to what's going on in the last quarter. But we've been happy with the ortho performance and we're excited about the opportunity that's in front of us. And in terms of metrics, it's -- we're not going to provide a whole heck of lot around it. But I would tell you that both among orthos and generalists that do some ortho procedures, the reaction has been very positive for SureSmile. And the nice thing for us is when you actually show PrimeScan and you show the software, it works pretty well.

All right. Just one quick follow-up there. F I may ask a second question I mean, did orthodontics to grow in the quarter or are you not going to provide that level of detail?

Jason ortho is performing well, it's not just material in terms of its scale and certainly -- or metrics. It was a relatively small revenue business, but strategically, it's very important, particularly, when you line it with our scanner equipment business. So we're pleased.

Okay. And then shifting over to implants. How you're thinking about the growth of the implant business this year is as Straumann just started rolling out a new premium product in the past month or so, Danner has a new material coming later this year. Our [Indiscernible] is just Danner reps have been especially aggressive here in recent month ahead of Straumann BLX launch. So, we're just hoping you can comment on your implant business and competitive position in light of what's unfolding in the market?

Nick mentioned in his script that we saw positive growth on the implant business in the first quarter and we think we have an opportunity to see that for the rest of the year. I would tell you that -- I would love to see our implant business accelerate. I think we've got the pieces in place. We've got brands. We've had some good launches at Azento, less about material and more about focusing on dentists. We have also our MIS business, which we’re seeing good reaction to, which is kind of value playing with that generalists. So look we are happy that we saw implants grow. I think we have more opportunity there as we go forward and as we look out at the year, we expect implants to be a positive on this share.

Okay. Thanks guys.

Thanks, Jason.

Our next question comes from Michael Cherney with Bank of America Merrill Lynch.

Good morning and thanks so much for the question. Just thinking more about Consumables, and more of a medium-term question versus short-term question. When you think about your performance this quarter versus what you look at for the rest of the year and the multiyear plan, I guess Don how do the conditions of the market have to change for things to move to the upper end or potentially above your long-term targets versus what would have to happen from market perspective for you to come in at the low end or below the long-term targets relative to consumers growth it in particular?

Michael, I actually don't think it's a market issue. I actually think the Consumable market has been relatively steady and one of the things our analysis has been showing is if you look at the Consumable business, which we all portray as is incredibly reliable, consistent business, on an annual basis it's relatively consistent. There's a little bit more movement quarter-to-quarter. We spent a lot of time looking at quarterly movements and it's almost as if you get a positive quarter and then you see a little softness. So first, I don't think it's a market. I think the underlying market is fine. And by the way, I've mentioned in my script and I'll mention it again, we get excited about -- when we're out looking at our Consumable business in places like Middle East, Eastern Europe, China, Brazil we're seeing high single-digit growth. And we feel good about that. The second reason that we talk about two to three as an important number for us is we've got a fair amount of new products that are coming in the back half of the year. And we showed them at IDS where there’s stuff like short anatomy and some of our lab introductions, we feel we have an opportunity to get after putting some innovation in an area that has not seen as much innovation. And just the last point I'd bring up, one of the reasons that we've been so adamant about things like sales force effectiveness is, we believe that we've got a percent Dentsply Sirona, the company and the portfolio to the dentists and the biggest change and how we’re approaching the dentist is we are now approaching them as Dentsply Sirona, which we think will have a positive impact on both the technology and equipment and the Consumable business, because we’re now showing how we can help them on a broader procedure basis. So look Consumables, obviously, judging by the questions, Consumables is on people's mind. We -- I just hit it one more; we’re comfortable with where we think the year is. Long-term we do think it's a 2% to 3% grower. We like our new products and some of the plans we have put in place. And we're comfortable with where Consumables are.

That’s all for me. Thanks.

Thanks, Michael.

Our next question comes from Nathan Rich with Goldman Sachs.

Thanks for the questions. Don, maybe starting on PrimeScan, can you talk about how the selling cycle for DI would compare to kind of the full CAD/CAM system as we think about how demand might ramp over the course of the year? And then how do you feel about the manufacturing capacity that you guys have right now in order to meet the level of demand that you're seeing?

Yes. DI is shorter than full chairside. I think it's an interesting question for us. I think this IDS was really important as you saw a bunch of scanners launched. The fact that the products have gotten as easy to use as they are I do feel you're finally going to see that transition into much more digital dentistry where people are going to basically look to scan every patient when they come and that way you can show longitudinal, you can show gun progression and few other things. So we think DI is shorter then full chairside and we think that the wave will happen relatively quickly which is why we made the strategic decision we've got to jump into DI. That being said, we're pretty darn happy so far with the fact that with the ease of use of PrimeScan coupled with our entire chairside system, we are bringing Dennis who may have been on the fence into the fold. And we're seeing a good pickup of whole systems. In terms of manufacturing very -- look to be 100% honest, I'd like love to have a couple of more these things right now. But we're very -- we feel good that the pace that's ramping up in the second quarter is going to allow us to meet all the demand that we see from the marketplace right now. So credits to the team to accelerate some of the availability that availability is ramping very, very quickly. It's important for us to maintain high quality as we do that ramp and we've been insistent on that. But we feel by -- for the year, we have all the capacity we need. We feel really good about that capacity as it plays out the second quarter.

Okay. Great. And then a Nick a couple of follow-ups for you. Do you size the pulled forward that you saw on technology growth in the quarter from the stronger-than-expected equipment sales? And then my second one is just on these savings will you be willing to share kind of the run rate that you are at after 1Q. And is $60 million of savings still the right target for this year?

Okay. So on the last one Nathan 60 is still the target. We feel very good about the restructuring plan. It is more back-end loaded, but we started seeing savings and we have carryover of savings from last year. In terms of run rate SG&A, we feel good as I said earlier to Tycho's question that we're going to end up the OpEx below prior year just the timing of some of the expenditures and savings given the multinational elements of the company are hard to predict, so overall pretty good about it. And it's hard to quantify the exact amount of pull-forward of equipment in Q1, but there definitely was -- midwinter was a good lunch for PrimeScan. And we had the production accelerated and we saw some of the quarter, but as Don said we're really producing to real demand and feel pretty good about the momentum through the results of the year.

Great. Thank you.

Our next question comes from Jon Block with Stifel.

Great. Hey, good morning guys and thanks for taking the questions. Maybe two for me. The first one will just be the pricing pressure that picked up in the industry really in 2018 I think notably around imaging Nick or Don has that moderated or stabilized? I'm just curious of that sort of tracking according to your expectations and early 2019 Nick, just want to find out a little bit more about competitors and their rationale behavior out there. And then I've got a follow-up.

Sure, John. Thanks for the question. On it's almost two questions there. Is it tracking to our expectations? The answer is yes. When we look out at 2019 and putting a forecast together, we anticipate that there was going to be a pricing pressure on imaging. That being said, as we look at imaging, we made some significant changes particularly in the North American market and how we manage promotion to become more competitive in the first quarter of 2018. And we are now in the process of lapping that. So – is there pricing pressure going on in the imaging market? The answer is yes. Is it tracking to what we thought it would be and have we taken into account? The answer is also yes.

Okay. Got it. And then just to go back to some PrimeScan comments. When you say the mix was off, can you just – maybe get a bit more granular. In other words, in the markets where you have both offerings approved is to say, I'll throw out number, is it 80, 20 PrimeScan Omni split? And if it's skewed heavily towards PrimeScan maybe just comment on the dentists behavior. In other words their willingness to spend an extra 10 or 15k for high-end DI's since maybe it's used continuously at their practice for our range of restorative procedures? Thanks guys.

Yes. Thanks, John. I'm not going to give you specific a break on what the forecast was for Prime versus Omni. My comments stands though. We've sold to a more Prime than we thought. And obviously, that's going to be cannibalized Omnicam. The nice thing for as with Omni production is it's still a great camera and it stole sold in the rest of world. So we will be able to manage that. And you hit the nail on the head, what we conceived from dentists and whether it's a new dentist or whether it's actually a set of doctors that's been using Omni, the cameras really get. And basically, how we're selling it and what here being very responsive to it this is a product that they're going to used for five to six years. And when you actually look at the capabilities that a product and the durability by the way, we've done stuff like making the sanitization of it a lot easier, the touch screen just makes it – the entire thing we feel offers terrific value particularly when you measure relatively modest difference over the course of three to five years. So we're very happy with the products. We're very happy with where we are right now. And one thing, I would stress to you also on PrimeScan. PrimeScan is not something that – by the way we're going to launching Primescan – that's the last thing that you're going to see for PrimeScan from the next five years we’ve really feel it’s a platform that we can incorporate a lot of things. I mean, when you start putting a 24-inch touch screen that can roll into every dentist's office we get pretty excited about the things that we can do.

Our next question comes from Brandon Couillard, Jefferies.

Thanks. Good morning. Just a quick one for Nick. Just if you could elaborate on the first quarter OpEx push out exactly what's that’s tied too and if you can sort of quantify how that that benefited the first quarter specifically? Thanks.

Yes, Brandon. I mean, we're kind of anchoring on Q2 last year and same will be below that, but obviously above Q1. There are expenditures for sales force investments. Other work that we're doing to implement the restructuring data from a timing standpoint slipped into more Q2-Q3. So I would range it if you look between where we ended up Q1 and where we were last year, is kind of the range that might slip into Q2-Q3 impact. That's how I'd say it.

Great. Thanks.

Our next question comes from a Kevin Caliendo with UBS.

Hi, guys. Thanks for taking my call. I want to go back to Consumables really quick. Do you guys think that you're growing faster than the market? And I know you talked about sort of rest of world Consumables being up and that would imply certain negative U.S. market for Consumables. Is that a fair comment? Like how should we think about your positioning, you'd expect 2% to 3% with some product launches. I'm assuming you're growing a little faster than the market. In that case, is that fair?

I'd say in this quarter, at retail we're probably growing at market and we'd like to see that accelerated. I would say based on our shipments right now, we're probably just a scosche below.

Okay, great. And on the -- on PrimeScan, I know there's been some question about you being validated by Align and the timing of all that. Is there an expectation that if and when that were to happen, that would accelerate sales of PrimeScan? Are you expecting down in any way, shape or form? Or how should we think about that, if and when it were to – if it when – if and when it were to happen much later this year, at some point in the future?

Yes. I mean if it happens, it's a positive for us. We – at first, we have a very good working relationship with the folks that Align. And we made a request and we're waiting their answer. And, obviously, Align is going to do what's in the best interest of Align. But your point is, it would be upside if we in fact didn't see that validation came across.

Great. Thanks so much, guys.

Thanks, Kevin.

Our next question comes from Glen Santangelo with Guggenheim.

Hey, guys. Thanks for taking the questions. Nick, I just want to unpack some of the comments that you made on margins in your prepared remarks. If you back out the impact of the restructuring initiatives for a second and you sort of think about your two businesses of Equipment and Consumable, I thought you kind of made it sound like, the upside margin really came from stronger equipment in particular PrimeScan and maybe some of that was mitigated or offset. I think you said 80 basis points of the decline on the Consumables side. Can you maybe just give us a little bit of color, sort of, on your gross margins? And maybe what's going on there with respect to mix? And what are some of the puts and takes on that?

Yes. I mean, there's a whole -- Glenn, we saw better margins as we've ramped up production. If you look at inventory in Q4 versus our Q1, we certainly produced more and that truly makes for better margins in the business. Certainly, the technology and equipment mix was favorable. And that certainly helped. I think, overall, we had at good mix of business. On the Consumables side, you compared to prior year, we did have higher supply chain cost, but right now we're looking at a full year of restructuring that's going to be kick in Q2 to Q4 where we'll see the benefit. So year-over-year comparisons still aren't positive on the Consumables, but we expect them to be. On the total year basis, we're very much on the plan that we outlined from a margin standpoint. A little bit stronger in Q1 than we expected.

And maybe just as a follow-up to that margin question, just sort of looking out to the balance of the year, maybe a little bit longer term. Earlier in the Q&A, you sort of talked about the price competition on equipment but could you maybe talk about the growth in DSOs in the business maybe the evolution of the distribution channel and supply chain issues that you're talking about, are there any sort a big trends that you think are worth calling out either positive or negative that we should think about it in your margins going forward?

Yes. I'll comment on the margin, and I'm sure Don has got some thoughts on the market. But overall, we don't see any change in our margin profile because of anything going on in the channel and we continue to have a good relationship with both our dealers as well as our DSOs.

Yes. And look obviously the DSOs are making significant progress in the marketplace and we feel that we're working really, really well with them. One of the reasons that we're centralizing our supply chain is the anticipation that as a swing shift that we want to have a good solid platform where we can make sure our costs are in line. So look, long-term we've seen the emergence of value segments. We want to be able to be very, very competitive in those and we’ve work to do to get there. But right now, it's very interesting. When we can show what innovation can do in terms of mitigating pricing pressure. And in my mind one of the reasons that we spend as much money as we do in R&D and I really want to make sure that the organization is as sufficient as we can be is you bring in real innovation and this category is going to reward it.

Okay. Thank you.

Thanks, Glen.

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

Thank you for taking my question. Given the strong growth trend in China and Latin America, would you say that the overall growth rate for rest of world revenue in 2019 could be above the growth rate in the U.S. and Europe? And also could you clarify whether the destocking has occurred in all geographic areas or just in certain countries?

Yes. I'll take the second first, it’s Nick. The destocking is pretty much out of the system on equipment side as we mentioned and we monitored it very closely. It was mostly U.S. issue, but actually in the end of the year, we destock even more than we expected in the European markets. In terms of mix rest of world is strong -- growing stronger for us. Don has identified some of the markets where we're making investments, but I think we are also expanding in other markets within those continents, certainly, Asia, as an example. So rest of world will be higher growth rate than certainly North America and Europe as a whole.

Thank you.

Thank you.

Our next question comes from Jason Rogers with Great Lakes Review.

Yes. Just a question on guidance. You talked about a lot about of positive today Primescan surprising to the upside, headcount reduction is coming in faster than you thought, distributor inventory is potentially low. Just with all that interested in why you kept the top end of your EPS guidance the same? That just general conservatism given you’re early in the restructuring? Or is anything else out there that may give you some caution?

Yes, Jason, overall we feel good about the year. We obviously feel good about the quarter as well. I did note our effective tax rate is a little higher based on a refinement of the geography of the earnings. And FX, which is a bit of a headwind with the strong dollar. So you do have other factors that Jeff included. But overall right now we're early in the year with a quarter behind us and we felt good about tightening the bottom range and I expected full year results to be on plan.

Okay. Thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to John Sweeney.

Thank you very much for joining us today and we're very happy with the progress of our restructuring and how we're performing. We look forward to catching up as we move forward and keep you updated on our progress as we move through the year. Have a good day.

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