Sirona Dental Systems Exec Insights: Europe, Gross Profit Margin

On Friday, Sirona Dental Systems, Inc. (NASDAQ:SIRO) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Europe

Ross Taylor – CL King: Just a couple of quick questions. I wonder if you could comment on performance in Europe and all during the quarter and I guess in particular may be some of the larger markets like Germany?

Jost Fischer – Chairman and CEO: Ross, this is Jost. Germany continues to do well and we are pleased with the performance there and we were up in the quarter. We will face a tough comparison here in Q3 as the prior year quarter was very positively impacted by orders from the IDS. The picture is different when you look at the other European countries. It’s kind of a mixed bag. The countries that have been in the headlines like Spain, Portugal, the U.K. and Ireland continue to be relatively weak, but these markets will not make a big difference to us one way or the other, U.K. slightly improving. France and Italy remain relatively stable. The central European countries and the Scandinavian countries are doing file. All in all we remain cautious about the development in general.

Ross Taylor – CL King: Okay, and my second last question, maybe I’m getting a little bit ahead of myself, but we’re halfway through fiscal year ’12 and just looking out the fiscal year ’13, do you think we might start to see in your financial results some margin leverage on some of the international infrastructure, sales and marketing infrastructure build that you’re doing of do you think margins maybe stay flattish on the SG&A line?

Jost Fischer – Chairman and CEO: Absolutely Ross. Our business is doing extremely well in the markets outside the U.S. and Europe and specifically led by Asia Pacific. This again was growth engine for our business in the second quarter. We have good momentum in these markets and we expect that growth to continue. So clearly our investments are paying dividend.

Ross Taylor – CL King: And actually maybe just one more question. I know you typically don’t like to talk about results or forecast on a quarterly basis, but given the very difficult comparison here in the June quarter, I mean any color you could give as to whether we could even expect organic growth to be up or down next quarter and that’s my last question?

Simone Blank – EVP & CFO: Ross, the third quarter obviously is a tough comp as Jost already mentioned driven by the orders that came though from the IDS last year. So that’s clearly something. Our second half guidance, I mean the guidance for the full year and then with that for the second half in total calls for growth and that is as much as we can tell you at this point.

Gross Profit Margin

Robert Jones – Goldman Sachs: On the Imaging segment and specifically the gross profit margin there, does the compression from the ORTHOPHOS lines reverse at some point or as this continues to grow as a percentage of your imaging mix, should we be thinking about a slightly different gross profit margin profile for that segment?

Simone Blank – EVP & CFO: In general the gross profit margin in the Imaging segment as you said is driven by mix and we’ve seen that not only this quarter also the last two quarters that because of the great success of our panoramic unit lines the 2D and also the XG 2D/3D that margins are little bit below what we’ve seen in the past, the 60% level that we’ve seen in the past. It all depends on mix. But I would say the strong growth that we had is very good for us. We’re gaining market share around the world, that’s very important. Also, we’re very pleased with every 2D unit that we’re selling because there’s on the one hand upgrade opportunity for these units to 3D and it’s a great installed base and our sales and service infrastructure clearly supported this growth. So we’re very pleased with the overall performance. Hence the development of the gross profit margins specifically will depend on the mix going forward.

Jost Fischer – Chairman and CEO: May I add, Bob, every 2D unit that we place now will be an upgrade opportunity in the future to 2D, 3D.

Robert Jones – Goldman Sachs: Got it. And then if I could just ask one on CAD/CAM as well, nice acceleration there in the quarter, and any better sense you can give us of the drivers behind the growth in the quarter, and then more importantly, the sustainability of that growth in the back half of this fiscal year?

Jost Fischer – Chairman and CEO: We are very pleased with the quarter. You’ve seen that. This quarter growth was mainly driven by our international market as we continue to benefit from investments and sales and service infrastructure. Overall, nothing has changed. The business grew at 11% CAGR over the past five years and up 15% last year. We have some variability in the quarterly growth rates as you know. Our debt long-term; we continue to believe this is a double-digit grower, with a significant opportunity to penetrate. There’s still lot of runway left for us, and with the recent production of CEREC Guide, that will be another factor of helping the penetration of Sirona.