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Dentsply International Inc  (NASDAQ:XRAY)
Q1 2019 Earnings Call
May. 03, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Operator: 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.

John Sweeney -- Vice President of Investor Relations

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 an earnings press release and slide presentation related to the call is 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 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 those 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.

Donald M. Casey Jr. -- Chief Executive Officer

Thanks, John, and thank you for joining us on our earnings call. We're going to cover 2 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 are also pleased to report on important progress made in delivering against the plans we laid out. The organization continues 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 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 our financials and outlook for the remainder of the year.

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Thanks, Don, and good morning, everyone. We report across 2 segments, Consumables and Technology & Equipment. As we previously told you, in the first quarter of 2019, we changed our 2 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 moved 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 1 less selling day in the first quarter of 2019 causing a 1.5% drag on growth rate. We saw a strong consumable 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 healthcare, showed positive year-over-year growth during the quarter. Our strongest growth came from our digital products, which benefited from a successful launch of our Primescan CAD/CAM digital impression scanning system. In addition, our revenue growth rate reflects $8 million of equipment destocking in the prior year quarter.

I'm particularly pleased with our Wellspect business, which saw growth in high single digits and implants, which turned in a positive performance. Technology & Equipment operating income margins were 13.8%, up 40 basis points as compared to 13.4% in the prior year quarter driven by higher volume and our portfolio-shaping initiatives.

On Slide 10, we look at our business performance on a regional basis. U.S. revenues were $312 million, up 7.4% compared to the prior year and up 6.4% on an internal sales growth basis. We experienced double-digit growth in our Technology & Equipment segment driven by strong CAD/CAM sales and the impact of prior year dealer inventory destocking and positive growth in each of the T&E product categories.

Consumables sales were down slightly, partially driven by 1 less selling day. European revenues were $387 million, down 7.3% compared to the prior year and roughly flat on an internal growth basis. Two factors impacted European revenues: dentists held off purchasing dental equipment in advance of the International Dental Show in March and stronger fourth quarter 2018 Consumables sales may have impacted our first quarter 2019 performance.

Rest of World revenues were $236 million, down 0.7% compared to the prior year but up 8.1% on an internal basis. This solid revenue growth was driven by our investments in expanding our footprint in these faster-growing international markets. Rest of World also benefited from mid-single-digit growth in our Consumable category.

We have our consolidated non-GAAP P&L on Slide 11. Revenues, excluding precious metals, were $935 million, down 1.1% but up 3.9% on an internal growth basis. Total company revenue growth was driven by strong sales of Technology & Equipment. Gross profit was $540 million or 57.8%, down 20 basis points as compared to the prior year. It should be noted that on a sequential basis, gross margin improved 340 basis points as compared to the fourth quarter of 2018.

This was driven by more favorable mix, net pricing and our portfolio-shaping strategy. Total operating expenses were $394.6 million or down 3.9% as compared to the prior year. Foreign exchange drove the decline in SG&A. But even excluding exchange rate fluctuations, operating expense would have been roughly flat year-over-year. This represents a significant turnaround in operating expense trends, particularly since our first quarter 2019 OpEx included $8 million of spending related to the IDS dental show in Germany.

The SG&A improvement was principally due to our restructuring, lower headcount and our ongoing cost-reduction initiatives. OpEx, as a percentage of sales, was 42.2% in the first quarter of '19, which was down 120 basis points as compared to the prior year. Adjusted non-GAAP operating margin was 15.6%, up 110 basis points over prior year driven mainly by the SG&A improvement.

Our tax rate for the quarter was 24%, up as compared to our prior previous guidance. The increase in tax rate was due to increased percentage of earnings from higher tax rate jurisdictions. First quarter EPS was $0.49, up 9% compared to the $0.45 in the prior year quarter. Slide 12 shows that cash flow from operating activities for the first quarter was $29.3 million, down 47% versus prior year. The main reason for the reduction in operating cash flow was due to restructuring and legal settlement payments, investments in the business and lower cash from receivables as compared to prior year mainly a function of timing.

We had capital expenditures of $33.9 million in Q1, down slightly as compared to prior year. As we look forward, we anticipate the unfavorable cash flow timing to reverse and our cash flows to strengthen. As previously mentioned, we anticipate reducing working capital in 2019. Moving on to our fiscal '19 guidance. We are reaffirming our revenue, gross profit margin and operating income margin guidance for 2019. We are revising our effective tax rate guidance to 24% from previews 22.4%. And we are narrowing our range of our adjusted EPS guidance to $2.30 to $2.40.

With respect to the quarterly phasing in 2019, I would note that the first quarter came in stronger than we previously anticipated. This was due to several reasons. We have achieved a faster-than-anticipated ramp-up in production in sales for our Primescan units, and those boosted revenue and margins in the first quarter. Our Healthcare business was exceptionally strong in the first quarter of 2019.

And finally, we had some planned first quarter operating expenses and investments that we now expect to occur in the second and third quarters. Consequently, looking to the second quarter, we anticipate that our internal revenue growth rate versus prior year will slow slightly relative to the first quarter due to the pull forward of equipment sales in Q1. We expect our second quarter gross margins to be similar to our first quarter gross margins, and our second quarter SG&A will be slightly down to the prior year.

Net interest and other expense will be higher in the second quarter as we had a $6 million benefit in Q1 versus prior year that may not recur. We are very pleased with the performance of our business and the implementation of our restructuring efforts, which are yielding growth and margin improvements. I very much value the commitment of our employees around the world.

And with that, I will now turn the call back over to Don.

Donald M. Casey Jr. -- Chief Executive Officer

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 leadership team.

Significant progress was made during this quarter in several areas. Our strategy is provided on Slide 15, and it's 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 sales force 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 our entire portfolio and can prioritize the most compelling innovations. This will allow us to focus on accelerating important initiatives based on the opportunity or competitive dynamics. We started to see results from this approach in the first quarter. We successfully introduced a broad portfolio of new products starting at the Chicago Midwinter event and highlighted by the March IDS event in Cologne, Germany. The fact that we were able to prioritize Primescan and accelerate its launch into the first quarter shows the importance of this approach.

And as Dentsply Sirona is committed to leading the category in R&D investment, we believe this approach will be critical going forward. One of the really compelling products that was highlighted at IDS as well as the Midwinter event was Primescan, as shown on Slide 18. Primescan is a digital impression scanner that is lightning fast, easy to use and takes extremely high-quality digital impressions. At these events, novice dentists learning to use Primescan at our booth, and then scanning both top and bottom arches in well under a minute. And Primescan is a truly open platform.

So we now had a DI system that can create high-quality digital impressions that can be used by all the major lab-based manufacturing systems. Primescan is an important innovation in the CAD/CAM area and should help us drive additional penetration of chairside dentistry. But we also believe that Primescan will allow us to compete in the rapidly growing DI segment. Its unique characteristics will really accelerate digital workflows and allow us to take full advantage of our ortho and implant portfolios. The reaction from the dental community has been very positive.

And as Nick mentioned earlier in this quarter, thanks to terrific work by our CAD/CAM team, we were able to accelerate the availability of the product allowing us to get off to a faster-than-expected start to the year. Our innovation story this quarter does not end with Primescan. At IDS, Dentsply Sirona had a global launch of our new SureSmile aligner software. SureSmile aligners and the planning software deliver a complete clinician-controlled clear aligner treatment solution. Another important launch was SureFil one, which is a breakthrough in the restorative dentistry area.

The product is -- was very well received at IDS and will be available for shipment later in this year. It delivers outstanding results while significantly simplifying workflow. We also launched the new generation of endodontic files in TruNatomy, a product designed to preserve dentin. So overall, IDS was an important platform for Dentsply Sirona to generate global awareness and a great product launch platform for us. It also allowed us to present Dentsply Sirona as a single company committed to our customers and passion about innovation. We believe this will have a positive impact over the remainder of the year.

Another critical piece of our sustainable foundation for growth is the differentiated clinical education program. Our clinical affairs team consists of an international group of employees developing educational curricula to help train dental professionals. Working with thought leaders, the academic and research communities and practitioners in their local markets, our clinical affairs team provided approximately 12,000 clinical education programs during 2018. This resulted in more than 430,000 dental professionals participating in courses offered or supported by Dentsply Sirona during the year, most of whom were dentists.

We believe that this is a long-term differentiator for us. Moving on to Slide 21 and sales force effectiveness. In past calls, we have discussed the importance of making sure that the major investment Dentsply Sirona makes in sales and marketing is optimized. To deliver against that goal, we completed a major analysis of the market resulting in a much more in-depth view of our customer priorities, segmentation and buying patterns. Based off that analysis, a go-to-market strategy was developed that included a major sales force effectiveness program.

Major parts of that program include: creating a common country management team, an integrated approach to sales and marketing, a common CRM platform and an improvement in targeting and call planning. In this quarter, we rolled out that program in the U.S. It involved extensive training and moving the sales people into their new roles and the rollout of our new CRM system. This is a significant amount of change, and we are very focused on managing the organization through it to ensure strong execution. The vitality in the dental category is clearly demonstrated by growth in several regions, and Dentsply Sirona is one of the leaders in this area. Slide 22 details that focused support can help us to expand in growing markets.

As Nick covered earlier, these initiatives are continuing to pay dividends, particularly as the Rest of the World grew by 8.1% this quarter and reflects the success we are having in tapping into these high potential areas. The second major priority of the restructuring plan was to take steps needed to create substantial improvements in our margin. In this quarter, we began to see the benefits of some of those steps. As this chart on Slide 23 clearly shows, we saw a progress in the first quarter of 2019. This was driven by expense control, portfolio shaping and headcount management.

I would like to provide some details on each of these. Our headcount goals are outlined on Slide 24. And as you can see, we are targeting a net headcount reduction of 6% to 8% by 2021. That will bring us down to between 15,000 and 15,300 employees from the roughly 16,300 we had in November 2018. At this point, our headcount reductions are tracking ahead of plan, and we achieved an employee target of just less than 15,600 at the end of March, and we remain on track to deliver our goals by the end of 2020. I've also mentioned the positive impact of portfolio management on the first quarter.

Starting in late 2018, we began exiting underperforming businesses, thus, reducing cost and complexity. We previously reported that we had exited SICAT, FONA and the surgical business of Wellspect. And in the first quarter, we exited the 1-800 DENTIST business. That brings to 4 the number of businesses we have sold or exited since we announced the restructuring in November of 2018. This is an ongoing effort as we assess additional candidates for portfolio shaping with a focus on improving top line growth and cost savings. Simplifying the organization was also a major priority of the restructuring.

As discussed in the growth and margin improvement areas, we have made good progress across-the-board. That work continued in the first quarter as we drove the changes throughout the entire organization. Slide 26 details the organizational changes that we are in the process of making. At this point, we have finished both the SBU and RCO consolidations, and we have discussed our new process within R&D. Our supply chain consolidation is also in process. For perspective, our supply chain has historically been run at the business unit or country level. Consolidating this will allow us to leverage critical areas for scale that include manufacturing, global planning, logistics, distribution and procurement.

Further, moving to 1 supply chain will allow for scale, improved costs and we believe enhanced reliability. We put a strong leadership team in place, and we will look to build out the supply chain organization gradually to make sure there is no disruption in customer service. As part of the restructuring plan, we have outlined our financial targets. In terms of revenue growth, we maintain our view that Consumables will have steady growth of 2% to 3%. Technologies & Equipment has returned to growth this year now that we have resolved our 2018 inventory destocking and benefiting from the launch of substantial innovations.

We are providing this level of detail on metrics for the next few years because our Board and management team is committed to increasing transparency on our plans and ultimately, our successful execution. 2019 will be a year focused on execution, and we are in the process of accelerating EPS growth in the near term as we act on cost-saving opportunities. As we've shown in our 2019 guidance, growing revenue with expense discipline gives us strong EPS leverage. Additionally, it's important for us to maintain an investment-grade rating to enable us to best utilize our balance sheet going forward.

So to close, it was a solid quarter for which I would like to thank the entire Dentsply Sirona team for their tireless work and the progress they are making. The quarter showed the importance of disciplined execution and the power of new products. There have been important tangible steps taken against the plan we have laid out. We've also said that progress against our goals will not to be in a straight line, and we are in the process of making -- managing a very significant amount of change. But I'm very pleased to see the organization rising to the challenge. They bring passion and commitment about delivering for our patients, customers, employees and shareholders every day. And we look forward to continuing to update you on the progress we are making throughout 2019.

And with that, I'll open it up for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Tycho Peterson with JPMorgan.

Tycho Peterson -- JPMorgan -- Analyst

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

Donald M. Casey Jr. -- Chief Executive Officer

Thanks, Tycho. A couple of things. Look, whenever we have one of the businesses that isn't performing at where we expected, we spend a lot of time looking at it. What I'd tell you around Consumables right now is 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're launching that actually get shift in the back half of the year, which we think will 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 doing to develop plans to accelerate it. And whether it's 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 throughout the year. And Tycho, the one thing I'd point out and we don't talk about this enough, but I was trying to put it in the script is Rest of World.

I mean right now, our Rest of World Consumables business has grown 4%, and we're seeing good margin there. And as that continues to grow and become more important to our overall business, we see an opportunity to see 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.

Tycho Peterson -- JPMorgan -- Analyst

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

Donald M. Casey Jr. -- Chief Executive Officer

Yes. I mean I would tell you, our priority right now on Primescan is to make sure that we're selling full systems and we're bringing new doctors into the CEREC-doctor community. I mean that's been the priority. And today, we're seeing good success. We've been gratified also that a lot of our current CEREC doctors had wanted to come back and then 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 half 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 the -- 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.

Tycho Peterson -- JPMorgan -- Analyst

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?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

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.

Tycho Peterson -- JPMorgan -- Analyst

Okay. Thank you.

Operator

Our next question comes from Steven Valiquette with Barclays.

Steven Valiquette -- Barclays -- Analyst

Thanks. Good morning guys. Congrats on the results. Just a quick question from me around Primescan as it relates to clear aligners and the interoperability with other third-party software and case submission capabilities. I guess more specifically, I 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 allowing for case submissions in relation to competing clear aligner products like Invisalign.

Donald M. Casey Jr. -- Chief Executive Officer

Yes, Steven. Again, thanks for the question. It's interesting from a strategic standpoint, we decided that the best thing we can do is focus on what is best for the dentists. And basically, what our KOLs and everyone else is telling us is, "Look, let's keep the systems open." And we are committed to doing that. And whether that's our mill or 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 the stuff. If you were at Midwinter or you were 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. 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 roll out SureSmile.

And we feel pretty good about the fact that it's a 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.

Steven Valiquette -- Barclays -- Analyst

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 hopefully strong correlation on end-market placements as well.

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Yes. I think after 2018, one of the priorities we came out was we've got to be focused on inventory movement down to the week. And we feel particularly in the U.S. with our dealer partners that we have extremely good visibility. And we feel at this point right now that there is not an inventory build at all. Actually, in talking to the dealer partners right now, we're in an 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 -- it's not been an inventory build. And one of the systems that we really feel strongly that's coming out of 2018 is we've got to have visibility into the Technology & Equipment inventory down to the weekly and daily basis. And we do have that.

Steven Valiquette -- Barclays -- Analyst

Okay, that's helpful. Thanks.

Operator

Our next question comes from John Kreger with William Blair.

John Kreger -- William Blair. -- Analyst

Hi thanks. A 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?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

John, IDS is interesting. We're starting to look at it based on what we're seeing as almost a bifurcation where it's become a shopping event and not as much of a buying event. And I know you guys were there. Look, we feel extremely good about the fact that we had 160,000 dentists from around the world that were able to launch our new products to whether that's Primescan, whether that was SureFil or whether that was SureSmile.

I mean we had 9 major launches. In 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 spot buying event. And as we've gone back and looked at it and what we're hearing across the market is 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 compare that to 2019 where we're kicking off what we think is a very aggressive portfolio, the fact that we were able to lean in 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 for us. And look, I think sales will take care of themselves over the rest of the year.

And particularly, when we've 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.

John Kreger -- William Blair. -- Analyst

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

Donald M. Casey Jr. -- Chief Executive Officer

Yes. Right now, the next on the docket is DACH, which is what we refer to you, Germany, Austria and Switzerland. We're in the process of moving that in China. China and DOC are both kind of -- Q2, Q3. And Japan is -- we're in the process of putting the foundation down. That'll 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 we've got everybody in swimlanes now. The nice thing about salesforce.com is that we can see how fast things are moving and we can monitor that. So we're -- 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 2 quarters and then we'll roll it out. What we learn in the U.S., we can also spill out to the rest of the world.

John Kreger -- William Blair. -- Analyst

Great. Thank you.

Operator

The next question comes from Eric Wright with Credit Suisse.

Erin Wright -- Credit Suisse -- Analyst

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 impact on 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? I 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.

Donald M. Casey Jr. -- Chief Executive Officer

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 inventory 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 that the positive surprise was we got more machines than we thought which abled us to get off in the first quarter. And let me tell you, we're very happy with the response. And to be honest, the response has been a little stronger than we thought coming right out of the gate. As we look 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 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.

Erin Wright -- Credit Suisse -- Analyst

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

Donald M. Casey Jr. -- Chief Executive Officer

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 the second is a year ago, we were not competing in the DI business. I mean yes, sure, CEREC had done a lot in -- it had DI capabilities.

But one of the strategic changes that I credit the team for making is -- hey, this market is growing. It's important. And we believe DI is, de facto, going to become a standard of practice in the dentist's 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.

And 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 box have a 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, we'll continue to sell and make Omni. It's important to the rest of the world. We're going to make it available in this market. So for that, we've been seeing people are really, really excited about the new product.

Erin Wright -- Credit Suisse -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from Jeff Johnson with Baird.

Jason Bednar -- Baird. -- Analyst

Hi guys. This is Jason on for Jeff. I just wanted to start on orthodontics. I just didn't hear a lot commentary on that business and how it performed broadly. So just if you can provide any color on how that business is running, especially with the SureSmile clear aligner, and then just give any metrics on how that system is faring in the -- really, in orthodontic community.

Donald M. Casey Jr. -- Chief Executive Officer

Yes. Thanks, Jason. We're pretty happy with our ortho performance right now. We're not giving a lot of specifics to it. But look, in our mind, SureSmile was -- first, buying OraMetrix, which we did about a year ago and it's taken this whole 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 gone on last quarter.

But we've been happy with our 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 a lot around it. But I would tell you that both among orthos and generalists that are -- 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.

Jason Bednar -- Baird. -- Analyst

All right. Just one quick follow-up there now, if I may ask a second question. I mean this -- did orthodontics grow in the quarter? Or you're not going to provide that level of detail?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Actually, Jason, ortho is performing well. It's just not that material in terms of its scale. And certainly, OraMetrix was a relatively small revenue business. But strategically, it's very important, particularly when you align it with our scanner equipment business. So we're pleased.

Jason Bednar -- Baird. -- Analyst

Okay. And then just switching over to implants. I mean just how are you thinking about growth of the implant business this year? Straumann just started rolling out a new premium product in the past month or so. Danaher has a new material coming later this year. RPX suggests Danner reps have been especially aggressive here in recent month ahead of Straumann's BLX launch. So we're just hoping you can comment on your implant business and competitive positioning and later, what's unfolding in the market.

Donald M. Casey Jr. -- Chief Executive Officer

Yes. Nick mentioned in his script that we saw a 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. Azento, to us, is less about material and more about focusing on dentists. We have also our MIS business, which we're seeing good reaction too, which is kind of a value play aimed at the generalists. So look, we are happy that we saw implants grow. I think the -- we have more opportunity there as we go forward. And as we look out at the year, we expect implants to be a positive one this year.

Jason Bednar -- Baird. -- Analyst

Okay. Thanks guys.

Donald M. Casey Jr. -- Chief Executive Officer

Thanks, Jason.

Operator

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

Michael Cherney -- Bank of America Merrill Lynch -- Analyst

Good morning and thanks so much for the question. Just thinking more back to Consumables and more of a medium-term question versus a 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 a market perspective for you to come in at the low end or below the long-term targets relative to Consumables growth in particular?

Donald M. Casey Jr. -- Chief Executive Officer

Yes. 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 this incredibly reliable, consistent business, on an annual basis, it's relatively consistent. There's a little bit more movement quarter-to-quarter. We've spent a lot of time looking at quarterly movement, 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 issue. 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 -- 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're -- we feel good about that. The second reason that we talk about 2 to 3 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 whether that's stuff like SureFil, TruNatomy and some of our lab introductions, we feel we have an opportunity to kind of 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 to present Dentsply Sirona, the company and the portfolio, to the dentists. And the biggest sea change in how we're approaching the dentists is we are now approaching them as Dentsply Sirona, which we think will have a positive impact on both the Technology & 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 not on people's minds. We -- I just hit it one more time. 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.

Michael Cherney -- Bank of America Merrill Lynch -- Analyst

That's all for me. Thanks.

Donald M. Casey Jr. -- Chief Executive Officer

Thanks, Michael.

Operator

Our next question comes from Nathan Rich with Goldman Sachs.

Nathan Rich -- Goldman Sachs -- Analyst

Thanks for the questions. Don, maybe starting on Primescan, can you just talk about how the selling cycle for DI would compare to kind of the full CAD/CAM system as we think about how demand may 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?

Donald M. Casey Jr. -- Chief Executive Officer

Yes. DI is shorter than full chairside. And yes, 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 in. And that way, you can show longitudinal or you can show gum progression and a few other things.

So we think DI is shorter than 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 today, 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 dentists who may have been on the fence into the fold, and we're seeing good pickup of both systems.

In terms of manufacturing, very -- look, I'd -- to be 100% honest, I'd like 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 a credit 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 in the second quarter.

Nathan Rich -- Goldman Sachs -- Analyst

Okay. Great. And then Nick, a couple of follow-ups for you. Do you size the pull 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 the savings. Will you be willing to share kind of the run rate that you're at after 1Q? And is $60 million of savings still the right target for this year?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Okay. So on the last one, Nathan, $60 million is still the target. We feel very good about the restructuring plan. It is more back-end loaded, but we've 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 that OpEx below prior year. It's just that 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 some. Midwinter was a good lunch for Primescan. And we had the production accelerated and we saw some in the quarter. But as Don said, we're really producing to real demand and feel pretty good about the momentum through the rest of the year.

Nathan Rich -- Goldman Sachs -- Analyst

Great. Thank you.

Operator

Our next question comes from Jon Block with Stifel.

Jon Block -- Stifel -- Analyst

Great. Hey, good morning guys and thanks for taking the questions. Maybe two from 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 if that's sort of tracking according to your expectations in early 2019, just want to find out a little bit more about competitors and their rational behavior out there. And then I've got a follow-up.

Donald M. Casey Jr. -- Chief Executive Officer

Sure, Jon. 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 some pricing pressure on imaging. That being said, as we look at imaging, we made some significant changes, particularly in the North American market in how we manage the promotion to become more competitive in the first quarter of 2018, and we're now in the process of lapping that. So that the -- 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.

Jon Block -- Stifel -- Analyst

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 this a -- I'll throw out a number. Is it an 80-20 Primescan-Omni split? And if it is skewed heavily toward Primescan, maybe just some comments on the dentists behavior. In other words, their willingness to spend an extra $10,000 or $15,000 for high-end DI since -- maybe it's used continuously at their practice for a range of restorative procedures.

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Yes. Thanks, Jon. I'm not going to give you a specific break on what the forecast was for Prime versus Omni. I would -- my comment stands, though. We've sold more Prime than we thought. And obviously, that's going to cannibalize Omnicam. The nice thing for us with Omni production is it's still a great camera and it's still sold in the rest of world. So we're -- we've been able to manage that.

And I -- you hit the nail in the head. What we've been seeing from dentists and -- whether it's a new dentist or whether it's actually a CEREC doctor that's been using Omni, the camera is really good. And basically, how we're selling it and what they're being very responsive to, this is a product that they're going to use for 5 to 6 years. And when you actually look at the capabilities of the product, 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 a relatively modest difference over the course of 3 to 5 years.

So we're very happy with the product. We're very happy with where we are right now. And the one thing I would stress to you also on Primescan, Primescan is not something that -- by the way, we're going to launch Primescan in -- that's the last thing you're going to see from Primescan for the next 5 years. We 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 we can do.

Operator

Our next question comes from Brandon Couillard with Jefferies.

Brandon Couillard -- JP Morgan -- Analyst

Thanks. Good morning. Just a quick one for Nick. Curious if you could elaborate on the first quarter OpEx pushout to exactly what's tied to and if you can sort of quantify how much that benefited the first quarter specifically.

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Yes, Brandon. I mean we're kind of anchoring on Q2 last year in saying we'll be below that, but obviously above Q1. There are expenditures for sales force investments, other work that we're doing to implement the restructuring that 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 a Q2, Q3 impact. That's how I'd size it.

Brandon Couillard -- JP Morgan -- Analyst

Great. Thanks.

Operator

Our next question comes from Kevin Caliendo with UBS.

Kevin Caliendo -- UBS -- Analyst

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 a certain negative U.S. market for Consumables. Is that a fair comment? Like how should we think about your positioning? You 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?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

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

Kevin Caliendo -- UBS -- Analyst

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

Donald M. Casey Jr. -- Chief Executive Officer

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 at Align. And we've made the request and we're awaiting their answer. And obviously, Align is going to do what's in the best interest of Align. And -- but your point is it would be upside if we, in fact, didn't see that validation come cross.

Kevin Caliendo -- UBS -- Analyst

Great. Thanks so much, guys.

Donald M. Casey Jr. -- Chief Executive Officer

Thanks, Kevin.

Operator

Our next question comes from Glen Santangelo with Guggenheim.

Glen Santangelo -- Guggenheim. -- Analyst

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 2 businesses of Equipment and Consumable, I thought you kind of made it sound like the upside in the 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 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?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Yes. I mean there's a whole, Glen. We saw better margins as we ramped up production. If you look at the inventory in Q4 versus Q1, we certainly produced more and that truly makes for better margins in the business. Certainly, the Technology & Equipment mix was favorable. And that certainly helped. I think overall, we had a good mix of business. On the Consumables side, you compare it to prior year, we did have higher supply chain costs.

But right now, we're looking at a full year of restructuring that's going to kick in Q2 to Q4 where we'll see the benefit. So year-over-year comparisons are still on positive on the Consumables, but we expect them to be. On a total year basis, we are very much on the plan that we outlined from a margin standpoint, a little bit stronger in Q1 than we expected.

Glen Santangelo -- Guggenheim. -- Analyst

And maybe just as a follow-up to that, margin question just sort of looking out for 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 of DSOs in the business, maybe the evolution of the distribution channels and the supply chain issues that you're talking about? Are there any sort of big trends that you think are worth calling out, either positive or negative, that we should think about it in your margins going forward?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

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 the DSOs.

Donald M. Casey Jr. -- Chief Executive Officer

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 us being shift, and 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 have work to do to get there. But right now, it's very interesting, the -- 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 efficient as we can be, is you bring in real innovation and this category is going to reward it.

Glen Santangelo -- Guggenheim. -- Analyst

Okay. Thank you.

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Thanks, Glen.

Donald M. Casey Jr. -- Chief Executive Officer

Thanks, Glen.

Operator

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

Yi Chen -- H.C. Wainwright -- Analyst

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 7 countries?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Yes. I'll take the second first. It's Nick. The destocking is pretty much out of the system on the Equipment side, as we've mentioned, and we monitor it very closely. It was mostly U.S. issue. But actually, at 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, in Asia, as an example. So Rest of World will be a higher growth rate than certainly North America and Europe as a whole.

Yi Chen -- H.C. Wainwright -- Analyst

Thank you.

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

Our next question comes from Jason Rodgers of Great Lakes Review.

Jason Rogers -- Great Lakes Review. -- Analyst

Yes. Just a question on guidance. You talked about a lot about of positives 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. Is it just general conservatism given you're early in the restructuring? Or is anything else out there that may give you some caution?

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

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 was a bit of a headwind with the strong dollar. So you do have other factors that you have to include. But overall, right now, we're early in the year with the current quarter behind us, and we feel good about tightening the bottom range. And I expect the full year results to be on plan.

Jason Rogers -- Great Lakes Review. -- Analyst

Okay. Thank you.

Operator

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

John Sweeney -- Vice President of Investor Relations

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.

Operator

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

Duration: 60 minutes

Call participants:

John Sweeney -- Vice President of Investor Relations

Donald M. Casey Jr. -- Chief Executive Officer

Nicholas Alexos -- Executive Vice President, Chief Financial Officer

Tycho Peterson -- JPMorgan -- Analyst

Steven Valiquette -- Barclays -- Analyst

John Kreger -- William Blair. -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Jason Bednar -- Baird. -- Analyst

Michael Cherney -- Bank of America Merrill Lynch -- Analyst

Nathan Rich -- Goldman Sachs -- Analyst

Jon Block -- Stifel -- Analyst

Brandon Couillard -- JP Morgan -- Analyst

Kevin Caliendo -- UBS -- Analyst

Glen Santangelo -- Guggenheim. -- Analyst

Yi Chen -- H.C. Wainwright -- Analyst

Jason Rogers -- Great Lakes Review. -- Analyst

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