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March 18, 2013

Baird Equity Research


Health Care / Life Sciences

Medical Technology
IDS 2013 Recap; DI and CAD/CAM Take Center Stage

CAD/CAM and DI took center stage at IDS 2013, with SIRO's CEREC Omnicam system
remaining the clear market leader from a breadth/depth of quality standpoint, in our
opinion. But competition from large/deep-pocketed players (Carestream, Planmeca, DHR,
others) for lower-priced, surprisingly capable systems is growing, which we believe could
lengthen purchase cycles near term and create volume and/or pricing pressure for CEREC
longer term. Combined with valuation, these concerns keep us cautious on SIRO, with
risk/reward for HSIC/XRAY looking more compelling at present.

We attended IDS 2013 in Cologne last week, where the greatest buzz centered on
in-office CAD/CAM and DI technologies. In our view:

INDUSTRY UPDATE
Prices as of 3/17/13
Ticker

Price

Mkt Cap
(mil)

Rating

Risk

HSIC

$89.88

$8,026

PDCO

$37.21

$3,792

SIRO

$71.05

$4,007

XRAY

$42.33

$6,091

Baird covered companies

- SIROs CEREC Omnicam remains highest quality in-office CAD/CAM option, with
long-standing reputation and depth/breadth of CEREC 4.2 planning software providing
continued competitive advantages.

- But

competition is growing, especially from large/deep-pocketed players such as


Carestream, Planmeca, and potentially (in year or two) DHR, with systems from these
companies expected to price out ~30-40% below Omnicam/20%+ below bluecam and
offer better-than-expected convenience (powder-free) and fewer milling compromises
than we had anticipated.

- While distribution challenges remain for these new systems

(especially in U.S.),
we believe they could begin to gain modest traction next 12-24 months and potentially
lengthen the CAD/CAM purchase cycle near term as dentists wait to hear what
peers/other dental thought leaders think of these new options.

Even so, we still see modest EPS upside potential ($0.05-$0.10 vs. us/Street) for
SIRO this year given Omnicams premium ASPs, solid order backlog, and a potential
upgrade program later this year. By FY'14, however, we believe SIRO's momentum
could slow once these initial backlogs/upgrades play out and as competition potentially
begins eating into CEREC volumes and/or pricing. Combined with valuation (~20x NTM
EPS vs. five-year average 14x), these concerns keep our Neutral rating on SIRO
unchanged today.

HSIC remains our top dental idea, especially as IDS checks point to stable end
markets, the companys new Isy bundled dental implant offering in Germany was
generating solid buzz at IDS, geographic/product line expansion opportunities remain
robust, and free cash flow trends remain strong ($600m+ possible in 2013 vs. $465m
consensus).

For XRAY, new products launched at IDS (Crypton, Celtra, Protaper NEXT) look
compelling and could begin contributing 50-100bp incremental growth later this year by
our math. While still-sluggish dental implant market trends make it hard to pound the
table at present, valuation and a potential 2H-13 domestic dental implant market
recovery make XRAY a compelling 2H-13 idea, in our view.

[
Jeff D. Johnson, O.D.,CFA
jdjohnson@rwbaird.com
414.298.6027

Jason Bednar, CFA


jbednar@rwbaird.com
414.298.6057

Rebecca R. Schlagenhauf
rschlagenhauf@rwbaird.com
414.298.7323

Please refer to Appendix


- Important Disclosures
and Analyst Certification

March 18, 2013 | Medical Technology

Details
IDS 2013 Recap
Last week we attended the International Dental Show (IDS), the largest dental show in the world held
biennially in Cologne, Germany. At IDS, we spoke with numerous U.S. and international management
teams, sales reps, and dental society officers about the current state of the European and U.S., dental
markets, new products launching at the show from a number of industry players, and what remains
continued evolution taking place in the in-office CAD/CAM and digital impression (DI) markets.
We review each of these topics in greater detail later in this research note, but from a high level make
the following observations:
(1) End markets stable. "Stable" was the word we heard most frequently when we asked about U.S.
and European dental end market demand in our meetings, with most of our companies cautiously
optimistic that improvements of disappointing 2H-12 results could emerge later this year. As we
discussed in our 2013 Dental Outlook note HERE, we believe macro data points, including modestly
improving labor market and consumer spending/confidence trends in the U.S. and a stable to improving
consumer climate in Germany (second largest dental market in the world) support that optimism, but it's
clear most are not seeing such improvements yet materialize in 1Q-13. An initial review of our March
U.S. dental survey (which we plan to publish next week) seems to suggest improvements, at least in the
U.S., could be emerging, however, as payroll tax and income tax timing issues fade a bit and
strengthening jobs/consumer confidence trends begin to provide tailwinds, but for 1Q expectations
across most of our dental names remain muted.
(2) CAD/CAM and DI competition growing, next couple years could be interesting. We saw three
key CAD/CAM and DI themes at IDS this year - pricing is coming down (especially on the scanner side,
where sub-$20,000 now seems to be the new norm), ease of use is improving (three new powder-free
scanners were launched at IDS), and compromises at the value end of the CAD/CAM market may not
be as significant as we had believed. In the short-run (next 12+/- months), we don't see these issues as
being overly concerning for CAD/CAM market leader SIRO, especially as there are distribution and
clinical outcome hurdles many of these new systems still need to address. But at some point in the
not-so-distant future (next year or two, in our opinion), we could very much imagine scenarios in which
either low-priced competitors begin to put volume pressures on SIRO's CEREC business or SIRO has to
re-evaluate pricing strategies in order to defend its market leading position in the space. Even under
those scenarios we believe the company would likely still be able to deliver mid- to upper-single digit
revenue growth and upper-single to low-double digit EPS growth, which would still put its performance
roughly in line with what we expect from many of the company's dental peers over the next few years.
But with shares currently trading well above trend line vs. both the company's own 5-year average and
dental peers (nearly 20x NTM EPS vs. five-year average ~14x and dental peer group ~17x), we continue
to believe risk/reward on this stock remains balanced at current levels.
(3) HSIC remains our top dental idea, but no reason to be aggressive near term. HSIC had a good
showing at IDS, with its new bundled Isy dental implant package for the German dental market (where
HSIC's Camlog holds a #2 market share position) generating notable buzz and our checks revealing
much better-than-expected free cash flow expectations for the firm this year ($600m+ vs. current Factset
consensus of $465m). As a diversified distributor that ultimately offer dentists a number of different
in-office CAD/CAM and DI systems, we believe HSIC also remains well positioned to capitalize on what
could ultimately be meaningful demand for these technologies. But the tipping point for these markets -especially DI -- still looks to be several years away for reasons we discuss later in this report and we
don't see upside to near-term numbers (next 1-2 quarters), meaning we also don't see a reason for
investors to be aggressive with shares currently trading near multi-year highs from a valuation
perspective (currently 18x NTM EPS vs. 15.6x five-year average).

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

(4) XRAY more interesting in a couple quarters. XRAY management continues to sound fairly
cautious about near-term trends, an issue we believe largely tied to two fewer selling days the company
will have in 1Q-13 (we previously had accounted for this issue in our model and believe Street largely
has as well) and still pressured European dental implant trends. But we're cautiously optimistic about
what new products launched at IDS (especially Celtra and Crypton) could add for the company this year
and believe that if macro trends continue to improve in the U.S. (and simply stay stable in Europe), these
new products and improving U.S. dental implant environment could drive performance to the upper-end,
if not slightly above, current guidance. It's still too early to have high conviction in such an outcome
though, meaning that in the near-term (i.e. next 1-2 quarters) these shares could prove more range
bound.
(5) No changes to estimates across our dental list. With feedback largely pointing to stable end
markets and CAD/CAM and DI updates from IDS more influencing how we think about these markets
12-24+ months from now and not in 2013, we're making no changes to our dental models today.

CAD/CAM Update
Compromises

Bigger

Players,

Lower

Prices,

Fewer

A number of manufacturers launched new digital impression (DI) and/or full in-office CAD/CAM (DI plus
milling) systems at IDS this year, the majority of which we had anticipated, but several of which were a
surprise. We review these products in great detail over the following pages, but from a high level note
here that our key takeaway on this topic coming out of our IDS meetings is that SIROs Omnicam
system (Omnicam plus MC X milling unit) remains the highest quality system available and will likely
continue to enjoy a dominant position in the market. However, the quality gap is narrowing between
SIROs in-office CAD/CAM options and several new products, as compromises with several new
systems especially on the milling side arent as significant as we had expected.
To be fair, it's almost assuredly going to take another 12+ months for several of these new products to
ramp and the competitive impact they may or may not have on SIRO to emerge. So for investors looking
for upside to SIROs revenue and EPS guidance over the balance of the current fiscal year, we still fully
expect that to occur, especially as higher ASPs (Omnicam vs. Bluecam) and an expected Omnicam
upgrade program at some point over the next couple quarters in the U.S. both potentially drive SIROs
CAD/CAM growth to 20-25%+ ww cc over the next couple quarters (RWB +16.5% cc over balance of
FY'13).
But beyond FY13, things could get interesting in the in-office CAD/CAM market in our opinion,
especially if HSIC continues to expand the number of CAD/CAM manufacturers its willing to distribute
product for in North America and core partners such as Planmeca and DHR actually launch full in-office
systems at some point over the next 12-18 months (we have more confidence in Planmeca than DHR
see below for reasons). Also, while Glidewells TS150 and potentially Carestreams in-office system may
remain relegated to smaller distributors such as Benco and others in the U.S., we also wouldnt be
surprised to see Carestream build up its internal efforts to try and eventually sell its system direct and
believe Glidewells milling system may not require as many compromises on the milling side as we had
initially expected, meaning these low cost systems could find a small, but potentially impactful, place in
the in-office CAD/CAM market.
Further, after seeing these systems up close at IDS last week, we continue to believe their pending
launches could cause dentists to slow their CAD/CAM purchase decision in the near term as they await
reviews and recommendations from industry experts regarding these and other in-office CAD/CAM
systems. As a reminder, this was a risk we highlighted when downgrading SIRO to Neutral last month
heading into IDS, and its a risk we feel at least as strongly about coming out of IDS.

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

Finally, as we discuss later in the DI section of this note, we exit IDS struggling to see anything that truly
makes SIRO's Apollo digital impression (DI) system stand out from products currently offered by, or
soon to launch from, 3M, Carestream, Planmeca, and especially 3Shape, whose updated Trios scanner
looks nearly as good as Omnicam and is head and shoulders above Apollo from a quality standpoint, in
our view. We review the DI market in greater detail later in this report and admittedly expect demand for
standalone DI systems to remain modest near term as integration/compatibility issues with lab-based
milling systems are worked through, thus mitigating risk for SIRO with regards to this topic over the next
year or two. But if DI truly holds greater long-term market penetration potential than in-office CAD/CAM
(as we suspect it might) and Apollo doesnt ultimately stand out from the crowd, then DI could eventually
become a market area where SIRO's typical market dominance doesn't necessarily apply.
Bottom line, we didnt see anything at IDS that leads us to worry about SIROs near-term performance
and we continue to believe the company can likely beat and raise relative to current Street estimates this
year, especially if an Omnicam upgrade program in North America is initiated in the coming months as
we believe it could be. But beyond FY13, when ASP and upgrade tailwinds from Omnicams recent
launch begin to moderate and traction with new competitive in-office CAD/CAM and DI systems
potentially begin to build, we believe SIROs growth could slow back towards a mid- to upper-single digit
rate at the top-line and only slightly faster (upper-single to low-double digits) at the EBIT/EPS line. While
still healthy and roughly in line with where our/the Streets current projections currently lie, we believe
valuation embeds expectations for even higher growth.
Additional takeaways and observations regarding new in-office CAD/CAM and DI system launches from
IDS are as follows:
1. More credible new players. At IDS 2011, a number of new intra-oral scanners were introduced, but
most were early prototypes from small companies that suffered from wide ranging issues including lack
of significant financial backing, regulatory approval, or clear distribution plans. At this years show,
however, new DI and/or in-office CAD/CAM systems were launching from much more credible sources
that bring deeper funding capabilities and more likely regulatory approvals to the table, including large
multinationals such as DHR, Planmeca, and Carestream. And while distribution plans for at least some
of these products remain uncertain, the fact that so many large, successful, deep pocketed companies
are now entering or are close to entering the DI and/or in-office CAD/CAM market suggests the battle for
dentist mindshare in this area could soon rise.
2. CEREC remains best positioned for in-office CAD/CAM. In this growing battle for dentist
mindshare in the in-office CAD/CAM market, we believe SIROs CEREC Omnicam system remains the
system to beat, with none of the new systems we reviewed at IDS this year coming close to SIROs fully
loaded CEREC Omnicam system (Omnicam camera/MC X milling unit) from a quality standpoint when
the imaging, design/software, and milling components of in-office CAD/CAM are considered in total, in
our opinion.
But in reviewing these new market entrants in recent days, we get the sense that few, if any, are actually
trying to match CEREC on the quality front, because to play that game in todays world is challenging, as
E4D has found to be the case in North America. Instead, most of these new players are trying to attack
CEREC (and E4D for that matter) on the pricing front, launching systems that will generally sell in the
$70,000-$80,000 range, with the hope that shortfalls on the quality front will be more than overshadowed
and made up for on the pricing front.
Will the strategy work? Heading into IDS, we considered it highly unlikely, especially as our checks
suggested the compromises associated with these value systems would potentially be significant.
Coming out of IDS, however, were not as sure, as the compromises dont look as meaningful as wed
originally believed and at least a few of the systems look like they could end up competing against
CEREC in a fairly compelling way. More importantly, we believe the launch of these new systems could

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

cause dentists to slow their CAD/CAM purchase decision in the near-term as they await reviews and
recommendations from industry experts over the next 6-12 months. As a reminder, this was a risk we
highlighted when downgrading SIRO to Neutral last month heading into IDS, and its a risk we feel at
least as strongly about coming out of IDS.
Reviewing the compromises milling first. Prior to IDS, the compromises wed most frequently been
hearing about with these new in-office CAD/CAM systems was on the milling side, and as we show
below, such compromises do exist, with Carestreams CS 3000, Glidewells TS150, and Planmecas
PlanMill 40 milling units all utilizing a single milling bur in a wet mill environment (as opposed to CEREC
MC and MC X milling units that utilize two burs in a wet mill environment). If DHR ever connects its
recently launched Lythos scanner (see discussion in DI section of this note) to its recently introduced
Artica milling station -- a move we wouldnt be surprised to see at some point over the next 12-24
months -- then this would represent at least a fourth competitive single-bur but lower-priced in-office
CAD/CAM option for dentists to consider.
MILLING UNIT COMPARISON
M illing Unit
CEREC MC
CEREC MC X

Comm ercially
Available
Yes
Yes

M anufacturer
Sirona
Sirona

N.A. Distribution
Partner
Patterson Companies
Patterson Companies

# of Burs

Materials / Blocks Used

Crown
Milling Time

Price

Two

SIRO/inCoris, 3M, VITA,


Ivoclar, Glidewell (Bruxzir)

16 minutes

$41,600 (1)

Two

SIRO/inCoris, 3M, VITA,


Ivoclar, Glidewell (Bruxzir)

11 minutes

$52,000 (1)

SIRO/inCoris, 3M, VITA,


Ivoclar, Glidewell (Bruxzir)

11 minutes

$65,000 (1)

CEREC MC XL /
Practice Lab

Yes

Sirona

Patterson Companies

Four

E4D

Yes

D4D

Henry Schein

Two

3M & Ivoclar

10-15 minutes

~$65,000-$75,000

20 minutes

$50,000

TS 150 Mill

Yes

Glidewell

Benco, Other?

One

BruxZir & Obsidian/VITA


(Lava com ing soon)

CS 3000

No; expected 2H13

Carestream

Direct?, Benco?,
Other?

One

VITA (Ivoclar com ing soon)

<15 minutes

N/A

PlanMill 40

Potentially
2014?

Planmeca

TBD

One

VITA, Ivoclar, & 3M

N/A

N/A

(1) U.S. pricing not yet available, based on equivalent euro pricing
Source: Company Reports, RW B Estimates

When looking more specifically at the milling compromises associated with these systems, we believe
time represents the single biggest compromise dentists will have to consider in single bur set-ups, with
single unit crowns likely taking upwards of 15-20 minutes to mill on these systems vs. 10-15 minute
single-unit mill times seen with SIROs MC and MC X units (as well as E4D). Also, our checks suggest
these single bur systems could be more prone to breaking down given the additional stress/work the
single bur has to do in milling both the occlusal (outside) and the inside surface of the crown, with these
burs at the very least likely needing to be replaced more frequently given the double duty they are
pulling. In turn, these more frequent bur replacements could cause dentists more headaches from a
maintenance standpoint over time.
The other potential compromise weve heard about frequently with these systems is that they may not be
able to work with a wide variety of materials, potentially limiting the number and/or type of single unit
crowns and other restorations a dentist might be able to perform when using them. This, however, is
where we came away from IDS somewhat surprised, as our checks suggest Carestreams CS 3000 is
already capable of working with a variety of VITA blocks and a relationship with Ivoclar is expected soon,
while Planmeca notes that its PlanMill 40 milling unit can work with materials from VITA, Ivoclar, and 3M,
and Glidwell sources stressed to us that its TS150 can not only mill its own BruxZir monolithic zirconia,
but should also have attachments and relationships in place soon to mill Ivoclar and/or VITA blocks.
Bottom line, we went to IDS believing there might be an inherent limitation in the single bur systems we
were going to see launched at this show, whereby the burs may not be able to handle feldspar or glass
ceramics or lithium disilicate products such as Ivoclars e.max and the many imitators that have copied
e.max in recent years (including XRAYs recently launched Celtra material). That doesnt seem to be the

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

case, however, with the limiting step on the material side looking instead to be more closely tied to
relationships that havent yet been but could soon be established between these new CAD/CAM
manufacturers and the materials companies. Net, these limitations dont appear as bothersome or
concerning as we believed they might be, which in turn means the competitive advantage this issue
might have provided SIRO over time doesnt seem as great as we had initially expected, either.
Imaging compromises also exist. On the image acquisition front, all of the newly launched or
soon-to-launch in-office CAD/CAM systems are powder-free, which is a positive for them relative to
SIROs bluecam system (which requires powder), but puts them simply on par with Omnicam, which
also doesnt require powder. None of the new systems allow for full-color image reconstruction,
however, which is an advantage for Omnicam (which is full color) and puts these systems more on par
with CEREC bluecam.
Other than those fairly straightforward points of differentiation, we found it difficult to compare the newly
launching imaging components to SIROs Omnicam and Bluecam systems as they all look very similar,
seem to weigh and handle similarly, and generated images that appeared to be accurate and relatively
robust. Small observations on our part were that DHRs Lythos camera appeared to be the most
rudimentary of the group (large number of data gaps on first passage over a model and more limited
appearing software capabilities), Planmecas PlanScan looked potentially cumbersome (technician had
difficult time initially getting unit aligned in dummys mouth), and Carestreams software had a somewhat
2D appearing feel to it (similar to CEREC software five years ago). Even so, each of the units were able
to fairly quickly capture a powder-free image of several teeth to a full arch and design a reasonable
appearing single-unit restoration (crown, inlay/onlay), which could make the systems good enough in
the eyes of some users.
IN OFFICE CAD/CAM AND SCANNER COMPARISON
Company

Commercial
Availability

Possibility of
In-Office
Milling

N.A.
Distribution
Partner

Architecture

Om nicam

Sirona

Yes

Yes (MC X or
MC XL)

Patterson

Closed

Continuous 3D color im age caputre

~$65,000 (1)

Bluecam

Sirona

Yes

Yes (MC)

Patterson

Closed

Visible blue light, activ e triangulation


and confocal m icroscopy

~$35,000 (1)

E4D

D4D

Yes

Yes

Henry Schein

Selectiv ely
Open

Laser, optical coherence tom ography


and confocal m icroscopy

~$54,900

TRIOS

3Shape

Yes

Yes (TS150
Biolase,
Chairside Mill) Henry Schein?

Open

Confocal m icroscopy

~$35,000

Yes (TS150
Chairside Mill)

Open

Laser, active triangulation and


Schleim pflug principle

~$20,000

Open

Color 3D im ages, light guidance system

Not disclosed

Open

Blue laser

Not disclosed

Intraoral
Scanner

IOS Fastscan

Glidewell

Yes

CS 3500

Carestream

Launching
Soon

PlanScan

Planm eca

Europe 2013,
US 2014?

Benco

Yes (CS 3000) Direct? Benco?


Yes (PlanMill
40)

TBD - Henry
Schein?

Scanner Type

Powder

PowderFree

Price (2)

(1) Scanner pricing includes design software (~$15,000)


Source: Company Reports, RW B Estimates

Other points of comparison. In addition to imaging/milling quality for these systems, several other
points that we believe will be equally, if not in some cases more, important than quality in determining
ultimate success for some of these systems include distribution, price, and regulatory standing. To that
end, wed note the following about each of the new in-office CAD/CAM systems:
For Carestreams total in-office system (CS 3500 scanner/CS 3000 milling unit), our checks suggest
Carestream eventually plans to sell this system in the five largest European markets (Germany, Italy,
France, UK and Spain), the U.S. and Japan, with approvals in Europe and the U.S. expected this year
and a launch in these markets expected 2H-13. From a distribution standpoint, wed fully expect
Carestream to maintain its direct selling model, and utilize either some of its current direct sales force
and potentially add CAD/CAM specialty reps over time to focus on this system, although weve also
heard that a relationship could be in the works with Benco and other independent dealers in North
America and Europe, Finally, from a price point standpoint, Carestream isnt yet willing to discuss
system pricing, although one rep we spoke with told us the system will be very comfortably below
$100,000 in the U.S.

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

For Glidewell, weve previously discussed with investors that Glidewell is currently selling its TS150
system through Benco in the U.S. and is also looking for other distribution partners in the U.S. and
Europe. From a pricing standpoint, our checks suggest the TS150 milling unit as a stand-alone device
prices out at ~$50,000, with the total price of the system varying based upon what intraoral scanner the
dentist chooses to pair up to the TS150 mill. With Glidewells own IOS scanner (which requires powder),
we estimate the total system would likely price out at ~$70,000, while the upfront price to acquire the
TS150 mill with 3Ms True Definition scanner would likely be closer to $65,000, but True Definition also
comes with $325+ in monthly milling/data streaming fees that need to be accounted for over the life of
the system ($199 data plan and $125 warranty cost, plus an additional $129 for in-office milling
capabilities). Finally, the TS150 can also pair up with 3Shapes new full color, high-end Trios digital
impression system, and while we dont yet know the price of Trios, we believe it will likely be in the
$35,000+ range, likely bringing the full TS150 plus Trios price to just over $85,000.
For DHRs Lythos scanner, were not sure of the companys distribution plan, but assume it will likely be
sold through dealers in most markets, which is how DHRs other high-tech dental equipment is typically
sold. We do know, however, that DHR is only targeting Lythos for a European launch in 2H-13 and that
a U.S. launch might be considered sometime after that. Additionally, DHR currently only plans on
marketing Lythos for orthodontic applications, with single tooth or larger restorative programs possible
later, but probably not for at least the next year or two per our checks. That, combined with the fact that
Lythos does not officially have in-office milling capabilities at present means we dont currently consider
it to be a true competitive threat to SIROs CEREC system. However, we found it interesting that DHRs
KaVo business dedicated significant time and exhibit hall space at IDS this year to re-launching its
Everest scanners under the Artica trade name, especially after de-emphasizing this business several
years ago. With the smaller footprint design DHR is now showing for Artica, we believe the company is
essentially moving towards eventually pairing Lythos and Artica in a full in-office CAD/CAM offering.
Finally, with regards to Planmeca, our checks suggest a European launch of the companys in-office
system (PlanScan intraoral scanner and PlanMill 40 milling unit) is likely imminent, although exact timing
wasnt discussed in our meetings at IDS. A U.S. launch, however, is likely more a 2014, and potentially
mid-2014, event, with our sources suggesting the company has not yet started hiring/cross-training sales
reps on the in-office system. Further, were not sure where Planmecas system stands from a regulatory
perspective in the U.S., and pricing wasnt discussed at the show. From a U.S. distribution standpoint,
however, we believe Planmecas burgeoning relationship with HSIC could mean HSIC eventually
includes this product in its growing CAD/CAM armamentarium (in addition to E4D, HSIC also recently
began selling 3Ms True Definition scanner and weve heard rumors that a HSIC/3Shape distribution
agreement could be in the works), while our checks suggest Planmeca might also pursue distribution
agreements with several independent dealers in North America, including Burkhardt, Atlanta Dental, etc.

Digital Impression Market - Competitive Offerings Growing,


Compatibility Remains Near-Term Concern
Turning to the digital impression (DI) market and similar to our comments for in-office CAD/CAM, we
saw new and/or improved DI offerings from a number of large, well-respected manufacturers at IDS this
year. As we show in the table below, we estimate roughly 10-12 digital impression scanners are either
currently available, or will soon be available in Europe and/or the U.S., with price points ranging from
$12,000 for 3Ms recently launched True Definition system, to what will likely be at least $30,000+ for
3Shapes full color Trios scanner that is currently available in Europe and should launch in the U.S. over
the next few months.

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

DIGIT AL IMPRESSION SCANNER COMPARISON


Intraoral
Scanner

Company

Commercial
Availability

Possibility of
In-Office
Milling

N.A.
Distribution
Partner

Architecture

Om nicam
Connect

Sirona

Yes

Yes (MC X or
MC XL)

Patterson

Closed

Continuous 3D color im age capture

~$50,000 (1)

Bluecam
Connect

Sirona

Yes

Yes (MC)

Patterson

Closed

Visible blue light, activ e triangulation


and confocal m icroscopy

~$20,000-$25,000 (1)

Apollo DI

Sirona

Expected
soon

No

Patterson

Selectiv ely
Open (2)

Not disclosed

~$20,000 (3)

E4D

D4D

Yes

Yes

Henry Schein

Selectiv ely
Open

Laser, optical coherence tom ography


and confocal m icroscopy

~$20,000-$25,000

iTero

Align/Cadent

Yes

No

Align

Open

Red laser with parallel confocal im aging

~$33,995-$43,995 (4)

TRIOS

3Shape

Yes

Yes (TS150)

Biolase,
Henry Schein?

Open

Confocal m icroscopy

~$35,000

Henry Schein,
Benco

$11,995

Scanner Type

Powder

PowderFree

Price (2)

True
Definition

3M

Yes

Yes (E4D or
TS150)

Open

Continuous v ideo data capture,


m onochrom atic picture

IOS Fastscan

Glidewell

Yes

Yes (TS150)

Benco

Open

Laser, active triangulation and


Schleim pflug principle

~$20,000

Lythos (5)

Danaher

No

Not yet

Not disclosed

Open

Not disclosed

"Prim ed for aggressiv e


price positioning"

CS 3500

Carestream

Launching
Soon

Open

Color 3D im ages, light guidance system

Not disclosed

PlanScan

Planm eca

Europe 2013,
US 2014?

Yes (PlanMill
40)

TBD - Henry
Schein?

Open

Blue laser

Not disclosed

MIA3d

DENSYS 3D

Not disclosed

No

Not disclosed

Open

Visible light, active


stereophotogram m etry

Not dislosed

Zfx Intra
Scan

Zfx

Yes

No

Zim m er

Open

Not disclosed

Not disclosed

Yes (CS 3000) Direct? Benco?

(1) Scanner pricing does not include design software (~$15,000)


(2) Additional fee required for non-Sirona labs
(3) Price disclosed at 15,000 euro, im plies ~$20,000
(4) iTero scanner pricing tiered, from lowest end (restorative software only) to highest end (restorative and ortho software, unlim ited scan/serv ice)
(5) Currently being m arketed for ortho applications only
Source: Company Reports, RW B Estimates

In speaking with a number of industry sources about the DI market, we believe that while this segment
remains small today relative to the in-office CAD/CAM segment of the market (likely less than 10,000 DI
systems in use around the world currently vs. what we estimate is closer to a worldwide installed base
closer to 35,000-40,000+ for in-office CAD/CAM systems), demand for these systems could ramp nicely
over time and that DI penetration rates could eventually far exceed that of in-office CAD/CAM systems.
To that end, we note that in our meetings, we continued to hear from our non-SIRO/non-PDCO industry
sources what weve heard many times over the years, and that is that only about 20% of dentists will
ever want to deal with milling restorations in their office, whereas the remaining 80% of dentists will likely
eventually convert to DI. Whether thats true or whether in-office CAD/CAM penetration rates instead
eventually reach the 40-50%+ numbers we often hear from our SIRO and PDCO sources, we admittedly
dont know. But there are several factors that we believe are making the DI market look increasingly
compelling, even if a tipping point for this technology still looks to be at least 1224 months away.
First is pricing. While 3M launched its True Definition scanner last year at a price point of ~$12,000
(plus data streaming and monthly service fees), SIRO has now launched Apollo at a similarly low price
of just below $20,000 (with no monthly streaming/service club fees), and DHR is vocally stating that its
Lythos scanner which is currently being promoted for use in orthodontic procedures only, but could
eventually be used for restorative procedures per our checks is primed for aggressive price
positioning. While we dont know pricing for Lythos, we assume those comments suggest a price point
somewhere in the neighborhood of $20,000 or lower, while our checks suggest CareStreams CS 3500
scanner will also likely price out in the $20,000+/- range once its launched later this year.
Second is ease of use. Specifically, we were somewhat surprised that several of these lower-priced
scanners -- including DHRs Lythos scanner, Planmecas PlanScan system, and Carestreams CS 3500
-- are powder free, which overcomes one of the biggest hurdles (the need for applying powder) we
frequently hear from dentists when it comes to adopting this technology. 3Shapes Trios and ALGNs
iTero are also powder free, but price points for these scanners remain more in the premium-priced
$35,000+ range.
Beyond price and ease of use, however, issues similar to what we discussed with in-office CAD/CAM
systems remain, including uncertainty over clinical effectiveness, exist with a number of these systems

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

that only time will likely be able to sort out. Distribution strategies will also play an important role with
these systems, much as it will with in-office CAD/CAM systems, and to that end we believe SIROs
Apollo system will likely have a leg up early on given SIROs reputation and PDCOs distribution heft in
the U.S. But HSIC has recently shown a willingness to distribute more than just E4D in North America
and our checks suggest a deal between HSIC and 3Shape could be in the works, meaning HSIC could
soon be selling E4D, 3Ms True Definition, and 3Shapes Trios systems in the U.S. Add in HSICs
worldwide presence, the companys already meaningful relationship with DHR, and a burgeoning
relationship between HSIC and Planmeca, and we believe HSIC could eventually lend distribution
credence to a number of different DI players across the globe. Granted, questions about how many DI
systems HSICs sales force could truly detail and how manufacturers might feel about being a third or
fourth DI option at HSIC need to be considered, but over time we believe HSIC could play an
increasingly important role in helping a number of players in this space succeed.
In the short run, however, the topic that we believe most dentists will be focused on with DI systems and
that could limit uptake for these systems in the near-term is one of software architecture and how well
each of these DI system will be able to communicate with various lab-based milling systems. As we
showed in the chart above, nearly all the DI systems recently launched and/or soon to launch claim to be
open systems that output their data in .stl format (standardized language that allows CAD systems to
communicate certain information to each other and most CAM systems), with SIRO and Nobel Biocare's
Procera systems remaining the two main exceptions (Apollo claims to be selectively open, but labs
need to purchase a license from SIRO to be able to work with Apollo scans per our checks).
Interestingly, however, our diligence suggests that even with these open DI systems, there are still
plenty of examples whereby the .stl file from an open scanner cannot efficiently and effectively link its
data to various lab-based milling units. For example, our checks at Amann Girrbach suggest a
relationship with 3Shape might soon be consummated, but no other open DI system can currently
communicate with the 3,000+ Ceramill milling units Amann Girrbach has installed worldwide, while
Datrons 2,800+ lab-based milling units can currently only work with data from partners that have been
"certified" including SIRO and 3Shape.
Bottom-line, with price points coming down and technology improving for DI systems, we believe
demand for these systems could prove sizeable over the next 3-5 years, with total market value
potentially reaching the $50+ million annual level over this time. In the near-term, however, we suspect
adoption of these systems, even those claiming to be fully open, could remain more modest, as
communication abilities between in-office scanner and lab-based mills continue to develop.

Geographic Update
We focused on European market trends in most of our management meetings last week, although we
also touched on U.S. and ww trends in a number of meetings. From these discussions, we came away
believing the European dental market remains fairly stable on the consumables front, with stable to
slightly improving demand in Germany, continued mid-single digit"ish growth in many eastern European
markets, and stable demand in most other sizeable core European markets being at least partially offset
by continued pressures in Italy and to a lesser extent Spain. For equipment, several manufacturers and
distributors pointed to sluggish 1Q demand ahead of IDS, although SIRO was definitely not one of the
companies speaking to such softness. More importantly, most seem to expect IDS to once again drive
good demand for dental equipment later this year, with our HSIC conversations especially leading us to
believe the company should be able to deliver low to mid-single digit growth in International dental
equipment sales over the next few quarters (post 1Q) following flat to down cc growth for this segment in
six of the past eight quarters.
For dental implants, our checks suggest the European market remains challenging, with most
companies we spoke to still expecting flat to down growth in Europe this year. One of the primary
culprits for dental implant sales in Europe remains Italy, where several of our sources continue to expect
y/y contraction in market demand this year, while our checks seem to suggest demand in Spain may be
nearing a trough.

Robert W. Baird & Co.

March 18, 2013 | Medical Technology

Looking to Germany specifically, we met with Dr. Reiner Kern, the press secretary for the KZBV (an
insurance lobbyist group for German dentists) while at IDS and from our meeting, we feel comfortable
that dental demand remains fairly stable in Germany. As a reminder, roughly 90% of dental care in
Germany is reimbursed through the countrys statutory healthcare insurance program and this program
pays for annual dental exams, most preventative procedures, and ~50% of costs associated with basic
restorative procedures (a PFM crown, for example), with the patient responsible for the remaining 50%
of basic restoration fees. For more advanced restorations (a ceramic crown, dental implant, etc.), the
patient not only pays the 50% co-pay associated with the basic restoration fee, but also pays the entire
difference of the cost between the basic and more advanced procedure, meaning a significant portion of
high end restorative work in Germany is paid for out of pocket. As such, spending on high end dental
procedures such as dental implants has come under pressure even in Germany in recent years,
although it sounds as if even these high-end trends have begun to stabilize in recent quarters.
Looking forward in Germany, Dr. Kern does not see any major changes planned for either the statutory
or private dental insurance markets, which is a positive as we remind investors of the significant fall in
German dental revenue several manufacturers, including XRAY, suffered through early in 2005 when
the German government changed the statutory dental insurance system to require pre-authorization for
some dental visits. Even with Germany planning on instituting meaningful austerity-related cuts to its
overall healthcare system in 2014 and/or 2015 (just last week the German government announced plans
to accelerate these cuts into 2014 vs. waiting until 2015 for them to take effect), Dr. Kern doesnt seem
to believe such cuts will impact dental spending in any real way over the next couple years. While
encouraging, we admittedly need to watch for exactly what, if any, dental cuts may be included in next
years healthcare budget in Germany.
In the U.S., equipment feedback remained more positive than consumables feedback, especially for
HSIC where the companys relationship with a number of corporate and larger dental group practices
continues to pay dividends on the equipment front at both the revenue and EBIT lines. For consumables,
1Q-13 trends sound stable relative to 4Q-12 after taking into account selling day issues that will
negatively impact just about every name on our dental list this quarter, leading us to believe this
segment of the market has continued to grow in the low-single digit range thus far in 2013. Adding on an
incremental one to two points of medtech tax-driven pricing above and beyond the typical one to one
and a half points of positive pricing typically seen in the industry each year, and we believe stable end
demand in the quarter could end up translating to slightly improved performance on a sequential basis,
to roughly +2-3% for both HSIC and PDCOs NA dental consumables growth this quarter after adjusting
for selling day issues in the period (with the fewer selling days each company will have this quarter, we
remain comfortable modeling 2.9% and 2.5% C1Q growth in NA dental consumables sales for HSIC
and PDCO, respectively). For XRAY, we continue to expect domestic organic growth closer to flat this
quarter after adjusting out an estimated 170bp tailwind from incremental ortho sales in the quarter, an
estimated 150bp expected incremental tailwind from above-normal price increases, and headwinds for
the company of two fewer selling days in the quarter (likely a headwind of ~300bp).
Interestingly, we heard from two different dental implant companies in our checks last week that
domestic dental implant demand may have rebounded a bit in 1Q-13 after continually softening
throughout 2012, from +6-7% at the start of last year (i.e. In 1Q-12) to just under 2% domestic market
growth in 4Q of last year. There wasnt a consensus with this feedback, however, as several of our other
dental implant market checks last week pointed more towards stable, rather than modestly improved,
domestic dental implant market demand in C1Q. Even so, with a couple sources suggesting that
domestic end demand improved a bit to start 2013 and other sources pointing to stable 1Q demand, we
believe its safe to assume the market was at the very least stable, if not slightly improved on a
sequential basis, in 1Q-13.

Robert W. Baird & Co.

10

March 18, 2013 | Medical Technology

Company-Specific Takeaways
HSIC ($89.88 - Outperform, $98 Price Target)
At HSIC, we met with VP, Corporate Treasurer Ferdinand Jahnel, as well as VP, Investor Relations
Carolynne Borders. From this meeting, we came away believing dental trends remain solid for the
company, with U.S. equipment demand still growing nicely despite a modest tax-driven pull forward of
demand in 4Q-12 (we exit our meetings comfortable modeling 7.5% cc growth for HSICs North
American business in 1Q-13), and consumables growth sluggish but stable in the low-single digits. While
HSIC continues to see low-single-digit growth in European consumables sales, management reminded
us several times that European dental equipment demand ahead of IDS tends to slow down, with a
pick-up in growth then seen later in the year. We had previously taken that expected gaiting into
consideration, and for the year remain comfortable modeling 6% growth for HSICs international dental
equipment business on top of a -4% organic growth comp from 2012. For 1Q-13, however, were
modeling a 4% cc decline in international dental equipment sales.
Outside of these general takeaways, other data points for HSIC coming out of our meetings include the
following:
New Camlog bundled implant offering generating buzz. For Germany, where Camlog enjoys the
second leading dental implant market share position, HSIC introduced a bundled offering of a Camlog
implant, temporary abutment, and implant drill bit in a package it is calling Isy (pronounced Easy) for
129, well below the 160 stand-alone price the company previously charged for most of its Camlog
dental implants. This bundled offering was generating significant interest at IDS, including from HSICs
competitors as we were asked about it numerous times in our non-HSIC meetings over the course of
IDS. In speaking with management about this offering, we were told this is not a change in strategy and
in no way should be interpreted as a sign that HSIC is more aggressively moving towards becoming
more of a value player in implants, especially as value implants in Germany sell for as little as 60.
Our take is that while this may not be a move into the value end of implants, it is probably a reflection of
the traction value implant players have had even with dentists in Germany in recent years. From a model
perspective, we believe this move could help stimulate modest top-line tailwinds and, with implants
generating low-20% type operating margins for HSIC per our checks vs. ~7% company-wide operating
margin, could also provide modest mix-driven margin benefits over time. That said, we remind investors
that Camlog only accounts for ~2% of HSICs company-wide revenue, meaning the impact of this move
to HSICs overall numbers will likely be modest.
On the M&A front, our sense is that management remains active and that the companys focus remains
both on geographic and product line expansion. Regarding the former, we believe management
continues to look for ways to expand not only in the Middle East and Asia, where several recent deals
have occurred, but also in Eastern Europe, with areas such as the Czech Republic (where HSICs only
presence is in the vet space following the companys 2009 acquisition of Noviko) and Poland (60 million
people, HSIC has no presence in vet or dental) high on the companys target list. From a product line
standpoint, our sense is that managements focus on its specialty businesses dental implants,
orthodontics, endodontics remains high, which should have positive margin implications over time if
the company succeeds in expanding in these areas.
Finally, from a cash flow standpoint, our checks suggest free cash could well exceed $600m this
year, up vs. last years $356m and above our project $556m, as the $150m in inventory purchased late
in 4Q-12 reverses out and net income (per our model) likely exceeds $450m this year.

Robert W. Baird & Co.

11

March 18, 2013 | Medical Technology

XRAY ($42.33 - Outperform, $46 Price Target)


At XRAY, we met with Executive VP and Group President of XRAYs global dental implant business Jim
Mosch and VP, Investor Relations Derek Leckow. From this meeting, we came away believing dental
trends remain stable for XRAY, although the company did remind us several times that 1Q-13 has two
fewer selling days and a tough U.S. comp, leading us to believe theres no reason to be looking for much
in the way of upside this quarter to the Streets current $0.57. We are currently $0.04 below the Street at
$0.53 for 1Q and acknowledge this is probably a bit too low as 1Q operating margin, even in a still
sluggish environment, should be able to exceed our projected 16.5% (down 40bp y/y), but for now were
leaving our EPS projection for the quarter unchanged pending our final 1Q checks over the next couple
weeks.
Outside of these general takeaways, other data points for XRAY coming out of our meetings include the
following:
New products. XRAY previewed several new products at IDS this year, most of which were also
previewed last month in Chicago at CDS or highlighted on the companys recent 4Q call. Of these new
products, the three with the greatest near-term potential, in our view, were Crypton, a millable cobalt
chrome prosthetics material, ProTaper NEXT, a new endodontic file, and Celtra, another new prosthetics
material but this one made up of lithium disilicate, which will compete head-on with Ivoclars popular
e.max material. While all three of these products may be available in limited quantities near-term, our
checks suggest it will likely be mid-year before these products fully launch, at which time our math
suggests all three could begin contributing a combined 50-100bp tailwind to XRAY's ww organic growth.
Crypton is XRAYs new cobalt chrome material that is soft enough to be milled on lab-based milling
units, which is important as historically cobalt chrome, which is used in more than 50% of PFM
(porcelain fused to metal) crown/other restorations performed around the world, had to be pressed or
formed using much larger machines that smaller labs typically dont own. As such, this material should
allow these smaller labs to begin performing CoCr restorations as opposed to having to outsource them
to larger, centralized facilities run by larger entities. While management hasnt provided pricing details
for Crypton, we believe it falls into the category of what could be a very good new product launch for
the company, which management typically sizes at having $5 million+/- of first year revenue potential.
Adding to this, XRAY has also entered into an agreement with SIRO in which it will OEM SIROs inLab
milling unit and sell it under a Dentsply brand to labs that currently utilize the companys Cercon Eye
scanners and/or Cercon Brain milling units. With XRAY enjoying strong relationships with a number of
dental labs throughout Europe, but having especially strong relationships in Germany where it sells its
lab products direct (we believe the vast majority of the companys more than 3,000 Cercon lab-based
system installs in Europe are located in Germany), we believe this OEM relationship with SIRO makes
sense as SIROs system can now be sold into these labs and be used to mill this new CoCr material,
with the XRAY-loyal labs only having to buy the new SIRO milling unit without having to upgrade their
current Cercon Eye scanners or Cercon design software. Over several years, if XRAY upgrades even
10-20% of its lab users to this new SIRO milling unit, we believe this new relationship could generate
upwards of $10-$15 million revenue for the company.
ProTaper Next is a new premium priced endodontic file from XRAY that offers an asymmetric rotary
motion that is expected to allow for improved debris removal from the nerve canal while simultaneously
reducing the risk of file breakage. While pricing details for ProTaper NEXT werent provided, our checks
suggest two NEXT files will likely be needed in most endodontic cases and cost a dentist slightly more
on an aggregated basis ($20 per file by our estimates for a total of ~$40/procedure) than what a dentist
previously paid to use three to four prior generation ProTaper files during a typical procedure (these prior
generation files typically cost less than $10/file, meaning a total file cost per procedure was previously in
the mid-$30 range). For this slightly higher cost, a dentist should realize improved outcomes and less
risk of downtime (less risk of file breakage), while XRAY should benefit slightly at the top-line but also on

Robert W. Baird & Co.

12

March 18, 2013 | Medical Technology

the margin front given the lower COGS associated with selling two files instead of three to four for the
same procedure.
Celtra is XRAYs new lithium disilicate product that has been several years in the making. Over the last
five+ years, Ivoclars e.max lithium disilicate has put pressure on the sale of XRAYs Cercon ceramic
material given what many have considered to be a superior combination of strength, esthetics, and
handling/milling characteristics for e.max. With XRAY now offering a lithium disilicate product and Ivoclar
having grown this to an estimated $70-$80m product category, we believe XRAY could realize $5-$10m
of Celtra revenue over the next year (assuming ~10% share of this category), although to be fair some
of this revenue could cannibalize other restorative revenue XRAY would have generated.
SIRO ($71.05 - Neutral, $76 Price Target)
We discuss most of our SIRO-specific data points and takeaways throughout the CAD/CAM and DI
sections of this note. From a high-level, however, we note the following:
Remains high-quality CAD/CAM leader. SIROs booth was busy, dentists appeared excited for
Omnicam and the companys other new CAD/CAM offerings, and we continue to believe Omnicam and
the recently launched CEREC 4.2 software upgrade (especially the virtual articulation capabilities
included in this new software upgrade, see our CDS note HERE) continue to position CEREC as the
highest quality in-office CAD/CAM system available.
But more legitimate competition and lower prices are coming. As we discussed earlier in this
note, two clear trends we saw at IDS this year included the entry of larger, deeper-pocketed competitors
in the in-office CAD/CAM and DI market, and a continued move towards open software architecture
plans (.stl file compatibility) and lower prices in both the in-office CAD/CAM and DI markets. While these
lower priced competitive in-office CAD/CAM systems come with compromises on the quality front vs.
Omnicam, the open architecture (which SIRO does not provide, at least on the in-office side) and lower
price associated with these systems at least somewhat mitigate these quality gaps, in our opinion. More
importantly, the quality gap between these new systems and CEREC, while obvious and sizeable, may
not be as significant as we had initially anticipated, especially when considering single unit crowns and
other straightforward restorations and once a number of these competitive systems sort out relationships
with various material providers such as Ivoclar, VITA, 3M, etc. (which our checks suggest will likely
happen over the next 6-12 months for most).
What does that mean for SIRO? For FY13, we continue to believe SIRO can likely beat and raise
relative to current Street estimates as higher ASPs and a backlog of demand for Omnicam help fuel
15-25% growth for CEREC revenue this year (our projected +17% for CAD/CAM segment growth in
FY13 is unchanged today but admittedly feels a bit conservative), especially if an Omnicam upgrade
program in North America is initiated over the next few months as we believe it could be. But beyond
FY13, when ASP and upgrade tailwinds from Omnicams recent launch begin to moderate and traction
with new competitive in-office CAD/CAM and DI systems potentially begins to build, we believe SIROs
growth could slow back towards a mid- to upper-single digit rate at the top-line and only slightly faster
(upper-single to low double digits) at the EBIT/EPS line. While still healthy and roughly in line with where
our/the Streets current projections currently lie, we believe the ~20x NTM EPS multiple at which shares
currently trade already reflects these solid expectations, which keeps us cautious in the near-term and
our Neutral rating on SIRO unchanged today.
A few other IDS data points. As we discussed in an email to clients last week, Apollo pricing was
released at IDS and is 15,000, or nearly $20,000, with no associated data fees or CEREC club fees.
This no doubt makes Apollo one of the lowest-priced DI options currently available on the market,
especially when considering 5-year cost of ownership with this system. Also, we provide below the
prices and milling capabilities seen with SIROs new MC, MC X, and practice lab milling units. After
speaking with a number of SIRO sales rep and management contacts, consensus seems to be the

Robert W. Baird & Co.

13

March 18, 2013 | Medical Technology

company is unlikely to offer an upgrade program for these new milling units, as none of them do
anything overly new/incremental relative to the prior MC Compact, MC XL, and inLAB milling units, with
the new milling units simply refreshed with new, modestly improved/faster burs, engines, etc.
SIRONA'S CAD/CAM, SCANNER, AND MILLING UNIT OFFERINGS
Potential
for
CAD/CAM

System

Scanner/Milling Unit

Price

Features

Omnicam

Scanner

~$65,000

Omnicam Connect

Scanner

~$50,000 (1)

Bluecam

Scanner

~$35,000

Powder, visable blue light

Bluecam Connect

Scanner

~$20,000$25,000 (1)

Powder, visable blue light

Apollo DI

Scanner

~$20,000 (2) (3)

Powder required

MC XL/Practice Lab

Milling Unit

~$65,000 (4)

MC X

Milling Unit

~$52,000 (4)

MC

Milling Unit

~$41,600 (4)

Powder free, continuous color


streaming
Powder free, continuous color
streaming

Single/multiple crowns (10mm+),


abutments, drilling guides, CoCr
Single/mutliple crowns (4-5mm),
abutments
Single crowns only

(1) Assumes a ~$15,000 value for design software that does not come with Connect
(2) Release price of 15,000 euro implies ~$20,000
(3) IDS special allows for purchase at 99 euro/month for 10 years, no additional monthly costs
(4) U.S. pricing not yet available, based on equivalent euro pricing
Source: Company Reports, RWB Estimates

Price Target Justification and Risks


HSIC. Our $98 price target represents ~18x our forward-year NTM EPS projection of $5.47 and is just
above the companys 10-year average valuation of ~17.3x. We believe this multiple is justified by stable
to slightly improving end markets, HSICs ongoing ability to grow above market and capture share
across its dental, vet and medical businesses, and what we believe is a shareholder friendly capital
deployment strategy in which free cash flow is expected to be allocated evenly between acquisitions
(most of which are accretive within one year) and share repurchases over coming years. Risks include a
slower-than-expected dental market recovery in the U.S. or incremental slowing of dental demand in
Europe or other markets, acquisition and integration-related risks, as well as uncertainty in flu vaccine
dynamics that impacts HSIC in the second half of each year.
XRAY. Our $46 price target represents a multiple of just over ~17x to our forward-year NTM EPS
projection of $2.67. This ~17x multiple is just above the companys five-year average ~16.5x NTM P/E
multiple, with the modest premium warranted, in our view, by stable to modestly improving end-market
conditions and what we believe is a solid upper-single to double-digit multi-year EPS growth outlook for
the company as Astra Tech cost synergies and deleveraging efforts likely complement mid-single-digit
organic growth over coming years. Risks include a slower-than-expected dental market recovery in the
U.S. or incremental slowing of dental demand in Europe or other markets, risks around orthodontic
market share recovery, acquisition and integration related risks, as well as sensitivity to dealer
purchasing patterns.
SIRO. Our $76 price target assumes 19x our forward-year NTM EPS projection and ~13.5x NTM
EBITDA, well above five-year averages of 14.1x and 11.5x, respectively. While we believe strong
demand for Omnicam will help drive mid-teens EPS growth over the balance of this year and ultimately
help support above-average multiples, we also believe the extent to which management may be able to

Robert W. Baird & Co.

14

March 18, 2013 | Medical Technology

deliver FY'13 and/or FY'14 EPS upside isn't as great as we previously expected, which modestly
impacts the premium we believe shares currently warrant. Risks include growing competition in
CAD/CAM, high investor expectations (shares rose nearly 50% in 2012), and significant exposure to
O.U.S markets, including Europe, which currently accounts for ~40% of company-wide revenue.

Robert W. Baird & Co.

15

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202


Jeffrey D. Johnson, O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com
Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com
3/17/2013
Year ends Dec.

Q1-12

Q2-12

Henry Schein, Inc.


(HSIC - NASDAQ)

Q4-14E

YR-11

YR-12

Net Sales (000)


Global Dental
% Total Sales
Global Medical
% Total Sales
Global Veterinary
% Total Sales
Global Technology
% Total Sales

2,099,019 2,201,452 2,231,058 2,408,438


1,155,666 1,185,919 1,119,430 1,313,467
55.1%
53.9%
50.2%
54.5%
354,826
361,122
442,538
402,435
16.9%
16.4%
19.8%
16.7%
525,590
586,258
598,124
611,179
25.0%
26.6%
26.8%
25.4%
62,937
68,153
70,966
81,357
3.0%
3.1%
3.2%
3.4%

Q3-12

Q4-12

2,270,623 2,398,891 2,395,807 2,518,117


1,194,720 1,252,022 1,191,737 1,357,531
52.6%
52.2%
49.7%
53.9%
378,024
385,113
462,879
408,875
16.6%
16.1%
19.3%
16.2%
626,221
685,492
661,904
664,252
27.6%
28.6%
27.6%
26.4%
71,657
76,264
79,288
87,459
3.2%
3.2%
3.3%
3.5%

Q1-13E

Q2-13E

Q3-13E

Q4-13E

2,377,943 2,508,844 2,501,620 2,634,870


1,247,278 1,303,382 1,238,744 1,415,278
52.5%
52.0%
49.5%
53.7%
396,811
404,266
483,372
428,755
16.7%
16.1%
19.3%
16.3%
656,822
719,213
694,270
696,820
27.6%
28.7%
27.8%
26.4%
77,032
81,984
85,235
94,018
3.2%
3.3%
3.4%
3.6%

Q1-14E

Q2-14E

Q3-14E

8,530,241
4,764,898
55.9%
1,504,454
17.6%
2,010,269
23.6%
250,620
2.9%

8,939,967
4,774,482
53.4%
1,560,922
17.5%
2,321,151
26.0%
283,413
3.2%

9,583,438 10,023,277
4,996,010 5,204,681
52.1%
51.9%
1,634,892 1,713,203
17.1%
17.1%
2,637,868 2,767,124
27.5%
27.6%
314,668
338,269
3.3%
3.4%

YR-13E

YR-14E

Cost of Sales
Gross Profit
Gross Margin

1,488,440 1,577,057 1,622,014 1,744,943


610,579
624,395
609,044
663,495
29.1%
28.4%
27.3%
27.5%

1,614,374 1,722,187 1,738,169 1,818,293


656,249
676,705
657,638
699,825
28.9%
28.2%
27.4%
27.8%

1,689,362 1,799,403 1,812,380 1,897,107


688,581
709,441
689,240
737,764
29.0%
28.3%
27.6%
28.0%

6,112,187
2,418,054
28.3%

6,432,454
2,507,513
28.0%

6,893,022
2,690,416
28.1%

7,198,252
2,825,025
28.2%

SG&A Expense
% of Revenue

465,452
22.2%

466,333
21.2%

459,422
20.6%

482,153
20.0%

503,172
22.2%

503,767
21.0%

491,340
20.5%

512,085
20.3%

523,025
22.0%

524,348
20.9%

511,212
20.4%

537,514
20.4%

1,835,906
21.5%

1,873,360
21.0%

2,010,364
21.0%

2,096,099
20.9%

Operating Income
Operating Margin

145,127
6.9%

158,062
7.2%

149,622
6.7%

181,342
7.5%

153,077
6.7%

172,937
7.2%

166,299
6.9%

187,740
7.5%

165,556
7.0%

185,092
7.4%

178,028
7.1%

200,250
7.6%

582,148
6.8%

634,153
7.1%

680,052
7.1%

728,926
7.3%

Restructuring/One-time costs
Net Int. & Other
Pretax Income
Pretax Margin
Taxes
Tax Rate

11,832

3,360

5,000

15,192

5,000

(3,785)
129,510
6.2%
41,840
32.3%

(3,272)
151,430
6.9%
47,201
31.2%

(3,037)
146,585
6.6%
44,709
30.5%

(4,679)
176,663
7.3%
54,108
30.6%

(4,279)
143,798
6.3%
43,858
30.5%

(3,454)
169,483
7.1%
51,692
30.5%

(3,454)
162,845
6.8%
49,668
30.5%

(3,454)
184,286
7.3%
56,207
30.5%

(3,204)
162,352
6.8%
49,517
30.5%

(2,954)
182,138
7.3%
55,552
30.5%

(2,704)
175,324
7.0%
53,474
30.5%

(2,454)
197,796
7.5%
60,328
30.5%

(12,842)
569,306
6.7%
180,212
31.7%

(14,773)
604,188
6.8%
187,858
31.1%

(14,641)
660,411
6.9%
201,425
30.5%

(11,316)
717,610
7.2%
218,871
30.5%

(9,248)
(840)

(8,932)
530

(9,907)
2,227

(9,179)
2,606

(9,942)
3,106

(8,432)
557

(9,407)
2,338

(8,679)
2,736

(9,442)
3,261

(36,995)
15,561

(35,312)
7,058

(37,960)
8,468

(35,960)
8,892

Minority Interest
Equity in Earnings
of Affiliates
Income from Cont. Ops.

(8,309)
1,391

(9,216)
3,073

(8,539)
3,434

80,752

98,086

96,771

112,467

91,537

110,110

106,603

121,243

104,959

119,517

115,906

131,288

367,660

388,076

429,494

471,670

Net Income
Net Margin

80,752
3.8%

98,086
4.5%

96,771
4.3%

112,467
4.7%

91,537
4.0%

110,110
4.6%

106,603
4.4%

121,243
4.8%

104,959
4.4%

119,517
4.8%

115,906
4.6%

131,288
5.0%

367,660
4.3%

388,076
4.3%

429,494
4.5%

471,670
4.7%

$0.89
$0.98

$1.08
$1.11

$1.08
$1.08

$1.26
$1.26

$1.03
$1.07

$1.24
$1.24

$1.21
$1.21

$1.38
$1.38

$1.20
$1.20

$1.38
$1.38

$1.35
$1.35

$1.54
$1.54

$3.97
$3.97

$4.32
$4.44

$4.86
$4.90

$5.46
$5.46

90,666

90,553

89,647

89,284

88,884

88,484

88,084

87,684

87,134

86,584

86,034

85,484

92,620

89,823

88,284

86,309

EPS Reported
EPS (ex. non-recurring/cont. ops)
Average Shares (000)
% Changes
Net Sales
Global Dental
Global Medical
Global Veterinary
Global Technology
Cost of Sales
Gross Profit
SG&A Expense
Operating Income
Pretax Income
Net Income
EPS Reported
EPS (ex. non-recurring/cont. ops)

7.8%
5.5%
4.0%
15.3%
13.1%
7.7%
7.9%
5.4%
16.8%
7.5%
5.6%
8.5%
19.6%

3.3%
-1.3%
5.9%
11.4%
9.8%
3.9%
2.0%
1.2%
4.5%
2.1%
3.8%
7.1%
9.6%

5.7%
-0.3%
4.2%
19.2%
14.1%
6.4%
3.7%
3.4%
4.4%
4.3%
5.2%
9.0%
9.0%

2.9%
-2.4%
1.1%
16.1%
15.0%
3.4%
1.7%
-1.4%
11.0%
10.4%
7.4%
9.7%
9.7%

8.2%
3.4%
6.5%
19.1%
13.9%
8.5%
7.5%
8.1%
5.5%
11.0%
13.4%
15.6%
8.8%

9.0%
5.6%
6.6%
16.9%
11.9%
9.2%
8.4%
8.0%
9.4%
11.9%
12.3%
14.9%
12.3%

7.4%
6.5%
4.6%
10.7%
11.7%
7.2%
8.0%
6.9%
11.1%
11.1%
10.2%
12.1%
12.1%

4.6%
3.4%
1.6%
8.7%
7.5%
4.2%
5.5%
6.2%
3.5%
4.3%
7.8%
9.8%
9.8%

4.7%
4.4%
5.0%
4.9%
7.5%
4.6%
4.9%
3.9%
8.2%
12.9%
14.7%
17.0%
12.7%

4.6%
4.1%
5.0%
4.9%
7.5%
4.5%
4.8%
4.1%
7.0%
7.5%
8.5%
10.9%
10.9%

4.4%
3.9%
4.4%
4.9%
7.5%
4.3%
4.8%
4.0%
7.1%
7.7%
8.7%
11.3%
11.3%

4.6%
4.3%
4.9%
4.9%
7.5%
4.3%
5.4%
5.0%
6.7%
7.3%
8.3%
11.1%
11.1%

13.3%
7.9%
9.5%
30.8%
25.3%
14.1%
11.4%
12.1%
9.1%
13.4%
12.9%
13.6%
10.8%

4.8%
0.2%
3.8%
15.5%
13.1%
5.2%
3.7%
2.0%
8.9%
6.1%
5.6%
8.8%
11.8%

7.2%
4.6%
4.7%
13.6%
11.0%
7.2%
7.3%
7.3%
7.2%
9.3%
10.7%
12.6%
10.5%

4.6%
4.2%
4.8%
4.9%
7.5%
4.4%
5.0%
4.3%
7.2%
8.7%
9.8%
12.3%
11.4%

Average Shares (000)

-2.7%

-3.1%

-3.5%

-2.1%

-2.0%

-2.3%

-1.7%

-1.8%

-2.0%

-2.1%

-2.3%

-2.5%

-0.7%

-3.0%

-1.7%

-2.2%

5.0%
1.6%
0.8%

3.5%
0.4%
0.6%

4.7%
0.0%
0.0%

4.6%
0.0%
0.0%

4.4%
0.0%
0.0%

4.6%
0.0%
0.0%

4.5%
2.4%
6.4%

5.1%
-1.9%
1.6%

4.0%
0.8%
2.4%

4.6%
0.0%
0.0%

Internal Growth
7.8%
4.6%
4.4%
6.0%
3.2%
4.4%
Foreign Currency
-0.6%
-3.2%
-3.2%
-0.6%
0.1%
1.0%
Net Acquistion/Chg Selling Period
0.6%
1.9%
4.5%
-2.5%
4.9%
3.5%
Please refer to "Appendix - Important Disclosures" and Analyst Certification. Source: Company Reports and RWB Estimates

Robert W. Baird & Co.

16

HENRY SCHEIN INC


HSIC (NASDAQ)

Jeffrey D. Johnson, O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com


Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com

Date Printed:
Fiscal Year:

($ 000s)
Balance Sheet
ASSETS
Cash & Equivalents
Receivables
Inventory
Other
Total Current

296,646
248,587
610,020
708,307
584,103
666,786
154,079
225,119
1,644,848 1,848,799

369,570
471,154
150,348
147,284
122,080
734,027
725,397
885,784
888,248 1,015,194
731,654
775,199
870,206
947,849 1,203,507
230,815
231,783
262,964
289,127
363,596
2,066,066 2,203,533 2,169,302 2,272,508 2,704,377

Fixed Assets
Other Assets
Total Assets

225,038
247,671
1,011,260 1,217,514
2,881,146 3,313,984

247,835
259,576
252,573
262,088
273,458
1,285,309 1,372,876 2,125,596 2,205,548 2,356,162
3,599,210 3,835,985 4,547,471 4,740,144 5,333,997

2006

2007

LIABILITIES & EQUITY


Current Debt
Payables
Other
Total Current

43,564
414,062
352,462
810,088

33,296
474,009
433,334
940,639

LT Debt & Lease


Deferred Taxes
Other Liabilities

455,806
62,334
60,209

423,274
80,260
53,906

Redeemable noncontrolling interests


Common Equity
1,470,963 1,779,982
Total
2,881,146 3,313,984

Balance Sheet Analysis


LT Debt / Equity
LT Debt / Total Capital
Total Debt / Total Capital
Net Debt / Total Capital
Current Ratio
EBIT / Interest
Working Capital Days
Days Sales Outstanding
Days Payable Outstanding
Days Inventory on Hand
Inventory Turnover
ROIC
Net Income is recorded as Reported

Robert W. Baird & Co.

2006
31%
23%
25%
10%
2.0
11.0
58.6
43.1
40.1
55.6
6.6
9.8%

2007
23%
19%
20%
9%
2.0
15.3
56.4
40.7
38.6
54.4
6.7
11.0%

2008

2009

2010

2011

2012

161,341
24,492
45,995
77,833
45,158
554,773
521,079
590,029
621,468
787,658
467,551
530,683
532,063
572,339
639,893
1,183,665 1,076,254 1,168,087 1,271,640 1,472,709
256,648
95,399
58,109

243,373
100,976
75,304

395,309
190,225
76,753

363,524
188,739
80,568

488,121
196,814
125,314

233,035
178,570
304,140
402,050
435,175
1,772,354 2,161,508 2,412,957 2,433,623 2,615,864
3,599,210 3,835,985 4,547,471 4,740,144 5,333,997

2008
14%
13%
19%
2%
1.7
15.1
56.2
41.2
41.7
56.6
6.4
12.1%

2009
11%
10%
11%
NM
2.0
20.0
57.8
40.7
42.5
59.5
6.1
14.2%

2010
16%
14%
15%
10%
1.9
15.9
57.3
39.1
37.9
56.1
6.5
13.2%

2011
15%
13%
15%
10%
1.8
19.2
56.1
38.0
36.2
54.3
6.7
13.6%

2012
19%
16%
17%
13%
1.8
22.6
59.9
38.9
40.0
61.0
6.0
13.5%

Cash Flow Statement


Net Income
plus Dep. & Amortization
Deferred Taxes
Change in Working Capital
Other
Cash Flow from Operations
Per Share
% y-o-y growth
Capital Expenditures
Dividends

2006
163,759
64,930
2,872
(45,122)
48,878
235,317
2.62
-7%
67,000
0

2007
215,173
73,936
(7,404)
(82,532)
71,038
270,211
2.96
15%
56,821
0

2008
243,143
78,127
(4,083)
5,602
61,860
384,649
4.22
42%
50,870
0

2009
333,157
81,493
(26,214)
(28,256)
36,710
396,890
4.38
3%
51,627
0

2010
352,131
101,214
(6,051)
(97,159)
38,739
388,874
4.17
-2%
39,000
0

2011
404,656
115,896
(19,319)
(1,168)
54,560
554,625
5.99
43%
45,176
0

2012
423,388
125,322
4,407
(214,037)
69,019
408,099
4.54
-26%
51,237
0

2013E
467,454
131,588
(15,000)
20,000
15,000
619,042
7.01
52%
63,000
0

2014E
507,630
138,168
(5,000)
(10,000)
20,000
650,798
7.54
5%
57,000
0

Excess Cash Flow


Per share

168,317
1.87

213,390
2.34

333,779
3.66

345,263
3.81

349,874
3.75

509,449
5.50

356,862
3.97

556,042
6.30

593,798
6.88

Du Pont Formula
Net Margins (N/S)
Assets Turnover (S/A)
Leverage
(A/E)
Return on Equity

Valuation Measures
Historical P/E High (cal. year)
Historical P/E Low (cal. year)
Historical P/CF High
Historical P/CF Low

2006
3.2%
1.8
2.0
12.1%

2007
3.6%
1.9
1.9
13.2%

2008
3.9%
1.8
1.9
14.0%

2009
4.8%
1.8
1.9
15.8%

2010
4.3%
1.8
1.8
14.2%

2011
4.3%
1.8
1.9
15.2%

2012
4.3%
1.8
2.0
15.4%

2013E
4.5%
1.8
1.9
15.1%

2014E
4.7%
1.7
1.7
14.1%

2006
27
21
21
16

2007
24
18
21
16

2008
22
11
15
8

2009
18
11
13
8

2010
14
17
12
15

2011
19
15
13
10

2012
18
15
18
14

2013E

2014E

Current Price
3/15/2013:
$90.63
Debt Adjusted Market Value
Market Value
ST+LT Debt
Other Liabilities
Cash & Equivalents
Total DAMV
EBITDA
DAMV / EBITDA

4,399,384 5,656,664 3,346,898 4,763,246 5,725,723 5,967,507 7,223,566 8,001,179


499,370
456,570
417,989
267,865
441,304
441,357
533,279
445,000
60,209
53,906
58,109
75,304
76,753
80,568
125,314
85,000
296,646
248,587
369,570
471,154
150,348
147,284
122,080
533,122
4,662,317 5,918,553 3,453,426 4,635,261 6,093,432 6,342,148 7,760,079 7,998,057
369,065
460,650
521,627
548,598
634,628
698,044
759,475
811,641
12.6

12.8

6.6

8.4

9.6

9.1

10.2

9.9

7,822,185
445,000
85,000
1,026,920
7,325,265
867,093
8.4

17

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202


Jeffrey D. Johnson, O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com
Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com
3/17/2013
Year ends Dec.

Q1-12

Henry Schein, Inc.


(HSIC - NASDAQ)

Q2-12

Q3-12

Q4-12

Q1-13E

Q2-13E

Q3-13E

Q4-13E

Q1-14E

Q2-14E

Q3-14E

Q4-14E

YR-11

YR-12

YR-13E

YR-14E

Net Sales

2,099,019

2,201,452

2,231,058

2,408,438

2,270,623

2,398,891

2,395,807

2,518,117

2,377,943

2,508,844

2,501,620

2,634,870

8,530,241

8,939,967

9,583,438

Global Dental

1,155,666
55.1%
905,611
78.4%
250,055
21.6%
699,619
60.5%
569,976
81.5%
129,644
18.5%
456,047
39.5%
335,635
73.6%
120,411
26.4%

1,185,919
53.9%
899,333
75.8%
286,586
24.2%
740,725
62.5%
571,031
77.1%
169,694
22.9%
445,194
37.5%
328,302
73.7%
116,891
26.3%

1,119,430
50.2%
842,901
75.3%
276,529
24.7%
714,781
63.9%
554,445
77.6%
160,336
22.4%
404,649
36.1%
288,456
71.3%
116,193
28.7%

1,313,467
54.5%
894,396
68.1%
419,071
31.9%
807,597
61.5%
536,074
66.4%
271,523
33.6%
505,870
38.5%
358,322
70.8%
147,548
29.2%

1,194,720
52.6%
939,383
78.6%
255,337
21.4%
731,652
61.2%
592,273
81.0%
139,379
19.0%
463,069
38.8%
347,110
75.0%
115,958
25.0%

1,252,022
52.2%
946,025
75.6%
305,997
24.4%
776,783
62.0%
596,736
76.8%
180,047
23.2%
475,239
38.0%
349,289
73.5%
125,951
26.5%

1,191,737
49.7%
889,523
74.6%
302,214
25.4%
748,190
62.8%
578,308
77.3%
169,882
22.7%
443,547
37.2%
311,215
70.2%
132,332
29.8%

1,357,531
53.9%
932,652
68.7%
424,880
31.3%
816,622
60.2%
558,917
68.4%
257,705
31.6%
540,910
39.8%
373,735
69.1%
167,174
30.9%

1,247,278
52.5%
973,488
78.0%
273,790
22.0%
765,099
61.3%
615,964
80.5%
149,135
19.5%
482,179
38.7%
357,524
74.1%
124,655
25.9%

1,303,382
52.0%
980,373
75.2%
323,009
24.8%
813,255
62.4%
620,605
76.3%
192,650
23.7%
490,126
37.6%
359,767
73.4%
130,359
26.6%

1,238,744
49.5%
921,991
74.4%
316,752
25.6%
783,214
63.2%
601,440
76.8%
181,774
23.2%
455,530
36.8%
320,551
70.4%
134,978
29.6%

1,415,278
53.7%
969,015
68.5%
446,263
31.5%
859,812
60.8%
584,068
67.9%
275,745
32.1%
555,465
39.2%
384,947
69.3%
170,518
30.7%

4,764,898
55.9%
3,519,166
73.9%
1,245,732
26.1%
2,884,257
60.5%
2,197,290
76.2%
686,967
23.8%
1,880,641
39.5%
1,321,876
70.3%
558,765
29.7%

4,774,482
53.4%
3,542,242
74.2%
1,232,240
25.8%
2,962,723
62.1%
2,231,526
75.3%
731,197
24.7%
1,811,759
37.9%
1,310,715
72.3%
501,044
27.7%

4,996,010
52.1%
3,707,582
74.2%
1,288,428
25.8%
3,073,246
61.5%
2,326,233
75.7%
747,013
24.3%
1,922,764
38.5%
1,381,349
71.8%
541,415
28.2%

5,204,681
51.9%
3,844,867
73.9%
1,359,814
26.1%
3,221,381
61.9%
2,422,077
75.2%
799,304
24.8%
1,983,300
38.1%
1,422,790
71.7%
560,510
28.3%

354,826
16.9%
333,039
93.9%
21,787
6.1%

361,122
16.4%
341,796
94.6%
19,327
5.4%

442,538
19.8%
424,065
95.8%
18,473
4.2%

402,435
16.7%
380,850
94.6%
21,585
5.4%

378,024
16.6%
355,191
94.0%
22,833
6.0%

385,113
16.1%
364,385
94.6%
20,728
5.4%

462,879
19.3%
442,671
95.6%
20,208
4.4%

408,875
16.2%
386,038
94.4%
22,837
5.6%

396,811
16.7%
372,951
94.0%
23,860
6.0%

404,266
16.1%
382,605
94.6%
21,661
5.4%

483,372
19.3%
462,255
95.6%
21,117
4.4%

428,755
16.3%
404,890
94.4%
23,865
5.6%

1,504,454
17.6%
1,417,071
94.2%
87,383
5.8%

1,560,922
17.5%
1,479,750
94.8%
81,172
5.2%

1,634,892
17.1%
1,548,286
94.7%
86,606
5.3%

1,713,203
17.1%
1,622,700
94.7%
90,503
5.3%

525,590
25.0%
266,953
50.8%
258,637
49.2%

586,258
26.6%
297,229
50.7%
289,029
49.3%

598,124
26.8%
276,536
46.2%
321,588
53.8%

611,179
25.4%
281,592
46.1%
329,587
53.9%

626,221
27.6%
277,631
44.3%
348,590
55.7%

685,492
28.6%
315,063
46.0%
370,429
54.0%

661,904
27.6%
294,511
44.5%
367,392
55.5%

664,252
26.4%
299,895
45.1%
364,356
54.9%

656,822
27.6%
294,289
44.8%
362,533
55.2%

719,213
28.7%
333,966
46.4%
385,246
53.6%

694,270
27.8%
312,182
45.0%
382,088
55.0%

696,820
26.4%
317,889
45.6%
378,931
54.4%

2,010,269
23.6%
993,182
49.4%
1,017,087
50.6%

2,321,151
26.0%
1,122,310
48.4%
1,198,840
51.6%

2,637,868
27.5%
1,187,100
45.0%
1,450,767
55.0%

2,767,124
27.6%
1,258,326
45.5%
1,508,798
54.5%

62,937
3.0%

68,153
3.1%

70,966
3.2%

81,357
3.4%

71,657
3.2%

76,264
3.2%

79,288
3.3%

87,459
3.5%

77,032
3.2%

81,984
3.3%

85,235
3.4%

94,018
3.6%

250,620
2.9%

283,412
3.2%

314,668
3.3%

338,269
3.4%

Q1-12

Q2-12

Q3-12E

Q4-12

Q1-13E

Q2-13E

Q3-13E

Q4-13E

Q1-14E

Q2-14E

Q3-14E

Q4-14E

YR-11

YR-12

YR-13E

YR-14E

7.8%
7.8%
-0.6%
0.6%

3.3%
4.6%
-3.2%
1.9%

5.7%
4.4%
-3.2%
4.5%

2.9%
6.0%
-0.6%
-2.5%

8.2%
3.2%
0.1%
4.9%

9.0%
4.4%
1.0%
3.5%

7.4%
5.0%
1.6%
0.8%

4.6%
3.5%
0.4%
0.6%

4.7%
4.7%
0.0%
0.0%

4.6%
4.6%
0.0%
0.0%

4.4%
4.4%
0.0%
0.0%

4.6%
4.6%
0.0%
0.0%

13.3%
4.5%
2.4%
6.4%

4.8%
5.1%
-1.9%
1.6%

7.2%
4.0%
0.8%
2.4%

4.6%
4.6%
0.0%
0.0%

5.5%
6.2%

-1.3%
2.1%

-0.3%
2.3%

-2.4%
3.6%

3.4%
2.5%

5.6%
3.7%

6.5%
4.7%

3.4%
3.1%

4.4%
4.4%

4.1%
4.1%

3.9%
4.0%

4.3%
4.3%

7.9%
3.0%

0.2%
2.8%

4.6%
3.5%

4.2%
4.2%

7.6%
8.2%
-1.3%
-0.2%

-0.7%
1.9%
-3.0%
7.9%

0.2%
2.7%
-1.9%
1.4%

-3.9%
1.4%
1.0%
11.0%

3.7%
2.5%
2.1%
2.3%

5.2%
3.0%
6.8%
5.6%

5.5%
3.9%
9.3%
7.3%

4.3%
3.8%
1.4%
1.7%

3.6%
3.6%
7.2%
7.2%

3.6%
3.6%
5.6%
5.6%

3.7%
3.7%
4.8%
4.9%

3.9%
3.9%
5.0%
5.1%

8.4%
4.1%
6.5%
-0.1%

0.7%
3.5%
-1.1%
5.8%

4.7%
3.3%
4.6%
4.0%

3.7%
3.7%
5.5%
5.6%

4.6%
4.5%
7.2%
7.1%
-5.5%
-5.6%

3.6%
3.2%
2.3%
1.9%
8.5%
7.9%

4.0%
3.1%
3.0%
2.3%
7.6%
5.6%

-0.7%
7.0%
-5.8%
0.9%
11.1%
21.9%

4.6%
3.7%
3.9%
2.9%
7.5%
7.5%

4.9%
4.0%
4.5%
3.4%
6.1%
6.0%

4.7%
4.7%
4.3%
4.3%
6.0%
6.0%

1.1%
1.2%
4.3%
4.4%
-5.1%
-5.0%

4.6%
4.6%
4.0%
4.0%
7.0%
7.0%

4.7%
4.7%
4.0%
4.0%
7.0%
7.0%

4.7%
4.7%
4.0%
4.0%
7.0%
7.0%

5.3%
5.3%
4.5%
4.5%
7.0%
7.0%

6.6%
3.1%
6.9%
3.8%
5.8%
0.8%

2.7%
4.0%
1.6%
3.1%
6.4%
10.2%

3.7%
3.3%
4.2%
3.7%
2.2%
2.5%

4.8%
4.8%
4.1%
4.1%
7.0%
7.0%

6.9%
8.9%

-8.5%
0.5%

-7.1%
1.0%

-4.9%
-1.5%

1.5%
0.4%

6.7%
3.2%

9.6%
4.7%

6.9%
5.6%

4.1%
4.1%

3.1%
3.1%

2.7%
2.7%

2.7%
2.7%

9.9%
2.8%

-3.7%
1.1%

6.1%
3.5%

3.1%
3.1%

8.2%
10.0%
3.6%
6.0%

-5.5%
3.4%
-15.9%
-6.5%

-4.7%
3.4%
-12.6%
-4.5%

-0.8%
2.2%
-13.5%
-9.2%

3.4%
2.0%
-3.7%
-4.0%

6.4%
2.5%
7.8%
5.0%

7.9%
3.0%
13.9%
9.0%

4.3%
3.0%
13.3%
12.0%

3.0%
3.0%
7.5%
7.5%

3.0%
3.0%
3.5%
3.5%

3.0%
3.0%
2.0%
2.0%

3.0%
3.0%
2.0%
2.0%

11.0%
4.6%
7.3%
-1.3%

-0.8%
4.6%
-10.3%
-4.2%

5.4%
2.6%
8.1%
5.8%

3.0%
3.0%
3.5%
3.5%

Global Medical Reported Growth


Global Medical Internal Growth

4.0%
3.6%

5.9%
6.6%

4.2%
3.5%

1.1%
6.9%

6.5%
5.0%

6.6%
5.0%

4.6%
5.0%

1.6%
2.1%

5.0%
5.0%

5.0%
5.0%

4.4%
5.0%

4.9%
5.0%

9.5%
6.3%

3.8%
4.8%

4.7%
4.2%

4.8%
5.0%

North American Medical


Reported Growth
Internal Growth (incl flu/other)
Internal Growth (ex flu/other)

4.0%
3.4%
3.4%

7.2%
7.2%
7.2%

5.1%
3.8%
8.2%

1.7%
7.2%
7.6%

6.7%
5.0%
5.0%

6.6%
5.0%
5.0%

4.4%
5.0%
5.0%

1.4%
2.0%
2.0%

5.0%
5.0%
5.0%

5.0%
5.0%
5.0%

4.4%
5.0%
5.0%

4.9%
5.0%
5.0%

9.8%
6.7%
8.0%

4.4%
5.0%
6.2%

4.6%
4.3%
4.3%

4.8%
5.0%
5.0%

International Medical
Reported Growth
Internal Growth

3.9%
7.4%

-11.7%
-2.2%

-13.2%
-2.1%

-7.2%
2.9%

4.8%
4.5%

7.3%
4.5%

9.4%
4.5%

5.8%
4.5%

4.5%
4.5%

4.5%
4.5%

4.5%
4.5%

4.5%
4.5%

5.4%
-0.8%

-7.1%
1.1%

6.7%
4.5%

4.5%
4.5%

Global Vet Reported Growth


Global Vet Internal Growth

15.3%
14.8%

11.4%
8.7%

19.2%
9.1%

16.1%
10.6%

19.1%
2.9%

16.9%
5.5%

10.7%
5.7%

8.7%
5.7%

4.9%
4.9%

4.9%
4.9%

4.9%
4.9%

4.9%
4.9%

30.8%
6.7%

15.5%
10.2%

13.6%
5.0%

4.9%
4.9%

North American Vet


Reported Growth
Internal Growth

15.8%
15.8%

14.2%
14.2%

12.2%
12.2%

10.1%
18.4%

4.0%
4.0%

6.0%
6.0%

6.5%
6.5%

6.5%
6.5%

6.0%
6.0%

6.0%
6.0%

6.0%
6.0%

6.0%
6.0%

11.7%
8.8%

13.0%
15.0%

5.8%
5.8%

6.0%
6.0%

International Vet
Reported Growth
Internal Growth

14.9%
13.7%

8.6%
3.4%

25.9%
6.2%

21.9%
3.1%

34.8%
2.0%

28.2%
5.0%

14.2%
5.0%

10.5%
5.0%

4.0%
4.0%

4.0%
4.0%

4.0%
4.0%

4.0%
4.0%

56.9%
3.7%

17.9%
5.5%

21.0%
4.4%

4.0%
4.0%

13.1%
9.0%

9.8%
8.6%

14.1%
11.2%

15.0%
13.5%

13.9%
7.5%

11.9%
7.5%

11.7%
7.5%

7.5%
7.5%

7.5%
7.5%

7.5%
7.5%

7.5%
7.5%

7.5%
7.5%

25.3%
9.6%

13.1%
10.8%

11.0%
7.5%

7.5%
7.5%

% of Company-wide sales
Global Dental Consumables
% of Dental Sales
Global Dental Equipment
% of Dental Sales
North American Dental
% of Dental Sales
NA Dental Consumables
% of NA Dental Sales
NA Dental Equipment
% of NA Dental Sales
International Dental
% of Dental Sales
International Dental Consumables
% of International Dental Sales
International Dental Equipment
% of International Dental Sales

Global Medical
% of Company-wide sales
North American Medical
% of Medical Sales
International Medical
% of Medical Sales

Global Vet
% of Company-wide sales
North American Vet
% of Vet Sales
International Vet
% of Vet Sales

Global Technology
% Company-wide sales

Y/Y % Change

10,023,277

Net Sales
Reported Growth
Internal Growth
Fx Impact
Acquisition Growth/Chg in Selling Period

Global Dental
Global Dental Reported Growth
Global Dental Internal Growth
Global Dental Consumables Reported Growth
Global Dental Consumables Internal Growth
Global Dental Equipment Reported Growth
Global Dental Equipment Internal Growth
North American Dental
Reported Growth
Internal Growth
NA Dental Consumables Reported Growth
NA Dental Consumables Internal Growth
NA Dental Equipment Reported Growth
NA Dental Equipment Internal Growth
International Dental
Reported Growth
Internal Growth
International Dental Consumables Reported Growth
International Dental Consumables Internal Growth
International Dental Equipment Reported Growth
International Dental Equipment Internal Growth

Global Medical

Global Vet

Global Technology
Global Technology Reported Growth
Global Technology Internal Growth

Please refer to "Appendix - Important Disclosures" and Analyst Certification. Source: Company Reports and RWB Estimates

Robert W. Baird & Co.

18

BAIRD 777 EAST WISCONSIN AVENUE, MILWAUKEE, WI 53202


Jeffrey D. Johnson, O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com
Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com

DENTSPLY INTERNATIONAL
(XRAY - NASDAQ)

3/17/2013
Year ends Dec.
(000)
Net Sales
Sales (ex pm)
% of Rev.
Precious Metal Content
% of Rev.
Cost of Sales
Gross Profit
Gross Profit (ex Astra Tech amort/inv step-up)
Gross Margin
Gross Margin (ex pm)
Gross Margin (ex pm/amort/inv step up)

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13E

Q2-13E

Q3-13E

Q4-13E

Q1-14E

Q2-14E

Q3-14E

Q4-14E

yr-11E

yr-12

yr-13E

yr-14E

716,413
665,625
92.9%
50,788
7.1%
323,663
392,750
396,084
54.8%
59.0%
59.5%

762,994
698,480
91.5%
64,514
8.5%
355,525
407,469
411,905
53.4%
58.3%
59.0%

695,734
647,120
93.0%
48,614
7.0%
331,619
364,115
368,311
52.3%
56.3%
56.9%

753,288
703,473
93.4%
49,815
6.6%
361,235
392,053
396,289
52.0%
55.7%
56.3%

721,870
672,352
93.1%
49,518
6.9%
328,499
393,371
397,607
54.5%
58.5%
59.1%

796,369
733,468
92.1%
62,901
7.9%
370,605
425,764
430,000
53.5%
58.0%
58.6%

728,820
681,421
93.5%
47,399
6.5%
347,012
381,808
386,044
52.4%
56.0%
56.7%

773,066
724,496
93.7%
48,570
6.3%
370,696
402,369
406,605
52.0%
55.5%
56.1%

747,530
699,250
93.5%
48,280
6.5%
337,810
409,720
413,956
54.8%
58.6%
59.2%

824,342
763,014
92.6%
61,329
7.4%
380,689
443,653
447,889
53.8%
58.1%
58.7%

755,229
709,016
93.9%
46,214
6.1%
356,744
398,485
402,721
52.8%
56.2%
56.8%

801,222
753,866
94.1%
47,355
5.9%
381,785
419,437
423,673
52.3%
55.6%
56.2%

2,537,718
2,332,589
91.9%
205,129
8.1%
1,264,278
1,273,440
1,317,028
50.2%
54.6%
56.5%

2,928,429
2,714,698
92.7%
213,731
7.3%
1,372,042
1,556,387
1,572,589
53.1%
57.3%
57.9%

3,020,124
2,811,736
93.1%
208,388
6.9%
1,416,811
1,603,313
1,620,257
53.1%
57.0%
57.6%

3,128,323
2,925,145
93.5%
203,178
6.5%
1,457,029
1,671,295
1,688,239
53.4%
57.1%
57.7%

SG&A Expense
SG&A Exp ex amortization
% of Revenue
% of Revenue (ex pm)
% of Revenue (ex pm, amort)

304,353
292,304
42.5%
45.7%
43.9%

296,034
287,782
38.8%
42.4%
41.2%

260,352
255,235
37.4%
40.2%
39.4%

287,992
279,840
38.2%
40.9%
39.8%

294,900
286,748
40.9%
43.9%
42.6%

298,605
290,453
37.5%
40.7%
39.6%

274,588
266,436
37.7%
40.3%
39.1%

288,387
280,235
37.3%
39.8%
38.7%

301,865
293,713
40.4%
43.2%
42.0%

308,779
300,627
37.5%
40.5%
39.4%

283,959
275,807
37.6%
40.0%
38.9%

299,144
290,992
37.3%
39.7%
38.6%

936,847
926,567
36.9%
40.2%
39.7%

1,148,731
1,115,161
39.2%
42.3%
41.1%

1,156,480
1,123,872
38.3%
41.1%
40.0%

1,193,748
1,161,140
38.2%
40.8%
39.7%

Acquisition-Related Activities

8,644

5,629

(1,423)

3,619

59,158

16,469

Restructuring Costs & Other One Time Charges

1,237

2,528

15,097

6,854

35,865

25,716

300,728
359,887
413,755
12.9%
15.4%
17.7%

381,939
424,124
473,896
14.1%
15.6%
17.5%

87,160
97,041
112,424
13.1%
14.6%
16.9%

108,906
117,063
129,751
15.6%
16.8%
18.6%

88,666
102,340
111,653
13.7%
15.8%
17.3%

97,207
107,680
120,068
13.8%
15.3%
17.1%

98,472
98,472
110,860
14.6%
14.6%
16.5%

Interest and Other, Net

(13,969)

(13,321)

(12,885)

(11,088)

(11,088)

(11,088)

(9,963)

(9,963)

(9,713)

(9,463)

(9,213)

(8,963)

(44,617)

(51,263)

(42,102)

(37,352)

73,191
10.2%
14,715
20.1%

95,585
12.5%
14,875
15.6%

75,781
10.9%
18,960
25.0%

86,119
11.4%
(39,630)
-46.0%

87,384
12.1%
20,098
23.0%

116,071
14.6%
26,696
23.0%

97,258
13.3%
22,369
23.0%

104,019
13.5%
23,924
23.0%

98,142
13.1%
22,082
22.5%

125,411
15.2%
28,217
22.5%

105,313
13.9%
23,695
22.5%

111,329
13.9%
25,049
22.5%

256,111
10.1%
11,016
4.3%

330,676
11.3%
8,920
2.7%

404,732
13.4%
93,088
23.0%

440,195
14.1%
99,044
22.5%

Equity in Affiliates
Minority Interest

(4,248)
(944)

1,329
(1,276)

(2,529)
(928)

2,178
(1,127)

Net Income
Net Margin

53,284
7.4%

80,763
10.6%

53,364
7.7%

126,800
16.8%

$0.37
$0.45
$0.52

$0.56
$0.55
$0.62

$0.37
$0.37
$0.51

143,984

143,863

143,884

EPS (Reported)
EPS (ex non-recurring)
EPS (ex non-recur/Astra Tech amort)
Ave. Shares (000)
% Changes
Net Sales
Sales (ex pm)
Precious Metal Content
Cost of Sales
Gross Profit
SG&A Expense

25.6%
26.3%
16.8%
19.6%
30.9%

25.2%
23.8%
41.9%
20.7%
29.4%

12.3%
14.8%
-13.2%
3.0%
22.3%

107,221
107,221
119,609
15.7%
15.7%
17.6%

113,982
113,982
126,370
15.7%
15.7%
17.4%

107,855
107,855
120,243
15.4%
15.4%
17.2%

134,874
134,874
147,262
17.7%
17.7%
19.3%

114,526
114,526
126,914
16.2%
16.2%
17.9%

120,292
120,292
132,680
16.0%
16.0%
17.6%

Operating Income (GAAP)


Operating Income (ex non-recurring)
Operating Income (ex non-recurring/Astra amort)
Operating Margin (ex pm) - GAAP
OM% (ex pm, non-recurring)
OM% (ex pm/non-recurring/Astra amort)

Pretax Income
Pretax Margin
Taxes
Tax Rate

127,159
127,159
139,547
17.3%
17.3%
19.0%

89,375
11.2%

74,888
10.3%

80,095
10.4%

76,060
10.2%

97,193
11.8%

81,617
10.8%

86,280
10.8%

$0.88
$0.88
$0.56

$0.47
$0.47
$0.53

$0.62
$0.62
$0.69

$0.52
$0.52
$0.59

$0.56
$0.56
$0.62

$0.53
$0.53
$0.60

$0.68
$0.68
$0.75

$0.57
$0.57
$0.64

$0.61
$0.61
$0.68

$1.70
$1.93
$2.03

$2.18
$2.36
$2.22

$2.16
$2.16
$2.42

$2.40
$2.40
$2.67

144,297

144,297

144,297

144,297

144,297

143,547

142,797

142,047

141,297

143,553

143,945

144,297

142,422

0.8%
1.0%
-2.5%
1.5%
0.2%

4.4%
5.0%
-2.5%
4.2%
4.5%

4.8%
5.3%
-2.5%
4.6%
4.9%

2.6%
3.0%
-2.5%
2.6%
2.6%

3.6%
4.0%
-2.5%
2.8%
4.2%

3.5%
4.0%
-2.5%
2.7%
4.2%

3.6%
4.0%
-2.5%
2.8%
4.4%

3.6%
4.1%
-2.5%
3.0%
4.2%

(3,270)
(4,275)
314,211
10.7%

14.3%
14.8%
8.5%
15.9%
12.7%

15.4%
16.4%
4.2%
8.5%
22.2%

0
0

477,547
477,547
527,099
16.3%
16.3%
18.0%

67,285
9.3%

2.1%
3.8%
-17.2%
-4.2%
8.6%

2,351
(2,926)
244,520
9.6%

446,834
446,834
496,386
15.9%
15.9%
17.7%

311,643
10.3%

0
0
341,151
10.9%

3.1%
3.6%
-2.5%
3.3%
3.0%

3.6%
4.0%
-2.5%
2.8%
4.2%

51.6%

40.3%

12.5%

-1.9%

-3.1%

0.9%

5.5%

0.1%

2.4%

3.4%

3.4%

3.7%

26.8%

22.6%

0.7%

3.2%

Operating Income - GAAP


Operating Income - Adjusted

-11.6%
-2.2%

12.3%
12.0%

122.8%
36.2%

48.8%
33.0%

13.0%
1.5%

16.8%
8.6%

20.9%
4.8%

17.3%
5.9%

9.5%
9.5%

6.1%
6.1%

6.8%
6.8%

5.5%
5.5%

-20.7%
-8.6%

27.0%
17.8%

17.0%
5.4%

6.9%
6.9%

Pretax Income

-22.1%

3.4%

299.3%

69.8%

19.4%

21.4%

28.3%

20.8%

12.3%

8.0%

8.3%

7.0%

-28.4%

29.1%

22.4%

8.8%

Net Income

-22.9%

8.8%

-11.9%

212.3%

26.3%

10.7%

40.3%

-36.8%

13.0%

8.7%

9.0%

7.7%

-8.0%

28.5%

-0.8%

9.5%

EPS (Reported)
EPS (Ex. Non-recurring)
EPS (ex. Non-recur/ex Astra-Tech amort)

-22.8%
-8.9%
4.5%

8.4%
1.0%
11.5%

-12.2%
-14.7%
11.5%

210.7%
94.0%
11.5%

26.0%
4.5%
1.9%

10.3%
12.1%
11.4%

39.9%
39.9%
13.7%

-36.8%
-36.8%
10.2%

13.6%
13.6%
12.1%

9.9%
9.9%
9.1%

10.7%
10.7%
9.8%

10.0%
10.0%
9.2%

-6.4%
1.1%
4.2%

28.2%
22.4%
9.4%

-1.1%
-8.4%
9.3%

10.9%
10.9%
10.0%

0.0%

0.3%

0.3%

0.5%

0.2%

0.3%

0.3%

0.0%

-0.5%

-1.0%

-1.6%

-2.1%

-1.7%

0.3%

0.2%

-1.3%

1.1%
27.2%
-2.0%
-0.7%

3.6%
26.4%
-6.2%
1.3%

4.7%
15.4%
-5.3%
-2.5%

5.9%
0.0%
-2.1%
-1.7%

0.8%
0.0%
0.2%
-0.2%

3.7%
0.0%
1.3%
-0.6%

3.0%
0.0%
2.3%
-0.5%

2.3%
0.0%
0.7%
-0.4%

4.0%
0.0%
0.0%
-0.4%

4.0%
0.0%
0.0%
-0.5%

4.0%
0.0%
0.0%
-0.4%

4.1%
0.0%
0.0%
-0.4%

0.4%
10.8%
3.6%
-0.5%

4.0%
16.3%
-3.8%
-1.0%

3.2%
0.0%
1.1%
-0.4%

4.0%
0.0%
0.0%
-0.5%

Ave. Shares (000)


Internal Growth
Acquisition Growth
Foreign Currency Impact
Precious Metal Impact

Please refer to "Appendix - Important Disclosures" and Analyst Certification.

Robert W. Baird & Co.

Source: Company
Source:
Reports
Company
and RWB
Reports
Estimates
and RWB Estimates

19

DENTSPLY INTERNATIONAL INC


XRAYNASDAQ
Date Printed:
Fiscal Year Ends:

03/17/13
December

(000)
Balance Sheet
ASSETS
Cash & Equivalents
Receivables
Inventory
Other
Total Current
Fixed Assets
Other Assets
Total Assets

2006
65,143
290,791
232,441
129,816
718,191

Jeffrey D. Johnson, O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com


Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com
2007
316,323
307,622
258,032
100,045
982,022

2008

2009

2010

2011

2012

204,249
450,385
540,038
77,128
80,132
319,260
348,684
344,796
427,709
442,412
306,125
291,640
308,738
361,762
402,940
120,228
127,087
121,473
146,304
185,612
949,862 1,217,796 1,315,045 1,012,903 1,111,096

329,616
371,409
432,276
439,619
423,105
591,445
614,705
1,133,543 1,322,138 1,448,262 1,430,517 1,519,801 3,160,569 3,246,496
2,181,350 2,675,569 2,830,400 3,087,932 3,257,951 4,764,917 4,972,297

LIABILITIES & EQUITY


Current Debt
Payables
Other
Total Current

2,995
79,951
228,488
311,433

1,244
82,321
228,846
312,411

25,795
104,329
229,838
359,962

82,174
100,847
261,535
444,556

7,754
114,479
237,858
360,091

LT Debt & Lease


Deferred Taxes
Other Liabilities

367,161
53,191
175,507

482,063
60,547
304,146

423,679
69,049
318,297

387,151
72,524
276,743

604,015 1,490,010 1,222,035


72,489
249,822
232,641
311,444
407,342
340,398

Common Equity
Total

276,701
149,117
298,255
724,073

298,963
165,290
463,527
927,780

1,274,058 1,516,402 1,659,413 1,906,958 1,909,912 1,893,670 2,249,443


2,181,350 2,675,569 2,830,400 3,087,932 3,257,951 4,764,917 4,972,297

Balance Sheet Analysis


LT Debt / Equity
LT Debt / Total Capital
Total Debt / Total Capital
Net Debt / Total Capital
Current Ratio
EBIT / Interest
Working Capital Days
Days Sales Outstanding
Days Payable Outstanding
Days Inventory on Hand
Inventory Turnover
ROIC

2006
29%
22%
23%
19%
2.3
29.9
112.6
55.0
33.6
91.2
4.0
13.0%

2007
32%
24%
24%
8%
3.1
17.4
116.1
54.3
30.6
92.4
4.0
15.1%

2008
26%
20%
21%
12%
2.6
11.7
118.3
52.2
32.7
98.8
3.7
15.1%

2009
20%
17%
20%
1%
2.7
17.4
124.5
56.5
35.6
103.6
3.5
13.0%

2010
32%
24%
24%
3%
3.7
15.1
121.4
57.0
36.0
100.4
3.6
11.6%

2011
79%
44%
48%
46%
1.4
NA
114.3
55.6
38.1
96.8
3.8
7.9%

2012
54%
35%
40%
38%
1.2
NA
114.1
54.2
41.8
101.7
3.6
8.5%

(000)
Cash Flow Statement
Net Income
plus Dep. & Amortization
Deferred Taxes
Change in Working Capital
Other
Cash Flow from Operations
y/y growth - CFO
Per Share
Capital Expenditures
Dividends
Excess Cash Flow
Per share
Du Pont Formula
Net Margins - LTM (NI/S)
Assets Turnover (S/A)
Leverage
(A/E)
Return on Equity
Valuation Measures
Historical P/E High (cal. year)
Historical P/E Low (cal. year)
Historical P/CF High
Historical P/CF Low

2006
223,719
47,434
53,700
(74,293)
21,296
271,856
16.8%
1.72

2007
259,654
50,289
25,568
46,746
5,440
387,697
42.6%
2.51

2008
283,870
56,929
13,371
(28,512)
10,324
335,981
-13.3%
2.22

2009
274,412
65,175
195
20,214
2,493
362,489
7.9%
2.41

2010
267,335
66,340
15,119
5,151
23,516
377,461
4.1%
2.59

2011
247,446
93,058
(88,402)
95,989
45,378
393,469
4.2%
2.74

2012
318,489
129,199
(65,527)
(38,550)
26,074
369,685
-6.0%
2.57

2013E
311,643
133,000
5,000
(30,000)
7,500
427,143
15.5%
2.96

2014E
341,151
136,000
5,000
(20,000)
7,500
469,651
10.0%
3.30

50,616
21,863

64,163
25,134

76,440
26,952

56,481
29,836

44,236
29,077

71,186
28,632

92,072
31,425

127,000
31,745

135,000
31,333

199,377
1.26

298,400
1.93

232,589
1.53

276,172
1.84

304,148
2.08

293,651
2.05

246,188
1.71

268,398
1.86

303,318
2.13

2006
12.4%
0.8
1.8
17.7%

2007
12.9%
0.8
1.7
18.6%

2008
12.9%
0.8
1.7
17.9%

2009
12.7%
0.7
1.7
15.4%

2010
12.0%
0.7
1.7
13.9%

2011
9.6%
0.6
2.1
12.9%

2012
10.7%
0.6
2.4
15.2%

2013E
10.3%
0.6
2.1
13.0%

2014E
10.9%
0.6
1.9
12.7%

2006
24
18
20
15

2007
28
18
18
12

2008
25
12
21
10

2009
20
12
15
9

2010
18
16
13
12

2011
21
15
15
11

2012
18
15
16
14

2013E

2014E

Current Price
3/15/13:
$42.62

Debt Adjusted Market Value


Market Value

4,724,360 6,963,592 4,283,415 5,279,087 4,988,307 5,022,919 6,134,936 6,149,938 6,070,026

ST+LT Debt
Other Liabilities
Cash & Equivalents
Total DAMV
EBITDA

370,156
483,307
449,474
469,325
611,769 1,766,711 1,520,998 1,358,500 1,183,500
175,507
304,146
318,297
276,743
311,444
407,342
340,398
375,000
375,000
65,143
316,323
204,249
450,385
540,038
77,128
80,132
139,136
249,953
5,204,880 7,434,722 4,846,937 5,574,770 5,371,482 7,119,844 7,916,200 7,744,302 7,378,572
370,037
415,707
469,706
457,442
460,284
452,945
553,323
579,834
613,547

DAMV / EBITDA

14.1

17.9

10.3

12.2

11.7

15.7

14.3

13.4

12.0

*Reported Net Income


Please refer to "Appendix - Important Disclosures" and Analyst Certification.

Robert W. Baird & Co.

20

Jeffrey D. Johnson, O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com


Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com

Year ends Oct.

(000)

Net Sales
Precious Metal Content
% of Revenue
Sales (ex. P.M.)
% of Revenue
Reported Sales Growth
Ex. P.M. Content
Internal Growth
Acquisition-Related Growth
Foreign Currency Impact
Precious Metal Impact
Revenue by Geography (ex P.M.)
U.S.
% of Revenue (ex P.M.)
Europe
% of Revenue (ex P.M.)
Rest of World
% of Revenue (ex P.M.)
Organic Growth by Geography (ex P.M.)
U.S.
U.S. ex Japan/ortho
Europe
Europe ex Japan/ortho
Rest of World
Rest of World ex Japan/ortho

Q1-12

Q4-14E

yr-11

yr-12

yr-13E

yr-14E

$716,413 $762,994 $695,734 $753,288 $721,870 $796,369 $728,820 $773,066 $747,530 $824,342 $755,229 $801,222
$50,788 $64,514 $48,614 $49,815
$49,518 $62,901 $47,399 $48,570
$48,280 $61,329 $46,214 $47,355
7.1%
8.5%
7.0%
6.6%
6.9%
7.9%
6.5%
6.3%
6.5%
7.4%
6.1%
5.9%
$665,625 $698,480 $647,120 $703,473 $672,352 $733,468 $681,421 $724,496 $699,250 $763,014 $709,016 $753,866
92.9%
91.5%
93.0%
93.4%
93.1%
92.1%
93.5%
93.7%
93.5%
92.6%
93.9%
94.1%

$2,537,718
$205,129
8.1%
$2,332,589
91.9%

$2,928,429
$213,731
7.3%
$2,714,698
92.7%

$3,020,124
$208,388
6.9%
$2,811,736
93.1%

$3,128,323
$203,178
6.5%
$2,925,145
93.5%

3.6%
4.1%
4.1%
0.0%
0.0%
-0.4%

14.3%
14.8%
0.4%
10.8%
3.6%
-0.5%

15.4%
16.4%
4.0%
16.3%
-3.8%
-1.0%

3.1%
3.6%
3.2%
0.0%
1.1%
-0.4%

3.6%
4.0%
4.0%
0.0%
0.0%
-0.5%

243,335 252,996 252,729 229,447


34.8%
33.2%
35.6%
30.4%
314,639 343,687 303,499 346,644
45.0%
45.0%
42.8%
46.0%
141,276 166,331 152,788 177,775
20.2%
21.8%
21.5%
23.6%

785,589
33.7%
1,011,191
43.4%
535,809
23.0%

900,816
33.2%
1,215,891
44.8%
597,991
22.0%

940,038
33.4%
1,269,515
45.2%
602,184
21.4%

978,507
33.5%
1,308,468
44.7%
638,170
21.8%

-0.4%
3.6%
-0.4%
2.2%
3.0%
7.8%

3.6%
4.4%
2.6%
2.0%
7.2%
7.0%

4.4%
3.9%
1.5%
1.2%
4.8%
4.7%

4.1%
4.0%
3.1%
3.0%
6.0%
6.0%

25.6%
26.3%
1.1%
27.2%
-2.0%
-0.7%

Q2-12

25.2%
23.8%
3.6%
26.4%
-6.2%
1.3%

Q3-12

12.3%
14.8%
4.7%
15.4%
-5.3%
-2.5%

Q4-12

2.1%
3.8%
5.9%
0.0%
-2.1%
-1.7%

226,313 230,498 232,963 211,042


34.0%
33.0%
36.0%
30.0%
306,188 314,316 271,790 323,598
46.0%
45.0%
42.0%
46.0%
133,125 153,666 142,366 168,834
20.0%
22.0%
22.0%
24.0%
3.5%
7.4%
-1.1%
2.2%
1.3%
4.4%

1.0%
2.9%
2.8%
2.6%
8.6%
8.1%

3.9%
3.0%
5.2%
2.0%
5.1%
4.0%

Please refer to "Appendix - Important Disclosures" and Analyst Certification.

Robert W. Baird & Co.

DENTSPLY INTERNATIONAL
(XRAY - NASDAQ)

5.9%
4.3%
3.1%
1.5%
12.1%
10.5%

Q1-13E

0.8%
1.0%
1.4%
0.0%
0.2%
-0.2%

Q2-13E

4.4%
5.0%
4.4%
0.0%
1.3%
-0.6%

Q3-13E

4.8%
5.3%
3.8%
0.0%
2.3%
-0.5%

Q4-13E

2.6%
3.0%
3.0%
0.0%
0.7%
-0.4%

233,771 243,054 242,800 220,413


34.8%
33.1%
35.6%
30.4%
305,268 333,463 294,448 336,336
45.4%
45.5%
43.2%
46.4%
133,313 156,951 144,174 167,747
19.8%
21.4%
21.2%
23.2%
3.3%
1.6%
-1.3%
-2.0%
4.4%
4.0%

5.4%
4.6%
2.9%
2.5%
6.2%
6.0%

4.2%
4.7%
2.4%
2.5%
5.8%
6.0%

4.4%
4.7%
2.0%
2.0%
3.0%
3.0%

Q1-14E

3.6%
4.0%
4.0%
0.0%
0.0%
-0.4%

4.1%
4.0%
3.1%
3.0%
6.0%
6.0%

Q2-14E

3.5%
4.0%
4.0%
0.0%
0.0%
-0.5%

4.1%
4.0%
3.1%
3.0%
6.0%
6.0%

Q3-14E

3.6%
4.0%
4.0%
0.0%
0.0%
-0.4%

4.1%
4.0%
3.1%
3.0%
6.0%
6.0%

4.1%
4.0%
3.1%
3.0%
6.0%
6.0%

Source: Company
Source:
Reports
Company
and RWB
Reports
Estimates
and RWB Estimates

21

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202


Jeffrey D. Johnson O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com
Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 765-7323; rschlagenhauf@rwbaird.com

Sirona Dental Systems, Inc.


(SIRO - NASDAQ)

3/17/2013
Year ends September
($ Mil)
Net Sales
CAD/CAM
% of total sales
Imaging Systems
% of total sales
Treatment Centers
% of total sales
Instruments
% of total sales

Q1-12
258,116

Q2-12
231,864

Q3-12
242,007

Q4-12
247,364

Q1-13
272,404

Q2-13E
257,497

Q3-13E

Q4-13E

Q1-14E

Q2-14E

Q3-14E

Q4-14E

YR-11

YR-12

282,060

271,477

296,234

282,898

304,648

294,230

913,866

979,351

YR-13E
1,083,437

YR-14E
1,178,010

84,226
32.6%
94,435
36.6%
51,259
19.9%
28,033
10.9%

85,561
36.9%
74,844
32.3%
46,442
20.0%
24,684
10.6%

85,415
35.3%
82,120
33.9%
48,773
20.2%
25,204
10.4%

79,337
32.1%
92,129
37.2%
50,670
20.5%
24,550
9.9%

95,595
35.1%
96,960
35.6%
53,438
19.6%
26,411
9.7%

96,341
37.4%
87,537
34.0%
47,809
18.6%
25,410
9.9%

104,646
37.1%
97,325
34.5%
52,539
18.6%
27,150
9.6%

92,177
34.0%
102,433
37.7%
51,510
19.0%
24,957
9.2%

105,381
35.6%
106,886
36.1%
55,219
18.6%
28,348
9.6%

110,792
39.2%
96,291
34.0%
49,243
17.4%
26,173
9.3%

115,111
37.8%
107,057
35.1%
54,115
17.8%
27,965
9.2%

101,395
34.5%
112,676
38.3%
53,055
18.0%
26,704
9.1%

306,743
33.6%
319,774
35.0%
183,879
20.1%
102,275
11.2%

334,539
34.2%
343,528
35.1%
197,144
20.1%
102,471
10.5%

388,759
35.9%
384,254
35.5%
205,295
18.9%
103,928
9.6%

432,679
36.7%
422,910
35.9%
211,632
18.0%
109,189
9.3%

119,333
138,783
53.8%
58.1%

107,215
124,649
53.8%
58.5%

113,567
128,440
53.1%
57.6%

115,285
132,079
53.4%
57.7%

120,533
151,871
55.8%
59.1%

116,494
141,003
54.8%
58.3%

127,622
154,438
54.8%
57.9%

123,809
147,667
54.4%
57.7%

132,181
164,053
55.4%
57.9%

124,039
158,860
56.2%
58.8%

133,176
171,472
56.3%
58.7%

129,932
164,298
55.8%
58.4%

430,214
483,652
52.9%
58.5%

455,400
523,951
53.5%
58.0%

488,458
594,979
54.9%
58.2%

519,327
658,682
55.9%
58.5%

73,646
28.5%
13,286
5.1%
39
0.0%
(2,500)
-1.0%

72,667
31.3%
13,638
5.9%
728
0.3%
(2,500)
-1.1%

72,434
29.9%
13,092
5.4%
(504)
-0.2%
(2,500)
-1.0%

76,912
31.1%
12,606
5.1%
(338)
-0.1%
(2,500)
-1.0%

85,783
31.5%
14,095
5.2%
70
0.0%
(6,914)
-2.5%

82,399
32.0%
14,420
5.6%
70
0.0%
(2,500)
-1.0%

81,801
29.0%
15,342
5.4%
70
0.0%
(2,500)
-0.9%

81,937
30.2%
14,928
5.5%
70
0.0%
(2,500)
-0.9%

84,217
28.4%
15,487
5.2%
70
0.0%
(2,500)
-0.8%

88,202
31.2%
15,952
5.6%
70
0.0%
(2,500)
-0.9%

86,827
28.5%
17,431
5.7%
70
0.0%
(2,500)
-0.8%

87,493
29.7%
16,563
5.6%
70
0.0%
(2,500)
-0.8%

270,456
29.6%
55,530
6.1%
96
0.0%
(10,000)
-1.1%

295,659
30.2%
52,622
5.4%
(75)
0.0%
(10,000)
-1.0%

331,919
30.6%
58,784
5.4%
280
0.0%
(14,414)
-1.3%

346,740
29.4%
65,432
5.6%
280
0.0%
(10,000)
-0.8%

Total Operating Expenses


% of Revenue

84,471
32.7%

84,533
36.5%

82,522
34.1%

86,680
35.0%

93,034
34.2%

94,388
36.7%

94,713
33.6%

94,434
34.8%

97,274
32.8%

101,723
36.0%

101,828
33.4%

101,627
34.5%

316,082
34.6%

338,206
34.5%

376,570
34.8%

402,452
34.2%

Operating Income
Operating Income ex non-recurring/deal related D&A/restructuring
Operating Margin - GAAP
Operating Margin ex non-recurring/deal related D&A/restructuring

54,312
66,609
21.0%
25.8%

40,116
52,156
17.3%
22.5%

45,918
57,787
19.0%
23.9%

45,399
57,142
18.4%
23.1%

58,837
68,549
21.6%
25.2%

46,614
56,303
18.1%
21.9%

59,725
70,089
21.2%
24.8%

53,233
63,597
19.6%
23.4%

66,779
75,643
22.5%
25.5%

57,136
66,000
20.2%
23.3%

69,643
78,507
22.9%
25.8%

62,671
71,535
21.3%
24.3%

167,570
222,537
18.3%
24.4%

185,745
233,694
19.0%
23.9%

218,410
258,539
20.2%
23.9%

256,230
291,686
21.8%
24.8%

2,230
436
903
262

1,350
(2,936)
1,014
228

2,675
2,686
866
(218)

(382)
(2,147)
984
(529)

4,580
(1,346)
970
340

(5,668)
3,302
3,883
(101)

5,873
(1,961)
3,767
(257)

4,580
(1,346)
3,580
340

50,481
19.6%
11,611
23.0%

40,460
17.4%
9,305
23.0%

39,909
16.5%
9,180
23.0%

47,473
19.2%
12,622
26.6%

54,293
19.9%
15,226
28.0%

159,529
17.5%
35,744
22.4%

178,323
18.2%
42,718
24.0%

211,256
19.5%
52,897
25.0%

Cost of Goods
Gross Profit
Gross Margin
GM ex Inventory Step-up/ex deal-related D&A
SG&A Expense
% of Sales
R&D Expense
% of Sales
Provision for Doubtful Accounts/Notes
% of Sales
Net Other
% of Sales

Foreign Currency Transaction loss (gain)


(Gain) loss on derivative instruments
Interest Expense, net
Other Expense (Income)
Pretax Income
Pretax Margin
Provision for Taxes
Tax Rate
Minority Interest
Net Income
Net Margin

593

634

431

115

765

920

45,694
17.7%
10,967
24.0%
750

870

58,855
20.9%
14,125
24.0%
750

820

52,413
19.3%
12,579
24.0%
750

820

65,959
22.3%
15,830
24.0%
750

820

56,316
19.9%
13,516
24.0%
750

820

68,823
22.6%
16,518
24.0%
750

820

61,851
21.0%
14,844
24.0%
750

1,992

1,773

3,015
155,344
14.3%

3,000

30,521
13.2%

30,298
12.5%

34,736
14.0%

38,302
14.1%

33,978
13.2%

43,980
15.6%

39,084
14.4%

49,379
16.7%

42,050
14.9%

51,556
16.9%

46,257
15.7%

Diluted EPS - GAAP

$0.67

$0.54

$0.53

$0.62

$0.68

$0.60

$0.78

$0.70

$0.88

$0.76

$0.93

$0.84

$2.13

$2.36

$2.77

$3.41

After-tax Foreign Currency Transactions


After-tax Amortization - MDP/Exchange
After-tax Gain/Loss on Derivatives/Other

1,717
9,208
336

1,040
9,014
(2,261)

2,060
8,883
2,068

(470)
8,327
(1,576)

3,481
7,321
4,034

1,992
42,040
2,633

4,347
35,432
(1,433)

3,481
7,321
4,034

Diluted Ave. Shares (000)

133,832
13.7%

252,950
21.5%
60,708
24.0%

38,277
14.8%

Adjusted EPS (ex non-recurring/deal related D&A/restructuring) (1)

121,793
13.3%

3,280
-

189,242
16.1%

$0.87

$0.67

$0.76

$0.73

$0.94

$0.74

$0.92

$0.84

$1.01

$0.88

$1.05

$0.96

$2.94

$3.03

$3.44

$3.89

57,122

56,916

56,718

56,388

56,328

56,228

56,128

56,028

55,828

55,628

55,428

55,228

57,293

56,755

56,178

55,528

% Changes
Net Sales
CAD/CAM
Imaging
Treatment Centers
Instruments

9.5%
1.0%
23.8%
3.0%
7.5%

8.0%
11.1%
3.5%
12.7%
3.3%

-1.1%
2.7%
-3.4%
1.3%
-10.0%

13.1%
25.6%
6.9%
13.2%
1.0%

5.5%
13.5%
2.7%
4.3%
-5.8%

11.1%
12.6%
17.0%
2.9%
2.9%

16.6%
22.5%
18.5%
7.7%
7.7%

9.7%
16.2%
11.2%
1.7%
1.7%

8.7%
10.2%
10.2%
3.3%
7.3%

9.9%
15.0%
10.0%
3.0%
3.0%

8.0%
10.0%
10.0%
3.0%
3.0%

8.4%
10.0%
10.0%
3.0%
7.0%

18.6%
17.8%
26.6%
13.3%
8.5%

7.2%
9.1%
7.4%
7.2%
0.2%

10.6%
16.2%
11.9%
4.1%
1.4%

8.7%
11.3%
10.1%
3.1%
5.1%

Cost of Sales
Gross Profit

13.4%
6.4%

8.2%
7.7%

-3.6%
1.3%

6.7%
19.3%

1.0%
9.4%

8.7%
13.1%

12.4%
20.2%

7.4%
11.8%

9.7%
8.0%

6.5%
12.7%

4.4%
11.0%

4.9%
11.3%

15.9%
21.2%

5.9%
8.3%

7.3%
13.6%

6.3%
10.7%

SG&A Expense
R&D Expense

16.3%
-1.7%

3.0%
-3.6%

5.7%
-9.0%

13.1%
-6.5%

16.5%
6.1%

13.4%
5.7%

12.9%
17.2%

6.5%
18.4%

-1.8%
9.9%

7.0%
10.6%

6.1%
13.6%

6.8%
11.0%

14.6%
19.8%

9.3%
-5.2%

12.3%
11.7%

4.5%
11.3%

Operating Income
Operating Income ex non-recurring/deal related D&A
Operating Income ex non-recurring/deal related D&A/ex FAS123

-3.0%
-4.2%

19.7%
10.9%

-1.0%
-4.4%

81.4%
25.4%

8.3%
2.9%

16.2%
8.0%

30.1%
21.3%

17.3%
11.3%

13.5%
10.3%

22.6%
17.2%

16.6%
12.0%

17.7%
12.5%

32.5%
17.8%
13.6%

10.8%
5.0%
5.3%

17.6%
10.6%
12.0%

17.3%
12.8%
11.0%

Interest (Exp.)
Pretax Income

-4.9%
-8.3%

9.1%
6.1%

-12.0%
-15.8%

-3.5%
150.3%

7.4%
7.6%

-9.3%
12.9%

0.5%
47.5%

-16.7%
10.4%

-15.5%
21.5%

-10.9%
23.2%

-5.7%
16.9%

0.0%
18.0%

-64.8%
38.4%

-3.0%
11.8%

-5.0%
18.5%

-8.4%
19.7%

-9.7%

4.1%

-16.6%

152.5%

0.1%

11.3%

45.2%

12.5%

28.9%

23.8%

17.2%

18.4%

35.3%

9.9%

16.1%

21.8%

-10.1%
-7.5%

4.7%
10.0%

-15.3%
-2.7%

157.3%
19.6%

1.5%
8.8%

12.7%
9.2%

46.7%
21.0%

13.2%
15.2%

30.1%
6.5%

25.1%
19.3%

18.7%
13.8%

20.1%
14.5%

33.7%
14.8%

10.9%
3.2%

17.3%
13.4%

23.2%
13.2%

Net Income
EPS - Diluted (GAAP)
Adjusted EPS (ex non-recurring/deal related D&A) (1)
Ave. Shares (000)
Internal Growth:
Foreign Currency Impact:

0.5%
10.2%
-0.7%

-0.5%
11.1%
-3.1%

-1.5%
7.0%
-8.1%

-1.9%
23.4%
-10.3%

-1.4%
8.6%
-3.1%

-1.2%
11.1%
-0.1%

-1.0%
15.5%
1.0%

-0.6%
7.4%
2.4%

-0.9%
8.3%
0.5%

-1.1%
9.9%
0.0%

-1.2%
8.0%
0.0%

-1.4%
8.4%
0.0%

1.2%
16.4%
2.2%

-0.9%
12.6%
-5.4%

-1.0%
10.6%
0.1%

-1.2%
8.6%
0.1%

NOTE: In late FY12, SIRO changed its definition of non-GAAP EPS to exclude the impact Fx has on the revaluation of short- and long-term balance sheet assets and liabilities. This change had no impact to our forward estimates, but did change
historical non-GAAP EPS numbers. Weve restated FY11 and FY12 quarterly and annual EPS numbers to match managements new definition of non-GAAP EPS, meaning a comparison of FY11 to FY10 EPS is no longer valid.
Please refer to "Appendix - Important Disclosures" and Analyst Certification. Source: Company reports, RWB estimates

Robert W. Baird & Co.

22

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202

Sirona Dental Systems, Inc.


SIRO NASDAQ

Jeffrey D. Johnson, O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com


Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com

Fiscal Year Ends September

Balance Sheet
ASSETS
Cash & Equivalents
Restricted Cash/Short-Term Investments
Receivables
Inventory
Prepayments & Other Current Assets
Deferred Income Taxes
Total Current

2006

2007

2008

2009

2010

2011

2012

Interim
12/31/12

80,560
953
66,090
57,303
16,074
4,671
225,651

99,842
908
87,074
74,834
22,559
9,040
294,257

149,663
934
80,319
77,733
33,912
12,199
354,760

181,098
902
98,277
74,525
24,195
16,483
395,480

251,767
703
82,952
74,027
27,672
20,570
457,691

345,859
0
97,853
93,028
19,670
25,014
581,424

151,088
0
132,569
81,007
19,835
24,781
409,280

124,170
0
145,569
92,124
26,533
27,942
416,338

61,042
618,993
613,549
3,649
18,120
1,541,004

80,523
597,302
677,506
2,494
5,661
1,657,743

100,134
514,601
683,075
1,190
5,245
1,659,005

102,775
447,946
696,355
943
4,576
1,648,075

102,686
362,722
656,465
8,827
4,546
1,592,937

131,044
346,442
653,799
7,427
5,992
1,726,128

143,351
288,556
631,077
12,888
9,382
1,494,534

147,400
326,837
659,533
13,051
4,667
1,567,826

30,303
14,738
10,434
3,208
65,203
123,886

46,190
23,041
5,543
3,264
84,348
162,386

39,803
9,093
4,544
1,650
85,309
140,399

38,463
4,688
5,191
466
95,602
144,410

42,737
2,935
7,748
1,456
105,209
160,085

48,697
368,403
6,811
1,108
110,207
535,226

51,961
478
14,906
817
118,075
186,237

61,838
419
19,155
499
111,329
193,240

LT Debt
Deferred Tax Liabilities
Pension Related Provisions
Deferred Income
Other
Total Liabilities

518,634
243,491
48,167
100,589
18,128
1,052,895

540,143
192,808
49,450
90,000
13,406
1,048,193

544,350
174,420
47,378
80,000
11,489
998,036

470,224
159,659
50,328
70,000
8,699
903,320

367,801
138,190
52,672
60,000
6,556
785,304

0
138,327
49,677
50,000
16,978
790,208

75,000
122,441
61,629
40,000
16,852
502,159

75,000
136,959
62,977
37,500
24,336
530,012

Minority Interest
Common Stock
Additional Paid-In Capital
Other
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity

263
484
546
548
582,447
603,570
(95,147)
4,948
487,846
609,066
1,541,004 1,657,743

626
549
620,732
39,062
660,343
1,659,005

1,317
550
637,264
105,624
743,438
1,648,075

2,222
553
652,698
152,160
805,411
1,592,937

3,644
563
685,617
246,096
932,276
1,726,128

3,017
566
699,279
289,513
992,375
1,494,534

3,394
567
706,745
327,108
1,034,420
1,567,826

Property & Equipment, Net


Intangible Assets, Net
Goodwill, Net
Deferred Income Taxes
Other Assets
Total Assets
LIABILITIES & EQUITY
Payables
Current Maturity of LTD
Income Taxes Payable
Deferred Tax Liabilities
Accrued Liabilities/Deferred Income
Total Current Liabilities

Balance Sheet Analysis


2006(1)
2007
2008
2009
LT Debt / Equity
106%
89%
82%
63%
LT Debt / Total Capital
52%
47%
45%
39%
Total Debt / Total Capital
52%
48%
46%
39%
Net Debt / Total Capital
44%
40%
33%
24%
Current Ratio
1.8
1.8
2.5
2.7
EBIT / Interest*
2.2
5.2
6.4
8.0
Days Sales Outstanding*
39.9
42.4
40.3
45.7
Inventory Turnover*
5.3
5.4
5.4
4.8
ROIC*
5.8%
12.3%
4.2%
6.0%
*Interim ROIC uses adjusted Net Income to exclude select non-recurring items
Please refer to "Appendix - Important Disclosures" and Analyst Certification. Source: Company reports, RWB estimates

Robert W. Baird & Co.

2010
46%
31%
31%
10%
2.9
18.3
42.9
5.0
8.2%

2011
0%
0%
28%
2%
1.1
59.3
36.1
5.2
10.1%

2012
8%
7%
7%
NM
2.2
64.3
42.9
5.2
11.5%

Interim
12/31/12
7%
7%
7%
-4%
2.2
49.6
49.1
5.1
15.7%

Robert W. Baird & Co.


3 Mos. Ended
12/31/12
39,067
17,912
8,815
(1,346)
4,580
0
(41,543)
6,205

Cash Flow Statement


Net Income
plus Dep. & Amortization
Deferred Taxes
(Gains)/loss on derivatives
Fx transaction losses
Write-off, IPR&D
Change in Working Capital
Other

2006
755
62,931
(12,340)
(719)
(9,873)
6,000
25,519
24,441

2007
56,469
96,378
(72,683)
169
(16,794)
0
(37,456)
53,092

2008
29,439
106,042
(23,561)
6,660
(8,935)
0
(27,667)
12,707

2009
53,355
90,732
(21,862)
151
(1,248)
0
(18,954)
17,725

2010
91,446
82,723
(21,463)
(6,102)
7,160
0
7,271
14,633

2011
123,785
81,173
(17,173)
3,302
(5,668)
0
(21,382)
14,816

2012
135,605
77,749
(17,274)
(1,961)
5,873
0
(7,786)
9,163

2013E
155,344
71,000
(15,000)
(1,346)
4,580
0
(20,000)
10,000

2014E
189,242
66,000
(15,000)
0
0
0
(15,000)
10,000

Cash Flow from Operations


Growth - y/y
Per Share

96,714
-50%
$1.76

79,175
-18%
$1.44

94,685
20%
$1.71

119,899
27%
$2.16

175,668
47%
$3.10

178,853
2%
$3.12

201,369
13%
$3.55

204,578
2%
$3.64

235,242
15%
$4.24

33,690
106%
$0.60

Capital Expenditures
Dividends

20,950
0

26,878
0

36,074
0

20,974
0

23,963
0

56,958
0

47,131
0

59,589
0

64,791
0

10,347
0

75,764
-57%
1.38

52,297
-31%
0.95

58,611
12%
1.06

98,925
69%
1.78

151,705
53%
2.68

121,895
-20%
2.13

154,238
27%
2.72

144,988
-6%
2.58

170,451
18%
3.07

23,343
176%
$0.41

Du Pont Formula
2006*
2007
2008
2009
2010
2011
2012
Net Margins - LTM (NI/S)*
8.3%
9.4%
12.8%
16.1%
18.8%
18.1%
17.7%
Assets Turnover (S/A)
0.3
0.4
0.5
0.4
0.5
0.5
0.7
Leverage
(A/E)
3.2
2.7
2.5
2.2
2.0
1.9
1.5
Return on Equity
8.8%
10.2%
14.6%
15.4%
18.0%
17.8%
17.5%
*Post 2006 Adjusted Net Income to exclude D&A related to MDP & the Exchange and other select non-recurring
items

2013E
15.3%
0.6
1.5
14.6%

2014E
16.1%
0.6
1.4
14.2%

TTM
16.8%
0.7
1.5
17.0%

Valuation Measures

2013E

2014E Current - TTM

Excess Cash Flow


Growth - y/y
Per share

2006

2007

2008

2009

2010

2011

2012

Current Price
3/15/13
$71.94
Debt Adjusted Market Value
Market Value

1,805,986 1,963,100 1,287,466 1,649,907 2,858,091 2,429,796 4,082,983 4,041,440

3,994,679

4,052,231

ST+LT Debt
Other Liabilities
Cash & Equivalents
Total DAMV
EBITDA
Adjusted EBITDA (2)

533,372
563,184
553,443
474,912
370,736
368,403
75,478
78,000
66,295
62,856
58,867
59,027
59,228
66,655
78,481
80,000
81,513
100,750
150,597
182,000
252,470
345,859
151,088
296,076
2,324,140 2,488,390 1,749,179 2,001,846 3,035,585 2,518,995 4,085,854 3,903,364
129,244
143,397
169,803
184,088
209,165
248,743
263,494
289,410
128,537
157,211
169,803
184,088
209,165
248,743
263,494
290,760

78,000
82,000
466,528
3,688,151
322,230
324,930

75,419
87,313
124,170
4,090,793
266,370
266,370

DAMV / EBITDA
DAMV/Adjusted EBITDA

18.0
18.1

17.4
15.8

10.3
10.3

10.9
10.9

14.5
14.5

10.1
10.1

15.5
15.5

13.5
13.4

11.4
11.4

15.4
15.4

23

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202


Jeffrey D. Johnson O.D., CFA (414) 298-6027; jdjohnson@rwbaird.com
Jason M. Bednar, CFA (414) 298-6057; jbednar@rwbaird.com
Rebecca R. Schlagenhauf, (414) 298-7323; rschlagenhauf@rwbaird.com
Year ends September

Sirona Dental Systems, Inc.


(SIRO - NASDAQ)

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13E

Q3-13E

Q4-13E

Q1-14E

Q2-14E

Q3-14E

Q4-14E

2011

2012

2013E

2014E

$258,116
$119,333
$138,783
$150,051
53.8%
58.1%

$231,864
$107,215
$124,649
$135,672
53.8%
58.5%

$242,007
$113,567
$128,440
$139,301
53.1%
57.6%

$247,364
$115,197
$132,167
$142,814
53.4%
57.7%

$272,404
$120,533
$151,871
$160,894
55.8%
59.1%

$257,497
$116,494
$141,003
$150,003
54.8%
58.3%

$282,060
$127,622
$154,438
$163,438
54.8%
57.9%

$271,477
$123,809
$147,667
$156,667
54.4%
57.7%

$296,234
$132,181
$164,053
$171,553
55.4%
57.9%

$282,898
$124,039
$158,860
$166,360
56.2%
58.8%

$304,648
$133,176
$171,472
$178,972
56.3%
58.7%

$294,230
$129,932
$164,298
$171,798
55.8%
58.4%

$913,866
$430,214
$483,652
$534,183
52.9%
58.5%

$979,351
$455,312
$524,039
$567,838
53.5%
58.0%

$1,083,437 $1,178,010
$488,458
$521,343
$594,979
$656,666
$631,002
$686,666
54.9%
55.7%
58.2%
58.3%

$257,953
$147,769
57.3%

$231,531
$133,336
57.6%

$241,512
$137,676
57.0%

$246,686
$141,165
57.2%

$272,404
$159,273
58.5%

$257,097
$147,587
57.4%

$281,660
$161,022
57.2%

$271,077
$154,251
56.9%

$295,834
$169,137
57.2%

$282,498
$163,944
58.0%

$304,248
$176,556
58.0%

$293,830
$169,382
57.6%

$912,671
$524,286
57.4%

$977,682
$559,946
57.3%

$1,082,237 $1,176,410
$622,133
$679,018
57.5%
57.7%

$84,226
1.0%
1.5%
$24,484
$59,742
70.9%

$85,561
11.1%
13.7%
$25,691
$59,870
70.0%

$85,415
2.7%
9.5%
$25,885
$59,530
69.7%

$79,337
25.6%
36.5%
$24,650
$54,687
68.9%

$95,595
13.5%
16.5%
$28,039
$67,556
70.7%

$96,341
12.6%
12.6%
$30,478
$65,863
68.4%

$104,646
22.5%
22.0%
$32,897
$71,750
68.6%

$92,177
16.2%
15.0%
$29,253
$62,924
68.3%

$105,381
10.2%
10.0%
$33,444
$71,938
68.3%

$110,792
15.0%
15.0%
$34,900
$75,893
68.5%

$115,111
10.0%
10.0%
$35,684
$79,427
69.0%

$101,395
10.0%
10.0%
$31,432
$69,962
69.0%

$306,743
17.8%
15.9%
$92,610
$214,133
69.8%

$334,539
9.1%
13.9%
$100,710
$233,829
69.9%

$388,759
16.2%
16.7%
$120,667
$268,092
69.0%

$432,679
11.3%
11.3%
$135,460
$297,219
68.7%

$94,435
23.8%
24.3%
$40,363
$54,072
57.3%

$74,844
3.5%
6.0%
$32,243
$42,601
56.9%

$82,120
-3.4%
2.8%
$34,274
$47,846
58.3%

$92,129
6.9%
14.0%
$37,122
$55,007
59.7%

$96,960
2.7%
4.9%
$38,624
$58,336
60.2%

$87,537
17.0%
17.0%
$37,133
$50,404
57.6%

$97,325
18.5%
18.0%
$41,285
$56,040
57.6%

$102,433
11.2%
10.0%
$42,940
$59,493
58.1%

$106,886
10.2%
10.0%
$44,807
$62,079
58.1%

$96,291
10.0%
10.0%
$39,961
$56,330
58.5%

$107,057
10.0%
10.0%
$44,429
$62,628
58.5%

$112,676
10.0%
10.0%
$46,761
$65,915
58.5%

$319,774
26.6%
24.8%
$132,399
$187,375
58.6%

$343,528
7.4%
11.5%
$144,002
$199,526
58.1%

$384,254
11.9%
12.3%
$159,982
$224,272
58.4%

$422,910
10.1%
10.0%
$175,957
$246,953
58.4%

$51,259
3.0%
3.8%
$30,707
$20,552
40.1%

$46,442
12.7%
17.5%
$27,623
$18,819
40.5%

$48,773
1.3%
13.3%
$28,839
$19,934
40.9%

$50,670
13.2%
28.0%
$30,350
$20,320
40.1%

$53,438
4.3%
8.4%
$32,257
$21,181
39.6%

$47,809
2.9%
3.0%
$28,685
$19,123
40.0%

$52,539
7.7%
7.0%
$31,523
$21,016
40.0%

$51,510
1.7%
0.0%
$30,906
$20,604
40.0%

$55,219
3.3%
3.0%
$32,855
$22,364
40.5%

$49,243
3.0%
3.0%
$29,300
$19,943
40.5%

$54,115
3.0%
3.0%
$32,198
$21,917
40.5%

$53,055
3.0%
3.0%
$31,568
$21,487
40.5%

$183,879
13.3%
10.2%
$110,700
$73,179
39.8%

$197,144
7.2%
15.1%
$117,519
$79,625
40.4%

$205,295
4.1%
4.7%
$123,371
$81,924
39.9%

$211,632
3.1%
3.0%
$125,921
$85,711
40.5%

$28,033
7.5%
8.4%
$14,630
$13,403
47.8%

$24,684
3.3%
7.7%
$12,638
$12,046
48.8%

$25,204
-10.0%
0.6%
$14,838
$10,366
41.1%

$24,550
1.0%
14.0%
$13,399
$11,151
45.4%

$26,411
-5.8%
-2.1%
$14,211
$12,200
46.2%

$25,410
2.9%
3.0%
$13,213
$12,197
48.0%

$27,150
7.7%
7.0%
$14,933
$12,218
45.0%

$24,957
1.7%
0.0%
$13,726
$11,231
45.0%

$28,348
7.3%
7.0%
$15,591
$12,756
45.0%

$26,173
3.0%
3.0%
$14,395
$11,778
45.0%

$27,965
3.0%
3.0%
$15,380
$12,584
45.0%

$26,704
7.0%
7.0%
$14,687
$12,017
45.0%

$102,275
8.5%
5.6%
$52,676
$49,599
48.5%

$102,471
0.2%
7.5%
$55,505
$46,966
45.8%

$103,928
1.4%
2.0%
$56,083
$47,845
46.0%

$109,189
5.1%
5.0%
$60,054
$49,135
45.0%

COMPANY-WIDE
Company-wide Revenue - GAAP
COGS - GAAP
Gross Profit - GAAP
Gross Profit - Non-GAAP
Gross Margin - GAAP
Gross Margin - Non-GAAP

SEGMENT TOTAL
Segment Revenue
Segment Gross Profit
Segment Gross Margin

CAD/CAM
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin

IMAGING SYSTEMS
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin

TREATMENT CENTERS
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin

INSTRUMENTS
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin

Please refer to "Appendix - Important Disclosures" and Analyst Certification. Source: Company reports, RWB estimates

Robert W. Baird & Co.

24

March 18, 2013 | Medical Technology

Appendix - Important Disclosures and Analyst Certification


Covered Companies Mentioned
All stock prices below are the March 17, 2013 closing price.
DENTSPLY International Inc. (XRAY - $42.33 - Outperform)
Henry Schein, Inc. (HSIC - $89.88 - Outperform)
Patterson Companies, Inc. (PDCO - $37.21 - Neutral)
Sirona Dental Systems, Inc. (SIRO - $71.05 - Neutral)
(See recent research reports for more information)

Rating and Price Target History for: Henry Schein, Inc. (HSIC) as of 03-15-2013
05/05/10
O:$69

08/03/10
O:$65

01/03/11
O:$72

02/23/11
O:$73

04/25/11
O:$81

10/19/11
O:$77

05/09/12
O:$84

11/08/12
O:$88

01/02/13
O:$92

02/14/13
O:$98

105
90
75
60
45
Q1

Q2

Q3

2010

Q1

Q2

Q3

2011

Q1

Q2

30
Q1

Q3

2012

2013

Created by BlueMatrix

Rating and Price Target History for: Patterson Companies, Inc. (PDCO) as of 03-15-2013
02/22/11
N:$35

05/23/11
N:$38

05/27/11
N:$37

08/26/11
N:$34

10/19/11
N:$33

02/24/12
N:$34

05/25/12
N:$37

08/24/12
N:$36

11/21/12
N:$35

01/02/13
N:$36

02/22/13
N:$38

40
36
32
28
24
Q1
2010

Q2

Q3

Q1
2011

Q2

Q3

Q1
2012

Q2

20
Q1

Q3
2013

Created by BlueMatrix

Robert W. Baird & Co.

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March 18, 2013 | Medical Technology

Rating and Price Target History for: Sirona Dental Systems, Inc. (SIRO) as of 03-15-2013
04/27/10
O:$47

08/04/10
O:$44

09/22/10
N:$41

01/03/11
N:$44

02/07/11
N:$54

05/09/11
N:$56

10/19/11
N:$54

11/21/11
N:$48

02/06/12
N:$51

05/07/12
N:$53

07/09/12
O:$53

75
60
45
30
Q1

Q2

Q3

2010
08/06/12
O:$59

Q1

Q2

Q3

2011
10/19/12
O:$63

11/19/12
O:$68

01/02/13
O:$70

Q1

Q2

2012
02/11/13
O:$79

15
Q1

Q3
2013

02/20/13
N:$76

Created by BlueMatrix

Rating and Price Target History for: DENTSPLY International Inc. (XRAY) as of 03-15-2013
04/30/10
O:$42

05/27/10
O:$41

07/21/10
O:$37

07/30/10
O:$35

10/29/10
O:$36

01/03/11
O:$39

02/10/11
O:$41

06/23/11
O:$45

10/19/11
O:$42

10/28/11
O:$45

05/02/12
O:$48

45
40
35
30
25
Q1

Q2

Q3

2010
07/09/12
O:$47

Q1
2011

08/01/12
O:$44

Q2

Q3

Q1
2012

Q2

20
Q1

Q3
2013

01/02/13
O:$46

Created by BlueMatrix

1 Robert W. Baird & Co. Incorporated makes a market in the securities of HSIC, PDCO, SIRO and XRAY.
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March 18, 2013 | Medical Technology

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