PDCO - Earnings call transcript Q2 2018 | Patterson Companies, Inc.

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Operator

Good morning. My name is Adam and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson Companies’ Second Quarter Fiscal 2018 Earnings Conference Call. [Operator Instructions] Thank you. John Wright, VP, Investor Relations, you may begin your conference.

John Wright

operator. you, Thank and fiscal everyone for in participating Good second thank quarter Companies’ XXXX earnings Patterson morning, you conference call.

your are the and review second we Mark President and Joining our of and Ann and the today Jim Financial call Executive recently Officer; open questions. who will me Vice our served Chief Interim Executive President management, our Officer. Chief quarter Walchirk, Officer; Chief to by Gugino, Executive up new President Wiltz, as After a

XX-K Exchange Before such nature begin, you the those differ and certain to we in could me let and that call statements risks Commission. which comments indicated other remind Form materially conference forward-looking this cause Securities you filings material. are made We to with this discussed to actual review uncertainties. certain and in during These encourage and factors, are from our forward-looking results in detail our in subject

expenses costs, reported of and net share per date growth we reconciliation call or quarters. broadcast, and section contains and the Investor for second reference in undertakes analysis In expenses. obligation results amortization table and in forward-looking Patterson found be restructuring a Also, conference earnings adjusts revise our live website XX, transaction-related XXXX. presentation XXXX no GAAP after content will any events namely measures, XXXX Relations earnings, of in morning’s statements this fiscal of or addition, the update that or reflect internal and the call. comments of shares including business income the estimates. company’s The this our markets the to about The serve, press we time-sensitive to based circumstances this rates our the diluted November Please date market fiscal of both the financial slide impact the accurate upon at call, deal integration can that as of only is pattersoncompanies.com. are conference note adjusted information release and

which the free non-GAAP adjusted discuss morning’s our available will being noon Central foreign also found and reported a Time X call is currency. cash for measure be of This replay will and release. can is of this We week. in results flow, be starting today recorded press The reconciliation a and of for impact period at

like hand Jim to would Wiltz. call I to Now, over the

Jim Wiltz

Thank Welcome you, today’s John. conference everyone. call to

today. We have several you goals our for with call

update position our First, we initiatives you an several on want to progress improved for on give growth. to Patterson

and XXXX. head financials outlook half into we of we our will second leadership the review our update will transition. as we the FY Second, And lastly, discuss

financials. delighted a the today new are to will be review of I of President Patterson, conclude Mark, my we introduction your few and following Mark our Ann’s remarks by before comments with We Walchirk. short a joined CEO make take will Mark questions.

I of with remain on concentrating and will now a sales adding margins last creating clinical midstream in talent, segment, the dental. across scale is execution improved health, improving discussed technologically that better and with customers and of animal in Patterson future environments. our we marketing as opportunities. dental to health the middle we In the in quarter, As start range innovative we animal we are toward move capabilities implementing full new near-term our initiatives and strength challenges realizing growth our to and of serve products are our committed we adjusting systems In several are platform.

had distribution difficult we technology our this in disruptions some been of factored anticipated. equipment than our changes the to new navigating more this While pace territory that we category initially initiatives create, would for and industry had and the product predict in

to the us our for influx was confident expect market technology to to recall, We sales and of Patterson’s expand that may wider our needs. serve portfolio in these of a range move a remain much beyond the selling ramp chair-side new you exclusively adjusts as technology products. customer-focused and decision decision their allows As customers strategy respective to

growth word reminder, with have impact of the dentistry is end Patterson are sales negative and backbone quarter the we reflects are strengthening for In market and differentiation equipment most stable and of Sales seeing customer that factors force final two on been receptivity capabilities pleased implementation overall dental, of categories, is pursuing solid well our they structure. customers as and complete. second broad hurricanes. posted we and in a as conditions basic progress believe A partners. I a none and product industry’s recent the described This digitization support while the of offerings. have of selling we marketing our service gains a significant our made is we points both are range to rollout of As have now manufacturing product initiatives, achievement. in ERP and These of experienced other our the consumable advanced

move However, in now rollout the business. the short-term the creating enhancements as working initial challenges on system to from is we to workflow new

our ERP that we that system, As are and new us the this dynamic stabilize encouraged behind will is going refined heavy we lifting forward.

and momentum two. been continued made this additional and the successfully report to our has focus in in I our from health, animal pleased performance quarter first complete segment. integration to accelerate to am progress we that Turning our quarter

second positive segment. fundamentals During to experience quarter XXXX, end in continued the we this FY market of

feed remain to grow of are pharmacoeconomics, steer continued feed continue be cattle farmers product prices terms from favorable In benefiting and higher input elevated. to Beef numbers prices pricing. animal and herd

years well into have after both animal. XX level export challenges early and Patterson I leadership. must initiatives as that contributed his we and with to in experience years also greatly pleased and, as These all our believe the more will to new the achieved been lead are particularly We capitalize President in expansion I as McKesson opportunities success the am do, After anticipated growth Mark dairy Patterson we products. clearly, and reviews he where ask to served in recently in some made organization this and Mark role for he important to our of and on the leader our under to forward. quarter. our Ann swine during CEO outperformed business. at share introduce growth nearly challenges Corporation have these many Companies. work Pharmaceutical of Companies new for important the species, is Patterson business. joins behalf initiatives care our our distribution, and to the exceptional as this we against pass] of execute most our move on mix role both of like will himself President express new leadership Board in and we organization of current sales up important successful and We optimization and production health share dynamics meat market financials, Mark would and he goals Directors, steps believe his of support his observations services Finally, Mark have gains XX as steps to marketing area. of of U.S. including into We progress an the has quarter [port companion and sales margin

to I ask will Ann the financials. Now, review

Ann Gugino

Jim, joining you, Thank thank and today. you all us for

impact the factors negative X.X%, on sales has Jim of X.X% XXXX many of were including second described. an the adjusted When declined for second in the XXXX $X.X year basis, for reported estimated versus performance reflected fiscal fiscal XX currency sales basis down for quarter a a hurricanes Consolidated of Our quarter billion points. ago. recent translation,

our Turning to margins.

operating consolidated point X%, margin quarter was the prior XX basis year decline versus second Our a quarter.

XX demonstrated by another a segment was this health animal and consolidated decline our operating margin than the incremental basis points the decline. implementation, accounted of offset which from we for year-over-year in the our in improvement our While quarter, more by planned operating margin ERP costs gain segment dental for

On the out up basis, to continuing of Adjusted line, year totaled operations per of represented per non-recurring share ERP diluted excludes million XXXX a $XX.X down $XX.X was to quarter GAAP in the fiscal was from a income to expenses of and share second year. $X.XX in $XX.X in from approximately same compared decline ago. million. net is of $X.X pre-tax quarter income, million or It deal earnings compared step per point second a a share year, Adjusted the certain on million the or ago. last costs, $X.XX amortization year incremental million XXXX, $X.XX important diluted diluted for bottom $X.XX second X.X% quarter net the quarter which $X that the from last

Now, reflected initiatives. the let’s our XXXX sales segments. the second turn impact of strategic our dental, In to quarter

the sales anticipated current supplies X% dental currency the XXXX sales estimated in also On basis, sales interruption in factored we decreased decreased quarter. a sales during level While quarter year basis, of sales includes an consumable were basis This equipment. and than constant related business that consumables Patterson negative dental from X.X% XXXX of our points. XX hurricanes recent initiatives, in down were in On lower second of dental both to impact the versus second X.X% quarter. technology and same reported a prior the

technology equipment primarily CEREC The other decrease in XX.X% sales sales, XXXX of on due currency in is the the Moving to dental equipment to equipment. constant and quarter. on declined sales equipment a sales digital second decline in basis, products

portfolio technology types. sell confident We new to customer more products our expand exciting our to in to are decision

However, when the officially quarter will transition the two began. September from take the date a transition than or longer

of persist this through Given we through that half, effect business in the fiscal transition the equipment performance of technology now our the XXXX. will first category anticipate the

reported share our from animal sales business we X.X%, animal X.X% our basis, hurricanes second a the and XX animal the year-over-year. basis across On animal for for sales year-over-year. normalizing to health performance quarter. Turning consolidated grew negative segment XXXX points segment. currency, the X% market In encouraged in sales animal in constant arrangements, health an estimated total are a health of health segment, sales including by health rose gains product After recent impact selling change rose

point in sales currency increased change global basis estimated hurricanes for in hurricane recent year basis companion XXXX fiscal On an same Looking negative from of product in constant the sales animal approximately of basis, selling animal grew companion for ago U.S. points. at the companion declined currency. our arrangements, constant quarter grew impact. an XX business, animal impact period. companion second business X.X% a This X.X% animal the estimated in XX normalizing the Production global includes that sales with in versus When second quarter, the X.X%. X.X% our animal

margins in share Gross favorable, animals. be to species. which strong at top level. motivates and in performance to overall up animal and them our make the production gains markets we additional are space margin to operating the segment drives in improvement line sales customers health End their across for continue continued more animal all and the Our animal on progress producer business in reflects production invest our of health the profitability

we margins achieved sequential quarter, XX margin year-over-year This in year basis in prior points period. another Operating animal over were the quarter health. and improvement operating

a where health our underinvestment animal product mix. in in support on led focus challenges priorities integration margin are less Our to operational largely function and efforts of marketing

three are manage surely controls and We to partnering in vendors capturing on of ways: are lastly, by driving health actions our We effectively second, believe and and with Animal which correct. operating more focus these marketing through will leverage sales synergies cost continued animal platform. first, product our remaining better strength margin within in mix; combined Health on control improvement integration focus our the and primary the

plan margin are operating our working the results the within determined our we line and bottom continue to We Animal our are segment. on Health improving seeing and

the Health targeted announced of integration capture pleased are of we frame, deliver Animal X-year acquisition end range on the we to near we the when synergy is the that committed time to our As pace we International.

planning system business now This the system using system for of rollout. U.S. orders instead is as X. ERP can and of across Dental our resource deployment receive now the enterprise is veterinary a and The the milestone business one ship complete. we Regarding rollout significant

other greater will system up uses. and the analytics more agility the the speed foundational will Our us with and ambitious for and for customer-centric our entire data a continued with run capital help Ultimately, cash and free e-commerce to new this less platform. foundation with provide experience business working strategic platform from the

the implementation the However, we the suppliers field caused recognize have with we inconvenience do is and and and through journey over customers, disruption offices not phase.

We do are to have customers and the Patterson. experience for our we improve our focus systems business as shifted resources ramping with they

balance Now, I with flow at will and items. cash look several conclude a key sheet

cash of second flow generated $XXX cash as operating million of quarter, improved last the we the operations year. compared from in million $XX During significantly to quarter

a generated X of our the $XXX last compared fiscal X capital. XXXX, the last of the $XXX the increase Through of working first that is we We working capital though capital year. have in halfway impacted our we to of our million This deployment. period our same And So time. enhance working over capital cash improving year. on to first cash versus are result down working point processes by additional and at stabilize months flow focus months, achieved complete, million improvement in deployments these investments has reduce this now ERP to been even further expect is

expense in last The the slightly tax earnings. XX.X% small adjusted was in rate offset increased geographical was interest the quarter. shift because lower than and here Our a second benefit quarter in year of by

our XX.X% to still XX.X%. rate adjusted the expect tax and fiscal For year, between XXXX be we

our to strategy. capital allocation Turning

the brings XXXX our for In nearly shareholders it since the That to quarter instituted. fiscal fully every was to return our have fiscal We We returned half to total $XX to our $XXX repurchases. execute we continue of year the shareholders. share remain and and on we million in increased first cash to dividend committed million. it of dividends strategy second XXXX, to

and strong newly million Our balance the shares flexibility us repurchase approximately expanded along capacity, our authorization. we debt shares current gives opportunistically sheet, under repurchase with remaining XX to our have also

range to range $X.XX through to now performance fiscal to adjusted expected we in now the our per revised outlook per earnings are half, GAAP the the We our for the $X remainder Non-GAAP to diluted of be $X.XX share. share. of first expect Given in be earnings XXXX. $X.XX have of diluted

after-tax of million $X.XX approximately the expenses Our or adjusted as of integration expenses business $X.XX and as per share. diluted of excludes $XX.X amortization million guidance per impact well deal $X.X earnings diluted restructuring share or

our On call personally thank like executive thanks to for and the of all over Mark, leadership at team conclude Jim we I behalf to turning to Before my Patterson, remarks would Wiltz. the word a want to with here employees Jim of hand serving as a as during a relationships, steady for shareholders employees President board right past leader customers, next leader has searched familiar with Jim Executive industry for months Chief Officer. the and as our and and the Interim served Patterson. the X

our as the continue the to but from now, benefit valuable to an of Walchirk, I Executive ongoing Officer. And over new grateful, are Chief member will Jim’s turn experience call President We we board. and will Mark

Mark Walchirk

Thank company leaders built Jim’s of is of appreciate for it months you, I grateful welcome senior Ann. X warm have as who service in Interim the XX well. I and add Companies. the Patterson for other capabilities more to he the the into past to the his and, Patterson over to thanks importantly, of plus shaped like am years as his also I’d introduction President Patterson foundation to Jim for culture and as by certainly personal today. the to for also Patterson to And commitment serve stepped word my Wiltz and CEO and Jim

as opportunity, number really of Now, great aspects there considered join attracted that accepting me this are a Patterson. to I

the again, to to certainly truly am the success a right for to company create a great and in a success. has platform I the people and legacy of growth I for these important joining Patterson serving positions approach. and of company The at markets for just long-term commitment certainly Patterson a It’s a and has be tradition and are create key success. platform, long-term strong and privilege strong company growth the First, has point few also a customers All excited leading commitment inflection and in a our to solid customer-first great reasons be these this onboard. believe

engage alignment over rest get certainly the and plan I to business I into However, understanding action will model that our high XX organization, I the this, key plan to part a team I includes the dive XX-day to from of across long-term for and, believe understanding to accelerate to challenges customers, excellence, At our transition XX-day and leadership to Operational foundation accomplish the our up partners need formal our manufacturers customers fiscal deep strategic and our comprehensive clarity with for on needed improvement. of focusing will employees understand this revise the doing to business a level, plan drive to develop with a develop thorough our plan, and business to as gain To that that we success. I and the our X growth a will on set assessment next facing steps a I improve business growth. are deeper for have the path gain XXXX. and and our key a areas the days, ground outlook our worked action and of complete be established the of will the people. and clear work

ours, in exceptionally a First the a will and across well am of excellence be parts doing a success. the big all operational basics off, operational excellence. In business delivering believer company foundation day-to-day critical like the I for and

am on And a I expect our build established focus been that our out build alternatives Second, and are team development the strategic company, forward people engaged know believe our I ours, to all at play excited drive variety dive I and our of culture. in growth, I take as people Operator? to engagement culture to focused on focused markets services, continuing Patterson. opportunities. headfirst the I finally, across longer-term relationship-driven, we certainly and And as And There will new has to approach. to on team focus of ways any certainly, consider in whether in role and strongly opportunity ahead. of new like a with to our to in now, and development And looking growth. Ann it’s M&A need Jim, getting our and a the in am ready products we may the business success. this and obviously I team. very and customer-focused the crucial weeks organic have. and you these business growth and certainly be well for a as will months questions

Operator

Instructions] question Robert line is from open. comes Sachs. from your Robert [Operator the first Jones your line And of Goldman

Robert Jones

biggest guess, today, the and necessarily equipment? the you have previous that little And specifically that expectations EPS delta am where I in quarter questions yet, the back is Ann, hearing are the according far bit in changed just if was weren’t they a guidance back actually Is the perspective, most? from bit. talk I plan? you reduced versus the the modeling, case, If being at around to hasn’t results to clearly, the from a from a out your Mark. just for that’s about Thanks the the could Great. off welcome half the high-tech discussed, what right, where half an maybe looking reduction as looking you where you quite maybe street guidance, things is gone

Ann Gugino

Sure.

that our seeing think and really below So are quarter. you high-tech is expectations in the playing really mean, would in were piece, performance also I it. equipment in the are it’s guidance the One the factors based on hit quarter. reduction the is two I I consumables note but that the around current we there into

say as to of the So half did growth be challenging the – then progress we anticipate longer we what just we and of process bit great the some been back initiatives, we work make and to I year strategic and or taking a difficult is expecting speed the expect predict of earnings as at first are half to on And to pace expected. the through is you than accelerate has these while year transitions. would the to noted, the we continue

the on recalibrate there continues offerings to well relates evaluating the evaluate sales as continuing and new it as rep competitive products to environment. ramping arrangements. new So to adjusting new product productivity both equipment, challenges take to time then customers some multiple as And are relating to to distribution and the be high-tech

felt our quarter on was in based So current the we current it the like guidance. down just performance revised outlook, take prudent and to

Robert Jones

It makes sense.

big obviously have deeper initiatives guys of DSO been One the other has into talked you space. the penetrating

quarter clients. bit seeing of about DSO guys Your re-pricing in most talk on number opportunity front little discussed largest win space? recent you pricing importantly, competitor wondering that more still you’re their in I share is just DSO segment a what could much the there of a and this to within was the an how if

Ann Gugino

Sure.

the by and participating start in segment. would we are the aware saying we I of are that in bids bidding the all and So bids

business supply to, lost business know about And so is some that as we partnerships. while – more won purely won or on DSO other you chain price, can alluded purely be

lose, want heavily And so we’re whoever wins a can years win business it was going a fight to where couple different the where know without that ago. in relationships We And space. compete we win-win. that’s to win we and be – of

that there think I saying absolutely space. believe would I to gain share by the in So opportunity we is conclude

Mark Walchirk

Yes. I would add. just

I terms as for certainly, their oftentimes models dental And what need organizations, how in of by that obviously certainly, set growth think or customers to us. business these opportunity they of business their a expectations about we as different partners. you have large supported think, are see be service continued a these

need marketplace, be So serve about think can a to I of forward. how to will this us our certainly focus best value and these proposition we that think – we the going for and continue part

Robert Jones

Thanks Great. comments. for the all

Operator

your Ellich open. from Kevin, next question is Your Kevin line comes from Craig-Hallum.

Kevin Ellich

plan comes headcount. and talked want sales the Thanks about Dental, taking you questions. as Mark, continuing release that with the in I just press I welcome to more good together. about guess, on I strategic morning. to look forward and and for Thanks force vision expanding hearing XX-day your the you

guidance, and Just if wondering for us? into is how that baked expect we the should you could much quantify what help

Ann Gugino

Yes.

included it’s we I in range would that exactly quantify is into the how is discreetly won’t definitely the guidance. provided. we say What much So guidance baked

days, new to the at those progress targeted that getting of actually factored but made last quarter. reps added our this quarter, the there’s make new we the additional in end in sales And intention have terms stated solid here headcount investments of XX around then clearly reps we to we last productive. work force, supplemental more adding XX in. and do So We’ve in

Kevin Ellich

And I take long ramp I Animal is? to to have, before think, remind how move on What them you guess question productive? does, the Health I long takes the we – it for become can I how us

Ann Gugino

About X to X months.

Kevin Ellich

of veterinary Okay. directive That’s swine feed helpful. guys And swine that forward? people. all for been kind one then, out on some year. the the doing Animal problematic going for what’s surprised differently has Health was area growth like swine end side, the of stable markets, of this the and you’re me great a called Wondering kind to your in see of you It seems what more expectation with

Ann Gugino

to So animals keep veterinarian the as does, producers it healthy. relates that feed the to have of their day, end the at what directive,

veterinary from the is product move really product. does another, a to producers more it a from preventative so feed switch what to So caused therapeutic one to a directive it be

it’s and us breadth to is where we much we as impacting product line. more broad of so have be not tend resilient that And where

we performance much. think our this why it you’re that’s it some our strong unique in then, biosecurity. have competitive as not advantage around area And I to So in swine, as results impact relates seeing

We expertise sales force. a have deep the with

continue. job, will has nice think a that of And a nice the we business. done new have that, done And winning team so we job

Kevin Ellich

the guess, again Well, coming Anyway at expense one that’s distributors. I thanks big swine the other of and congrats. of Excellent.

Mark Walchirk

Thank you.

Operator

from John William your John Kreger from question And your next is comes open. Blair. line

Jon Kaufman

your John is questions on taking Thank for for role. This Mark, the morning. congratulations and, on Kaufman Jon good you Hi Kreger. new

question long-term Mark, focus you business? your this long-term areas? actually, And define a are days, the I goals mandate? longer-term, medium in you your then, you how to what success for thinking I of these in guess, first for areas do guess three So you, do how so first first, mentioned XX view

Mark Walchirk

a for certainly markets background think, broad Animal question. coming although and Patterson, in business, serve the health don’t a that for in a we learn. at this the Jon me, specifically thanks I and experience mean, have into of care Obviously, certainly Health services Dental have lot Yes I distribution. I to of range here I lot

a days me, areas. the lot XX is learning really in for focusing three key next kind the business and about really, of and So of on really diving

business complete ground I of operational would back. the really say I with assessment understanding the doing business, the like think, customer kind from a of and first, up. just to work start a

we key So of to work be center, time branches, in the have and a team. that engage spending our need will our the ground, customers, so it important I what’s me our our and around working getting operational centers, partnerships meeting working relationships the to be the meeting business field, in partners with focus on. some with Obviously, etcetera, for will a closely with that business key we on really team in their the and technology around and and There’s business across channel from and manufacturer lot the impressions there etcetera. standpoint, what

in So of is to dive back. kind and again again, from just business, the and really, business learn really on focus customer core the the the challenge first

model, plan really I ultimately, view certainly. frankly, complete second really doing do and wouldn’t going in we trends marketplace, think how and to to very we to on, assessment of what’s win. and trends, at of area I days business focus the competitive we of all have more point I again, on the while expect have that, the what looking broader first where think, think to our part And a where internal is, well, then, plan external strategic what the be to kind assessment, the XX a about what’s of we clear some certainly, answers need after as of key kind of play certainly we and, are, to are start

that really and be spend building will relationship-oriented of piece relationships and team, to with well. this our then hopefully is lot bit very people-focused, as is and I on of continuing bring business and a And the build approach want little Patterson And the of the a very to second kind so engaging kind a conduct strategic to that finally, assessment. with culture really our a of time at my perspective to outstanding a team

I more a tell So months we And is transition the X your core at the as team the second think hopefully to is then And entire level, mandate, long-term those I drive frankly, to And will to I I to kind have areas mandate. guess, the or performance the in Jon, the my in really that’s will high improve for question, key focus but say, near-term part our of improve have our be what of that and is of organization, our more would kind along will part I plan, drive say results. of short-term. you, I, going long-term would performance results. and across be ahead, with certainly that’s our us on

Jon Kaufman

is here, mentioned switching think current that’s weaker And a would Kind the gears than Okay, I expected. dive of great. bit quarter like dental a you to in little into I consumables, consumables. little

CEREC like should So, consumable think versus what related loss we perhaps to end from of I the about additional contributions how new versus salespeople? guess, market sales looks

Ann Gugino

Sure.

of number in a have clearly quarter. the impacting category this factors we So negatively

have which certainly the anticipate. didn’t got You we hurricane,

you We up in our the back implementation. talked of we as distribution. added of actually largest into as have to with days. then, deployment block We completed earlier, open continue about bought business the system. the last risk, wave ERP the You respect company headcount XXX we the to to noted, XX% And add the given just

I various largest headcount. So get say in around we to continues those be specific the not to terms of but drivers probably are going would impact discreetly, quantifying

we was of referring softer then adding are it’s I than some just headcount we when progress these so on just And expected, interruptions and to.

make this to there’s here. continue new we I So work added but and, quarter solid mentioned, we as reps, progress XX to more do

a say As the and team course, not from to of of noise the our hard on and to is market market, but a precise that lot we’d consumables available you it our impression great it’s data the in stable relates have There’s numbers, we broader then, answer. flattish. give is just

Jon Kaufman

you. Thank helpful. Okay, that’s

Operator

from comes your Baird. from question Johnson next is your line Jeff Jeff, And open.

Jeff Johnson

of the of questions you morning. break specifics X.X on you’re follow-up open base, a there don’t about stability business either the business, guess, Block but seeing relationship, consumables thank to X.X CEREC or months just the on I want there just transition I’d base, months customer into Yes, to stability side this you. the maybe first the block change? Ann, your like business, your the we’re CEREC on. in you client couple the of the Good on with say out talk over side know I just

Ann Gugino

we’re stable. compete highly as business say, it, to but would to describe discreetly place we Certainly, of for I competitive marketing programs as going like it stable. level not talk I other as but would and describe that any about category, it have we in you I some general, noted, in interruption just anticipated would

Jeff Johnson

or even the income operating adds, It coming look or I of there, out assumptions model. of $XX Alright. in to the the then, rough as takedown convince of myself be That’s million guidance, helpful. was thinking are And Dental million out second sales could million of than half. Thank and of second another comes $X rep The so on trying somewhere half, I to my bridge million $XX assume numbers, the million, the $XX worse costs. is EBIT might I another so added And that points if you. $X tumble $XX maybe in I’m rest XX million at takedown. that’s to in the that. I

wondering, Wondering anything of revenue outside of there bridge the that’s You there. talked expectations? that expenses other ERP other of has the expenses? ramping part or just gating some the I’m in lower missing if the resources if there’s Just changed about that’s in

Ann Gugino

milestone No, would exciting quarter reached we say rollout being complete. system phase I the a this with the next-gen of

quarter. I really half in – slightly is that expect expense million a is on just we that $X we ramp down Dental the back favorable would So the It and million quarter expected, business still would of confined as revenue. in our outlook the about and to actually year, to $X the

Jeff Johnson

be may follow one afterwards. There Okay. up

you. that Thank can I So understand better.

Operator

Your Kedra Gabelli Kevin open. next question Company. is comes Kevin, line your from from &

Kevin Kedra

distribution. time a have really know taking care look haven’t deal Great. I you Patterson’s health but experience a businesses, Mark, Thanks great in for of to questions. into lot you had of

issues space distributors, former from the overhanging but your has notably not Amazon. One competition many of online been most in just Patterson, employer the and

as a can get like So them maybe you business what and to thoughts curious see Patterson company your on protect your how and on a competitor do to bedside? the Dental

Mark Walchirk

the certainly not of interest their Amazon the thanks news underestimate would likelihood capabilities and on for Look, and in question. care. and certainly bit obviously health their basis fashion. Kevin, a it’s Yes, is time and in obviously but going some focus It’s space think, a getting still be, into health where the care to little and I daily they’re unclear, their in

at us and key focus to our driving we the value bringing customers. think on I about is think for really the greatest Patterson how for

hopefully, ultimately, certainly, to programs or come where that generating chain think, business getting helping that our value-add management of their a one to and of wide and dental of few in be greatest offered. they and practice kind technical I health their technology, greatest choose that by customers equipment, in the value, on many successful. and services businesses, range believe support, variety a they’re the and is play forms. economics the but name of business the just form, their our to there businesses are our huge Patterson value animal a in customers ultimately a based case and customers, think, can Certainly, I supply provided the are value help partners run services of factors role ultimately, software, is Certainly, the our

to make, be are to the value compelling can will the experience the to others enter our with have and customer proposition, going continue compelling continue we is marketplace has customers bring can really most and on that win most moves and approach. we how we so in – and will that value be our the to thinking aware think our I space could of that certainly while very how been we through focus the So

Kevin Kedra

all to about the And going Great. mean, It be Animal margins, how back? And pressure if I a a seems bouncing we in could there’s should Ann, just forward? opportunities some gotten the Health we thinking there on throw we quarters back. one saw way those like ago. few margins have I more

Ann Gugino

as are marketplace make on pointed what quarter-by-quarter variety There’s our you we So progress product a new we and product in you continue It’s preferred drive vendor measurable all which partners. this some of the continuing helping is out. quarter. are to it’s not back, to just mix out, ways. that products the seeing but way are to One is mix, improved

Animal improve over We are it’s rebates. as as leverage profile then, performing And well I the we largest single term, that the on really vendor relationships in really platform to space to think Health margin those think reframing our partners longer time. with

So to the years. that should we think next couple margin to believe of get continue that and I X% back

Kevin Kedra

Thanks. Great.

Operator

Stanley. And your next question from from comes Beuchaw your Steve line Morgan is open. Steve

Steve Beuchaw

morning Hi thanks and here. the CAD/CAM on good on one time and I and margins. for had one

the The U.S. I years, going guidance customers you how in a about there of transition hypothesis, level, of as at was maybe lot of then, even and the all toward a in a over of of had as first all you think few think the lift we got over that there on confusion we some market but market that the us Can and context within this hypothesis think that beyond and about has X fiscal sorts hypothesis, of this quarters, the amount market. freeze question. lot a last into have If high a the kind XXXX, confusion takes the XX,XXX And the CAD/CAM, understand it’s give puts what as there there been was lifted. those are sense freeze more last a of latter have XXXX view the foot on given for of evolution least that and I year? is we that of stages would at

Ann Gugino

Yes.

you So the just timing right are when coming a change, your revised to again, on what distributors, hypothesis saying with going not I are through just market. the such it’s is exactly with with are and you in we products think significant pace guidance predict new the and but think difficult I

our causes the the would predicting it’s absolutely the the that digital as this year. offering so choice feel that’s all it curve half the we on belief just we felt we I office will the long-term. is true. of of for we And is right it Mark deeply that revolution decisions and the prudent so back are And making was the still but It’s of will bring what and that you to let take just long and say will listed why that comment important and down how still dental this, convicted are evolves that continue I

Mark Walchirk

for be this add Not will a diving really I on a that other lot to than, lot something just our be will key well. of to that and customers part a learn obviously Ann, I focus think, and and reinforce, to as into of spend time our proposition is value we

Steve Beuchaw

to to change the change to X. appreciate But, right? September on subsequent CEREC given I it trajectory I the Is mean, flow you Right. the that. seen guidance, haven’t sounds order probably like that

Ann Gugino

product? we as those the the certainly, SIROWORLD? I Yes. unknown to for was able at So in call some would are big we decision-making. and information What think are not customer we gather of last what when we additional help events two we are and the happens at post-open when accelerate looking confusion post-SIROWORLD actually seeing I some quarter distribution, that. lift mean, compete of the that are happens thought just and the And

Steve Beuchaw

you up my in or looks us so free flow, that update seen world the have like actually just could working now on then, to give about And what relates a working you you clarity to we of capital wonder, ERP? a capital. the cash of your bit thinking side Thanks. wrap as an the financial year little Okay. quarter over I improvements if nice as gotten Ann, next have question on here

Ann Gugino

Yes.

to generation certainly, had nice this flow some your So point, we cash quarter.

implementation. ERP the with done are We

we enhance are that refinement. into So moving and

still think more the there’s year So opportunity improvement, be in we I would And receivable. seen an opportunity some to improvement The continue are capital while There you there. working inventory. in expect continues to is we’ve seeing biggest to decline. accounts this

another million XX So we working of but numbers think XX get get think to to capital months there’s back out $XXX us that that over and still I look at the to take I another I can normal. will time, fully

Steve Beuchaw

Thanks so much.

Operator

Erin, Erin Credit next from your line is your open. Suisse. Wright question comes of And

Erin Wright

I thoughts Mark I broadly, Thanks. there? your curious into how the repurchase of And the and what be for about welcome, thinking should for range on its about you Great. guidance but as activity your guess and we And the strategy the we more balance you Thanks. year? early and how share were setting days, guess, year? are I should understand be the general role, Ann, in thinking priorities how capital involved, step deployment

Mark Walchirk

you Erin thank question. Yes, for the

so first the think, to come I the past first with onboard officially involved involved and the the several weeks results Obviously, through certainly, guidance. thinking over yesterday, year to half through reviewing I obviously, forecast in I of there. your the part the of the working and the was in, prepared answer as starting team question

I in think, Ann more specifically. capital second, let chime probably to regard allocation, with I’ll

me as say have comment that, for I our our would that to want and very we the of something make drive that, a some to are believe be we to our to that on. initiatives obviously going a a some team strategic certainly to in ultimately, little that’s use frankly, allocation aligned to sure board think of approach key would be I and, with we growth and success about capital the general, think initiatives with means premature help long-term.

Ann Gugino

that overall guidance our then pace range with of we Erin, to for direction just develops that. could balance in mentioned, need on as market on increase will repurchases an share so as his given performance near-term. to and allocation of the company, where capital have be Clearly share and that he capital that shorter-term, strategic leverage, then, we And We the that the underlying I be do we specific Sure. in the conditions certainly to part million $XXX between buyback. piece. our $XXX forward, come million continue your to repurchase, of and cash working the think we on business make to question the implies conversation, sure and going opportunistically needs the choose important to and And Mark more

Erin Wright

on around annual conversations renewals will And be anticipate sort would versus vendor either are this year products agency you Excellent. major access great. positioning any go approach And Health, as shift there of that the your typically in do base. how and time Animal you these year or in a contract next Health Okay, this things yourself consolidated through to do move meaningfully side? you with buy/sell Animal you more Thanks.

Ann Gugino

comment this that that It’s contract first the a a to so to and And and the to in to step the little would we’re longer-term, relationships of competitive year, me manufacturers. for say little are, would vest, with going premature reframe little to early a come in on be to I the take obviously reasons, direction, part keep working certainly, then, that. process negotiation for but closer the we more

Erin Wright

you. Thank Great.

Operator

Steve is next your And line comes from from open. Steve, RBC Markets. Hagan question Capital your

Steve Hagan

that of supplying we currently morning. think be what these required sales? to that win go good who dental look customers? a be there consumables volume Patterson sales will is need prices to your those to at we products Hi, from will back? back? win Could you Do some get When back the to And to volume

Ann Gugino

to think market winning competitors. be of looking where win get you’re then, but at have that are we door, that your when variety multiple I share, And one the a model I to avenues there in area, So a I think are approach. And business back. think to back, business price value-added leaking? it’s you foot that would in right, the is terms asking certainly of very

reps the it, darkening think is back I of frankly, So the piece system a just getting doorway. and the in

job, also the As company in job, quarter ERP and that to live too. night this I day we on mentioned, of they’re means, a addition their XX% had doing go doing about

can more know competing well sales into can for Mark system, hands we as the it’s to I things the what adding if... back So that and the the I tools – of as that we think do out headcount force get are put the business don’t them but in

Mark Walchirk

It’s good. No.

Steve Hagan

the equipment then, of get both of growth sales, kind competitors just what on those the the of impacts and And near-term sales we expectations dental once the new kind your in inventory market? are of the through for

Ann Gugino

It would office transition over a this growing based be on that our that expectation when we double-digit be time. get trend, dental the and category digitization the just the that of through should

Steve Hagan

Thank you. Okay.

Operator

open. Jaffray. Sarah And James is of your next comes line question your Piper from Sarah,

Sarah James

Thank to talk wanted big consumables. you. picture about I dental

Or also am seen divergence that Index. have Is going is a the think some the insurance other we the the we Consumer some market, there is? to do design? benefit correlation why the it Confidence from factor the from Confidence that but of you Consumer And pressure, across So seen divergence influence is from historical Index? have wondering I

Ann Gugino

that real look of there’s necessarily we have correlation just lot And noise It’s time, to real growth. answer. at a when you And then, of as a and our hard over industry seen you down, wage we out theories one are One few great confidence while that so luxury wage it’s underemployment you same with additional we seen numbers. growth. the consumer had come theory haven’t question we unemployment is and in have precise a we course, think it’s I give contemplating. an and wrestling have there with a And quite the

theory and your and dentist the population, a but then aging millennials we with there. you is how are to strong Other terms they We see of think go longer spend. to bound dental in is the the market. and discretionary That point is remember same level often have at term, theories stable this care a a

Sarah James

little prioritizing discipline? commoditized? And consumables competitive, versus categories looking at helpful. should about volume specific margin talk how think as more you about the are we bit a Patterson becomes when more online for that pricing product can sales market That’s the So

Ann Gugino

mix. to depends Our profitable the make hard I the is because And that segments and it’s situation. statement it so think a growth goal customer is a and blanket on

more the of practice stick because enough with competitive you time or as value services, us you and grow over margins management on software you people in of market talked we the about, your to the the we with to as up do technical service, do win but work people that’s share, really value-added rest become back value going price, proposition might whether So are if how basket. garner

we certainly, with the with we price, to to other growth. structure be on to cost need So have but that value-added will manage profitable to competitive services the drive and going are

Sarah James

you. Thank

Operator

from Jon last question of Block line the from your comes line your And open. Stifel. Jon is

Jon Block

[indiscernible] thanks I Great, guys for of me and couple it. questions. appreciate A

Thanks. from dental Making know guys long-term Heartland. the are around productive, consumables, believe fully X%. up adding and up new have down specialty reps do you are is on but basic And seen underrepresented will guys fully and in then, that follow-on. I are consumables. that a consumable back other that talk market? can difficult from, when I sales words, about that And well I reps multiple an specialty with Or have And of we incremental X.X%, get believe, when I they you or down market? because even First, got just productive, be X% have players that contribution outstripping can you In consumables consumable positioning I in you grow your you are growth that’s subset? adjustment, at

Ann Gugino

Sure.

is my to if you market. but define I how low it’s Mark wants So reaction will the on see initial comment this,

faster. are the I are growth for clearly, growing in be some conversation correct will because, of that think of part these Mark as and so avenues areas that are you So strategic underweighted we specialty evaluates those areas

his So part something that I be of as will view. think strategic that that, undertakes Mark

in are win will to those share relates it grow markets hold, today we do play market? when how expect that we get back I I As to and that and we the currently our growing, fast do.

Mark Walchirk

there’s here take categories leading at a I we that ahead. long-term, will that will and growth. are will and growing say, markets I the months have certainly obviously weeks a that just area an position be Certainly, to general, and player be certainly the for look just in And opportunity in be add. an we product in and the would leading want a

in there’s of to that’s opportunities for our enhance the will segments if something consider. that certain position So certainly market, us we

Jon Block

XQ X guidance XX persist XQ. in just you thought That out? the from was control after maybe that I or you follow-up reps, I these sort a expense OpEx a sort there Was quarters modeling what Ann just very driven appreciate very then, Great, operating rep for get good of lap additional Mark. called X was perspective, then, Thanks fiscal color. expense that deleverage deleverage fiscal in dental did And predominantly just there? a anything that Or expense by last helpful. perspective, of full and arguably productivity? else to guys. a the is until from they that another closer And to experienced

Ann Gugino

Yes.

So it sales. with costs fixed and on the really deleveraging is semi-variable

us able have points to the it So margins to of hits growth then we get expand we very leverage when we and backside don’t. and sales X are X unfortunately, on percentage nicely when

current is control. quarter you’re great what the have seeing in still expense So we

that’s the anticipated step-up causing but favorable expense. Dental point really softer it’s driving the sales the with still along really that mix, ERP than in XX in We’re basis contraction

right back margins half that the points. what look of the for – be down XX XX to I looking around at So would basis for year, we’re operating to say the year modeling we margins when now is for

drop half the year. basis in And a XX so have point back that that XX we’d of the implies to

Jon Block

Thanks. it. Got

Mark Walchirk

going Well, I – please. am to ahead, think go I we are sorry

Operator

now Walchirk remarks. like to call over I’d to the Mark for closing Sorry, turn

Mark Walchirk

very you much. Thank Yes.

Sorry to here. joining so of thanks conclude are Well, we interrupt. today. we at will hour top for I us the everyone know

to to looking of look Greater indicated you again, out onboard happy Dental forward Thanks week much. And the wishing all updating next and I in be I’m and of of very a As you you opening, families the certainly Meeting next quarter. fantastic and to interim, York excited many and forward your in the Thanksgiving. hopefully meeting really New

Operator

concludes this conference today’s And call.

now disconnect. may You

Patterson Companies (PDCO) 22 Nov 172018 Q2 Earnings call transcript