PDCO - Earnings call transcript Q3 2018 | Patterson Companies, Inc.

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Operator

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson Companies' 3Q 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. to call like to now would turn over the Mr. I of VP of Wright, Patterson Investor John Relations Companies. ahead. go Please

John M. Wright

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

a up are today by Gugino, Goedken. third Walchirk, Joining to review will your me the open Mark of we call and Ann Dennis After the management, quarter questions.

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

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

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

like call Walchirk. over the to I'd Now, hand Mark to

Mark S. Walchirk

lower organization, the equipment digital in an to These various our in underway quarter. ERP all transitions portfolio. Thank our the of business, we challenges factors and to selling you, expanded transition welcome actions will sales compression disruptions of have a short are our results in and will provide third results, expectations and we taking business issue moment But The not on explain the quarter to we're the everyone remarks call. remainder a the impacted about specific me address our and performance our that reflect results. our main I'll details on focused the taking today In let conference we achieving. today about John, quarter the facing Dental the year clearly call, the execution. into quarter today's first the reported our of contributed changes to namely and our the outlook for performance. call. the our actions the and drivers with near-term implementation On I the later to know margin is get during our current what meet and details segment, capable related far business the Ann fell we is our revenues results QX in key did Overall, few third improve start

by for shifts and in While margins lower animal we continue our companion rebates mix year-end to grow segment, in impacted manufacturers. the product were

fell short per of these current $X.XX and diluted guidance full-year expectations our to we our FY our revising XXXX As adjusted of $X.XX EPS results and to better. trends, a result must are share. can we do Clearly,

some for to work take we it know at will performance, are to actions hard our take our improve hold. we time While

We for are focused foundation on addressing these near-term building a challenges growth. while future solid

develop Patterson to began employees, business accelerate other officially to a customers business belief know, a our and our clearly, the XX over joined relationships, into near-term you in at value reinforced thorough and customer has to market But tremendous the with and deep proposition profitability. we full growth our engage path ago the our potential model of dive and and just support must to action has and our days focus deep best plan days to here develop customers, partners. my of overall understanding initial listen past Improving understanding I needs our manufacturers our broad fundamentals, starts execute more Patterson. business and on This over those improve strength time My our our XX the As how of can and customers a effectively potential. needs. to we performance with capitalize been

customers over last days, few key with are engaged our have the I As points XX clear. a

with our customers a just work products price. to First, choose at good because than more we offer competitive us

face of services, a their navigate partner valued challenges own positions as equipment can business succeed offering in technology, products, as that comprehensive the systems, help our they us Our support businesses. and changes and customers technical they

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provide improve. to strong our and approach is a success resonating customers' helping teams which Our from platform enable to

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people focused few I'll spend a come execution, XX my been to steps in back strategy the but business review of strategy has improve results. key underway my wanted and execution execution. sense to across on have on and minutes to first our are and the to improve efforts to a heightened operational areas moment, we we our about excellence days, people. the talking urgency During improve our drive accountability of With and company, focusing three a

to customer the improving the top First, line. and grow experience stabilize

profitability, Second, third, cash And leveraging through management efficient mix our cost and operating flow. drive strategic margins structure. capital enhancing sourcing, financial to improved and working our discipline management more improve a

comment simple. me expectations review a and we actions formal the to each ensure make metrics Let To do it on needed the these have includes customer to expect. goal team our model place taking standards customers focused team. setting on are and Patterson to is start, progress business for against a operating to and metrics leadership need I improvements. scorecards support easier on to and we these and team the our performance have track measuring hold with we meeting high improve. built personally right our weekly support We areas resources with of to accountable our to customers the experience and in outcomes. our The our that is performance This basis for serving clear defined ourselves entire better

have and to our and We the our improve the market, by the teams in on experience improve outstanding an results. providing in need, team and support solutions expectation we focusing most customer our ability comprehensive and confident the are

line, and Next, to as to our improve stabilize taking also steps we grow we the top are margins. work

ensuring have sourcing our capabilities, and in focused improving to cost structure label support the right our including the Our initiatives on place are we product private mix expanding business.

ensure leverage making around across work effective plans benefits teams and initiatives organized platform execution common execute our to building efficient drive of we and sure we detailed these and business. are to We're have We effectively. also our the the aligned

will common confident going While platform being we forward. challenges, and be a ability transition our execute of are period the on that to ERP implementation a are key component presenting better

strides the confident taking around this we the of is foundation bottom line are to strengthen improved confident taking we we receivable our drive are flow. results actions we help greater to addition we but the and enhance accounts understand accounts payable. results, and to improve our financial actions discipline with our will are customer performance our we The cash experience for urgent in actions our Finally, long-term. enhance are making profitability, And I'm disappointed also are will inventory, and this set improve our drivers and that of execution. the

addition of our including and success. thorough strategic the company. annual off how excellence long-term a plan we profitable for to of execution, to focusing company on and are how process operational review In We've to grow position kicked improved we growth also our the planning pursuit need we position and

and evolve process the the our aligned appropriate power our months our this the forward success. a you expect on I in is of to critical engaged, to in look updating and approach people coming deeply strategic In customer service-focused business, culture. We believe finally, sincerely to time. team committed and at our first And

is a am and we responding part X,XXX team across We we organization to member challenges challenges how to our the with on. implementing team head have I'm tremendous the proud meet it. pleased be of and a those to changes are face I the

with accountability increased greater and We emphasis to drive work are committed urgency moving to on performance. as execution improve improved and we forward

believe clearly these Patterson forward. we business about do, and have I of our elements the to have ability lot While our very encouraged leverage I learned move I'm work to in a many positive and as by firmly we

poised we there play Dental our innovation First, market as provider and and aging full an trends within from serve. positive the our customers. service and we The to to markets population opportunity including believe is trends strengths these strength a is technology to Dental benefit

the of I decision results our believe offerings, broaden decision segment one. continue the Dental expand to to by to was our the to portfolio clear the technology right want be impacted be While that I of our portfolio

changes. quarter In upward during volume our which decision decided worldwide fact, drive production placements reinforces in broaden in our In long-term our which demand pet for This business. business since Animal to will prior we strategic ownership technology strengthened the of trends we growth for companion first segment, protein, unit the to right made surpassed continued equipment market unit placements in that benefits the demand Health CAD/CAM see new and year. adapt portfolio, and we to trend time the the increasing

animal very Health of segment, are recognize Health plan. what I this want our fundamentals. have species and their fact, and over In our potential channels within their solid on the past executing I'm the in value team performance far year. is across months, several affirming and the proposition benefit thank our and Animal and long-term Customers to generated I we from to positive Based our so team growth business production market solid organization. production the Animal confident learned for continue

of a our personally that strength potential excited nature customers of to proposition value to can work of and am strong a compelling which realize with lot team our commitment talented grow have We be to supporting the of it. from a we our end-markets, provide the the platform I ahead our and of part

the on transition details turn Before say announced I call about quarter, Ann for the some specific earlier the I to plans words CFO few want over we to more a today.

significant First, financial appreciative willingness I and her serve my to as Patterson the her want contributions Ann's very a for of to during company growth the and will Advisor also transition her transition years sincerely leadership next support of for CFO. Dennis Special several for support to during company. interim Ann XX the thank to her smooth and to serve the time thank change I over who I'm want of as to help our also a with Goedken, for months

is Corporate his Dennis conduct spent Patterson's more involved as for while audit, permanent preparation with oversees years agreed Controller Dennis than and has role XX internal a company to acquisitions. various we search pleased has into including all in the for we SEC currently served to qualified permanent successor. public Controller. and be as Patterson taking and replacement. Assistant has he search certainly our team are this well six accounting divestitures career, step a filings the Earlier We in interim a leads while CFO been and and directly Dennis for

We and a process and her. to firm again With like search I'd thank leading underway. turn retained it have is the to Ann that, over

Ann B. Gugino

everyone. you, and Thank good Mark morning,

the of to to with financials last part rest XX opportunity you. work all has say work that to ensure a years I Mark, quarter, with be want pleasure and Patterson review team had to the the transition. on it for to have of of a the am been the to committed the smooth Dennis I I Before and

a third translation, reflected described. currency XXXX $X.X Mark of down the performance reported sales fiscal the Consolidated sales Our X.X%. factors fiscal third billion XXXX When the a quarter ago. for declined versus has X.X% adjusting basis, on quarter were in year for

Turning to our margins.

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

the as shifts manufacturers continued as year. in cost for expense an driven ERP calendar year-end as as was same rebates mix well control compared lower compression last did decreased the in benefit sales, margin period at Our by well quarter the have We to initiatives.

compression. were sale not savings these enough and offset lower the margin However, volume gross to

be for resulting was ago. rate lower also quarter continuing reflects mind of revaluation approximately net $X.XX On XXXX. half continuing non-recurring for XX% legislation tax from year. we earnings. On and the income U.S. the $X.XX rate for approximately income the diluted third effective taxes reported $X.XX corporate rate to of share phased-in, one-time last the $X.XX the to XX%. and GAAP the true-up of XXXX operations per from in or net $XX.X XXXX, has This new of rate. quarter $XX.X the fiscal recent the corporate certain for income XXXX impact XXXX. Since the one-time diluted the per excludes The share rate the XX% an per of the deferred to tax line, first from GAAP amortization an compared million federal $X.XX third diluted the a net tax $XX.X April of rate which in per fiscal blended tax million the was totaled liabilities costs before company tax from year operations, includes tax last were Keep diluted Tax will or for year-to-date at our $XXX benefit fiscal adjusted Adjusted to year transition million bottom our from year, the new a in of benefit of or lower third $XX.X earnings deal of same continuing quarter net quarter the tax operations the third in unremitted tax tax and of related a year-end, effective tax down the that recurring a one-time reform million reported fiscal in Act foreign Adjusted basis, compared share includes share revaluation year. quarter we of the which million

in $X.XX share Our million tax or legislation. adjusted benefit new quarter related to share a U.S. diluted included per earnings the per $X.X the

basis, ERP reflected segments. Dental, to the of and system In XXXX from an constant third disruption changes, versus our Now sales force our supplies implementation the let's new X.X%, turn a in workflow to X.X% currency, continued decreased quarter. X.X% our sales the On year sales equipment reported down portfolio. transition expanded our that XXXX decreased selling the Dental the sales basis, On impact third quarter prior were and the sales of digital same quarter. dental Patterson's of during consumable

dollars average new declined sales. to we In quarter. equipment constant to compared mix, portfolio. our rebates Margins digital the manufacturers XX.X% experience on Moving lower in the selling these for category, in the expense last mix. Dental given equipment On a year-end, basis, a segment third year by we product and did as price products calendar leverage while in negative a CAD/CAM XXXX of currency sales products in placement traction CAD/CAM sales down meaningful the gain impacted dental total lower are of the were increase at year-over-year selling lost unit our

segment currency turning our Animal After to arrangements, sales total sales reported basis, for Animal Health Now, On Health product X.X%. Animal segment. year-over-year. in Health changes selling grew a X.X% and normalizing consolidated rose

global the U.S. sales animal timing in companion due that flat sales companion companion year for currency basis, year after at constant X.X% animal the were product arrangements. impact sales promotional of to currency of of the versus in quarter animal same Looking in compared business grew also selling changes sales companion Rest XXXX the fiscal slowed third normalizing Production essentially our animal for a and quarter. our flat primarily quarter, the ago. were third period to the ago in animal for period. On

cattle part the business. animal swine the Our within beef for line from be our favorable pressure with top the segment gains continued continued in End-markets business of in dairy production of some sales and space reflects pricing. milk overall in performance production beef share to the animal swine the and and strong cattle species

business While year, the year compared less first mix rebates during and quarter the ago. XX-basis Animal faced improvement. a the third half in a point year-over-year Operating and expenses profitable sales reflected to gross the improvement margin Health posted margins near-term pressure of gross fewer a some discipline spending from yielded

However, period. operating margins in XXX down the quarter year basis over the points prior were

and to cash of several $XX balance we've through conclude generated first nine flow million at will compared look sheet last flow year. months items. I a yielding million operating $XX Now, first the net nine of On key XXXX, year, the months last with over year-to-date a of through of fiscal million $XX a improvement of basis cash use the

to As continues be capital of our impacted system. implementation Mark ERP working by mentioned, the

Our goal investments to working XXXX in is to and will capital certainly the fiscal further stabilize plan. operating key component processes this and of a enhance be our reduce our

adjusted rate reflecting tax Our the third quarter the XX%, the legislation. of impact new in was U.S. tax

For the approximately adjusted our to XXXX now fiscal be expect tax year, rate XX%. we

our Moving capital allocation strategy. to

We execute quarter our our In shareholders XXXX, to to third the the That total to in million for brings returned $XXX to fiscal shareholders. XXXX nearly of continue dividends the on our strategy months to repurchases. first share cash and nine fiscal we $XX return million. of

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

or of to benefit diluted expenses provisional Tax $XX.X to $XX.X of And I'll Act million XXXX share; net that, a impact over amortization related per after-tax the turn the $X.X diluted million integration $X.XX expenses million approximately and Our tax restructuring per as share adjusted well or diluted share. call per or earnings Mark. deal guidance $X.XX $X.XX business excludes the of back approximately with as of

Mark S. Walchirk

Thanks, complaints. may Ann. the I regarding administrative questions some expect FTC's have you

on briefly that and questions. to me will Let open your I I Ann comment call and conclude, up the before take

As matter. allegations a items to believes announced, are meritless like regarding vigorously ourselves. we Patterson highlight we'd There and this we are defend the intend to few

First, we among competitive dynamic operate and a an with competitive prices. extremely in market peers

on finally, on unilaterally financial effect adverse And seeks damages. Second, always Patterson or to will matters. relief matter and do all results has a that injunctive our independently will this not It's complaint and have material the of competitive always and important act condition also seek anticipate operations. monetary not we does note

allow squarely While we not improving business. focused will execution remains complaint entire our this our performance. improving we away to take Patterson attention matter and take team from any our this seriously, The on

have have our future. work my While lot opportunity Patterson a early my ahead, there position company days confidence reinforced the with we for of tremendous is the and at in strong

the changes the execution implementing and for which the Ann our foundation so strengthen I to are Operator? the questions. necessary that, We line organization open long-term. better and will to like we'd results improve across that With take our your drive can

Operator

from Your first question Kreger comes Blair. from William John

open. is line Your

John C. Kreger

you was a things label, think you about What little changes more that thank of and infrastructure change? private My that to of it to not Hey, that? talk your investment in take remarks implement Mark, very one would certainly strategy sense. you of sourcing much. perception mentioned just was Patterson's make and you is sort can is historically bit that I part initiatives for the really going

Mark S. Walchirk

you. thank John, Yeah,

that technology certainly there's of out team believe directly took now all, And sourcing invest build We'll advance opportunity to step I the our is I really there. part and me. first to of the an organization reporting we that also help the tools to a in initiatives think strategic team. that is first certainly,

teams portfolio also penetration private label products pursuing alignment We initiative expand label label that aggressively existing that we broad with an have our to an important have our our to executing we today private accounts we're certainly out incentive sales of we but organizations structure a and well. products, so that. offering around And to in be ensuring as and build have private to continue will certainly element improve and good our opportunity of initiatives, as against field our those

ability team So a I to this in of and to our have real believe execution top-flight opportunity that over improve be will out a sourcing build results key we to need time. a part our

John C. Kreger

last then profits just you. satisfied about couple other doing account how you years, yielding? you the initiatives and that with are talk thank that had Great, has And the can Patterson the that's one that thing, corporate is of over

Mark S. Walchirk

bring that an side also had on an Well, put Certainly, larger accounts we've for several high the types to think the DSO us for customers accounts can support focus well. those an national experience our opportunity is to think and those area I growth well. accounts, are believe certainly national need we some in. have certainly the opportunity customer very high and the on expectations some is Dental business meeting more that as of customers standards I as ensure meet and it's both with those that also vet our I've to side, of valuable that this we of corporate large and and we

marketplace continued to have national the we is expectations need and we are of us very sure certainly to strong a to position that that clearly, grow, opportunity we serve there's that shift But to for make So accounts the markets high. an continue there. more in

John C. Kreger

Thank Great. you.

Operator

comes from Your from Stifel. Jon next Block question

open. is line Your

Jonathan David Block

questions, a line Maybe a certainly bogey out, we we there a is of two one, to of Previously Health surprising, sort should when ERP se, that the in margins, asking morning. to so I Dental then guessing for Ann, the was of know, I over I'm current Mark, and don't Animal op also least obviously but a quicker compression incrementally op guys. to to is And profitable, in line margin got first Dental shift XXXX. I I'm see per rebound turn, Good reps years at and to if back Dental, begin start but next step a quarter. think onboarding the expense year, allude really line follow-up. that was the can the largely took guidance guys. lot not in margins a subside of? Thanks, the Thanks new we magnitude about two-fold, one, the top contributing to top then margin you're maybe fiscal used of should to Great. then couple X% think you but the

Ann B. Gugino

Sure.

yeah, the was line the quarter, and business, some to as the were point, the product in was the your at you really we with in clearly that that impacted to current to more Animal and temporary largely margins that So, story in when surprise the margin in then the in that's the challenges year, top it FY mix to gross line what year-end up but earlier issue the like we've particularly Health more expect a our look compression, hit to quarter and of tied of with so X.X% look to XXXX, rebates, ability really say, Health. seen we margins and we Animal that's X%, QX in to certain feel you rebound kind really the

sales, we I was Dental similar We a rate challenges attributed tied while thing think lower additional year-end really to Dental, are quarter to increase is impact margin the at our had in an rebate. really interest Animal that our have really that the portfolio in equipment in in think the more with an and other tied about we financing I with then saw that's product that to the and had that, definitely equipment and around mix notice Health gross curve in which rates. days corporate and increase coupled forward the you'll the XX% loss, increase is did last in XX the an that's

So over I to long-term, talk think the profile. about more I'll long-term turn margin that as we about think to Mark

Mark S. Walchirk

Yeah.

margins Jon first our enhance buy and stabilize think and our execution help bit back a is and certainly that time. the the the on comes which capabilities need to side I it question, we to can over little improve

our organization for is big as the important mix also think products the product sure I for to component improved and making field to very products on of our that and are making that cost again that the structure aligned sales, to businesses obviously margins appropriately margins improve would on is crucial certainly within while that over it the affect to our needs effect customers' the we focus aligned and and our as certainly also an profitability sure time around continuing profitability well. but directly, fits that a that us operating have a ensure incentives well drive those really that doesn't of mix and meet sales have with sell selling gross that are that organization overall is obviously us

focused help be able initiatives over to sales mix a margins segmentation, these execution, drive platform those of is really So on then the and has and situation use field on we're customer platform variety been and again, initiatives again has execute – focused common the common stabilize ERP and once variety I the time. that think things there we around there help the transition the forward are disruptive we're of presented a us, going a obviously to very while to challenges for against certainly management, that on being

Jonathan David Block

follow-up case contribution, Great. Heartland where to a just lapped Okay. you've just quicker, consumable question And arguably the little some now a then, and Dental, moving are today can bringing guys. trends comment months from the competitive more is was moving what ago? lapping business reps Heartland to CEREC the maybe sales on, on the there the specific you bit Thanks, maybe clearly continues struggle block and tighter to parts course of XX versus parts of

Mark S. Walchirk

can certainly me. touch join that, on Yeah. I'll Ann

consumables disruptions result results over are transitions our there primarily think through of the the in that a the course company I that going I is referenced. the segment the seen we've we've product and think obviously that trends various the of

to sales our sales we we reps, putting the they training new continue sure to quickly and speed methodology get equipment specialists to add make invest tools kind the to continue a in of begin organization, very and reps are up have We continuing and also new add productivity place of necessary to new formal to productive. we're that in be to sales assess and to

think our those business. CEREC elements to obviously so add I that in anything to key growing ultimately consumables really And stabilizing well around and I'm are to specific executing be sure going or particular? if there you have not

Ann B. Gugino

mean, think negatively the I there on, a impacting I is number factors touched category. you clearly of No,

to count. discreetly, while having those head risk touched you touched then the business disruption impact the the a So is that I the not ERP head say, on count clearly number. distribution, and we've given quantify would open Mark added to items got large block from the on going on we're

Operator

next Craig-Hallum. from comes from your And Kevin Ellich question

line open. Your is

Kevin Ellich

morning. that, for sure you're it's color for could bit with Is the top you if if subsiding certain on that rebates, about it more you certain And behind little our great the animal guys working some that? off, seen yet? turn be seeing Ann, comment in color then I really of made Animal some taking would production guess, a products targets in really cross you Good Talking is a will helpful. any growth (XX:XX), product Thanks good paths have about Thanks. been again. I'm a any business, dairy category, year-end demand wondering give the for missing market first questions. Ann, Health you. wondering or

Ann B. Gugino

Sure. Thanks, Kevin.

a and at we really you where when clearly X%, out rebound of look out it market. So, animal came optimum really wine small beef of the did more growth for sales it up saw come in and that the more dairy, that segment production

in beef in seeing still kind continue and dairy is trend of in So I to a spot outlook have terms would the really we a of flattish down where the market. pork say market. the But we're to that brighter

As color about more I it's and think I it give that the rebate plans and would the target. we're compensation in as is aligning to you mix the that, rebates, alluded, relates additional that mix with shifts hitting Mark

So product about particular it we more just than category. it's vendors – or is mix

Kevin Ellich

good you've going seen, that Great. given And consumable color. to a then weakness of back you've dental lot

you're any consumable having sellers the if impact that's if like Thanks. your and wondering online seeing pressure from any Just growth? Amazon on additional

Mark S. Walchirk

Yeah, No. thank you.

added necessarily don't for I market competitive there. very think a pressure seeing it's generally, think, sure. we're I

there's think the environment. going really business I be to dynamics need certainly our driver the experience of improve is certainly, and our our ability to the competitive on over time. there's Certainly, Business and stabilizing think we'll key compete data. consumables in customer a improve segment. I in And to core the continue to and pressure growing execution going

Our focus proposition be complete is really want this on partner. a value business our to want providing to a we idea more partner, a we certainly supply customers than for be and

key to And a that believe et support, competitive And a we for value stabilize that business, consumables value our the on broad us. certainly in is execution so equipment technology, that services, business can portfolio, as that, believe we win having really core, broad propositions, market. improve day-to-day can proposition the the software cetera, technical we our will

Kevin Ellich

Mark. Thanks,

Operator

question Baird. next from Johnson comes Your from Jeff

line Your is open.

Jeff D. Johnson

your a dental kind maybe the Thank last few the X% million respect you. trending future. dollars. to basis of the $XX of Good wish fall Ann, – of starting north morning, you look growth quarter, Ann, about Mark, in XXX all X% if to at luck or And I off you, kind with little down been points absolute to guys. just this X% sequential quarters, consumables I of best that the closer kind I had If CEREC maybe – in represents X% loss the way us be just help or would you consumables things, much helpful. internal can million $XX have all, that incremental how be could downshift versus much specific of in on certain be way that help much but think you any a that maybe you other issues? at might kind in might the how don't that said fall bucket of I that understand might if continued been want just of us be you off, market, your how X%, to

Ann B. Gugino

Yeah, sure.

I it is. it's would more So than of say our internal really issues

seen haven't end-market. a in the We change of much

into back system annualizing the in anything the ERP As say it and did block but it's category and the more have of count some we adding reps is in around than Jonathan internal head seeing in the with particular. alluded, have adding was contract the growth, we we're which I headwinds those again would Heartland of market kind more or

Jeff D. Johnson

you now that, Thank versus but all? initial CEREC can one DI core DI in the talk time then on or in you're including premium clarifying all at seem two and on the on costs CAD/CAM right. move up incremental the on at about the sales continue range, and to after are that of down the together, questions, some all-in XShape interest just talk $XX corporate secondly to want trended feedback equipment And all if at is necessarily I good high-end kind CAD/CAM, this the we've those for least sure like It going And I some you how because is business, on change the in quarter, quarter? profitability you. quarter about being corporate you it I sound two X% the rate sounds while. first and there All of a million CAD/CAM loss guess, abate make heard so profit that in that margin your side guidance tied forward the to then imply implied like going understand going to the to the X% fourth doesn't another would the contracts then

Ann B. Gugino

take and continue in interest I are you But, increase in that to yeah, Mark the other equipment right, and I'll that this Yeah. the question. then we the at Jeff. can first had expecting we the that's When the portfolio, look challenge one quarter. rates that address think into

Mark S. Walchirk

do specifically specific to market your I'll wouldn't but first the comment to manufacturers, broadening of think There's and our believe specific equipment question technology the just on portfolio. obviously certainly continues we back lines innovation that Yeah. I jump product or evolve. technology part

product with some meeting same for still CEREC on overall build Don to opportunity favorability decision plans I on terms teams the At the times that the connect important we're to focus I've an an been several we well. focused company placements. continue product. very to our our new to action as think had remain and CEO, the time, have seeing Casey, was of just it early think unit and I in

tell in in our and and products we're the is would broadened you closely actively to equipment that continue focusing we work I all with what build is place portfolio So portfolio portfolio across digital of us the technology obviously and with develop to big field. to put drive our that of a in for plans, This the manufacturers activities products. funnels, promotional focus action

Jeff D. Johnson

Thank you.

Operator

from next Jaffray. Piper Your question from James comes Sarah

Your open. line is

Sarah E. James

force the few than we Was should Thank you. about loss key a as unpack scale sales of think I sales to people this more turnover. sales more wanted a or the it exit? of it broad-based was

Mark S. Walchirk

I of maybe think I can original of little the then a perhaps of comment and mean, kind sales place the context. Ann reorganization took time bit I'll force some provide Well, ago. quite

both the in. we I disruption business and think a in had some the since continue turnover normal reps reps, which is do as organization territory continued to amongst reinvest a we've in then result specialists, equipment with of fair amount new sales while see that new we our we're

of standpoint of Equipment from Territory of as all, to people So the right working with them ensure now say the I that any in be make improved front you has team make it? an in drive the first and there outstanding want specific a customer but and well was additional quarter, areas to to event an help our number a to that not certainly customers, the customers. experience we Specialist right issue right both performance. that be is productive delivering them that I'm help tools we're from and for wouldn't if an can also time we disruption our people that sure been a those the operational day-to-day successful as elements that to standpoint our believe has And during to have color improving some occurred help that to, provide focus sure sure of in

Ann B. Gugino

the as it's the said, been and in just and It's up that's disruption the current speed. Mark to the that said, quarter. it past to wasn't new what would Mark productive of our folks on more, I kind add are ability No. in that get an to board event

Sarah E. James

existing it. starting that you talk talent on up And people career? are type of training the need this you can Got more finding sort in early about you new the with sales environment, experienced about or relationships of is recruiting client their

Mark S. Walchirk

of mix in of experience; other fired with, our up No, to think good engage I've of really that three I sales combination. we're methodology to them I that Patterson the sales measure the over days in rep and get some that part training and them the we're help I think, obviously to very it's delivering up a XX an think existing training new it's expectations folks training in, team the the to to in obviously really be And are focused have markets opportunity a we're markets they some and have sales a classes productivity team. that kind we heavily investing had to education. our that of of speed on certainly that the on and meeting expectations quickly make sure tools that we're them make productive, and and are the of tools have past

our of pleased proud we're the bringing of that types team them individuals bring. engage that It's the been directly and exciting very I'm So they of with on. with to and profile the experiences

Sarah E. James

you. Thank

Operator

Wright from from comes Erin question next Suisse. Credit The

Securities cost, I guess review at XX-day Great. Erin new to can your juncture? fiscal as the will in Wilson open. embedded you. LLC in or (USA) those initiatives I Thanks. those it start is guidance initiatives, you following this - Credit XXXX point at Thank quantify this Suisse line with Your associated more Wright and What's early guess, relates anything

Mark S. Walchirk

really Yeah. we're obviously the for continue, rest Obviously, expectations. expect reflected guidance and we our Thanks, negative certainly I to and trends of of QX, the given the Erin. in some that's seeing mean our and challenges the year for and

been of expect taken be which our position we'll here additional others that taken, And be may urgent relationship would lay Wilson expect today I some on Okay. what guidance a side, the Suisse the that deliver there Health Wright from we the are process actions. FY Securities GPO Great. our and have and you have taking churn And we're and focus And sole we're a which of months. around speak Credit really Health I in guess, think in material relationships to of then on types of June. Animal does certainly action, of many them QX not near-term the are amongst position We your we certainly on business in that being exclusive are to side, extent to have been to quantify that actions Animal (USA) - those LLC Thanks. impact taking in have coming appropriate XXXX; in a the many specifically the in you GPO provide do can more on the to relationships? of to and nature Erin call out do the

Mark S. Walchirk

customer in our communicated really that pleased relationships there to that We've on specifically hold the business the I previously. there. the to We're was think with without actually and business been obviously those on our ability engaging with of think, group Well, commenting exact part we, one nature, I directly customers.

material so on don't you. Wright Securities And Suisse or we Great. effect - Okay. our Erin a anticipate (USA) that's have that business there. Credit LLC Thank Wilson will having

Operator

Your next question from comes from Kevin Kedra Gabelli.

line Your open. is

Kevin Kedra

taking questions. for Thanks the Great.

you you. maybe I had I a Ann, First, best and follow-up. questions a for my to want couple wishes extend then of to

guiding, versus kind how go-forward about and but basic rate, of this a you you're how that? we equipment then like think – any certainly guiding year, so thinking for at tax be low we fiscal you XX% It And rate should clarity rate on between going tech? puts give sounds between should blended of First breakdown the that – based on rate about forward? can in the the not performance

Ann B. Gugino

Sure.

we're for, that At range XX%. the think that's that's the so you obviously, actually be tax in blended XX% go-forward will still XXXX for XX% rules provisional XX% for the we're many the of of higher looking thinking the year, of current rate closer XX% our if at basically and beyond. rates this about to of are point, then to what FY but rate So XX%, and quarters the to three year

I XX% that similar technology. were and As it was both relates to mentioned the across categories, all to it and down that around say range equipment, basic we would we XX% down product

Kevin Kedra

Great. about XX maybe only the about year the so, know but Mark helm for down And been or stocks rained then more question, at X-plus I broad kind days of clearly you've lows.

performing One Health seem Health. you're working two Dental that Animal point Dental Animal that well potential clearly strategic businesses different what to be separate you have directions? going the and and alternatives issues – two businesses, you are of got more struggles to do giving there seems At perform You've be consider stable short-term. more on; that some in and had some

Mark S. Walchirk

we're can those on do focused execution. the execution and an opportunity improved both and to cost to together we initiatives execution financial with the certainly both support across improve unique businesses those think we But they businesses sourcing strategic around Well, committed also both improving around discipline unique improve to to that Obviously, the that do businesses. those and company delivering value and structure believe the in they're shareholder propositions label, there's certainly need strategies those here and our around taking that across terms and performance about how they need private deliver. support we that to metrics, we're many our unique the both around value we're long-term the tie in businesses, of they to in employ the markets that and believe core of and processes, of business steps

we're end-market segments that we're those are that our the the segments. markets with results we're for both driving on fundamentals place focus in pleased in taking certainly and So and to continuing

Kevin Kedra

Okay. Thanks.

Operator

from Sachs. Robert from question Jones Your comes next Goldman

Your line is open.

Nathan Rich

Thanks. This this Bob is morning. Nathan for Rich on

it the on moving a quarter accelerate you guidance pieces end guys for I range. based the bit understand to quarter. implies saw margin what guidance laid but a XQ, guys that pressures like expected Just clarification the little new seems the third fourth on are that the of just that out, in you the

the you kind quarter? understand address those could could the worse a you taking help bit think us some maybe in of of you're get just specific little better to and steps So, you. what XQ areas in Thank

Ann B. Gugino

Sure. chime I'll can Mark and then in. start

I think its largest would talked is I about volume and year-end. first out thing we point is – quarter our QX the

physical inventories the just So, of we're process, doing true-up. part and year-end

you in speed then action mentioned, it place, trends time take more inherently fact putting that we're with those the volume the that quarter plans And And and it's we're will but Mark in that the given seeing. year-end. risk there's results. just in the to as Certainly, the urgently so couple kind some of

would that out. so be I start would And how kind of

Mark S. Walchirk

Yeah.

I taking and in that's but to think hold seeing just trends challenging we're actions business results. We're those, reflected in that, those our certainly address the going to overnight. to some I actions mean take obviously reinforce aren't

that QX. our the we continued expect the business some we've that of facing here so, challenges And and continue outlined on today we're trends in to see in

Nathan Rich

a And Mark, I quick Thanks. could. just follow-up if Okay.

comments company question a be where sales like I guess your for going force. seems competency maybe an need it the core to on area you're is do and my investing. mean, to this is you on I obviously Just the or more you do broader look just better like bring bit to forward? specialists on how reorg, customers. curious a going should more on to sales I'm think service your get force to count the sales head a thoughts either force

Mark S. Walchirk

Territory we'll any Thanks, considering have and to investing our Equipment we more type we continue we're to evolve don't force that not necessarily going we're I to and number invest sure our the of the Yeah. Nathan Certainly, continue support are a think reps, think to have I markets to but evolve, sales we make more Specialists, right and in continue folks the force as customers. magic sales ground reorganization. best on

tools of they to sure on with and incentive working execution our talking them the the improve our the customer investing frankly making team, so about the on focus that value customers sales help that can key experience is we our and proposition. Our focus productivity, structure aligned be improve giving areas company their in around ensuring is with and focused their our

a to sales – crucial our there help sure that Patterson and So and continue invest the success going and core to our performance. we're competency at continue role make in field a drive that to here teams play is they reps

Nathan Rich

for Thanks thoughts. the

Operator

question from RBC. Hagan from comes Stephen next your And

line open. is Your

Stephen Hagan

up Hi, expectations question good just morning. for I about just we QX. the want on to follow had the

be comments What benefit your and worse in Animal of a should quarter, so Health of had Some a gets some there? we offsets? QX before items this what in communicated bit really one-time

Ann B. Gugino

Yeah.

talked just that an and some yes, of think of we Dental we anomaly. more think that so about, I the on is So the Health more side, items certainly, the Animal it's QX

and to QX in improve more expect be We sequentially line.

based inherently was results than business days with clearly, based ago, the from rates on the continued the So there's portfolio just impacts business of current guidance would corporate the I on we well and information. quarter, the together at there headwinds. that things XX that financing the risk as mean, and the it's uncertainty as that think two in think I of more on put prudent is kind that to so we've the interest I equipment Dental some point

Stephen Hagan

Okay. easier then, on dental to QX. And the the get seemed equipment, comps in just

getting to still for it a digital probably we should the end better the kind line does that You're in to of of year-over-year related rate closer trend the the see or disruption challenging? equipment, make QX environment interest

Ann B. Gugino

the if you look at say have definitely trends. in necessarily in would progress time or going quarter, keep improvement the to but annualize guidance would quarter, in we're current revenue the a categories And it's specific lower seeing definitely price, average just by But you're down selling I still current We do so don't product in. take digital seeing give in just an to they the I we're that as making Yeah. mind guidance some categories. we're

Mark S. Walchirk

are do that the through of thinking in their introductions portfolio, And add, products. I think also what think I and new do just changes taking I with think in terms these still just our customers the development place, product I would some are are options

also I so, And to that contributed area. in this of do softness has some think that the

Stephen Hagan

you. Thank Okay.

Operator

final Michael from your for will come from today And question Minchak JPMorgan.

open. is line Your

Michael R. Minchak

the and for Hi. Good question. morning, taking thanks

to a could you products So could I business as Dental private the look currently go if products? respect just suppliers with you the where over you think could to compare in expansion. there's whether margins about that margin And drive maybe category? branded then, if that to is any us the give grow label on you to those private label and wondering issues how for potentially an with mentioned sense talk opportunity just larger-branded private stand label you time, was where so you your penetration

Mark S. Walchirk

Well, where standpoint. to without we're we getting be penetration not a need specifics, from into

appropriate would for We fair and to of that products. to of penetration I rates upside opportunity believe have, a be certainly, think types these get amount we

we grow We so time expand focused portfolio and an to also improving have have. takes label penetration portfolio, portfolio our with more the multiple expanding Obviously, existing private obviously we're both. the opportunity that to ways on than

mix position, cost well a think be will both need We private products implications good to work look think very I and the our an we that. position as about of of important to in brand both as across we private our we market-leading comprehensively is that portfolio obviously supplier portfolio. suppliers our and competitive label terms on of label our with with going many forward. the we products. ensure we have actually continuing partners, have And branded our private private of closely products label ensure forward certainly to part suppliers with a And brand cost work and to important to that our

a of is aligned, element critical big would sure to as all for executing have of that success will against reiterate these that to incentive type referred is your relationships because for focus reps sales that us I they that again I that structure to, be initiative that initiative and just of is the well. importance just sales So critical a and the the and that – to make

Michael R. Minchak

stable us sustained there? of early the the what market we in of I And to thoughts this seeing dental missed sort but Any driving company-specific been then on driving give recent sort your a you if that back just it. Got flattish any Obviously, the seeing be weakness couple are to trends can terms call, of we've growth, on there. consumable might underlying sorry trend color of but the of maybe the factors go in side. updated still are there? I'm sort thoughts

Mark S. Walchirk

reasonably the view stable. I Well, think, our think is of I market,

flat to low slight single-digit probably I think very growth.

stable. but I we that continues to think believe certainly think that kind of evolve reasonably it's I

Michael R. Minchak

Got it. comments. Appreciate the

Mark S. Walchirk

our to for Thank we in you look FY and you. QX forward fiscal today our XXXX. Well, with close us joining much. Thanks June our guidance as again with speaking very and provide again year out for we you results thank

Operator

conclude Thank call. you, everyone. This today's conference will

You disconnect. now may

John M. Wright	Patterson Cos., Inc.
Mark S. Walchirk	Patterson Cos., Inc.
Ann B. Gugino	Patterson Cos., Inc.
John C. Kreger	William Blair & Co. LLC
Jonathan David Block	Stifel, Nicolaus & Co., Inc.
Kevin Ellich	Craig-Hallum Capital Group LLC
Jeff D. Johnson	Robert W. Baird & Co., Inc.
Sarah E. James	Piper Jaffray & Co.
Erin Wilson Wright	Credit Suisse Securities (NYSE:USA) LLC
Kevin Kedra	Gabelli & Company, Inc.
Nathan Rich	Goldman Sachs & Co. LLC
Stephen Hagan	RBC Capital Markets LLC
Michael R. Minchak	JPMorgan Securities LLC

Patterson Companies (PDCO) 1 Mar 182018 Q3 Earnings call transcript