PDCO - Earnings call transcript Q2 2019 | Patterson Companies, Inc.

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Operator

Good morning. My name is Denise and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Patterson Companies' Second Quarter Fiscal 2019 Conference 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. you. Thank Instructions] [Operator Mr. of you VP conference. begin Investor Wright, may Relations, your John

John Wright

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

President open and me and Financial to up quarter the the Don Officer, by are of questions. Joining After review XXXX Chief call Chief a today Zurbay. fiscal Officer, Mark Executive management, Walchirk; Patterson second we your will

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

in XXXX. integration we XXXX before after press namely reported Also, comments undertakes Investor provided call date the related accurate analysis shares effects per expense, of the XXXX. or of reconciliation tax statements events live net measures, amortization, our based items. operating about to upon to the Inc., adjust this addition, the for of no with both this impact the XX, circumstances first of our found section adjusted any months Relations the and only content costs Please revise income presentation fiscal obligation for diluted broadcast, results that second GAAP income, conference reflect The update pattersoncompanies.com. fiscal attributable In and this the income morning's Companies, including The attributable Patterson markets six tax or market of earnings and Patterson deal business that legal date call. can our to growth we income, is income are reserve time-sensitive slide information note estimates. and restructuring release of internal rates along Company's will quarter a forward-looking Patterson the and to financial as of serve, be of taxes, the to table December share Companies, in and contains in at expenses, website is Inc., reference net call, and these conference

We and is in will reported results release. at also this foreign and flow of selling is current we in starting and currency. use Time This adjusted today impact foreign exclude of which period Central changes found discuss the available sales In one-week. will for particular, free press sales relationships. our reconciliation can internal non-GAAP be replay The noon morning's a a adjusted call of being for impact cash term represent and recorded be the net to product to measure

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

Mark Walchirk

and of for you, patience anticipated. start joining a Thank your week call John, second our let first and we originally you me after by quarter us thanking in all for flexibility

certainly of processes like to appreciation a the an accounting are now we last our the more can of metrics complete work announced back turn than execution. with second It through before update dynamic to of and with I'm look time. I that the brief at take you performance, including results have specific against the But in associated accomplish year to installed over full with helping core to It year. been past into ever while day-to-day our initiatives. our shares related quarter work As has year, and much reported, certainly to our team been a provide new over officially we summary we to want time I and since progress work I'd joint what results improving committed the our lead update Patterson a to week, we more joined procedures, quarter company key our deliver And CEO. a a more our just on I you technical treatment investments. business has We've second one with performance venture needed and to progress tell been short as future. energized on able quarter, now period that key I'm ahead and consistent pleased has a And focus

performing and are the our extensive We enhance value customer initiatives. organizations, organization align work to a set of stabilizing field proposition, around our focused

and culture team on with accountability, focus a execution. talent continued evolved our focus a perspective also build upon tenured We and on and with and a fresh new to driving collaboration, experience company have our improved

Taken together, of foundation early actions we to strong future are the and building results. for success see our our we a beginning are in impact

during that our for but fiscal transition We performance, a continue XXXX improved is time are transformation some the to to are encouraged take the is steps year by the that well recognize deliver value. said, business. long-term build our signs through six of we and we taking right of us we and early that stronger believe results will a to the first confidence positioned give That quarter months our that year Patterson

consecutive X.X% our of and our which our in effect the expectations key increased second to quarter, we're met line enhance organization, sales initiatives. Turning quarter, second Internal demonstrate sales stabilize sales quarter growth to results the beginning of year-over-year experience, field benefit improve is marked the as against execution. the customer starting now taking from to execute and our our actions revenue the top to our

quarter. fiscal the from sequentially improved margins XXXX first operating Our

to our are we half outlook and year, margins committed profitability face the Health in to continuing back and and performance be with in steps the a environment to are are stabilize expect on improved fiscal of and additional take our We to continue what our competitive we improve pleased will results the these to both our our guidance. date XXXX Dental our reaffirming segments. for of Based we Animal

declined Health growth rates believe two grew XX% the Animal the X.X% another are categories quarter Production our to in flat, internal and the results a for Dental segment, sales the on pleased Turning in volume underlying versus essentially compared our Companion internal quarter. second delivered second quarter solid we the improving overall and the at These trends; overall continue XXXX. to ago. substantially see digital both or we to revenues period segments. the in in while fiscal of and our are segment, were In increasing approximately Animal technology equipment as sales same unit generated Within what business we with growth across to market higher above we with consumables the our year revenue CAD/CAM sales we equipment X.X% our business, Animal briefly be In now segments. our

discussed past we we focused are sharply have over As year, broad on executing the five initiatives.

flow; enhancing the third, improved at improving stabilizing fourth, cash to customer execution; build second, margins; First, the fifth, overall talent sales our driving and continuing experience; Patterson.

Let have me the to respect last the and we initiatives. discuss focus on customer issues our addressed are significant the we have behind quarter of experience, with us. with each improving believe we largely making customer Starting faced as are been most progress these we said

make it and experience customer goals with key order do to continue experience or to easier Overall, quality, fill and business for exceed continue Patterson. including rates, digital our our customer we satisfaction. meet We customers invest to more effective to in our

Health the the out regularly execution, we've customer building customer our segments. promoter seen part over to to steady focus experience, As of across Animal and and in been sales score, satisfaction our our With continue year. net invest we we on respect measuring have and improvement past force both sales improving Dental

the believe second our met our the useful system. to During including more goals investments productive are our we help and representatives field our for powerful tools force new add our trained them this we with and serve We technology to and onboarding new making quarter, sales our help have CRM equipped use effectively. in area organization will to more to make reps sales customers productivity to enable

primarily our sourcing, centered label initiative focus savings. core and around on on stabilizing areas; higher an strategic three margins, products, is which private cost is focused third margin Our increased

expanding on growing progressing and our is private portfolio focus Our label well.

growth sales discussed management we aligned our our the and of portfolio. penetration have specific goals established each As the increasing label we private label around for private businesses previously, team existing and of have

result, more Dental companywide a grew growth X% strong included Health This our in year. our products. last year-over-year to private our private notably than label year-over-year and Animal category growth compared also the As private label in products second in quarter label revenue

plan overall SKUs capture we improved close offering aligns forward. more added to and with over enables SKU first XXX and new customers margins our element the label our is needs portfolio of fiscal private to of to a see During we which private our key half margins, Expanding introductions going to our stabilize continue time. additional opportunities label to for our XXXX the us of

a program This be sourcing progress. disciplined that important In scalable believe progress addition, a strategic area. we we to will initiative, already us seeing this multiyear and we allow will in accelerate are but implemented is

consolidation comprehensive portfolio process. which and resulted costs. formal we SKU acquisition our label a RFP in example, included completed improved and For private recently of review portfolio a vendor This Dental review strategic

additional company. the pursue opportunities our to continue will drive We across sourcing to initiatives strategic

basis balance improving XXXX improvements year-over-year steps the in balance driven our a are all our sequential also opportunities receivable making sharply efforts business payable, to analyzing XXXX. inventory, balances needs our QX also fiscal of with of and to expenses favorable XQ compared fourth as improved remain and We of flow, fiscal accounts working focused meaningful area. this cash on ensure we the from capital to were a and accounts With our the to initiative, structure help adjustments carefully taking appropriate on basis cost and have our on respect and and

Our for our teams in we're on this will color and improvements. our are accountable Don these capital his remarks. on improving holding provide leaders area some working performance during additional squarely focused

strategic designed experience, as initiative, build corporate Earlier the are to continuing focused is board. him for a appointment now enhance our to opportunities of Patterson of which efficient Tony Development. manner. us additional Business for over and years overall Patterson. to have to an on This newly is President development this brings of excited at final Pellegrin in we to Turning and created week enable the Tony announced we growth talent Vice role key XX explore and

on weeks. our complete progress of for to making in the the business addition, are good a this In Dental expect process President new and search we we coming

still on improve see that we today, are focused While it we have is execution. business our work beginning to a we pay ahead, off. of to efforts as we lot these And discussed initiatives core key remain clear our

collaboratively on by encouraged Our are our is we and accountable, and across aligned our other goals working each functions team progress. holding

process strategy it been to provide we've long-term turn I brief Before I over on want also update Don, to undertaking. a the

identify we certainly for We the key continue markets we that monitor all product that stable them and for and these customers improvement. actively Dental competitive and of both Animal lines continuous markets, delivering sizes services to and products, opportunities end which strong value-added to technologies impacting believe and are in service we environment are operate the and Health recognize our trends and range a in broad we Across types. businesses, and of factors our the

variety we products the needs. value as most relevant set offer of a customers tailor as Our ability well to technologies our and their solutions to of

upon customers products, to the success and grounded range we You be At we services strategy our level, have build which high should is rely with strong expect relationships remains our on critical several a wide technology, our focusing that areas. exceptional and proposition of will and them. value the to on in long-term our key go-forward

on we focus customer and will to our even strengthen greater experience. delivering core execution continue a and better First

our dive growth we in Overall, customer into Second, in continue we expand even with accelerate high-value to great our have businesses I'll and results. to our And and that, and deeper Don invest performance the to and other we investment of valuable these our more a adjacencies help we over business, value foundation deliver create a current on will look to each that of building finally it our areas for to will superior turn opportunities. to to into strengths improved forward quarter's shareholders. customers become our

Don Zurbay

Mark, you, and good everyone. Thank morning

company. First, I the entire will walk for through financial the highlights

focus items. cash sheet I'll on bit segments, and of flow balance finally each cover will few Next, two our a and a I

on Before comment the want rescheduling our make results, call. recent the I of into earnings brief get I a to

does our business the in of evaluate on operations, we As appreciation announced accounting time non-operating shares related to week, we not impact recent with income for results. pronouncements. last normal needed to treatment have any operations does more accounting our impact to light in historical update investments accounting those of relate associated it or This joint the in nor on ventures the

account joint are venture today with quarter new results compliance the investments for accurately we in The announcing second pronouncements. accounting our

my I business to on from to are business the the already highlight of in see will that detail. the is helpful generally we will the you on improvement described remarks, in instead Mark comparisons. view sequential business year-over-year As typical as some the it initiatives focus has making more be of we progress focusing We continue the believe

represents Now a let financials are second XXXX reported Companies revenue second to sales the This ago. the currency $X.X increase effect the year-over-year quarter fiscal impact billion, second of changes line. sales me and quarter top walk growth. the Patterson of second initiatives of reflects to versus were the this of X.X%. the bring Consolidated quarter for We of through for growth our in adjusted selling which increased fiscal an in quarter Internal consecutive X.X% back positive for product the believe translation our year XXXX. relationships

Our the XX.X%, second QX the in gross XXXX. was for were XX quarter basis manage of to expenses quarter were reflecting in than basis expenses down quarter. quarter second achieved points slightly on sequential a points XX lower fiscal basis from consolidated in we what by Operating first the they initiatives margin

impacted Also We in objectives we our improve of continue was need outstanding the our legal while basis In various margin XXXX. quarter included expenses for manage share expenses remainder will in to quarter, also expenses XX The related second and a point quarter balancing the increased carefully business achieve earnings our difficult to from they in X.X%, the timing operating of areas improvement forecast. our invest forecast certain our our business. to what first second these in operating grow of in our originally the matters. to expenses operating we the of quarter that year of to is were margin the the $X.XX legal per to in and by estimate sequential consolidated the reflecting excess operating fiscal the

XXXX, of XX.X% the Our the adjusted of of was effective down rate a the from fiscal and in second tax quarter new quarter, XX.X% the for tax reflecting rate legislation. impact

share. million net the Companies On diluted the costs Companies amortization Inc. million was for GAAP to totaled share per $X.XX the second Inc. bottom fiscal in adjusted income the deal attributable excludes for net income quarter or Patterson of attributable $XX.X Patterson was quarter line, diluted $XX.X XXXX, the second Adjusted and $X.XX to quarter. per which earnings

were production the the segments. let's Now, a we to the is businesses, of solid in Health to performance growth in period in point animal same for segment X.X% sales market. first both and Health XX of Both is sequential ago. quarter Animal Operating business the in the categories turn our rate In improvement XXXX. Animal first topline what or from Animal portfolio. species Health at growth believe in compared our delivered margins quarter margins our improved and year animal a the operating above current the our companion basis across over rate our operating in X.X% margin Internal increased all QX,

XX% we equipment equipment the higher portfolio continued Operating margins year equipment we unit however, Dental first a were as in in quarter Dental year. from as same to on and a highlighted, supplies Now selling operating transition of XXXX. point ago, second And business. to flat dollars compared saw and broader that sales quarter were continued XXX as versus let's in number declined our business, field to vendors. dental already On we last Mark essentially stabilization of our quarter productivity of a volume in the In decreased improvement of grew basis internal substantially X.X% improved sales second reflect sales fiscal consumable new Patterson's of X.X% technology margins a in our quarter. XXXX sales, sequentially the move during the X.X% the and the versus and experience from basis, Dental improve Dental total sales consumable force.

months balance sheet the operating cash on statement. the first two our the To flow basis, million deferred a first We by included of fiscal $XXX months fiscal $XXX million these in the cash million equals price from which section let's balance the cash of look reduce of us an XXXX, our activities approximately XXXX on at our of $XXX flow, in six additional $XXX activities. allowed fully and million, to Through in sheet. items. appreciate debt have improved purchase combined we cash also generated receivables of $XXX have total year-to-date and flow cash items which six several investing Now million of is collected

As the working capital to we debt. and in facility AR put first efficiently the proceeds during quarter down a used reminder, interest to our place way trade pay a access as new higher

In also as shareholders. period capital, for improvement addition to first is working more in remain believe this the the year-to-date to decrease to of I net or in favorable diligent flow free return to work our facility, compared one-year are continue quarter report pleased the focus working well ago. the to to our put to up our and potential am proceeds the efforts focus net compared our of and capital our from numbers our continued here we result fiscal as additional in to cash and to in trend this working AR We business cash will year capital sequentially and improvement that is same there

$XX million we return the execute XXXX, dividends. strategy of six of to our form to first in months Through our the we shareholders returned our on capital continued to to cash shareholders. Turning to fiscal have allocation,

XXXX guidance. some comments with fiscal our outlook and conclude me Let on

GAAP $X.XX to and of $X.XX in earnings adjusted share. our earnings we $X.XX the the be $X.XX of range are per and reaffirming range per be non-GAAP fiscal For our to XXXX, diluted share expect in to guidance diluted to

impact deal which guidance after-tax or settlement amortization together approximately earnings $X.XX the legal expenses adjusted of per excludes Our reserve share. diluted totaled $XX.X and the million

walk model of help you in let how finish For fiscal items through modeling purposes, a plan a me remainder XXXX to few [indiscernible]. land we to to the

from growth as half the growth assumed through year-over-year move a the of remainder we revenue our year. improvement have rate rate revenue modest We first

year. the certain initiatives the second we and expect as most expenses, For gross we plan our we private made margin, operating margin from have prepared sourcing forecast. contribution original of regard adjustments to our strategic in recent half to some label our With

We modeling for are level. slightly a of the expenses as operating of to the moderate from currently remainder percent our first sales year half

improved know While drive still to to of we that those structure these we we make the the with balance a investments investments and conviction cost have early are business. some correct necessary to progress, performance plan aligns profit necessary and showing investments the contribution with need

continue carefully expenses make cost ongoing expenses this will in our aligned As our the we are business. not in analyze guidance. process with EPS ensure our and further to needs as any needed Because Mark the make opportunities and we outlined, additional is adjustments to to adjustments in are our structure they reflected

our range XX% be rate For to for in tax of the our to XX%. tax expect rate effective we adjusted still XXXX

million And of is now, XX forecasted the Mark. I to Our share back count range to the over in call shares. to will turn million be XX

Mark Walchirk

Don. Thanks

work that with our to up we core operating it I so commitments of up we'll while take up open shareholders. reiterate employees, remain on lines, we have and want to that, open your are our Don our ahead And certainly the execution questions, with Operator? customers, our on Before deliver with sense questions. a for I we can urgency business and to focused much and wrap driving progress, encouraged we and and

Operator

Credit comes first Your Erin Suisse. with from Instructions] [Operator Wright question

is Your open. line

Erin Wright

on your Great, factors and implies the coming I ramp? the thanks. ahead that second little comment and expectations to your on are or of bit what Can guidance experience was latest below operational particularly the those you basis guess, Thanks. a in the half what profit segment some contributing in quarterly of it Dental are quarters,

Don Zurbay

Don. is this Erin, Hi

think with as say we're I'm sure heard that sequentially improved for at think, not how moving us. through Dental help look some which improvement I room entire that in we the in as there the I place is through operating kind question, operating slightly in the the mind a year this and we to your move remainder would in our in I of initiatives we that back label really process, think this our is half to name which as some strategic that of our help year expectations. modest sourcing margins, I line margin And we're really of private to our but the have few we that margin here, need of

and your for and So, we modest as but I QX, think that heard to I not fully some I'm we're looking to into you. improvement for responds if some sure it, question color that's again continue get QX

Erin Wright

helpful. high And dynamics that’s more as out I equipment, breaking yes Okay, the guess dental as question my so basic is equipment. second well tech across on equipment

up XX%, I equipment basic of traction growth can new underlying from relationships? that the as you tech was the your trend kind on think comment underlying as high seeing vendor some well trends demand you're said but of what and you was

Mark Walchirk

meets fact in change over technology technology XX and them ensure our range market of choose of working frankly think we're Mark. evidenced terms help that their I certainly competitive months, it's with with equipment how especially on to transitioned through growth of pleased it think in much the products, really pleased closely wide and with customers portfolio area they with think has that as execution offering unit a I mean, that equipment we're to transition the the where Yes our a that Erin, the quarter. and technology right that I in and been. has always products offer of range a to practice. the the needs results broader that with was the is organization our as broader the obviously really thanks, relationship much work I we're pleased XX products we've some growth to made in we're revenue our well this a of volume as technology past We're Certainly, our in

So, full a continued and but this continue chairside of offer we service important dentistry, to portfolio in that I'm products, pleased execution made in with believe provider, We broad we're pleased as with field obviously feel of area. to is we've teams there. the progress certainly strongly a the our it

Erin Wright

great, thanks. Hey

Operator

Your Baird. next comes with question from Johnson Jeff

Your line is open.

Jeffrey Johnson

lower you, morning following for a question I'd in outpacing with be about Don products from and down, on seeing other more the priced question expensive side you as seeing like-for-like Mark lower within talked interested, prices up then to a you on to far or meaning it is expensive transition transition good price the the unit vendors? starting a we less one guess Thank Are guys. apples-for-apples just points your Maybe there, growth. well. just from dollar I from or are a But or or same products other maybe vendor Mark, comments coming vendors, growth far products you vendors products from equipment outweighing technology

Mark Walchirk

know, think wouldn’t Jeff, factor, obviously marketplace, one a say a some good a combination in certainly question. the we market. competitive certainly, specific in Yes, promotional factors, that's it’s I engage activity I of probably you

dollar a there products, as and we’re now, selling think I there’s additional we’re products. with unit broader those growth both selling volume obviously portfolio

equipment organization, for have and think decide we we comprehensive we there, solution that and combination fit a a only the and we’re helping not very which frankly with well the taking customers a our feel want helping there’s in them sector on I there now, that believe and of service type the right in So, strong with our products competing things support of that to value how technology there. are proposition after that technology them provide practice, sale they tech we place but

that believe be there the points in out we something are play at that continue a having that seeing that shared. different numbers price well to certainly now products, So, is broader portfolio and positioned you’re we’ve we of

Jeffrey Johnson

business? any at versus us provide or would you Yes, all anything of on sides systems or that DI color understand full-in-office that both one helps

Mark Walchirk

No, point. I shared into wouldn’t I than this to anything more at get specific we’ve think want

Jeffrey Johnson

changes the a Fair enough. talked actual and any there on And the should I’m from see to just accounting P&L, GAAP by delay And that the was on quarter that we then week, was in actually the or the Don, earnings you P&L impact that GAAP call exclude trying it or adjustments? fiscal that followup there? second non-GAAP with to a something about. to in there include non-GAAP? was in the just Was Thanks.

Don Zurbay

I impact just puts looking how the at and mean year we’re way that? think kind So, of in I yes, perspective quarter and it other guidance in that it and does to see takes, underlying was is gain there. impact think $X the relates that in. all excluded I’d as that just We’ve this a that million around did from was, impact expense quarter. the you call mean there positive I not the an can the highlight non-GAAP you would I of really the income we’re is, that of interest about impact as invested this ongoing a for dynamics that the JV

did two those in than about, I think think that have a us cost remarks We we I offset. also, interest have and highlighted we here, expense also $X.XX our or significantly really, and would largely higher to you’d prepared quarter anticipated had say, we about forecast that

part and but and why we’re it quarter, is as line impact that’s on of reason puts guidance maintaining few this happened we we with the the really takes, what that’s our kind where say, are to we of range. of there in So would be relatively guidance forward look expected it

Jeffrey Johnson

helpful. guys. you, Thank Thanks that’s

Operator

Jefferies. with Couillard Brandon from comes question next Your

Your line is open.

Brandon Couillard

of Business will qualities where specialty and what perhaps be his your sort building new you sort or the bit elaborate can Thanks, good morning. little if sort you as bit add of most be, whether where be Head a looking of opportunities some he'll at the perhaps international on value think Mark, portfolio he’d a Development some of of if Tony out just concentrated? - other curious or could --

Mark Walchirk

as and at Yes, it’s on important development, thanks talent execute to formal certainly more important of talked Brandon about a strategy, corporate is investment our made think for build of the we we’ve our continuing part business an as we Patterson, Certainly, question. having we’ve how an development that. function about

the in obviously on not that have. this early so, support focus certainly helping be we’ve specifically would strategic to point, although think some But some centering to execute in going we’re we’re specific ask of of I And we areas one us on. area at got priorities they Tony in that

how how new we’re the that there label – some we a some that’s or as in, we example, talked engage into that purview of within think are solutions. and private expand and there. move we the types some bit about begin can businesses support, investing we the around that the for to some where of support how we Certainly, service product little high-value areas customers, technical of think about adjacencies in as build to our areas, shared, decisions of certainly we do certainly invest in, business whether do technology or lines So buy about are in

will So, I wide. would pretty say be perspective his early

some would priorities development, later. they than want helping narrow about think obviously the have. him of directly corporate will sooner We opportunities, drive be that in strategic and But, business rather support us we certainly as we to development direction that of

Brandon Couillard

margin year-over-year kind change, dental on period then the the the bridge and could in charges but I trend us you the quarters? of any help inventory gross equipment were for and previous of one any charges or some there other absorbed in appreciate your Don. you've sequentially, Thanks that comments

Don Zurbay

we’re I that this I we’re to again dynamic our really I No, focused – mentioned, trying material And view. in as we stay way sequential really quarter think. on have didn’t don’t, any

don’t charges. all and contributing would XXX to, decline move. Animal less mix basis margin really is would both margin segment similar me, think there’s I side a know very impact equipment on impact mean our are in be impact, front there’s point to I year it��s basis that financing, minor a point absent gross there the last an point I Dental the in basis you largely XXX precise with inventory impact the had that Health gross – the the we that and a -- much more I from but reconciliation have say of an

Brandon Couillard

you. thank good, Very

Operator

Blair, Your next open. is with John your from comes line William question Kreger

John Kreger

comments thanks. Patterson progress to a referencing or too you comfortable of still At are Mark, you that? about, but for be to of fiscal this your XXXX to say Hey, made more point lot back do. just growth kind early that year soon a can

Mark Walchirk

guidance certainly around that. we XXXX I too in But to this we would feel - I progress. I theme come we’re position back I’d obviously point. at I Certainly, convey to soon where a provide short would -- to Well, making is, I fiscal kind that think going are like of key think any we’re say not answer, a certainly to

continuing progress see our business core of we really more certainly and down in think and priorities, we outlined five need are this that of, against focused company, built we’re improved starting to some the we’ve momentum. performance, against we to kind on strategy trying a really drive I some to create kind and our out, execution, heads make, frankly we but drive progress where that to of have to much continuing do that to take upon build start operating as to priorities continue

but provide to we’re this of position point, again the we’re not we answer certainly more guidance work directly, making progress by encouraged your 'XX have we’re So, lot and in question a FY a to at do. to

John Kreger

is slower followup, faster across give going Thanks. be proving business and a Animal can that’s us Dental if if Health an account the on that’s to And tailwind or and just thanks. headwind? margin a than Okay the how or overall, curious businesses, growing update you corporate

Mark Walchirk

high terms match large margin there’s you previously, and have bring the practice engage in lower an opportunity accounts. that we will, types kind Dental private a think Certainly, Certainly, we have I the account believe team types a our somewhat area corporate in want us working would us accounts to of resources are is and value-add they’re accounts, in an customers be structure that customer. about is corporate margin an opportunity of important to than in also and support expectations, Certainly, this this invest continue smaller, corporate of we the grow. in say, a of to solutions strategic out working cost national profile corporate with profile obviously that question. that this good accounts, it’s for shared we those a an those John, But as had our to to very those as DSOs, table. types area with for is of we’ve team to of think of the we our thanks area certainly the good in if I build in Yes, referred I to where space, where and is

an it’s important focus us. area So for of

that made the progress with but we ourselves strengthen Brandon’s still that have of consistent comments work to what a earlier question with kind pleased tell do lot I We’re of -- would the area. to there, in you we’ve to

John Kreger

Okay, you. thank

Operator

from Block Jon Your next Stifel. question with comes

line is open. Your

Johnathon Block

that to of is got expect have market Dental Don. Great, consumables, of Mark, Don. any Two, much improvements thanks for touch place morning. one sort some improvement on I’ve think decline do and growth if the whatever rate can maybe with in Mark, that for number, fiscal rate the the growth, how and on initiatives if internal we versus considered And you market one of good Dental guys you closer put I the as recently, consumable is XXXX? enter then for guys in you one the

Mark Walchirk

John. thanks Yes,

shown So, in consistent I improvement that do area. - we sequential have some

I good, low-single-digit We stable call market. a still label and good progress, we But the on making basis. of market private rate, our this we one grew in that, consumables are growth it markets market at end growing X% in believe business to the and specific is a the think We actually the not at believe We’re quarter area. year-over-year X%. is example

a there. think we that, leading the indicator So, some that was a we’re make it of continuing that’s but slight progress fact growth, to certainly

continuing to and more bring I make provide onboard help driving the is efficient efforts just We're to help team there, driver is the more continued tools and productive continuing to in customers. we’re with think to useful continuing greater organization. sales value our invest them to a we’re this field indicator reps, area and another big new important our to them continue stabilize to productivity

progress, of to So conveying, a making again, the of that progress a making with we're I themes would big kind pleased we’ve say consistent focus do. with work been the there certainly, and lot

of XXXX know, we’re going guidance get growing the area. that of point, but at into don’t seeing would momentum specific some terms In in with we’re pleased anticipate when the consumables think I again FY this to business, we we’re that in you

Johnathon Block

around for it, let Got very helpful. a me and two parter, clarity. Don, And just that. you Thank then guidance maybe ask

a the XQ. this the but or last $X like is fiscal seems the be a in that that? pressure, in step So, revenue it guidance relative back gross have to it impact, margin then the other to gain to just might clear, me any event is XQ and internal slight a took speaking And more that slight, bit or specific fiscal to seems want to year-over-year growth tail income is I relative was million one-time there XQ

said but reduction the you OpEx me that So, tightening I belt, thought that in the up guidance. you’re it making sounded difference is any also not like the in then in to OpEx

for the that? winded your Thanks but long one, if time. just help clarify So, for sorry could you maybe

Don Zurbay

the Yes, so then and for to be here don’t and initiatives my into really continuing back will guidance, event identified expect guidance, but in EPS that We changes make kind as to have our and some was for the make do the early stages, there and -- we I half probably I operating is things there that continued additional in as be fully what we're this of as a QX factored did working the significant still we made baked referring point the expenses, the into one-time was We're guess process, may quarter, some QX. some will operating move favorably, changes. and impacts we guidance did through. $X rest in the in quarter the And really, we that, the we year. a rest the ongoing on have gain, the that OpEx that be expense result relative an so that’s we million there the -- aren’t we’re to is and have that not forward in we not and and yet, impacted viewing for

Johnathon Block

Yes, that’s guys. very helpful. Thanks for your time

Operator

Rich with from Sachs. comes question Nathan Goldman next Your

Your line open. is

Nathan Rich

Should penetration you we saw we forward us quarter margins up type label? sales and level gross is what that Thanks year, for XX% the the see of look just improving maybe off of think the then questions. Don, last as over today convert remind the you following one. on we as label as you that private and of of private could through delta more balance there where margin this

Don Zurbay

improvement the in. Well, second the some we're first I modest we- of the some involved so half yes, margin be just initiatives our think from gross would expectation given to very half

profile private it side, the the not label a overall the have profile. gross you be, significant expect that you give still label tell factor margin not on of we our rest a does would going higher probably but Private I to business. higher we're exact On to margin that than much quantification. is is as substantially it

Nathan Rich

about then that you doing are you comments And consider it back those M&A acquisition to your helpful. opportunities, after? that’s on your talk to Mark, view going on Okay would could this growth strategies kind about at point, an if help just going of execute new exploring you and

Mark Walchirk

certainly. answers Yes, yes. Short is

I mentioned the strategic help priorities M&A the think I M&A about you driving can we that have. what, think way as earlier, we know how is, support

currently valuable into we entering high-value to some that invest to M&A how would think would to continuing in we be become potentially about areas area of about we’re an think well continue to adjacencies a how some not innovation. that we we that position how our more as in we and do as business that, we about or customers, about think as pursue development So, in lines or about some or in new a know product have that you lower supporting opportunities think M&A we service do think technology and opportunities, do how we know you

deploy strategy work a the that and of part believe that solidify of in driving to our and think here, we capital of elements that certainly development be would to we as say and certainly here. have all be Don in some initiatives again help balance would chime opportunity the we'd standpoint, we would support stabilize and drive an doing I sheet we continue to corporate our are I these strengthen certainly So growth from

Don Zurbay

still cash Yes, for our weigh of the room and we for look tried cash to think and expect the we we still I aspects improvement to, additional flow our as is would at I flow. there’s room highlight of just benefit good in in some There quarter there.

a that set of me do up all what you’re how part exactly ourselves to describing. do is we to so, And

Nathan Rich

Great thanks the for questions.

Operator

Steve from Beuchaw with Morgan comes question next Your Stanley.

Your line is open.

Steve Beuchaw

morning and Hi the here. for thanks good time

particularly benefit A first what would The here? could think mainly that’s talk program get helpful that anticipate not in target flow size in Don. of of much us you exclusively about how been, could might DSO How it logical here. be one far? cash it’s that from And can capital how you a help if is wonder a couple trends more factoring sense you for sense the things give or maybe, be you the be may cash would for I improvement you operating of flow? not appreciating of impact much working might so be, from here of the any us a

Don Zurbay

about targets. where mean including last is we give flow your I were really type million, a impact the think want but cash question, first $XXX not DIOH don’t I thing. second guidance On we this position I’m helpful, really think or maybe so quarter, that to in Right, be really, DSO not I mentioned to we that’s we’re --

you to it I continue what opportunity again to there’s inventory that number. relates to that, particularly as can improve is our here, think I tell

like is I as feel an that might so you started. And this we’re getting characterize yes, just area

into don’t want I get again, specific on guidance giving to really but So, it.

Steve Beuchaw

that see in million, And of we half? $XXX that the back should more

Don Zurbay

think I you receivable view should what, million. as the worth that $XXX was accelerated we collection that as,

they the if of have. up getting program, of behave the as now you're kind from into will. It’s the moving was impact and that here, sooner, of them you the So always receivables that one-time receivables kind just

a of the So, here thing I quarter. million think in $XXX is the one-time more

Steve Beuchaw

quickly, between just then Health Mark. couple can on a about animal And the rates much. growth Animal the you you and quick for Thanks, the for real or conclusion compare and process animal? process, companion expectation then us production FTC? sense talked One ones any timing an can of so the resolution within Okay, is, give with quarter for of the in of

Mark Walchirk

you. thank Yes

the break not market that So the them there, out going we're or and production. growth out specific I as think to specifically. are – rates companion business breaking so indicated. we the in We but at quarter, performance we're we're rates believe pleased rates with in with not the We're growth of versus there, pleased we're above the with we the pleased

ongoing. FTC, is we've in as think the I indicated the think trial past, the terms of in I

summer it up with wrap decision of XXXX. expect a We in likely to the in January potentially

defend just monetary We relief the as complaint the no in reminder, and vigorously case. are And damages continue or injunctive only to sought. a seeks fines ourselves

the of, be to continuing part we're of trial really status it. So, that's obviously, the and ongoing

Don Zurbay

and Yes, is this Don.

single I breakout just recognize segment. of production is – breakout past, ourselves that we conformed have way that – trying in to get the we really which we're that the a animal, Let the done to but me the Dental, just of companion and as report

and consistent here's a divisions, that to We have and both same this way we back really two how Presidents basis we we get try ourselves put on to businesses. to together of the do for want these

Steve Beuchaw

you very thank much. it, Got

Operator

with ISI. Your Muken comes Ross from Evercore next question

is open. line Your

Ross Muken

bias sticking or from between in relationships? terms so sort in animal companies sort the that's Maybe some happened and and split business, those other the off, impacts of the new of of of of consolidation any any and spin manufacturer terms on some change in separated implications contracting of just types of agency

Mark Walchirk

Thanks Ross.

together with them bring each to myself with joint to think business the we our to don't as teams to certainly manufacturers news customers really any ways we working we're and to within that value Health at Animal value there. working I team and bring well, other. closely Certainly, the can engage executive our these and So, report new to continue define

share nothing to So, than this at more I other really point. that guess, specific

Ross Muken

sort quickly that leverage to just where for just think you Don, a about given bit should you you've And already just M&A, on the sort on gave the and sort of maybe the you'd for effort that guess obviously and you how just sort you -- now on we the M&A the how up ramp - factoring seat take about of of of given of I we evolution this want some dividend now sheet, thoughts think have individual to willing of balance AR that in added? should be been you sort relief

Don Zurbay

target to ratio Yes, as we've our to well think EBITDA I banks measure at we said least appropriate the X.X we – it. as debt try before,

target to of deal we're and if right cetera, significant the advances I et all EBITDA push willing think push right envelope a position strategy, aggressively certainly willing for of ROIC, and kind for deal the the course those put is and period to what envelope resources but gets somewhat then and then in the to a bringing it time it ramp of levels. the into it we're down some back it's I back we – and the we're think can to where bear

Ross Muken

guys. Thanks

Operator

comes David Your Leerink Larsen Partners. next from with question

is line Your open.

David Larsen

have are of the that Thanks. on any how side or like sales have you thoughts process? added, many the now, force Hi, then you Dental productivity those how around about do do far reps can new you talk along have in the comments And you you hires? how many

Mark Walchirk

We number of we the that onboard specifics during Yes the question. have that quarter. or course thanks provide of the number of reps for don’t David, in terms we the a

force is I have field in building we're indicated we think our our Dental segment. that what sales

right with new the track on and on reps the are through quarter boarding of We during year. the

during a an consumables are think deliver and six and investments They over pleased I terms to our field organization. to – important. certainly more reps some I'm have, valuable with progress of sales as and and our make in there we with and of certainly the examples. terms in frankly the signs the starting stabilizing see the improved quarter our sales the make private in with productivity Dental them progress certainly have of incredibly stabilization making focus continue the and and some pleased months I some in organization, field field see a critical relationships of to we're opportunity helping are that there efficient on productivity reps helping of customers to label we've the several of We we that couple some and making tools to ultimately on with we're improved in past to XX early our made investing asset improve the organization, customers. sales a their have more had in folks travel just we're the progress Those our impacts indicated terms trends as continued of our that really

there and right we're progress but specific the provide So on with track again, numbers, we're not pleased to making.

David Larsen

When we are get be being will any of do we far thoughts? there, think have number fiscal mid by you XX% a like to end fiscal along the - for reps you of XXXX, level maybe be that want, like there, sense you'll it process high just trying specific, like how the without XXXX too in I'm XX% are the

Mark Walchirk

there David, - there a don’t think sure magic number. I'm I is not

and the organization there. think the with well customers evolution marketplace market evolve customers make our to our sales continue we'll will our continue that sure and I positioned evolve, continue think evolve, I to will to to we're the and with

we'll magic serve sure be. So, we've or I to and got don’t appropriate a sales number organization number which to want we would think where date there's field that a the customers. in invest our to our expect I magic we're make continue

David Larsen

Okay, and one. then just one more quick

and about income benefit other income interest think had interest on offset expense a million about there that by it but by other million to higher of on a basis sequentially. to according in $X.X – was sequential a my was I improved expense, looks trend favorable I the $X.X like that model heard like benefit

seeing how I'm the – am tough guess one in the higher having I I reporting delay just the the a my time benefit from cost? So interest model offset in

Don Zurbay

interest pointing and expenses. I as expense slightly is that if legal consider is and about be other actually Don. strong $X expense the benefit was our anticipated. you the one down highlighting gain to is was thing higher the item, mentioned our the costs, paying you're which was we at an which think as because But from The higher income Yes, to the up of on are legal just this maintaining year thinking were a what just guidance higher would what about items, The quarter JV that's in down but that operating had flow was cash out accounting, debt. $X.XX million looking expenses it EPS than about offset something few for basis in underneath also I higher you're our

David Larsen

thank I Okay, it, you. appreciate

Operator

Your with next comes question from Kevin Craig-Hallum. Ellich

Your open. line is

Ryan Kimbrel

or that my know affected legal for was for one Do in Kimbrel taking got quarter? you on you I've contained guys your by the do said expected. persist of what I second this mostly Ryan it the or to legal you you questions. is is expense in think then outsized guys, expect Hey excess $X.XX EPS Ellich. expense Thanks more. originally Kevin And

Mark Walchirk

at guidance the given. we at would at, they that would level have we've also think the necessarily forecasted and persist that appropriately in expenses – we Well, certainly half, are legal were persisting. are anything is think don’t the that back here point built like we've so add they look the built We be as and I we them they'll into really

Ryan Kimbrel

those sorts year-over-year, was to little quarter margin to know Okay but being, of color in bit persist the last continue the on quarter’s terms look the of operating that said competitive provide a quarter? last sequentially. great, operating did competitive bottom pricing see subside as guys what you to we to you Should headwinds improved obviously the pressure, pressure little release continue of more I or for expect more and a could in a in declined this margin a pricing event? compared increase time press but at transitory Dental sequential you you

Mark Walchirk

and total of some the would I we're I have in say proposition. environment quarter, about as certainly pressure Patterson in Ryan, shared some value we think stabilization competitive context in see ensuring I very and the are quarter which last certainly did focused to competitive thinking continue. our obviously customers been Well, our think a expect But we always are we pricing we we on

So I point. that this is we we for more one kind of where question. at sit think time And have just

Operator

your Barclays. last with Okay, question from and Steven Valiquette comes

line is Your open.

Steven Valiquette

everyone. Great, Thanks taking thanks. Good for question. the morning

of that second same then followup thing, the back just might improving translated improvement XQ. to be curious has notable I than not that why more so, the discussion just the there's at improvement any operating going And in it's fiscal always again or color just versus wondering fiscal just there from wondering three where is it a be the operating in the margins each the really Just in margins sustainable pretty was XQ fiscal if I'm a about are years? on the higher the looking there XQ? fiscal about mechanical fiscal are four is for into to the fiscal quarter, anything business model, Thanks. always XQ margins at better fiscal years so fiscal of year, back around past extra sequential always results been or really half the on margins, over this year as kind prior

Mark Walchirk

there's our by you're just also increase there maybe, we’re mean we're there's to, and and I Well, leveraging take from QX. a think just jump out to maybe here, of a kind as relates encouraged to but operating simply place more that trends and in what from also an profit little and numbers of doesn’t that we're these [ph], so part chair But the I QX of variety can into those business. should the in certain anticipating in in so sales the seeing progress of is half, continue QX QX feeling translate the we and somewhat sort encouraged margin improvement and of about back we as the better really half. get look to the we're things the second business areas, probably

Steven Valiquette

it. got Okay

thanks. appreciate color I the Okay extra

Operator

over for back call the Mark, comments. Walchirk final turn to I'll Okay

Mark Walchirk

Yes, our of fiscal providing thank XXXX update quarter you and to thanks call. for earnings everyone for joining third Thanks on us today. look We you another much. very forward

Operator

today's disconnect. concludes This now conference call, you may

Patterson Companies (PDCO) 6 Dec 182019 Q2 Earnings call transcript