PDCO - Earnings call transcript Q3 2019 | Patterson Companies, Inc.

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Operator

Good morning. My name is Jacquelyn, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Patterson Companies Third Quarter Fiscal 2019 Conference Call. At this time, lines will be on listen-only mode. Once after the speakers’ remarks, there will be a question-and-answer session. now VP turn Patterson. of would to call I Wright, John Investor Instructions] like the to over [Operator Relations at Mr. please go Wright, ahead.

John Wright

participating Good thank XXXX operator. everyone, Quarter in for Third Call. you, Fiscal Patterson Conference Thank Earnings Companies morning, you and

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

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

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

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

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

Mark Walchirk

progress our performance perspective Patterson's pleased of the on I Thank Welcome our strategic quarter. continued quarter quarter everyone a some you, summary morning Today, priorities and initiatives with on third third and progress our context call. were earnings key We and third an against results, to fiscal will in our going and our John. XXXX forward. good provide update

to It's of We actions the which we the enhanced taken quarter one noting to sales Our consecutive we the driving improved our results focus sales year-ago growth achieved less quarter field strong also which execution. organizations period. reflect in selling topline improve and customer our the our third execution these have experience, with to year-over-year topline compared are worth that delivered stabilize results across the day growth, initiatives, revenue key profitability. sharp five on we and attribute

positive impact portfolio, ongoing in manage and the quarter consecutive second enhanced higher strategic focus grow We private improve our the our to also effectively generated of value-added drive improvement, costs sourcing, margin label sequential our our demonstrating of performance margin our operating services.

and the margins our we our range adjusted time. performance, on $X.XX All of year-to-date us over present areas our opportunity these also have for existing $X.XX. narrowed Based to EPS grow further to stabilize within to

to which segments. revenue quarter Turning business strong of briefly across are more execution dental same category period sales teams. making in year, revenue The dental continued our two improve, marking operations results our years. sales believe in our on the now two continued to than the the consumables focus our growth were our the to field segment compared trends the dental X% in and performance our growth in the we of reflects we approximately first business stabilize year-over-year pleased with We of improving internal last to quarter, realized which and investments

label dental Our private portfolio progressing also well. is

customers This categories. which we seeing positioned purchases be believe suggest this key and are demand the as well to expand advantage growth. new in growth our differentiator We both will equipment introduce with customer are a are the quarter, equipment delivered revenue for we the was penetration and private CAD/CAM label dental that this to customers increased for portfolio. technology continue have driven nearly by existing and double-digit practices growth category, their of runway and area future to we to growth in Increased are take well core In our of believe their the we products increased investing in area equipment confident a lot prospects. X% Patterson and in

we to going on color business Our internal sales starting dental improvement will moment. a continued off committed our growth our in I performance is in provide work segment dental demonstrates more forward. third quarter team's our that driving and pay hard to are

production. another and quarter companion the achieved Animal on gain nearly the market we the grew share now believe this continued segment. estimates Turning compared We for based in in Health, solid to sales period. year-ago we Internal in markets quarter to our X% underlying both to

of we fundamentally strength a and segment the Animal position in and our our compete and proposition value number believe taken have to evolving steps the of well Health us capabilities. exciting that We in

in the of will levels We tools Health and customers, serving allow to drive that to of the their with compliance. a that greater including have of Animal through opportunity methods suite full continue capitalize delivery delivery home comprehensive market all of solutions veterinarians offer and significant on

are customers. We to with constantly Animal the Health value adding new capabilities types needs meet all their help strengthen to enhance veterinarians proposition of and our relationships evolving of

calls, As we our our focused believe five I've initiatives, on shared contributing performance. previous a are which number quarterly on improved key remain to our executing we of

and improved include experience, at customer they building the reminder, sales our cash execution, overall talent finally the quick flow, a enhancing stabilizing Patterson. improving margins, As driving

touch a more Let on depth. initiatives of me in these few

Our sales evidence during improved key the third Equipment to efforts dental to Patterson enhance the equipment quarter where is market. area has and a in continues is continue execution. our to and itself technology sales distinguish of

expertise know is high after Patterson service products customers technology, latest complete. they exceptional when us, support from our selling the purchase the and quality they Given that these purchase long in will receive

Dental at partners particularly our great segment. the on manufacturing in year, sales drive When ability is have needs introduced, well value to exceptionally complete new We're throughout given our excited market the also we lifecycle we and serve of technological upcoming compete positive including overall performance have well a the to our International and effect high-tech recently and all of our helps proposition of Dental given are in differentiated servicing a technology Patterson's key products in believe this in business, various points. third Our our Chicago in the their price infrastructure, opportunity selling the it interact excited believe Germany and and customers' a with about new about we equipment Mid-winter Patterson retention our innovation latest by broad equipment Show financing margin attended to Dental also element and loyalty. to customer with portfolio a equipment. is We across supporting technical the positioned, technology equipment our of support Show comprehensive different Dental ability service higher from and innovation performed quarter. expertise March, aspects and manufacturers where other which is of learn the

third strong performed notable Animal We in in private up companion digits and our market also margins quarter. our label segment. our overall made from the better segment, in during than label business the in Private Dental double progress growth our Health was stabilizing Consumables

and to new We continue our in launch area this we to build out are private gaining momentum products label portfolio.

to also while with including cost We levers, strategic invest our the focused to on in expenses continue margin sourcing remain the our additional need also managing and balancing structure business.

experience and into Eric performance. we thorough Segment, the our a strong dental last was record announced search, his track as the February of Eric Shirley given month, As X. clear lead business we leadership Dental following our industry future, significant choice to effective appointed of a President

believe him overall the evidence our his excited appointment is and build talent at leadership are on to Patterson. We and have to to further of continue board efforts

want context I a the to forward. we're Finally, thinking provide about how going on business little

our we made that position Animal have As future. and and are progress will across core well efforts continued us confident primarily the discussed, been dental for stabilizing throughout XXXX our business focused fiscal on we've Health we have the our segments

performance, the of longer and term. expand While importance can ahead also the near-term recognize how grow we're we continued thinking business we about

and on to accelerating As forward, our key core continued Continuing expand our all offerings initiatives on around via to our organic pursuing centered stabilize opportunities increase our three inorganic value strategic are service on areas. business, objectives strategic business we execution focus the centered continuing and and product key them. our look performance are to via and development key efforts. customers to both relentless objectives These our our

remain working execution drive margin First capital and we've to to the improvement made XXXX. will fiscal foremost, during continue progress and we focused growth, on

in invest our margin represent accelerate and further plan opportunities. service and we which Next, accretive platforms, growth technical to software

to in believe continuing dotcom to business And success. We business market as strategic our in our about for think invest value proposition drive with do growing a segments We critical emphasize and future, ongoing that we'll proposition help to the value and healthy, attractive ensure potential and be margin platform invest we we that with opportunities underlying about we it have will our that Patterson. for support operate profiles. our growing the is is compelling stable in positive also initiatives. thoughtful M&A and modernizing customers want to fundamentals I easy to finally,

we our segments, trusted a portfolio provide customers a comprehensive customers within our so know customers operations products, We be by leader them executed support to business teams. and their these a the of needs more are have both local Patterson. solutions sales, achieve all And has partner efficient, services our as field and technology and for with of help productive looking help goals. our them evolved, As of to

it turn over continuing are to Don third deeper partner focused Our our to our and for business teams a customers. to trusted into results. I'll aligned quarter a with And dive on be that,

Donald Zurbay

you, morning, Thank and Mark good everyone.

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

finally, two view typical will to some the Next, progress the a the each of today's comparisons a And the highlight and of I'll business, we sheet in call, making both focus sequential business that balance our business continue bit year-over-year cover has few are to will business I in cash I flow on on initiatives items. in the improvement as On reviewed addition on segments. detail. the to we Mark already focus focus

less reported year-over-year We in the let the of results was fiscal effects our positive an for quarter. which sales, relationships, sales Mark year-over-year XX same $X.X growth third bring of topline. contained of growth year discussed increase quarter one Internal quarter improvement believe the XXXX to sales that product these ago. versus the continued the are financials in It of adjusted worth reported year rate a point currency quarter than revenue is noting period ago. growth the also reflect we was second of quarter from translation X.X% the Companies X.X%. in for the basis experienced the Patterson initiatives selling day Now, impact were fiscal of through Consolidated in billion, and me third XXXX third the walk positive quarter This and of selling increased what third our changes one consecutive fiscal third for a XXXX. to the back

points quarter basis the achieved Our third for basis XXXX, reflecting third Operating quarter of to a what consistent QX from gross we quarter manage the in margin second fiscal XX.X%, sequential the fiscal expenses with expenses XXXX. were XX consolidated was proactively of initiatives an improvement in of quarter. on

operating the carefully our operating also XXXX. from consolidated which margin term. point operating margin XX certain of the for We the the continue manage reflecting fiscal trend was improving balancing and grow to quarter, sequential XXXX, third margin to need quarter investments during for our while of In X.X%, the the improve the fiscal operating basis expenses, a improvement business long in second continues

up the $X.XX tax effective rates the XX.X% when noting of new a that rate XXXX, from adjusted third tax headwind year-over-year a worth quarter of of Our the the tax enacted. the of quarter was quarter, legislation rate was EPS. third for fiscal to XX% slight translated It in comparison in in is

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

of Health Internal increased we volume seasonality decline of fiscal Animal second operating sales and compared In or over decline with companion were to versus our of our the rate point The sales QX, basis, that operating XX Animal due lower the year X.X% same ago. X.X% the in the period primarily is both consistent our to at compared Now, the businesses, in sales prior business, for operating X.X% of quarter margins internal during the this dental the ago. the above sequential sales segments. XXXX let's On Health basis same in XXXX. rate production margins consumable quarter in In sequential animal is the a in topline to Animal quarter XXXX. Operating to third decreased and X.X% of what in dental our impact reflects the third growth XXXX growth supplies a a business turn Health third increased year quarter segment is animal our business. our of believe margins the current market. fiscal year

versus year. our last However, total equipment increased sales X.X%

quarter, they improve sales sequentially we sales consumable as our dental the in experienced declined field and Although improved stabilization during continued to productivity force.

impact one improved day of Additionally, less in added keep the would mind sequential quarter the that only performance. third selling in have to the

were the highlighted, which were improvements for already XXX reflecting one and quarter, CAD/CAM our we core basis equipment, posted up Mark equipment to in and the Operating digits in period dental X.X% both As performance point operating from year same double the margins solid quarter. ago. compared in margins second

first $XXX investing we our and an at operating two million look of to nine cash sheet of This let's by $XXX which the beginning cash activities. to fiscal existing purchase statement. established flow allowed receivables To We price the have of cash quarter these includes months Now, nine balance Through included the XXXX, and the cash months of we deferred the traded in our several a facility compared approximately fiscal flow on the items. equipment improved generated million $XX year-to-date from both first of in year. is of additional first appreciate amount us the that in balance collected AR section basis, XXX million total cash XXXX reduce facility. which million, the on items and million fiscal our financing fully the combined sheet in $XX equals debt of also flow, have activities

first free believe additional and our of facility, the numbers efforts our our the the by pleased that our We this our AR to diligent here $XX business in I'm three working work and working focus flow will to improved and or during proceeds cash net is report have improvement continued to addition to to return the potential in result also In decrease we to for our net year-to-date in million continue up from quarters of improvement to capital focus capital cash shareholders. put trend XXXX. remain is there working and more fiscal in capital

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

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

outlined first XXXX, expect in and the our on our expectations. to are fiscal quarter we we quarter fourth range during deliver For confident

expect diluted share. be the to be $X.XX narrowing per to $X.XX to We GAAP range to of adjusted in $X.XX the and share are earnings guidance diluted range in per our and earnings range $X.XX our non-GAAP of

earnings $XX.X excludes $X.XX approximately million XXXX amortization now, Our share. to back adjusted together And over which of guidance Mark. tax related totaled a the diluted the deal per call and costs after tax settlement impact Act, benefit expenses, the will turn legal I or Tax to

Mark Walchirk

Don. you, Thank

am and to wrap how end up questions, I the with we we of before and say take approach focus your our XXXX. want I as pleased team's fiscal execution, Now

still our for the have work fourth track on much confident expectations our we are achieving quarter. While and we ahead, we in forecast with are

business lot platform growth have time energy of on We spent a core stronger to and a stabilizing for our Patterson. build

third is help and our grateful key help Our performance work to we improved questions. the their of success. our will so, our and the a for open team's Operator? that, I your take customers' to can hard I'm driving and in commitment lines, dedication With support initiatives and testament Don quarter

Operator

Your Thank John Instructions] you. question William Blair. from [Operator from comes Kreger first

open. is line Your

John Kreger

the but for Hey, better than animal specific on those production. rates the know for you how the just companion bit said guys. us I a maybe two part you give little the you question. business the the more both Thanks can get of did Can market, versus did pieces. growth

Donald Zurbay

the question. Thanks John. for Yes.

Dental equipment our showed as other. we to break those that you way continue We segment consumables and report segment pieces. not into the you really to last want – and going just to we think same do as show I we're quarter,

Mark Walchirk

do factors. slightly particularly some to was – our result This think ahead last year pretty some John, companion of segments. dairy, to softness across seasonality, market Certainly, is significant Mark. thanks and for end of I both given I the that and Certainly, of we production both a think tough fact the quarter, market in been for same less comp some from was during our just production did add, day the a has of on I time. end in which several grow believe see little the one continue we a We selling bit the as production question. there And quarter. softness, Yes. market our growth a Also period think,

our and production. with business, of So I as bit Animal companion But performance maybe in both pleased softness we're the production across seasonality Health of mentioned, a segment. the

John Kreger

And one other Animal Great, thank you. on Health. then follow-up

think a I your seeing your offering impact how you does offering delivery. mentioned home one business. in greater kind that as flow remarks, service uptick through of Thanks. you Are and of and that

Mark Walchirk

Thank you. Yes.

So, our the lot on advantage take changes to I which companion be vet XX,XXX ScriptRight, and animal installed mean, with that to home are a partner in platform, certainly, offering called in continue evolution supporting of going and vet focused the We in there's on going actually the across them – of is is clinics an very over and enabling really going evolution on hospitals very marketplace. country. the on the which clinics we space. delivery a and hospitals we're

of continues evolve the hospitals. vet the and and evolution in Obviously the in take those, the the we to that squarely and continued place take clinics the focus and tools hospitals advantage technology believe support and market. that resources the we across vet our providing vet make of demand we're So sure to the want to shift to though of market

feel of good advantage provide positioned that good trends. vets of very how certainly resources take evolving the feel those we some the we're we So to about there. We about to

John Kreger

you. Thank Okay.

Operator

next Credit question from comes Wright from Suisse. Your Erin

open. Your line is

Erin Wright

Great, thanks.

would you to general consumables of terms relates throughout then as of well quarterly one if that you're components can in the parse consumables, you the The the seeing it And you label. trends of Thanks. day be private different segment quarter Dental the could demand across in selling less saw demand progression underlying as out On well. to that growth, whether underlying trends here as great. what dental terms speak

Mark Walchirk

comment and elements. things certainly, start the to Erin, thanks. each know Yes. think dental we're it to over that these different a actual Maybe Don. I of couple to, Mark. But then that I of It's the turn I'll with regard maybe consumables. I into would specifics don't to get going of

end certainly I would revenue but in given think continue last to that the fact sequential perhaps basis. selling there trends of stronger, softness market improve over several on Obviously months, one the is did a our less consumables a we day. been the have bit have

the the in demand to category, as And with we're in pleased So dental I in for the our certainly, equipment I confidence growth would well. services which note that's think overall dental think also important suggest very market.

maybe additional we So from generally think of softness add. Don bit that certainly positive is again, but demand consumable any a would maybe and market color end a standpoint,

Donald Zurbay

Yes. of And just couple Erin. things, a

our overall Our private label consumables grew than growth. faster

to a continues that So be dynamic.

On calculation the have quantify show detailed to extra of exact selling day, it, we're an kind not don't we because that that mostly dynamic. going would

and simple math probably Equipment think worth be don't there. much Health of on Animal Dental as have consumables could was there growth. do the number particularly as We business. for it obviously think worth more some you the did the versus an is but both that, It if on impact, that, business, X.X% I it

Erin Wright

seen Okay, or biggest ramp, any contribute profit in quarter implied guidance, step-up of that the then the assumptions. what the quarter great. And fourth that what's drivers ramp in key what Thanks. and with components are where to should fourth are just you've and the the the driving meaningful and some embedded

Donald Zurbay

thanks. yes, So

So be I think think going dental there's look you we continued side, consumables. if our to the improvement in at

So that trend continues.

Health, in comes down QX, dynamic there's that play Animal a of on saw we lower revenue margin Health been a than last same sequentially usual always of what sequentially, contributed to in QX year Animal that and some think bit I that to stroke is the given seasonality dynamic.

QX. in expect to that obviously moderate We

of be just but in going continuation really roughly think saw should we be of some as that, – Otherwise, is we beyond up a dynamics, the with QX. things kind to improvement QX there margin all well. those So

Erin Wright

Okay, great. Thank you.

Operator

Your Jeff from next question from comes Baird. Johnson

open. is line Your

Jeffrey Johnson

Can Thank okay? me you. Good you hear morning, guys.

Mark Walchirk

Yes, good morning.

Donald Zurbay

Yes.

Jeffrey Johnson

Okay, a of great. couple here. Mark and questions Don, just

on equipment focus guess, the I could. side, equipment the side, I me, on dental if Let

on it stimulating seems $XX,XXX of XD, high-end down, we've some seen point the the price is imaging seems XD that First imaging come It like is price some systems. kind side, like new points for some some that to you maybe point help good driving on in did the equipment that demand. in to demand Can that how point new number quarter? be zeroing seem price and that is

Mark Walchirk

Yes, Jeff. Thanks.

than various we really there's opportunity the on have Patterson ensure marketplace a different things into is this portfolio price and double-digit now. different of the lot equipment advantage equipment the unit new positioned I also relates is to as evolving across of that continues think some products, the broad and to good frankly, our a some our come higher certainly to take products taking are to points have take exciting example growth in market, for we products. think time, quarter, that market at ASP, offer to the our market. that I innovation in promotional categories of and growth. that portfolio place I it of was points decision dental excited believe really the to of quarter, certainly activity about the you the of revenue categories has that and growth really to going introductions advantage both a new results that to our a so of took believe made CAD/CAM of core of Obviously, in broad that price and we're price advantage have portfolio and right some actually in place the incredibly different you and so and price given that's innovation is think changes technology really the evidence also to very that of that And broaden some of And product points Patterson is our you of to take that well products points, and the

selling also performance the really a whether very we support, services, service differentiator And infrastructure the but provide, is that software add-on support really at it's not the we for we us. other there. again strong we a of have products, our only comprehensive and think do well think technology center, are So we pleased our our our with that we high-tech are certainly, technological services after these be Patterson sale, technology really and effect

So we're excited about equipment we and the take continued technology that innovation to area expect of dental advantage and forward. good going in

Jeffrey Johnson

All follow-up some see side. $XX,XXX, We're out theme going premium price just high-end $XX,XXX, impression go with that den the is on with same digital a shape right, obviously, great. to kind Maybe on of maybe to the starting plan three their and that shake supply new Primescan.

price high-end on you kind are what mindset DI. kind Just dentist premium other for hearing versus in points the is of Where field? of

over think do hires how quick over just some it's is then couple softball Eric the like we new dental business. you a getting morale add you evolution like very And uptake run good running for of the DI seems that you, you've Just years. It guys internal the been of the for at occurs next a think, the or What's home company. so? past on uptick, the year here

we So company of internally just to morale how at the love kind trending is hear too.

Mark Walchirk

you. Thank Yes.

we're comprehensive fact up specific that I to open broad our is, Without And services pleased on consistent think points. start across at with the really various with into the me the portfolio in I of earlier answer. manufacturers, pretty and these really any products main offering products ability I add-on what price we includes products that marketplace. dental send are our full also technology Look, does here first specifics the I and space with that and entire Let would portfolio that is message the a mean, your getting question. think sell

dental like large practices improve each any growth investment of and think, categories markets patients invest customers customers be to our to expect best technology, good, categories. and are that bring our in the that of of and of within it we're to we the market, those I terms kind outcomes productivity, improve want there believe their categories level there's purchase So, in continued clinical so going seeing that their We we to in across all better, make. area in more to of will that the new expect customers

So, we're that forward. excited about going

of your within Patterson, employees. at certainly it question think, here improvements kind got very we're as team morale a organization, relates fantastic with in pleased to second of morale. focused really the fantastic We've I dedicated, the culture loyal,

adding think leadership we're in that the team and are good to very some complementary. additions think I I

So Eric our comments and already you your at and that have the well, looking both manufacturers feet of is certainly really and continuing great where morale organization to on are as to and customers, we're we're week, continued his, diving with and the seen. certainly in sales the the I third at that week Chicago terms good just our there. and have Thank continuing in the engaging here – within last excited notably overtime excited attendance with was for that we've I or really Mid-winter build about I board. Patterson. to on in we things culture in that fourth teams forward improvement He think, the Show with nice were field enhance feel about to

Jeffrey Johnson

Thank you.

Operator

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

line open. Your is

Kevin Ellich

Thanks the taking for morning. questions. Good

you're guess like Is in additional right vetting most you could especially time, upon just there growth over expand in to, in? the you're and wanted maybe inorganic I dental. and interested Mark, which inorganic what drive categories now So markets or seeing wondering if specifically to opportunities anything market

Mark Walchirk

strategic I think I the good we're of on I certainly three one. think our pillars remarks, Yes. to is really guess, and mentioned kind business as core, job Thanks continuing during And core Kevin. prepared really stabilize mean, I progress. focused making I

I be that, certainly think as continue and like cetera will would that the sales we results center, front our runway and capital, suggest we move to label, but that areas FYXX. focused been still on execution, et sourcing we've have working certainly in into private and

our the will some opportunities, again of building frankly our good standpoint. think out growth while certainly, that drive on is those about space, of within to would areas forward. expanding as accretive and invest to market there very necessarily, that products opportunities on and we very accretive really adjacencies support, right opportunities. we're look out both well, that proposition represent consulting, and products we performance the focused to represent on both to be services, Animal the third invest of opportunities improve help growth as not get training we your that for beyond, areas how scale are I'm in value And into area and proposition things specifics existing to into And going areas, are building performing support our services, and expansion help et really proposition, continue are within broader and some thinking and an service education, services and support we growth from importantly margin inorganic label, I and organic software, and with and expansion Secondly, get also we're that like these actually about will platform, to specifically additional about also chain, focus build And dental into elements Health new the Health our accelerate that technology, then Animal dental to continue Patterson like platforms, adjacencies question we to focus so really FYXX value market to going value within inorganic in for can and value is looking Things business areas margin today higher they private our into in cetera. some how performance pursue drive our margin think success. customers help allow think our but at line

Kevin Ellich

free helpful. back do parts I working year cash And go flow on seeing wanted that maybe the capital talk statement a then guess that's guess just more Okay, flow? bit end to, to in cash the moving can where the to about of you terms of and some I in little Don we're expect

Donald Zurbay

was think cash the a quarter through at down that generated third of to on $XXX million inventory I that it the expected to – during the you if was being walk lot the expect $XXX of the million, equation that come $XX the quarter. this had really which which Well, in the the can second mostly third, business – the kind million and in an a inventory. $XX we've first million seasonality year, and flow do in ramp in quarters, do look with a kind has piece quarter, is to up with That's fourth our of of you the our in

be quarter. flow that the some that through flow cash think cash get going there's operations, to to to or opportunity improve fourth I the free as we continue from So

won't give So exact guidance. probably I you

we think number of the bit that what that inventory could on had down for last as you happen. proxy the maybe get back might balance but we plus call, mentioned I a as some a consider benefit, QX

Kevin Ellich

good. guys. Sounds Thanks

Donald Zurbay

you. Thank

Operator

comes next from question from Your Jon Block Stifel.

open. is line Your

Jonathan Block

morning. the year-over-year XX I'm specific might decent or It maybe fiscal fiscal and around XX op XXXX that by the are give in, in that guidance, can fiscal again, Thanks implies first you bps amount, of I start XXXX time you. guidance we seems in a at XXXX but good assume which expansion, margins quite for again up Don, XQ be years your high for continues level, honestly that first margin op year-over-year. for one think, XXXX.. want to that year-over-year trend a should guessing XQ don't

Donald Zurbay

not but the Yes. not don't I I trying helpful, don't to yet. want to And really to guidance that. be fiscal get do want XXXX I'm into

is, what think I right. you're yes, tell you I can

as potentially operating QX on with in we've into X.X% in QX, margins, and expect to continue really So had some some QX in I some mentioned the our of X.X% progress we things. improvement dynamics there good X.X%,

to pushing is a year-over-year QX So go that does does position op us where actually the positive. profit up – end

year. think like trends our during the I we

we think to too into not beyond XXXX. I probably like quantify move our that, I'm we fiscal trends into as much. going – But

Jonathan Block

and – in months, chalked to your led Mark, want just there market notably it got dental the end what on you about getting more sort can normal is do guys. you for to of causing Do that's to gears some maybe specific and end months. And choppy or alluded for weakening moment, for go have time a past is Okay, those anything up of you pontificate trends the the it. us over markets you talked you over that what the to point that. you that Thanks to to may of ahead might think just volatility you of consumable of side, couple shift be the on to past couple

Mark Walchirk

I pontificate. attempt that of I that there's know to. I kind to But Jon. certainly Yes. point Thanks, won't don't underlying dynamic specific any would

the As said, think we I saw I consumables. softness market some end on

one a put to on things. pinpoint hard think or specific I two

to in some I to thing we're the the frankly going underlying regard that that investment time. equipment over to that perspective represents practice however, trends, that think seeing continue the their positive us are me view gives practices area is and is our grow to the their with that making

back we in that the and growth indicator over business So I there market practices. and investing within been two on to in growth also has focused think get on the the least just one grew really and market over last to our where growth, practices time selling is the execution continue to nearly Also the the is consistent as basis, situation we've years that to that confidence a in are to again to we and the day. dental which think that's is continue our year X% still on focus our an first delivered investing year-over-year perspective less the our in at business and position important from highlight, things of about dental in that the

get in we're to we're with team the the continued seeing seeing we on with positive but side. pleased obviously and continue have the execution delivering the lot progress we're trends making, a the So to pleased pleased on, the with growth back trends still dental, equipment in stabilize and of we're work we're is to positive we're do to consistent consumables

question focused execution particular. business forward. So in dental anything directly, pinpoint going to on your But very our and we're focused answer on grow continuing I we're to wouldn't very

Jonathan Block

Okay, great. Thanks Mark.

Mark Walchirk

Thanks.

Operator

comes Nathan from Your Sachs. from next Goldman question Rich

Your line is open.

Nathan Rich

you. maybe with Thanks starting Mark, for the questions.

kind to side in back go made identified to the you've software planning remarks you've going the you're comment you invest initiatives support of this to after and the of the Just drive like year. growth. It wanted against to prepared on sounds progress a some made strategic

how the kind top us a as and investments drive kind maybe of will So what could bit that of I come give line just more on little look wondered if you and we those like color look hopefully forward. together

Mark Walchirk

you, Thank Nathan. Yes.

infrastructure, have and key of strong about this to really actually think e-services, base. proposition. grow part So, our I is a technology I of customers, continue we we support value and a mean, base kind our software practices installed our using very as Certainly, of that and software of installed

to continue the software services products for and the We in invest future marketplace.

support tech and out in our customers. that that We North maintenance strongly America can as their well technology to technology something part as the continue our are we the support is – in we we the these which people and that sell. areas distinguishes space, in team This the full support also continue a we but infrastructure of provide our that to of think effective across the products space have ensure we are customers great and operation is our goes terms bring the and DSO provides of Two to not to again infrastructure practice of particular focus private in software and service, Also in in how of have. efficiency really value, and Technology software them for the the our practices is tools invest we we Center, us time literally – marketplace. and equipment job at continue help on and that believe Patterson to we'll that comprehensive day our every use their where of productivity hundreds who

continuing this are that There our making that we're our value infrastructure proposition. to and that an of part continuing out bring build customers. value to to is certainly important and investments So

So we some good some there. good runway think there's runway,

Nathan Rich

a Great. That you. makes sense. maybe follow-up And for Don,

to can you we the more at dental detail up kind drove that basis Dental of margins kind provide points look step-up you Any XXX in do on the sequentially. and you of on had as you think can in think build about sequential continue I mentioned XQ? performance segment what were EBIT

Donald Zurbay

Yes.

couple We really. think good a we're of manner. dynamics. in an We I had the consistency had And that good our been there's our effective managing – margin of think, operating sequentially. things expenses like on we I kind

direction the exact moving right that of was we quarter, think move are improve. kind step-up, a helping we're think a may that see moving that sequentially not big in I margin different on forward, of as each things that you lot but

Nathan Rich

Okay. Thanks for questions. the

Operator

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

open. is line Your

Allen Lutz

is consumables This guide? in for in you the dental Does in at to XQ embedded softness market the need Mike. to Lutz change all is the end Allen numbers? for Hi. Or fully that meet

Mark Walchirk

– this doesn't need we and mean, program we it but in our in execution what's and quarter, numbers. I trends again, softness continued fully really business even consumable and to on expect we to happening improvement, liked own market, in with No, we're the the that some continue. can't that's change, the here our the embedded our understand focused our

Allen Lutz

in the growth in quarter. CAD/CAM Great. talked you And about double-digit

Primescanner you the any do and you quarter expect ramp expect over that has fourth that then how launched, time. to now do contribution So in

Mark Walchirk

our specific have that, many been growth the product, good product Allen, response excited from but customers a is launch, with and as we I around good the Well, supplies we certainly space. dental this categories the our expect as partners across on to certainly about Mark. we're working Primescan closely comment am contribution not technology in from going specific certainly at of category den product that well

months. an market. portfolio our over last I We is as differentiates we this mentioned broadened XX believe that that and the so, the earlier, And Patterson really area

customers' offer them. to equipment and the technology to our think our a with can customers to for are to portfolio and solution ability sure broad that being teams able of match products I up need about make that our really excited provide really we

take So of we're we're additional as new launches like we gets Dental positioned certainly to about introduced advantage about and excited technology we innovation the expect in segment, that that. very launches excited well that and Primescan, believe we're innovation

Allen Lutz

Great. Thank you.

Operator

Your next Larson Leerink. SVB question from comes from David

Your line open. is

Westley Dupray

sequentially revenues, question quick This line XX% is that Hi, going item both for to Dave. – and million good corporate is last just Westley that guess, the XXX% just up it's from had morning. up forward. up move about to driving regarding I under I for quarter, how this and on year-over-year and expect we growth quarter that something $X.X what's Thanks. can one year-over-year.

Mark Walchirk

bit. does Yes. That move around a little

I those. in financing yield also There the that quarter. curve, we as think at the strong just that went sales on with that along the the main an thing did was have a equipment really is the, positive look impact in impact

right in So direction. both the going things it's really

Westley Dupray

Thank Great. you.

Operator

Your next comes from question JPMorgan. from Minchak Michael

open. Your line is

Michael Minchak

Thanks and good morning.

So first on equipment. dental

typically traction seeing that tailwind on equipment historically, impact saw as calendar then rebound a at in I something end ahead. the talk a growth manufacturer cycled incentives seen purchases you that nice guess, growth maybe Was anything that this You unique that can saw in quarter. or from pulled relationship. was positive you've some you're year. about the Is you that tax this anything we've the relationships of change under there Obviously, quarter? drove that the past I was and guess,

Mark Walchirk

hold helping marketplace sales Yes, fair was I Michael. a is the spoken equipment I think drive positive. the about Thanks. it's things performance in nice comprehensive are There believe don't we've mean, activity think we that amount really certainly a some variety I of promotional We and that that there. in.

new unit products. sales, continue the sold, relationship – with continue products a products have sell now we year over continue standpoint. portfolio an been these exclusivity our we to we a broader since new to sell from customers, of to we It's much haven't that drive to we changed historically We

we the customers that better as great a that think innovation support we support I we mentioned equipment are field. that so space the in we're standpoint, I've from our and strong our are think saw And are and teams prepared contributing core the from all business. standpoint, positive we really positions this a been tech but our after-sales service some earlier, like dental about well. and standpoint think to doing maintenance our are not things results a from selling only team technical equipment, high-tech these and in at I recognize And are to execute provide just in a I that job And continued us I saying excited think

Michael Minchak

And it. then maybe Got on just question the a follow-up margins.

to if operating notwithstanding, some XXXX look XQ historically, fiscal you've sequential XQ. margin I seen from So expansion typically

taking much to typical saw that sort of to of specific of how this versus understand drive any sequential Is parse So, that improvement related I to guess improved quarter the there you're to financial out. the I'm improvement way sort performance. is initiatives trying seasonal you

Mark Walchirk

a both, There's can any parse probably anymore I breakdown out in have elements of that I that more detail. don't

lot margin a has thing do our I due There internal in was think the to space, that understand the margin that some of degradation Health to with Animal improvement, even – programs. just again is it though was to seasonality.

we we're again, trend dynamics the and as we of quarter place to that of expect in move fourth So kind and that overcoming like the continue here some with that the year. trend, next and into good are

Donald Zurbay

structure, is initiatives key important think have our cetera, add stabilization And a we to that implementation private our et helped but – our ERP from to think also the for that's from think I well. still work standpoint just and I stabilize drive we've this do as continue our us to obviously focus mean teams been about certainly a see continue that, margins. to designed I stabilization we further and really sourcing, continue focused all to to our as for we cost on, to label, quickly,

Mark Walchirk

the done structure cost anything we need enough add, I that a Yes, guess I there's but lot we fourth drive we in large on mean, I going as of versus to costs haven't initiatives the been, might and we investments the area. We've a quarter. opportunistically announcement, where make of been a to big reduce business move the are of lot think can the we forward decisions analysis made the into cost

Michael Minchak

Thanks the color. Got for it.

Operator

from James Your next Piper Sarah Jaffray. question comes from

open. Your is line

Sarah James

you. Thank

how business. your investors spin recently out had bit mix via in for little think Animal Health with Health that do of credit unlocking a acknowledged One different your a for But assets? about value peers getting Animal Health successful Animal and or of the a your you

Mark Walchirk

Health we Yes, markets, Sarah, mentioned, our production positions it's I thanks. believe with we have strong and position believe We a fundamentals. and continue those our Animal that certainly, with good improve market across as pleased performance. underlying both Well, in companion and to we're

evaluate As we the we remain value continue do in – gain we very share and we'll our and the this believe in said, our on to employees options continue best continue of mentioned, customers we quarter to and to certainly of going and Board – that business. alternatives are shareholders, interests certainly regularly that driving That focused forward.

Sarah James

situation not of value-added being can pipeline. where of and the out talk in Got or you you a you market build and assets type the the about add a little they're to And bit that M&A the is this more of robustness technology strategically available Are it. need yourself? finding available these you want capabilities to

Mark Walchirk

Yes.

a it's combination. think I

inorganically. initiatives, ways the of on organically we to our think at strategic I key think, centering support those look market we in as initiatives, and as and of kind canvas both would about we some

could I think to And assets marketplace potentially attractive so the are there that in us. be

I stabilize as and to focus we're, sheet. our balance our to earlier, business, to mentioned on stabilize execution the continue continue continuing think

us So strategies. some a can opportunities M&A would in advantage position we to where of support put take those that

on dental earlier supportive different that the that things adjacencies, build accretion, well perhaps really many all looking certainly and kind of they the across mentioned of market get scale, some we're platforms. I So growth, and focus margin our Health ensuring drive within us Animal and of parameters but into

Sarah James

you. Thank

Operator

from And from Barclays Thank question comes Bank. last Steven your you. Valiquette

is open. Your line

Steven Valiquette

thanks. Great, morning, everybody. Good

Mark Walchirk

morning. Good

Steven Valiquette

around the – normal the that seeing So just on… side, were quick on Health of a here didn't seasonality margins mention you you operating question the sort Animal they

Mark Walchirk

we I you think Can lost hear Steven, us? you.

Steven Valiquette

on year-over-year the following on worse little trends Okay. I'm in sure in time operating just are bit color about what be fiscal trends that on around Yes, manufacturing that rebates the previously sure talked a just Animal Health, some from fiscal the Animal happened sorry. margin year quarter, time rebound Health. in third the in I missing getting I'm fourth that Thanks. not on. a for looking maybe know the confidence on margin goes may like operating but you've if happened. gives quarter, business, you the maybe to Not but the up as seems landline, the more

Donald Zurbay

there Health seasonality the dynamics not with We we do some a few that as then items again bit. would that. did were the to And coming Yes, deleveraging on improvement get as and expect, that a really smaller of margin quarter Animal any there'll characterize revenue negative, operating that. one-time normal I into in were it weighed impact be have the that back. and decline QX, bounce that'll kind we down like

Steven Valiquette

Thanks. it. Okay, got

Operator

I'll are the at questions There to over the no call the back presenters. turn further time.

Mark Walchirk

our us in for fiscal everyone much very so earnings thanks on and call of thanks We Thanks look fourth June. much. today. update late another Yes, XXXX to joining providing forward quarter

Operator

conference call. This concludes today's

disconnect. now may You

Patterson Companies (PDCO) 28 Feb 192019 Q3 Earnings call transcript