Earnings call transcript Q3 2023

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Operator

Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson Companies Incorporated Third Quarter Fiscal 2023 Earnings Conference Call. Today's conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator

now of conference Investor will Wright, to Vice President Relations. turn I over the John And

You may begin.

John Wright

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

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

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

markets market and Patterson to upon including information comments update serve, forward-looking growth of circumstances be only Web at found revise to Relations of about addition, no X, Investor any that section Also, or undertakes The is content and pattersoncompanies.com. estimates. of company's the the call our after of broadcast, the this site accurate reflect rates contains In the date slide or events this of date conference presentation can March based statements time-sensitive we the internal are as call. shares, XXXX. live financial obligation a in the analysis

to Inc., release reported inventory items. charges, restructuring other quarter to of operating integration on table A Inc., our and expense, legal conference Companies, reserves, investments, GAAP we income, net income reference along of the third to share tax per attributable related measures, results in adjust attributable income in is diluted adjusted namely for donation tax Patterson reconciliation morning's expenses, that, expense, net amortization, the before 'XX. and these income, and this business of provided earnings call, note our with for press income, loss, the income Please Companies, impact taxes, net Patterson fiscal deal gains effects will

results earnings We flow a of recent term, will extra available recorded adjusted in represent impact a.m. results. for and measures the a of acquisitions for quarter net intended is week. in from measure, non-GAAP be internal selling our also for substitute are GAAP first free to a to and the starting non-GAAP which our exclude will use the sales, replay at These as one being period is contributions release, call defined foreign cash fiscal be to discuss and week of Time of XX:XX 'XX. sales currency not This the Central

over to Now, I'd call Zurbay. Don hand like to the

Don Zurbay

fiscal our third you our Thank of quarter Companies. had results. Overall, everyone. morning, delivered for good customers good in achieved management. fiscal to mix, focus segments, disciplined execution us strategy and We successful a demonstrating a Dental John, shareholders. Health Animal in the value discuss on our adjusted Patterson appreciate create We and overall internal of quarter, improved operating XXXX and our operational Thanks, third growth through in our decline as expense both business third sales excellence, We joining X% Health Animal our by our reflecting to and for the quarter was year-over-year growth your offset for we and strategic than our our both segment. very segment more expansion modest within Dental ongoing interest

year's ultimately, XX% generated an third And of of adjusted $X.XX last we earnings increase diluted share, per over quarter.

adjusted earnings achieve three And XXXX our to expectations operating the our margin fiscal on adjusted of quarters growth goals through remain year, narrowed our of for the result the to outlined year. a and fiscal the share. at we months of the guidance progress beginning diluted first expansion to final we per $X.XX track our and internal we As sales $X.XX

to resolute and focus. proven strong strategy our continued commitment reflects [indiscernible] Our performance the

quarter, offer completing on-shoring customers partner, customer our manufacturing deepen the our in to the differentiates we This that our warehouse loyalty to ongoing investing a and to third partners. enhance our rolling continue This region, deepen in indispensable work highly we supply acquisitions us our cutting-edge program, the makes segment we and strategic through presence dental value the just Patterson provide and Patterson value not an Animal the two improvements our out Health a that Advantage, In in Health proposition collaborations included strengthening chain facility to Animal with Dental distributor. U.K. offerings, in customers. expand sustainable

We managing in to enterprise-wide. also strategic remain And our focus we with enhancing a margin made and and finally, performance expansion two focus on keen partners. our operating is operational committed evident our a the improved mix, with This our thoughtful within on each excellence, progress of segments with organization cross-discipline. manufacturer planning margin

on and to focus continue our this process rigorous a We on return investments. for running discipline

on more I leadership two highlight quarter. of we Before third important a discussion to to appointments detailed I in made want move performance, our the segment

cash Kevin track driving cost First, been integral shareholders. several years, for Chief career named Kevin and record the Financial of maintaining Patterson's allocation of was structures, an value of Barry of for organization capital Officer. efficient to demonstrates organization creation. approach long-term leadership. and drive our creating his flow balanced successful finance finance member I the in has am [indiscernible] generating confident Kevin's direction on value Kevin a under more Patterson the

new role of we efficiency value enterprise total the and improve performance. accountability the Second, our leveraging our on to of and enhance focus drive to Officer Chief Operating created

segments to cater with different across the record Pohlman, to of end Kevin most to than drive is have characteristics President increased there and a Patterson considerable recently across but users, advantages those initiative operations Animal we upon believe and Health. Animal serving synergy Dental Kevin Health operator key I better track markets. improvement a suited No markets. this to strong proven performance customers. one is Our share of end build and competitive their opportunity lead is

Animal. comprise Cunningham, organization. would Steve businesses as has been Animal his alignment working Leadership improve be optimize segments Dental the Health of also new further Operating performance. of George by will Tim adoption the leaders, its The existing Animal; comprised from Patterson the segment strengthen role, and segment He In to Rogan that identify Companion Patterson's opportunities of has Henriques, practices both operations to president. Team continue key of their established to a and Kevin to leaders and President best lead across President Production overseen

to deep executive these achieve who strategy. goals does leaders in enhancements drive instrumental capable long-term developing of executive and implementing our has bench value. the are highly position team Patterson's to a leadership Patterson I shareholder to believe Patterson

I'll to our performance, Now, starting turn Dental. segment with

deflationary quarter strengthening and margins primarily In decline Our focused impact internal operating execution from our remain year-over-year products. due X% deflationary the infection in operating maintain persistent technology CAD/CAM margin the and year-over-year digital by Nonetheless, to Dental segment in Infection digits third deliver sales double-digit by enabled consumables, quarter our impacts a our our decreased margin low of Dental and certain products key single control declined third We Control on initiatives. enhancement segment expansion. year-over-year advancing driven about outstanding teams to internal sales and category. Consumables

care. in broad of category infection to consumables We control products, for comparison quarter. a a of grew higher demand provide third to and the remain infection meet X% excluding range standard control these dentists strong fiscal approximately pre-COVID adapted levels However, offerings as in our products, have

in previously considerable we As the pandemic supply have infection discussed, highs declines global have pricing the from certain chain products for this certain products improvements for resulted in in control category.

to pricing throughout fiscal is the stabilized, believe to largely we elevated has XXXX. pricing While comparison continue expected

and to and knowledgeable will and deliver portfolio category. talented products, area our and and private to sales Patterson enable proud market, customers power sustained of invest private in of standout including our organic We're continues in control practices offering perform independent teams, to across our label broad to the the continue as non-infection our culture DSOs. growth. national outperform this from well combined tenured, appeal The to market dental regional force Our this offering,

digits the of quarter XXXX new innovation, in declined quarter-to-quarter decline product as upgrade including high promotional fluctuate sales the variety due timing programs technology quarter, our external third sales, which factors Equipment the products. impact a in on year-over-year internal timing equipment category can a cycles, execution the had a our (ph) single CAD/CAM largely as by driven to well CAD/CAM category, third major and of In In sales program comparison. and and of upgrade that lapped] availability. the year-over-year digital the of in a notable [we quality influence

to over and offer level healthcare. patient long The a lifecycle marketplace, experience for technology long-term runway are support When growing the in recognize to drives use digital with the those and of new supports technology dentists technology complete Patterson investments. improved the patients, a best-positioned longer-term of What's trends, important among enables results innovation of service experience install, sell, to the oral and both dentists That that finance, demand higher is that. growth of there's for time. improved

over year-over-year XX%. average eight is dental growth quarters, last equipment the Over in our

partners in dental and our This innovation substantial leading offers growth and support proposition the the technology our value equipment new dental manufacturer our customers deliver capability reflects Patterson our to category, market customers. from to

to execute keep equipment core quarter that investments on third equipment are fresh sustain of a in equipment in making continue growth core double-digit dentists drove and this running their we practices Performance and we the well. orders. as Importantly, category demonstrates in backlog to

mid our a quarter, management service and the enhanced our third new foundation for with productivity our During solutions, by dental which tools. field And single-digit practice. modern cloud-based broader the value driven added of solid of category technical services demand software offering, growth delivered dental adoption have practice we desktop

the practice a and population, to for ageing secular an appreciation dental demand oral as poised health from link business to Looking growing health. for overall tailwinds, ahead, a benefit key resilient including is modernization,

goals and fundamentals underlying XXXX confident achieve the beyond. in these fiscal we stability to ability are they in and our Given market our create,

Animal turn now the segment. Let's to Health

increased the Animal. outperform as our market the we our in During third that believe delivered internal and teams of 'XX, quarter Companion sales both year-over-year fiscal growth Production X%

from offering and offers range We comprehensive presence for species customers. spans wide of benefit continue our the to animal depth a and that of diverse solutions omni-channel

growth including our improved mix, initiatives segment manufacturing value also including provide. We and with services successful with demonstrated management, we us added performance partnership for value reward partners in that cost effective the product strategic margin

This our the considering period. the X%. impressive by in growth internal quarter is particularly increased sales prior-year in third the Companion, In over sales performance double-digit

is value-add teams, a approach. operational the strong discipline, experienced our consultative including to our external our from testament and Our internal execution performance sustained plan, growth excellent sales of and

relationships creates our deep seeing the preferred for partners we're manufacturing approach and efforts. differentiated those customers, Our with and results

our private Companion category. portfolio in growth We've also strong label within benefited from the the

Our expanding with the a private strong equity label of collection includes in market. owned brands portfolio

are We important continuing to in this category. invest

which of and mentioned video-based I during solutions closed extraction transaction ACT, Services our staffing, Practitioners quarter and before, Veterinary through the services. RSVP acquisition stands innovative and Animal for practices Relief conversion, Care for Technologies. As provides veterinary we training data to This and

reinforce to companion pets. the confident in the value health The of it our of investments pet deepen address animal early those and capabilities the expand comes increasingly animal believe of companion needs. pets days and and dedicated the and resiliency market. their the making of growth and parents necessary proposition, to our opportunity We when longevity remain critical customer our to integration We

year-over-year, the of the of This outstanding and X% animal internal by outpaces based differentiated data. the our believe comprehensive a service, including our is drought model sales industry increased that we services herd. have generic competition, internal proud industry-wide a animal impacted delivery beef attributable on headwinds our outperformance On production team, production broadly market, well of third execution and used hands-on that to the the which options, side, pressure now product as in considering market as am Draxxin, portfolio. continued product quarter growth on sales the I particularly faces conditions pricing

that of portfolio Tech are our store, drive equipment successfully and future. we in a efficiently and Tech, closed brands. expands value the well our to excited provides our feed and and a looking Dairy Despite for to including colostrums, We acquisition producers' to manage capability continue critical these protein within production safely been improve and for for health ways single-use to market our produce, growth invest owned calves. dairy. efficient challenges, we This biosecurity cattle continued for This which nutrient global of pasteurizing newborn demand several and producer bags is the necessary Dairy observing our of business market, platform customers, external added trends health and the effectively animal in on expands costs support and the aligns profitability, acquisition have herds. strong producers and with a herd we in emphasis

This Animal significant service well can be Across area is solutions, performance segment, software suite forward, focus offering. to Health our during services important as which delivered category quarter. the growth attributed strong the of for going as value-added our largely our equipment us an

Similar Patterson our service to to our equipment a of equipment customers. our segment, lifecycle support is the for offering for Dental us enables and differentiator full

we we As health business amid continued look animal ahead, our dynamics for is believe end-market. positioned success

I'll turn over performance. more provide Now, Barry to financial the Kevin on call to our detail

Kevin Barry

outlook year. the Don, fiscal third on of you, morning, morning, good for XX results for and the In 'XX, of our financial I ended January will remarks my conclude which our everyone. the prepared Thank remainder this XXXX cover with and then quarter fiscal

by third 'XX. of the let's for our quarter So, fiscal covering begin results

Consolidated $X.X billion, are last ago. quarter Internal of same 'XX increase the X.X% year. adjusted sales X.X% recent quarter acquisitions Patterson contributions period for the our for in of translation increased third were compared Companies and third the from sales to effects an versus reported fiscal one-year which currency

fiscal of quarter was third to the prior-year. 'XX points XX compared XX.X%, basis an Our gross increase margin

this gross portfolio. financing quarter impacted margin was points equipment by Our positively on adjustment the accounting basis mark-to-market XX our by

calls, line we offset in other this negative by mark-to-market related which reflected P&L. or earnings is interest As instrument, is corresponding to hedging mentioned accounting the positive in our any our have expense prior and on adjustment nearly impact

when adjusted This also share. dynamic quarter earnings has gross prior-year. is mark-to-market result basis points to the the compared year negative negative quarter third the accounting minimal basis the per this XX basis rate and points, our net XX our for margin fiscal of occurred period, last impact normalizing in impact impact on of XX in the was the the calculation points of impact of positive flat So, year-ago

our not Remember, gross within the impact accounting our of total but company adjustment segments. the business margin impacts gross margin, mark-to-market the

to fiscal Importantly, margins the units period. their respective during posted third each business increase year-over-year our of quarter, gross the prior-year a in

Across the with expansion improved and and execution categories. gross company, margin gross initiatives accretive as higher to continue focus driving pricing the cost we mix such margin on product

In as margin XX fiscal expenses compared net 'XX percentage sales the of fiscal favorable an operating basis points XX.X% third to our points the consolidated of to Adjusted X.X%, 'X, was compared XX one-year quarter of for basis and third ago. a of by operating third was the quarter, quarter increase year. adjusted last

for impact adjustment periods margin. normalizing of we're gross to the both accounting mark-to-market related in Again, the

structure who cost our performance, reward cost we as expense mix, line. exercising execution, our our adjusted Our closely operating on consolidated the the well strategic sales more vendors and to driving the margin with grow prior-year. expansion and by over third through fiscal margin working basis XX points us gross remain operating driving pricing We with in improved efforts for leveraging as margin improve focused expanded top quarter as discipline

both the 'XX. our With we and to business in fiscal intend total margin business operating in expansion for segments deliver of efforts, these adjusted collective

third Our XXX was points 'XX adjusted tax to quarter rate for of of basis XX.X%, prior-year. the compared the a fiscal decrease

For the expect line to rate the full-year, tax be prior-year. with our we in

third diluted Reported attributable of or of net year. net 'XX income per third The we quarter year-over-year the the third per $X.XX year recorded is in of to Patterson income Inc. or the investment share. to last to the Companies million gain compares fiscal This last million, quarter in reported was decrease for $XX $XX.X related share. $X.XX diluted quarter of

$XX.X or $XX.X of the the 'XX third net in share our for fiscal Patterson of in share. XX% attributable fiscal expansion was in per diluted compares adjusted to to in primarily $X.XX earnings income million This million, per or diluted This $X.XX Adjusted is per the to due quarter diluted fiscal increase quarter share quarter 'XX. both margin segments. business Inc. the third of third operating Companies

'XX. sales Dental the consumables third our business quarter for 'XX, ago. Dental of fiscal to to Now business the X.X% dental let's starting of decreased of the business. our compared fiscal X.X% one-year sales compared turn Internal declined with quarter internal segment to third In

continue mentioned Internal fiscal deflationary in prior-year. year-ago of to compared X.X% earlier, to infection quarter Don products the experience compared we sales increased to period. the the impact of non-infection As products the third control control

deflationary infection X.X% year-over-year the one year-ago. the of compared software impact of and 'XX. expect We equipment Internal continue products control and 'XX for to of decreased fiscal to throughout remainder fiscal sales dental

ordered dental practices increase our deliver to offices. dental the sales our quarter the our their in supply effectively reflects category install this equipment, ongoing open core the have customers equipment double-digit and In to new efforts in chain to or manage update

sales value-added the comparison period. CAD the to quarter, increased our in primarily of of a team upgrade business. Internal the CAM the program service and year-over-year technology by of However, prior-year sales third solid 'XX due continued of products in our prior-year of services quarter declined performance technical over to led software period growth the in the fiscal X.X%

XX.X% of we in to Value-added basis services Adjusted prior-year to for to the discipline an to are 'XX. mix reflects to performance entire help period. practice. pricing represent partner efforts management improve margin expansion our through offerings margins operating the P&L. our indispensable improvement their quarter, favorable effective over team point mixed to And This operating expense operating these the continue of fiscal the were a gross also and our us deliver and to XX in and margins margin dental fiscal valuable third dental suite customers make provide offerings

let's segment. Now Animal Health to on our move

'XX. that to increased compared quarter the off X.X% The third companion Internal the came Health 'XX, in sales for third increased animal has for impact our experiencing mentioned market the as and increased the internal quarter fiscal quarter competition. Don ago. one-year deflationary of key versus sales sales affected X.X% Animal our business by of X.X% quarter generic fiscal been animal of patent to for third Internal production the business compared product In animal entire business a our a prior-year. branded production now is recently

continue Excluding the third an fiscal indicate were in and points the operating basis deflationary would and companion the in the margins animal increased Health overall the impact, teams XX internal Industry for quarter, during both outperform X.X%. sales fiscal data production Adjusted third that from animal prior-year. our sales quarter. segment production market by Animal increase of our X.X% to

drive our continues also health deliver partners Our they to manufacturing exercising business with animal margin to seek team strategic sales, operating to as who 'XX. while expand for fiscal value expense ability discipline

Now cash balance flow and cover let items. me sheet

of year strategic 'XX, nine timing During is increased first level 'XX ago. of an compared due one declined in the months driven free fiscal primarily fiscal months flow inventory of working capital same purchases payable. cash the our by to period $XX.X million first by to nine of accounts This the and

at continued allocation, to per return of execute the fiscal cash quarter of Turning third our shareholders dividend now 'XX, a repurchases. then $X.XX dividends capital we on we Patterson a and diluted to beginning has of to share, which 'XX, cash quarterly In our to declared 'XX. shareholders. strategy paid share of through to the in was On fiscal the million fourth $XX fiscal basis returned year-to-date quarter

range business expansion to and share. operating total to GAAP We of conclude deliver intend me diluted fiscal our 'XX remainder share, per business we margin $X.XX to to outlook to our $X.XX earnings sales 'XX. growth we range fiscal goals our our guidance with diluted for both for are the committed adjusted the fiscal segments. and $X.XX achieving per earnings of 'XX $X.XX narrowing remain Let year. to within And and fiscal internal our the for adjusted guidance Today, for

turn I Don over this some additional now to And call comments. for will back

Don Zurbay

Thanks, Kevin.

in entire are final it of momentum I'm the we success. carrying I up open for the want results Before the for excited stretch Patterson differentiate we Q&A, into team people to by driving long-term thank our fiscal XXXX. Patterson our

and We our positioned for deliver our are to goals to operational all financial and achieve well stakeholders. continue to of

the will glad line. I prepared our Operator, take be Kevin and questions. to remarks. concludes please That open

Operator

you. question from Instructions] first We Jason Thank will Sandler. take our with [Operator Piper Bednar

open. is line Your

Jason Bednar

Hey, quarter. taking good Health. companywide, starting larger margins, and particularly morning. in Thanks first wanted the impressive deltas here questions. was to surprises for on I Maybe within this the with Animal or of the pretty touch some with

margin that to any forward the You've But there can that credit. improvement journey attention of on gave, source again, fiscal we margin color or further you 'XX? is probably enough there you been details but as especially a get on provide doesn't you can multiyear Appreciate improvement. here elaborate maybe additional, the and look with sustainability the

Don Zurbay

the comment last I to said, end. on outlined Yes, the the for the think operating sustainable, margins sustainable programs guidance, some sustainable, said like [Technical continue of too Jason, XX if we place. but on the so before, in them you've which feel thanks aiming margin. for our have are from you difficulty] we we and appreciation we to and we've all of Kevin I'll Like And think they're think in And over seen add years, this Barry place reasonable But multi-period we're to you like specific if basis think has things back going not I good that we've we our see improve is anything in prepared said, XX is really, look he The to that. to put that journey. year-over-year trend. remarks. average, get wants points long-term. that a We couple

a on like ask I done mentioned lower Barry if in anything business job And to margin the Kevin those particularly you with of Animal margins. else applaud the add he'd really specifics terms we examples in team. Health, great The increasing of I'll teams, in some have. a as there's they've maybe

Kevin Barry

and big higher Don and pricing are the like had examples we're driving initiatives, there our our of logistics margins impact on with highlight for network, in approach we're our how partners, getting products the I a businesses, our units, managing our a lines both. costing how customers. margins other approaching it's and -- a to couple some been those and And we really businesses quarter, said, lines mix side within good margin, and business continuing both and And have. how those, Both have here the distribution question. expanded higher-value trend. you had this op their we've that that at mentioned I'd the appreciate being again, Yes, on good we operations And and we've service work is network wins one efficient done some team logistics then our very our product looking those at services Patterson. holistic

again, muscle to very off So, in paying holistic keep a approach, here future. going we it's again, as keep the a building we think is that's

Don Zurbay

as Yes, you and the Patterson, maybe mentioned position and a added in position. Operating I'd that call today -- announcement in Jason, that well is at Kevin Officer Chief saw or that I Pohlman we've the

I terms going of an have he enterprise. which we're this synergies but address that with focus think maybe really part is we've on getting the underserved in after story, position some in not to that of at, to the things of margin the we've is a looked across looked

done units -- untapped pieces business of there's with a a company this more look But think and great the is there. how the of both opportunity job one So, of holistically, really improvement, I and but at there. have lot there's you their margin

Jason Bednar

bad control, dental deflationary and the take appreciate pretty the And Maybe delta be room continuing really stay it to have? on the might the or that's as run for we of solid. further contemplating profitability quarters. Do comment current a or [the ongoing a shift on these or darn (ph) quantifying there company infection on any single-digit headwind several still is core pressures impact less growth in helpful, rate decremental on the at comments there should step definitely But pressures? its down] what less next of get early relative mid I'll does actually here, Does a business? Okay, margins. you it in to want core result mix to ask consumables, some it then, this or margins

Don Zurbay

the out, deflationary be. Jason, the the in we're we're plays that how this pressure where just going it's coming keeps so we to sense Yes, largely expecting down. so on It's pricing think clear,

think you think in quarter, bit will. if I little here we a more to where bottoms there's come fourth our out, probably it

think a that, when fiscal down the look year-over-year coming it's on point is going it's comparison this year, basis. I you be a next of when basis you just to think all then, a been about headwind into fiscal on year because it year-over-year

So, this give on impact at. not toward we as call probably guidance next the terms call, for of our And would earnings We're on kind looking on year-over-year next year, good some the call. that's fourth probably quarter, going how definitely be a color the give we're looks. to this we'll quarter that of on look commentary fiscal I in say and topic. the will impact our

Jason Bednar

much, so enough. Thanks fair Okay, guys.

Operator

And of will Michael next our we take from question Cherny with Bank America.

Your line is open.

Michael Cherny

Good morning, question. and thanks for the taking

the there in where how year, some 'XX. way into expect And infection guidance is Are run about a into the given are any for especially deflationary terms but abnormal know numbers think talked about on both control the in the of fiscal of you'd to about that the any for things 'XX interpret in rate other to I we ask, of the tough terms there appropriate XQ your thinking trajectory? implied dynamics jumping you be XQ be one So, fiscal 'XX? just baseline towards the this skew off to might we and should heading point what

Don Zurbay

obviously The mean is something for I deflationary point. the try discipline commentary here we've we're maintain stay away, Again, I call a call. fair talked much too the on interest that. to a guidance of really us. impact call of we're think from think to want all giving to and color of this helpful, about; to Michael, think, on to hard that's putting here, is going I going lot rate I I but environment on next

otherwise, I'd the another, like say, that's we mix. So, wildcard our businesses. the But in momentum in

saw than I does technology equipment. and do dental think cycles, has this you quarter absent anything timing quarter equipment with upgrade this more it the issue else. really The and to cycles dental

that is expecting you before, in expect want -- macroeconomic it we of this to headwinds, sales over a to looking said that hold time. at again, the And at what difficult increments I've we're look performance really of proposition, longer three-month spite in well. But periods up equipment

We other have in really categories, business otherwise, issue timing but equipment and a usual. core good momentum as in the

Kevin Barry

I'd maybe operating internal our expect that the off think company to point today, we add is Michael, units we're company. for as going sales the reiterating to the and project jumping the deliver we're guidance as grow overall going one And, individual for margin that we still about also here, thing and reiterated business and we're you this expansion the year,

So, you thinking as considerations about rest do of together. think you're in kind you the I about those this important year, think your are how put of model said, to

Michael Cherny

I you side humoring a on but little know maybe interest me comment for sold? from the your beyond I to the at in point pick of appreciate have either just delays bit of what question you and/or and answer changes seen hard of you type a And of leading equipment that people equipment are made this terms any is or indicators to of terms related on time, the to looking a rates, dynamics perspective cancellations mix the book a already type placed in and any potential order in you've in products,

Don Zurbay

and pending from some equipment where and No, been. the they've equipment and quarter element well. haven't. deposits last hand But you, up in and of on they're has And for it as are we No. installations tell timing for robust, in I'd this fact our course of

Michael Cherny

it. Thank Got you.

Operator

question next Erin We Wright Stanley. from with will take Morgan our

line open. Your is

Erin Wright

my Thanks Great. taking question. for

that in are we're level, realization the seeing at So, buy-sell relationships pharma changes And versus about on agency So the think of dynamics production companion that's given the in at on particularly animal? of that should be what price terms side. manufacturer animal aware as some seeing any obviously, price this in we Animal first calendar you embedded we excluding, price the point Health, are of level of there XXXX? increases in guidance your

Don Zurbay

moderating. traffic steadily companion of In not It's pricing anything really too usual. we're terms is of there. terms significant the animal as been really in seeing And business market,

spend is visit of the per the there. itself, the terms per right but up, pricing not that really I visit traffic spend think down now, what we're is seeing anything in slightly is but

expect the chime I'll if he upcoming this On wants Barry Kevin in significant don't we the topic. year. buy-sell, anything in too let on

Kevin Barry

project right do not now. agree. anything And I changing No, we

Erin Wright

variables then And and the about across you are across I dental of terms are the you that? now but Okay, should demand the lapping equipment what Omicron thinking side? side, how some and monthly just in how thinking other of are we dynamics, that's about seeing underlying be on we the helpful. across the excluding demand know Dental trends quarter

Don Zurbay

saw as did quarter. Yes, mean, we it traffic generally well, traffic, an we patient would stable. I in throughout the -- characterize see increase But we

this we you tell monthly, down traffic monthly you if it the would on. give guidance, the broke that don't really typically improved as I which So, went but of kind quarter

Erin Wright

All right, thank you.

Operator

take will We with Johnson our question next Baird. from Jeff

open. is line Your

Jeff Johnson

Thank you. maybe Hey, guys. there. a last Good follow-up that Don, morning, on point

go and you love of even January demand than pointing those pricing more and clearly seeing work pretty just kind more of have mix dental don't we're the in it in and give know much think kind color, color what lines. I I'd now, of patient consumable that driving so February the so higher-end was on you're it you and maybe you volumes. other of dental far to improved quarter volumes? that what's January around I were bit checks spend of the about hygiene throughout some well kind the that little the some that there? any Was I'm with a product Thanks. right not trying our can and than world. what from (ph) heard preventative, seeing? improvements synch price of February provide we dynamic standpoint a asking you rebound to understand of shown to in hearing But mix and side. Just improvement peg We're [resto] too more our survey different products in some would

Don Zurbay

as helpful possible. Yes, Jeff, try be Yes. question. appreciate the Hey, I'll as to

exactly was January. terms of steady improvement et have in kind here how of I traffic, a that pricing, particularly cetera. looked think I breakdown notable, don't guess, right I in of it

I a really. mix think it both of was

mix. to too break probably be And that kind this so, a on to I than it call. not much going it call of able we're I'd think further down And that generally,

Jeff Johnson

fair. that's right, All

write-offs this have as now XX XQ you're points that stable in timing. doesn't think and I the as supply technology a few stuff and last constraints you And sequential and fiscal point I talking XXX, about been being -- pushing, equipment a from much lift in than those one other got lot also years, going year, or that. I pretty timing the in quarter. dollars, year, Historically, feels year Let it on your anymore XX% last basically typically, this me timing, XQ of all with, and again, equipment to in years like none know I have pull but guess, for on five limit. improving, the to some quarter. about, the those and you and write-off basic But you get equipment more it's made prior Section in understand

So was there those some fronts. both on push pull and

the mean for where just lay the equipment I that your X-XX are, rates with next your inflation outlook land over and So, what's Thanks. months maybe interest and and equipment? they just of what's

Don Zurbay

eight I growth of growth while is the that category. equipment a XX% a think the over piece over think portfolio. for for us we've we've we in Obviously, mid-single-digit said the last quarters, business averaged that Yes, time,

to again, again revert revert X%. would I I is to and but expect for difficult, it that at upgrade as would significant market, kind of quarter, of kind I a at difficult the but a the isolation, say in the you, business. I'd back proxy slightly that growth think this in So, would which when mid-single-digit is so factor that happen, a you what don't also And look I had CAD/CAM looking but long-term think back good we you above and is think cycle I of I timing, we to tell comp, we is health

Jeff Johnson

Yes, got it. you. Thank

Operator

Brandon next Blair. Vazquez with We'll take question our from William

open. is line Your

Brandon Vazquez

here question. get wanted of won't forward a to numbers we taking bit. I Thanks talk again, kind any expectations to try I but for hard everyone. little the Hi, a for appreciate little bit about

company upgrade of kind in specific. for or just cycle the of this right, moving a some there's walk Can maybe pieces, So, quarter. There's dynamics, of macro you there's lot they're anniversary animal. expectations generic whether of headwinds CAD/CAM of through kind in kind

the some So, those the how call and do impact over P&L of XX quarters? things business it the next

Don Zurbay

think I Twelve going and through it things patient year, we're expect the I and I I to next quarters, is that right for important continue to the again, aspects that, are happening businesses, future. look of would think driving that going two that into mean stable you've we're also sustainable, just next now why spite long much think what's been really by to could next you giving way the about I believe encouraged and the in talk looking helpful year is we that about if think timeframe be going are are the not all at we what's think too it, in But I has yes, which hit markets, improvement, in overall dig of traffic margin the it's be largely year. are for impact macroeconomic But that on us to a obviously, that's guidance. again here, thing at I'm helpful

a move year stable here so, as the into you issue and And up, stable markets, improvement. brought margin otherwise, think is spot next but There that I more encouraging we good markets, beyond. we're in

Brandon Vazquez

Thanks. U.K. other to maybe the side internationally, Maybe the for even months, had dental, in It you on expand Okay, an of books helpful of maybe quarters, any warehouse, on you acquisition next is in health color. is but if for thanks. the I plans mentioned think just additional XX question, XX that animal I a expand was any made for not apologize. And that year? upcoming

Don Zurbay

go ahead, Kevin. Go ahead,

Kevin Barry

that really U.K. wasn't think in market over doing it an help our the we're we're was acquisition, our to to, you're I referring investment operations internal services, expense. That there. an business wasn't, It's capital it's U.K. internal good project veterinary making. of acquisition, on NBS wasn't it business, but it in what operations internal capital of warehouse that an the the an investment a

Brandon Vazquez

that coming years? in investing plans future continue to part bigger any and international, becomes expectations that business a over Okay, the of

Kevin Barry

I will we the operations any that. continue Yes, we we internationally. opportunities think at bolster comment to wouldn't and beyond plans look have Yes, on to improve

Brandon Vazquez

thanks. Okay,

Operator

Block question Stifel. with take next We'll from our Jon

line open. Your is

Jon Block

ex-PPE. of guys. a morning. X.X% Thanks, focused things. in on Good couple consumables follow-up But Maybe I'll dental a other just I internal

know, number you So, comp. called comp, think [indiscernible] up, was I a good X.X

into or from thinking to can quarters, couple been step-up prior Is between normal and The bit, some should sustainable account 'XX, But that, and again in to in if just Don, points I've the can number about then So, to? specific X% got 'XX, a off, the of we want a you XXX tightens 'XX. about on when jump be as talk range, almost address basis the basis then fiscal Thanks. is placing, maybe what taking to into point dental delta to And take and when elaborate then a just still getting X% think past that jump that's it fiscal little fiscal you close that the we like I a point internal ex-PPE think couple you XXX loop call the maybe headwind other delta quarters, ex-PPE follow-up. it's questions. I'm on you consumables. off your maybe I there's a this

Don Zurbay

way Yes, it. think fair that's look I a at to

is bit, big of issue. more comparison it's into last so and think excited terms but growth. impact that's consumables well we're the In a the we're come Delta, year, throughout has improved the you year, and And bit next over each year-over-year the significantly pricing get little executing quarter, the that's of a here with then years, as down a as really about our think I moved our around couple dental of I little customers. Again

the we're could the think at look of our we forward. happen maybe a that's kind rates and can again, proxy last sorry in to ex-PPE portfolio together, decent in a and I look year growth executing the PPE, we've of probably moving for here that be market what putting and of at how try outside helpful you think not think I to here, done when you good but job

Jon Block

bit. Thanks perfect. that that. should for Okay, a just second us then gear little And question

the my in are quiet, in opinion. of specialties initiatives Some been have dental

U.S. on they really and ortho, think want the on partner do but shortly, trying got picking you GP go talked maybe or would thoughts and believe [Indiscernible] in white label. a up private come to just segment. fragmented So, that and about pace direct we I they label

thoughts, and just get So, fiscal your the in it specialties, of notably faster going organization in involved opportunities a being clear forward segment there's when it to opportunities aligners. a beyond. growth capital-light couple guys. in Thanks 'XX Maybe or player forward Don, of look like areas with seems call that you dental

Don Zurbay

I M&A really we're smaller Well, we've those acquisitions, this. starting do to on allocation. we're different are and really said markets. focused and attractive strategy some for Yes. opportunities our capital number but mean, a focused, we've Obviously, been of

going strategy. And And at for so, if they to -- radar, our fit criteria, to if look good come continue opportunities more to something, we Patterson, that's there's not that they're be on at definitely M&A. and fit our and is on we'd see to they're the our looking be something

Jon Block

Thanks. enough. Fair

Operator

Goldman Sachs. our question Nathan from take We will next with Rich

open. is line Your

Nathan Rich

the good for Thanks morning. Hey, questions.

back dental guess more detail in from could XQ, to guess provide that is the the go to there wanted any I of on equipment program kind magnitude you of Just cycling performance that upgrade year. CAD/CAM asked by comparison think was tough in growth and last double-digit I in of another equipment also driven that I I And digital prior-year? you XQ kind in because the face

the So, growth fiscal of continue sort before softness see back through to the maybe in do we 'XX? this of year near-term balance getting

Don Zurbay

gave. that. Well, Kevin's into built thoughts share I'll obviously, wants any relative we guidance what on if the got to some maybe that's to of But see he

Kevin Barry

Yes.

equipment we somewhat growth quarter. I'd But was what those declines it we are in mentioned, periods. to core good year-over-year. prior Like Don see categories this say promotional-related did seeing had technology think in I our also is

softness look chunk continues of equipment category, that equipment the it offset this to is total really -- the on it, our helped at offset And got momentum think you as a our certainly solid of good help obviously core kind so, -- we've in technology some piece of it's some I but quarter.

our like that's So, for Don built color I'd we're how I the year. thinking we And that on give said, additional category. the forecast here about for obviously think that's expect maybe into what again

Nathan Rich

maybe, obviously, then cash could ask performance, year-to-date. negative I if And just on Kevin, Okay. the flow free follow-up a

capital Do the about normalized build flow You us maybe more see some can what about reverse inventory. working I talked help mainly think cash we free is forward? for to and a of going think that in and you related And rate XQ? run maybe

Kevin Barry

Yes.

we free higher, our cash in seasonality down draw have flow flow, this QX. to some is out have of do we we again happen and year. a typically bit we coming cash in expect then So, in and where that favorable And see QX typically inventories QX

our we we in I is much see levels, think and what payable inventory increase And as an accounts some buy happened that. in ensure offset QX some we service to of in did strategically some that. had and to opportunities didn't

pretty place. think I some there's got I'd in in we'll that a I leverage what get we can I in bit I think some I -- paid Yes. timing our unwind when that leverage grow balance bills And our opportunity we good think think we QX. a us -- have the QX as So, sheet is expect line. mean, time, here say the also top impacted that to to on here flow of cash is over

on sure better spend levels we make good around. products a done the do optimize products got cost right locations forecasting, we and side, have teams at we've the particularly the how Our inventory moving do right we at inventory get in job the how to looking internally,

that I our to line our would the -- And got so, we we'll need opportunity to over top faster be than to we've time, grow inventories. grow think able

Nathan Rich

you. Okay, great. Thank

Operator

We'll final Kevin with UBS. Caliendo from our take question

open. Your is line

Kevin Caliendo

sneaking for Thanks Thanks. me in.

your in XQ, primary of the quarter. manufacturing inventory Speaking putting XQ, of -- channel the inventories, into March in one just their about talked suppliers

how that has if wondering impacted in way you any guys? it Just

Don Zurbay

in to and equipment but of timing terms not moves, think our equipment a hasn't impacted of lot of terms -- cetera. there's I really install No, sales involved us how in really et the cycle, that in that our ability

Kevin Caliendo

Okay.

results meaningful seen have we've of the expectations necessarily not it's that that next So, quarter? explain of sort doesn't or or we for any it

Don Zurbay

No, no.

Kevin Caliendo

still a It's elevated be for of do increases Are are be guys terms price manufacturer there last increases -- increases, you Okay. Or price than more manufacturers? 'XX, acute expecting the more were price price lot Obviously, expect year, What expecting you calendar may helpful. normal? next 'XX? in increases for to cycle more see. last you year obviously, for normally you

Kevin Barry

and places you But comment, We certainly our a expect pricing say do I as lot a a I portfolio different at think is slight of think I what the sort of in immediately manufacturers events this have think general going that we'd broad. we slowing there's saw what pretty is I'd about the as forward. go some from cycle. supply in chains are pandemic products But prices in, call, big internally, there post been normalized as see the we we've a as or competition talking way. look the pretty comes other

at So, the manufacturers, price if just not I'd in saw you're year the -- it's general, I still it or -- quite the we expect think talking in rate past for two. to but positive but about advances be

Kevin Caliendo

incremental the top completed? the apologize from there missed to impacts the from expectations talk All line -- I deal about any right. the and to you you or this, but Was fiscal M&A, can your completed if just you for I impact earnings can And 'XX?

Don Zurbay

in here basket revenue some QX. got we Yes,

press I it's our release. tables in think in the

year minimis our that. deals of month-and-a-half as from impacts QX, You it's an relatively EPS with with in those see part about of a guidance. From here a can month, this standpoint, here in de But fiscal them.

Kevin Caliendo

guys. Thanks appreciate for I in. Great. it. getting Awesome, me thanks,

Don Zurbay

You bet.

John Wright

the in And Patterson next all and really you that's Companies. your time, interest Thank I appreciate Well, your questions quarter. time. talk you will for everybody's to today. we for

Operator

thank this and participation. and conference today's Ladies call, you for concludes we gentlemen, your

disconnect. now may You

Patterson Companies (PDCO) 2 Mar 232023 Q3 Earnings call transcript