PDCO - Earnings call 3 2024 | Patterson Companies, Inc.

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Operator

[Audio Gap] Third Quarter Fiscal 2024 Earnings Call. Please note that today's call is being recorded. [Operator Instructions] I will now turn the call over to John Wright, Vice President of Investor Relations.

You may begin your conference.

John Wright

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

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

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

we about and internal company's serve, growth comments upon are rates analysis shares, addition, the and based including market In the estimates. markets

forward-looking live only Patterson is the update The date time-sensitive information website or Investor the section call. our revise to of this content that the in pattersoncompanies.com. slide circumstances a February be call contains or of Relations to events as financial any of date Also, the this no presentation of after obligation broadcast, accurate XX, conference of can reflect at undertakes statements XXXX. found

items. in along various these effect adjust impact interest rate XXXX. reconciliation to an tables The measures related we that with will press the fiscal of are deal any tax reference GAAP this provided of call, note morning's conference and or for in Please quarter our swap adjusted of amortization third results reported release the our

substitute adjusted interest represent defined non-GAAP sales a contributions for an from to a swap. which use measure, not will results. currency, the measures and net the acquisitions term foreign be sales rate also of non-GAAP as to in earnings the our release, are discuss to our impact is intended GAAP We cash recent of free and impact internal net exclude flow These

This Central being recorded will be X and XX replay a.m. for available Time period call of for at is a starting today week.

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

Donald Zurbay

welcome, highlights then XXXX Third will the details strategic financial consolidated Patterson's and Quarter results of with begin goals John, progress Conference review I those each our of our remarks objectives providing my everyone, of our the today before we and Thanks, making Call. the a and are on performance of core towards segments. Fiscal to

some with I'll key start highlights.

navigated growth dynamic Our team year-over-year executed deliver and to well environment margin gross a successfully expansion. sales and

sales and above-market internal driven our provide sales businesses, dental our proposition continued we across deep demonstrating in differentiated year-over-year line, X.X% increased top value by customers the markets. growth consumables On production end animal the

prove period initiatives XX our same our continued when focus whole to and drive discipline on mix, points as efficiency, we've as expense expanded continue ago. successful result basis margin Our Patterson by for cost working year manufacturers, improved a leveraging a driving exercising improvement strategically margin structure. with the to compared This gross to including reflects

our strategic further investments and cost our is across reflect against continued to Patterson businesses measures bottom financial line, the ongoing balanced long-term On making the enhance results our profitability. discipline performance

We dividends of during form repurchases shareholders the million also $XXX share quarter. in returned nearly and to the

third quarter. Ultimately, adjusted for EPS Patterson of generated $X.XX an the

will the Looking shortly. on which forward, quarter, fourth we XXXX continued I for are our including market, revising provide the dental to expectations detail equipment our more earnings in guidance fiscal reflect headwinds

share. adjusted For $X.XX per expect fiscal year $X.XX deliver to the XXXX, in we diluted of range now to earnings

creation in we remain forward, resilience the potential. positioning the of markets, of move our Patterson's strength confident competitive end we value our and As business and

of decision long-term to commitment third strategy. $XXX to approximately Our shares repurchase the million confidence our steadfast is during quarter our underscored by and

enhance X achieve the improve which, upon and efficiency remains services as products, evolve against the and third, designed customers optimization. executing performance; core objectives: growth current to channels fourth, to progress best end end our to revenue our dedicated strategy, second, in growth long-term our market reminder, drive margin we've and our rates; team made first, Our to markets; build a serve above the is

Leveraging these our capabilities our to strong objectives balance included drive continue invest for of a the customers. during sheet, further across choice software the partner to third as investments business we offerings Patterson in progress This to our differentiate on distribution strategic quarter. and

we a been just progress. on that working I'd demonstrate specific few like our to have to highlight examples

a optimize further into value in proposition efforts, to our ultimately enables bear and fulfillment gaps identify customer in state-of-the-art expanded insights recently full this serve This software effectively the deeper will facility open Canadian to modernization advanced equipped needs sales our our system our market, distribution our with modern us and This to dental Patterson offerings to customers enhance our Montreal, and facility infrastructure in and effort operational. gain First, bring allowing efficiently. Canada. customers in Canada is potential ability Patterson's for

geographies. opportunity We excited the investments we've bring of are seen our in in Montreal similar investment other benefits can the as about

fulfillment Our big fueled growth and revenue already which position in Animal the accelerated region. our in strengthened Health U.K., has fully center the shed, automated next-generation market the we call

Animal robust suite and quarter, our solutions software segments. both to the also behind During third of Patterson invest continued Health in Dental our

And to believe products, opportunity existing we our software is As preferences. to gains productivity customer for meaningful. evolving within drive investing enhance and we've we're discussed the growth previously, cater

set the Patterson's a Dental AI software. announced will This management Opinion relationship For AI leading to with the Pearl's practice our integrate us Second business quarter, enable detection example, provider a third Eaglesoft for solution during Dental into business. Pearl, feature called pathology

existing x-rays. the our to way a help in detect investing solutions we're in Opinion enhanced diagnosed to AI great conditions uses value our It's example commonly for create dentists of Second customers.

Fuse to a with integrations software partnering be cloud-based also will integrations our Dolphin practice And future are We software. management announced management and with Pearl practice build those at date.

automated market-leading managed are Turnkey, Turnkey by enterprise invest resource U.S. Majority planning the for we've in cattle Health systems our continued the side, system producers. platform. cattle On Animal feed on to of

Our businesses. profitable recent run they make Turnkey more on cattle empowering leverage as producers investments more data-driven have efficient, focused to to decisions

making in for confidence of returns the as build have we strategic we're especially continue the growth and from to driving of Patterson, our We record success investments. a track long-term investments

Tech to strong RSVP operating with Patterson of completed Tech, Today, Patterson-owned equipment and ACT. contribution. is brand year, which acquisitions a and internal Dairy continuing as producers, our Dairy Last provides of and pasteurizing is projections perform margin ahead for

as RSVP expand Meanwhile, and ACT's is training more to staffing serve and conversion states geographic services. team as data and services our continuing veterinarian extraction additional to reach well across needs video-based and

committed with on cost remain discipline. organization keen a As we've said the managing before, focus we to

enterprise. a We and running that practices continue focus investments this process excellence on discipline leverages operational best to for across our the rigorous return advanced and on

final the and to Health the As our long and we comprehensive drive Dental and look we Animal resiliency fiscal creation the quarter forward over our that fiscal enter XXXX proposition enhanced and XXXX, team, to continue of value well to the end of strength growth, of the profitability value term. believe markets positioned Patterson make

Now I'll fiscal in provide third performance business more during detail X on the quarter. segments our each financial the of

than market In our third performed overall Dental robust performance believe increased third Dental. by year-over-year consumables with consumables. both quarter, sales during better start in We the quarter. the segment driven internal equipment Let's the and X.X% business

year. consistently steadfast above-market deliver The over the Patterson past team's us growth and in enabled focus to execution consumables has

quarter, infection fiscal prior quarterly track over if QX, over an delivered X% the achieving you year-over-year take of at fact, certain a third just over X% X%, consumables In quarters to control built in we the excluding certain category. X products. And record this excluding growth. control just look in the We growth average when growth products, infection upon

customers attribute on It the built a rooted Patterson's customers value proposition with over force deep in our strong Dental execution to in to growth consumable to thanks from We differentiated of that relationships partner practices everything success we as continued Dental independent acts in knowledgeable DSOs and our all for and a sizes, customers. is sales between. to true time, have Dental mature

seeking to team what's to care. focus an to practices, consistently be patient on with their need important: that dentists allowing indispensable Our partner run them everything they is supports

Our consumable dental might Patients continue cutting even to care essential some also despite be the market's inflationary demand and on consistent quarter the drive Dental supported traffic, end they was back performance to other discretionary prioritize by of pressures. reflecting during when the resiliency patient ability spending.

basis decline In year-over-year the equipment by equipment about improved dental as supply as delays. performance core post-COVID lap in was sales a in high-tech X% sales by we declined internal business, than chain offset equipment more

points: the can equipment key quarter-to-quarter. dental how of equipment first, variability year-over-year demonstrate or results core, high whether the tech and X sales, category fluctuate Our and

category. sales out During quarter, in lower-than-anticipated the this performance bore third our core equipment with

and rates period. demand equipment macroeconomic fiscal the higher Second, continued was less in interest comparatively challenged in quarter, pressures, by capital our including year-ago XXXX availability third

adjusted performance to dynamics We in guidance and our the fourth full equipment expect continue quarter these year accordingly. revised EPS to our shape XXXX

We cycles operations, ultimately continuing We have that resources support headwinds work overcome our in these to ability our by past. to economic navigated delivering optimize manufacturing comprehensive confident to with remain and in focus strategically enables the successfully care. by partners customers streamline our on and patient

digital install over enters an Patterson important and time. is positioned dentists and That demand complete technology supports drives trends. sell, to of improved health for technology finance, cycle What's marketplace, best of level dentists improved growing use runway service and investments. the of those enables that experience The innovation a patients of growth experience to a a technology oral with higher for offer most life are long When the both patient new longer-term care. with

to and that year offerings Patterson period. to their in sales our loyalty practice. compared represent provide our the indispensable help experience, Dental customer enhance suite Finally, services internal prior entire category roughly customers Value-added make the drive we an were flat services value-added in of partner the

growth Patterson. value-added a Dental a services includes for foundation category practice e-services, of and long-term a modern opportunity that software The remains dental

our We to our maximize our customers. are and value-added comprehensive cloud-based and confident helps that offerings services deepen promote proposition software invest our will to in value continuing

fundamentals, patient's team's practice environment aging We modernization remain ability stable direct Looking with and health. ahead, achieve dynamic Dental to the population, effectively navigate oral and the health market link we in and the believe overall long-term including an healthy goals. our confident underlying remains our between

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

in was Patterson's year-over-year in offset companion X.X% by reduced quarter, above-market internal the segment Animal sales sales Health decreased third the the business. business than as During production animal animal more growth

X team team's margin-accretive XX year-over-year in record excellent Health year-over-year of put Health have the operating last that disciplined Animal in to of their place. Animal upon of the the progression Our we expansion basis execution X operating This margin margin testament building adjusted points, achieved further initiatives quarters. track is fiscal of improvement

in declined the us own discipline margin includes This performance and who for growth working internal digits. in our single our low while This to in our extensive initiatives. animal, closely value companion our business continued that quarter In more with reflects focus on sales our supporting line decisions by proposition. third top vendors reward the ways profitable quarter reduced modestly strategic enhancement

We margin healthy remain committed to driving expansion within top line stable sustaining performance end market. continued while

low Over by the we substantial upon animal in since market the trends term, has single companion of onset expect this end pet positive in pandemic. digits, supported and to market health experienced building long The the is of strong grow fundamentals the long-term growth this parenting. the market the

tailored We single due animal omnichannel offering animal continues the market the strength execution, outstanding by production outperform strategy market to internal highly low environment. dynamic our Patterson our production to in of species. side, team's a across presence, digits the sales and third thanks comprehensive On to broader grew distribution quarter believe

Health services and for segment, our differentiator to software enables e-services that value-added delivered of customers. reflecting category Similar the life equipment of Patterson cycle the continued the for customers. a robust double-digit resonate our services support is Across quarter, growth offering and segment, strongly during suite full our Dental value-added solutions us our to Animal demand our for with

confident the remains for within significant. opportunity continued growth software that We're

We capabilities to existing strong solutions to in add continue better invest and preferences. foundation, leverage our address our to customer evolving

success. business Animal continued we look believe ahead, our positioned Health for is As we

turn on to Kevin I'll over details to Now more our financials. call Barry the provide

Kevin Barry

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

Let's by the financial begin results. covering

compared over 'XX were sales in of for to X our of sales $X.XX X.X% year third reported last Consolidated X.X% billion, quarter ago. same quarter period increase Companies fiscal year. an the third Internal the increased Patterson

and financial gross second mark-to-market The on metric between for the gross portfolio equipment quarter, instruments. impact impact non-GAAP the not our with year gross began net within third the our we associated margin basis financing impact impacts for margin, equipment of is the Gross hedging to of the measure and 'XX of XX.X%, mentioned, points a 'XX fiscal minimal providing income. adjusted adjust swap an the accounting related the quarter impact margin fluctuations to compared the XX mark-to-market adjustment was fiscal And but period. which the segment. our increase gross Beginning prior interest margin, our business portfolio that accounting has of rate swap margin the as the total company financing interest rate previously net financial

XX.X% adjusted attributable sales third an expense A fiscal points the the expenses increase of basis made with for margin gross to associated year-ago the is For of third capabilities compared XX.X%, the the of period. strategic a our of Adjusted points operating and XX the quarter of comparison compared were third enhance quarter fiscal of was fiscal distribution 'XX, percentage net 'XX. as quarter. 'XX XX [indiscernible] quarter by software in portion investments the unfavorable unfavorable our we and to to basis to

quarter Adjusted interest operating fiscal basis XX of points our consolidated compared includes of mentioned the the the a year. margin was of third X.X%, previously. the margin In adjusted quarter adjustment decrease last 'XX, operating to of rate swap third

prioritizing intend while of remainder continue that expense also the enhancement the been 'XX, for company within segments the and overall. yielding to our discipline For results business we fiscal margin initiatives have exercising

the XX.X%, prior fiscal tax net XX an period. the adjusted Patterson Companies, for year points attributable income to quarter the to basis Reported Our compared rate was Inc. for of of last quarter increase third fiscal in $X.XX million was share. of income diluted 'XX million year $X.XX share. or third per of $XX.X of $XX.X reported diluted per to third compares or net This quarter 'XX the

This equipment income in decrease quarter 'XX $X.XX diluted of for Patterson third lower to quarter share dental due or 'XX. for $XX.X fiscal increased of Companies, per compares expenses primarily the operating the or the and fiscal quarter in year attributable Adjusted to per the This third share. $X.XX fiscal $XX.X adjusted to prior per to Inc. of earnings was million compared period. sales third was share million net diluted diluted

Dental certain fiscal increased consumables to to the of impacted business. 'XX, turn segments, in Internal our 'XX. normalize infection let's Now non-infection control our of by over year, ago Internal year-over-year quarter products. of business business by deflation compared continued the sales sales of third to moderated the steadily year the third end to our fiscal deflation impact negative compared third fiscal the price quarter being starting X.X% deflationary In control expect X.X% period. sales the from internal product 'XX products the for quarter and X of of has we of past 'XX. year This year-ago Dental compared with despite dental control increased X.X% increased fiscal to impact infection

ago. to Internal year X equipment decreased during dental quarter the sales compared X.X% of

to declines. continues concerns, interest rate impacted environment to price higher a and category macroeconomic be related selling equipment Our by headwinds

help make remain we long-term have represent category investments the us important CAD/CAM to to in customers the and digital sales the progress dentists the partner practice. over value-added our prior desire fiscal growth, period. during to services, decreased Value-added positive Internal quarter, third confident to offerings, indispensable made third practices. software X.X% entire 'XX continued our of the modernize categories to offerings equipment However, the suite We provide our technology the and services in quarter their of of their continue sales posted including many from strategy. on this reflecting we year an in in investing x-ray

margin quarter year-over-year in decrease XXX adjusted the third implementation the Adjusted drove investments software which service in a comparison and 'XX, point fiscal the along and operating operating SAP of basis Canada, in represents in our Dental operating period. with was Increased our over unfavorable year to segment business, a prior expansion expenses X.X% margin technical the related in basis. on warehouse

from let's fiscal Animal of over NVS period. business than by a sales X.X% quarter segment. decline internal companion Now fiscal offset sales decreased to animal In animal year companion compared Positive in was increased of the business. sales prior sales period. internal prior performance more the decreased Health internal Internal our Internal the production compared fiscal business third 'XX. Health sales year the our during our quarter the our to total U.K. U.S. quarter 'XX, the in Animal in for our business animal in the X.X% third third for quarter for to business X.X% move the

several off and to omnichannel overall team animal well the across species growth market. market, in our a pay above sales production continues continues Our approach execute to with challenging

The adjusted operating Health Gross quarter 'XX the in XX our year the was on third from in in our drove Animal increase a fiscal discipline segment additional period. third margins segment Animal expense year-over-year up operating operating in the prior points Health 'XX margin fiscal margin and quarter, basis basis. X.X% [indiscernible] were the

cash cover Now sheet items. balance and let flow me

of fiscal our first by During the capital year to due period months $XX.X year first same of 'XX, the in X working flow the X prior period. decreased a level the ago. This 'XX months to compared cash fiscal compared was to X of improved million free primarily

turning to allocation. -- capital now look Now

which months of spending as well in the in first reflects we spending of increased This distribution first as our Our months the and million million, 'XX. the capital is investments software fiscal higher value-added than making fiscal X capabilities was 'XX are $X.X $XX.X services. X

of the $X.XX fourth the allocation to was key a at returning beginning paid fiscal we per fiscal of of In then of 'XX. cash 'XX, which of quarter quarter diluted third quarterly share, dividend execute on capital We strategy continue our the shareholders. to declared cash a

fiscal total 'XX, to of a $XXX.X returning third quarter shares the $XXX.X and $XXX months repurchases. have share returned the X of through share approximately repurchased dividends and of our dividends million through million to fiscal repurchases. during first 'XX, through shareholders also We we of million And shareholders

me we per earnings earnings guidance to diluted $X.XX Let outlook $X.XX our are fiscal conclude a adjusted to share. of GAAP of Today, share remainder range the to guidance our $X.XX our revising 'XX. fiscal 'XX per and diluted for $X.XX range with to

are markets our revisions our adjusted to We the have for and conditions remainder environment persist fiscal made we share to that our believe year. account guidance for GAAP aforementioned the end of to 'XX earnings current macroeconomic these and per in likely

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

Donald Zurbay

Kevin. Thanks,

I we Q&A, up Patterson of Before continued hard thank work entire serving our our to open for for it want customers. team to strategy the and their commitment

XXXX, operational conclude current on excellence. to achieving environment strategic we [indiscernible] the remain objectives we As navigating and staying true focused by our

Our efforts fiscal to strength. executing are concentrated of in our year a position end on

confident our Patterson are and strength We resiliency the drive Animal the value our positioned and Health growth, profitability enhanced over proposition comprehensive end of that the to the term. team, value and long markets Dental of make well creation

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

Operator

Michael [Operator from with comes Partners. Instructions] Cherny question Leerink Your first

Michael Cherny

just macro-oriented the we in revenue you've on I about is Maybe -- the perspective quarter, challenging. know in can pressures. equipment, margins. you've challenges But as start on been obviously, talked if equipment as the both side have first subsequent well trend from a growth this

you about think you your especially 'XX, knowing be ending it 'XX, how the full as visibility into do that diving haven't off the backlog, As think yet. year about means, how 'XX you conversion given but obviously color you kick stands, rates backlog and not the health where into think well actually the of about we what only

Donald Zurbay

think I of strength guidance, Michael. And carries Thanks, of day. our think on side quarter the what I we we market going ultimately, pressures and for about equipment to be our Yes. is it while some macroeconomic backlog closely. business, the we the the us, think think talk Well, really in watching of position the that that we're fourth the

we we help forward and 'XX equipment think I of comments, see I you, kind our that should 'XX, business. FY fiscal move think the into of there's -- improvement being as right to careful should we in but you're if see looking improvement. now. [indiscernible] to as side about here so the trying obviously We And of And think careful being that's

Michael Cherny

you you then Okay. the work as And potential to that you talked that's drive I company, how do part joined And trying about improvement, a internal Don. operational know about I for about you it's spend been of what your ongoing mean think think that improvements. the since levels? something by is big basically

are control the are think on on you can that do your operational and curves? takes what puts variability offset across you terms you own any the to efficiency organization? of Where And in potential demand

Donald Zurbay

Yes.

add start, here. maybe here. we I'll we -- think think Kevin a and opportunity lot can So But then I have of

but I Officer in to the think when business. get in responsibilities put a part Pohlman I've relate we Kevin mentioned the Operating of how big in this past, place efficiencies role, really the Chief the his of to out

businesses significantly we So our business operate. -- the into have tapped we tapped really not really into, X we and look how across look but we as and across

being there's work in lot area. good of this So a done

it of of of that to we're the more and But definition, to those time. are that could time away get now. take short-term big that Kind take that at are little going by those get through things is Some we've and a worked right at, working right things are more that things we part us through. a gains

the So I good there. opportunity really feel about

a Kevin it think great when I out kind job into looked we bearing thought we would. I and and doing place, put of in this he's it's idea, like

maybe So Kevin any if more But ask to come I'll on comments. he has that.

Kevin Barry

Yes.

of going out logistics has that our that, And forward. to of that new with 'XX, this done our some initiatives in our with here work really that good better X our one had year Canada. efficiencies capital our in in came into network, And one leverage U.K., the I operation good on network. start Don's fiscal will investing paying think part distribution team centers real online to spend we've point, those opportunities a in some a focus in of we example in in

of we to we putting to that we're example So that's good fruit forward. expense going forward, think a I It's -- now we're in doing the line work. that some go see good things bear as our going capital

Operator

of with next line question Block comes Jon Stifel. Your from the

Jonathan Block

on maybe, your the these the that highlights. business. of one challenges got thoughts just is And more competitors' were the thereof can just the continues forward? certainly Don, maybe just Maybe my follow-up. some having? if challenges taking mid-single-digit of Dental competitor ask over tailwinds onetime was to one to to results lack step each consumables side I'll sustainable going the And Or a speak the back, you of be due a few the And you months? that you or then past think growth from

Donald Zurbay

Jon. Yes. Thanks,

So a down pin benefit from our competitor. a to terms there's of art the in challenges of the exact bit few little things. Obviously, trying of

a calculate it's difficult bit So precision. little with to

just if growth over But products. QX, this the to the I area you we've think exclude control you take delivering certain a X X% been at when quarters look in infection prior fiscal

our of kind baseline. that that's quarter. the And so really, And been continued in

X estimate points that best the about now Our percentage impact added to of that it is growth. of right

we which is about infection consistent the products, kind been. as think in X could probably excluding you of So X% the growth where we've more really with control range, had,

happened disciplined there. approach for to And take us, to sustainable tried pretty and what a we

of of really, and execution here And over just continued so about think is the story for for hold the can less that were time. extended -- we that we but the more we team the about on is that And an period something me level X% at sustain share in market the looking to. and

Jonathan Block

down companion have I lagged talked of that That it. to to Got pivot very helpful. Animal of, a And in The digit, guess, number about seems I'll was why for call you industry sort And I the late. margin it bit single just was integrity. think terms little Health. then low of animal a a

to I last quarter have well. as think alluded that you may

into maybe have it? forward So distributors do year, importantly, fiscal for, does products, quarters? access call lines you see quarters any Animal Health next looking to animal your product coming for or until the And it, in in to you this X coming so access then call light certain companion another, increase it, lap side

Donald Zurbay

Yes. question, this Well, in disciplined the first on we're a area. taking think approach I very yes,

with think at have of data. the a we profitability by customer I and a there, you're disciplined profile when dealing of margin way looking lot

And you're right.

to to proposition that the disciplined that that For customers and our serving the with. we're sure profitability and and been us, make we feel approach profitability we it's value can that important take customers earn that like

a it in Your we -- lap X on we'll I'm question this see dynamic to last quarters. actually that did how we're going industry not quarter. completely next mention It's and some has quarter. sure been for continuing on time, the the This evolves. going

particularly approach their X as a is this margin could the about very look at Health and all businesses, lapping here just Animal in X us. quarters, probably proves important our for could some businesses as but initiative profile, but think you be you But there it I holdover. really extremely on think it

about Yes. We're coming. it. There products are excited innovative some

things for maybe into details plans good some going have without companion there, the So that all on we the business. exactly are

Kevin Barry

they're Jon, add, to and thing that just -- have of the job team seen business in as one profile, have way planned for the model a expanding we have margin line is the companion and the expect to has we we've performance the we I'll the Maybe business. expect. done holding But top good

point, So think I just planful, build a on disciplined way. we're doing to in this Don's

Donald Zurbay

higher but in the are think EBITDA expand look into I as streams. And margin, coming, and we're to it's our at you transaction here, mentioned thing the looking well call, one when service example we an products RSVP -- as ACT could not you that where offerings more Yes. sustainable only innovative

Operator

line Your of Bednar Jason Sandler. with next the Piper question comes from

Jason Bednar

the maybe I quarter consumables pretty already questions with of the and as performance other here help know I morning. a lot. the some bit was first whole side you But dental on starting equipment want But that in been the called of to have business the strong doesn't asked build out. here this margins. probably a

That's in enough gains. that to a share that quarter give higher-margin your leverage. talked traditionally You business, should got about you growth the be you and

through what my software bigger you would you weighed didn't maybe or way guess were profitability that with I on question those margins is, So and a come investments it better distribution have of help way? why not And in the that some making quarter? for in if can a been

Kevin Barry

think did I to I'd Jason, company. the gross point we our is for expand within what quarter, margins the Yes, see

And gross are mix out and business, point takes while margin, so puts you like there from our a within you're some standpoint right.

also, the the business But bit. Gross Dental Animal favorable Health a animal, business. margin consumables dilutes is production the candidly, in mix that

So did gross in -- was the an the net-net, grow And our issue but expense on standpoint line. margins quarter. from margin operating the we

talked QX of how we your our and ongoing here go the we distribution making QX. some into in business. point, to bit does burden as here expense We a those a QX in are expected are that as software And to facilities we higher quarter And And kind our relate investments capabilities. to in making the in really normalize you're here right. bit well as little we in the the online about be investments coming earlier

terms don't quite I when of strip you that know have if normalized. point all give to don't in out, -- you a I basis

you, I and that focused we on -- as in and we'll our [indiscernible], very back we beyond, tell is line. going into here getting think obviously I expenses go leveraging operating we're QX think,

the margin op the that So performance of tailwind as we a company. do to see

Donald Zurbay

leveraging add just margin just And thing. I that would mean, just our a of Jason, at mean growth. built macro initiatives level, one I big on P&L -- part our also really sales is a -- Yes. I

in because quarter, overall equipment dynamics. lagged and just X% the first So X bit quarters has at last sales our was of when business, growth you the behind look a the the

story that But So more makes the we line, rate get and as move back the leveraging difficult. results forward growth in you'll think that. see I of that

Jason Bednar

one another Maybe Okay. then follow-up question. and

terms 'XX elevated fiscal into quarter that we should that maybe fourth forward what go the we the as last the spend quarter maybe that in comes comes think and Just was second numbers. out and to of about out quarter expect third

over shifting And Health. then to Animal

of curious getting about I'm branded that as turning that you? what in companion that on versus generic agency visibility the opportunity there's whether corner. guess here the Are be out I might shift But turn easier. for with traffic visibility the quarters? turning you is help you are calendar at us should comps the are Is an some have direct of year upcoming business patient there there Can better? on aware we products model next of year any that Your be whether we

Kevin Barry

Yes.

on our that than about on your we question better in do we the I for trend And I what I'd typically maybe think to say OpEx, year. is OpEx leverage think the expect I earlier first QX, see continue.

year. we've say it here So basically, last second did what your your percent another on way, sorry, with QX it in about to companion. to into expect OpEx our where Jason, of was question from been And thinking I'm and decrease then first sales I'd QX similar question, I

Donald Zurbay

as be much helpful as we're Yes. pretty this, quarter's that, -- think I for for think into so that through and fiscal budgets working into we next year. great trying dynamics as But into you disciplined. a get of the for the Yes. we I And play we'll probably we're as try a stay possible. through think, the talk so still budget question that's again, will to call our get we 'XX to not Jason, bit and kind And

Operator

Johnson Your with from next question comes Jeff Baird.

Jeffrey Johnson

the answering disruption pickup this point if couldn't your I joined late kind seem were it just I was all Jon I has you so quarter. in share to number question if in or X you Yes. tell those in any I joined and disclosure points the on you some But here, months. sustainable here to or of few points were I to from Don, you'd apologize go answer one asked. been you the last back kind growth X% thought that competitors alluded to in if think your from that of get as of prior of probably Block's back

just that. one, if could you So clarify

X%. the [indiscernible] kind private More are a I North don't it's lower-priced premium market down that sure importantly, in happening. branded growing you trade to when I like guys there's seems value think label. mean America, little down seepage in And I'm it at branded look of consumables that's I or from

think low best. I are at probably the volumes, don't think growing I than And on very more single digits

X%? X, points Is value-added been where X, I the even some losing market couple probably you're of We've getting kind heard getting maybe competitors? a the X quarters? last that above from of online couple think think these you of the not Just last where of is do years. have over of that stagnant, growth So X%, are you some discounters few what if share it at coming

Donald Zurbay

bad, a best It's all mean sounds the I you like say I the Jeff. board. can pad think look it to think we would Yes. I But but when a the bit look through X%, at that missed all way the when this, I answer, is it you. brilliant. it And across explain Thanks, really we prepared too -- know that that's I I comments.

point we're specific that a than would that anywhere else. so area not much to doing There's where I says, better here's

been just I the it's think board. across

to so feels And that us, good.

I proposition value and there think is feel like our process working. here our we

the X%, with we stable the this be work we for of and approach, us. to sustainability a try thought mentioned, I as could that take to On share disciplined

it, our of piece particular keep we about to have that think ability I So it. optimism

here, to over a a mean the X% time. longer of won't a trend like that. I sustainability market. necessarily it's and on As it relates very period comment a rate, competitive of We trend I growth it's

just that So a not can assume we showing but up it's necessarily I keep situation, at going onetime up forward. think as X% don't

Jeffrey Johnson

bit this little to repeat follow-up equipment, less not Helpful. And you guess, question. a exposure, to exposure maybe less asking I'm hopefully, you than covered wasn't some anything. I again, competitors. or of some And have your But then, DSOs basic a just

a you're an I remodel, good doing office expansion think what So look of from in standpoint office that. dentist at private practice the kind is

down relative the equipment pricing elevated next prices to back And months probably settled the in levels we some basic out over in know to flash XX closer past XX months.

that you So closer or private be little? Just volume side there's equipment the down be growth remodelings up equipment still going on market expect color practice and just a basic where you to there kind in would channel? basic any flattish, to on? think the the that expansions Do helpful. of is Do

Donald Zurbay

here Yes. It sure for moderated No, the as private are I as think opportunity in quarter. we've well. practice in again, there's mentioned the But definitely before, X-month looks [indiscernible].

at look equipment forward would at we you forward market probably may at the move it say to here flat we to want as over we historical core slightly time look as want norms, but wouldn't as more I to So move up.

Operator

Your from question comes next America. Bank Lutz with of Allen

Allen Lutz

speak And Dental patient over in January traffic place so trends far the or on that seeing during what you're any past the observed rate so. Can trend all the you have and XQ? fiscal over exit the been to X you comments February? your months

Donald Zurbay

kind of say our I terms say up Yes. mean as Well, term But some extent. view I guess the favorable think what to move being of I that's would we our view here. and from I I steady patient perspective, know over longer generally, in happens there's would as movement and forward. we And down been we some traffic pretty

Allen Lutz

and bit? a spending Can was trying strategic expect trends normalize XXXX, any those on when investments? understand just a the following of then up I'm those bit around duration just not to software it up And to commentary question around to SG&A. but I spend. speak investments looking Great. Okay. for little you a on we know should

Kevin Barry

Yes.

for kind to those of here was think QX. made of have in this I those investments that the some of we year, related big normalized distribution portion it

So to down, sustaining sets. our we'll work Those that on of product portfolio. we those step kind continue in but team software those to more will as continues be see feature invest

sustaining that the our more and And capital of business, that -- some expense so part grows. so of portfolio that's that in will be

step QX going will a you expansions. related those a forward in here bit to see down really So of warehouse

Operator

comes Your next from William Lin Blair. Justin with question

Justin Lin

First, headwinds just while. for you What the are Your on about a competitor has pricing in seeing the talked on equipment of side. intraoral that side? terms scanner

So just plays dynamic that curious how equipment at to your see business. dental

Kevin Barry

-- a pressure the think past about talking those in Yes. We've quarters, bit pricing was over of number I the categories.

have lap another starting we're see think we We're be might or on stabilization sort see but headwind, seems X to it. It to from data our certainly of stabilizing those high-tech of quarter there. I that categories. what in starting some to it's

Justin Lin

past, what quarters? it, wide historically call side to talk And the it. X had year-over-year. how value-added that? services seems about compared Got little specifically, drove about It on Can the that flat you Dental a business done in

Kevin Barry

Yes.

can portfolio, repair of kind variety tech within service those remind and seasonality puts So our a There you of category service encompasses customers, -- just and businesses including we be software the those our our services tech provide quarter-to-quarter. takes some to software that our portfolio. and business that

quarter we But So kind continue think invest like that you than expect of were said, our still flattish over to this term, we'd that as the say the we of overall faster we here long portfolio. grow for quarter there. business part to X those I -- that

Donald Zurbay

of of our think like over longer time. at categories, would look I Yes, many look an important at, important again, that periods to but category to be that's one an

Operator

Caliendo with comes UBS. Your Kevin question from next

Kevin Caliendo

to want headwinds And think being about about little or of little specific control when tailwinds share we not for investment spend think while a as think headwind, investment terms capital things historical I'm the and buybacks. want deployment, we capital terms year can as incrementally should bridge asking you more tailwind XXXX. bit those aggressive in to way a bit deploy spend just the in a in a of we guidance, than was I that do about you talk -- about 'XX, I terms to and this of

next to saw positive might negative growth be in can thinking year about what 'XX. we earnings the Just fiscal that incrementally for versus things or what you control,

Kevin Barry

I'll and Don Well, start, I can chime think in.

Specifically on the buybacks, share you're right.

share a going this 'XX will a QX have as lot tailwind fiscal And capital from us will help more an there be result We shareholders standpoint. that to count EPS into that, a year. and returned into of here

for So going certainly capital into tailwind a year. we've year that some will this had be other next expenses

We have an year. this of had CapEx amount elevated

step really It year, right we do we down be year going then And we good get do. as to balance Don? budgeting what to the level into want might a lap those is made sheet As always we've like of we bit into maybe, fund, I and got our year. we're this investment the still some investments think opportunities to so. some next evaluating internally going we've cycle But that this got

Donald Zurbay

there. Yes, up brought I I end mean think I at a the elevated. good point it is Kevin mean

in for Some finding us are particular opportunities that are more will that of we've good of we But through investment and and go talked value here our terms the of do more capital. projects away. use internally

we expect to find us going benefit all to to projects us internal continue to are be the future. in would that aggressive I can the So

Kevin Caliendo

is that, some And on or can but prices price if both the recover? was quick that, asking interested half your of the down There's, where messaging from and bit yesterday like normal, guess whether take I'm have new to what's price, demand? in equipment, the interest can back demand follow-up any a demand in enough going rates your now dental ask of category, come and come rates purely second sort of do on I the it think, driven And core heard you now in either digital I just that where equipment. based a there's a you calendar that's demand like? not Or on was interest macro it's 'XX. think I increased things what maybe we of competitor was -- economics, I'm for little elastic

Donald Zurbay

Yes.

factored So equipment pretty factors say what's those I in have the would happening market. we -- significantly both to of in here

exactly where also little difficult going. it's think why I call been to it's a we're

But improvement. year, it. into into again, I will like think see in may see move in think, the May, we -- fiscal your we point, as year, we could us, move think in the feel I some which see not I XXXX, later early we we starts to we for -- as our

here, innovation. just factors innovation is that to the we dynamic. too, as tied bit of cycles and we're a One that to well help And the little need

we part the move of latter think part maybe year, equation that we latter hope the will of as year, of into we fiscal calendar that's the drive our part the So that.

Operator

Anderson Your next Elizabeth with from Evercore. question comes

Elizabeth Anderson

specialty? the in as you the could I sort if growth And that private much Dental. presence have think about about in that in talk that expanding follow-on, of sort you particularly of the contribution something without then above-market was do Is wondering you within quarter, label a a how -- of continue that very you've you interest Obviously, market? in opportunities that. seen products should

about be So in just curious this how time. point you're thinking that at

Kevin Barry

Yes.

specific continue the We've expanded private part And positive side, to there, as especially good the customers. label. of, a label private say we for and our by big are. but growth some giving in we've area seen of way number, we see Elizabeth, the think, our adoption we're on team, the So it's I an how growing without that to I'd of focus continues the be portfolio offerings

us and I a then... for to focus big the think And paying be real some continues market. dividends is that So in

Donald Zurbay

on think the Yes, market that not segment we're the a that's significantly in. obviously of specialty side, I

of area. So would kind without anything mean, the transaction. that our point, in over entry strategy, the certainly, be giving on right kind time, I to be of love need It right to away

move say be something of that's to part portfolio as our whether that forward the hard in So we will future.

Elizabeth Anderson

outperformance fourth sort you year? the of Got we if the think of terms it. that impact cadence, the had quarter in And incentive you of from you about equipment remind last that then us just of can comp XQ in in saw guys the

Kevin Barry

I think saw mean may like what back mean that Jason's to I we typically, question, to, is Yes. with comp year, -- we point even still Elizabeth, I or last kind I you think of as some quarter. well. fourth this fourth see this in are with that arena leverage there again in and puts a takes I OpEx year good to -- the here of the we expect number see quarter I

the fourth So expect from sales [indiscernible] as in about. -- we see we moderating some on And that see down of some those step initiatives of talked a I again, to percent say quarter QX. to a and spend

Operator

last Goldman Nathan today Our with from Sachs. Rich comes question

Nathan Rich

Great.

at of couple maybe clarifications Just a the end.

down back I to the softer between Is was for maybe drove core think just outlook that core what breaks revised quarter. in the I really I digital. the understand wanted outlook? revision the And to equipment. how and to that go

yesterday, competitor robust more the from practices I talked on traditional of plans of about side. the investment And think, the kind kind

your outlook, So your revised curious just would there. if that's driving view be get to what's

Kevin Barry

Yes.

a it's here last certainly and timeline, of environment. we're we and we whole fair in couple on as months we was about year, the fiscal obviously, for in here here. than narrow in kind can I of of that We couple of is. think, different think as months competitor at softer QX, core talking our the our that bit we're built QX. consider I And see next [indiscernible] But a looking slightly

Nathan Rich

us Okay. sense a a has Health And split the maybe in if segments you then, up of corporate. between the of of result give all Kevin, guess kind could and been Animal versus stepping margins would that what of investment spend step it a rough wonder down. else Dental spend how be expect like in I might I as kind sounds equal,

up So see in just show P&L? curious where should that we the

Kevin Barry

that's Yes, significant in was Health Dental. There investments we one I'd distribution split. on and Animal a of fairly terms on say made, the

this making software at So focused we're Dental split. point really The investments on are more that's portfolio. the

little that's to Animal So than where bit is longer -- a Health. going run that one and

Donald Zurbay

questions. -- Okay. think I all that's our Well, that's

Patterson next for you the to we'll today we're and quarter. interest So thank sign all time in And off. going to Companies, and talk you

Operator

for you conference your concludes participation. This today's call. Thank

You disconnect. may now

Patterson Companies (PDCO) 28 Feb 242024 Q3 Earnings call transcript