Patterson Companies, Inc. (PDCO)

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Patterson Companies (PDCO)

Q1 2014 Earnings Call

August 22, 2013 10:00 am ET


Jeff Lichner

R. Stephen Armstrong - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer


Kevin K. Ellich - Piper Jaffray Companies, Research Division

Lisa C. Gill - JP Morgan Chase & Co, Research Division

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Glen J. Santangelo - Crédit Suisse AG, Research Division

Sachin Kulkarni - Jefferies LLC, Research Division

John Kreger - William Blair & Company L.L.C., Research Division

Steven Valiquette - UBS Investment Bank, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division

Kevin Kedra - Gabelli & Company, Inc.

Jason M. Bednar - Robert W. Baird & Co. Incorporated, Research Division



Good day, ladies and gentlemen, and thank you for standing by. Welcome to Patterson Companies' First Quarter Fiscal 2014 Earnings Announcement. [Operator Instructions]

This conference is being recorded today, Thursday, August 22, 2013. And I would now like to turn the call over to Jeff Lichner from Patterson Companies. Please go ahead, sir.

Jeff Lichner

Thank you, Katia. Good morning, everyone, and thank you for participating in Patterson Companies' fiscal first quarter earnings conference call. With me in the room today are Scott Anderson, our Chairman and Chief Executive Officer; and Steve Armstrong, our Chief Financial Officer. After a brief review of the quarter by management, we will open up the call to your questions.

Before we begin, let me remind you that certain comments made during the course of this conference call are forward-looking in nature and subject to certain risks and uncertainties. These factors are discussed in detail in our Form 10-K and other filings to the Securities and Exchange Commission. We urge you to review this material.

Also, since Regulation FD prohibits us from providing investors with earnings guidance unless we release that information simultaneously, we've provided financial guidance for fiscal 2014 in our press release earlier this morning.

I would also like to point out that for the first time, we are providing a performance summary slide presentation to review operating results, and we will make this available on a quarterly basis. This presentation can be found in the Investor Relations section of our website at pattersoncompanies.com.

Please be advised that this call is being recorded and will be available for replay starting today at 11 a.m. Central Time for a period of one week.

With that, I'd like to hand the call over to Scott Anderson. Scott?

Scott P. Anderson

Thank you, Jeff, and welcome, everyone, to today's conference call.

As we discussed with you on the last call, we expected that our first quarter would be challenging, although the company's results were generally in line with our expectations. While total Patterson Companies sales in fiscal 2014 first quarter declined 1% on a year-over-year basis, we remain confident in our full year outlook for reasons that Steve and I will discuss in a moment.

First, let me recap our operational performance in the first quarter. Patterson Dental, which accounts for about 2/3 of our total business, reported fiscal 2014 first quarter sales of $554.2 million, down approximately

2% from prior year period. Contributing to revenues in this segment was a more than 3% rise in sales of consumable of dental supplies versus a year ago. This is encouraging, as increased consumables sales typically signal that underlying market conditions are strengthening.

As we anticipated, however, versus a year ago, we had a tough first quarter comparison in dental equipment. The shortfall was primarily due to last year's exceptionally strong customer trade-up program from the CEREC Redcam to the Bluecam technology platform, which helped lift total equipment sales in the prior year by nearly 20%.

Sales of the new CEREC Omnicam, which was introduced in fiscal 2013, continue to meet expectations. Overall, the CEREC pipeline is strong, and we are off to a good start for the year. We remain confident in the growth prospects for our dental equipment sales this fiscal year.

Since the economic downturn, dentists have remained cautious about expanding and upgrading their basic practice infrastructure, which includes chairs, units and cabinetry. We believe that there is a considerable pent-up demand for these investments in their businesses. Patterson is the proven leader in the dental equipment market. We offer the best-in-class technology and basic equipment, coupled with unrivaled after-sales support. The growth opportunities from our technology offerings position us well as dentistry migrates to a digital platform. And as the dental market continues to gain momentum to historical growth levels, we expect to benefit from strong equipment sales for the remainder of this year and into the next decade.

Against this backdrop, I wanted to mention Patterson Dental's acquisition of Mercer Mastery. This transition -- transaction closed just after the first quarter end on July 31. Although the acquisition is not financially material to Patterson, it is strategically important in that we gained Mercer's proprietary OnTrack dental practice performance software system.

OnTrack is a business intelligence system that allows dentists to choose growth targets for their practices and then create a business plan to achieve those goals. The OnTrack system can easily be integrated into multiple practice management software platforms, and it expands our industry-leading software offerings for dental practices and generate additional revenue opportunities in the longer term.

Other developments during the quarter in dental included the creation of a Special Markets Division that is dedicated to growth by focusing solely on our large practice and institutional customers, delivering world-class logistics as well as equipment technology and service.

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