Q3 2024 Patterson Co Inc Earnings Call

February 28, 2024

Operator: Good morning, and welcome to the Patterson Companies Inc. third quarter fiscal 2024 earnings call. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise.

Good morning, and welcome to the Patterson companies, Inc. Third quarter fiscal 2024 earnings call.

Please note that today's call is being recorded.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. I will now turn the call over to John Wright, Vice President of Investor Relations. You may begin your conference. Thank you, operator. Good morning, everyone.

If you would like to ask a question. Please press star one on your telephone keypad.

Now I'll turn the call over to John Wright, Vice President of Investor Relations you May begin your conference.

John Wright: Thank you operator, good morning, everyone and thank you for participating in Patterson companies fiscal 2024 third quarter conference call.

John M. Wright: And thank you for participating in Patterson Company's fiscal 2024 third quarter conference call. Joining me today are Patterson President and Chief Executive Officer Don Zurbay and Patterson Chief Financial Officer Kevin Barry. After a review of our results and outlook by management, we will open the call to your questions. Before we begin, let me remind you that certain comments made during this conference call are forward-looking in nature and subject to certain risks and uncertainties. These factors, which could cause actual results to materially differ from those indicated in such forward-looking statements, are discussed in detail in our Form 10-K and our other filings with the Securities and Exchange Commission.

John Wright: Joining me today are Patterson, President and Chief Executive Officer, Tom Survey.

John Wright: Patterson Chief Financial Officer, Kevin Berry.

Speaker Change: After a review of our results and outlook by management, we will open the call to your questions.

Speaker Change: Before we begin let me remind you that certain comments made during this conference call are forward looking in nature and subject to certain risks and uncertainties. Please.

These factors, which could cause actual results to materially differ from those indicated in such forward looking statements are discussed in detail in our Form 10-K, and our other filings with the Securities and Exchange Commission we.

John M. Wright: We encourage you to review this material. [inaudible] The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 28, 2024. Patterson undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

John M. Wright: We encourage you to review this material. In addition, comments about the markets we serve, including growth rates and market shares, are based on the company's internal analysis and estimates. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 28, 2024. Patterson undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Speaker Change: We encourage you to review this material.

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

Speaker Change: The contents of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast February 28 2024 patterns.

Speaker Change: Patterson undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this call.

John M. Wright: Also, a financial slide presentation can be found in the investor relations section of our website at pattersoncompanies.com. Please note that in this morning's conference call, we will reference our adjusted results for the third quarter of fiscal 2024. The reconciliation tables in our press release are provided to adjust various reported gap measures for the impact of deal amortization and an interest rate swap, along with any related tax effect of these items. We will also discuss free cash flow as defined in our earnings release, which is a non-GAAP measure, and use the term internal sales to represent net sales adjusted to exclude the impact of foreign currency, contributions from recent acquisitions, and the net impact of an interest rate swap. These non-GAAP measures are not intended to be a substitute for our GAAP results. This call is being recorded and will be available for replay starting today at 10 a.m. Central Time for a period of one week.

Speaker Change: Also a financial slide presentation can be found in the Investor Relations section of our website at Patterson companies Dot com.

Speaker Change: Please note that in this mornings conference call, we will reference our adjusted results for the third quarter of fiscal 2024.

Speaker Change: Conciliation tables in our press release are provided to adjust various reported GAAP measures for the impact of deal amortization and an interest rate swap along with any related tax effect of these items.

Speaker Change: We will also discuss free cash flow as defined in our earnings release, which is a non-GAAP measure and use the term internal sales to represent net sales adjusted to exclude the impact of foreign currency contributions from recent acquisitions and the net impact of an interest rate swap fees.

Speaker Change: These non-GAAP measures not intended to be a substitute for our GAAP results.

This call is being recorded and will be available for replay starting today at <unk>.

Speaker Change: Central time for a period of one week.

Donald J. Zurbay: Now I'd like to hand the call over to Don Zurbay. Thanks, John, and welcome everyone to Patterson's fiscal 2024 third quarter conference call. I will begin my remarks today with the highlights of our consolidated results and then a review of our core strategic objectives and the progress we are making toward those goals before providing details on the financial performance of each of our segments. I'll start with some key highlights.

Speaker Change: Now I'd like to hand, the call over to Don Survey.

Donald J. Zurbay: Thanks, John and welcome everyone to Patterson's fiscal 2024 third quarter conference call.

Donald J. Zurbay: I will begin my remarks today with the highlights of our consolidated results and then a review of our core strategic objectives and the progress we're making towards those goals.

Donald J. Zurbay: Before providing details on the financial performance of each of our segments.

Donald J. Zurbay: I'll start with some key highlights.

Donald J. Zurbay: Our team executed well and successfully navigated a dynamic environment to deliver year-over-year sales growth and gross margin expansion. On the top line, year-over-year internal sales increased 0.3%, driven by continued above-market sales growth in our dental consumables and production animal business, demonstrating the deep differentiated value proposition we provide customers across our end market. Our initiatives to drive margin improvement continue to prove successful as we've expanded gross margin for Patterson as a whole by 30 basis points when compared to the same period a year ago. This result reflects our continued focus on efficiency, including working strategically with manufacturers, driving improved mix, exercising expense discipline, and leveraging our cost structure. On the bottom line, our financial results reflect ongoing cost discipline measures balanced against the continued strategic investments Patterson is making across our business to further enhance our long-term performance and profitability. We also returned nearly $150 million to shareholders in the form of dividends and share repurchases during the quarter. Ultimately, Patterson generated an adjusted EPS of 59 cents for the third quarter.

Donald J. Zurbay: Our team executed well and successfully navigated a dynamic environment to deliver year-over-year sales growth and gross margin expansion. On the top line, year-over-year internal sales increased 0.3%, driven by continued above-market sales growth in our dental consumables and production animal business, demonstrating the deep differentiated value proposition we provide customers across our end market. Our initiatives to drive margin improvement continue to prove successful as we've expanded gross margin for Patterson as a whole by 30 basis points when compared to the same period a year ago. This result reflects our continued focus on efficiency, including working strategically with manufacturers, driving improved mix, exercising expense discipline, and leveraging our cost structure. On the bottom line, our financial results reflect ongoing cost discipline measures, balanced against the continued strategic investments Patterson is making across our business to further enhance our long-term performance and profitability. We also returned nearly $150 million to shareholders in the form of dividends and share repurchases during the quarter. Ultimately, Patterson generated an adjusted EPS of 59 cents for the third quarter.

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

Donald J. Zurbay: On the top line year over year internal sales increased <unk>, 3% driven by continued above market sales growth in our dental consumables and production animal businesses, demonstrating the deep differentiated value proposition, we provide customers across our end markets.

Donald J. Zurbay: Our initiatives to drive margin improvement continuing to prove successful as we expanded gross margin for Patterson as a whole by 30 basis points when compared to the same period a year ago.

Donald J. Zurbay: This result reflects our continued focus on efficiency, including working strategically with manufacturers.

Donald J. Zurbay: Improved mix exercising expense discipline, leveraging our cost structure.

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

Donald J. Zurbay: We also returned nearly $150 million to shareholders in the form of dividends and share repurchases during the quarter.

Donald J. Zurbay: Ultimately Patterson generated an adjusted EPS of <unk> 59 for the third quarter.

Donald J. Zurbay: Looking forward, we are revising our fiscal 2024 earnings guidance to reflect our expectations for the fourth quarter, including continued headwinds in the dental equipment market, which I will provide more detail on shortly. For fiscal year 2024, we now expect to deliver adjusted earnings in the range of $2.30 to $2.35 per diluted share. As we move forward, we remain confident in the resilience of our end markets, the strength of our business, and Patterson's competitive positioning and value creation potential. Our confidence is underscored by our decision to repurchase approximately $125 million of shares during the third quarter and steadfast commitment to our long-term strategy. Our team remains dedicated to executing against our long-term strategy, which, as a reminder, is designed to achieve four core objectives.

Donald J. Zurbay: Looking forward, we are revising our fiscal 2024 earnings guidance reflects our expectations for the fourth quarter, including continued continued headwinds in the dental equipment market, which I will provide more detail on shortly.

Donald J. Zurbay: For fiscal year 2024, we now expect to deliver adjusted earnings in the range of $2 30 to $2 35 per diluted share.

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

Our confidence is underscored by our decision to repurchase approximately $125 million of shares during the third quarter and steadfast commitment to our long term strategy.

Donald J. Zurbay: Our team remains dedicated to executing against our long term strategy, which as a reminder is designed to achieve four core objectives.

Donald J. Zurbay: First, drive revenue growth above the current end market growth rate. Second, build upon the progress we've made to enhance our margin for third, evolve our products, channels, and services to best serve the customers in our end market, and fourth, improve efficiency and optimization. Leveraging our strong balance sheet, we continue to invest across the business to drive progress on these strategic objectives. This included investments in our distribution capabilities and software offerings to further differentiate Patterson as a partner of choice for our customers. I'd like to highlight just a few specific examples that we have been working on to demonstrate our progress. First, the recently expanded Dental Distribution Facility in Montreal, Canada, is open and operational.

Donald J. Zurbay: First, drive revenue growth above the current end market growth rate. Second, build upon the progress we've made to enhance our margin performance. Third, evolve our products, channels, and services to best serve the customers in our end market, and fourth, improve efficiency and optimization. Leveraging our strong balance sheet, we continue to invest across the business to drive progress on these strategic objectives during the third quarter. This included investments in our distribution capabilities and software offerings to further differentiate Patterson as a partner of choice for our customers. I'd like to highlight just a few specific examples that we've been working on to demonstrate our progress. First, the recently expanded dental distribution facility in Montreal, Canada, is open and operational.

Donald J. Zurbay: First drive revenue growth above the current end market growth rates.

Donald J. Zurbay: Second build upon the progress we've made to enhance our margin performance.

Donald J. Zurbay: Third evolve our products channels and services to best serve the customers in our end markets.

Donald J. Zurbay: Fourth improve efficiency and optimization.

Donald J. Zurbay: Leveraging our strong balance sheet, we continue to invest across the business to drive progress on these strategic objectives during the third quarter.

Donald J. Zurbay: This included investments in our distribution capabilities and software offerings to further differentiate Patterson as a partner of choice for our customers.

Donald J. Zurbay: I'd like to highlight just a few specific examples that we have been working hard to demonstrate our progress.

Donald J. Zurbay: First the recently expanded dental distribution facility in Montreal, Canada is open and operational.

Donald J. Zurbay: This state-of-the-art facility, equipped with a modern software system and advanced fulfillment infrastructure, will enhance our ability to serve our Canadian customers effectively and efficiently. This modernization effort enables Patterson to further optimize our sales efforts, gain deeper insight into our customer needs, and identify potential gaps in our offerings in this market, ultimately allowing us to bring Patterson's full value proposition to bear on our customers in Canada. We're excited about the opportunity our investment in Montreal can bring, as we've seen the benefits of similar investments in other geographies. Our fully automated Next Generation Animal Health Fulfillment Center in the UK, which we call the Big Shed, has already fueled accelerated revenue growth and strengthened our market position in the region. During the third quarter, Patterson also continued to invest in our robust suite of software solutions in both our dental and animal health segments.

Donald J. Zurbay: This state of the art facility equipped with a modern software system and advanced fulfillment infrastructure will enhance our ability to serve our Canadian customers effectively and efficiently.

Donald J. Zurbay: This modernization effort enables patterson to further optimize our sales efforts gain deeper insights into our customer needs and identify potential gaps in our offerings in this market ultimately, allowing us to bring patterson's value proposition to bear for our customers in Canada.

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

Donald J. Zurbay: Our fully automated next generational next generation animal health fulfillment center in the U K.

Donald J. Zurbay: Which we call the big shed is already fueled accelerated revenue growth and strengthened our market position in the region.

Donald J. Zurbay: During the third quarter Patterson also continued to invest behind our robust suite of software solutions in both our dental and animal health segments.

Donald J. Zurbay: As we've discussed previously, we believe the opportunity for growth within software is meaningful, and we're investing to enhance our existing products, drive productivity gains, and cater to evolving customer preferences. For example, during the third quarter, our dental business announced a relationship with Pearl, a leading AI solution provider for the dental business. This will enable us to integrate Pearl's AI Pathology Detection Feature Set, called Second Opinion, into Patterson's EagleSoft practice management software.

Donald J. Zurbay: As we've discussed previously, we believe the opportunity for growth within software is meaningful, and we're investing to enhance our existing products, drive productivity gains, and cater to evolving customer preferences. For example, during the third quarter, our dental business announced a relationship with Pearl, a leading AI solution provider for the dental industry. This will enable us to integrate Spurl's AI Pathology Detection Feature Set, called Second Opinion, into Patterson's Eagle Second Opinion uses AI to help dentists detect conditions commonly diagnosed in X-rays.

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

Donald J. Zurbay: For example, during the third quarter, our dental business announced a relationship with Perl, our leading AI solution provider for the dental business.

Donald J. Zurbay: This will enable us to integrate Google's AI pathology detection feature set called second opinion into Patterson's Eagle soft practice management software.

Donald J. Zurbay: Second Opinion uses AI to help dentists detect conditions commonly diagnosed in ex- It's a great example of the way we're investing in our existing solutions to create enhanced value for our customers. We're also partnering with Pearl to build integrations with our fused cloud-based practice management software and Dolphin practice management software, and those integrations will be announced at a future date. On the animal health side, we've continued to invest in Turnkey, a market-leading enterprise resource planning system for cattle. The majority of US cattle on automated feed systems are managed by the Turnkey platform. Our recent investments have focused on empowering cattle producers to make more data-driven decisions as they leverage turnkey to run more efficient, profitable businesses. We have confidence in the investments we are making for the long-term growth and success of Patterson, especially as we continue to build a track record of driving returns from our strategic investments. Last year, Patterson completed acquisitions of Dairy Tech and RSVP and ACT. Today, Dairy Tech, which provides pasteurizing equipment for producers, is operating as a Patterson-owned brand and is continuing to perform ahead of our internal projections with strong margins.

Donald J. Zurbay: Second opinion uses AI to help dentist detect conditions, commonly diagnosed and X rays.

Donald J. Zurbay: It's a great example of the way we're investing in our existing solutions to create enhanced value for our customers. We're also partnering with Pearl to build integrations with our unified cloud-based practice management software and Dolphin practice management software. Those integrations will be announced at a future date. On the animal health side, we've continued to invest in turnkey, a market-leading enterprise resource planning system for cattle. The majority of US cattle on automated feed systems are managed by the turnkey platform.

Donald J. Zurbay: It's a great example of the way we are investing in our existing solutions to create enhanced value for our customers.

Donald J. Zurbay: We're also partnering with Perl to build integrations with their fused cloud based practice management software and Dolphin practice management software and those integrations will be announced at a future date.

Donald J. Zurbay: On the animal health side, we've continued to invest in turnkey our market, leading enterprise resource planning system for cattle producers.

Donald J. Zurbay: Majority of the U S cattle on automated feed systems are managed by the turnkey platform.

Donald J. Zurbay: Our recent investments have focused on empowering cattle producers to make more data-driven decisions as they leverage Turnkey to run more efficient, profitable businesses. We have confidence in the investments we are making for the long-term growth and success of Patterson. Especially as we continue to build a track record of driving returns from our strategic investment. Last year, Patterson completed acquisitions of DairyTek, RSVP, and ACT. Today, DairyTek, which provides pasteurizing equipment for producers, is operating as a Patterson-owned brand and is continuing to perform ahead of our internal projections with strong margins.

Our recent investments are focused on empowering cattle producers to make more data driven decisions.

Donald J. Zurbay: They leverage turnkey to run more efficient profitable businesses.

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

Donald J. Zurbay: Last year Patterson completed acquisitions of dairy check and RSVP in ECT.

Donald J. Zurbay: Today dairy attack, which provides pasteurizing equipment for producers is operating as a Patterson owned brand.

Donald J. Zurbay: It is continuing to perform ahead of our internal projections with strong margin contribution.

Donald J. Zurbay: Meanwhile, our team is continuing to expand RSVP and ACT's geographic reach to serve more veterinarians, staffing, and video-based training services, and needs across additional states, as well as Data Extraction and Conversion Services. As we've said before, we remain committed to managing the organization with a keen focus on cost. We continue to focus on running a rigorous process for this discipline and return on our investments that leverages best practices and advanced operational excellence across. As we enter the final quarter of fiscal 2024 and look forward to fiscal 2025, we continue to believe that the strength of our team, the resiliency of the dental and animal health and mark, and our comprehensive value proposition make Patterson well-positioned to drive enhanced growth, profitability, and value creation over the long term. Now I'll provide more detail on the financial performance in each of our two business segments during the fiscal third quarter. [inaudible] In the third quarter, dental segment internal sales increased 2.5% year over year, driven by robust performance and consumables.

Donald J. Zurbay: Meanwhile, our team is continuing to expand RSVP and ACT's geographic reach to serve more veterinarians, staffing, and video-based training services, and needs across additional states, as well as Data Extraction and Conversion Services. As we've said before, we remain committed to managing the organization with a keen focus on cost. We continue to focus on running a rigorous process for this discipline and return on our investments that leverages best practices and advanced operational excellence across. As we enter the final quarter of fiscal 2024 and look forward to fiscal 2025, we continue to believe that the strength of our team, the resiliency of the dental and animal health and mark, and our comprehensive value proposition make Patterson well-positioned to drive enhanced growth, profitability, and value creation over the long term. Now I'll provide more detail on the financial performance of each of our two business segments during the fiscal third quarter. Let's start with dental.

Donald J. Zurbay: Meanwhile, our team is continuing to expand RSVP and Acte's geographic reach to serve more veterinarians staffing and video based training services and needs across additional states as well.

Donald J. Zurbay: Well as data extraction and conversion services.

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

Donald J. Zurbay: We continue to focus on running a rigorous process for this discipline and return on our investments the Leverages best practices and advanced operational excellence across the enterprise.

Donald J. Zurbay: As we enter the final quarter of fiscal 2024 and look forward to fiscal 2025, we continue to believe that the strength of our team.

Donald J. Zurbay: <unk> is the dental and animal health end markets.

Donald J. Zurbay: On a comprehensive value proposition make patterson, well positioned to drive enhanced growth profitability and value creation over the long term.

Donald J. Zurbay: Now I will provide more detail on our financial performance in each of our two business segments during the fiscal third quarter.

Donald J. Zurbay: Let's start with dental.

Donald J. Zurbay: In the third quarter, dental segment internal sales increased 2.5% year-over-year, driven by robust performance and consumables. We believe both our consumables and equipment business performed better in the overall market during the third quarter. The Patterson team's steadfast focus and execution has enabled us to consistently deliver above-market growth in consumables over the past year. In fact, if you take a look at the four fiscal quarters prior to Q3, we delivered an average quarterly year-over-year consumer growth of just over 5%, excluding certain infection control products. We built upon this track record in the third quarter, achieving over 6% growth in the category and, when excluding certain infection control products, just over 7% growth.

Donald J. Zurbay: In the third quarter dental segment internal sales increased two 5% year over year, driven by robust performance in consumables.

Donald J. Zurbay: We believe both our consumables and equipment business performed better in the overall market during the third quarter. The Patterson team's steadfast focus and execution has enabled us to consistently deliver above-market growth in consumables over the past year. In fact, if you take a look at the four fiscal quarters prior to Q3, we delivered an average quarterly year-over-year consumables growth of just over 5%, excluding certain infection control products. We built upon this track record in the third quarter, achieving over 6% growth in the category, and when excluding certain infection control products, just over 7% growth. We attribute our continued success and consumable growth to Patterson's differentiated value proposition for dental customers. It is rooted in strong execution on the deep relationships we have built with our dental customers over time, thanks to a mature and knowledgeable sales force that acts as a true partner to dental customers of all sizes, from independent practices to DSOs and everything in between.

Donald J. Zurbay: We believe both our consumable and equipment business performed better than the overall market during the third quarter.

Donald J. Zurbay: The Patterson team's steadfast focus on execution has enabled us to consistently deliver above market growth in consumables over the past year.

Donald J. Zurbay: In fact, if you take a look at the four fiscal quarters. Prior to Q3, we delivered an average quarterly year over year consumables growth.

Just over 5%, excluding certain infection control products.

Donald J. Zurbay: We built upon this track record in the third quarter, achieving over 6% growth in the category and when excluding certain infection control products just over 7% growth.

Donald J. Zurbay: We attribute our continued success and consumable growth to Patterson's differentiated value proposition for dental customers, which is rooted in strong execution on the deep relationships we have built with our dental customers over time. Thanks to a mature and knowledgeable sales force that acts as a true partner to dental customers of all sizes, from independent practices to DSOs and everything in between. Our team is consistently seeking to be an indispensable partner that supports dentists with everything they need to run their practice, allowing them to focus on what's important, patient care. Our consumables performance during the quarter was also supported by consistent patient traffic, reflecting the dental end market's resiliency and ability to drive demand despite inflationary pressure. Patients continue to prioritize essential dental care even when they might be cutting back on some other discretionary spending.

Donald J. Zurbay: We attributed our continuous success in consumable growth to patterson's differentiated value proposition for dental customers.

Donald J. Zurbay: It is rooted in strong execution on the deep relationships. We have built for example customers over time, thanks to a mature and knowledgeable sales force that acts as a true partner central customers of all sizes.

Donald J. Zurbay: Independent practices to Dsos and everything in between.

Donald J. Zurbay: Our team is consistently seeking to be an indispensable partner that supports dentists with everything they need to run their practice, allowing them to focus on what's important, patient care. Our consumables performance during the quarter was also supported by consistent patient traffic, reflecting the dental end market's resiliency and ability to drive demand despite inflationary pressure. Patients continue to prioritize essential dental care even when they might be cutting back on some other discretionary spending.

Donald J. Zurbay: Our team is consistently seeking to be an indispensable partner with support census, with everything they need to run their practices, allowing them to focus on what's important patient care.

Donald J. Zurbay: Our consumables performance during the quarter was also supported by consistent patient traffic, reflecting the dental end markets resiliency and ability to drive demand despite inflationary pressures.

Donald J. Zurbay: Patients continue to prioritize essential dental care, even when they might be cutting back on some of the other discretionary spending.

Donald J. Zurbay: In the dental equipment business, internal sales declined on a year-over-year basis by about 2%, as improved performance in high-tech equipment was more than offset by declining core equipment sales as we shifted through the post-COVID supply chain. Our results demonstrate two key points. First, the variability of the dental equipment category and how equipment sales, whether high-tech or core, can fluctuate year-over-year and quarter-to-quarter. During the third quarter, this bore out with lower than anticipated sales performance, and our quarter put the category in second place. Second, in our fiscal 2024 third quarter, equipment demand was challenged by continued macroeconomic pressure, including comparatively higher interest rates and less capital availability than the year-ago period. We expect these dynamics to continue to shape our equipment performance in the fourth quarter. We have revised our 2024 full-year adjusted EPS guidance accordingly. We have navigated economic cycles successfully in the past.

Donald J. Zurbay: In the dental equipment business, internal sales declined on a year-over-year basis by about 2%, as improved performance and high-tech equipment was more than offset by declining core equipment sales as we lipped post-COVID supply chains. Our results demonstrate two key points. First, the variability of the dental equipment category and how equipment sales, whether high-tech or core, can fluctuate year-over-year and quarter-to-quarter. During the third quarter, this bore out with lower than anticipated sales performance in our core equipment category. Second, in our fiscal 2024 third quarter, equipment demand was challenged by continued macroeconomic pressure, including comparatively higher interest rates and less capital availability than the year-ago period.

Donald J. Zurbay: In the dental equipment business internal sales declined on a year over year basis about 2% as improved performance in high Tech equipment was more than offset by a decline in core equipment sales as we lapped post COVID-19 supply chain delays.

Donald J. Zurbay: Our results demonstrate two key points.

Donald J. Zurbay: First the variability of the dental equipment category and how equivalent sales.

Hi, tech or core and fluctuate year over year and quarter to quarter.

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

Donald J. Zurbay: Second in our fiscal 2024 third quarter equipment demand was challenged by continued macroeconomic pressures, including comparatively higher interest rates and less capital availability from the year ago period.

Donald J. Zurbay: We expect these dynamics to continue to shape our equipment performance in the fourth quarter. We have revised our 2024 full-year adjusted EPS guidance accordingly. We have navigated economic cycles successfully in the past.

We expect these dynamics to continue to shape, our equipment performance in the fourth quarter.

Donald J. Zurbay: We have revised our 2020 for full year adjusted EPS guidance Accordingly.

Donald J. Zurbay: We have navigated economic cycle successfully in the past.

Donald J. Zurbay: We remain confident in our ability to overcome these headwinds by continuing to work strategically with our manufacturing partners and by delivering comprehensive support that enables our customers to streamline operations, optimize resources, and ultimately focus on patient care. What's most important are the longer-term trends. The growing use of digital technology enables dentists to offer an improved patient experience with a higher level of oral health care.

Donald J. Zurbay: What's most important on the longer term trends.

Donald J. Zurbay: The growing use of digital technology enabled <unk> to offer an improved patient experience with a higher level of oral health care.

Donald J. Zurbay: [inaudible] When new technology enters the marketplace, Patterson is best positioned to sell, finance, install, and service that technology for the complete life cycle of those invested in it. Finally, dental internal sales in our value-added services category were roughly flat compared to the prior year. Value-added services represent the entire suite of offerings we provide to our customers to enhance the customer experience, drive loyalty, and help make Patterson an indispensable partner to their practice. The Dental Value Added Services category includes software and e-services.

Donald J. Zurbay: That improved experience for both dentists and patients drives demand for innovation and supports a long runway of growth over time. When new technology enters the marketplace, Patterson is best positioned to sell, finance, install, and service that technology for the complete life cycle of those investors. Finally, dental internal sales in our value-added services category were roughly flat compared to the prior year. Value-added Services represent the entire suite of offerings we provide to our customers to enhance the customer experience, drive loyalty, and help make Patterson an indispensable partner to their practice. The Dental Value Added Services category includes software and e-services.

Donald J. Zurbay: That improved experience for both dentists and patients drives demand for innovation that supports a long runway of growth over time.

Donald J. Zurbay: When new technology enters the marketplace Patterson is best positioned to sell finance install and service that technology with a complete lifecycle of those investments.

Donald J. Zurbay: Finally, dental internal sales in our value added services category, roughly flat compared to the prior year period.

Donald J. Zurbay: You added services represent the entire suite of offerings, we provide to our customers and enhance the customer experience.

Donald J. Zurbay: <unk> royalty, helping Patterson indispensable partner to their practice.

Donald J. Zurbay: The dental value added services category includes software and E Services Foundation of a modern dental practice remains a long term growth opportunity for Patterson.

Donald J. Zurbay: Foundation of a Modern Dental Practice remains a long-term growth opportunity for Patterson. We are confident that continuing to invest in and promote our cloud-based software helps maximize our value-added services offering. We'll deepen our comprehensive value proposition to our customers. Looking ahead, we believe the dental market remains stable with healthy underlying fundamentals, including an aging population, practice modernization, and a direct link between the patient's oral health and overall health. We remain confident in our team's ability to effectively navigate a dynamic environment and achieve our long-term goal. Now, let's move on to our animal health segment.

Donald J. Zurbay: We're confident that continuing to invest in and promote our cloud based software helps maximize our value added services offerings, we will deepen our comprehensive value proposition to our customers.

Looking ahead, we believe the dental market remains stable with healthy underlying fundamentals include.

Donald J. Zurbay: Including an aging population practice modernization directly between the patients oral health and overall health.

Donald J. Zurbay: We remain confident in our team's ability to effectively navigate the dynamic environment and achieve our long term goals.

Donald J. Zurbay: Now, let's move on to our animal health segment.

Donald J. Zurbay: During the third quarter, Patterson's animal health segment internal sales decreased 1.5% year over year, as above market growth in the production animal business was more than offset by reduced sales in the companion animal business. The animal health team achieved year-over-year adjusted operating margin improvement of 22 days, further building upon their track record of year-over-year operating and margin expansion in six of the last eight fiscal quarters. This excellent progression is testament to the animal health team's discipline in execution of the margin of creative initiatives that we have put in place. Companion animal, our internal sales in the third quarter declined by low single digits. This performance reflects our own strategic decisions and continued discipline to focus on more profitable business in the quarter in ways that modestly reduced our top-line growth while supporting our margin enhancement efforts.

Donald J. Zurbay: During the third quarter, Patterson's animal health segment internal sales decreased 1.5% year over year, as above-market growth in the production animal business was more than offset by reduced sales in the companion animal business. The animal health team achieved year-over-year adjusted operating margin improvement of 22 days, further building upon their track record of year-over-year operating margin expansion in six of the last eight fiscal quarters. This excellent progression is testament to the animal health team's discipline in execution of the margin of creative initiatives that we have put in place. Companion animal our internal sales in the third quarter declined by a low single digit. This performance reflects our own strategic decisions and continued discipline to focus on more profitable business in the quarter in ways that modestly reduced our top line growth while supporting our margin enhancement.

Donald J. Zurbay: During the third quarter Patterson animal health segment internal sales decreased one 5% year over year was above market growth in the production animal business was more than offset by reduced sales in the companion animal business.

Donald J. Zurbay: Our animal health team achieved year over year, adjusted operating margin improvement of 22 basis points further building upon their track record of year over year operating margin expansion in six of the last eight fiscal quarters.

Donald J. Zurbay: This excellent progression is testament to the animal health team's disciplined execution of the margin accretive initiatives that we've put in place.

Donald J. Zurbay: In companion animal are internal sales in the third quarter declined by low single digits.

Donald J. Zurbay: This performance reflects our own strategic decisions and continued discipline to focus on more profitable business in the quarter waves that modestly reduced our top line growth, while supporting our margin enhancement initiatives.

Donald J. Zurbay: This includes working closely with vendors who reward us for our extensive value proposals. We remain committed to driving continued margin expansion while sustaining healthy top-line performance within a stable end market. Over the long term, we expect the companion animal market to grow at the lowest single-digit rate, building upon the substantial growth this market has experienced since the onset of the pandemic.

Donald J. Zurbay: This includes working closely with vendors to reward us for our extensive value proposition.

Donald J. Zurbay: We remain committed to driving continued margin expansion, while sustaining healthy topline performance within the stable end market.

Donald J. Zurbay: Over the long term, we expect the companion animal market to grow in the low single digits building upon the substantial growth. This market has experienced since the onset of the pandemic.

Donald J. Zurbay: The health of this end market is supported by strong fundamentals and positive long-term trends in pet parents. On the production animal side, thanks to our team's outstanding execution, third quarter internal sales grew by low single digits in a dynamic market environment. We believe Patterson continues to outperform the broader production animal market due to the strength of our omni-channel presence, highly tailored distribution strategy, and comprehensive offering across species. Across the animal health segment, our value-added services category delivered robust double-digit growth during the quarter, reflecting continued demand for a suite of software solutions and e-services that resonates strongly with customers. Similar to our dental segment, our value-added services offering is a differentiator for Patterson and enables us to support the full life cycle of equipment for our customers.

Donald J. Zurbay: The health of this end market is supported by strong fundamentals and positive long-term trends in pet parents. On the production animal side, thanks to our team's outstanding execution, third quarter internal sales grew by low single digits in a dynamic market environment. We believe Patterson continues to outperform the broader production animal market due to the strength of our omni-channel presence, highly tailored distribution strategy, and comprehensive offering across species. In the animal health segment, our value-added services category delivered robust double-digit growth during the quarter, reflecting continued demand for a suite of software solutions and e-services that resonates strongly with customers. Similar to our dental segment, our value-added services offering is a differentiator for Patterson and enables us to support the full life cycle of equipment for our customers.

The health of this end market is supported by strong fundamentals and positive long term trends in pet parent team.

Donald J. Zurbay: On the production animal side, thanks to our team's outstanding execution third quarter internal sales grew by low single digits.

Donald J. Zurbay: The dynamic market environment.

Donald J. Zurbay: Believe Patterson continues to outperform the broader production animal market due to the strength of our Omnichannel presence I would say our distribution strategy and comprehensive offering across species.

Donald J. Zurbay: Across the animal health segment, our value added services category delivered robust double digit growth during the quarter, reflecting.

Donald J. Zurbay: Continued demand for our suite of software solutions and E services.

Donald J. Zurbay: The resonate strongly with customers.

Donald J. Zurbay: Similar to our dental segment, our value added services offering is a differentiator for Patterson and enables us to support the full lifecycle of equipment for our customers.

Donald J. Zurbay: We're confident that the opportunity for continued growth within software remains significant. We continue to invest in existing solutions to better leverage our strong foundation, add to our capabilities, and address evolving customer needs. As we look ahead, we believe our animal health business is positioned for continued success. Now, I'll turn the call over to Kevin Barry to provide more details on our... Thank you, Don, and good morning, everyone.

Donald J. Zurbay: We're confident that the opportunity for continued growth within software remains significant. We continue to invest in existing solutions to better leverage our strong foundation, add to our capabilities, and address evolving customer preferences. As we look ahead, we believe our animal health business is positioned for continued success. Now, I'll turn the call over to Kevin Barry to provide more details on our... Thank you, Don, and good morning, everyone.

Donald J. Zurbay: We're confident that the opportunity for continued growth within software remains significant.

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

Donald J. Zurbay: As we look ahead, we believe our animal health business is positioned for continued success.

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

Kevin Barry: Thank you, Dan and good morning, everyone and.

In my prepared remarks. This morning, I will cover the financial results for our third quarter of fiscal 'twenty four which ended on January 27, 2024, and then conclude with our outlook for the remainder of our fiscal year.

Kevin Barry: I will cover the financial results for our third quarter of Fiscal 24, which ended on January 27, 2021, and then conclude with our outlook for the remainder of the year. Let's begin by covering the financials. Consolidated reported sales for Patterson Companies in our fiscal 24th third quarter were $1.62 billion, an increase of 1.0% over the third quarter of one year ago.

Kevin Barry: I will cover the financial results for our third quarter of Fiscal 24, which ended on January 27, 2021, and then conclude with our outlook for the remainder of our. Let's begin by covering the financial results. Consolidated reported sales for Patterson Companies in our fiscal 24th third quarter were $1.62 billion, an increase of 1.0% over the third quarter of one year ago. Internal sales increased 0.3% compared to the same period last, and gross margin for the third fiscal quarter.

Kevin Barry: So let's begin by covering our financial results.

Kevin Barry: Consolidated reported sales for Patterson companies in our fiscal 'twenty for third quarter or $1 $62 billion, an increase of 1.0% over the third quarter of one year ago.

Kevin Barry: Internal sales increased 0.3% compared to the same period last year, and [inaudible] 24 was 21.7, an increase of 30 basis points, which appears as a prior. Beginning with our fiscal 24 second quarter, we began providing the financial metric adjusted gross margin, which is a non-GAAP financial measure that adjusts gross margin for the impact of the mark-to-market accounting related to our equipment financing portfolio and the associated interest rate swap hedging The accounting impact of the mark to market adjustment impacts our total company gross margin but not the gross margin within our business. And, as previously mentioned, the net impact of interest rate fluctuations between the swap and the equipment financing portfolio has a minimal impact.

Kevin Barry: Internal sales increased <unk>, 3% compared to the same period last year.

Kevin Barry: Gross margin for the third fiscal quarter 24 was 21, 7% an increase of 30 basis points compared to the prior year period.

Kevin Barry: 24 was 21.7, an increase of 30 basis points compared to the prior. Beginning with our fiscal 24 second quarter, we began providing the financial metric adjusted gross margin, which is a non-GAAP financial measure that adjusts gross margin for the impact of the mark-to-market accounting related to our equipment financing portfolio and the associated interest rate swap hedging. The accounting impact of the mark to market adjustment impacts our total company gross margin but not the gross margin within our business. And, as previously mentioned, the net impact of interest rate fluctuations between the swap and the equipment financing portfolio has a minimal impact.

Kevin Barry: Beginning with our fiscal 2000 and for second quarter, we began providing the financial metrics adjusted gross margin, which is a non-GAAP financial measure adjusted gross margin for the impact of the mark to market accounting related to our equipment financing portfolio and the associated interest rate swap hedging instruments.

Kevin Barry: The accounting impact of the Mark to market adjustment impacts our total company gross margin, but not the gross margin within our business segments.

Kevin Barry: And as previously mentioned the net impact of interest rate fluctuations between the swap and the equipment financing portfolio has minimal impact on net income.

Kevin Barry: For the third quarter of fiscal 24, our adjusted gross margin was $21.6 billion, an increase of 30 basis points compared to the year ago. Adjusted Operating Expense. The percentage of net sales for the third quarter of fiscal 24 was 16.8% and unfavorable by 70%, prepared for the third quarter of fiscal 23.

Kevin Barry: For the third quarter of fiscal 24, our adjusted gross margin was $21.6 billion, an increase of 30 basis points compared to the year ago, and Justin Operating Expense. The percentage of net sales for the third quarter of fiscal 24 was 16.8% and unfavorable by 70%, here in the third quarter of fiscal 23. A portion of the unfavorable comparison is attributable to expenses associated with the strategic investments we made to enhance our distribution capabilities and software options. In the third quarter of fiscal 24, our consolidated adjusted operating margin was 4.7%, a decrease of 50 basis points compared to the third quarter of last year. For the remainder of Fiscal 24, we intend to continue exercising expense disbursements while also prioritizing the margin enhancement initiatives that have been yielding results within our business segments and for the company overall. Our adjusted tax rate for the third quarter of fiscal 24 was 23.3%, an increase of 80 basis points compared to the prior year, to support a net income attributable to Patterson Companies Inc. for the third quarter of fiscal 2015 of $47.7 million or $0.52 per diluted share.

For the third quarter of fiscal 'twenty four our adjusted gross margin was 21, 6% an increase of 30 basis points compared to the year ago period.

Kevin Barry: Adjusted operating expenses as a percentage of net sales for the third quarter of fiscal 'twenty, four or 16, 8% and unfavorable by 70 basis points compared to the third quarter of fiscal 'twenty three.

Kevin Barry: A portion of the unfavorable comparison is attributable to expenses associated with the strategic investments we made to enhance our distribution capabilities and software options. In the third quarter of fiscal 24, our consolidated adjusted operating margin was 4.7%, a decrease of 50 basis points compared to the third quarter of last year. For the remainder of Fiscal 24, we intend to continue exercising expense discipline while also prioritizing the margin enhancement initiatives that have been yielding results within our business segments and for the company overall. Our adjusted tax rate for the third quarter of fiscal 24 was 23.3%, an increase of 80 basis points compared to the prior year.

Kevin Barry: Portion of the unfavorable comparison is attributable to expenses associated with the strategic investments, we made to enhance our distribution capabilities and software.

Kevin Barry: Sure.

Kevin Barry: In the third quarter of fiscal 'twenty for our consolidated adjusted operating margin was four 7% a decrease of 50 basis points compared to the third quarter of last year.

Kevin Barry: Adjusted operating margin includes the adjustment for the interest rate swap mentioned previously.

Kevin Barry: For the remainder of fiscal 'twenty four we intend to continue exercising expense discipline.

Kevin Barry: Also prioritizing the margin enhancement initiatives that have been yielding results within our business segments and for the company overall.

Kevin Barry: Our adjusted tax rate for the third quarter of fiscal 2004 was 23, 3% an increase of 80 basis points compared to the prior year period.

Kevin Barry: Reported net income attributable to Patterson Companies Inc. for the third quarter of fiscal 2015. $47.7 million, or $0.52 per dilution. This compares to reported net income in the third quarter of last year of $53.9 million. $0.85 per delivery. Adjusted net income attributable to Patterson Companies Inc. for the third quarter of fiscal 24 was $55.0 million, or $0.59 per dilution.

Before net income attributable to Patterson companies, Inc. For the third quarter of fiscal 'twenty four it was $47 7 million or <unk> 52 per diluted share. This.

Kevin Barry: This compares to reported net income in the third quarter of last year of $53.9 million, $0.85 per delivery; adjusted net income attributable to Patterson Companies Inc. for the third quarter of fiscal 24 was $55.0 million, or $0.59 per dilution.

Kevin Barry: This compares to reported net income in the third quarter of last year of $53 $9 million or <unk> 55 per diluted share.

Kevin Barry: Adjusted net income attributable to Patterson companies, Inc. For the third quarter of fiscal 'twenty four it's 55 zero million dollars 59 per diluted share.

Kevin Barry: This compares to $61.1 million, or $0.02 per diluted share, in the third quarter of Fiscal 2016. This decrease in adjusted earnings per diluted share for the fiscal third quarter was primarily due to lower sales of accidental equipment and increased operating expenses compared to the prior year.

Kevin Barry: This compares to $61.1 million, or $0.02 per diluted share, in the third quarter of fiscal 2020. This decrease in adjusted earnings per diluted share for the fiscal third quarter was primarily due to lower sales of extensive equipment and increased operating expenses compared to the prior year. Now let's turn to our business segments, starting with our. In the third quarter of fiscal 24, internal sales for our dental business increased 2.5% compared to the third quarter of fiscal 2018. Internal sales of dental consumables increased 6.3% compared to one year ago despite being impacted by continued price deflation of certain infection-controlled products. Internal sales of non-infection control products increased 7.2% in the third quarter of fiscal 24 compared to the year ago. This negative impact from infection control product deflation has steadily moderated over the past, and we expect the year-over-year deflationary impacts to normalize by the end of fiscal year 2020. Internal sales of dental equipment during the quarter decreased 2.4% compared to one year ago.

Kevin Barry: This compares to $61 $1 million or <unk> 62 per diluted share in the third quarter of fiscal 'twenty three.

Kevin Barry: This decrease in adjusted earnings per diluted share for the fiscal third quarter was primarily due to lower sales of <unk> equipment and increased operating expenses compared to the prior year period.

Kevin Barry: Now let's turn to our business segments, starting with our. In the third quarter of fiscal 24, internal sales for our dental business increased 2.5% compared to the third quarter of fiscal 2018. Internal sales of dental consumables increased 6.3% compared to one year ago, despite being impacted by continuing price deflation of certain infection-controlled products. Internal sales of non-infection control products increased 7.2% in the third quarter of fiscal 24 compared to the year ago. This negative impact from infection control product deflation has steadily moderated over the past, and we expect the year-over-year deflationary impacts to normalize by the end of fiscal year 2020. Internal sales of dental equipment during the quarter decreased 2.4% compared to one year ago.

Kevin Barry: Now, let's turn to our business segments, starting with our dental business.

Kevin Barry: In the third quarter of fiscal 'twenty four internal sales for our dental business increased two 5% compared to the third quarter of fiscal 'twenty three.

Kevin Barry: Internal sales of dental consumables increased six 3% compared to one year ago, Despite being impacted by continued price deflation of certain infection control products internal sales of non infection control products increased seven 2% in the third quarter of fiscal 2004 compared to the year ago period.

Kevin Barry: This negative impact from infection control product deflation is steadily moderated over the past year and we expect the year over year deflationary impacts to normalize by the end of fiscal year 'twenty four.

Kevin Barry: Internal sales of dental equipment during the quarter decreased two 4% compared to one year ago.

Kevin Barry: Our equipment category continues to be impacted by headwinds related to macroeconomic concerns, a higher interest rate environment, and selling price. However, during the third quarter, digital X-ray and CAD-CAM equipment categories posted positive results, reflecting the desire for many dentists to continue investing in technology to modernize their practices. Internal Sales and Value Added Services in the third quarter decreased 0.2% over the prior year.

Kevin Barry: Quebec category continues to be impacted by headwinds related to macroeconomic concerns a higher interest rate environment and selling price declines.

Kevin Barry: However, during the third quarter digital X Ray and Cadcam equipment categories posted positive sales growth, reflecting the desire for many dentists to continue investing in technology to modernize their practices.

Kevin Barry: Our equipment category continues to be impacted by headwinds related to macroeconomic and a higher interest rate environment and selling price. However, during the third quarter, digital x-ray and CAD-CAM equipment categories posted positive results, reflecting the desire for many dentists to continue investing in technology to modernize their practices. Internal Sales and Value Added Services in the third quarter decreased 0.2% over the prior year.

Kevin Barry: Internal sales of value added services in the third quarter of fiscal 2004 decreased <unk>, 2% over the prior year period.

Kevin Barry: Value-added services, including our software offerings, represent the entire suite of offerings we provide to our customers that help make us an indispensable partner to their practice. We remain confident in the investments we have made in this important category and the continued progress on our long-term strategy. Adjusted operating margin in the dental segment was 8.9% in the third quarter of fiscal 2015, which represents a 130 basis point decrease over the prior year.

Kevin Barry: Value added services, including our software offerings represent the entire suite of offerings, we provide to our customers that help make us an indispensable partner to their practice.

Kevin Barry: Remain confident in the investments we have made in this important category and the continued progress on our long term strategy.

Kevin Barry: Adjusted operating margin in the dental segment was eight 9% in the third quarter of fiscal 'twenty, four which represents a 130 basis point decrease over the prior year period.

Kevin Barry: Increased operating expenses related to our SAP implementation and warehouse expansion in Canada, along with investments in our software and technical service business, drove the unfavorable comparison and adjusted operating margin on a year-over-year basis. Now, let's move to our animal health. In the third quarter of fiscal 24, internal sales for our animal health business decreased 1.5% compared to the third quarter of fiscal 20. Internal sales for our total companion animal business during the quarter decreased 3.8% over the prior year.

Kevin Barry: Now, let's move to our animal health segment.

Kevin Barry: In the third quarter of fiscal 'twenty, four internal sales for our animal health business decreased one 5% compared to the third quarter of fiscal 'twenty three.

Kevin Barry: Internal sales for our total companion animal business during the quarter decreased three 8% over the prior year period.

Kevin Barry: Positive internal sales performance from our Mds business in the U K I was more than offset by a decline in internal sales in the U S companion animal business.

Kevin Barry: Although positive internal sales performance from our NBS business in the UK was more than offset by a decline in internal sales in the U.S. companion animal business, internal sales for our production animal business in the fiscal third quarter increased 1.1% compared to the prior. Our production animal team continues to execute well in a challenging market, and our omni-channel approach across several species continues to pay off with sales growth above the overall market. The adjusted operating margin in our animal health segment was 4.4% in the fiscal 24 third quarter, an increase of 20 basis points from the prior year. [inaudible] and Additional Operating Expense Discipline drove the operating margin increase on a year-over-year basis. Now, let me cover cash flow and balance. During the first nine months of fiscal 24, our free cash flow improved by $11.9 million compared to the same period one year ago. This was primarily due to a decreased level of working capital in the first nine months of Fiscal 24 compared to the prior year period.

Kevin Barry: Internal sales for our production animal business in the fiscal third quarter increased one 1% compared to the prior year period our.

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

Kevin Barry: The adjusted operating margin in our animal Health segment was four 4% in the fiscal 2000 and for third quarter, an increase of 20 basis points from the prior year period.

Kevin Barry: Gross margins in our animal health segment were up in the fiscal 'twenty for third quarter and additional operating expense discipline drove the operating margin increase on a year over year basis.

Kevin Barry: Although positive internal sales performance from our NBS business in the UK was more than offset by a decline in internal sales in the U.S. companion animal business, internal sales for our production animal business in the fiscal third quarter increased 1.1% compared to the prior. Our production animal team continues to execute well in a challenging market, and our omni-channel approach across several species... continues to pay off with sales growth above the overall market. The adjusted operating margin in our animal health segment was 4.4% in the fiscal 24 third quarter, an increase of 20 basis points from the prior year. Gross margins in our animal health segment were up in the and Additional Operating Expense Discipline drove the operating margin increase on a year-over-year basis.

Speaker Change: Now, let me cover cash flow and balance sheet items.

Speaker Change: During the first nine months of fiscal 'twenty for our free cash flow improved by $11 9 million compared to the same period. One year ago. This was primarily due to a decreased level of working capital in the first nine months of fiscal 'twenty four compared to the prior year period.

Speaker Change: Turning now to capital allocation.

Speaker Change: Our capital spending in the first nine months of fiscal 'twenty four it was $51 $2 million, which is $8 $8 million higher than the first nine months of fiscal 'twenty three.

Speaker Change: This increased spending reflects the investments we are making our distribution capabilities as well as software and value added services.

Kevin Barry: Now look, turning now to capital. Our capital spending in the first nine months of Fiscal 24 was $51.2 million, $8.8 million higher than the first nine. This increased spending reflects the investments we are making in our distribution capabilities, as well as software and services, to continue to execute on a key capital allocation strategy of returning cash to our shareholders. In the third quarter of fiscal 24, we declared a quarterly cash dividend of $0.26 per diluted share, which was then paid at the beginning of the fourth quarter.

Speaker Change: We continued to execute on our key capital allocation strategy of returning cash to our shareholders.

Kevin Barry: Now let me cover cash flow and balance. During the first nine months of Cisco 24, our free cash flow improved by $11.9 million compared to the same period one year ago. This was primarily due to a decreased level of working capital in the first nine months of Fiscal 24 compared to the prior year period. Now, look, turning now to Capital Allocations. Our capital spending in the first nine months of Fiscal 24 was $51.2 million.

Speaker Change: In the third quarter of fiscal 'twenty, four we declared a quarterly cash dividend of <unk> 26 per diluted share, which was then paid at the beginning of the fourth quarter of fiscal 'twenty four.

Speaker Change: We also repurchased approximately $124 million of shares during the third quarter of fiscal 'twenty four returning a total of $148 $8 million to shareholders through dividends and share repurchases.

Kevin Barry: $8.8 million higher than the first nine. This increased spending reflects the investments we are making in our distribution capabilities as well as software and services. We continue to execute on a key capital allocation strategy of returning cash to our shareholders. In the third quarter of fiscal 24, we declared a quarterly cash dividend of $0.26 per diluted share, which was then paid at the beginning of the fourth quarter.

Speaker Change: And through the first nine months of fiscal 'twenty, four we have returned $289 $6 million to our shareholders through dividends and share repurchases.

Kevin Barry: We also repurchased approximately $124 million of shares during the third quarter of fiscal 2020, returning a total of $148.8 million to shareholders in dividends and share reports and through the first nine months. We have returned $289.6 million to our shareholders. Let me conclude with our outlook for the remainder of the meeting. Today we are revising our Fiscal 24 Gap Earnings Guidance to a range of $1.99 to $2.04 per diluted share, and our adjusted earnings guidance range to $2.30 to $2.35 per diluted share. We have made these revisions to our GAAP and Adjusted Earnings Per Share guidance to account for the current macroeconomic environment and the aforementioned conditions in our end markets that we believe are likely to persist for the remainder of our fiscal 2020 year.

Let me conclude with our outlook for the remainder of fiscal 'twenty four.

Speaker Change: Today, we are revising our fiscal 2004 GAAP earnings guidance to a range of $1 99.

Speaker Change: To $2 <unk> per diluted share and our adjusted earnings guidance range to $2 30.

Speaker Change: To $2 35 per diluted share.

Speaker Change: We have made these revisions to our GAAP and adjusted earnings per share guidance to account for the current macroeconomic environment and aforementioned conditions in our end markets that we believe are likely to persist for the remainder of our fiscal 2000 and for years.

Kevin Barry: We also repurchased approximately $124 million of shares during the third quarter of fiscal, returning a total of $148.8 million to shareholders in dividends and share reports and through the first nine months. We have returned $289.6 million to our shareholders. Let me conclude with our outlook for the remainder of. Today we are revising our Fiscal 24 Gap Earnings Guidance to a range of $1.99 to $2.04 per diluted share and our adjusted earnings guidance range to $2.30 to $2.35 per diluted share. We have made these revisions to our GAAP and Adjusted Earnings Per Share guidance to account for the current macroeconomic environment and the aforementioned conditions in our end markets that we believe are likely to persist for the remainder of our fiscal 2050. And now, I will turn the call back over to Don for some additional. Thanks, Kevin.

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

Donald J. Zurbay: Thanks, Kevin before we open it up for Q&A I want to thank the entire Patterson team for their continued hard work and commitment to our strategy and serving our customers.

Donald J. Zurbay: As we conclude fiscal 2024, we remain focused on navigating the current environment by staying true to our strategic objectives.

Donald J. Zurbay: <unk> operational excellence.

Kevin Barry: And now I will turn the call back over to Don for some additional, Thanks, Kevin. Before we open it up for Q&A, I want to thank the entire Patterson team for their continued hard work and commitment to our strategy of serving our customers. As we conclude CISCO 2024, we remain focused on navigating the current environment by staying true to our strategic objectives and achieving operational excellence. Our efforts are concentrated on executing to end our fiscal year in a position of strength.

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

Donald J. Zurbay: We are confident that the strength of our team resiliency of the dental and animal health end markets and our comprehensive value proposition make Patterson is well positioned to drive enhanced growth profitability and value creation over the long term.

Kevin Barry: Before we open it up for Q&A, I want to thank the entire Patterson team for their continued hard work and commitment to our strategy of serving our customers. As we conclude Cisco 2024, we remain focused on navigating the current environment by staying true to our strategic objectives and achieving operational excellence. Our efforts are concentrated on executing to end our fiscal year in a position of strength. We are confident that the strength of our team, the resiliency of the dental and animal health end markets, and our comprehensive value proposition make Patterson well-positioned to drive enhanced growth, profitability, and value creation over the long term. That concludes our prepared remarks. Kevin and I will be glad to take questions. Operator, please open the line.

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

Speaker Change: Certainly at this time I would like to remind everyone in order to ask a question. Please press star one.

Donald J. Zurbay: We are confident that the strength of our team, the resiliency of the dental and animal health end markets, and our comprehensive value proposition make Patterson well-positioned to drive enhanced growth, profitability, and value creation over the long term. That concludes our prepared remarks. Kevin and I will be glad to take questions. Operator, please open the line.

Speaker Change: Your first question comes from Michael Cherny with Leerink Partners. Please go ahead.

Michael Cherny: Good morning, and thanks for taking the question.

Michael Cherny: Maybe if we can just start on equipment posted revenue growth perspective, as well as subsequent margins.

Michael Cherny: This isn't the first quarter, you've talked about macro oriented pressures, but obviously the trend on.

Michael Cherny: Challenges in the equipment side have been challenging as you think about not only ending the year, but diving into 25, how do you think about where your visibility stands be it.

Operator: Certainly. At this time, I'd like to remind everyone, in order to ask a question, please press star 1. Your first question comes from Michael Cherny with Lerink Partners. Please go ahead. Think about not only Howdy. For more information, visit www.fema.gov. Yeah, thanks, Michael.

Michael Cherny: The health of the backlog, how you think about the backlog conversion rates and what that means, especially as we kick off into 'twenty five knowing obviously full while you haven't actually given 25 color yet.

Speaker Change: Yeah, Thanks, Michael well I think.

Speaker Change: We're watching the backlog closely.

Speaker Change: <unk>.

Speaker Change: And we think.

Speaker Change: While our fourth quarter guidance.

Donald J. Zurbay: Well, I think, you know, we're watching the backlog closely. And we think, you know, while our fourth-quarter guidance talks about some of the macroeconomic pressures on the equipment side of the business, I think for us, we think that, ultimately, the strength of that market and our position in it is really going to carry the day. And so I think if you're looking forward to FY25 and, you know, obviously being careful here, trying to help you, but being careful about our comments, I think we think that, as we move into fiscal 25, there should be improvement. We should see improvement in the equipment side of the business. And that's kind of what we're thinking about as of right now. You know, like, Where do you think you are? Yeah, so I'll maybe start, and then Kevin can add something here.

Speaker Change: We talk about some of the macroeconomic pressures on the equipment side of the business.

Speaker Change: I think for US we think that ultimately.

Donald J. Zurbay: Think about not only... How do you think? For, Yeah, thanks, Michael. Well, I think, you know, we're watching the backlog closely. And we think, you know, while our fourth-quarter guidance talks about some of the macroeconomic pressures on the equipment side of the business, I think for us, we think that, ultimately, the strength of that market and our position in it is really going to carry the day. And so I think if you're looking forward to FY25 and, you know, obviously, we're being careful here, trying to help you, but being careful about our comments, I think we think that, you know, as we move into fiscal 25, there should be improvement. We should see improvement on the equipment side of the business, and that's kind of about it as of right now. You know, like you. Where do you think you are?

Speaker Change: The strength of that market and our position in it is really going to be what carries a day and so I think if youre looking forward to FY 'twenty five.

Speaker Change: Obviously being careful here trying to help help you but.

Speaker Change: Being careful about our comments.

Speaker Change: We think that as we move into fiscal 'twenty five there as we should we should see improvement.

Speaker Change: We should see improvement in the equipment side of the business.

Speaker Change: That's correct.

Speaker Change: As of right now.

Speaker Change: Okay, and then as you think about that potential for improvement.

Speaker Change: How do you think about the internal spend levels I mean by that.

Speaker Change: You talked about trying to drive ongoing operational improvements I know, it's something that's been a big part of your Workspaces since you've joined the company done where do you think you are in terms of operational efficiency across the organization and what are the puts and takes that you can control on your own to offset any potential variability on demand curves.

Speaker Change: Yes, so I'll, maybe start and then Kevin.

Donald J. Zurbay: Yeah, so I'll maybe start and then Kevin can add something here. But I think, you know, we think we have a lot of opportunity here. I think I've mentioned this in the past, but when we put Kevin Pullman in place in the Chief Operating Officer role, a big part of his responsibilities really relate to how to get the efficiencies out of the business that we have really, you know, tapped into but not really tapped into significantly as we look across the business and look across our three business citizens and how we, you know, operate. So there's a lot of good work being done Some of it is, you know, short-term gains and things that we could get at right away that we've worked through, but a big part of that are things that take a little more time. By definition, those are the things that are going to take us more time to get at, and we're working through those right now. So, you know, I feel really good about the opportunity there. I think when we looked into this idea and put Kevin in place, he's doing a great job, and it's kind of bearing out like I thought it would. So more to come on that, but maybe I'll ask Kevin if he has any comments.

Donald J. Zurbay: But I think, you know, we think we have a lot of opportunity here. I think I've mentioned this in the past, but when we put Kevin Pullman in place in the Chief Operating Officer role, a big part of his responsibilities really relate to how to get the efficiencies out of the business that we have really, you know, tapped into but not really tapped into significantly as we look across the business and look across our three businesses and how we, you know, operate. So there's a lot of good work being done in this area. Some of it is, you know, short-term gains and things that we could get at right away that we've worked through, but a big part of that are things that take a little more time. By definition, those are the things that are going to take us more time to get at, and we're working through those right now. So, you know, I feel really good about the opportunity there. I think when we looked into this idea and put Kevin in place, he's doing a great job, and it's kind of bearing out like I thought it would. So more to come on that, but maybe I'll ask Kevin if he has any comments.

Kevin: Can add here, but I think we think we have a lot of opportunity here I think I mentioned this in the past but.

Kevin: When you put Kevin Coleman and place in the Chief operating officer role a big part of his risk.

Kevin: Responsibility is really related to how to get the efficiencies out of the business that we really we.

Kevin: Capped into but not had really tapped into significantly as.

Kevin: As we look across the business and look across our three business citizens and how we operate so there's a lot of good work being done in this area.

Kevin: Some of it is short term gains and things that we could get out right away.

Kevin: We've worked through but but a big part of that are things that take a little more time kind of by definition. Those are the things that are going to take us more time to get at and we're working through those right now so I feel really good about the opportunity there I think.

Kevin: When we when we looked into this idea and we put Kevin in place. He is doing a great job and it's kind of bearing its kind of bearing out like I thought it would so more.

Kevin: More to come on that but maybe I'll ask Kevin if he has any comments, yes, I think a good example of that here in our fiscal 'twenty four or we've had a real focus on investing in some of those opportunities in our logistics network and we came online with two new distribution centers in our network one of U K, one in Canada and.

Kevin Barry: Yeah, I think a good example of that here in our fiscal 24, we've had a real focus on investing in some of those opportunities in our logistics network, and we came online with two new distribution centers in our network, one in the UK and one in Canada, and that team did some really good work to leverage our capital spend this year into initiatives that, to Don's point, will start paying out with better efficiencies in that part of our operation. So I think that's a good example of things that we're doing now, and as we go forward, we see, you know, we're putting our capital to good work. It's going to bear some fruit in the expense line. Your next question comes from the line by John Block with Stiefel.

Operator: Yeah, I think a good example of that here in our fiscal 24. We've had a real focus on investing in some of those opportunities in our logistics network. And we came online with two new distribution centers in our network, one in the UK and one in Canada, and that team did some really good work to leverage our capital spend this year into initiatives that, to Don's point, we'll start paying out with better efficiencies in that part of our operation. So I think that's a good example of things that we're doing now, and as we go forward, we see, you know, we're putting our capital to good work. It's going to bear some fruit in the expense line. Your next question comes from the line by John Block with Stiefel.

Kevin: That team has done some really good work.

Kevin: Leverage our capital spend this year in two initiatives that to Tom's point, we will start paying out with better efficiencies in that part of our operation going So I think thats. One. Good example of things that we're doing now that as we go forward we see.

Kevin: We're putting our capital to good work.

Kevin: Got to bear some fruit.

Kevin: That expense line going forward.

Speaker Change: I appreciate the color. Thanks, so much.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of Jon Block with Stifel. Please go ahead.

Operator: Please go ahead. Thanks, guys. Good morning.

Jon Block: Okay. Thanks, guys. Good morning, maybe just one on each side of the business and the dental consumables continues to certainly be one of the highlights.

Donald J. Zurbay: Maybe just one on each side of the business. Dental consumables continue to certainly be one of the highlights. Maybe, Don, just your thoughts on whether mid-single-digit growth is sustainable going forward, or were some of these results more one time due to the challenges that a competitor was having and maybe just taking a step back; can you speak to the tailwinds that you think you got or lack thereof from the competitor's challenges over the past few months? And then I'll ask my follow-up. Yeah, thanks, John. You know, just a few things.

Donald J. Zurbay: Maybe just one on each side of the business. Dental consumables continue to certainly be one of the highlights. Maybe, Don, just your thoughts on whether the mid-single-digit growth is sustainable going forward or where some of these results are more one-time due to the challenges that a competitor was having, and maybe just taking a step back, can you speak to the tailwinds that you think you got, or lack thereof, from the competitor's challenges over the past few months? And then I'll ask my follow-up. Yeah, thanks, John. You know, it's so just a few things.

Jon Block: And maybe just your thoughts of the mid single digit growth is sustainable going forward or were some of these results.

Jon Block: Or one time due to the challenges that a competitor was having and maybe just taking a step back can you speak to the tailwind that you think you got or lack thereof from the competitors' challenges over the past few months and then I'll ask my follow up.

Speaker Change: Yes, Thanks John.

Speaker Change: So a few things obviously, there is a little bit of art in terms of trying to pin down the exact benefit from from the challenges of our competitor.

Donald J. Zurbay: Obviously, there's a little bit of art in terms of trying to pin down the exact benefit from the challenges of our competitors, so it's a little bit difficult to calculate with precision, but I think if you take a look at the four fiscal quarters prior to Q3, you know, we've been delivering in this area just over 5% growth when you exclude the certain infection control products. And so, you know, that's kind of Our best estimate right now is that it added about two percentage points to that growth, so you could think about the 7% growth we had not excluding infection control products as really probably more in the five range, which is consistent with kind of where we've been. And for us, we tried to take a pretty disciplined and sustainable approach to what happened there, and so, you know, we were looking for share that we think is something that we can sustain and hold on to I got it. That was very helpful. Thanks for that color!

Speaker Change: So, it's a little bit difficult to calculate with precision, but I think if you take a look at the four fiscal quarters prior to Q3.

Speaker Change: We've been delivering in this area.

Speaker Change: Just over 5% growth when you exclude the certain infection control products.

Speaker Change: So that's kind of in our baseline and really that continued in the quarter, our best estimate right now.

Donald J. Zurbay: And really, you know, that continued in the quarter; our best estimate right now of the impact of that is that it added about two percentage points to that growth. So you could think about the 7% growth we had not excluding infection control products as really, probably more in the five range, which is consistent with kind of where we've been. You know, and for us, we tried to take a pretty disciplined and sustainable approach to what happened there.

Speaker Change: The impact of that is it added about two percentage points to that growth. So you could think about the 7% growth we had not excluding infection control products is really probably more in the five range, which is consistent with kind of where we've been.

Speaker Change: And for Us.

Speaker Change: We tried to take a pretty disciplined and sustainable.

<unk> approach to what happened there.

Donald J. Zurbay: And so, you know, we were looking for a share that we think is something that we can sustain and hold on to. But really, the story for me is less about that and more about just the continued execution of the team in the market here, you know, at the 5% level over an extended period of time. Got it. That was very helpful. Thanks for that, Colorado.

Speaker Change: And so we were looking for sure that that we think is something that we can sustain and hold onto them.

Speaker Change: But really the story for me is less about that and more about just the continued execution of the team in the market here.

Speaker Change: At the 5% level over and over an extended period of time.

Speaker Change: Got it that's very helpful. Thanks for that color and then just to pivot to animal health.

Donald J. Zurbay: And then just to pivot to animal health, you know, the low single-digit, I think that was the number for companion animals, seems to have lagged the industry of late. And you talked a little bit about why in terms of, I guess I'll sort of call it, margin integrity. I think you may have alluded to that last quarter as well. So, you know, importantly, does this have another, call it two quarters or so, until you lap it? And then looking forward into your next maybe fiscal year, do you see any access for animal health distributors and the companion animal side of things, call it, you know, access to increase products, certain product lines coming to light in the coming quarters? Thanks guys.

Donald J. Zurbay: And then just to pivot to animal health, you know, the low single-digit, I think that was the number for companion animals, seems to have lagged the industry of late. And you talked a little bit about why in terms of, I guess I'll sort of call it, margin integrity. I think you may have alluded to that last quarter as well. So, you know, importantly, does this have another, call it two quarters or so until you lap it? And then looking forward into your next, maybe fiscal year, do you see any access for animal health distributors and the companion animal side of things, call it, you know, access to increase products, certain product lines coming to light in the coming quarters? Thanks guys.

Down low single digits I think that was the number for companion animal seems to have lagged the industry of Lee and you talked a little bit about why in terms of I guess I'll sort of call it margin integrity.

Speaker Change: You may have alluded to that last quarter as well. So importantly does this have another call it two quarters or so until you lap it.

Speaker Change: And then looking forward into your next maybe fiscal year do you see any access for animal health distributors in the companion animal side for call. It access to increase products certain product lines coming to light.

Speaker Change: Coming quarters, thanks, guys.

Speaker Change: Okay.

Donald J. Zurbay: Yeah, well, on the first question, I think. You know, yeah, we're taking a very disciplined approach in this area. I think when you're dealing with the margin profile there, you know, we have a disciplined way of looking at profitability by customer and a lot of data. And you're right, you know, for us, it's been important to take that disciplined approach to customers and profitability and make sure that we're serving the customers that value our proposition and that we feel like we can earn that profitability with. You know, your question on, we did mention that last quarter; it's a continuing dynamic this quarter. I'm not sure we're going to completely lap it in the next two quarters. This has actually been going on for some time.

Donald J. Zurbay: [inaudible] Yeah, we're taking a very disciplined approach in this area. I think when you're dealing with the margin profile there, we have a disciplined way of looking at profitability by customer and a lot of data. And you're right, you know, for us, it's been important to take that disciplined approach to customers and profitability and make sure that we're serving the customers that value our proposition and that we feel like we can earn that profitability with. Your question on, we did mention that last quarter; it's a continuing dynamic this quarter. I'm not sure we're going to completely lap it in the next two quarters.

Speaker Change: Yeah, well on the first question I think.

Yes, we're taking a very disciplined approach in this area I think when youre dealing with the margin profile there.

Speaker Change: We have a we have a disciplined way of looking at.

Speaker Change: Profitability by customer and a lot of data and you are right.

Speaker Change: For us it's been important to take that disciplined approach to the customers and profitability to make sure that we're serving the customers that value our our proposition.

Speaker Change: And we feel like we can burn that profitability with.

Speaker Change: Your question on we did mentioned that last quarter.

Speaker Change: It's it's.

Speaker Change: It's a continuing dynamic this quarter I'm not sure we're going to completely elaborate.

Donald J. Zurbay: This has actually been going on for some time, and, you know, we'll see how the industry evolves. You could probably think about it as lapping at two cores, but there could be some holdover. I just think, you know, it really proves our approach here in all three businesses, but particularly as you look at the animal health businesses and their margin profiles, this is an extremely important initiative for us. Yeah, there are some innovative products coming, we're excited about it. So, you know, without going into maybe details on exactly all the things that are there, we have some good plans for the companion business. Maybe the one thing I'll add, John, is that we have planned for and expect kind of the top-line performance we've seen in companion businesses, but that team's done a good job of holding the business model to the margin profile.

Speaker Change: In the next two quarters. This has actually been going on for some time.

Donald J. Zurbay: And, you know, we'll see how the industry evolves. You could probably think about it as lapping in two quarters, but there could be some holdover. I just think, you know, it really proves our approach here in all three businesses, but particularly as you look at the animal health businesses and their margin profiles, this is an extremely important initiative for us. Yeah, there are some innovative products coming, we're excited about it. So, you know, without going into maybe details on exactly all the things that are there, we have some good plans for the companion business. Maybe the one thing I'll add, John, is that we have planned for and expect kind of the top-line performance we've seen in companion businesses, but that team's done a good job of holding the business model to the margin profile.

Speaker Change: We will see how the industry evolves.

Speaker Change: But you could probably think about it is lapping in two quarters, but there could be some rollover I just think it really proves out our approach here.

Speaker Change: On all three businesses, but particularly as you look at the animal health businesses and their margin profile. This is an extremely important initiative for us.

Speaker Change: Yeah, there are some.

Speaker Change: Innovative products coming.

Speaker Change: We're excited about it.

Speaker Change: So without going into maybe details on exactly all of the things that are there.

We have some good plans for for the companion business.

Speaker Change: The one thing I'll add John assessed.

Speaker Change: As we have we have planned for and expect to have the topline performance you've seen in our companion business, but that team's done a good job of holding that the business model to.

Speaker Change: To the margin profile there expanding the way, we expect so and just to build on.

Donald J. Zurbay: They're expanding the way we expect. So, to go back to Don's point, I think, you know, we're doing this in a planful, disciplined way. Yeah, and I think, you know, one thing you could, we mentioned in the call, but you could look at the RSVP and ACT transaction as an example here, where it's not only innovative products that are coming, but we're looking to expand our service offerings as well into higher margin, more sustainable EBITDA streams. Thanks for the call, guys. Your next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead. Yeah, hey, good morning.

Donald J. Zurbay: They're expanding the way we expect. So, to build on Don's point, I think, you know, we're doing this in a planful, disciplined way. Yeah, and I think, you know, one thing you could, we mentioned in the call, but you could look at the RSVP and ACT transaction as an example here, where it's not only innovative products that are coming, but we're looking to expand our service offerings as well into higher margin, more sustainable EBITDA streams. Thanks for the call, guys. Your next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead. Yeah, hey, good morning.

Speaker Change: Don's point, I think that where we're doing this in our plan for disciplined way and I think one thing we mentioned in the call. When you look at the RSV.

Speaker Change: <unk> and ACG transaction as an example, here where it's not only innovative products that are coming back.

Speaker Change: No.

Speaker Change: We're looking to expand our service offerings.

Speaker Change: <unk> is well into higher margin.

Speaker Change: More sustainable.

Speaker Change: EBITDA streams.

Speaker Change: Got it.

Speaker Change: Thanks for the color guys.

Speaker Change: Your next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead.

Jason M. Bednar: Yeah, Hey, good morning.

Jason M. Bednar: I want to build a bit on some of the questions that have already been asked here this morning, but maybe starting first with margins. I know that dental equipment performance here in the quarter probably doesn't help a whole lot. But the other side of the business and consumables was pretty strong, as you called out; you talked about your share gains. You know, that's traditionally a higher-margin business, and that growth that you got in the quarter should be enough to give you leverage. So I guess my question is, you know, why didn't it come through in a better way or a bigger way?

Kevin Barry: I want to build a bit on some of the questions that have already been asked here this morning, but maybe start first with margins. I know that dental equipment performance here in the quarter probably doesn't help a whole lot, but the other side of the business and consumables were pretty strong. As you called out, you talked about your share gains. You know, that's traditionally a higher-margin business. And that growth that you got in the quarter should be enough to give you leverage. So I guess my question is, you know, why didn't it come through in a better way or a bigger way?

Jason M. Bednar: I wanted to build a bit on some of the questions that have been already asked here. This morning.

Jason M. Bednar: But maybe starting first with margins I know that dental equipment performance here in the quarter, probably doesn't help a whole lot, but yes.

Jason M. Bednar: The other side of the business and consumables was pretty strong as you called out you talked about your share gains.

Jason M. Bednar: Traditionally a higher margin business and that growth that you got in the quarter.

Jason M. Bednar: Should be enough to give you leverage so I guess took my question is why didn't it come through in a better way or a bigger way.

Kevin Barry: And can you help maybe with what margins would have been if not for some of those distribution and software investments that you are making that weigh on profitability in the quarter? Yeah, Jason, I think what I'd point to is, you know, within the quarter, we did see our gross margins expand. And so, while, you know, there are some puts and takes from a mixed standpoint, like you point out within our business, gross margin. You're right about gross margin, consumables mixes favorable in the dental business, but also, candidly, you know, the production animal, you know, the animal health business dilutes that a bit. So, net-net, we did grow our gross margins in the quarter. And the issue from an operating margin standpoint was on the expense line.

Kevin Barry: And can you help maybe with what margins would have been if not for some of those distribution and software investments that you were making that weighed on profitability in the quarter? Yeah, Jason, I think what I'd point to is, you know, within the quarter, we did see our gross margins expand. And so while, you know, there are some puts and takes from a mixed standpoint, like you point out within our business, gross margin. You're right about gross margin, consumables, mixes, favorable in the dental business, but also, candidly, you know, the production animal, you know, the animal health business dilutes that a bit. So, net-net, we did grow our gross margins in the quarter. And the issue from an operating margin standpoint was on the expense line.

Jason M. Bednar: And can you help maybe with what margins would've been.

Jason M. Bednar: If not for some of those distribution and software investments that you're making that weighed on profitability in the quarter.

Speaker Change: Yes, Jason I think what I'd point to is within the quarter. We did see our gross margins expand for the company and so while there are some puts and takes from a mixed standpoint like you point out.

Speaker Change: <unk>.

Speaker Change: Within our business gross margin you're right gross margin consumables mix was favorable in the dental business.

Speaker Change: But also candidly on the production animal health animal health business took inside of that so.

Speaker Change: But net net we did grow our gross margins in the quarter and the issue from an operating margin standpoint was on the expense line and to your point, you're right, we talked a little bit in Q2 about how we are making some investments in the business and we expect that our expense burden here in Q3 to be a bit higher and normalize here as we go into into Q4.

Kevin Barry: And to your point, you're right. We talked a little bit in Q2 about how, you know, we are making some investments in the business, and we expect that our expense burden here in Q3 to be a bit higher and normalized as we go into Q4. And that really does relate to the kind of distribution facilities coming online here earlier in the quarter, as well as the ongoing investments we are making in our. You know, I don't know, I don't quite have a basis point to give you in terms of you stripping all that out. Normalize it.

Kevin Barry: And to your point, you're right. We talked a little bit in Q2 about how, you know, we are making some investments in the business, and we expected our expense burden here in Q3 to be a bit higher and normalize as we go into Q4. And that really does relate to the kind of distribution facilities coming online here earlier in the quarter, as well as the ongoing investments we are making in our. You know, I don't know, I don't quite have a basis point to give you in terms of you stripping all that out. Normalize, I think, you know, we, As we go away, we'll tell you, I think going into Q4 here and beyond, we're obviously very focused on leveraging our operating expenses and getting that back in line so that, you know, we do see that as a tailwind to the operating margin performance of the company. Yeah, Jason, I mean, I would just add one thing.

Speaker Change: And that really does relate to that kind of that those.

Speaker Change: Both distribution facilities coming online here earlier in the quarter.

Speaker Change: As well as the ongoing investments we are making in our software capabilities I don't know I don't quite have a basis point to give you in terms of if you strip all of that outlet.

Donald J. Zurbay: I think, you know, we, As we go away, we'll tell you I think, going into Q4 here and beyond, we're obviously very focused on leveraging our operating expenses and getting that back in line so that, you know, we do see that as a tailwind to the operating margin performance of the company. Yeah, Jason, I mean, I would just add one thing. I mean, you know, are just at a macro level. Our P&L margin initiatives also, a big part of that is really just built on leveraging sales growth. And so when you look overall at the business, you know, our sales growth was 4% in the first quarter, and the last two quarters, it's lagged behind a bit just because of the equipment and dynamics. So that makes the leveraging story more difficult.

Speaker Change: Otherwise I think.

Speaker Change: As we go away it would tell you I think it is.

Speaker Change: Going into Q4 here and beyond we're obviously very focused on leveraging our operating expenses and getting that back in line.

Speaker Change: We do see that as a tailwind to the op margin outperformance of the company.

Speaker Change: Yes, Jason I mean, I would just add one thing.

Donald J. Zurbay: I mean, you know, at a macro level. Our P&L margin initiatives also, a big part of that is really just built on leveraging sales growth. And so when you look overall at the business, you know, our sales growth was 4% in the first quarter, and the last two quarters have lagged behind a bit just because of the equipment dynamics. So that makes the leveraging story more difficult.

Speaker Change: R R.

Speaker Change: At a macro level, our P&L margin initiatives also a big part of that is really just build upon.

Speaker Change: Leveraging sales growth. So when you look overall at the business.

Speaker Change: Sales growth was 4%.

Speaker Change: In the first quarter in the last two quarters has lagged behind a bit just because of the equivalent <unk>.

Speaker Change: Dynamics, so that that makes deleveraging story more difficult, but as we move forward and get that growth rate back in line I think youll see the results of that.

Kevin Barry: But as we move forward and get that growth rate back in line, I think you'll see the results of that. Okay, maybe one follow-up and then another question: just what should we expect in terms of maybe the spend that comes out that was maybe elevated the last quarter to fiscal second and third quarter that comes out as we go forward into the fourth quarter and think about 25 numbers and then shifting over to animal health, you know, your next year of comps are easier, but I guess what I'm curious about here is whether you have visibility on that companion business turning the corner, you know Are there some branded products that are turning generic that might be an opportunity for you?

Speaker Change: Okay, maybe one follow up and then another question just what should we expect in terms of maybe the spend that comes out.

Speaker Change: That was maybe elevated the last quarter or two fiscal second and third quarter that comes out as we go forward into the fourth quarter and think about 25 numbers and then shifting over to animal health.

Speaker Change: Your next year, if comps are easier, but I guess, what I'm curious about here is whether you have visibility on that companion business turning the corner.

Speaker Change: Is your visibility on patient traffic getting better or are there. Some branded products that are turning generic that might be an opportunity for you.

Kevin Barry: Can you help us with whether there's any shift in direct versus agency at the turn of the calendar year that, you know, we should be aware of as we model out the upcoming quarters? Yeah, on your first question about OPEX, I think what I'd say is for Q4, we typically see better leverage on our OPEX than we do earlier in the year. And I expect that trend to continue. So basically, to say it another way, I'd expect our OPEX percent of sales to decrease from where we were that year into Q4, similar to what it did last year. And then, I'm sorry, I was thinking about your first question, Jason. The second question I can't hear.

Donald J. Zurbay: Can you help us with whether there's any shift in direct versus agency at the turn of the calendar year that we should be aware of as we model out the upcoming quarter? Yeah, I think on your first question about OPEX, I think what I'd say is for Q4, we typically see better leverage on our OPEX than we do earlier in the year. And I expect that trend to continue. So basically, to say it another way, I'd expect our OPEX percent of sales to decrease from where we are here into Q4, similar to what it did last year. And then, I'm sorry, I was thinking about your first question, Jason, the second question on companion.

Speaker Change: Can you help us with other whether there's any shift in direct versus agency at the turn of the calendar year that we should be aware of as we model out the upcoming quarters.

Speaker Change: Yes, I think maybe.

Speaker Change: On your first question about the Opex I think.

Speaker Change: As for Q4, we typically see better leverage on our opex than we did earlier in the year and I expect that trend to continue so said.

Speaker Change: Said another way.

Speaker Change: Our opex as a percent of sales to decrease from where it was back here in Q3 into Q4 similar to what it did last year.

Speaker Change: And I'm, sorry, I was thinking about your first question Jason.

Speaker Change: Second question on companion, Yeah, Yeah, and I think Jason So we're not.

Kevin Barry: Yeah, yeah, and Jason, so we're not, you know, again, trying to be pretty helpful for you as much as possible, but I think, you know, as we get into this, we're still working through our budgets for fiscal 25 and kind of the dynamics that we think will play into that. So we'll probably try to stay a bit disciplined and, you know, that's a great question as we get into next quarter's call and talk through the budget for the year. Okay, fair enough. Thank you. Your next question comes from Jeff Johnson with Baird. Please go ahead. Guys, I joined late in all disclosure here.

Kevin Barry: Yeah, yeah, and Jason, we're not, you know, again trying to be pretty helpful for you as much as possible, but I think you know, as we get into this, we're still working through our budgets for fiscal 25 and kind of the dynamics that we think will play into that, so we'll probably try to stay a bit disciplined, and you know, that's a great question as we get into next quarter's call and Thank you. Your next question comes from Jeff Johnson with Baird. Please go ahead.

Speaker Change: Again trying to be pretty helpful.

Speaker Change: Good for you as much as possible, but I think.

Speaker Change: As we get into this we're still working through our.

Speaker Change: Budgets for for fiscal 'twenty, five and kind of the dynamics that we think.

Speaker Change: Will will play into that so, we'll probably try to stay a bit discipline and that's a great question as we as we get into next quarters call in and talk through the budget for the year.

Speaker Change: Okay fair enough. Thank you.

Speaker Change: Your next question comes from Jeff Johnson with Baird. Please go ahead.

Jeffrey D. Johnson: Guys, I joined late for all disclosure here, so I apologize if any of this has been asked, but Don, I joined as you were answering, I think it was John Block's question, just on kind of the share pickup or growth points you seem to point to from some disruption from one of your competitors here in the last few months. I couldn't tell in your answer if you thought those two points were sustainable, or if you'd probably get that back and go back to that 5% number you alluded to kind of in the prior quarter. So one, just if you could clarify that.

Jeff D. Johnson: Yes, I joined late and in all disclosure here. So I apologize if any of this has been asked but Don I joined as you were answering I think it was Jon Block's question just on kind of the.

Operator: So I apologize if any of this has been asked before. But Don, I joined as you were answering. I think it was John Block's question just on kind of the share pickup or growth points you seem to point to from some disruption from one of your competitors here in the last few months. I couldn't tell in your answer if you thought those two points were sustainable, or if you'd probably get that back and go back to that 5% number you alluded to kind of in the prior quarter. So one, just if you could clarify that.

Jeff D. Johnson: Share pickup or growth points, you seem to point to from some disruption from one of your competitors here in the last few months.

Speaker Change: I Couldnt tell in your answer if you thought those two points, where sustainable or if you'd probably get that back and go back to that 5% number you alluded to kind of in the prior quarter. So one just if you could clarify that more.

Donald J. Zurbay: You know, more importantly, when I look at the consumables market in North America, I don't think it's growing 5%. I mean, it seems like there's a little value seepage from kind of premium brands down to lower price branded or private label. And I'm sure you guys are, you know.

Operator: You know, more importantly, when I look at the consumables market in North America, I don't think it's growing 5%. I mean, it seems like there's a little value seepage from kind of premium brands down to lower price branded or private label. And I'm sure you guys are, you know, And I think on volumes, I don't think they are growing more than probably low single digits at the very best. So where are you getting that 5%?

Jeff D. Johnson: More importantly, when I look at the consumables market in North America, I don't think it's growing 5% I mean, it seems like Theres, a little value seepage from kind of premium branded down to lower price branded or private label that I'm sure you guys are.

Jeff D. Johnson: So in that trade down.

Donald J. Zurbay: And I think on volumes, I don't think they are growing more than probably low single digits at the very best. So where are you getting that 5%? We've heard that some of the online discounters have been stagnant, if not maybe even losing share the last couple of years. But is it coming from some of the value-added competitors? Just where do you think, at 5%, you're getting kind of what I think is probably a couple of points above market growth over these last four, five, six quarters? Yeah, thanks, Jeff. And it's too bad you missed all the prepared comments.

Jeff D. Johnson: That's happening and I think on volumes I don't think are growing more than probably low single digits at the very best So where are you getting that 5% D&O. We've heard that some of the online discounters have been stagnant if not maybe even losing share. The last couple of years is it coming from some of the value added competitors, just where do you think at 5%.

Donald J. Zurbay: We've heard that some of the online discounters have been stagnant, if not maybe even losing share the last couple of years. But is it coming from some of the value-added competitors? Just where do you think, at 5%, you're getting kind of what I think is probably a couple of points above market growth over these last four, five, six quarters? Yeah, thanks, Jeff. And too bad you missed all the prepared comments that were, you know, it's all brilliant.

Speaker Change: <unk>, you're getting kind of what I think is probably a couple a few points above market growth.

Jeff D. Johnson: These last 456 quarters. Thanks.

Speaker Change: Yes, Thanks, Jess and too bad you missed all the prepared comments.

Donald J. Zurbay: They were, you know, brilliant. But I think the, you know, the 5%, the 5%, I, you know, when we look at this, it, it really is across the board. I mean, I think, you know, I know that sounds a bit like a pat answer, but when we look through it, I would say that's the best way I can explain it to you. There's not a specific area that I would point to that says, you know, here's where we're doing so much better than anywhere else. I think it's just been across the board.

Speaker Change: It's all brilliant but.

Donald J. Zurbay: But I think the, you know, the five, the 5%, I, you know, when we look at this, it really is across the board. I mean, I think, you know, I know that sounds a bit like a pat answer. But when we look through it, I would say that's the best way I can explain it to you. There's not a specific area that I would point to that says, you know, here's where we're doing so much better than anywhere else. I think it's just been across the board.

Speaker Change: I think the.

Speaker Change: The five.

Speaker Change: <unk>, 5% when we look at this.

Jeff D. Johnson: It really is across the board I mean, I think that's.

Jeff D. Johnson: Thats sounds a bit like a pat answer but.

Jeff D. Johnson: When we look through it I wouldn't say, that's the best way I can explain it to theres not a specific area that I would point to that says here's where we're <unk>.

Jeff D. Johnson: Doing so much better than anywhere else I think it's just been across the board.

Donald J. Zurbay: And so, you know, to us, that feels good. I think we feel like our value proposition here in our process is working on the sustainability of the 2%. You know, we try to take a disciplined approach, as I mentioned, and we work with share that we think could be sustainable for us. So I think that particular piece of it, we have optimism about our ability to keep it as it relates to the sustainability of a 7% growth rate. I won't, I won't necessarily comment on that. I mean, you know, it's a very competitive market. We like the trend here, and it's a trend for a longer period of time.

Donald J. Zurbay: And so, you know, to us, that feels good. I think we feel like our value proposition here in our process is working. On the sustainability of the 2%, you know, we try to take a disciplined approach, as I mentioned, and work with a share that we think could be sustainable for us. So I think that particular piece of it, we have optimism about our ability to keep it as it relates to the sustainability of a 7% growth rate. You know, I won't necessarily comment on that.

Jeff D. Johnson: And so.

Jeff D. Johnson: To us that that feels good I think we feel like our value proposition here.

Jeff D. Johnson: Yes, there is working.

Jeff D. Johnson: On the sustainability of the of the 2%, we we try to take a disciplined approach as I mentioned to this end and work with share that we thought could be sustainable for us. So I think that particular piece of it.

Jeff D. Johnson: We have optimism about our ability to keep it.

Jeff D. Johnson: As it relates to the sustainability of a 7% growth rate I won't I won't necessarily comment on that I mean.

Donald J. Zurbay: I mean, you know, it's a very competitive market. We like the trend here, and it's a trend for a longer period of time. So I think it's, it's showing up as not just a one-time situation, but, but, you know, that wouldn't necessarily assume that we can keep up at seven going forward. And then I guess just the follow-up question. And again, hopefully, this wasn't covered, or I'm not asking you to repeat anything. But basic equipment, you know, you have a little bit less exposure, some less exposure to DSOs, maybe than some of your competitors.

Jeff D. Johnson: A very competitive market.

Jeff D. Johnson: We like the trend here and it's a trend over a longer period of time. So I think it's showing up as not just a onetime situation, but net doing necessarily assume that we can keep up at seven going forward.

Donald J. Zurbay: So I think it's it's showing up as not just a one-time situation, but you know, that wouldn't necessarily assume that we can keep up at seven going forward. And then I guess just the follow-up question. And again, hopefully, this wasn't covered, or I'm not asking you to repeat anything. But basic equipment, you know, you have a little bit less exposure, some less exposure to DSOs, maybe than some of your competitors.

Jeff D. Johnson: Okay.

Speaker Change: And then I guess, just as a follow up question and again, hopefully this wasn't covered or I'm not asking you to repeat anything.

Speaker Change: Basic equipment, you have a little bit less exposure, some less exposure to dsos maybe than some of your competitors.

Donald J. Zurbay: So I think you're getting a good look at kind of what the private practice dentist is doing from an office remodel and office expansion standpoint. And, you know, prices settled out in basic equipment probably closer back down to flattish levels over the next 12 months relative to some elevated pricing in the past 12 months. So just where is that volume growth on the basic equipment side in the private practice channel? Do you think there's still expansions and remodeling going on? Do you expect the basic equipment market to be closer to flattish, up, or down a little? Just any color there would be helpful.

Donald J. Zurbay: So I think you're getting a good look at kind of what the private practice dentist is doing from an office remodel and office expansion standpoint. And, you know, prices settled out in basic equipment probably closer back down to flattish levels over the next 12 months relative to some elevated pricing in the past 12 months. So just where is that volume growth on the basic equipment side in the private practice channel? Do you think there's still expansions and remodeling going on? Do you expect the basic equipment market to be closer to flattish up or down a little? Just any color there would be helpful.

Speaker Change: I think youre a good look at kind of what the private practice Dennis is doing from an office remodel office expansion standpoint in that and we know prices settle out and basic equipment, probably closer back down to flattish levels over the next 12 months relative to relative to some elevated pricing in the past 12 months.

Speaker Change: So just we're kind of is that volume growth on the basic equipment side and the private practice channel do you think there is still expansion and remodeling going on do you expect that price.

Speaker Change: Basic equipment market to be closer to flattish up or down a little just any color there would be helpful. Thank you.

Donald J. Zurbay: Thank you. Yeah. No, I think there's definitely opportunity here, for sure, in the private practice as well. You know, it moderated in the quarter. But again, as we've mentioned before, three-month books are hard.

Donald J. Zurbay: Thank you. Yeah. No, I think there's definitely an opportunity here, for sure, in the private practice as well. You know, it moderated in the quarter. But again, as we've mentioned before, three-month books are hard.

Speaker Change: Yeah.

Speaker Change: No I think there's I think there's definitely an opportunity here.

Speaker Change: For sure.

Speaker Change: In the private practice as well.

Speaker Change: It moderated in the quarter, but again as we've mentioned before three months works are.

Donald J. Zurbay: So we would probably want to look at it as we move forward with more, I wouldn't say historical norms, but you know, you may want to look at the core, the core, equipment market over time here as we move forward as, you know, flat to slightly up. Your next question comes from Allen Lutz with Bank of America. Please go ahead. Good morning, and thanks for taking the question. Dental patient traffic trends have been all over the place over the past six months or so.

Donald J. Zurbay: So we would probably want to look at it as we move forward with more, I wouldn't say historical norms, but you know, you may want to look at the core equipment market over time here as we move forward as, you know, flat to slightly up. Your next question comes from Allen Lutz with Bank of America. Please go ahead. Good morning and thanks for taking the questions.

Speaker Change: So so we would probably want to look at it as we move forward.

Speaker Change: More I wouldn't say historical norms, but.

Speaker Change: You may want to look at the core the core.

Speaker Change: Equipment market over time here as we move forward us flat.

Speaker Change: Flat to slightly up.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Your next question comes from Allen Lutz with Bank of America. Please go ahead.

Allen Lutz: Good morning, and thanks for taking the questions.

Allen Charles Lutz: Dental patient traffic trends have been all over the place over the past 6 months or so. Can you speak to the trend that you observed during your fiscal 3Q and any comments on the January exit rate and what you're seeing so far in February? Thanks. Yeah, well, I guess I would say, from our perspective, I mean, I know there's been some movement up and down to some extent, but I would say, generally, we view patient traffic as being pretty steady and favorable over the longer term here, and that's kind of our view in terms of what we think happens as we move forward. Okay, great.

Allen Lutz: Dental patient traffic trends have been all over the place over the past six months or so can you speak to the trend that you observed during your fiscal <unk> and any comments on the January exit rate and what Youre seeing so far in February.

Donald J. Zurbay: Can you speak to the trend that you observed during your fiscal third Q and any comments on the January exit rate and what you're seeing so far in February? Yeah, well, I guess I would say, from our perspective, I mean, I know there's been some movement up and down to some extent, but I would say, generally, we view patient traffic as being pretty steady and favorable over the longer term here, and that's kind of our view in terms of what we think happens as we move forward. Okay, great.

Speaker Change: Yeah, well I guess I would say.

Speaker Change: From our perspective, I mean, I know there's been some.

Speaker Change: We will move up and down to some extent, but I would say generally we have viewed patient traffic has been pretty steady and favorable.

Speaker Change:

Speaker Change: Over over there over the longer term here and Thats kind of our view in terms of what we think happens as we move forward.

Speaker Change: Okay.

Speaker Change: Okay, Great and then following up on a question around SG&A I know it was up a little bit around strategic investment that software spend can you just speak to the duration of those investments I'm not looking for any commentary on 2025, but just trying to understand when should we expect those spending trends to normalize a bit. Thanks.

Kevin Barry: And then following up on a question around SG&A, I know it was up a little bit around strategic investments and software spend. Can you just speak to the duration of those investments? I'm not looking for any commentary on 2025, but just trying to understand when should we expect those spending trends to normalize a bit? Thanks.

Kevin Barry: Yeah, I think, you know, for the portion of it that was related to some of those big distribution investments we made this year, those kind of have normalized here in Q4. So we're seeing those kind of step down. You know, you know, but we continue to invest in our software portfolio; that will be more sustainable as that team continues to work on those product feature sets, and some of that's capital, some of that's expense. And so that will be more sustainable in our business as that part of the portfolio grows. So you will see a bit of a step down here in Q4 going forward related really to those warehouse expansions. Great, thank you. Your next question comes from Justin Lin with William Blair. Please go ahead. Hi, good morning.

Speaker Change: Yes, I think.

Speaker Change: For that portion of it that was related to some of those big distribution investments you made this year those cash abnormal last year in Q4. So we're seeing those have stepped down.

Speaker Change: Yeah.

Speaker Change: But we continue to invest in our in our software portfolio and those will be more sustaining as that team continues to work on those product feature sets and some of that's capital some of that expense.

Speaker Change: So that will be more sustaining in our in our business is that part of the portfolio grows.

Speaker Change: So you will see a bit of a step down here in Q4 going forward not related really to us.

Speaker Change: Warehouse warehouse expansions.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

Speaker Change: Your next question comes from Justin Lin with William Blair. Please go ahead.

Jeffrey D. Johnson: Hi, Good morning, Thanks for taking my questions first just on the equipment side. What are you seeing in terms of pricing headwinds on the intra oral scanner side. Your competitor has talked about that for a while so just curious to see how that dynamic plays in your dental equipment business.

Operator: Thanks for taking my questions. First, just on the equipment side, what are you seeing in terms of pricing headwinds on the intramural scanner side? You know, your competitor has talked about that for a while. So I'm just curious to see how that dynamic plays out in your dental equipment. Yeah, you know, we've, you know, I think we've talked a bit about in the past about those high-tech categories. Got it. And Valley Added Services on the dental site specifically, was about flat year over year. Can you talk about what drove that?

Jeffrey D. Johnson: Yes.

Speaker Change: I think we've talked about over the past year.

Speaker Change: A number of quarters that pricing pressure in those categories I think we're starting to see some some stabilization there we're starting to lap it.

Speaker Change: It might have another quarter or two that headwind, but it certainly seems.

Speaker Change: Seems to be stabilizing from from what we see in our data.

Speaker Change: Hi Tech categories.

Speaker Change: Got it.

Speaker Change: Value added services on the dental side, specifically it was about flat year over year.

Donald J. Zurbay: It seems a little wide compared to, you know, how that business has done historically in the past, call it six quarters. Yeah, so just to remind you that that category encompasses kind of a variety of the services we provide our customers, including our software portfolio, and our tech service repair portfolio. You know, there can be some seasonality and puts and takes within, you know, our tech service business and those software businesses quarter to quarter. So, like you said, we're kind of flattish here this quarter for that portfolio. But, you know, I think we'd say that, you know, that was kind of one quarter over the long term.

Speaker Change: Can you talk about what drove that seems a little wide compared to how that business had done historically in the past call it six quarters.

Speaker Change: Yes.

Speaker Change: Yes, so just to remind you that those.

Speaker Change: That category encompasses kind of a variety of the services you provide our customers, including our software portfolio, our tech service repair portfolio.

Speaker Change: There can be some seasonality and puts and takes within our tech service business at Endo software cap businesses quarter to quarter. So like you said were kind of flattish here this quarter for that portfolio.

Speaker Change: In fact, I think we would say that that was happening.

Speaker Change: One quarter over the long term, we still expect that part of our business to grow faster than the overall as we continue to invest there, yes, I think that wouldn't be an important category to look at again by many of our categories, but that's an important one to look at over and over.

Kevin Barry: We still expect that part of our business to grow faster than the overall as we continue to invest there. Yeah, I think that would be an important category to look at again, like many of our categories, but that's an important one to look at over longer, longer periods of time. Got it. Thank you. Your next question comes from Kevin Caliendo with UBS. Please go ahead.

Speaker Change: Longer longer periods of time.

Speaker Change: [laughter].

Speaker Change: Yes.

Speaker Change: Got it thank you.

Speaker Change: Your next question comes from Kevin Caliendo with UBS.

Kevin Caliendo: Go ahead.

Operator: Thanks. Thanks for taking my question. I do want to talk a little bit about 2025. And while I'm not asking for specific guidance, I just want to think about it.

Kevin Caliendo: Thanks, Thanks for taking my question.

Kevin Caliendo: I do want to talk a little bit about 2025.

Kevin Caliendo: And while I'm not asking for specific guidance I just wanted to think about.

Kevin Caliendo: When we think about headwinds and tailwinds as we bridge to 25, the things that you can control in terms of investment spend and capital deployment, should we think about those as being incrementally? a headwind or a tailwind in terms of investment spend, or the way you deployed capital this year was a little bit more aggressive than usual in terms of share buybacks. Just thinking about the things that you can control, what might be incrementally positive or negative to earnings growth for next year versus what we saw in fiscal 24? Well, I think I'll start with Don.

Kevin Caliendo: When we think about headwinds and tailwind as we bridge to 25, the things that you can control in terms of investment spend in capital deployment should.

Speaker Change: Should we think about those as being incrementally.

Speaker Change: Headwind the tailwind in terms of investment spend or.

Speaker Change: The way you deploy capital this year was a little bit more aggressive than historical in terms of share buybacks.

Speaker Change: Just thinking about the things that you can control what might be incrementally positive for.

Speaker Change: Our negative to earnings growth for next year versus what we saw in fiscal 'twenty four.

Speaker Change: Well I think I'll start on China.

Kevin Barry: Specifically on the share buybacks, yeah, you're right. We have, you know, returned a lot more capital to shareholders this year. And as a result of that, there will be a share count tailwind going into, you know, Q4 here and into fiscal 25. That will help us from an EPS standpoint. So, that'll certainly be a tailwind going into next year.

Speaker Change: Typically on the share buybacks, yet youre right. We have returned a lot more capital to shareholders.

Speaker Change: And as a result of that there will be a share count tailwind going into Q4 here and then into fiscal 'twenty five that will help us from an EPS standpoint, so so that'll certainly be a tailwind going into next year.

Donald J. Zurbay: For some, you know, some of the capital expenses we've had this year, we have had an elevated amount of CapEx this year. As we get into our budgeting cycle this year, we're going to be evaluating what the right level is, like we always do. It might slow down a bit going into next year as we, as we lap some of those investments made this year. But, but I still think we've got some really good investment opportunities internally that we want to fund, and we've got the balance sheet to do so. And maybe Don can talk about that. Yeah, I mean, I think Kevin brought up a good point at the end there. I mean, it is elevated.

Speaker Change: Some of them some of them.

Speaker Change: Capital expenditures.

Speaker Change: Expenses, we've had this year, we have had an elevated amount of capex this year.

Speaker Change: As we get into our budgeting cycle. This year are going to be evaluating what the right level is likely always do it might step down going into next year as we lap.

Speaker Change: Lap some of those investments made this year, but I still think we've got some really good investment opportunities internally that we want to fund and got the balance.

Speaker Change: Balance sheet yourself.

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

Donald J. Zurbay: Some of the particular projects that we've talked through here, You know, we'll go, we'll go away, but we do and are finding more and more opportunities internally that are good investment values for us in terms of the use of our capital. So, I would expect us to continue to be aggressive in finding, you know, all the internal projects we can that are gonna benefit us in the future. And if I can ask a quick follow-up question on dental equipment, there's, I think, some of the messaging we heard from your competitor yesterday was that maybe demand was going to come back a little bit in the second half of calendar 24. And I guess what I'm not asking for is any of that, but do you think demand is elastic based on price, where prices have come down enough where there's increased demand now? Or was it purely macro interest rates?

Speaker Change: The particular projects that we've talked through here.

Speaker Change: We will go will go away, but what we do and are finding more and more opportunities internally.

Speaker Change: Our good investment value for us in terms of use of our capital so.

Speaker Change: I would expect us to continue to be aggressive to find.

Speaker Change: All of the internal projects, we can that that are going to they're going to benefit us in the future.

Speaker Change: Yeah.

Speaker Change: And if I can ask a quick follow up on dental equipment.

Speaker Change: There is I think some of the messaging we heard from from your competitor yesterday was that maybe demand was going to come back a little bit in the second half of calendar 'twenty, four and I guess, what im not asking for any any of that but do you think demand is elastic based on price where the prices have come down.

Speaker Change: Enough for now there is increased demand or was it purely macro interest rates and now that that's a new normal like things can recover I'm just interested in your take on sort of whats <unk>.

Donald J. Zurbay: And now that that's a new normal, like, things can recover. I'm just interested in your take on sort of what drives equipment, both digital and core demand in either category, whether it's price, economics, interest rates, or the like. Yeah, so we, I would say both of those factors have factored in pretty significantly to what's happening here in the equipment market. I think it's also why it's been a little difficult to predict exactly where we're going. You know, I think, again, as we move into, for us, as we move into our fiscal 2025, I think, you know, we feel like, early in the year, we may not see it, but to your point, later in the year, I think we will see some improvement.

Speaker Change: Driven equipment, both digital and core demand in either category.

Speaker Change: Whether it's price economics interest rates or the like.

Speaker Change: Yes, so we.

Speaker Change: I would say both of those factors.

Speaker Change: Factored in pretty significantly to what's happening here in the equipment market I think it's also why it's been a little difficult to call exactly where we're going.

Speaker Change: I think again as we move into for US as move into our fiscal 2025, which starts in May I think we feel like.

Speaker Change: Early in the year, we may not see it but to your point later in there I think we could see we will see some improvement one of the factors here too is just.

Donald J. Zurbay: One of the factors here, too, is that we're a little bit tied to the innovation cycles and innovation, and we need that as well to help that dynamic. So as we move into the latter part of the calendar year, maybe the latter part of our fiscal year, you know, we hope that's part of the equation that we think will drive that. Thanks, guys. Your next question comes from Elizabeth Anderson with Evercore. Please go ahead. Hi guys.

Speaker Change: We were a little bit.

Speaker Change: Tied to the innovation cycles in innovation and.

Speaker Change: And we need that as well too to help that dynamic so as we move into the latter part of the calendar year, maybe the latter part of our fiscal year.

Speaker Change: We hope that as part of the equation that we think.

Speaker Change: We will drive that.

Speaker Change: Okay.

Speaker Change: Thanks, guys.

Speaker Change: Yeah.

Speaker Change: Your next question comes from Elizabeth Anderson with Evercore. Please go ahead.

Operator: Thanks so much for the question. I was wondering about the contribution of private legal products in the quarter, particularly dental. And then, as sort of a follow-on, how do you think about the opportunities within specialty? Is that something that you should continue, that you have an interest in sort of expanding a presence in that market? Obviously, you've seen very much above market growth without that.

Elizabeth Anderson: Hey, guys. Thanks, so much for the question I was wondering if you could talk about the contribution of private label products and the core.

Elizabeth Anderson: Particularly in the dental and then as sort of a follow on how do you think about the opportunities within specialty is that something that you should continue then you can kind of interest in sort of expanding our presence in that market. Obviously, you've seen very much above market growth without that so just curious how youre thinking about that at this point in time.

Donald J. Zurbay: So just curious how you're thinking about that at this point. Yeah, so on the private label side, Elizabeth, I'd say, you know, without giving a specific number, but you know, that continues to be an area of focus for the team, especially as we grow the way we are. So I think that continues to be a real big focus for us and is paying some dividends in the market. And then, yeah, I think on the specialty side, that's obviously a segment of the market that we're not very significant in.

Speaker Change: Yes, so on the private label side, but I would say.

Speaker Change: Not giving a specific number but that continues to be an area of focus for the team, especially as you know.

Speaker Change: Some of the portfolio offerings and our private label.

Speaker Change: <unk> growth there and we continue to see.

Speaker Change: Adoption by our customers and it's a big part of I think.

Speaker Change: Sure our growing the way we are.

Speaker Change: So I think that continues to be a real big focus for us and that's paying some dividends in the market.

Speaker Change: Yes.

Speaker Change: On the specialty side, that's obviously a segment of the market, but we're not significantly.

Donald J. Zurbay: You know, so without kind of giving away anything on our strategy, I mean, you know, we certainly, over time, would love to be in that area, but it would need to be the right entry point, the right kind of transaction. So, you know, hard, hard to say as we move forward, whether, whether that's something that will be part of our portfolio in the future. Got it.

Speaker Change:

Speaker Change: So without without kind of giving away anything on our strategy.

Speaker Change: Certainly.

Speaker Change: Over time to be in that area it would need to be the right. The right entry point, the right kind of transaction so.

Speaker Change: Hard to say as we move forward, whether whether that's something that will be part of our portfolio.

Speaker Change: In the future.

Kevin Barry: And then, if we just think about the 4Q cadence, can you remind us of the impact that you guys saw in terms of incentive comp from sort of the outperformance that you had in equipment in the fourth quarter of last year? Um, Yeah, I mean, I think what I may have pointed back to Elizabeth is that, even with that comp last year, we still saw our typical, we see some good leverage in the fourth quarter. I expect to see that again this year. There are a number of puts and takes in the NAPEX arena here this fourth quarter as well. So, to say that, you know, it is expected to see some moderating spend in the fourth quarter on some of those initiatives we talked about. Again, I see a step out as a percent of sales. I got it. Thank you very much. Our last question today comes from Nathan Rich with Goldman Sachs. Please go ahead. Great Good morning, and thanks for fitting me in.

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

Speaker Change: Hi.

Speaker Change: Yeah, I think what I'd, maybe point you back to what was it versus kind of like to.

Speaker Change: Jason's question I think.

Speaker Change: Even with that comp last year.

Speaker Change: We still saw our typical we see some good leverage in the fourth quarter I expect to see that again. This year with there are a number of puts and takes in the Opex arena here this fourth quarter as well so.

Speaker Change: And Sustainment.

Speaker Change: <unk> see.

Speaker Change: You see some moderating spend in the fourth quarter on some of those initiatives, we talked about and.

Speaker Change: I see a step down as a percent of sales from where we were in Q3.

Speaker Change: Got it thank you very much.

Speaker Change: Yeah.

Speaker Change: Our last question today comes from Nathan Rich with Goldman Sachs. Please go ahead.

Nathan Rich: Great. Good morning, and thanks for fitting me in just maybe a couple of clarifications.

Operator: Just maybe a couple of clarifications at the end. I think I wanted to go back to the revised outlook for equipment and maybe just how that breaks down between core and digital. You know, I understand core was softer in the quarter.

Speaker Change: And.

Nathan Rich: I think.

Nathan Rich: I wanted to go back to the revised outlook for equipment, and maybe just how that breaks down between core and digital I understand core was softer in the quarter. It doesn't really what drove the revision to the outlook.

Donald J. Zurbay: Is that really what drove the revision to the outlook? You know, and the competitor yesterday, I think he talked about the kind of robust kind of investment plans from practices, you know, on the more traditional side. So if that's what's driving your revised outlook, I would be curious to get your view there. Yeah, I think you know, I think it's fair, Nathan, obviously, we're talking about a slightly different timeline, I think that our competitor is, but as we kind of narrow in on the last couple months of our fiscal year, and we're looking at that whole environment, we certainly can see that core core is a bit softer here in Q3.

Nathan Rich: And the competitor yesterday, I think talked about the kind of robust kind of investment plans from practices on the more traditional side. So if that's what's driving your revise alloy or just would be curious to get your view there.

Nathan Rich: Yeah.

Speaker Change: Yes, I think that's I think that's.

Speaker Change: Fair Nathan obviously, we're talking about a slightly different timeline I think that our competitor is but as we narrow any ear on the last couple of months of our fiscal year and we're looking at that whole environment, we certainly can see cores.

Speaker Change: <unk> is a bit softer here in Q3 and as we said in Q4, we built that adult Bang for the next couple of months here.

Donald J. Zurbay: And as we consider Q4, we built that in for the next couple. Okay. And then, Kevin, I wonder if you could kind of give us a rough sense of maybe how the investment spend has been split between the dental and animal health segments versus what might be in corporate. I guess it sounds like, you know, you all else equal kind of would expect to step up in margins as a result of that spend stepping down. So just, you know, curious where we should see that show up in the P&L. Yeah, it's, in terms of the distribution investments we've made, that's fairly split. You know, there was a significant one on animal health and on dental. So that's really split because the software investments we're making at this point are more focused on the dental portfolio. So that's where, you know, that one's going to run a little bit longer. You know, and that's been animal health.

Speaker Change: Okay and then.

Speaker Change: Kevin I was wondering if you could kind of give us a rough sense of maybe how the investment spend has been split between the the dental and animal health segments versus what might be incorporate.

Kevin: I guess it sounds like.

Kevin: All else equal kind of would expect a step up in margins as a result of that spend stepping down. So just curious where we should see that show up in the P&L.

Kevin: Okay.

Kevin: Yeah I'd say.

Kevin: In terms of the distribution investments, we've made thats fairly split.

Kevin: Was that a significant one in animal health and on Daniel's So that's really split.

Kevin: At the software investments, we're making at this point are more focused on the dental portfolio, so thats where that.

Kevin: One is going to run a little bit longer.

Kevin: Yes.

Kevin: In animal health.

Kevin Barry: Great. Thanks very much. Okay, well, I think that's all our questions. So we're going to sign off and thank you all for your time today and interest in Patterson Companies, and we'll talk to you next quarter. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Great. Thanks very much.

Speaker Change: Okay.

Speaker Change: I think that's all our questions. So we're going to sign off and thank you all for the time today and interest in Patterson companies and we will talk to next quarter.

Speaker Change: Yeah.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: [music].

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