Q1 2025 Patterson Companies Inc Earnings Call
Good morning and welcome to the Patterson Company's Inc. 1st quarter fiscal 2025 earnings call.
Operator: Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise.
Speaker Change: Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your questions, press star one again.
John Wright: We'll now turn the call over to John Wright, Vice President of Investor Relations. Please go ahead, sir.
Speaker Change: Well, now turn the call over to John Wright, Vice President of Investor Relations. Please go ahead there.
John Wright: Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Company's fiscal 2025 first quarter conference call. Joining me today are Patterson and President and Chief Executive Officer Don Zurbay and Patterson Chief Financial Officer Kevin Barry.
John Wright: Thank you, operator. Good morning, everyone. And thank you for participating in Patterson Company's fiscal 2025 first quarter conference call.
John Wright: Joining me today are Patterson and President and Chief Executive Officer, Dom Zurbay and Patterson Chief Financial Officer, Kevin Barry. After a review of our results and help look by the management, we will open the call to your questions.
John Wright: After a review of our results and help look 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. We encourage you to review this material. 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: 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.
Speaker Change: These factors, which could cause actual results to materially differ from those indicated in such cold-looking statements, are discussed in detail in our form 10K, and are other guidelines with the Securities and Exchange Commission.
Speaker Change: We encourage you to review this material.
Thomas: In addition, Thomas about the market's research, including growth rates and market shares, are based upon the company's internal analysis and estimates.
John Wright: The content of this conference call contains time-sense of information that is accurate only as of the date of the live broadcast, August 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.
Thomas: The content of this conference call contains time sense of information that is accurate as only as of the date of the live broadcast August 28th, 2024.
Speaker Change: Patterson undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the day to this call. Also, a financial slide presentation can be found in the Investor Relations section of our website at PattersonCompany.com.
John 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 first quarter of fiscal 25. 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 tax-related effect of these items. We will also discuss free cash flow as defined in our earnings release, which is a non-gap measure, and use the term internal sales to represent that net sales adjusted to exclude the impact of foreign currency and the net impact of an interest rate swap.
Speaker Change: Please note that in this morning's conference call, we will reference our adjusted results for the first quarter of fiscal 25.
Speaker Change: The reconciliation tables in our press release are provided to adjust various report of gap measures for the impact of deal amortization and the interest rate swap, along with any tax related effect of these items.
Speaker Change: We will also discuss free cash flow as to find in our earnings release, which is an on-gap measure and use the term internal sales to represent that sales adjusted to exclude the impact of foreign currency and then impact of an interest rate slot.
John Wright: These non-gap measures are not intended to be a substitute for our gap results.
Speaker Change: These non-get measures are not intended to be a substitute for our gap results.
John Wright: 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: 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. Now I'd like to hand the call over to Don Zurbay.
Don Zurbay: Now, I'd like to hand the call over to Don Survey.
Don Zurbay: Thanks, John, and welcome everyone to Patterson's fiscal 2025 first quarter conference call. I would begin my remarks today by discussing the drivers of our consolidated results, including a detailed look at the factors that contributed to a slower start to the year than we had anticipated. We'll then review the financial performance of each of our segments. Patterson company's first quarter fiscal year 2025 results declined on a year-over-year basis, reflecting the dynamic and evolving macro environment in which we and our customers operate, marked by persistent inflation, elevated interest rates, and general uncertainty. In addition to these headwinds, a few additional factors caused our financial results to fall short of our own expectations for the first quarter.
Don Zurbay: Thanks John and welcome everyone to Patterson's fiscal 2025 first quarter conference call.
Don Zurbay: I would begin my remarks today by discussing the drivers of our consolidated results, including a detail look at the factors that contributed to a slower start to the year than we had anticipated.
Operator: 25 Earnings Call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise.
Speaker Change: will then review the financial performance of each of our segments.
Speaker Change: Patterson Company's first quarter of fiscal year 2025 results declined on a year over your base.
Operator: After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad to withdraw your question, press star one again.
Speaker Change: reflecting the dynamics in evolving macro environment in which we and our customers operate, marked by persistent inflation, all of their interest rates in general uncertainty.
John Wright: We'll now turn the call over to John Wright, Vice President of Investor Relations. Please go ahead sir. Thank you operator.
Speaker Change: In addition to these headwinds, a few additional factors caused our financial results to cause short of our expectations for the first quarter.
Don Zurbay: First, with lower than anticipated financial performance in our companion animal business, well, part of the decline in sales year over years driven by the macro economic buyer environment that existed during the first quarter, we also continue to make strategic decisions to focus less on top on sales and more unprofitable business within the companion animal segment. As a result, these decisions impacted our ability to earn rebate incentives based on sales and also had a corresponding margin impact during the quarter. Second, the timing of certain corporate expenses, including an unexpected increase in medical claims, further impacted patterns for the first quarter results.
John Wright: Good morning, everyone, and thank you for participating in Patterson Company's fiscal 2025 first quarter conference call. Joining me today are Patterson and President and Chief Executive Officer Donald Zurbay and Patterson Chief Financial Officer Kevin Barry. After a review of our results and help look 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.
Speaker Change: First, with lower than anticipated financial performance in our companion animal business.
Speaker Change: Well, part of the decline in stales year over years driven by the macroeconomic fire environment that existed during the first quarter. We also continue to make strategic decisions to focus less on top line stales and more in profitable business within the companion animal segment.
John Wright: 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 10k and our other filings with the Securities and Exchange Commission. We encourage you to review this material. In addition, comments about the markets we serve, including growth rates and market shares are based upon the company's internal analysis and estimates. The contents of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast August 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: As a result, these decisions impacted our ability to earn rebate incentives based on sales and also had a corresponding margin impact during the court.
Speaker Change: Second, the timing of certain corporate expenses, including an unexpected increase in medical claims, further impacted patterns and first quarter results.
Don Zurbay: As a self-insured entity, these anomalies can certainly occur at a given point in time, and we expect our medical insurance costs to normalize over the remainder of the fiscal year. And finally, and most significantly, was a greater than anticipated impact within our value added services category in our dental segment caused by the change healthcare cybersecurity attack that occurred in Patterson's Q4 fiscal 2024. A large portion of our dental software customers, whether those using Eagle Soft use or Dolphin utilize a fee-based integration that we had with Change Healthcare to submit their claims for insurance reimbursement. When the cyber attack on Change Healthcare occurred, the outage completely prohibited the dental customers from being able to submit insurance claims for processing, causing both disruption and a lack of reimbursement by the insurance providers.
Speaker Change: As a self-insured entity, he's anomaly certainly, he's certainly a curative given point of time. And we expect our medical insurance costs to normalize over the remainder of the fiscal year.
Speaker Change: And finally, and most significantly, was a greater than anticipated impact within our value at a service as category, in your dental segment, caused by the change health care cybersecurity attack to be occurred in Patterson's Q4, fiscal 2024.
John 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 first quarter of fiscal 25. 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 tax-related effect of these items. We will also discuss free cash flow as defined in our earnings release, which is a non-gap measure and use the term internal sales to represent that net sales adjusted to exclude the impact of foreign currency and the net impact of an interest rate swap. These non-gap measures are not intended to be a substitute for our gap results.
Speaker Change: A large portion of our dental software customers whether those using eagle soft, views or dolphin utilize a fee-based integration that we have with change health care to submit their claims for insurance reimbursement.
Speaker Change: When the cyber attack on change health care occurred, the audience completely prohibited the dental customers from being able to submit insurance claims for processing.
Speaker Change: causing both disruption and a lack of reimbursement by the insurance providers.
Don Zurbay: During the time of the outage, Patterson was unable to charge the fees it normally does to these customers for this service. While we quickly identified an alternative solution for our dental software customers that were impacted from the cyber attack, the transition time to this new solution is taking longer than expected. In addition, as our software and eServices teams work hand in hand with their customers to navigate the disruption, those same teams were unable to sell the other services that helped make up the entire value-added services category. Both the transition time to new provider and inability to sell new products and services during this transition time were greater than our initial expectations for the first quarter.
Speaker Change: During the time of the outage, Patterson was unable to charge the fees it normally does to these customers for this service.
Speaker Change: While we quickly identified an alternative solution for our dental software customers who were impacted from the cyber attack.
Speaker Change: The transition time to this new solution is taking longer than expected.
Operator: 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: In addition, as our software and user services teams work hand-in-hand with their customers to navigate the disruptions. So the same teams were unable to sell the other services that helped make up the entire value added services category.
Donald Zurbay: Now, I'd like to hand the call over to Don Survey. Thanks, John, and welcome everyone to Patterson's fiscal 2025 first quarter conference call. I would begin my remarks today by discussing the drivers of our consolidated results, including a detailed look at the factors that contributed to a slower start to the year than we had anticipated.
Speaker Change: Both the transition time to a new provider and inability to sell new products and services during this transition time were greater than our initial expectations for the first quarter.
Don Zurbay: Ultimately, for the first quarter of fiscal 2025, we delivered an adjusted EPS of 24 cents. On a year-over-year basis, we estimate this includes a negative impact of approximately six cents per diluted share, related to the previously mentioned cyber attack on Change Healthcare. In light of these unanticipated factors, we are taking dedicated cost and management actions to position Patterson to deliver on our financial plan for fiscal 2025. On the cost side, we are implementing costs and expense-discipline measures across the entire organization, in keeping with our core strategic objectives. There are a variety of levers we can and intend to pull operationally.
Speaker Change: Ultimately, for the first quarter of fiscal 2025, we delivered an adjusted EPS of 24 cents.
Donald Zurbay: We'll then review the financial performance of each of our segments. Patterson company's first quarter fiscal year 2025 results declined on a year-over-year basis, reflecting the dynamic and evolving macro environment in which we and our customers operate, marks by persistent inflation, elevated interest rates, and general uncertainty. In addition to these headwinds, a few additional factors caused our financial results to fall short of our own expectations for the first quarter. First, with lower than anticipated financial performance in our companion animal business, well part of the decline in sales year over years driven by the macro economic buyer environment that existed during the first quarter, we also continue to make strategic decisions to focus less on top on sales and more unprofitable business within the companion animal segment.
Speaker Change: On a year over year basis, we estimate this includes a negative impact of approximately six cents per diluted share related to the previously mentioned cyber attack on change health care.
Speaker Change: and why have we gone anticipated factors where we are taking dedicated costs and management actions to position Patterson to deliver on our financial plan for fiscal 2025.
Speaker Change: On the class side, we're implementing costs and expense discipline measures across the entire organization, keeping with our course for teaching objectives.
Don Zurbay: That said, we will continue to prioritize investments in our long-term growth and margin enhancement initiatives to improve profitability. On the management side, we see additional opportunities to accelerate demand-generating activities, including strategic promotions and incentive programs, as well as pricing strategies and promotional effects. in this. While the quarter did not meet her expectations, we believe the causes were unique to the quarter when we remain highly confident in the underlying strength of our business, our competitive positioning, and our investments in core strategic growth opportunities. Today, with strategies underway to come back to factors I just discussed, we are reaffirming our fiscal 2025 earnings guidance.
Speaker Change: There are a variety of levers we can and intend to pull operationally.
Speaker Change: That's said, we will continue prioritizing investments in our long-term growth and margin-and-sman initiatives to improve profitability.
Speaker Change: On the management side, we see additional opportunities to accelerate demand generating activities, including strategic promotions and incentive programs, as well as pricing strategies and promotional effectiveness.
Donald Zurbay: We also had a corresponding margin impact during the quarter. Second, the timing of certain corporate expenses, including an unexpected increase in medical claims, further impact in Patterson's first quarter results. As a self-insured entity, these anomalies can certainly occur at a given point in time, and we expect our medical insurance costs to normalize over the remainder of the fiscal year. And finally, and most significantly, was a greater than anticipated impact within our value added services category in our dental segment caused by the change health care cybersecurity attack that occurred in Patterson's Q4 fiscal 2024.
Speaker Change: Well, according to not meet her expectations, we believe the cause we're unique to the quarter. And we remain highly confident in underlying strength of our business. Our competitive positioning and our investments in course to reduce your growth opportunities.
Speaker Change: Today, it was through strategies underway to come back to factors that just discussed. We are reaffirming our fiscal 2025 earnings guides.
Don Zurbay: Looking forward, the focus areas for the remainder of the fiscal year are in line with our long-term strategy, which, as a reminder, is designed to achieve four strategic objectives. First, drive revenue growth above the current and market growth rates. 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 markets. And fourth, improve efficiency and optimization.
Speaker Change: Looking forward, the focus areas for the remainder of the fiscal year are in line with our long-term strategy, which as a reminder is designed to achieve forced, strategic objectives.
Speaker Change: First, drive revenue growth above the current and market growth rates.
Speaker Change: Second, build upon the progress we've made to enhance our margin performance.
Donald Zurbay: A large portion of our dental software customers, whether those using eagle soft, fuse or dolphin, utilize a fee-based integration that we had with change health care to submit their claims for insurance reimbursement. When the cyber attack on change health care occurred, the outage completely prohibited the dental customers from being able to submit insurance claims for processing, causing both disruption and a lack of reimbursement by the insurance providers. During the time of the outage, Patterson was unable to charge the fees it normally does to these customers for this service.
Speaker Change: Third, evolve our products, channels and services to best serve the customers in our in markets and for improved efficiency and optimization.
Don Zurbay: Now, I'll provide more detail on the financial performance in each of our two business segments during fiscal 2025 first quarter as a comparative similar period last year. Let's start with dental. In dental, internal sales declined 3% compared to the first quarter of fiscal 2024. Primarily due to a 2% year-over-year decrease in dental consumables. Excluding the deflationary impact of certain infection control products, internal sales of dental consumables decrease 1.7% compared to the first quarter of fiscal 2024. We expect the year-over-year impact of deflationary pressure in our infection control product portfolio to be negligible going forward. Part of the reason for the decline in dental consumables relates to a tougher macroeconomic environment than a year ago.
Donald Zurbay: While we quickly identified an alternative solution for our dental software customers that were impacted from the cyber attack, the transition time to this new solution is taking longer than expected. In addition, as our software and e-services teams work hand in hand with their customers to navigate the disruption, those same teams were unable to sell the other services that helped make up the entire value added services category. Both the transition time to a new provider and inability to sell new products and services during this transition time were greater than our initial expectations for the first quarter.
Speaker Change: Now provide more detail on the financial performance in each of our two business segments during fiscal 2025 first quarter as a comparative similar period last year.
Speaker Change: Let's start with Dan Zurb.
Dan Zurb: In dental, internal sales declined 3% compared to the first quarter of fiscal 2024. Primarily due to a 2% year-over-year decrease in dental consumables.
Speaker Change: Exploring the deflationary impact of certain infections in pho-products, internal sales, dental D3s 1.7% compared to the first quarter of fiscal 2020.
Speaker Change: We expect a year of a year impact of deflationary pressure in our infection control product portfolio to be negligible, going forward.
Speaker Change: Part of the reason for the decline and dental consumables relates to a tougher macroeconomic environment that
Don Zurbay: But also other market-driven events that occurred last year, one that did not occur this period. Additionally, the category also experienced a greater-than-anticipated impact due to the change healthcare cyber attack. As customers who could not easily submit claims for insurance reimbursement also ordered fewer consumables from us during this period. With respect to these customers, we've identified who they are and are working with our sales teams to ensure that they return to their previous ordering levels with us. Turning to dental equipment, internal sales decreased about 2% year-over-year. We believe this decrease from last year reflects the current macroeconomic impact.
Speaker Change: but also other market driven events that occurred last year when it did not occur this year.
Donald Zurbay: Ultimately, for the first quarter of fiscal 2025, we delivered an adjusted EPS of 24 cents. On a year-over-year basis, we estimate this includes a negative impact of approximately six cents per diluted share related to the previously mentioned cyber attack on change health care. In light of the unanticipated factors, we are taking dedicated cost and management actions to position Patterson to deliver on our financial plan for fiscal 2025. On the cost side, we are implementing costs and expense-discipline measures across the entire organization and keeping with our core strategic objectives.
Speaker Change: Additionally, this category also experienced a greater than anticipated impact due to the change health care cyber attack. As customers who cannot easily submit claims for insurance reimbursement, also ordered fewer consumables from us during this period.
Speaker Change: With respect to these customers, we have identified who they are and are working with our sales teams to ensure that they return their previous ordering levels with us.
Speaker Change: i
Speaker Change: During the dance of equipment, internal sales decreased up to 2% you over here.
Don Zurbay: We also continue to face challenging year-over-year comparisons for our core equipment and CAD-CAM categories, which each decline in double digits, partially offset by double digit keys in our digital category, underscoring the inherently lumpy nature of the equipment business. As mentioned, the first quarter was a challenging time in the economic cycle throughout the dental market. Lower overall consumer spending and higher interest rates from the quarter led to moderated levels of equipment purchases by dental practices. Despite this, Patterson's leading value proposition and dental equipment and technology remains unchanged. The market has long recognized and rewarded Patterson for our unique ability to support customers through the entire equipment life cycle.
Speaker Change: We believe this decrease from last year reflects the current macroeconomic impact.
Donald Zurbay: There are a variety of levers we tend and intend to pull operationally. That said, we will continue to prioritize investments in our long-term growth and margin enhancement initiatives to improve profitability. On the management side, we see additional opportunities to accelerate demand generating activities, including strategic promotions and incentive programs, as well as pricing strategies and promotional effects. Activeness. While the quarter did not meet our expectations, we believe the causes were unique to the quarter when we remain highly confident in the underlying strength of our business, our competitive, competitive positioning and our investments in core strategic growth opportunities.
Speaker Change: We also continue to face challenging year-over-year comparisons for our core equipment and CAD-Tam categories, which each declined in double digits, partially offset by double digit keys in our digital category.
Speaker Change: Under scoring the inherently lumpy nature of the equipment business.
Speaker Change: As mentioned, the first quarter was a challenging time in the economic cycle throughout the market.
Speaker Change: Lower overall consumer spending and higher interest rates from the core led to moderated levels of equipment purchases by dental practiceers.
Speaker Change: Despite this, Harrison Leading Valley Proposition and Dental Equipment and Technology remains unchanged.
Donald Zurbay: Today, with strategies underway to come back to factors I just discussed, we are reaffirming our fiscal 2025 earnings guidance. Looking forward, the focus areas for the remainder of the fiscal year are in line with our long-term strategy, which as a reminder is designed to achieve four strategic objectives. First, drive revenue growth above the current and market growth rates. 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 markets. And fourth, improve efficiency and optimization.
Speaker Change: The market has long recognized and rewarded patterns for our unique ability to support customers through the entire equipment life cycle.
Don Zurbay: From financing and purchase to installation, training, maintenance, and repairs, we are committed to ensuring we continue to earn that reputation. Finally, internal fail in our dental value added service category declined nearly 7% in the first quarter compared to the prior period, primarily due to the change Healthcare cybersecurity attack. That setbacks, not change our view that software and value added services hold meaningful opportunity for long term growth.
Speaker Change: from financing and purchase to installation training, maintenance, and repairs, and we are committed to ensuring we continue to earn that reputation.
Speaker Change: Finally, internal sales and our dental value added service category to climb nearly 7% in the first quarter compared to the prior year period.
Speaker Change: I'm really due to the change of your cybersecurity attack.
Speaker Change: At Setback, it's not a change or a view that software and value added services hold meaningful opportunities for long-term growth, and we're investing to enhance our existing products, drive productivity gains, and cater to evolving customer preferences.
Donald Zurbay: Now, I'll provide more detail on the financial performance in each of our two business segments during fiscal 2025 first quarter as a comparative similar period last year.
Don Zurbay: We're pleased to highlight two developments that underscore our commitment to innovation in enhancing our value proposition in this area. Recently announced a successful integration of second opinion, Pearl's AI pathology detection feature set directly into Patterson's Eaglesoft software. This new integration within Eaglesoft Advanced Imaging as Pearl's second opinion, real-time clinical detections directly to X-ray captured and presented in Eaglesoft. This feature set can improve diagnostic accuracy, streamline clinical workflows, and enhanced patient care by providing advanced AI-driven insights to dentists. We also announced new integration features within Weave and the Patterson Dental practice management software solutions Fuse, Eaglesoft, and Dolphin.
Speaker Change: To that end, I'm pleased to highlight two developments that underscore our commitment to innovation and enhancing our value proposition in this area.
Donald Zurbay: Let's start with dental. In dental, internal sales declined 3% compared to the first quarter of fiscal 2024. Primarily due to a 2% year-over-year decrease in dental consumables. Excluding the deflationary impact of certain infection control products, internal sales of dental consumables decrease 1.7% compared to the first quarter of fiscal 2024. We expect the year-over-year impact of deflationary pressure in our infection control product portfolio to be negligible going forward. Part of the reason for the decline in dental consumables relates to a tougher macroeconomic environment than a year ago.
Speaker Change: Recently, and also successful integration of second opinion, girls AI pathology detection features set, directly into Patterson's Eaglesoft software.
Speaker Change: It's new integration.
Speaker Change: within EagleSoft advanced imaging. As Pearl's second opinion, real-time clinical detections, directly to X-ray is captured and presented in EagleSoft.
Speaker Change: This feature set can improve diagnostic accuracy, streamlined clinical workflows, and enhanced patient care by providing advanced AI-driven human rights to dentists.
Speaker Change: We also announced new integration features within the week and the Patterson Dental Practice Management Software Solutions Fused, Egosoft and Dolphin.
Donald Zurbay: But also other market driven events that occurred last year one that did not occur this period. Additionally, this category also experienced a greater than anticipated impact due to the change healthcare cyber attack. As customers who could not easily submit claims for insurance reimbursement, also ordered fewer consumables from us during this period. With respect to these customers, we have identified who they are and are working with our sales teams to ensure that they return to their previous ordering levels with us.
Don Zurbay: Weave is a leading client engagement platform for dental practice management, and these new integrations are now the deepest, most complete data exchange available in the market. With the ability to read and write patient data, appointments, and confirmations, and ledger information to facilitate payment collection. These new integrations illustrate how Patterson is equipping dental practices with the tools they need to modernize their practices, enhance their patient experience, and ultimately grow their business. We are confident to continue to invest in and promote all of our dental practice management solutions, health maximize their value added services, offerings and will deepen our comprehensive value proposition to our customers.
Speaker Change: We've a leading client engagement platform for dental practice management, and these new integrations are now the deepest, most complete data exchange available in the market.
Speaker Change: With the ability to read and write patient data, appointments and confirmations can led your information to facilitate payment collection. The new integration illustrates how patterns and equipping dental practices.
Speaker Change: with the tools they need to modernize their practices, enhance their patient experience and ultimately grow their business.
Donald Zurbay: Turning to dental equipment, internal sales decreased about 2% year-over-year. We believe this decrease from last year reflects the current macroeconomic impact. We also continue to face challenging year-over-year comparisons for our core equipment and CAD-CAM categories which each decline in double digits, partially offset by double digit keys in our digital category, underscoring the inherently lumpy nature of the equipment business. As mentioned, the first quarter was a challenging time in the economic cycle throughout the dental market.
Speaker Change: We are confident in continuing to invest in and promote all of our dental practice management solutions, health, maximize our value-edged services offerings, and we'll deepen our comprehensive value proposition to our customers.
Don Zurbay: Now let's move on to our animal health segment. Internal sales in the animal health segment declined approximately 3% year over year, as low single-digit growth in our production animal business was offset by some market softness in the companion animal division. The companion animal for the first quarter fiscal 2025 year-over-year internal sales declined by low single digits. This was driven and part by the moderation veterinary clinic traffic and by our intentional strategic decisions to focus on more profitable business that modestly reduced our top line growth. Deliverally choosing to walk away from certain low margin revenue opportunities had a corresponding impact on our ability to achieve certain sales rep rebate incentives during the quarter.
Speaker Change: Now let's move on to our animal health segment. Internal sales in the animal health segment decline approximately 3% year over year. As low single digit growth in our production animal business, was offset by some market softness in the contending animal division.
Speaker Change: and Command Animal for the first quarter of fiscal 2025, the year of the year internal failed to climb by low-seedled digits.
Donald Zurbay: Lower overall consumer spending and higher interest rates from the quarter led to moderated levels of equipment purchases by dental practices. Despite this, Patterson's leading value proposition and dental equipment and technology remains unchanged. The market has long recognized and rewarded Patterson for our unique ability to support customers through the entire equipment life cycle. From financing and purchase to installation training, maintenance, and repairs, and we are committed to ensuring we continue to earn that reputation.
Speaker Change: This was driven in part by the moderation of veterinary clinic traffic and by our intentional strategic decisions to focus on more profitable business that modestly reduce our top-line growth.
Speaker Change: Deliverly choosing to walk away from certain low-margin revenue opportunities had a corresponding impact on our ability to achieve certain sales rep rebate incentives during the court.
Don Zurbay: It's important to note that we have initiatives underway to reinvigorate our top line growth, which, combined with our other margin enhancement initiatives, are expected to also improve our margin profile. Market data indicates that veterinary practices are adapting to the current environment and finding opportunities to drive spending in areas that pet parents value the most to drive growth from fewer visits. Our focus continues to be on aligning our value proposition with these customers' evolving focus while positioning our teams to execute on innovative new products coming tomorrow. A production animal business continued its strong momentum in generating low single-digit internal sales growth in the first quarter of fiscal 2025.
Speaker Change: It's important to note that we have initiatives on the way to reinvigorate our top-line growth, which combined with our other management hands-on initiatives.
Donald Zurbay: Finally, internal fail is an ardental value added service category to climb nearly 7% in the first quarter compared to the prior period, primarily due to the change healthcare cybersecurity attack. That setbacks not change our view that software and value added services hold meaningful opportunity for long term growth and we're investing to enhance our existing products, pride productivity gains and cater to evolving customer preferences.
Speaker Change: are expected to also improve our margin profile.
Speaker Change: Park a data indicates that veterinary practices are adapting to the current environment, and finding opportunities to drive spending in areas that tap current value the most to drive growth from fewer visits.
Speaker Change: Our focus continues to be on a winding our value proposition with these customers involving focus while positioning our teams to execute on innovative new products coming to market.
Donald Zurbay: To that end, I'm pleased to highlight two developments that underscore our commitment to innovation in enhancing our value proposition in this area. Recently announced a successful integration of second opinion, Pearl's AI pathology detection feature set directly into Patterson's eaglesoft software. This new integration within eaglesoft advanced imaging, as Pearl's second opinion, real-time clinical detections directly to X-ray is captured and presented in eaglesoft.
Speaker Change: A production animal business continues from momentum to generate low single digit internal sales growth in the first quarter fiscal 2025.
Don Zurbay: We see our strong performance in production animal as continued validation of the strength and effectiveness of our omnichannel presence, highly tailored distribution strategy, and comprehensive offering across animal species. Our team's ability to execute these strategies and provide value-enhancing solutions tailored to our customer needs has enabled us to counter broad macroeconomic pressure, win new business, and outperform the broader production animal market. Across the animal health segment, our value added services category delivered strong by a single digit internal sales growth in the first quarter. This robust performance was driven in part by the success of Turnkey, a market leading enterprise resource planning system for cattle producers that provides end end solutions to help streamline their operations and enhance their efficiency.
Speaker Change: We see our strong performance in production animal as continued validation of the strength and effectiveness of our omnichannel press on the channel presence highly tailored distribution strategy and comprehensive offering across animal species.
Speaker Change: The team's ability to execute these strategies and provide valuable enhancing solutions tailored to our customer needs.
Donald Zurbay: This feature set can improve diagnostic accuracy, streamline clinical workflows and enhance patient care by providing advanced AI driven insights to dentists. We also announced new integration features within weave and the Patterson dental practice management software solutions fuse eaglesoft and dolphin. Weave is a leading client engagement platform for dental practice management and these new integrations are now the deepest most complete data exchange available in the market. With the ability to read and write patient data, appointments and confirmations and ledger information to facilitate payment collection.
Speaker Change: has enabled us to counter broad at macroeconomic pressure, wind-new business, and I'll perform the broader production animal market.
Donald Zurbay: These new integrations illustrate how Patterson's equipping dental practices with the tools they need to modernize their practices enhance their patient experience and ultimately grow their business. We are confident that continuing to invest in and promote all of our dental practice management solutions helps maximize our value added services offerings. We will deepen our comprehensive value proposition to our customers.
Speaker Change: Across the animal health segment, a value-end service category delivered strong, high single digit internal sales growth in the first quarter.
Speaker Change: This robust performance was driven in part by the success of turnkey, a market leading enterprise resource planning system for cattle producers.
Speaker Change: The provides end-end solutions to help streamline their operation and enhance their efficiency.
Don Zurbay: The turnkey platform is continued to resonate strongly with our customer base and illustrates the strong demand for our comprehensive sweep of software solutions and new services. Just as in our dental segment, our value-added services are proving to be a key differentiator for Patterson and the animal health market, enabling us to support the full life cycle of equipment for our customers.
Speaker Change: The turn-C platform has continued to resonate strongly with our customer base and illustrates this strong demand for our comprehensive suite of software solutions and services.
Speaker Change: Just as an Ardental segment, our value of services are proving to be a key differentiator for Patterson and the animal health market.
Kevin Barry: Now we'll turn the call over to Kevin Berry to provide more detail on our financial results. Thank you, Dan. Good morning, everyone.
Speaker Change: and enabling us to support the full life cycle of equipment for our customers.
seven birds: Now let's turn the call over to seven birds for five more teaching on our financial results.
Kevin Barry: In my prepare to march this morning, I will cover the financial results for our first quarter of fiscal 25, which ended on July 27, 2024. And then conclude with a few comments on our outlook for the remainder of the fiscal year. So, let's begin by covering the results for our first quarter of fiscal 25. We followed it, reported sales for Patterson Companies in our fiscal 25 first quarter, where 1.54 billion dollars, a decrease of 2.2% over the first quarter of one year ago. Internal sales, which are adjusted for the effects of currency translation and the net impact of an interest rate swap, decreased 2.8% compared to the same period last year.
Donald Zurbay: Now let's move on to our animal health segment. Internal sales in the animal health segment declined approximately 3% year over year. As low single digit growth in our production animal business was offset by some market softness in the companion animal division. The companion animal for the first quarter of fiscal 2025 year over year internal sales declined by low single digits. This was driven in part by the moderation veterinary clinic traffic and by our intentional strategic decisions to focus on more profitable business that modestly reduced our top line growth. Deliverally choosing to walk away from certain low margin revenue opportunities had a corresponding impact on our ability to achieve certain sales rep rebate incentives during the court.
seven birds: Thank you, dad, and good morning, everyone.
seven birds: In my prepared remarks this morning, I will cover the financial results for a first quarter of fiscal 25, which ended on July 27, 2024.
seven birds: and then conclude with a few comments on our outlook for the remainder of the fiscal year.
seven birds: So, that's began by covering the results for our first quarter of fiscal 25.
seven birds: And followed it, reported sales for Patterson Companies in our fiscal 25 first quarter.
seven birds: We're 1.54 billion dollars a decrease of 2.2% over the first quarter of one year ago.
seven birds: Internal Sales, which are adjusted for the effects of currency translation, and the net impact of an interest rate swap, decreased to 0.8% compared to the same period last year.
Kevin Barry: Gross margin for the first quarter of fiscal 25 was 20.3%, an increase of 10 basis points compared to the prior year periods. We also provide the financial metric of adjusting gross margin, which is a non-GAAP financial measure that adjusts gross margin for the impact of the market market accounting related to our equipment financing portfolio and the associated industry swap hedging instrument. The accounting impact of the market adjustment affects our total company gross margin, but not the gross margin within our business segment. As previously mentioned, the net impact of interest rate fluctuations between the swap and the equivalent financing portfolio has a minimal impact on net income.
Donald Zurbay: It's important to note that we have initiatives underway to reinvigorate our top line growth, which combined with our other margin enhancement initiatives are expected to also improve our margin profile. Market data indicates that veterinary practices are adapting to the current environment and finding opportunities to drive spending in areas that pet parents value the most to drive growth from fewer visits. Our focus continues to be on aligning our value proposition with these customers evolving focus while positioning our teams to execute on innovative new products coming tomorrow.
seven birds: Gross Margin for the first quarter of fiscal 25 was 20.3%.
seven birds: An increase of 10 basis points compared to the prior year period.
seven birds: We also provide the financial metric of adjusting gross margin, which is a nine-gap financial measure that adjust gross margin for the impact of the market accounting related to our
seven birds: The accounting impact of the mark to market adjustment affects our tool company gross margin but not the gross margin within our business cycle.
Donald Zurbay: A production animal business continued its strong momentum to generate low single digit internal sales growth in the first quarter of fiscal 2025. We see our strong performance in production animal as continued validation of the strength and effectiveness of our omnichannel presence, highly tailored distribution strategy, and comprehensive offering across animal species. Our team's ability to execute these strategies and provide value enhancing solutions tailored to our customer needs has enabled us to counter broad macro economic pressure, win new business, and outperform the broader production animal market.
seven birds: has previously mentioned the net impact of interest rate fluctuations between the swap and the equivalent financing portfolio, as a minimal of impact on net income.
Kevin Barry: For the first quarter of fiscal 25, our adjusted gross margin was 20.1%, a decrease of 50 basis points compared to the year-ago period. The year-over-year decline in gross margin is primarily due to the revenue and profit shortfall in our debt. of the cybersecurity attack on Change Healthcare. While we have migrated a large percentage of our customers to a new claims processing platform, a transition has taken longer than we anticipate. As Don mentioned, the disruption related to the cyber attack on Change Healthcare is impacting the operations of our dental customers, and in some cases, their flow of business with Patterson as they work to reestablish their cash flow with a new claims processing software.
Speaker Change: For the first quarter of Cisco 25, our adjusted gross margin was 20.1%.
Speaker Change: A D-Tree is a 50 basis point compared to the year ago period.
Speaker Change: The year over year declining gross margin primarily due to the revenue and profit shortfall in our dental segment.
Speaker Change: related to the cybersecurity attack on change healthcare.
Speaker Change: While we have migrated a large percentage of our customers to a new claims processing platform.
Speaker Change: The transition has taken longer than we anticipated.
Speaker Change: As John mentioned, this disruption related to the cyber attack and change health care is impacted the operations of our dental customers.
Donald Zurbay: Across the animal health segment, our value added services category delivered strong by a single digit internal sales growth in the first quarter. This robust performance was driven in part by the success of turnkey, a market leading enterprise resource planning system for cattle producers that provides end end solutions to help streamline their operation and enhance their efficiency. The turnkey platform is continued to resonate strongly with our customer base and illustrates the strong demand for our comprehensive sweep of software solutions and new services. Just as in our dental segment, our value added services are proving to be a key differentiator for Patterson and the animal health market, enabling us to support the full life cycle of equipment for our customers.
John Wright: and in some cases, their flow of business with Patterson as they work to re-establish their cash flow with a new claims processing software.
Kevin Barry: Our teams continue to work diligently to assist our customers with their practice operations and to offer the most reliable and effective solutions to help them manage their practices most effectively and productively. We are focused on ensuring that these customers return to their previous ordering levels with us and replace a high percentage of this revenue stream, Patterson. Adjusted operating expenses of percentage of net sales for the first quarter of fiscal 25 for 17.8% and unfavorable by 70 basis points compared to the first quarter of fiscal 24. In the first quarter of fiscal 25, we get a higher level of investment spending in our software business, as well as higher medical expenses that impact our P&L in comparison to the first quarter of one year ago.
Speaker Change: Our teams continue to work diligently to assist our customers with their practice operations and to offer the most reliable and effective solutions to help them manage their practices most effectively and productively.
Speaker Change: We are focused on ensuring that these customers return to their previous ordering levels with us and replace a high percentage of this revenue-strength pass.
Speaker Change: Adjusted Operating Expenses, a percentage of net sales for the first quarter of fiscal 25 or 17.8%. An un-savorable by 70-based plans compared to the first quarter of fiscal 25.
Kevin Barry: Now we'll turn the call over to Kevin Burry to provide more detail on our financial results. Thank you, Dan. Good morning, everyone.
Speaker Change: In the first quarter of fiscal 25, we get higher level of investment spending in our software business.
Kevin Barry: That would account for the majority of the unfavorable comparison of the prior year. In the first quarter of fiscal 25, our consolidated adjusted operating margin was 2.3%, a decrease of 110 basis points compared to the first quarter of last year. The year over year decline in consolidated adjusted operating margin, the first quarter, is related to a number of items. The primary driver was the impact from the sale of declines and margin of creative categories related to the change health care issues. Additionally, operating margin was unfavorably impacted by operating expense, delivery, and items previously mentioned. Our adjusted tax rate for the first quarter of fiscal 25 was 23.7%, an increase of 20 basis points compared to the prior year period.
Speaker Change: as well as higher medical expenses that impacted our P&L comparison to the first quarter of one year ago. That would account for the majority of the unbearable comparison that prior here.
Kevin Barry: In my preparatory march this morning, I will cover the financial results for our first quarter of fiscal 25, which ended on July 27, 2024. And then conclude with a few comments on our outlook for the remainder of the fiscal year. So let's begin by covering the results for our first quarter of fiscal 25. We followed it, reported sales for Patterson companies in our fiscal 25 first quarter, were 1.54 billion dollars, a decrease of 2.2 percent over the first quarter of one year ago.
Speaker Change: In the first quarter of fiscal 25, our consolidated adjusted operating margin was 2.3%.
Speaker Change: A decrease of 110 basis points compared to the first quarter of last year.
Speaker Change: The year of your declining consolidated as vested operating margin the first quarter is related to a number of items.
Speaker Change: The primary driver was the impact from the sales decline and margin of creative categories related to the change healthcare issue.
Kevin Barry: Internal sales, which are adjusted for the effects of currency translation and the net impact of an interest rate swap, decreased 2.8 percent compared to the same period last year. Gross margin for the first quarter of fiscal 25 was 20.3 percent, an increase of 10 basis points compared to the prior year period. We also provide the financial metric of adjusted gross margin, which is a non-gap financial measure that adjust gross margin for the impact of the market market accounting related to our equivalent financing portfolio and the associated industry swap hedging instrument.
Speaker Change: Additionally, operating margin was unfavorably impacted by operating expense to leverage an items previously mentioned.
Speaker Change: are just in tax rates for the first quarter of fiscal 25s, 23.7% in increase of 20 basis coins compared to the prior year period.
Kevin Barry: Reported net income attributed both Patterson Companies Inc. for the first quarter of fiscal 25 was 13.7 million dollars, or 15 cents per diluted share. This compares to Reported Net Inc. in the first quarter of last year of 31.2 million, or 32 cents per diluted share. Adjust the net income attributable to Patterson Companies Inc. In the first quarter of fiscal 25 was 21.0 million dollars or 24 cents per diluted share. This compares to 38.6 million dollars, or 40 cents per diluted share, in the first quarter of fiscal 24. The year-over-year decrease reported an adjusted net income attributable to Patterson Companies Inc.
Speaker Change: Reporting in the Income Attributable to Patterson Company's Inc. for the first quarter of fiscal 25, was $13.7 million for 15 cents per duly to share.
Speaker Change: This compares to report net income in the first quarter of last year, 31.2 million or 32 cents per diluted share.
Kevin Barry: The accounting impact of the market adjustment effects our total company gross margin, but not the gross margin within our business segment. As previously mentioned, the net impact of interest rate fluctuations between the swap and the equivalent financing portfolio has a minimal impact on net income. For the first quarter of fiscal 25 are adjusted gross margin was 20.1 percent, a decrease of 50 basis points compared to the year ago period. The year over year decline in gross margin primarily due to the revenue and profit shortfall in our debt, at the Cybersecurity Attack on Change Healthcare.
Speaker Change: The Justin Net income attributable to Patterson company's ink in the first quarter if it was $25.21.0 million or $24 per dilute chair.
Speaker Change: This compares to 38.6 million dollars or 40 cents per year.
Speaker Change: the Lunarature.
Speaker Change: and the first quarter of the fiscal 24th.
Kevin Barry: in the first quarter of fiscal 2025 was related to lower retail sale and operating margins in both business segments and a continued negative impact of the cyber security attack on Change Health Care within the value added services category of the dental segment. We estimated that we estimate that both reported and adjusted net income in the fiscal 2025 first quarter were negatively impacted by approximately 6 cents per diluted share compared to the prior period due to the cyber security attack on Change Health Care. Now this turns to our business segments, starting with our dental, and the first quarter of fiscal 25 internal sales for our dental business decrease 2.8% compared to the first quarter of fiscal 25.
Speaker Change: The year of your decrease in report isn't just a net income attributable to Patterson Company's Inking in the first quarter of fiscal 2025, is related to the lower retail sale and operating margins in both business segments.
Speaker Change: and continued negative impact of the cybersecurity attack and change health care.
Speaker Change: within the value-added services category of the dental segment.
Speaker Change: We estimated that we estimate that both reported and adjusted net income.
Kevin Barry: While we have migrated a large percentage of our customers to a new claims processing platform, a transition has taken longer than we anticipate. As Don mentioned, the disruption related to the Cyber Attack on Change Healthcare is the impact of the operations of our dental customers. And in some cases, their flow of business with Patterson as they work to reestablish their cash flow with a new claims processing software. Our teams continue to work diligently to assist our customers with their practice operations and to offer the most reliable and effective solutions to help them manage their practices most effectively and productively.
Speaker Change: and the Fiscal of 225 First Quarter were negatively impacted by approximately six cents per
Speaker Change: from Pair to the prior period due to the fiber security attack on chain child care.
Speaker Change: Now this turned to our business segment, starting with our dental business.
Speaker Change: and the first quarter of his go-25 internal sales for our dental business decrease 2.8% compared to the first quarter of his go-24.
Kevin Barry: Fiscal 24. Internal sales of dental consumables of fiscal first quarter decrease 2.1% compared to one year ago, and were slightly impacted by continued price deflation of certain infection control products. Internal sales of non-affect control products decrease 1.7% in the first quarter of fiscal 25 compared to the year-ago period. In the first quarter of fiscal 25, internal sales of dental equipment decrease 2.4% compared to one year ago. As Don mentioned, sales in the equipment category can vary from quarter to quarter, and these dynamics apply to each of the specific product categories as well. This quarter, the digital X-ray category posted positive year-over-year sales growth, offset by a decline in core equipment and CAD CAM sales compared to the prior year period.
Speaker Change: Internal sales of dance will consumables of fiscal first.
Speaker Change: Porter, increased 2.1% compared to one year ago, and were slightly impacted by continued price deflation of certain infection control properties.
Kevin Barry: We are focused on ensuring that these customers return to their previous ordering levels with us and replace a high percentage of this revenue stream Patterson. Adjusted operating expenses a percentage of net sales for the first quarter of fiscal 25 for 17.8% and unfavorable by 70 basis points compared to the first quarter of fiscal 24. In the first quarter of fiscal 25, we get a higher level of investment spending on our software business, as well as higher medical expenses that impact our P&L in comparison to the first quarter of one year ago.
Speaker Change: Internal sales of non-effect control products, T3s, decreased 1.7% in the first quarter of his post 25 compared to the year ago period.
Speaker Change: In the first quarter, fiscal 25, internal sales of dental equipment increased 2.4 percent compared to one year ago.
Speaker Change: As Donald mentioned, sales in the equipment category can vary from quarter to quarter in these dynamics applied each of the specific product categories as well.
Donald: Discoordered the digital X-ray category, posting positive year over your sales growth.
Kevin Barry: That would account for the majority of the unfavorable comparison the prior year. In the first quarter of fiscal 25, our consolidated adjusted operating margin was 2.3%. A decrease of 110 basis points compared to the first quarter of last year. The year over year decline in consolidated adjusted operating margin, the first quarter is related to a number of items. The primary driver was the impact from the sale of declines and margin of creative categories related to the change health care issue.
Donald: Offset by decline in court equipment in CAD-CAM sales compared to the prior year period.
Kevin Barry: Internal sales of value-added services in the first quarter of fiscal 25 decrease 6.7% over the prior year period. Primarily do the negative impact on the cyber security attack on Change Healthcare. The adjusted operating margin in dental is 5.5% in the first quarter of fiscal 25, which represents a 190 basis point decrease over the prior year period. This year, over your operating margin shortfall reflects the continued impact of the cyber attack on Change Healthcare, as well as investments in our software business and the timing of certain expenses.
Kevin Barry: Additionally, operating margin was unfavorably impacted by operating expense, delivery and items previously mentioned. Our adjusted tax rate for the first quarter of fiscal 25 was 23.7%. An increase of 20 basis points compared to the prior year period. Reported net income attributable to Patterson Companies Inc for the first quarter of fiscal 25 was 13.7 million dollars or 15 cents per diluted share. This compares to Reported Net Inc in the first quarter of last year of 31.2 million or 32 cents per diluted share.
Speaker Change: Internal sales of value added services from the first quarter of fiscal 25, increased 6.7% over the prior year period.
Speaker Change: I'm merely through the negative impact on the cybersecurity attack on change health care.
Speaker Change: He adjusted operating margin in dental, 5.5% in the first quarter of fiscal 25, which represents a 190 basis point decrease over the prior year period.
Speaker Change: This year over year of operating large and short-fong reflects the computing impact of the cyber attack and change health care, as well as investments in our software business and the timing of certain expense.
Kevin Barry: Now let's move to our animal health site. In the first quarter of fiscal 25, internal sales for our animal health business decrease 2.8% compared to the first quarter of fiscal 24. Internal sales for our production animal business in the first fiscal first quarter increased by low single digits compared to the prior year period. Our production animal team continues to execute well in the market with their multi-channel approach and deep relationship with production animal customers. Internal sales for our companion animal business in the first quarter of fiscal 25 decrease by low single digits compared to the prior year period.
Speaker Change: Now let's move to our animal health site.
Speaker Change: In the first quarter of fiscal 25, internal sales for animal health business decreased to 20% compared to the first quarter of fiscal 24.
Speaker Change: Internal sales for our production animal business and the first.
Speaker Change: First Fiscal First Quarter, increased by low single digits, compared to the prior year period.
Speaker Change: Our production animal team continues to execute well in the market with their multi-channel approach and deep relationship with production animal customers.
Kevin Barry: Adjust the net income attributable to Patterson Companies Inc in the first quarter of fiscal 25 was 21.0 million dollars or 24 cents per diluted share. This compares to 38.6 million dollars or 40 cents per diluted share in the first quarter of fiscal 24. The year over year decrease reported an adjusted net income attributable to Patterson Companies Inc in the first quarter of fiscal 2025 is related to lower retail sale and operating margins in both business segments and the continued negative impact of the cyber security attack on change health care within the value added services category of the dental segment.
Speaker Change: Internal sales for our campaigning animal business, enough.
Kevin Barry: While that visits in the companion animal market high down slightly year-to-year, our revenue shortfall is primarily related to our own strategic decisions and focus on more profitable business. The adjusted operating margin in our animal health segment was 3.7% in the fiscal 25 first quarter. A decrease of 30 basis points from the prior year period. This decline compared to the prior year is primarily related to the top line shortfall and the resulting impact on rebate of cools. I'm confident in the animal health team and their ability to execute on innovative new products coming to market and continuing through that their business model to maintain and improve profitability.
Speaker Change: 1st quarter of fiscal 25, decreased by a mid-singlement that just compared to the prior year period.
Speaker Change: Well, that visits in the companion market are down slightly at the year of year. Our revenue shortfall is primarily related to our own strategic decisions and focus on more profitable business.
Kevin Barry: We estimated that we estimate to both reported and adjusted net income in the fiscal 2025 first quarter were negatively impacted by approximately 6 cents per diluted share compared to the prior period due to the cyber security attack on change health care.
Speaker Change: The adjusted operating margin in our animal health segment was 3.7% in the fiscal 25 first quarter
Speaker Change: in D3s of 30 basis points from the prior year period.
Speaker Change: This decline compared to the prior years primarily related to the top line shortfall in the resulting impact on revisit accrual.
Speaker Change: I'm confident in the annual health team and their ability to execute on innovative new products coming to market, continuing to adapt their business model to maintain and improve profitability.
Kevin Barry: Now let me cover cash flow and balance you to amps. During the first three months of fiscal 25, our free cash flow improved by $1.8 million compared to the same period one year ago. This was primarily due to a decrease level of capital spending in the first three months of fiscal 25 compared to the year ago period as we left the investments we made in early fiscal 24 to increase our distribution footprint in Canada and the UK.
Kevin Barry: Now let's turn to our business segments starting with our dental. In the first quarter of fiscal 25 internal sales for our dental business decrease 2.8% compared to the first quarter. Fiscal 24. Internal sales of dental consumables of fiscal first quarter decrease 2.1% compared to one year ago, and were slightly impacted by continued price deflation of certain infection control products. Internal sales of non-affect control products decrease 1.7% in the first quarter of fiscal 25 compared to the year ago period.
Speaker Change: I'll let me cover a cash flow and balance you down.
Speaker Change: During the first three months of Cisco 25, our free cash flow improved by $1.8 million compared to the same period one year ago.
Speaker Change: This was primarily due to a decrease level of capital spending in the first three months of fiscal 25. Compared to the year of old period, as we left the investments we made in early fiscal 24 to increase our distribution footprint in Canada and the UK.
Kevin Barry: Turning now to capital allocation. We continue to execute on our strategy to return cash to shareholders. In the first quarter of fiscal 25, we declared a quarterly cash dividend of 26 cents per diluted. Chair, which was then paid at the beginning of the second quarter of fiscal 25. We also re-purchased $50 million of shares during the first quarter of fiscal 25. They're by returning a total of $73.3 million to shareholders to dividends and share repurchases.
Speaker Change: [inaudible]
Speaker Change: You can see the execute on our strategy to return cash to shareholders.
Kevin Barry: In the first quarter of fiscal 25, internal sales of dental equipment decrease 2.4% compared to one year ago. As Don mentioned, sales in the equipment category can vary from quarter to quarter and these dynamics apply to each of the specific product categories as well. This quarter, the digital X-ray category, hosted positive year or year sales growth, offset by a decline in core equipment and CAD-CAM sales compared to the prior year period.
Speaker Change: in the search quarter of fiscal 25, we declared a quarterly cash dividend of 26 cents per diluted share, which was then paid at the beginning of the second quarter of fiscal 25.
Speaker Change: 25 years ago.
Speaker Change: We also repurchased $50 million of shares during the first quarter of fiscal 25. They're by returning a total of $73.3 million to share holders through dividends and share repurchase.
Kevin Barry: Let me conclude with a whole look for the remainder of fiscal 25. Today we are reaffirming our fiscal 25 gap earnings guidance range of $2 to $2.10 per diluted share and our adjusted earnings guidance range of $2.33 to $2.43 per diluted share. This time we mentioned we are initiating targeted operational actions to both accelerate sales and decrease our costs for the remainder of the fiscal year and deliver on our financial commitment.
Speaker Change: I'm making a clue about how it looks for the remainder of fiscal 25.
Kevin Barry: Internal sales of value added services in the first quarter of fiscal 25 decreased 6.7% over the prior year period. Primarily due the negative impact of the cyber security attack on change healthcare. The adjusted operating margin in dental is 5.5% in the first quarter of fiscal 25, which represents a 190 basis point decrease over the prior year period. This year over year of operating margin shortfall reflects the continued impact of the cyber attack on change healthcare as well as investments in our software business in the timing of certain expense.
Speaker Change: Today we are reaffirming our fiscal 25 gap earnings guidance ring.
Speaker Change: Change of $2 to $2.10 per diluted chair and our adjusted earnings guidance range of $2.33 to $2.40 and 43 cents per diluted chair.
Speaker Change: This time I mentioned, we are initiating targeted operational actions to both accelerate sales and decrease our costs for the remainder of the fiscal year and deliver an financial commitment.
Don Zurbay: Now I would turn the call back over to Don for some additional comments. Thanks, Kevin.
Don Zurbay: Before we open it up for Q&A, I want to highlight that on August 12, we announced the release of our 2024 Corporate Responsibility Report, which focuses on our effort as an organization to promote an inclusive workplace, reduce the company's carbon footprint, and execute a DE&I strategy and align them to Patterson's values. I want to thank the entire Patterson team for their continued hard work and commitment to serving our customers. Despite challenges facing our first quarter, we maintain a strategic focus on supporting our customers with the deep and differentiated value proposition they expect from Patterson. Looking forward, we are confident that continued execution of our proven strategy combined with Patterson's strong position, the resilient and markets in which we operate, because well-positioned derived improved performance over the long term.
Speaker Change: Now, I will turn it to Paul back over to Don for some additional content.
Kevin Barry: Now let's move to our animal health site. In the first quarter of fiscal 25, internal sales for our animal health business decrease 2.8% compared to the first quarter of fiscal 24. Internal sales for our production animal business in the first fiscal first quarter increased by low single digits compared to the prior year period. Our production animal team continues to execute well in the market with their multi-channel approach and deep relationship with production animal customers. Internal sales for our companion animal business in the first first quarter of fiscal 25 decreased by a mid-single digits compared to the prior year period.
Don Zurbay: Before we open our up for Q&A, I want to highlight that on August 12, we announced the release of our 2024 corporate responsibility report.
Don Zurbay: which focuses on our effort as an organization to provide an inclusive workplace, reduce the company's carbon footprint and execute a DENI strategy and alignment to patterns and values.
Don Zurbay: I want to thank the entire Patterson team for their continued hard work and commitment to serving our customers.
Don Zurbay: Despite the challenges facing our first quarter, we maintain strategic focus on supporting our customers with a deep and differentiated value proposition they expect from patterns.
Don Zurbay: Looking forward, we are confident that the continued execution of our proven strategy from buying a passing strong position in the resilient and markets in which we operate. Make us well positioned to drive improved performance over the long term.
Kevin Barry: Well, if that visits in the companion animal market I've done slightly year after year, our revenue shortfall is primarily related to our own strategic decisions and focus on more profitable business. The adjusted operating margin in our animal health segment was 3.7% in the fiscal 25 first quarter. A decrease of 30 basis points from the prior year period. This decline compared to the prior year is primarily related to the top line shortfall and the resulting impact on rebate of cools.
Don Zurbay: That concludes our prepared remarks. Kevin Thank you.
Speaker Change: That concludes your prepared remarks.
Speaker Change: and I will be glad to take with questions. Operator please open the line.
Speaker Change: [inaudible]
Operator: We will now open the line for your questions. If you have dialed in and would like to ask a question, please press star-1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star-1 again.
Speaker Change: Thank you. We will now open the line for your questions.
Kevin Barry: I'm confident the animal health team and their ability to execute on innovative new products coming to market in continuing to that their business model to maintain and improve profitability.
Speaker Change: If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.
Operator: If you are dialed in and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Kevin Barry: Now, let me cover cash flow and balance sheet amps. During the first three months of fiscal 25, our free cash flow improved by $1.8 million compared to the same period one year ago. This was primarily due to a decrease level of capital spending in the first three months of fiscal 25 compared to the year ago period as we laughed the investments we made in early fiscal 24 to increase our distribution footprint in Canada and the UK.
Speaker Change: If you are dialed in and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
John Block: Our first question comes from John Block with Stiefel. Please go ahead. Great. Thank you. Good morning, guys. Dylan, I think there are a lot of moving parts in the quarter for the company with change and some of your commentary on companion animals. So can you spend a little bit more time on the end markets for July and maybe even August, notably for Denno. I just think the magnitude of the miss would suggest poor trends exiting the quarter for the industry, but again, some of these had wouldn't seem a little bit more company specific. So I think any color or granularity you can give more on the end markets over the past one to two months, you know, would be helpful.
Speaker Change: Our first question comes from John Block with Steveville. Please go ahead.
Speaker Change: Great, thank you for the morning guys, I'm done.
Speaker Change: I think there are a lot of women, you know, parts in the quarter for the company with change and some of your commentary on the panel animal. So, can you spend a little bit more time on the end markets for July and maybe even August, not only for dental. I just think the magnitude of the mist would suggest.
Kevin Barry: Turning now to capital allocation, we continued to execute on our strategy to return cash to shareholders. In the first quarter of fiscal 25, we declared a quarterly cash dividend of 26 cents per deluded. Chair, which was then paid at the beginning of the second quarter of fiscal 25. We also re-purchased $50 million of shares during the first quarter of fiscal 25. They're by returning a total of 73.3 million dollars to shareholders to dividends and share repurchases.
Speaker Change: Poor trends exiting the corner for the industry, but again, some of these headwinds seem a little bit more company-specific, so I think any color or gray layer you can give more on the end market. So, over the past, one to two months, you know, would be helpful, and then I'll ask myself,
John Block: And then I'll ask my phone.
Don Zurbay: Yeah, thanks, John. You know, I think in the end, markets on the dental side, we saw we really I would reiterate we've seen steady dental traffic patterns throughout the quarter. I would say if you have phased our quarter or the July consumables were at worse, I don't think that necessarily had a lot to do with patient traffic. I mean, I think, you know, if you look back at the three things we talked about that primarily contributed to our miss from expectations. I view all of them as some transient dynamics that continue to ripple through the first quarter in the dental business.
Speaker Change: Yeah, thanks, John.
Kevin Barry: Let me include a whole look for the remainder of fiscal 25. Today, we are reaffirming our fiscal 25 gap earnings guidance range of $2 to $2.10 per diluted share and our adjusted earnings guidance range of $2.33 to $2.43 per diluted share. This time, we are initiating targeted operational actions to both accelerate sales and decrease our costs for the remainder of the fiscal year and deliver on our financial commitment.
Speaker Change: You know, I think in the end markets on the dental side, we saw, I would reiterate, we've seen steady dental traffic patterns.
Speaker Change: throughout the quarter. I would say if you have faced our quarter that July, consumables were a bit worse.
Speaker Change: I don't think that necessarily have lots of do with patient traffic. I think if you look back at the three things we talked about that primarily contributed to our mis-from expectations, I view all of them as some transient.
Donald Zurbay: Now, I would turn the call back over to Don for some additional comments. Thanks, Kevin.
Don Zurbay: You know, that we think as we move forward, you know, are not an issue as we go through the rest of the year; things that we can overcome. But I don't view it as necessarily much to do with the traffic. I think the patient traffic has been steady. You know, on the production animal side, you know, we continue to have strength there. So those end markets are holding up very well. And on top of that, you know, our team is executing an extremely high level. And then I think we mentioned some of the dental or some of the animal health or some of the companion piece here. Vet visits are down slightly.
Donald Zurbay: Before we open it up for Q&A, I want to highlight that on August 12, we announced the release of our 2024 Corporate Responsibility Report, which focuses on our effort as an organization to promote an inclusive workplace, reduce the company's carbon footprint, and execute a DE&I strategy and align them to Patterson's values. I want to thank the entire Patterson team for their continued hard work and commitment to serving our customers. Despite challenges facing our first quarter, we maintain a strategic focus on supporting our customers with the deep and differentiated value proposition they expect from Patterson.
Speaker Change: Dynamics that continued to ripple through the first quarter in the dental business.
Speaker Change: Ummm...
Speaker Change: You know that we think as as we move forward.
Speaker Change: are not in issue as we go through the rest of the year, things that we can overcome. But I don't view it as necessarily much to do with the traffic and the patient traffic has been steady.
Speaker Change: you know on the production animal side, you know, we continue to have strength there.
Speaker Change: So those in markets are holding up very well and on top of that, our team is executing an extremely valuable. And then I think we mentioned that.
Donald Zurbay: Looking forward, we are confident that continued execution of our proven strategy, combined with Patterson's strong position, the resilient and markets in which we operate, make us well positioned to drive and improve performance over the long term.
Speaker Change: Some of the dentors, some of the animal health.
Don Zurbay: I think the vet visits are down slightly, but the revenue kind of per visit is up. So there's a little bit of that, but that's not that that's similar to what we've had in the past. So you know, I be the underlying markets is good. I think we have some transient things here that, in fact, to the core. As we mentioned, you know, in this particular case, you know, we have a lot of good opportunity and levers to overcome the transient piece. And I'm, you know, I feel optimistic about, you know, the underlying markets and kind of our position in them.
Speaker Change: are some of the companion piece here. Vett visits for a down slightly, I think the Vett visits are down slightly, but...
John Wright: That concludes our prepared remarks. Kevin and I will go ahead and take questions.
Speaker Change: The revenue kind of per visit is up, so there's a little bit of that, but that's not that similar to what we've had.
Operator: Operators, please open the line. Thank you. We will now open the line for your questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the Q. If you would like to withdraw your question, simply press star one again. If you are dialed in and listening via loudspeaker on your device, please pick up your hand set and ensure that your phone is not on mute when asking your question.
Speaker Change: in the past, so...
Speaker Change: I'd be the underlying markets as good I think we have some francy and things here that has impacted the corridor.
Speaker Change: As we mentioned, you know, in this particular case, you know, we have a lot of good opportunity and levers to overcome the transient piece and I'm, you know, I feel optimistic about, you know, the underlying markets and kind of our position in them.
John Block: And the assumptions we use to put together our budget forecast originally, as we go through Q to 3 and 4, which is ultimately why we got back to reaffirming our guidance. Got it. Very Apple Collar.
John Block: Our first question comes from John Block with Stiefel. Please go ahead. Great. Thank you. Good morning, guys. I think there are a lot of moving parts in the quarter for the company with change and some of your commentary on the company's animal.
Speaker Change: and the assumptions we use to put together our budget forecast originally as we go through Q2, Q2, 3 and 4, which is ultimately why we got back to reaffirming our guidance.
John Block: Maybe just on the follow-up on focus on the dental consumable number. You know, it was, it was surprisingly soft, but again, the commentary, you did clear some stuff off. It seems to be a bit of a culprit of what's going on with change.
Donald Zurbay: Can you spend a little bit more time on the end markets for July and maybe even August, notably for Dental? I think the magnitude of the miss would suggest poor trends exiting the quarter for the industry, but again, some of these had wouldn't seem a little bit more company specific. I think any color or granularity you can give more on the end markets over the past one to two months would be helpful, and then I'll ask my phone.
Speaker Change: Got it. Very Apple-Color, maybe just on the...
Speaker Change: The follow-up, I'll just focus on the dental consumable number, you know, it was super optionally soft, but again, the commentary, you did clear some stuff off, it seems to be
Don Zurbay: So do you still feel like the company is in, call it, you know, share capture mode within the dental consumables? Is there sort of a normalized consumable number?
Speaker Change: A bit of a culprit of what's going on with change. So do you still feel like the company is in college?
Don Zurbay: I don't know if that's possible to throw out there, but maybe most importantly, if some of those customers pulled back from a cash flow perspective, staying within, you know, Patterson's domain, if you would, and we would see some patch up in subsequent quarters. Thank you. No, and I think that's fair. I mean, I think that our customers did have; there was some change in ordering patterns. We saw, like I mentioned, we saw some of the late in the quarter in July, but I think a lot of that had to do with, again, with cash flow and timing.
Speaker Change: You know, share capture mode within the dental consumables is a sort of a normalized consumable number. I don't know if that's possible to throw out there, but maybe most importantly, if some of those customers pulled back.
Donald Zurbay: Yeah, thanks, John. I think in the end markets on the dental side, we saw, we really, I would reiterate, we've seen steady dental traffic patterns throughout the quarter. I would say if you have phased our quarter the July consumables were at worse. I don't think that necessarily had a lot to do with patient traffic. I mean, I think if you look back at the three things we talked about that primarily contributed to our miss from expectations, I view all of them as some transient dynamics that continue to ripple through the first quarter in the dental business that we think as we move forward are not an issue as we go through the rest of the year, things that we can overcome, but I don't view it as necessarily much to do with the traffic.
Speaker Change: from a cash flow perspective, staying within, you know, patterns and still main if you would and we would see some patch up in subsequent quarters. Thank you.
Speaker Change: No, and I think that's fair. I mean, I think that our customers did have.
Speaker Change: There was some change in order in patterns. We saw, like I mentioned, we saw some of the late the quarter into the lie, but I think a lot of that had to do with, again, with cash fall on timing. I mean, the other thing I would throw out.
Don Zurbay: I mean, the other thing I would throw out. Last year we have, we have a tough comp in the quarter, particularly in July, which I think contributed to some of the trends we saw. Last July, if you remember, we were dealing with a potential UPS strike, which is our main external carrier. And so there was some stocking up at the end of July last year that impacted our number there. And, you know, we're up against that for key one here this time in July. So I think that also contributed to that, to the change, but those are all timing things from my perspective.
Speaker Change: You last year we have a tough comp in the quarter particularly in July which I think contributed to some of the trends we saw last July if we remember we were dealing with a potential UPS strike which is our main
Speaker Change: External Carrier, and so there was some stocking up at the end.
Speaker Change: and the July last year that...
Speaker Change: that impacts the number there and you know we're up against that for a key one here, this time in July. So I think that also contributed to that.
Donald Zurbay: I think the patient traffic's been steady. On the production animal side, we continue to have strength there. So those end markets are holding up very well and on top of that, our team is executing an extremely high level. And then I think we mentioned some of the dental or some of the animal health or some of the companion piece here, vet visits are down slightly. I think the vet visits are down slightly, but the revenue kind of per visit is up, so there's a little bit of that, but that's similar to what we've had in the past.
Don Zurbay: And again, you know, we feel good about the underlying markets and just our ability to get back to, you know, where we were. We've had, we've had, you know, a good track record over several quarters. So, you know, this, this at best is a one-quarter anomaly in our mind. Thank you.
Speaker Change: to the change, but those are all timing things from my perspective.
Speaker Change: Again, we feel good about the underlying markets and just our ability to get back to where we've had a good track record over several quarters. This is at best as one quarter in our mind.
Brandon Vasquez: Our next question comes from Brandon Vasquez with William Blair. Please go ahead. Morning, everyone. Thanks for taking the question. Maybe just a poll upon that. The last question you guys are just talking about there.
John Wright: and John Wright.
John Wright: Thank you.
John Wright: Our next question comes from Brandon Vaskas with William Blair. Please go ahead.
Brandon Vasquez: Can you just talk a little bit about the cadence of guidance for the rest of the year. You know, you guys seem to be in a pretty good spot where you're able to reaper in the guidance. So how do we think of moving past some of these change healthcare headwinds and what that means for the P and L and implications for guidance cadence to the year.
Brandon Vaskas: Morning everyone. Thanks for taking the question. Maybe just a follow-up on that. The last question you guys are just talking about there. Can you just talk a little bit about the cadence of guidance for the rest of the year? You know, you guys seem to be in a pretty good spot where you're able to re-affirm the guidance. So how do we think of moving past some of these change health care, headwinds and what that means for the P&L and implications for guidance cadence to the year?
Donald Zurbay: So I view the underlying markets as good. I think we have some transient things here that impact of the quarter. As we mentioned, in this particular case, we have a lot of good opportunity and levers to overcome the transient piece. And I feel optimistic about the underlying markets and kind of our position in them and the assumptions we use to put together our budget forecast originally as we go through Q2, 3 and 4, which is ultimately why we got back to reaffirming our guidance. Got it. Very apple-collar.
Don Zurbay: Sure, Brandon, Kevin, I'll make a couple comments on that. So, you know, typically with our seasonality, you know, we are more back half weighted in terms of our EPS deliveries, and our Q3 and Q4 this year will be more heavily weighted to the back half. A couple of factors to consider is a thing about the phasing one that the change healthcare issue that we talked about in our comments. You know, that's, you know, the stance that's still somewhat ongoing. We'll see some improved performance in Q3 and Q4, but you know, that's still something that we're working with our customers on.
Brandon Vaskas: and this Kevin, let me get a couple comments on that.
Kevin: So typically with our seasonality, we are more back half-weighted in terms of our EPS deliveries and our Q3 and Q4. This year, we'll be more heavily weighted to the back half, a couple of factors to consider as you think about the phase.
Donald Zurbay: Maybe just on the follow-up on focus on the dental consumable number. You know, it was, it was surprisingly soft, but again in the commentary, you did clear some stuff off. It seems to be a bit of a culprit of what's going on with change. So, do you still feel like the company is in, call it, you know, share capture mode within the dental consumables. Is there sort of a normalized consumable number?
Speaker Change: and the change health care issue that we talked about in our comments.
Speaker Change: You know, that's, you know, it's down to it's still somewhat ongoing. We'll see some improved performance in Q3 and Q4, but you know, that's still something that we're working with our customers on.
Kevin Barry: But in Q4, we will comp over the issue that we had in Q4 fiscal 24. So if you remember, in Q4 fiscal 24 or that cohort of customers, we essentially had zero revenue because we had to get transition them on to the new claims processing software. Network. So that's one factor that will improve in our back half of fiscal 25.
Speaker Change: But thank you for we will come over the issue that we had in Q4, a fiscal 24th. So if you remember in Q4, a fiscal 24th or though that co-lord of customers, we essentially had zero revenue because we had to get transitioned them on to the new claims processing software.
Donald Zurbay: I don't know if that's possible to throw out there, but maybe most importantly, if some of those customers pulled back from a cash flow perspective, staying within, you know, Patterson's domain, if you would, and we would see some patch up in subsequent quarters. Thank you. No, and I think that's fair. I mean, I think that our customers did have, there was some change in ordering patterns. We saw, like I mentioned, we saw some of the late in the quarter in July, but I think a lot of that had to do with again with cash flow and timing.
Brandon Vasquez: And then the other factor, I'll say, as we go through the year, you know, some of the actions that Donald mentioned are comments that we're undertaking here internally. Those will ramp up as the year goes on. So we'll get some benefit from those here in Q2. We anticipate really the full impact of some of those actions both on the promotional demand drive inside and the cost side will be more fully baked by the time you get to Q3 and Q4, which will also be a positive come to our last year. Okay, great.
Speaker Change: So, that's one factor that will improve in our back half of fiscal 25.
Speaker Change: and then the other factor I'll say is he's going through the year, you know, some of the actions that John mentioned, it is comments that we're undertaking here in turn away.
John: Those will ramp up as the year goes on. So we'll get some benefit from those year and two two years to participate. Really the full impact of some of those actions both on the promotional demand drive inside and be.
Donald Zurbay: I mean, the other thing I would throw out. You know, last year, we have, we have a tough comp in the quarter, particularly in July, which I think contributed to some of the trends we saw. Last July, if you remember, we were dealing with a potential UPS strike, which is our main external carrier. And so there was some stocking up at the end of July last year that impacted our number there.
Donald Zurbay: And, you know, we're up against that for key one here this time in July. So I think that also contributed to that, to the change, but those are all timing things from my perspective. And again, you know, we feel good about the underlying markets and just our ability to get back to. You know, where we were, we've had, we've had, you know, a good track record over several quarters. So, you know, this is at best as one quarter anomaly in our mind.
John: Coside will be more fully baked by a time you get to Q3 and Q4, which will also be a positive comp to our last year.
Don Zurbay: And then as a follow-up here, maybe switching to campaigned animal, you guys have talked a little bit about maybe deprioritizing a nutchief; that's the exact word you use, but deprioritizing some segments there. Can you talk a little bit? Any more details on what segments you guys may be looking to move away from? And then, is this a rolling process, or is this something that's done in Q1? And we should think about that headwind lessening now, or do you kind of continue to do this process as we go through the year, and there could be some more notes?
John: Okay.
Speaker Change: Great, and then as a follow-up here, maybe switching to campaigning animal, you guys have talked a little bit about maybe depriorizing an electric that's the exact word you use, but depriorizing some segments there, can you talk a little bit, any more details on what segments you guys may be looking to move away from, and then is this a rolling process or is this something that's done in Q1, and we should think about that headwind, lessening now, or do you kind of continue to do this process as we go through the year and there could be some more noise?
Don Zurbay: Thanks. Yeah, look, so thanks. Good question. I think this is really a, it's not really as much a market segment comment necessarily as a customer segmentation. We just feel with our value proposition and what we bring in terms of customer experience. We're interested in doing business with our customers where we think there's a margin profile that is commensurate with the value we bring. And so we continue to segment, to some extent, the customer base. I think we're fairly far down the path of this. I think you'll see that moderate as the year goes on. The impact has probably been most acute last quarter in this quarter.
Speaker Change: Thanks!
Speaker Change: Yeah, I look, I'm sort of thanks, good question, I think.
Speaker Change: This is really a, it's not really a much as much a market segment comment necessarily as a customer segmentation. We just we just feel with our value proposition.
Brandon Vasquez: Our next question comes from Brandon Vasquez with William Blair. Please go ahead. Morning, everyone. Thanks for taking the question. Maybe just a poll upon that, the last question you guys are just talking about there. Can you just talk a little bit about the cadence of guidance for the rest of the year. You know, you guys seem to be in a pretty good spot where you're able to reaper in the guidance. So how do we think of moving past some of these change healthcare headwinds and what that means for the P and L and implications for guidance cadence to the year.
Speaker Change: you know kind of what we bring in terms of customer experience.
Speaker Change: We're interested in doing business with our customers, where we think there's a margin of profile that is commensurate with the value we bring. And so we continue to segment to some extent the customer base.
Speaker Change: You know, I think we're fairly far down the path of this. I think you'll see that moderate as the year goes on.
Don Zurbay: As we move through the year, we'll be in a position where we work through that customer list.
Kevin Barry: Sure, Brandon. Kevin, I'll make a couple comments on that. So, you know, typically with our seasonality, you know, we are more back half weighted in terms of our EPS deliveries and our Q3 and Q4 this year will be more heavily weighted to the back half. A couple of factors to consider is a thing about the phasing one that the change healthcare issue that we talked about in our comments. You know, that's, you know, the stance that's still somewhat ongoing.
Speaker Change: and the impact is probably the most acute last quarter in this quarter as moved through the year. We'll be in a position where we work through that customer list.
Alan Lutz: Our next question comes from Alan Lutz with Bank of America. Please go ahead. Good morning, and thanks for taking the questions. I wanted to ask another one on the dental consumable side. If we think about growth in the quarter down about 2%, is there any way to frame the two items that you called out? So the impact from customers with cash flow had went maybe they're ordering a little bit less as they're dealing with change. That's kind of the first point. And then the second point that we think about the year or year comp, how much of a benefit was maybe the inventory building you saw last year ahead of the UPS strike?
Speaker Change: and John Wright, Kevin Barry, Donald Zurbay, Donald Zurbay,
Speaker Change: Our next question comes from Alan Lutz with Bank of America. Please go ahead.
Alan Lutz: Good morning, and thanks for taking the questions. I want to ask another one on the dental piece to a bull side. If we think about growth in the quarter down about 2%. Is there any way to frame the two items that you called out? So the impact from customers with casserole had went maybe they're ordering a little bit less as they're dealing with change. That's kind of the first point.
Kevin Barry: We'll see some improved performance in Q3 and Q4, but you know, that's still something that we're working with our customers on. But in Q4, we will comp over the issue that we had in Q4 fiscal 24. So if you remember in Q4 fiscal 24 or that cohort of customers, we essentially had zero revenue because we had to get transition them on to the new claims processing software. Network. So that's one factor that will improve in our back half of fiscal 25.
Alan Lutz: and then the second point that we think about the year or year top, how much of a benefit was maybe the inventory building you saw last year ahead of the UPS strike. So kind of putting those two together maybe down to and a more normalized environment is up small. Just trying to get a sense of what is the impact from those two things. Thanks.
Alan Lutz: So kind of putting those two together, maybe down to in a more normalized environment is up small. Just trying to get a sense of what is the impact from those two things. Thanks.
Don Zurbay: Yeah, I'll start. I think that I'd say within the quarter of the change, healthcare impact was the larger one. I think, as we saw, as we started working with those customers, the disrupt like dogs, the disruption to those practices was, you know, work. and we saw their patterns be more significantly disrupted. So I'd say that that dynamic within our business was the more acute issue. Some of the more kind of timing issues that I mentioned around, you know, the end of July and to August year last year, you know, I'd say that was certainly an impact, but less significant versus the overall counts, change out your issue.
Kevin Barry: And then the other factor I'll say as we go through the year, you know, some of the actions that Donald mentioned is comments that we're undertaking here internally, those will ramp off as the year goes on. So we'll get some benefit from those here in Q2. We anticipate really the full impact of some of those actions, both on the promotional demand drive inside and the cost side will be more fully paid by the time you get to Q3 and Q4, which will also be a positive come to our last year.
Speaker Change: Yeah, I'll start, I think, you know, that I'd say within the course of the change, healthcare impacts was the larger one. I think as we saw, you know, you know...
Speaker Change: You know, as we start working with those customers, but just like Doc said, that disruption to those practices, let's, you know.
Speaker Change: 4QD.
Doc: and we saw their platter to be more significantly disrupted. So I'd say that dynamic within our business was the more acute issue.
Speaker Change: Some of the more kind of timing issues that I mentioned around the end of July into August year last year, you know, I'd say that was certainly an impact, but less significant versus the overall kind of change health issue.
Donald Zurbay: Okay, great. And then as a follow-up here, maybe switching to campaigning animal. You guys have talked a little bit about maybe deprioritizing the exact words you use, but deprioritizing some segments there. Can you talk a little bit? Any more details on what segments you guys may be looking to move away from? And then is this a rolling process, or is this something that's done in Q1? And we should think about that headwind lessening now, or do you kind of continue to do this process as we go through the year, and there could be some more notes?
Kevin Barry: Okay, great.
Don Zurbay: And then from my follow up on the companion animal side, how should we think about the margin trajectory over the remainder of the year? Did impacts in the rebate should we think about that is something that just impacts the first quarter or should we think about that impacting the trajectory of the margins over the remaining three quarters. Thanks. Well, I think our expectation is that, you know, as we move through the quarter or move through the year, that, you know, we get back to a normal cadence in terms of rebates. As I mentioned, you know, this is a little bit more acute your last quarter of this quarter.
Speaker Change: I'm John Wright, I'm John Wright, I'm John Wright, I'm John Wright,
Speaker Change: Okay, great. And then from my follow up on the companion animal side, how should we think about the margin trajectory over the remainder of the year did impacts from the rebate? Should we think about that as something that just impacts the first quarter or should we think about that impacting the trajectory of the margins over the remaining three quarters? Thanks.
Donald Zurbay: Thanks. Yeah, look, so thanks. Good question. I think this is really a, it's not really as much a market segment comment, necessarily as a customer segmentation. We just, we just feel with our, with our value proposition and, you know, kind of what we bring in terms of customer experience. We're interested in doing business with our customers where we think there's a margin profile that is commensurate with the value we bring. And so we continue to segment, to some extent, the customer base.
Speaker Change: Well, I think our expectation is that as we move through the quarter, our move through the year that, you know, we get back to a normal cadence in terms of remain.
Don Zurbay: So I think, as we move forward, we're, you know, we have confidence that we'll get back on track in terms of the rebates. I think ultimately our view is we'll get back on track for companion animal back to their budget numbers and their expectations for the year. And they have a great track record. Good team there.
Speaker Change: as I mentioned, you know, this is a little bit more acute to your last quarter in this quarter, so I think as we move forward, we're...
Speaker Change: We have confidence that we will get back on track in terms of the rebates. I think ultimately our view is we will get back on track for companion animal back to their budget at numbers.
Donald Zurbay: You know, I think we're fairly far down the path of this, I think you'll see that moderate as the year goes on. You know, the impact is probably been most acute last quarter in this quarter. As we move through the year, we'll be in a position where we work through that customer list.
Jeff Johnson: Thank you. Our next question comes from Jeff Johnson with Baird. Please go ahead. Thank you, Jeff. Good morning.
Speaker Change: and their expectations for the year, and they have a great track record to continue there.
Speaker Change: Thank you.
Jeff Johnson: I hope that I can just maybe clarify a couple points here from the call so far just on the Change Health Care. You know, you said at one point in the prepared remarks that most of your customers you've switched over to alternative payment processors, things like that, but it sounds like some of this impact is going to continue with the impact continuing just because you monetize from those alternate payment processors maybe less than you do through change. And would you expect any impact on the consumables ordering patterns to continue as well? Or is it again, is it just because you monetize maybe less on those alternate payment processors?
Speaker Change: Our next question comes from Jess Johnson with Fared, please go ahead.
Jess Johnson: Thank you, Doug, Good morning, the hope and I could just maybe clarify a couple points here from the call so far, just on the change healthcare. You know, you've heard at one point in the prepare of remarks that most of your customers you've switched over to alternative payment processors, things like that. But it sounds like some of this impact is going to continue with the impact continuing just because you monetize from those alternate payment processors, maybe less than you do through change. And would you expect in the impact on the consumables ordering patterns to continue as well, or again, as it just because you monetize, maybe less on those alternate payment processors, thanks.
Alan Lutz: Our next question comes from Alan Lutz with Bank of America. Please go ahead. Good morning and thanks for taking the questions. I wanted to ask another one on the dental consumable side. If we think about growth in the quarter down about two percent, is there any way to frame the, the two items that you called out? So the impact from customers with cash flow had went maybe they're ordering a little bit less as they're dealing with change.
Don Zurbay: Thanks. Yeah, thanks, Jeff. Hey, it's up. You know, I think I would view it as definitely more the former than the latter. I mean, ultimately, our customers have needs in terms of the consumables that they need to run their practice. And so I think I do that more as a timing issue. The revenue per customer on our new platform is slightly less than what we were getting on Change. So that is just going to be a continuing impact that we'll deal with and have to overcome. But the ordering patterns on consumables and, you know, with our customer base largely being, you know, smaller dental Dental clinics.
Alan Lutz: That's kind of the first point. And then the second point that we think about the year or year top, how much of a benefit was maybe the inventory bill that you saw last year ahead of the UPS, right? So kind of putting those two together maybe down to in a more normalized environment up small, just trying to get a sense of what is the impact from those two things. Thanks.
Speaker Change: Yes, thanks for your payin' subs.
Speaker Change: You know, I think I would view it as definitely more of a former than the latter. I mean, ultimately our customers have needs in terms of the consumables.
Speaker Change: and they need to run their practice. So I think I do that more as a timing issue. The revenue per customer on our new platform is slightly worse than what we were getting on change. So that is just going to be a continuing impact that we'll deal with.
Donald Zurbay: Yeah, I'll start. I think that I'd say within the quarter of the change, healthcare impact was the larger one. I think as we saw, as we started working with those customers, the disrupt like dogs, that the disruption to those practices was, you know, work. Cute, and we saw their patterns be more significantly disrupted, so I'd say that dynamic within our business was the more cute issue. Some of the more kind of timing issues, Dodd mentioned around, you know, the end of July into August, year last year, you know, I'd say that was certainly an impact, but less significant versus the overall kind of change out of your issue. Okay, great.
Speaker Change: and have to overcome. But the ordering patterns on consumables and with our customer-based largely being smaller dental clinics in some cases, the cash impacts of not being able to payment.
Don Zurbay: In some cases, the cash impact of not being able to payment to process payments were, you know, to you and something that they had to manage the best way they could, but I do those already better just something's going to come back.
Speaker Change: to process payments for, you know, and something that they had to manage the best way they could, but I view those, or even better, something's going to come back.
Don Zurbay: Okay, and then maybe two follow up to that down one for you just are any of those customers permanently lost. It's not like they want somewhere else ordered consumables somewhere else. They're not coming back. So just want to confirm that.
Speaker Change: and then maybe two follow-ups to that down one for you just or any of those customers permanently lost. It's not like they went somewhere else ordered to do a little somewhere else and they're not coming back. So just want to confirm that and then Kevin if I can just...
Kevin Barry: Then Kevin, if I can just hand you down a little bit on the prior question about the buckets of the Change Healthcare versus the UPS shipping last year. You know, was the change health care as you call that the bigger acute impact in the quarter was that a pointer to of that down 1.7% consumables was it. More than that, and then with the UPS a half a point of point. I mean, can you put us in any kind of buckets so we can look at kind of what a normalized consumables x those two points might look like in the quarter.
Donald Zurbay: And then from my follow up on the companion animal side, how should we think about the margin trajectory over the remainder of the year? Did impacts in the rebate, should we think about that as something that just impacts the first quarter, or should we think about that impacting the trajectory of the margins over the remaining three quarters? Thanks. Well, I think our expectation is that, you know, as we move through the quarter, or move through the year that, you know, we get back to a normal cadence in terms of rebates.
Kevin: and you've done a little bit on the prior question about the buckets of the change healthcare versus the UPS shipping last year. You know, with the change healthcare, as you call that the bigger acute impact in the quarter was that a point or two of that sound 1.7% consumables was it.
Speaker Change: You know, more than that, and then with the UPS, a half a point I mean, can you put us in any kind of buckets so we can look at kind of what a normalized consumer both X those two points might look like in the quarter. Thank you.
Kevin Barry: Thank you. Yeah, I think I think you're, you're in the right ballpark there Jeff. I mean, I think, you know, that the UPS issue was a handful of weeks last year. And so just if you think about your volume, you know, yeah, less than a point, probably the right ballpark there. Yeah, you know, but the like the change health care impact. Obviously, that was ongoing from, you know, May, June, and, you know, even in July of it. So that was the larger piece of it. So I think if you look at those and you think about okay, well, you know, we usually have some port of word variation and consumables anyway. Traffic still steady like down to, you know, you kind of, you know, can bridge it back to, you know, a more normalized little single digit kind of households market.
Donald Zurbay: As I mentioned, you know, this is a little bit more acute in your last quarter in this quarter, so I think as we move forward, you know, we have confidence that we'll get back on track in terms of the rebates. I think ultimately, our view is we'll get back on track for companion animal back to their budget numbers and their expectations for the year. And they have a great track for a good team there. Thank you.
Speaker Change: Yeah, I think I think you're...
Speaker Change: Yeah, you're in the right ballpark there, Jeff. I mean, I think, you know, that the UPS issue was a handful of weeks.
Speaker Change: Last year, and so just if you think about, you know, our volume, you know, yeah, now less than a point, probably, the right ballpark there, you know, you know, but the, like so the change healthcare impact, obviously, that was ongoing from you know.
Speaker Change: May June and, you know, you know, even into July a bit, so that was the larger piece of it. So I think if you look at those and you think about okay well.
Jeff Johnson: Our next question comes from Jeff Johnson with Baird. Please go ahead. Thank you, Jeff. Good morning. Hopefully I can just maybe clarify a couple points here from the call so far, just on the change healthcare. You know, you said at one point in the prepared remarks that most of your customers, you've switched over to alternative payment processors, things like that. But it sounds like some of this impact is going to continue with the impact continuing just because you monetize from those alternate payment processors, maybe less than you do through change.
Speaker Change: Usually, he has some board of board of variation, it can symbols, anyway, traffic is still steady, like down to, you know, you kind of, you know, can bridge it back to, you know, a more normalized little single digit kind of do so, it will mark it.
Kevin Barry: Fair enough, thank you.
Don Zurbay: Don't have any permanent loss of those customers? Sorry, thanks.
Don Zurbay: Yeah, yeah, no Jeff. So I don't, it's not permanent loss of customers. What I think we're dealing with is, you know, there are some customers that switched away from our Change Healthcare option and found different ways of getting to that that didn't involve Patterson.
Speaker Change: Fair enough. Thank you. Now down in any permanent loss of those customers, sorry thanks.
Speaker Change: Yeah, yeah, no, no, Jeff. So I don't, it's not a permanent loss of customers.
Jeff: What I think we're dealing with is, you know, there are some customers that switched away from our change healthcare option.
Jeff Johnson: Would you expect any impact on the consumables ordering patterns to continue as well? Or is it again, is it just because you monetize, maybe less on those alternate payment processors? Thanks. Yeah, thanks, Jeff. Hey, it's, you know, I think I would view it as definitely more the former than the latter. I mean, ultimately, our customers have needs in terms of the consumables that they need to run their practice. And so I think I do that more as a timing issue.
Elizabeth Anderson: So it's probably more; there's a small part of our customer base that moved to a different process that was not embedded in our software more than it was losing the customer altogether. Our next question comes from Elizabeth Anderson with Evercore ISI. Please go ahead. Hi guys, thanks so much for this question. I was wondering if you could talk about a little bit more on the ob-ex side. I think you talked about some of the things like the higher level software investment and the medical claims. I think you said the medical claims you're expecting to sort of step down as we move to the year.
Jeff: and found different.
Jeff Johnson: The revenue per customer on our new platform is slightly less than what we were getting on change. So that is just going to be a continuing impact that we'll deal with and have to overcome. But the ordering patterns on consumables and, you know, with with our customer base, largely being, you know, smaller dental, dental clinics, in some cases, the cash impact of not being able to payment to process payments were, you know, to something that they had to manage the best way they could.
John Wright: and John Wright.
Speaker Change: Our next question comes from Elizabeth Anderson with Evercore ISI. Please go ahead.
Elizabeth Anderson: Hi guys, thanks so much for this question. I was wondering if you could talk about a little bit more on the object side. I think you talked about some of the things like the higher levels of the upper investment and the medical claims that I think you said the medical claims you were expecting to sort of step down as we as you move.
Elizabeth Anderson: And then the higher level software investment, I just want to better understand that cadence as we move through the year and anything else you're called. Sounds like you're also maybe taking some incremental looks at some costs cutting on that side to just helping us sort of establish that cadence across the rest of the year would be helpful. Thank you. Yeah, so the software investment, you remember last year, we made a strategic investment in our software development for the dental commercial for franchise that really ramped up in Q2. We were sort of mobilizing in a Q1 of last year, and then kind of that team was established and really running when you got into Q2.
Elizabeth Anderson: and in the higher level of software investment, I just want to better understand that key dance as we move through the year and anything else you call it sounds like you're also maybe taking some incremental looks at some, at some cost cutting on that side to just helping us sort of establish that key dance across the rest of the year would be helpful. Thank you.
Jeff Johnson: But I view those ordering patterns as something's going to come back. Okay.
Jeff Johnson: And then maybe two follow-ups to that. One, for you, just, are any of those customers permanently lost? It's not like they want somewhere else ordered consumables, somewhere else they're not coming back. So we just want to confirm that.
Speaker Change: Yeah, I was about the SO, the software investment you remember last year, you know, we made a, you know, strategic investment and our software development for the dental commercial for franchise. That really ramped up in YouTube.
Kevin Barry: And then Kevin, if I can just hand you down a little bit on the prior question about the buckets of the change health care versus the UPS shipping last year. You know, with the change health care, as you call that, the bigger acute impact in the quarter was that a point or two of that down 1.7 percent consumables. Was it, you know, more than that? And then with the UPS, a half a point of point.
Kevin Barry: So, so that I say, you know, it's an unfavorable year where you're calm from a constant Q1 that will be kind of baked into our base going forward for the rest of the year. The medical claims issues, so we're self-insured, so we pay, you know, we basically pay out of pocket for our employees' medical claims here. And, you know, what we see in the quarter was just, you know, obviously in the quarter, kind of an unusually high spike in claim activity. You know, looking back over our history, you know, that can happen. And we, you know, we have to adjust our cruel when that happens, and that's what created the increased cost here in the quarter.
Speaker Change: who was sort of mobilizing an acute one of last year, then that team was established in a really good way.
Speaker Change: when you got into YouTube. So that I'd say, you know, it's an un-favorable year where you're out from a couple of stamps.
Kevin Barry: I mean, can you put us in any kind of buckets so we can look at kind of what a normalized consumables X, those two points might look like in the quarter? Thank you. Yeah, I think you're, you're in the right ballpark there, Jeff. I mean, I think, you know, that the UPS issue was a handful of weeks last year. And so just if you think about your volume, you know, yeah, less than a point, probably, the right ballpark there.
Speaker Change: Q1, that will be a debate into our base going forward for the rest of the year.
Speaker Change: The medical claims issue, so we're self-insured, so we pay, you know, we...
Speaker Change: This is the pay on pocket for our employees medical care and clearance here. And what we see in the quarter was just, you know, obviously, in the quarter, having unusually high spike in claim activity.
Kevin Barry: But the change health care impact, obviously, that was ongoing from, you know, May, June, and, you know, even into July of it. So that was the larger piece of it. So I think if you look at those and you think about, okay, well, you know, we usually have some port of quarter variation in consumables anyway, traffic still steady like down to, you know, you kind of, you know, can bridge it back to, you know, a more normalized little single digit kind of households market. Fair enough, thank you.
Speaker Change: You know, looking back over our history, you know, that can happen, we, you know, we have to adjust our approval and that happens and that's what created the increase cost here in the quarter. But typically, you know, when you see one of those spikes that normalizes over the longer term. So as we look forward, we expect that to be again.
Kevin Barry: But typically, you know, when you see one of those spikes that normalizes over the longer term, so as we look forward, we expect that to be again, you know, more in line with our expectations for the full year and not an unfavorable variance to our outlook. And so I think those are the two main issues, and then, you know, the incremental actions we're taking to impose some cost discipline here, given our first quarter, you know, like I said, those are really kind of start being embedded here in Q2 and before we ramped up so that you're really benefit in our effects will be Q3 and Q4.
Speaker Change: You know, more in line with our expectations for the full year and mad at unforeable variants to our outlook.
Speaker Change: and so I think those are the two main issues and then the incremental actions we're taking.
Donald Zurbay: Don't have any permanent loss of those customers? Sorry, thanks. Yeah, yeah, no Jeff. So I don't, it's not permanent loss of customers, but I think we're dealing with is, you know, there are some customers that switched away from our change healthcare option and found different ways of getting to that that didn't involve Patterson. So, I think we're dealing with this. There are some customers that switched away from our change healthcare option and found different ways of getting to that that didn't involve Patterson. There's probably more, there's a small part of our customer base that moved to a different process that was not embedded in our, in our software more than it was losing the customer all together.
Speaker Change: to have implos some cost to support here given our first quarter. Those are really kind of start being in that here in Q2 and before we ramp up, so that you're over your benefit in our office at Swing.
Kevin Barry: You know, I guess I would have, as I mentioned, the script. I think we have the levers, and we're going to have full levers here that we need to make sure we overcome the pieces of the miss here that are not timing and not transient, which is about less than the gap. A lot of it's just timing a transient type activity. So, are you expecting on a full year basis margins to be about flat versus last year? Is that fair to say, or a little bit of expansion? Yeah, probably, you know, probably probably in the realm of flat, you know, but you know, as we're trying to take the actions and, like I said, we're also trying to protect some of these strategic investments that we've embarked on, and we're trying to balance that to hold the margin and that area.
Speaker Change: will be refuse, refuse.
Speaker Change: Yeah, I guess I would have me as I mentioned this group, I think.
Speaker Change: We have the levers and we're going to fold the levers here that we need to make sure we overcome the pieces of the mess here that are not timing and not transient, which is about a less than um
Speaker Change: You know, there's a gap a lot of it's just timing a transient type activity.
Elizabeth Anderson: Our next question comes from Elizabeth Anderson with Evercore ISI. Please go ahead. Hi guys, thanks so much for this question.
Speaker Change: So are you expecting on a full-year basis margins to be about flat versus last year that fair to say or a little bit of expansion?
Kevin Barry: I was wondering if you could talk about a little bit more on the ob-ex side. I think you talked about some of the things like the higher level software investment and the medical claims. I think you said the medical claims you're expecting to sort of step down as we move to the year. And then the higher level software investment, I just want to better understand that cadence as we move through the year and anything else you're called sounds like you're also maybe taking some incremental, like, looks at some costs cutting on that side to just helping us sort of establish that cadence across the rest of the year would be helpful.
Kevin Barry: Thank you. Yeah, so the software investment, if you remember last year, you know, we made a strategic investment in our software development for the dental commercial for franchise, that really ramped up in Q2. So, so that I say, you know, it's an unfavorable year where you're comp from a constant Q1 that will be kind of baked into our base going forward for the rest of the year. The medical claims issues, so we're, we're, we're self-insured, so we pay, you know, we basically pay out a pocket for our employees medical claims here.
Speaker Change: Yeah, I'm probably probably in the realm of flat, you know, as we were trying to take the actions and like us, so we're also trying to protect some of these strategic investments that we've embarked on, and we're trying to balance that to hold the margin and that tomato.
Kevin Barry: Got it.
Jason Bednar: Thank you very much. Our next question comes from Jason Bednar with Piper Sandler. Please go ahead.
Speaker Change: God, thank you very much.
Jason Bednar: Good morning, everyone. I wanted to come back to first the cost management actions. I don't think you mentioned exactly what's in play here, but just curious what specific actions are taking, are these formal restructuring items, headcount reductions, those sorts of things. And then I don't think I heard a number just, but any, any if you're able to, what kind of cost savings, if you could quantify those savings, what you're expecting to see from this program this year. Yeah, hey Jason, good question. So, you know, I think the cost actions are really, you know, things across the board that he previously identified, kind of have ready to implement.
Speaker Change: Our next question comes from Jason Bednor with Piper Sandler. Please go ahead.
Jason Bednor: Good morning everyone.
Jason Bednor: I wanted to come back to first the cost management actions. I don't think you mentioned exactly what's in play here, but
Jason Bednor: Just curious what specific actions you're taking are these former restrictions for an item, that can reduce those sorts of things. I don't think I heard a number, just but any, if you're able to, what kind of cost savings could you could quantify those savings? What's your expected to see from this program this year?
Jason Bednor: Yeah, hey Jason, good question so I think the cost actions are really things across the board that we see.
Don Zurbay: And to make sure we're hitting on numbers, I think, you know, you can think about things like travel, you know, open requisitions for jobs that we're currently looking at. You know, there may be some people actions. And kind of all the all the levers that are at our disposal here to make sure what we're not going to do is, as Kevin mentioned, is really harm our investments and things that are part of our long term strategy. So we're right in that balance. There's certainly also, you know, if we chose to get into that bucket, there's additional opportunity there, but we're looking at this as a balance between making sure we, you know, maintain our guidance this year, but also continue our investing and in our long term strategy, which we're very confident about.
Speaker Change: Reacuseway, Dana Fodd, kind of have ready.
Speaker Change: to implement, to make sure we're hitting our numbers, I think, you can think about things like travel, open requisitions for jobs that we're currently looking at. There may be some people actions.
Kevin Barry: And, you know, what we see, you know, in the quarter was just, you know, obviously in the quarter have an unusually high spike in claim activity, you know, looking back over our history, you know, that can happen. We, you know, we have to adjust our accrual when that happens, and that's what created the increased cost here in the quarter. But typically, you know, when you see one of those spikes, it normalizes over the longer term, so as we look forward, we expect that to be again, you know, more in line with our expectations for the full year and not an unfavorable variance to our outlook.
Speaker Change: and kind of all the levers that are at our disposal here.
Speaker Change: to make sure what we're not going to do is, as Kevin mentioned, is really...
Armour: Armour, our investments and things that are part of our long term strategy. So we're striking that balance. There's certainly also, you know, if we chose to get into that bucket, there's...
Kevin Barry: And so I think those are the two main issues, and then, you know, the incremental actions were taking to impose some costs, disappoint here, given our first quarter. You know, like I said, those are really kind of start being embedded here in Q2 and before we ramped up so that you're, you're benefit in our effects will be Q3 and Q4. Yeah, I guess I would have as I mentioned the script. I think we have the levers and we're going to have full levers here that we need to make sure we overcome the pieces of the mess here that are not timing and not transient, which is about less than the gap.
Speaker Change: is an additional opportunity there, but we're looking at this as a balance between making sure we need to maintain our guidance this year, but also our continuum investing in our quantum strategy with room which we're very top and about.
Don Zurbay: Okay, I guess two things: first, no quantification there, and then just as a follow-up.
Don Zurbay: I guess I'm a bit surprised it hasn't been asked yet, but can you talk about the relationship and contract negotiations with them. After they issued that contract non-renewable notice to you, I guess what should investors expect of now come from this process. And I know you probably don't want to litigate this issue on a call like this, but maybe help investors with some of the items and just strategically how you're approaching retaining and renegotiating this contract. Yeah, so no quantification on the actions that we're ready and kind of want to give on the call here.
Speaker Change #100: Okay, I guess you know.
Speaker Change #101: Two things, first no quantification there and then just as a follow-up.
Speaker Change #102: I guess I'm a bit surprised it hasn't been asked yet, but can you talk about the relationship and contract negotiations within Splice Rona?
Speaker Change #103: After the contract, now I'm renewing notice to you. I guess what should investors expect as an outcome from this process? I know you probably don't want to litigate this issue on a call like this, but maybe help investors with some of the items and just strategically how you're approaching retaining and renegotiating this contract.
Kevin Barry: A lot of it's just timing a transient type activity. So are you expecting on a full year basis margins to be about flat versus last year? Is that fair to say or a little bit of expansion? Yeah, probably, you know, I'm probably probably in the realm of flat, you know, but you know as we're trying to take the actions and like I said, we're also trying to protect some of these strategic investments that we've embarked on and we're trying to balance that to hold the margin in that area. Got it. Thank you very much.
Don Zurbay: I guess, you know, on the second topic, look, first, I'd never comment publicly on any specifics with ongoing conversations with any of our entrepreneurs, so I just don't think litigating this in the public forum is appropriate. You know, the non-renewable type activity and various other negotiating things, I think, you know, are fairly common in our business, obviously, and I would just say that we're grateful for all of our vendor partners. I think, you know, from our perspective, the key thing there is they deliver innovation. I think the innovation created a lot of healthy competition. Out there for business, and it provides 20 great solutions for all of our customer needs and frankly, to us for the things that we provide. So, and I'd get you, I'd point you to, you know, our value proposition, which we're very confident about, our knowledge and experience with all the potential solutions, and then, and then a lot of the other things that we provide that, you know, may fly a little bit under the radar. But, you know, financing, installation, training, support, service, you know, a stat I'd throw out to you is that in fiscal 24, we had over 1 million calls to our Patterson Technology Center for troubleshooting and support. And so, you know, I mean, maybe the last thing, as I've had quite a bit of interaction with a lot of our vendor partners here over the last month for various reasons, and that's done nothing but enhance my confidence and kind of support what I think about in terms of our value proposition and things that we're bringing to help both our vendor partners and, frankly, more importantly, our customers.
Speaker Change #104: Yeah, so no quantification on the actions this year.
Speaker Change #105: and we're ready and kind of want to give up and call here.
Speaker Change #106: I guess, you know, on the second topic.
Speaker Change #107: Look first, I'd never comment publicly on any specifics with ongoing conversations with any of our entrepreneurs, so I just don't think.
Speaker Change #107: Whitagame, this in the public forums.
Jason Bednar: Our next question comes from Jason Bednar with Piper Sandler. Please go ahead. Good morning, everyone. I wanted to come back to first the cost management actions. I don't think you mentioned exactly what's in play here, but just curious what specific actions are taking are these formal restructuring items that count reductions, those sorts of things. And then I don't think I heard a number just, but any, if you're able to what kind of cost savings, what you could quantify with those savings, what you're expecting to see from this program this year.
Speaker Change #107: is appropriate. You know, we, the non-renewal type activity in various other negotiating things, I think, you know, are fairly common in our business, obviously, and, you know,
Speaker Change #108: Out there for business and it provides plenty of great solutions for all of our customer needs and frankly, to us for the things that we provide.
Jason Bednar: Yeah, hey Jason, good question. So, you know, I think the cost actions are really, you know, things across the board that he previously identified kind of have ready to implement. To make sure we're hitting our numbers, I think, you know, you can think about things like travel, you know, open requisitions for jobs that we're currently looking at, you know, there may be some people actions. And kind of all the levers that are at our disposal here to make sure what we're not going to do is, as Kevin mentioned, is really harm our investments and things that are part of our long term strategy.
Speaker Change #108: and then I'd guess you'd point you to our value proposition which we're very top and vote. Our knowledge and experience with all the potential solutions.
Speaker Change #108: and then, and then a lot of the other things that we provide that may fly a little bit under the radar, but, you know, financing, installation, training, sports service.
Speaker Change #109: You know, I know staff I throw out to you is that in fiscal 24 we had over 1 million calls to our Patterson Technology Center for troubleshooting and support.
Speaker Change #109: and so, you know, I mean maybe the last thing is I've had.
Speaker Change #109: Quite a bit of interaction with a lot of our vendor partners here over the last month for various reasons.
Jason Bednar: So, we're trying to get that balance. There's certainly also, you know, if we chose to get into that bucket, there's additional opportunity there, but we're looking at this as a balance between making sure we, you know, maintain our guidance this year, but also our continue our investing in our long term strategy, which we're very confident about.
Jason Bednar: Okay, so I guess two things, first no quantification there and then just as a follow up.
Speaker Change #109: That's done nothing, but enhanced my confidence and kind of support what I think about in terms of our value proposition and things that we're bringing to to help both our vendor partners and frankly more importantly our customers.
Don Zurbay: All right, got it.
Don Zurbay: Thanks, Sam.
Michael Turnie: Our next question comes from Michael Turnie with LeeRink Partners. Please go ahead. Morning. Jason just covered my second question, so I'll just ask one here, kind of going back to the dental conciliable side, and they've talked about a lot of moving pieces. I gave us some color on exit rates, some of the dynamics with the UPS inventory built last year. I guess, simplistically speaking, within your guidance is the embedded view that consental consumables will grow this year, especially with the area of your comp and some of the market disruptions. He is curious to see how we get and make sure we get to that build over the course of the year.
Speaker Change #110: Alright, got it, thanks down.
Speaker Change #110: Our next question comes from Michael Terny with Leering Partners. Please go ahead.
Michael Terny: Morning, Jason just covered my second question, so I'll just ask one here, kind of going back to the dental table side, and they've talked about moving pieces, give us some color on.
Donald Zurbay: I guess I'm a bit surprised it hasn't been asked yet, but can you talk about the relationship and contract negotiations with them? After the issue that the contract non-renewable notice to you, I guess what should investors expect as an outcome from this process? And I know you probably don't want to litigate this issue on a call like this, but maybe help investors with some of the items and just strategically how you're approaching retaining and renegotiating this contract.
Speaker Change #112: Exit Ray, some of the dynamics with the UPS, in between both of us last year. I guess, implicitly speaking, within your guidance.
Speaker Change #112: is the embedded view that can dental consumables will grow this year, especially with the of your confidence in the market disruptions. Be curious to see how we get and make sure we get to that build over the course of the year.
Don Zurbay: Yeah, I'll make a few comments in the maybe 1010, because the expectation definitely is that they'll grow. And I understand the questions today on the quarter. I think the best thing I can do here is point everybody back to kind of the last four or five, six quarters and kind of how we have been performing. Nothing has fundamentally changed from my perspective in either the end markets or our ability to continue to take share. and performs at that level. I think the things that we mentioned today are kind of the timing pieces that impacted an individual quarter here, but I mean, I guess I had asked everyone to not overindex on just the individual quarter.
Donald Zurbay: Yeah, so no quantification on the actions that we're ready and kind of want to give on the call here. I guess, you know, on the second topic, look, first, I'd never comment publicly on any specifics with ongoing conversations with any of our entrepreneurs, so I just don't think litigating this in the public forums is appropriate. You know, we, the non-renewal type activity and various other negotiating things, I think, you know, are fairly common in our business, obviously.
Speaker Change #113: Yeah, I'll make a few comments in the May 11th and the expectation definitely is.
Speaker Change #113: is that they'll grow. And I understand the questions today on the quarter. I think the best thing I can do here is point your point everybody back to kind of the...
Speaker Change #113: the last four or five, six quarters, and you know, kind of how we have been performing. Nothing is fundamentally changed from my perspective and either of the end markets or our ability to continue to take share.
Donald Zurbay: And, you know, I would just say that we're grateful for all of our vendor partners, I think, you know, from our perspective, the key thing there is they deliver innovation. I think the innovation creates a lot of healthy competition out there for business and it provides plenty of great solutions for all of our customer needs and frankly, to us for the things that we provide. So, and I'd, I'd point you to, you know, our value proposition, which we're very confident about, our knowledge and experience with all the potential solutions.
Speaker Change #113: and...
Speaker Change #113: and Performance at that level. I think the things that we've mentioned today are kind of a timing.
Speaker Change #114: in the past. I mean, I guess I'd ask everyone and I hope for index on just the end.
Kevin Barry: Let's see how the year plays out, but our expectation is for growth.
Kevin Barry: Yeah, the other thing I'd add to that. Michael, obviously, as the year goes on, two headwinds abate for us. One is the change health care issue that we're focused on right now. And then, you know, the other comment and make it like Don said in his comments, the deflation that we've been dealing with over the past couple of years is essentially kind of over. So as we look at our top line numbers, you know, that headwinds kind of normalized a lot of those infectious control products that have been deflationary for us for the past year or so.
Speaker Change #114: and Visual Quarter. Let's see how the year plays out, but our expectation.
Speaker Change #115: and his friends.
Speaker Change #115: Yeah, and the other thing I'd add to that, Michael, is obviously the year goes on to headwinds a bait for us. One is the change-health care issue that we're focused on right now, and then the other common it makes is like down-settingness.
Michael Terny: is the deflation that we've been dealing with over the past couple of years.
Donald Zurbay: And then, and then a lot of the other things that we provide that, you know, may fly a little bit under the radar, but, you know, financing, installation, training, support, service, you know, a stat I'd throw out to you is that in fiscal 24, we had over 1 million calls to our Patterson Technology Center for troubleshooting and support. And so, you know, I mean, maybe the last thing is I've had quite a bit of interaction with a lot of our vendor partners here over the last month for various reasons and that's done nothing but enhance my confidence and kind of support what I think about in terms of our value proposition and things that we're bringing to help both our vendor partners and frankly, more importantly our customers.
Speaker Change #116: is essentially a catboard.
Speaker Change #117: So, as we look at our top line numbers, you know, that headwinds kind of normalized. A lot of those infectious control products that have been deflationary for us for the past year. So, you know, that, that kind of falls off and we get that to a more normalized reported number for our consumers.
Michael Turnie: You know, that kind of falls off, and we get back to a more normalized reported number for our consumers. Got it. Thank you.
Erin Wright: Our final question comes from Erin Wright with Morgan Stanley. Please go ahead. Great.
Speaker Change #118: Got it, thank you.
Erin Wright: On animal health, you mentioned the deep prioritization of a customer, but I think you've talked about that before. Are there any changes in terms of your negotiations with manufacturers on that front? You mentioned some rebate dynamics in the quarter, but does your guidance assume any major switches in terms of by cell versus agency relationships, or does your guidance also assume any sort of normalization and volume trends just across companion animal as well. And you'll see some support, I guess, from product launches to coming up, but I guess, how are you thinking about internal growth should a balance of the year?
Speaker Change #118: Our final question comes from Aaron Wright with Morgan Stanley. Please go ahead.
Aaron Wright: Great, on animal health, you mentioned the deep prioritization of a customer, but and I think you talked about that before, but are there any changes in terms of your negotiation with manufacturers on that front you mentioned?
Speaker Change #120: and Revate Dynamics in the quarter, but does your guidance assume any major switches in terms of by-sell versus agency relationships?
Michael Cherny: All right, got it. Thanks, Sam.
Donald Zurbay: Our next question comes from Michael Cherny with LeeRink Partners. Please go ahead. Uh, morning. Jason just covered my second question, so I'll just ask one here. Kind of going back to the dental considerable side. And they've talked about a lot of moving pieces. I gave us some color on exit rate, some of the dynamics with the, um, UPS, inventory built last year. I guess simplistically speaking, within your guidance, is the embedded view that consental consumables will grow this year, especially with the area of your comp and some of the market disruptions. He's curious to see how we get and make sure we get to that build over the course of the year.
Speaker Change #121: is also assumed we need sort of normalization and volume trends just across the companion animal as well and you'll see some support I guess from product launches too coming up but I guess how are you thinking about internal growth should have gone to the year I guess across the animal health.
Don Zurbay: I guess across animal health.
Don Zurbay: Yeah, well, I'll start. I don't know if Kevin 11 comments, but the really no changes are in the contracts with the vendors there. But, as you mentioned, I think the thing we're focused on is a new product slow coming back to that. And part of the whole process here was making sure we're working with the right customers is related to that. Okay, so it's related to a manufacturer customer as it goes to a veterinary customer. No, no, go ahead. Yeah, I guess what I'd say is you have to, you know, as we go through the year and you know the team one starts to answer the kind of recent and some of those customer and product relationships that we've had over the past year, that we start coming over that.
Speaker Change #122: Yeah, I'll start, I don't know if Kevin will have any comments, but really no change is there and it's going to come.
Speaker Change #123: and Tracks with Thubbs.
Speaker Change #124: with the Governor's Air, but as you mentioned that, thank you. The thing we're focused on is a new product flow calling.
Speaker Change #125: and part of the whole process here, would make sure we're working with the right customers instead.
Kevin Barry: Yeah, I'll make a few comments and then maybe Kevin can because the expectation definitely is that they'll grow. And I understand the questions today on the quarter. I think the best thing I can do here is, is point to point everybody back to kind of the last four or five, six quarters and you know, kind of how we have been performing. Nothing is fundamentally changed from my perspective in either the end markets or our ability to continue to take share, and performs at that level.
Kevin: which is related to that.
David Stee: David Stee.
Speaker Change #127: Okay, so it's related to a manufacturer customer as it goes to a veterinary customer.
John Wright: and John Wright.
Speaker Change #128: Oh, no, go ahead and go. Yeah, I guess what I'm saying is you have to, you know, as we go through the year and, you know, the team who wants to, I can serve, you know, the...
Don Zurbay: And then we have some new products and new partners coming out here in the rest of the year that will provide another tailwind for the companion animal businesses; those products getting their bang and we get started selling those. Yeah, I guess it's more just how that might, how that plays through the cost analysis. Sorry for the confusion. Okay, got it.
Speaker Change #128: is a kind of reset in some of those customer and product relationships that we've had over the past year that we start coming over that. And then we have some new products and new partners coming on here at the rest of the year that will provide another tailwind for the companion.
Kevin Barry: I think the things that we mentioned today are kind of the timing pieces that impacted an individual quarter here, but I mean, I guess I'd ask everyone to not overindex on just the individual quarter. Let's see how the year plays out, but our expectation is for growth. Yeah, the other thing I'd add to that. Michael, obviously, as the year goes on, two headwinds abate for us. One is the change health care issue that we're focused on right now.
Speaker Change #129: and we've started selling most. Yeah, I guess it's more just how that might all that place through the coastal issues, sorry for the confusion in the off-negation area.
Don Zurbay: And then just you mentioned some of the UPS change dynamics on the consumables front, but just are you seeing more aggressive promotional activity from some of those online aggregators, or are there kind of alternative channel kind of competitors on that Friday. And I assume the answer is no, based on a lot of the consumables questions that you've already answered, but just wanted to ask that I guess more directly. Yeah, no, nothing notable. Again, I would say that the macro environment and our position in it, and how we're performing, really have changed some of the timing dynamics here.
Speaker Change #130: Okay, okay, got it, got it.
Speaker Change #131: and then just you mentioned some of the UPS change dynamics.
Speaker Change #132: on the consumables front, but just are you seeing more aggressive promotional activities from some of those online aggregators or other kind of alternative channel kind of competitors on that Friday. I assume the answer is no based on a lot of the consumables questions that you've already answered, but just wanted to ask that, I guess more directly thanks.
Kevin Barry: And then, you know, the other comment and make it like Don said in his comments, the deflation that we've been dealing with over the past couple of years is essentially kind of over. So as we look at our top line numbers, you know, that headwinds kind of normalized a lot of those infectious control products that have been deflationary for us for the past year or so. That kind of falls off and we get back to a more normalized reported number for our consumers. Got it.
Speaker Change #133: Yeah, no, nothing notable. Again, I would say that the macro environment ends.
Erin Wright: Thank you.
Speaker Change #134: in our position in it, and our warm performing will have changed some of the time in dynamics here.
Don Zurbay: Okay, thank you.
Operator: Okay, thank you, and I guess that's our last question. So I appreciate all the interesting Patterson and. We'll talk to you next quarter. Thank you.
Speaker Change #135: The New Year's Day.
Speaker Change #136: Okay, great, thank you.
Speaker Change #137: Okay, so um...
Speaker Change #138: Thank you and I guess that's our last question so I appreciate all the interesting patterns and we'll talk to you next quarter, thank you.
Operator: This concludes today's conference call. Thank you all for your participation. You may now disconnect.
Erin Wright: Our final question comes from Erin Wright with Morgan Stanley. Please go ahead. Great.
Donald Zurbay: On animal health, you mentioned the deep prioritization of a customer, but, and I think you've talked about that before, but are there any changes in terms of your negotiation with manufacturers on that front, you mentioned some rebate dynamics in the quarter, but does your guidance assume any major switches in terms of by cell versus agency relationships or. Does your guidance also assume any sort of normalization and volume trends just across companion animal as well and and you'll see some support, I guess, from product launches to coming up, but.
Speaker Change #139: This concludes today's conference call. Thank you all for your participation. You may now disconnect.
Donald Zurbay: But I guess how are you thinking about internal growth should a balance of the year, I guess across animal health. Yeah, well, I'll start not enough Kevin 11 comments, but the really no changes there and in the contracts with the vendors there, but as you mentioned, I think the thing we're focused on is a new product slow coming back to that and part of the whole process here was making sure we're working with the right customers is related to that.
Speaker Change #140: I'm going to talk to you about this. I'm going to talk to you about this.
Donald Zurbay: Okay, so it's related to a manufacturer customer as it goes to a veterinary customer. No, no, go ahead. Yeah, I guess what I say is, you know, as we go through the year and, you know, the team one starts like I'm sort of, you know, the. Kind of reset and some of those customer and product relationships that we've had over the past year that we start coming over that. And then we have some new products and new partners coming out here in the rest of the year that will provide another tailwind for the companion animal businesses, those products getting their bang and we get started selling those. Yeah, I guess it's more just how that might all that plays through the cuss analysis, sorry for the confusion and the questioner. Okay, okay, got it.
Donald Zurbay: And then just you mentioned some of the UPS changed dynamics on the consumables front, but just are you seeing more aggressive promotional activity from some of those online aggregators or. Or are there kind of alternative channel kind of competitors on that Friday. I assume the answer is no based on a lot of the consumables questions that you've already answered, but just wanted to ask that I guess more directly. Yeah, no, nothing notable. Again, I would say that the macro environment and our position in it and how we're performing really have changed some of the timing dynamics here. Okay, thank you.
Operator: Okay, thank you, and I guess that's our last question, so I appreciate all the interesting Patterson and we'll talk to you next quarter. Thank you.
Operator: This concludes today's conference call. Thank you all for your participation.
Operator: You may now disconnect.