漢瑞祥 (HSIC) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Henry Schein first-quarter conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's call, Carolynne Borders, Henry Schein's Vice President of Investor Relations.

Please go ahead, Carolynne.

Thank you, operator.

And my thanks to each of you for joining us to discuss Henry Schein's results for the first quarter of 2014.

With me this morning are Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein; and Steven Paladino, Executive Vice President and Chief Financial Officer.

Before we begin, I would like to state that certain comments made during this call will include information that is forward-looking.

As you know, risks and uncertainties involved in the Company's business may affect the matters referred to in forward-looking statements.

As a result, the Company's performance may differ from those expressed in or indicated by such forward-looking statements.

These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission.

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

The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 6, 2014.

Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

I ask that during the Q&A portion of today's call, you limit yourself to a single question and a follow-up before returning to the queue.

This will provide the opportunity for as many listeners as possible to ask a question within the one hour we have allotted for this call.

With that said, I would like to turn the call over to Stanley Bergman.

Thank you, Carolynne.

Good morning, everyone, and thank you for joining us.

We are pleased to begin 2014 with a solid first-quarter financial report, despite severe weather conditions throughout much of the US.

While we believe our US sales in each of our business groups were adversely impacted by weather, we are pleased with our first-quarter EPS performance and to be affirming our 2014 financial guidance.

In a moment, I'll provide some additional commentary on our performance.

And we are generally quite pleased with the performance of each of our business units, and generally, across the board, taking into account the weather-related issues.

And so, Steven will now take it through the specifics of the quarterly financial results, and I'll be back with some additional comments.

Okay.

Thank you, Stan, and good morning.

I am also pleased to report solid results for the first quarter of 2014.

Before we begin, I'd like to point out that our prior-year first-quarter results included a one-time non-cash expense related to the refinancing of the Henry Schein Animal Health debt.

If you look at Exhibit B of this morning's earnings release, you can see a reconciliation of that one-time non-GAAP item to GAAP net income and EPS from continuing operations.

So I'd like to begin by discussing a factor that affected our sales growth for the quarter.

Our 2014 first-quarter US sales for dental, animal health, and medical, were negatively impacted by severe winter weather, as Stanley just mentioned.

So while it's extremely difficult to quantify the precise impact, there are a few important comments I'd like to make about that.

First, we do not believe that the weather conditions had any material impact on our equipment or our technology sales in the quarter.

Second, we estimate that the impact was in the range of 1% to 2% of our sales in both our dental consumable and medical businesses.

Third, we believe that the animal health sales in the US was impacted by a greater amount, since the adverse weather conditions across most of the US, especially in the South, delayed the start of the parasiticide season.

Finally, with that as a backdrop, let me also mention that we have seen all of our US businesses rebound in April, giving us confidence that the weather impact in Q1 was an anomaly.

So, let's turn to the specific sales performance for Q1.

Our net sales for the quarter ended March 29, 2014 were $2.4 billion, reflecting a 6% increase, compared with the first quarter of 2013.

This consists of 5.6% growth in local currency and a 0.4% growth related to foreign currency exchange.

In local currencies, internally-generated sales increased 2.9%, and acquisition growth was an additional 2.7%.

You can see the details of all of our sales growth contained in Exhibit A of our earnings news release.

If you look at the operating margin for the quarter, it was -- 6.5% was the operating margin for first-quarter 2014.

And that declined by 23 basis points compared to the first quarter of 2013.

However, when excluding the impact of acquisitions completed during the past 12 months and related expenses, our operating margin was relatively flat and contracted only by 4 basis points.

I'd also like to point out that in the Other Income section of our P&L, included in the Other Net line is a contractual payment of $4.2 million pretax or $0.03 per share from a European animal health supplier.

This payment was due to a change to a nonexclusive sales model.

Previously, it was an exclusive sales model.

So while we continue to sell this product on a nonexclusive basis, we have also begun to distribute other brands in this product category.

If you look at our effective tax rate for the quarter, it was 31.2%, which is down from 31.9% in the first quarter of 2013, and is in line with our previous guidance.

The lower tax rate is due to the implementation of ongoing tax planning strategies, as well as higher earnings in countries with lower corporate tax rates.

We expect our effective tax rate to be in the 30% to 31% range for the remainder of the year.

The net income attributable to Henry Schein for the first quarter of 2014 was $102.1 million or $1.18 per diluted share.

This represented growth of 8.4% and 11.3%, respectively, compared with the first quarter of 2013, when excluding the one-time expense related to the debt refinancing that I previously mentioned.

Foreign currency exchange did not have any material impact on our EPS for the quarter.

If you look at some of the detail of our sales results, our dental sales for the first quarter of 2014 increased by 8.9% to $1.3 billion.

The 8.9% growth included 8.6% growth in local currencies and 0.3% gain related to foreign currency exchanges.

If you look at the local currency internally-generated sales growth, that was 3.5%, and acquisition growth contributed an additional 5.1%, which is primarily related to the completion of the BioHorizons and Arseus acquisitions.

The 3.5% internal growth in local currencies consisted of 3.6% growth in North America and 3.3% growth in international.

And both of these figures are local internal growth.

I'll give you some detail behind each of the North American international sales growth results.

The 3.6% local internal growth in North America included 0.8% growth in sales of dental consumable merchandise, and 15.7% growth in dental equipment sales and service revenue.

Let me point out that the US dental equipment sales in the first quarter of 2013 were impacted by the medical device excise tax that accelerated sales into the fourth quarter of 2012.

This resulted in a little bit of an easier comparison in the first quarter of 2014.

The 3.3% local internal growth in the international dental sales included 3.7% growth in dental consumable merchandise, and 2.4% increase in dental equipment sales and service revenue.

Remember that Easter and Passover holidays, as well as the IDS Show, all occurred in Q1 2013, and that also made for a little bit of an easier comparison this year.

And just to note, of course, Easter and Passover are in the second quarter this year, and the IDS Show is not in 2014; it's scheduled for 2015.

Let me comment -- although there were several factors, including the severe weather that I previously discussed, that impacted our dental sales growth in Q1, we continue to be very pleased with the overall performance.

If we look at the animal health sales, they were $654.5 million in the first quarter, an increase of 2.4%.

And that included 2% in local currencies and 0.4% in foreign exchange.

If we look at the 2% local currency growth, it included a small decline of 0.4% in North America and 4.2% growth internationally.

Again, the decline in the North American sales is largely attributable to the weather, which had a larger impact on the animal health business, since adverse weather conditions again also delayed the start of the parasiticide season.

I'd like to mention that, in previous quarters, we normalized our results for the North American animal health sales for the switch to agency sales.

However, this quarter, it did not have any material impact on our sales for the quarter.

Medical sales were $397.4 million in the first quarter, an increase of 2.2%, which includes 2% local currency growth and 0.2% foreign currency exchange growth.

In that 2% internal growth in local currencies, North America grew by 2% and international grew by 0.9%.

Again, the sales growth in the medical business was impacted by the adverse weather conditions also.

But despite that impact in Q1, we remain confident that our strategy of focusing on large group practices resulted in market share growth.

Turning to our technology and value-added services sales, they were $81.3 million in the quarter, an increase of 8.9%.

And this included 8.6% local currency growth and 0.3% growth related to foreign currency exchange.

The internally-generated sales growth in local currencies was 6.2%, and acquisitions contributed an additional 2.4%.

Within that 6.2% growth, North America grew by 4.8% and international grew by 14.2%.

Remember, though, I mentioned last quarter that we are now selling a specific US dental software product on an agency basis.

Last year, it was a traditional sale, and this year, it is now an agency sale.

And while that change lowered our sales in the technology and value-added service business by about $3.8 million in the quarter, again, there is no change in the profitability of this product line.

It's really just a switch to an agency sale.

When you normalize results to take into account for the switch to an agency sale, our internal growth in local currencies was actually 11.2%, including 10.7% in North America.

So we are really very pleased with the double-digit normalized sales growth in our technology and value-added service segment.

With respect to stock repurchase, we continued to repurchase stock -- common stock in the open market during the quarter.

Specifically, we repurchased 647,000 shares at an average price of $116.34, which translates to about $75.3 million in cash.

The impact of this repurchase in the first-quarter EPS was not material.

To remind people, at the end of the quarter, we still had about $225 million authorized for future repurchases, and we remain committed to our goal of repurchasing between $200 million and $300 million of our stock for the year 2014.

If you look at the balance sheet and cash flow, as is typical for us, our operating cash flow for the quarter was negative.

It was negative by $55.2 million.

That compares to a negative $38 million in last year's first-quarter.

And one of the reasons for the higher negative cash flow in 2014 is that we did see the reversal last year of the inventory investments made related to the medical device excise tax that occurred last year.

Our Accounts Receivable days sales outstanding was relatively flat, at a little over 40 days or 40.8 days for the quarter.

And our inventory turns for the first quarter also are relatively unchanged at 5.6 turns.

I'll just conclude my remarks by affirming our 2014 financial guidance as follows.

For 2014, we expect diluted EPS attributable to Henry Schein to be in the range of $5.29 to $5.39.

And that represents a growth of 7% to 9% over the actual 2013 results -- again, excluding that one-time item.

And, as always, the 2014 guidance is for continuing operations as well as any completed or previously announced acquisitions, but not any future acquisitions.

So, with that, I'll turn the call back over to Stanley.

Thank you, Steven.

Let me take a few minutes to provide additional detail on each of our business units.

In doing so, I'd like to underscore the theme of our 2013 Annual Report, which shareholders recently received in the mail.

That theme is "rely on us." And it speaks to enhancing engagement with all five of our constituents -- namely our customers, our supplier partners, Team Schein members, society, and of course, our shareholders.

Let me start by reviewing our dental business.

Growth in North America was highlighted by equipment sales and service revenue, which posted robust internal growth in local currencies of 16%, albeit against a somewhat easier comparison to growth of less than 1% in the same quarter in 2013.

The strong growth was evident across the board in our dental equipment business.

In our international dental business, consumable merchandise growth accelerated sequentially with internal growth in local currencies of 3.7%.

This is the highest we've seen in nearly two years.

International equipment sales and service revenue total growth was 11.7%, including 2.4% internal growth, and was bolstered by strategic acquisitions.

Last December, Planmeca announced a strategic investment in E4D technologies, the manufacturer of our E4D chairside scanning and milling system.

Today, the system is marketed under the PlanScan brand.

And the reception by the dental community to date has been quite positive.

Henry Schein continues to exclusively distribute the E4D product, the PlanScan technology, in the US, Canada, Australia, and New Zealand.

Planmeca has a reputation as a well-respected innovative multinational dental equipment manufacturer.

Their alignments with E4D is expected to help improve continued adoption of chairside dentistry, and a strong knowledge of manufacturing should open the door to greater capacity in developing new systems, primarily in the E4D facility in Texas.

In addition, Planmeca is delivering benefits in terms of seamless integration with digital imaging technology used in many dental practices today.

And we are very pleased with our PlanScan E4D sales growth for the first quarter of 2014, which continues to be one of our fastest categories.

Let me just also add that the E4D system will integrate with many other brands as well.

But we are very pleased with the progress that has been made from a manufacturing point of view, and from a sales and marketing point of view, with the now PlanScan system that we are selling in these specific markets for US, Canada, Australia, New Zealand.

The first part of every year is an especially busy time for Henry Schein, as we hold various national sales meetings.

The Dental Special Markets meeting brought together about 125 Team Schein members from throughout the country, and approximately 100 representatives from the 60 supplier partners.

Our dental special markets business focuses on large group -- large corporate accounts -- these are the large groups; government agencies, dental schools, and other institutions.

As is true with all sales meetings, this event included presentations by Company executives, breakout sessions, educational seminars, and of course, the supplier exhibit.

Importantly, the meeting presented opportunity for Team Schein members and our supplier partners to learn from one another.

By interacting directly, we can be sure that our sales team has the best possible knowledge of the market we serve and the products we offer.

Prominently featured at the Sears National Sales meeting for our corporate accounts and dental special markets group was the implant product line from our recently completed acquisition of BioHorizons.

And we are pleased that BioHorizons is performing slightly ahead of our expectations.

There's a lot going on in the special markets arena.

In particular, very large accounts; then there's a group of midsize accounts.

And, as you would expect, Henry Schein is breaking down these various accounts into appropriate categories, and providing the appropriate specialty sales support, backed up by specialty marketing support and value-added services for these groups of accounts.

Certainly be happy to answer more questions on this in the Q&A.

Let me now focus on the animal health arena.

Although we faced some challenges in the quarter due to weather here in North America, it's important to note that because we operate in a leadership position in an attractive market, we look forward to continued steady growth here in North America in the mid, potentially, even towards the high-single digit in future quarters.

These growth expectations are consistent with our previous comments.

And, of course, one has to take into account adjustments as one moves from GAAP sales to agency sales and back again.

Indeed, during the first quarter, we were delighted to be named as the exclusive distributor in the US for Iams Therapeutic line of dog and cat food solutions.

Henry Schein shares a strong commitment to supporting animal nutrition under veterinary care, and relating awareness of its vital impact on the overall pet market and pet healthcare in general.

Our international animal health internal sales growth in local currencies during the first quarter was solid, and was, in fact, the highest we have reported in a year and a half.

We saw particular strength in the UK, Belgium, Spain, Portugal, and Australia.

And just after close of the quarter, we announced the completion of the acquisition of approximately 80% of the shares of Medi-Vet, with annual sales of $86 million.

As we have previously discussed, Medi-Vet is the leading distributor of animal health products and services in Poland, and provides a strategic base for expansion into Eastern Europe's growing animal health markets.

Now, in early March, we held our Animal Health National Sales meeting.

This five-day event featured a record number of more than 600 Team Schein members and participants, from suppliers, as with Dental Special Markets meetings -- as with the Dental Special Markets meeting.

This forum included a multitude of training and educational sessions, along with opportunities to learn about new products and service offerings from suppliers, and a sharing of best practices.

Really, another very, very good meeting.

If we look forward to the fall, we recently announced we will be hosting the Second Annual Veterinary Technology Summit in early September.

This is a particularly exciting industry event that combines practice management courses with training on our cutting-edge software for veterinarians and their staff and more.

We take pride in the technology leadership for many reasons, not the least of which is that it strengthens the bond between Henry Schein and our customers, and allows veterinarians to run efficient practices while providing the highest level of clinical care.

We are proud to have a leading market position in the US for installed systems, and believe that more than 50% of companion animal clinics are using one of our many software systems -- a few major systems and another three or four other systems.

Continuing with our commitment to advanced technology and practice efficiency, early in the second quarter, we launched a free iPad app for our US animal health customers.

This app includes features such as product search capability and purchase history, and ability to browse and select from more than 17,000 products available on the Henry Schein website in the animal health space.

Our new mobile ordering app raises the bar for flexibility and convenience, and coupled with expert advice and tailored solutions we provide, makes Henry Schein animal health a unique resource to our veterinary customers.

Let me now turn briefly to our medical group.

As I think everyone knows, North America represents 94% -- about 94% of the group's sales.

So it's primarily a US business.

Our strategic sales force for the past several years has been focused on large group practices and the IDN methodology -- the IDN -- the Internet Delivery Networks.

We are making solid progress with this strategy and are seeing positive results.

Yet, I note that onboarding of these new accounts, these large accounts, generally takes longer than is for the smaller accounts or solo practitioners, so we are quite optimistic that this program, which has generated good interest amongst these larger accounts -- specifically IDNs -- will yield good sales results as the year goes by.

At our Annual Medical National Sales meeting, more than 700 Team Schein members, along with representatives from 145 exhibiting companies, gathered together to ensure our continued success in serving our physician customers.

There's a lot of change occurring in this marketplace.

And we believe we are still the fastest growing provider of products to physicians, officers and alternate care sites.

And we look forward to benefiting from the trends being driven by public policy, as manifested by the Affordable Care Act, where there are changing business models in delivery of healthcare, and is the movement towards wellness, the movements toward preventative care, and the movement from the hospital to the ultimate care site.

All, we believe, play well into our focus in the medical arena.

So, let me conclude by business overview with some discussion on technology in the value-added services group.

Growth in this unit was driven by software sales, which were good, and value-added services -- more, if anyone has any questions.

But generally, sales performance in this area was heavily driven by recurring revenue, as we leverage and expand our relationship with our software customers.

This group remains a very, very good contributor to profits, but more importantly, to providing value-added services and stickiness in terms of relationship-building with our customers.

So, let me conclude with some very good news, which I think many of our shareholders may be aware of.

And I think these two points that I want to stress, run to the success of Henry Schein, run to our corporate culture, which, in the end, has been the driver of success.

The markets -- many of the businesses that we are in, have lots and lots of competitors, and barriers to entry are relatively easy.

But what has resulted in us being, we believe, so successful is our culture.

We were recently recognized as 2014 World's Most Ethical Company by Ethisphere Institute, which is an independent center of research, providing best practices and corporate ethics and governance.

We are one of only 144 companies to be awarded this honor across 41 industries, 22 countries, and five continents.

This is the third consecutive year Henry Schein has received this award, which recognizes organizations that continue to raise the bar on ethical leadership and corporate behavior.

Also, we were ranked first on Fortune's World's Most Admired Companies list for 2014 in the wholesale healthcare industry.

According to Fortune magazine, The World's Most Admired Companies list is the definitive report card on corporate reputations.

We also were first in each of nine subcategories of ranking -- an accomplishment we had never achieved before.

This year marks the 13th consecutive year that Henry Schein was named on the Fortune Most Admired Companies list.

I think we became a Fortune company 13 years ago.

So, with that overview on our quarterly financial and operating performance, thank you for your attention.

There's so much to talk about at Henry Schein, so we'd be happy if shareholders or investors would like to ask specific questions about specific areas.

So, I'll turn the call over to the operator now.

(Operator Instructions).

Robert Jones, Goldman Sachs.

Stanley and Steve, thanks for the questions.

Just on the North American sales, you guys highlighted equipment, and clearly, some very strong growth there in what I imagine was a fairly tough environment in North America.

Yes, you also, Stanley, highlighted the relationship with Planmeca and the satisfaction you guys have there around E4D product.

I was wondering if maybe you could just spend a little time discussing within equipment what drove the significant growth in Q1?

Just trying to get a better sense for how much of it was a market driven versus share gains.

You know, it's a very good question.

There is no IMS data that is that accurate on the equipment side.

But we believe that, overall, the equipment market in the US is doing better.

We believe that we are much better positioned today than we've ever been to offer every kind of system that a practitioner may need.

We believe we have an outstanding offering; major suppliers are working quite well with us, generally.

Always room for improvement here or there.

But overall, I think we have done well in traditional equipment and, generally, across the board in North America.

So, I mean, please do remember, as Steven pointed out, that 2013 first-quarter was a particularly challenging quarter.

I think we only had 1% growth.

But so if you take the 1% and you take the -- I don't know -- the 16% or something like that, you add them together at 17% -- it's still 8.5% internal growth or something like that.

Right?

This is all internal growth, Steven?

Yes.

It's quite good.

It's three times the GDP.

Yes, I think we are gaining market share, we believe, in most categories, but we think the dentists are investing in their practices.

Yes.

Let me just add, Bob, just to give you a little bit more color.

Stanley said it, but to give a little bit more detail.

Across-the-board equipment sales growth was strong.

Traditional was in the high-single digit growth.

High-tech was much faster than that.

It blended, obviously, to that 15.7%.

And within high-tech, PlanScan -- I think it was one of -- it was either the highest or one of the highest product categories.

So, PlanScan/E4D did very well also.

So really, it was broad-based and across-the-board, so we were pleased with that.

That's helpful.

And I guess just switching gears over to international.

Because it sounded like consumables there was actually very strong.

I was just curious if maybe you could talk about, within Europe, what pockets exceeded your expectations?

And how are you thinking about the consumable growth across Europe for the balance of the year?

Yes, I think we've been saying this for a while.

Europe is stabilizing -- not back to where it was.

But I think it would be fair to say that there are not many markets that are in heavy decline or even in decline.

So the mood is a little bit better.

Of course, there are challenges.

It's not as buoyant as it was.

But generally, practitioners can access funding.

I think we have done perhaps a little bit better job than the marketplace, because our funding services, we've taken our Henry Schein financial services to Europe and that's doing quite well.

But overall, I think the big markets of Germany, France and the UK are okay.

Please take into account that, in the first quarter of 2013, we had the IDS impact.

Some people didn't buy it because of holding off for the IDS taking into account.

But generally, those three markets are okay.

Italy is still not good.

But the three actors are okay and then the rest kind of cancel each other out.

But it's definitely leaning well into the part of the category from a moot point of view.

Although there are, of course, challenges; Europe is still not completely back to where it was.

Got it.

Thanks.

Glen Santangelo, Credit Suisse.

Stanley, just want to follow-up on some of the comments that you made with respect to the US.

I think you seem to suggest that consumable growth was maybe 0.8%, and maybe weather sort of impacted that in the range of 1% to 2%.

So, as I think about growth in the US, is it kind of fair to say that normalized for weather, we are kind of in that 2% to 3% range?

Which really doesn't feel like it's gotten any stronger or any weaker from where we were trending in the past couple of quarters.

And then just to kind of reconcile that to Bob's question around Europe, it kind of sounds like Europe clearly, organically, grew faster this quarter than the US, which is a definite change from where we were for the last couple of years.

Yes.

That's sort of an interesting and obviously a very logical conclusion.

When we're talking about such small basis point differences, it's very hard to do -- to make concrete conclusions.

I think that the US economy we know is growing a couple-hundred basis points.

And dentistry is about there.

And Henry Schein picks up a little bit of market share.

So we do maybe a little bit better with some of the bigger accounts.

Some say that that's a pricing issue in those accounts -- yes; but we also -- there are some pricing issues, but we get good support from manufacturers.

And above all, I think we have the best systems in that field.

So generally, I think we are doing, at Henry Schein, a little bit better than the economy.

And so I think the US is in the 2%, 3% range.

It's definitely more than 2%.

How much more than 3% it is, I don't know.

But we are talking about those kinds of ranges, maybe a little bit better than 3% for the time being.

And Europe had some good equipment sales in there.

But I think Europe is doing, I think, just a tad better than we thought for the time being.

Also, please, please, remember the Easter effect.

And I hate to go into these little basis point adjustments, but you've got the weather, you've got Easter.

And -- but we are comfortable that we're going to grow GDP plus 100, 200 basis points, something like that.

That's what we talk about for years.

We believe that our businesses are well-positioned to do that.

Maybe if I could just follow up with Steve, one question on the guidance.

It kind of sounds like you had a pretty big beat here, at least on an EPS basis.

And listening to the prepared remarks, it sounds like the acquisitions are doing well.

You saw the business rebound in April.

Ultimately, animal health, I think, as Stan suggested, was going to rebound up to mid to high-single digits.

And so, as I look at the range that you provided for the full-year, it kind of implies decelerating growth, at least on an EPS basis, throughout the balance of the year.

And I'm just trying to reconcile the comments with that expectation.

And maybe it's just sort of 1Q and you want to remain on the conservative side here.

But I'm just kind of curious if there's anything that will impact the growth over the past couple -- oh, I'm sorry -- over the next couple of quarters that are worth calling out?

Sure.

So, firstly, I think your last comment is true.

I think it's still early in the year and we want to have a little bit of conservatism to our guidance.

If you recall, last quarter, I was saying that we thought EPS growth would accelerate beyond Q1.

And if you look at the benefit we had in Other Income, which was about $0.03, we weren't expecting that to occur in Q1.

It was part of our original guidance.

It was either one of two things were going to happen when we gave guidance with that European animal health supplier.

Either we were going to continue the exclusivity, and that would've continued for the year; or the change would've occurred, which happened, and we weren't expecting that benefit in Q1.

So, really, when you exclude that, our EPS growth was just under 9%, which is still at the high end of our full-year guidance.

And again, other than trying to be a little bit conservative and it's early in the year, that was really the change in Q1 from what we thought would happen from a timing perspective the last quarter.

Oka, that's great.

Thanks a lot.

Okay.

Jeff Johnson, Robert Baird.

Steve, maybe I can start with you on the equipment side.

On the traditional versus the high-tech breakout that you gave on the growth rates, can you just remind us kind of what percentage -- as you fill in buckets of traditional versus high-tech -- what percentage of your North American dental equipment would fall into traditional versus high-tech?

Sure.

Generally, the traditional equipment runs about 60%, 65% of overall equipment and the high-tech is the balance.

There is a little bit of variation between quarters, because sometimes the high-tech equipment accelerates at a faster rate.

But that's a basic breakout that we typically see.

Yes, fair enough.

And then do you feel like with upper-single digits on the traditional side -- and I know the corporate business seems like it's helping you out this year a decent amount -- but do you feel like you're taking share there across the industry on the traditional side?

And then on the PlanScan side, I hear your numbers or I hear your comments that it was your first or second highest growth rate product in the quarter.

Is there any independent data out there or anything you could point to on a unit basis?

Are you, from a new system sale, taking 10%, 15% of new system sales currently higher or lower than that?

Just anything you could ballpark would be helpful there as well.

It's -- I think we are definitely doing very well in PlanScan.

It's really hard to tell how many units versus the competition.

But it feels like we are accelerating our market penetration.

But there's really not good data on that, that I know of, so it's hard to say with certainty.

We had the benefit this quarter that not only were we shipping new units on PlanScan, we also shipped a fair amount of upgrades.

And we have the upgrade program for -- it wasn't a big part of our customer base that had the potential for upgrades, but it still did have an impact in Q1.

And the good news is also we're not feeling like we are constrained from a supply point of view.

We are feeling like the supply is now catching up to what it needs to be.

So I still feel like PlanScan will be a very strong grower for the remainder of the year and into the future years also.

And your comments then, if you could follow-up on anything on the traditional side -- if you feel like you're taking share, even in the private practitioner channel there?

You know, I think we have to be, because I can't believe that the market grew at high-single digits on the traditional side.

I just can't believe it grew the high.

So again, there is not good data on that.

There is some data that comes out, but by the time it comes out, it will be 30 or 60 days from now.

So we'll know at that point with some of the market data that comes out.

But again, you know the market pretty well also.

I doubt the market was growing high-single digits in Q1 in traditional.

Yes.

Fair enough.

Last question.

Stanley, I think over the years, you guys have had trouble finding any credible partners in Russia, I guess is one way to phrase it.

But just to confirm -- no real exposure to Russia, Ukraine, and some of the issues going on there?

No.

No.

Anybody from Russia wants to buy, we'll be delighted to sell.

But have to come to one of our operations in Europe to do it.

Got it.

Thanks, guys.

Kevin Ellich, Piper Jaffray.

Thanks for taking the questions.

First, in the animal health business, just wondering if you have any updated thoughts on what potential industry consolidation between Novartis Animal Health and Elanco might have on the business?

And also, there were a number of new products that were introduced this year.

Wondering if you've seen any benefit or any issues with supplies on NextStart or Apoquel?

Maybe Steven knows the specific products, but I really can't comment.

They were reported on at our Board meeting but I just don't remember.

Look, we have a good relationship with both Novartis and Elanco, Eli Lilly.

It's just been a very good relationship with both of them.

We do not expect any significant impact to our sales once the Novartis business becomes part of Lily.

And we expect Lily to continue to support us and enjoy -- and we believe we'll enjoy the benefits of, really, our outstanding relationship that we've built with the Lilly/Elanco team over the years, not only here in the US but worldwide.

We also have a very good relationship with Novartis.

So, I have to say that we are very pleased with this combination, and believe it will be a benefit to them through the industry.

And I believe Henry Schein will be a beneficiary of this too.

So, we are very pleased.

But of course, I think a lot of this will only have an impact in one way or another in 2015 because these are quite substantial companies from an animal health point of view.

And there's going to be a lot of merger activity taking place.

So I think they are going to be -- my guess is internally-focused for a while before they spend a lot of time advancing market share, et cetera.

But could not be happier.

(multiple speakers) Sorry -- I was going to add -- with respect to the specific products you just mentioned, while I'm quite frankly not familiar with those two specific products, I think I can say that I'm not aware of any significant product issue on the animal health side.

So, we can doublecheck that for you, but I think if there was a significant issue, I would've heard about it.

(multiple speakers) The only issue in the animal health area was the seasonality thing.

That was the big issue because of the weather.

And you've seen improvement in April from the weather impact.

Is that correct, Stanley?

Yes.

I'm not sure you can conclude that April is a trend, but April so far -- and we generally do not provide monthly guidance, but I think, given the severe impact in the first quarter, we felt it was important to provide a sense of what happened in April.

And yes, it's not bad.

Got it.

And then just last question.

On the medical business, we saw a little bit of internal growth this quarter in North America.

As we move throughout the year with ACA, maybe benefit expanded coverage, are you expecting a ramp?

And does your guidance -- have you built into your guidance a ramp and utilization in volumes that might drive incremental growth in that business?

Yes.

I think -- we can't confirm the specific numbers, obviously, but I think from the tone that we've tried to convey perhaps over the last two years or so, and even longer, we are quite optimistic about our position in the US medical space.

We decided to focus on consolidating entities, the large entities, multiple locations under common management, as well as the IDNS.

These are the Integrated Delivery Networks Systems.

These are hospitals that are owning practices, et cetera.

And we believe this is the rapidly growing part of the market, these two.

And that's an area we've focused on.

We believe we are well-positioned.

We believe we are landing some very nice accounts.

They take time to integrate.

It's hard to tell you the exact day when business moves over.

But we have actually done quite well in winning some of these accounts, and believe we are in a very good position to serve these accounts.

Exactly when the business comes, it's so hard to tell, so we have to remain quite conservative.

And so, I think the Affordable Act will, in the end, result in many more Americans seeing a primary care physician.

That is a fact.

When this all kicks in -- very hard to tell.

But the part of the market that we serve will be servicing more -- the practitioners will be seeing more patients in a preventative wellness setting.

And that means more gloves and masks and all the things that we sell.

So, we remain quite optimistic.

But I think Steven, rightly so, has been quite conservative with our internal budgets.

And I think that's where we are today.

But in the long run, we believe this is a very good business to invest in, from our point of view.

Excellent.

Thanks.

Michael Cherny, ISI Group.

Thanks for all the color this morning.

I just want to dig a little bit, maybe more of a follow-up on that question from an ACA perspective, and talk about the utilization improvement.

Steve, you said you saw a pickup in April on some of the utilization metrics you track, particularly as the weather seems to have thawed out a bit.

When you also think about some of the earlier potential increased lives that are getting covered with Medicaid, it's people that maybe have not had insurance ever.

And so something like basic medical requirements, something like a first dental visit may be the first place that they go.

As you think about what could be the driver of utilization, are you seeing any of that?

Maybe whether its Medicaid expense and some other areas that could very specifically be the early impacts from ACA that have already found their way into your book?

Again, it's so hard to tell, but if you're asking us to guess, my guess would be we really haven't seen much of an impact yet; that whatever impact we'll have is still to come.

Again, with the reason why we really haven't factored anything into that in the 2014 guidance is because determining the timing of when that will happen is difficult.

I think I personally believe that that should help our medical as well as a little bit, to a lesser extent, our dental business.

But I don't think we've seen any impact just yet.

I agree with Steven.

On the impact of the Affordable Act, not yet, in terms of the number of new patients.

Having said that, I think the consolidation trends in the large group practices, as I noted, and with the IDNS, has accelerated over the last couple of years.

A lot of these providers were looking for new providers of Products, and I think we've landed some nice accounts in those areas, although not all those accounts, obviously, have been converted yet because that takes some time.

Got it.

Thanks.

John Kreger, William Blair.

Could you expand a bit more on your dental specialty groups?

And if you're willing, perhaps give us what kind of organic growth you're seeing in implants, Ortho and Endo?

Yes.

I'll leave the guidance, the information on the sales growth.

And I'm not sure, Steven, what specific numbers we provide.

But generally, on the implant side, BioHorizons and the two big properties of BioHorizons and Camlog; a little bit Ace.

BioHorizons is doing well.

Again, I'm not prepared to say it's a trend, but the first quarter has done quite well in terms of sales and profitability.

Camlog, I think you know is significantly German-focused.

The German implant market did not really grow very much last year.

And we are seeing, I think, our market share moving and continuing to move in a good direction in Germany.

So, overall, our implant businesses are doing quite well.

Orthodontics is really not material.

I think we are doing quite well domestically in the US.

And we expect to do well internationally over time.

And the endodontics, on balance, I think is more or less similar to the general dental trends.

So, overall, I think the organic side is testing just a little bit better than our overall dental business.

And we will continue to invest in this area from an inorganic point of view as well.

By the way, I will say, as I think this through, that where we are doing particularly well, I think, is in selling equipment to specialists.

Because our sales force in the area of specialty products has had an impact on overall brand awareness of our equipment offering in the specialty area.

And I think it's paid off well.

And I'm particularly referring to the US here.

That's very helpful, Stan.

And maybe just one quick follow-up.

If you think about your corporate dental business versus the more traditional customer, are you seeing any differences in trends there?

Just -- John, anything specific you're looking for, as far as your question?

Well, yes, one specific -- are the corporate buyers more likely and more comfortable making the larger capital equipment type purchases?

I mean the large (multiple speakers) --?

Yes, the large corporate practices.

Yes, I think that's -- yes, they continue to do that.

It's -- yes.

It's probably a little bit -- last year, I think we saw a few portfolio changes amongst some private equity firms.

But the management change, I'm referring to the US, and I think we are seeing a lot more interest in equipment now.

Yes.

And remember, there are some of those corporate accounts that their model is not to buy new dental practices or maybe not to do that exclusively, but really to start up new dental practices.

So those that have that model that do more startups than acquisitions, obviously, they're bigger equipment buyers for traditional equipment.

And there seems to be a lot of interest with the corporate accounts on technologies like PlanScan to improve efficiency, because they understand it.

They tend to be a little cautious on overall capital expenditures because they're using a lot of cash to grow the business, but I think that they are all looking very hard at improving efficiencies in their practices.

And CAD/CAM is a big driver of that.

Very helpful.

Thank you.

And we do have time for one more question.

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

Thanks, guys, for squeezing me in.

Maybe just two or three quick ones.

First, Steven, the cadence of internal revenue growth for the balance of the year, you know, last year was pretty stable in that 3.5% to 4% range.

You had the slight step-down at 2.9, and you called out weather headwinds in 1Q.

But is there a way that we should think about the cadence for the balance of this year?

The only thing that we should see a little bit when -- Stanley mentioned the Easter Passover holidays, which is in Q2 -- that tends to have a muted impact in the US.

It has a little bit of an impact, but it tends to have a bigger impact in international.

But there are some European markets that, for example, Good Friday is virtually a national (multiple speakers) --

On a Monday.

Yes.

And maybe even Monday, they are effectively national holidays, so almost everything is closed.

So we'll see a little bit of that in Q2.

But other than that, and other than our typical strength in equipment and technology sales in Q4, a little bit tax-related, I would say no other things to note on that.

Okay.

And then just next on the -- it's called adjusted dental consumable number in North America.

It seems like earlier, it was referenced, even if you make some adjustments, maybe it was up 2% to 3% in 1Q and, arguably, that was off of somewhat of an easier comp from a year ago.

Last quarter, you talked about maybe 4% was back.

Are you still thinking in and around that number?

In other words, for the balance of the year, are you seeing the underlying demand in North America in and around a 4% dental consumable number?

I don't want to be that specific on 4%.

By the way, when we look at demand, our consumable business -- we look at trends.

Because unlike equipment -- you know, we get an order today, we're shipping it today.

So, there's no backlog; there's no -- so, the way to look at how is the business doing is to look at a trend line of average daily sales, and compare it to other periods.

Now unlike equipment, where we know, for example, we feel very good about equipment going forward because we have a backlog report.

And if you look at our US backlog report, it's grown from the end of the quarter to the -- from the beginning of the quarter to the end of the quarter in Q1.

So, that you have a little bit more where you can -- predictability.

So, but I do think that, overall, we should see the markets return to normal.

As we said, we saw April results rebound in all of our businesses, so we were pretty confident the weather was a negative impactor.

And I think that even though we haven't really seen it, it's hard to tell in Q1, we should see a little bit of, I think, market improvement as the year progresses.

Okay.

And very last one.

I know you guys have 1 million products, but your partner on this one actually had a conference call specific to it.

So, any color on Realine?

I mean, there's been some clarity in a lines numbers that maybe you got off to somewhat of a slow start, if you just isolate their express type of product growth.

Can you guys speak to that?

You know, Stan, what your sales guys are seeing with it out there?

It's obviously a very big market opportunity, being the clear liners, and how you see the traction with that product going forward?

Thanks, guys.

Yes, I don't have the specifics.

And I'm not sure if we really should comment on specific products because it's clearly not material to the whole of Henry Schein, although it's a very nice product for us to provide a value-added service to the GPs.

I know our sales force is excited.

I know that we will be doing quite a bit around this product at our National Sales meeting in July.

But I don't have the specifics and I don't know if we --

Yes, I don't have the specifics either, but I would say the comment that a slower start, I think you have to have a backdrop that this is a sale that's a longer sales cycle.

So it's not unusual to start a little bit slower, because it takes a little bit more time to get the training and to get the customers to ultimately start buying.

So it is a little bit of a longer sales cycle, so maybe that's consistent with what you're hearing, but it's just a different way of, I guess, explaining it.

Great.

Thanks for your time.

Okay.

So, thank you for all those questions, everyone, and thank you for participating.

You know, we continue to feel pretty good about the Company.

Each of our business units has very good plans, executing more or less to those plans.

Always a couple of things ahead and a couple of laggards here and there.

But overall, the morale in the Company is good.

We are using 2014 to prepare our strategic plans for the year 2015, 2016, and 2017.

And that is well on the way.

So, I think the momentum is good.

The economies, generally, are moving nicely in a positive direction.

And we remain cautiously optimistic for the rest of the year.

And thank you very much, again, for calling in.

If you have any questions, please feel free to call Steven or Carolynne.

And you can just call at 631-843-5500, and they will -- the operator will put you through to Carolynne or to Steven.

So, thank you very much.

Thank you for participating in today's conference call.

You may now all disconnect.