漢瑞祥 (HSIC) 2015 Q1 法說會逐字稿

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

(Operator Instructions)

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 2015.

With me on the call today is Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Steven Paladino, Executive Vice President and Chief Financial Officer, who are in different locations.

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 4, 2015.

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 that 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.

Our first quarter financial results were solid with quite strong internal growth in local currencies as we continued to gain market share in each of our four business groups.

As detailed in the news release we issued this morning, the strength of the US dollar impacted all of our international operations, and in particular, those in Europe.

Changes in currency exchange rates reduced our consolidated sales growth by 6% and reduced diluted EPS by $0.06 compared to last year.

Steven will speak about this in greater detail during the call, yet looking beyond currency exchange factors, the global markets we serve we believe continues to be healthy.

This quarter, we saw it the previous quarter, and despite some challenges in our International Dental business, and this is quite selective, it's not a general issue, our bottom line results also were solid despite the impact of the strength in US dollars and we were pleased today to be reaffirming our guidance range for the 2015 diluted EPS.

So in a moment I'll provide some additional commentary on our recent financial performance and business accomplishments.

But first, Steven, can you review the quarterly financial results?

Thank you.

Okay.

Thank you, Stanley, and good morning to all.

I am also pleased to report solid results for the first quarter of 2015.

Before we begin I'd like to point out that our 2015 first-quarter results include restructuring costs of $6.9 million pre-tax, or approximately $0.06 per diluted share.

We announced this restructuring on our third-quarter 2014 conference call.

Exhibit B to this mornings earnings news release reconciles our GAAP and non-GAAP income and EPS from continuing operations.

I will be discussing our results as reported and also excluding these restructuring costs as we believe the latter is more reflective of our performance.

Turning now to our Q1 results, the net sales for the quarter ended March 28, 2015 were $2.5 billion, reflecting a 1.4% increase compared with the first quarter of 2014.

This consisted of 7.4% growth in local currencies and, as Stanley just mentioned, a 6.0% decline related to foreign currency exchange.

In local currencies, internally generated sales increased 4.8% and acquisition growth contributed 2.6%.

Again, you could see the details of our sales growth in Exhibit A of our news release.

Operating margin for the fourth quarter of 2015 was 6.6% and expanded by 8 basis points compared with the first quarter of 2014.

However, excluding the restructuring costs, which we believe is the most appropriate measure, our adjusted operating margin for the quarter of -- for the first quarter of 2015 improved by 36 basis points to 6.8%.

If you also exclude the impact of acquisitions completed in the past 12 months and related expenses, our margin expanded by 33 basis points compared with the first quarter of 2014.

This expansion primarily resulted in improvement in operating expenses as a percentage of sales as we leverage our global infrastructure across growing sales.

Our effective tax rate for the quarter was 30.8%.

This is also on a non-GAAP basis, which excludes restructuring costs and compares with 31.2% for the first quarter of 2014.

The lower tax rate is due to the implementation, or continued implementation, of tax planning strategies and higher earnings in countries with lower corporate tax rates.

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

Net income attributable to Henry Schein for the first quarter of 2015 was $103.4 million, or $1.22 per diluted share.

This represents growth of 1.3% and 3.4% compared with the first quarter of 2014.

However, again excluding restructuring costs in the current quarter, net income attributable to Henry Schein was $108.4 million, or $1.28 per diluted share, and that represents 6.2% and 8.5% respective growth compared with the first quarter of 2014.

Again, as Stanley mentioned, foreign currency exchange did have a negative impact to us in the quarter and it was about $0.06 of EPS for the quarter versus last year.

Let me now provide some detail on our sales results for the first quarter.

Our dental sales declined by 3.6% to $1.3 billion.

This 3.6% decline consisted of 3.3% growth in local currencies and a 6.9% decline, again, related to foreign currency exchange.

In local currencies, internally generated sales growth increased 2.7% and our acquisition growth contributed an additional 0.6%.

If we look at the 2.7% internal growth in local currencies, that consisted of 4.4% growth in North America and 0.2% internationally.

If I give you some additional detail behind each of the North American and International businesses, the 4.4% growth in the North American business consisted of 4.4% growth, the same number of dental consumable merchandise, as well as slightly higher, or 4.5% growth, in dental equipment sales and service revenue.

If you look at the 0.2% internal growth in constant currency in our International business, that included a slight decline of 1.6% in dental consumable merchandise and 5.4% growth in dental equipment sales and service revenue.

The 1.6% decline in our dental consumable merchandise was primarily reflected in three markets, the Australian market, the UK market and our German market.

Turning to Animal Health.

Our Animal Health sales were $684.3 million for the first quarter, which was an increase of 4.6%.

This included growth of 12.4% in local currencies and 7.8% decline related to foreign currency.

Our internal sales growth in local currencies was 4.5% and acquisitions contributed 7.9% to the growth.

If we look at that 4.5% total worldwide growth, it included 1.3% growth in North America and 7.4% growth internationally.

The Animal Health growth rates reflect the impact of certain products that switch between agency and standard sales.

This quarter, however, it was not material.

It was less than a 1% impact but it also reflects changes in manufacturing relationships in the veterinary diagnostic category, which we've discussed on previous conference calls.

We normalize for both of those two situations.

And when you normalize for that, the groups internal growth rate in constant currencies -- sorry, internal growth rate was 4.5% and in constant currencies was 10.1% and the internal growth rate in North America goes to 13.6%.

So we believe that these growth rates more accurately reflect the ongoing strength of the Animal Health business and we will continue to report results of our Animal Health business on the same basis, again, to show the performance on a clearer basis.

Our medical sales were $443.5 million for the first quarter, an increase of 11.6%.

This consisted of 12.5% growth in local currencies and a 0.9% decline related to foreign currency exchange.

Internal sales growth in local currencies was 11.6% and acquisitions contributed 0.9% to growth.

The 11.6% internal growth in local currencies included North American growth of a strong 12.2%, led by large group practices and integrated delivery networks and growth of 1.5% internationally.

This is our first quarter that we have results that include a full quarter of agency revenue resulting from our strategic agreement with Cardinal Health.

And you should note that agency revenue under this agreement is running approximately $1.5 million per month, so approximately $4.5 million for the quarter.

If we turn to our technology and value-added services sales, they were $85.7 million in the quarter, which was an increase of 5.4%.

This included 8% growth in local currencies and a 2.6% decline related to foreign currency.

In local currencies we had internally generated sales growth of 7.9% and acquisition growth of 0.1%.

That 7.9% internal growth in local currencies included 5.9% growth in North America and 17.3% growth internationally.

We continued to repurchase common stock in the open market during the first quarter.

Specifically we repurchased approximately 542,000 shares during the quarter at an average price of $139.67 per share, which translated to approximately $75.7 million.

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

At the close of the quarter, we had approximately $224 million still authorized for future repurchases of common stock and we remain committed to our goal of repurchasing between $200 million and $300 million of stock for 2015.

If we take a brief look at some of the highlights of our balance sheet and cash flow for the quarter, the operating cash flow for the quarter was negative by $26.7 million but that compares to a negative $55.2 million in the prior years first quarter.

And as most people know, our first quarter is typically negative because of working capital movements.

We continue to believe, though, for a full year we will have strong operating cash flow.

Accounts receivable day sales outstanding was 41.2 days.

That compared to 40.8 days in last year's first quarter and inventory turns was 5.3 turns, which compares to 5.6 turns last year.

So finally, I'll conclude my remarks by affirming our 2015 financial guidance as follows.

For 2015, we expect adjusted diluted EPS attributable to Henry Schein to be $5.90 to $6 per share, which represents growth of 8% to 10% compared with our 2014 results.

Again, assuming the strength of the US dollar stays at current levels, we expect 2015 adjusted EPS to be towards the lower end of that range.

Keep in mind that approximately 35% of our worldwide sales are based on currencies other than the US dollar.

And as you may know, we do not hedge against that exposure.

Also our 2015 guidance excludes restructuring costs related to the planned initiative to rationalize the Company's operations and provide expense efficiencies.

And it is also, as always, includes completed acquisitions or previously announced acquisitions but does not include the impact of any potential future acquisitions.

So with that, let me turn the call back over to Stan.

Thank you very much, Steven.

So let me review our four business groups starting with Dental.

In North America, consumable merchandise sales growth of more than 4% in local currencies indicates that patient traffic through dental offices continues to be strong, although we do believe that we did pick up market share.

Importantly, equipment sales and service revenue returned to healthy growth during the quarter, up 4.5%.

Looking at the International Dental, internal equipment sales and service remained solid at more than 5% in local currency.

As -- and by the way, the full impact of IDS is expected in the next quarter.

As Steven mentioned, we saw a decline in consumable merchandise sales in our international businesses but we remain confident about the long term success of our International Dental strategy.

The IDS Biannual International Dental Show in Cologne in March, we did experience the typical slowdown of purchases before the show leading up to the show.

And that softness was offset by gains in other countries, including France and Spain.

As always, IDS 2015 was an exciting gathering of dental professionals from across Europe and many equipment manufactures used the occasion to launch new products.

We look forward to the positive impact of IDS during the next few quarters.

During the first quarter we entered into a multi-national distribution agreement to bring the latest 3D printers from 3D Systems to our laboratory customers.

These two products we'll -- the two products we'll be selling are leaders in the high fidelity precision 3D printing arena and will be part of our digital dental laboratory offering, which includes 3D scanners, software, installation and post sale support.

This agreement is yet another example of our commitment to complete an integrated digital dental solution in the operatory and, of course, in the lab.

Now on the Animal Health side, once again, this group posted double-digit growth in local currencies in both North America and internationally.

We saw particular strength in the United Kingdom and Australia as well as North America, except in the diagnostic category in North America Just after the close of the quarter, we completed our acquisition of Scil Animal Care, which I discussed at some length during our last quarterly conference call.

In addition to fortifying our Animal Health equipment capabilities in North America and Europe, the Scil Animal Care professionals will be expanding our diagnostic products category and working to gain market share for our Animal Health diagnostics partners, including of course Abaxis and Heska.

We are pleased thus far with the Abaxis and Heska product lines and we look forward to further market penetration and success with both of these excellent manufacturers.

During last quarter's call I mentioned a new software product called Axis-Q, which automates the work flow of diagnostic tests, eliminating the manual input of codes and automatically returning results to the electronic medical record in the vet office.

There is -- we've made good advance -- we've made good progress here.

There is good advanced awareness of this product and we are on track to launch during the current quarter.

So again, just like our Dental business, we are very excited about the progress that is unfolding in our Animal Health business, both in the United States and abroad.

So on the Medical side, sales growth in this group was excellent and exceeded 12% in local currency.

This reflects continued progress with large group practices and the IDN -- the integrated delivery networks.

Our up market, that's the very large accounts in our mid market -- the mid-size accounts -- growth also includes a full quarter of agency sales and they're our strategic agreements with Cardinal Health.

Our collaboration with Cardinal Health is proceeding well.

Our sales teams have continued to make customer presentations at a combined -- as a combined selling organization and the reception has been very good generally.

We just had our national sales meeting of the combined sales forces and it was really -- the morale, the excitement, the enthusiasm was quite remarkable.

And we expect to have the integration substantially completed this quarter, now the second quarter, as we originally planned.

So let me conclude my business overview with some remarks on the technology and the value-added services groups.

This group of businesses continues to perform very well.

International technology and value-added services posted double digit internal sales growth in local currencies as has actually been the case every quarter for more than two years.

The advanced technology of products and services sold by this group, of course, also provide a platform for further enhancing sales opportunity to customers across all businesses -- very profitable sector of Schein but also lends enormous stickiness to our relationship with customers on the consumable equipment financial services and other business opportunities.

So before we open the call to questions, I'd like to highlight a few awards and rankings we recently received and really as a recognition to the terrific work our team has done.

In February, Henry Schein ranked number one on the fortune list of the world's most admired companies in the wholesalers section for healthcare -- that's the healthcare industry category.

This is the second consecutive number-one ranking for Henry Schein and the 14th consecutive year we have been named to this list.

We're also ranked first in all nine subcategories in the our industry.

In March we were named as a 2015 World's Most Ethical Company by Episphere Institute.

This is the fourth consecutive year Henry Schein has been chosen by Episphere and we are 1 of only 132 companies honored this year and the only honoree in the healthcare products category.

In April we were named as one of America's best employers by Forbes magazine with a rank of 203 out of more than 3,500 companies considered.

This is the first such list from Forbes with rankings based on independent and anonymous employee surveys.

We take great pride in this ranking as it is based on the fieldwork with the employees responding candidly about the employer.

And yet, perhaps, from a financial point of view, the most exciting of all effective March 17, Henry Schein was added to the S&P 500 index.

Inclusion in this iconic index is recognition of every team Schein member and members unwavering commitment to helping healthcare practitioners operate more efficient successful practices while delivering the highest quality of care.

Collectively, I think these four prestigious, yet very different recognitions, send a powerful message to our team and our customers about the strength, integrity and accomplishments of Henry Schein and no doubt will continue to result in good returns to our investors.

So with that overview on our quarterly financial operating performance, I'd like to thank you for your attention this morning.

I would also like to thank our over 18,000 team Schein members across the globe for the hard work and diligent efforts during this quarter and the quarters before.

And now, Operator, we're ready to take questions.

(Operator Instructions)

The first question comes from the line of Jeff Johnson of Robert W. Baird.

Thank you.

Good morning, guys.

Steve, was wanting to start maybe with you on the international dental business and the consumable softness there.

Just anymore color you can provide as far as what may have caused that and how should we be thinking about those three markets you called out specifically over the next several quarters?

Well I'm not sure there's a lot of detail.

The three markets that were -- that caused a decline were Germany, Australia and the UK markets.

Germany was just a little bit of sluggishness during the quarter.

There were some product movements in Australia, the UK that maybe also contributed.

I think that what we believe is that there's no trend here, that we're looking for a bit of a pick up in international dental merchandise for the balance of the year.

And I'd just like to be cautious for a bit of a pick up.

So it would be a modest improvement, I think.

But I think what we're really also happy with is the equipment side.

Equipment, despite an IDS year, was very strong, a little over 5% -- 5.4% growth.

And while the typical markets, including Germany, is definitely impacted by the IDS market, we did see strong equipment growth in France and the UK and Netherlands as well as Spain and Portugal.

And at least the pipeline shows that it was good IDS year and we should expect good growth of equipment across the board in international for Q2 and beyond.

So I don't think, Jeff, there's something that's a trend here.

I just think sometimes you'll see a quarter that's particularly soft or strong and it's just kind of the ebbs and flows of the markets.

Fair enough.

And then also news today on one of your larger competitors doing a pretty sizeable deal here in the North American vet market, just any takes there on was that a competitive deal that was out in the market kind, how you may or may not have looked at it and any thoughts on the changing landscape that exists as of today?

Jeff, it doesn't come as a surprise.

We're aware of it and we, at this point, don't think we should comment on the financial aspects of the transaction but we're aware of it.

Obviously our business, I think you know, is companion animal center -- focused primarily.

In the US it's really a companion animal business, an equine business.

Australia, New Zealand it was split both businesses, both -- sorry, both sectors, companion animal and the large animal.

And generally in Europe it's primarily a companion animal with some large animal.

But essentially our business is slightly different to the business that Patterson applied today.

Thank you.

Your next question comes from the line of Michael Cherny of Evercore ISI.

Good morning, guys, and nice job on the quarter given a lot of the headwinds you faced.

So I just want to dive in a bit to the medical business.

If my model is correct, this looks like best organic growth quarter you've put up in North American medical in a long period of time.

As you think about those underlying trends there, obviously partnering with Cardinal and their business can help, but can you just talk about maybe some other nuances that you may be seeing relative to both underlying market growth versus where you think are areas for potential share gain that may be showing up in numbers now?

I think we may have discussed this on previous calls but to refresh those callers who have not really participated in our previous calls.

About a half a dozen years ago or so we commissioned two studies, two strategic reviews.

One to take a look at the specialties that would be important for our business, those specialties are likely to grow and would fit in well with our model.

And at the same time also conducted a study on the organizational methodology that will be used for delivering healthcare.

And so out of those studies we decided to focus on certain sectors in the medical arena and also formed our healthcare services group which is focused on IDN, large group practices and these multiple locations under common management-type entities.

And I think our work has been recognized.

I think it's clear in the marketplace that we are delivering well on our commitments with regard to these newer kinds of entities.

And so we are picking up business and have been picking up business but now actually fulfilling the orders.

From the time we pick up a large account, time we actually fulfill the orders it could be as much as a year or so.

So we have been speaking for awhile about us doing well with these larger accounts, the IDNs, the -- as I mentioned, it's different kinds of practices and I think this is where the underlying growth is coming from as well as a focus on certain specialties.

Thanks, Stanley.

That's helpful.

And then just on the private label approach, can you talk about maybe across the three major segments where you're seeing the greatest areas of traction on private label, what type of customers really prefer that product versus more of the traditional branded and what are the qualitative growth areas you're seeing in opportunities in that front?

First of all, Henry Schein's philosophy has been one of being committed to branded -- national branded manufactures.

So essentially -- I don't know the number today, but well over 90% of our business is in branded products.

Generally, we will come out with a private brand when the product is commoditized.

Rarely are we the first to come out with a private brand.

We would rather work with the branded manufacturer.

But I would say some of these group practices on the commodity side for sales, the list of techniques, sensitive type products in dental are looking at the private brand.

But I think our percentage of private brand sales in dental has been quite static for a long time.

The medical side -- there is a greater movement, specifically on the commodity, the [efficient] control type products to the private brand.

In this case, I think we're also a bit of a follower in the marketplace.

We generally work with the branded manufactures until there is no option.

And on the Animal Health side, there's some advancement in the area of generic drugs.

But again, we tend to have very close relationships with the branded pharmaceutical companies and the areas we are making progress are on surgical type products, instruments, etc.

At the same time, I think you know that we do have a number of exclusive products, whether it's the Colgate relationship in the US and a few other countries, and these products are driving our -- these relationships are driving our sales quite nicely, although we work with all of the branded manufactures generally in every market.

Those details are very helpful.

Thanks.

Your next question comes from the line of Glen Santangelo of Credit Suisse.

Yes.

Thanks and good morning.

Stanley, just wanted to follow-up on the Animal Health question for a second.

I mean, I understand your business is largely much more companion-based versus large production animal.

But I'm just kind of curious, do you have a preference for companion versus large production?

I think you do.

And maybe if that's the case, could you maybe discuss some of the differences between those two customer classes as you see it and why one may be more attractive versus the other?

Yes.

First of all, Glen, the makeup of the businesses we've owned to date have been largely companion animal except, as I mentioned, the countries Australia and a couple of other countries, New Zealand, Ireland, a few others.

So that's where we have been.

Those businesses are -- that book of business is generally very similar to our existing customers.

These are practices, generally small SME -- small, medium size enterprises -- mainly our customers.

But they are a growing group of consolidators.

But the consolidators generally are multiple locations, multiple smallish practices under common management.

So that group of customers has all of that in common.

Generally, on the agricultural side, it's not the small practitioner or the mid size practitioners buying the products.

It is, to a large extent, it is businesses that are buying the products, of course pursuant very often to a prescription issued by a veterinarian.

It's a different business.

I'm not saying it's a bad business.

It a good business.

I can tell you the business we're in we're very happy with them and we see lots of runway.

I think there are opportunities in the large animal space.

Obviously from a strategic point of view, we all know that there is going to be a greater demand for protein over time where the demand will be in this country or abroad, different people have ideas.

Obviously the developing world presents the biggest opportunity.

So I would say there are opportunities in both markets and we are very confident that we can continue to grow our companion animal business and make some entry into equine but also into select markets in the large animal production area.

I think we do quite well outside the US, for example, in the dairy space.

Go ahead.

Sorry.

I'm sorry to cut you off, Stan.

Maybe just as a follow-up to that, could you maybe give me some broader thoughts with respect to the acquisition outlook across your three businesses?

Because obviously part of the growth has been acquisition driven and the Company has done a great job sort of integrating those.

But now that you have, like for example, in the Animal Health space players like Patterson and AmerisourceBergen out there very aggressively looking for acquisitions, does it impact multiples?

And maybe if you could just wrap that answer into just a M&A outlook answer a little bit more broadly.

Yes.

Short of being precise, which we try not to do, our pipeline remains quite constant.

[Mark] and his business development team have much more in their pipeline than they could possibly execute on, not because of capital needs but purely because our integration challenge always doesn't matter -- they can buy the most perfect company, great management, great systems, great outlook, they still working on integrating.

And I think that's what we have done so well over the decade -- the last couple of decades.

So we have a robust pipeline.

We generally do not participate in books that are put out by banks.

We have with both companies.

But generally, the deals we do are where there's a personal relationship where things have been worked out well in advance because a family would like us to buyout a percentage of the business.

They want to keep one family member engaged.

They want to keep some management engaged.

They want to remain in the community.

These kinds of deals are the kinds of deals we are the most comfortable with.

We have no shortage.

I think the pricing on some of these book deals have been put out that have been very, very high and there's no need to participate in that sector.

We have and when prices become very high, I think you'll see Henry Schein not participate.

Having said that, when we do participate, generally I think the community knows that we close on the deal.

So I don't know if I can be any clearer than that.

Steven, I'm not sure if you can be any clearer or say anything more?

No, I think you covered it well.

Certainly acquisitions will continue for us.

We have completed acquisitions.

Our whole history as a public Company for 20 years, and as Stanley said, the pipeline is very full.

Without commenting on any specific ones, we also are disciplined in our approach because there is so many opportunities.

So we don't want to pay multiples that we consider to be -- even if it's a good company, not a good transaction if you pay too much for it.

So we feel good about our acquisition strategy going forward.

Okay.

Thanks for the comments.

Your next question comes from the line of Robert Jones of Goldman Sachs.

Hi.

This is Nathan Rich on for Bob today.

Steve, I think you said in your prepared remarks that organic are the same-store operating margin metric that you give was up 33 basis points in the quarter.

I think that's one of your better performances in quite some time.

I was just wondering if you could give a little bit more color on what drove the operating expense performance in the quarter and how much of it might have been the result of some of the earlier restructuring actions that you've taken?

Well you know, as everyone knows, it's a key metric for us that we look at internally as well as report on externally to shareholders.

We do believe that there's more opportunity for margin expansion.

Certainly the restructuring activities will help that and did help that a bit in Q1.

And this was, if you look at operating expenses, operating expenses when you back out, again, the acquisitions and the restructuring costs drove most of it.

Operating expense is as a percentage of sales.

So it's something we want to keep pushing on because it's very important to us.

It's very important to our model.

And we think there's lots of opportunity to continue to improve that.

So we're going to keep pushing for the balance of the year and thereafter to continue to get that margin expansion.

Great.

Thanks.

And then I just wanted to go back to the medical segment performance for a second.

I understand you're obviously still working on completing the integration with Cardinal, but have you had time to get a sense of where you could potentially leverage Cardinal's scale and maybe purchase products more efficiently?

And any kind of update on what the synergies from this partnership might ultimately be?

Well I'll start.

So we're still in the early stages of the procurement agreement with Cardinal Health.

I think both organizations feel very good that there's a lot of opportunity.

We do believe that there's a win/win, that we'll be able to buy product at lower cost than we could buy from third parties because of Cardinal's scale on certain products.

So but to quantify right now, we're still trading.

We could not trade some detail information before the deal closed because of legal restrictions.

So we're just starting that.

We bought a little bit of product so far from them.

But the best I could say is we're very optimistic that there are benefits there.

And as the year progresses, hopefully we can give you a little bit more detail on that.

Great.

Appreciate the update.

Thanks so much.

Your next question comes from the line of John Kreger of William Blair.

Hi.

Good morning, guys.

This is actually [Robbie Fadda] in for John today.

Just a question on the dental equipment growth.

I may have missed it but could you break out for us what the high-tech growth was versus basic equipment in the US or -- and internationally, if possible?

And maybe within high-tech, how the CAD/CAM strategy is working so far?

Sure.

This quarter, if we look at dental equipment growth, it really was pretty much across the board -- our growth.

We did not see a particular bump from any particular product category.

I think part of that is when we look at CAD/CAM, we have such a strong Q4.

We're also up against this quarter a very difficult comp on CAD/CAM because of upgrades that happen last year.

So really it was across the board growth.

It really wasn't any particular category that stood out.

And we still feel very good about PlanScan E4D.

And when you look at internationally, I would say the same is true.

I think it was weighted a little bit more towards traditional equipment in the international markets rather than high-tech, which is a good sign for the overall market too because people are buying traditional equipment, they generally are feeling good about how their practice is doing going forward.

Great.

That's helpful.

And just a follow-up on the specialty categories.

Could you give us an update on some of the ortho and implant categories?

Sure.

From a financial perspective, our dental specialty sales did grow faster than the overall consumable category.

We feel like implants are growing nicely.

The market -- and we're taking market share there as well as on the orthodontic side.

I think we're taking some market share also.

So the strategy is working.

It is improving our overall consumable sales growth.

I don't know if you have a specific comment that you're looking for, Robbie, on that but that would be the overview comment.

No.

That's great.

Thanks very much.

Let me as I can add a little bit more to that.

We are, Robbie, believe that our year -- we've had solid year-over-year sales growth in CAMLOG and BioHorizons.

And we really believe that we have two very good platforms that will continue to grow, specifically in the markets that they each are strong in and will expand beyond that.

And we believe that generally the implant markets around the world, both in the premium and the value segment, will do okay.

And so we have two good properties that -- which are now working well together under one common management structure and will, over time, help us grow our business within the sector.

And the sector itself is doing well.

Great.

That's helpful.

Thank you.

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

Great.

Thanks and good morning, guys.

I'll stick to two questions as well.

Maybe first, Stanley, the North American consumable -- it was a third straight quarter of over 4% growth there.

But the year ago comp was a little bit easier due to weather.

So if you looked at it on that stacked basis, it stepped down quite a bit.

I'm just trying to get your opinion of what we're seeing in the North American market.

Is it strengthening even further?

Do you think the market is taking a little bit of a pause up here after some of the reacceleration we saw in 2H 2014?

Just would love to get your thoughts and commentary there.

Yes.

We did have a tough winter the previous year and this year wasn't perfect.

But I think the comps were a little bit weaker and so I think there is some of that that can be brought to bear when you look at our growth for the quarter.

Having said that, we do believe that in each one of our businesses we have great momentum on so many fronts and remain quite confident -- of course there's no guarantees -- that we will be able to continue with this momentum.

Not only North America, by the way, but around the world.

So I think there's something in the fact that the comps were a little bit easier.

But overall, I think in North America the markets are getting stronger and we are in a position to pick up a little bit of market share as well.

So you add those two things together and we believe the momentum for the next quarters outlooks pretty good.

Okay.

Great.

Thanks for that.

And then, Steven, just a quick one on vet -- more of the numbers.

You mentioned the adjusted -- I think it was 13.6% North American vet growth that you gave versus the 1.3 reported.

I just want to make sure was that, call it, net for IDEXX?

In other words, did it take into account the sales you got from Abaxis and/or Heska or is it just making the adjustment on the [gross] from IDEXX?

Yes.

So just to be clear, it's a good question.

We excluded all diagnostic category sales.

So we excluded both the IDEXX in the prior year and Abaxis and Heska in the current year to show excluding IDEXX -- excluding diagnostics, sorry -- what the growth is.

Perfect.

And you'll do that for you think all four quarter of 2015?

Yes, we will do that because I think it is the performance metric that's very meaningful to shareholders.

Absolutely.

Perfect.

Thanks, guys.

Your next question comes from the line of Lisa Gill of JPMorgan.

Thanks very much.

I just wanted to follow back up on a question around Cardinal Health and the relationship.

Stanley, I just want to understand this a little bit better when you talked about marketing together with Cardinal now that you finally have the relationship.

Can you talk about which of their products, if any, you're helping to promote with the new relationship?

Or are you pushing some of their private label products?

And as it's still early days, it sounds to me like if we look at the hospital market versus what you're saying in the physician and outpatient market that your side of the market is growing much faster, can you just give us any color as to what you're seeing for the underlying trends maybe on the utilization side?

Yes.

So, Lisa, first of all we would not view their products -- at least in the Schein context as a private brand.

It's just a brand and we're bringing in an extensive offering, thousands of products.

So I'll be happy to give you the exact number.

I don't have it in front of me but I know it's thousands or Steven can give you the exact number.

So we will be promoting their brand, of course not only in the medical arena but also in the dental and the vet space.

And we will be doing some purchasing from them on the generic drug side or generic pharma side.

So I think there's going to be quite a bit of opportunity for them to grow in sales to us and ask to gain synergies on the purchasing side.

The physician space -- it's hard to get specific utilization data because it's not as broken out and where does the hospital begin and where does it end and where does the ASC begin and end?

But generally, we believe we are well positioned to gain business in the ultimate care sector, the physician space, the smaller ambulatory care space and even larger ambulatory care space and also areas such as retail clinics and community centers, et cetera.

So they, of course, will help us with the IDNs.

And they have many IDNs that they are either exclusive or relatively exclusive and I think they will bring us in over time.

Having said that, we have a number of IDNs that we are active in unrelated to Cardinal.

So I think our view that the physician space, the [ultimate] space presents a runway for us is reaffirmed as we get more and more into our relationship with Cardinal.

And at the same time, we are really excited about the entry they give us into IDNs that probably had never heard of us, or they had heard of us, didn't understand our capability.

What I can tell you is the enthusiasm at our national sales meeting of the combined salesforce was something I'd not seen at Schein in awhile.

The Cardinal representatives, of course, loved the Company but the Company was really more focused on the acute care side and we are focused on the physician side.

And we have tools that they didn't have available to them so, generally, I think this has been an outstanding start.

We actually go live this week, actually, and hope to have the integration completed this quarter.

So we are very excited about the momentum and I think the customer base is as well and obviously the salespeople.

And then just as a follow-up, how do you view that market from an acquisition standpoint at this point, Stanley?

Is there still acquisition opportunities there?

There are opportunities for us in that space.

There's specialty products to be purchased.

We were, at one-time, looking at the software side.

The prices went so high in the electronic medical record arena that we decided not to continue.

We do own a company in that space.

We have a relationship with Athena that is working, actually, very well.

But there, of course, are opportunities on the specialty side.

I'm not saying specialty pharma because we exited that space.

But in product categories, the focus on specialists, lots of opportunities, actually some very high margin opportunities.

And, yes, there is some space opportunities with some small distributers but the risk, largely, I think in higher margin type products.

Okay.

Great.

Thanks for the comments.

At this time, we have time for one more question and that is from a line of Steven Valiquette of UBS.

Thanks, good morning, Stan and Steve.

For me I guess my question was you sort of half answered it there but just a follow-up on the North American medical, how much health reform in incremental AC enrollment in early 2015 might be helping to drive the acceleration in sales growth?

And think also we didn't really see that really help that much in early 2014.

Maybe it took a while for the enrollment to get going, but in the back half of 2014 that probably helped.

Does that create maybe a little bit tougher comps thinking about medical over the next few quarters?

Thanks.

Yes.

I can't give you direct information on the correlation between enrollment and our sales.

But it is clear that what healthcare reform is all about is prevention and wellness.

Middle class and above had access to primary care physicians, very poor had it through primary care physicians through general insurance and through Medicare and the elderly, of course.

And then the very poor had access to primary care physicians through Medicaid.

But there's a whole group of people in the middle that didn't have access to a primary care physician.

If these people were sick they would go to the emergency room.

But there was no real preventive programs for these people.

Healthcare reform is about providing primary care.

Of course, the debate is whose going to pay for it?

Is it the taxpayers?

Is it government?

Is it reducing costs in certain areas, et cetera?

But that's not as important to us as more primary care will be practiced in this country in the United States.

And so that is good for our business and we can see that the primary care side is gearing up.

Obviously the cost per procedure, reimbursement per procedure will go down because it's more about the outcomes as we move from sick care to healthcare.

And we believe that this presents a huge opportunity for our medical business.

This is why we're focused in this space.

And we believe that some of those opportunities already being harvested and we expect that to continue in the future as wellness prevention becomes a bigger part of the whole healthcare focus.

So I can't give you specifics but I can tell you why we are so enthusiastic about our medical group.

By the way, was there any change at all in medical pricing trends or is this still overwhelmingly driven by volume demand, just to confirm that as well?

I would have to say it's probably deflation a little bit.

Firstly, I think you've got bigger customers.

So the pricing is going down.

Remember, it's also easier for us to service these bigger customers, they are less expensive to service than the smaller ones.

So I would think because of the growing pie of these larger practices, these larger entities, this price pressure that can also -- they can make a decision on moving to generic and the branded manufactures have to often meet the generic price.

So to some extent, there is deflation but I think our business growth is really a market share growth cushioned -- that's cushioning also some of this deflation.

Okay.

That's great.

Thanks.

Okay.

So thank you all for calling.

We remained very excited about the businesses that we are in.

We're very pleased with the progress being made by each of our four business units.

Actually, in the US and abroad, our value-added services continues to pay off, both from a sales and profit point of view and from a connectivity and the stickiness of our customers.

So we remain quite bullish about our business.

And so if you have any questions, please feel free to give Carolynne Borders a call.

Carolynne, what's your extension?

I'll give my cell which is 631-662-4317.

Okay.

And -- or Steven Paladino at extension 5915 at Henry Schein.

So thank you and we look forward to speaking again in 90 days and/or seeing you at conferences.

Thank you very much.

Thank you for participating in today's Henry Schein first quarter conference call.

This concludes today's conference.

You may disconnect at this time.