漢瑞祥 (HSIC) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Henry Schein quarter-four financial results conference call.

(Operator Instructions)

As a reminder, this call is being recorded.

I will now 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 2015 fourth quarter and full year.

With me on the call are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein; and Steven Paladino, Executive Vice President and Chief Financial Officer.

Before we begin, I'd 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 contents of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 10, 2016.

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 the call over to Stanley Bergman.

Good morning, and thank you, Carolynne.

Thank you all for joining us.

We are delighted to report that sales growth during the fourth quarter was particularly strong.

And we believe we gained market share on an overall basis during the quarter, both here in North America, and of course, internationally, as we successfully continued our long-standing strategy of organic growth, complemented by strategic acquisitions.

We are especially pleased with our worldwide internal growth in local currencies for the quarter of 6.5%, which we are very pleased, represents the highest quarterly growth rate in eight years.

Adjusted diluted EPS for the quarter was $1.67.

This caps off a successful 2015 performance, with worldwide local internal sales growth of 5%, and adjusted EPS growth for the full year of nearly 10%.

And that is, of course, despite the continued negative impact from the strength of the US dollar.

Looking into this year, into 2016, today we are pleased to reaffirm our guidance for adjusted diluted EPS that represents growth of 10% to 12%, compared to 2015 adjusted EPS.

There is just no question that our almost 19,000 Team Schein Members around the world are working together as a team to execute on our 2015, 2016 and 2017 strategic plan.

The morale of the Company's great, and that's the reason why we have these solid results.

So thank you to the team, thanks to our Board, thanks to our customers and our suppliers.

In a moment, I will provide some additional commentary on our recent performance and business accomplishments.

But first, Steven will review our financial results for the quarter and for the year.

Okay, thank you, Stan, and good morning to all.

I'm also very pleased to report solid results for the fourth quarter of 2015.

As we begin, I would like to point out that the 2015 fourth-quarter results include restructuring costs of $12.4 million pretax or $0.11 per diluted share.

We expect to continue to record restructuring costs through the first half of 2016.

I will be discussing our results as reported and also on a non-GAAP basis, which will be excluding those restructuring costs, as we believe the latter is useful for comparative purposes.

Also Exhibit B to this morning's earnings news release reconciles GAAP and non-GAAP income, and EPS from continuing operations.

Turning to our Q4 results, the net sales for the quarter ended December 26, 2015, were $2.9 billion, reflecting a 5.5% increase compared with the fourth quarter of 2014.

This consisted of 10.3% growth in local currencies and a 4.8% decline related to foreign currency exchange.

As a reminder, about 35% of our worldwide sales are based on currencies other than the US dollar, and we do not hedge against this translation exposure.

In local currencies or constant currencies, our internally generated sales increased 6.5%, which, as Stan just mentioned, was the highest in eight years, and acquisition growth was an additional 3.8%.

I'd also like to comment that, based on our experience and what we're seeing in the end markets, thus far in 2016, the overall dental, medical and animal health markets that we serve continue to reflect stable to an improving environment.

We could also note the details of our sales growth that are contained in Exhibit E of news release.

The operating margin for the fourth quarter of 2015 was 7.0%.

That's a contraction of 47 basis points compared to last year.

However, on a non-GAAP basis, excluding the restructuring costs, the adjusted operating margin for the fourth quarter was 7.5%, which is essentially unchanged versus the prior year.

I'd also like to point out that on a non-GAAP basis, our operating margin, excluding restructuring costs for the full year, expanded by the 34 basis points, which is ahead of our stated goal.

Our reported effective tax rate for the quarter was 30.1%.

And on a non-GAAP basis, excluding the restructuring cost, was 29.8%.

This compares with 29.7% in last year's fourth quarter.

And for 2016, we believe the effective tax rates will continue to be in the same 30% range.

On a non-GAAP basis, excluding restructuring costs, net income attributable to Henry Schein was $139.3 million or $1.67 per diluted share.

And that represents increases of 4.7% and 7.1%, respectively, compared with the fourth quarter of 2014.

It is important to reiterate that foreign currency exchange continued to have a negative impact on our EPS, was approximately $0.07 for the quarter, and $0.26 for the full year.

If we look at our results for the full year, there are a number of important highlights to report.

We had 8.4% sales growth in local currencies, highlighted by 5.0% internal growth in constant currency.

As I just said, we had operating margin expansion on a non-GAAP basis, excluding the restructuring cost, of 34 basis points.

And that represents our best annual operating margin expansion also since 2008.

We had diluted EPS growth on a non-GAAP basis of nearly 10%.

And we're very pleased to have delivered on our original guidance, despite the negative headwind of $0.26 per share related to foreign currency.

Our operating cash flow was also strong at $586.8 million, and exceeded our non-GAAP net income by $85 million.

So I guess it is fair to sum it up and say we believe 2015 was truly an excellent year.

Exhibit B of this morning's news release, again, reconciles GAAP and non-GAAP income, and diluted EPS from continuing operations.

If we look at our sales results for the fourth quarter, the global dental sales in the fourth quarter of 2015 increased 1.5% to $1.4 billion.

This 1.5% growth consisted of 7.3% growth in local currencies, offset by 5.8% decline related to foreign currency.

In local currencies, internally generated sales increased 6.6%, and acquisition growth contributed an additional 0.7%.

Of this 6.6% internal growth in local currencies, we had North American growth of 7.6% and international growth of 4.9%.

I will quickly give you some additional detail between -- on each of those two numbers.

First, the North American internal growth of 7.6%, included 6.1% growth in sales of dental consumable merchandise and 11.5% growth in the dental equipment sales and service revenue.

Our consumable merchandise sales growth was highlighted by market share gains and higher sales to our special marketing customers in the quarter.

While growth in equipment sales and service revenues related to particular strength in traditional equipment for us.

If we look at our international growth of 4.9% internal growth in constant currencies, that included 4.0% growth in sales of dental consumable merchandise and 7.0% growth in dental equipment sales and service revenues.

The consumable merchandise sales growth was led by strong performance in a number of countries, including France and the UK.

And the equipment sales and service revenue growth was led by a number of countries, also including Germany, Australia, Austria and the UK.

Turning to our animal health business, sales were $756.2 million for the fourth quarter, an increase of 3.4%.

This includes growth of 9.5% in local currencies, offset by a 6.1% decline related to foreign currency.

The internal sales in local currencies grew 2.3%, while acquisitions contributed an additional 7.2% to growth.

Of that 2.3% internal growth, the components were 1.2% growth in North America and 3.3% growth international, on our international business.

It is important to note that the 1.2% growth in North America was actually 8.4% growth when we normalize for results to account for the impact of certain products switching between agency and direct sales.

As well as when excluding sales of diagnostic products in both the current and prior-year periods, due to the changes in the veterinary diagnostic manufacturer relationships.

We believe this normalized growth is a more meaningful reflection of the ongoing performance of our North American animal health business.

I'd also like to mention that fiscal Q4 2015 results will be the last quarter that we'll be adjusting for sales of diagnostic products, since they have now annualized.

However, we will continue to normalize our sales results to account for any switches between agency sales and direct sales on an ongoing basis, if that's significant.

We look at our medical sales, they were $561.6 million in the fourth quarter.

That's an increase of 21.6%, and consisted of 22.2% growth in local currencies, offset by a 0.6% decline related to foreign currency.

The internal sales in local currencies grew 13.4%, and acquisitions contributed an additional 8.8% to our growth.

If we look at North American sales growth, it was really very strong at 23.2%, including internal sales growth of 14.0%.

Here also, when you normalize for the impact of agency sales, the North American medical internal sales growth was 10.2%, resulting in the fourth consecutive quarter of double-digit sales growth for our North American medical business.

And we're continuing to see nice success in both large-group practices and [IDS].

We look at our influenza vaccine sales, they were $20 million for the fourth quarter.

That's down approximately 23% versus the prior year's quarter.

But that's primarily due to timing, and on the full-year basis, our influenza vaccine sales were relatively consistent versus the prior year.

For the past year, we believe we have been outperforming the medical market by a significant margin, as we have effectively capitalized on the growing market trend towards larger group practices.

I will also note that the international medical sales, which is a small part of our medical group, saw a slight decline of 0.3% in constant currencies for the quarter.

Turning to Technology and Value-Added Services sales, they were $93.8 million in the quarter, an increase of 2.8%.

This included 4.5% growth in local currencies and a 1.7% decline related to foreign currency.

In local currencies, we saw internally generated sales increase 4%, and acquisition growth was an additional 0.5%.

The components of that 4% internal growth in constant currencies was 4.2% in North America and 2.7% growth internationally.

Through some product upgrades, enhancements, strategic acquisitions and the advanced technology products and services we offer, they provide really for efficient delivery of healthcare services.

And we believe there are new sales opportunities, and practice success across all of our business groups.

Looking at some other factors, we continued to repurchase our common stock in the open market in the fourth quarter.

Specifically, we bought about 1 million shares during the quarter at an average price of $146.90, which was approximately $149 million.

And this impact of the repurchase for the fourth quarter was less than $0.01 on our EPS.

For the full-year 2015, we repurchased $300 million of our stock, representing 2.1 million shares at an average price of $143.86 per share -- and that's a line at the high end of our stated goals.

At the close of the quarter, we had approximately $400 million authorized for future repurchases of our common stock.

And as we noted when that authorization was received, for the past four years, we've been repurchasing about $300 million a year.

In recognition of the Company being a larger Company, larger market cash, stronger cash flow, our Board of Directors recently improved this increase to $400 million.

We continue to believe our couple allocation strategy, that deploys a large portion of annual free cash flow to both share repurchases and acquisitions, continues to drive increased shareholder value.

If we take a look at some of the highlights of our balance sheet and cash flow for the quarter, operating cash flow for the quarter was just under $300 million, compared with $274 million last year.

And for the year, the operating cash flow was again $586 million, and free cash flow, over a $0.5 billion at $515 million.

As I mentioned earlier, we are very pleased to have exceeded our goals related to cash flow.

Our working capital, accounts receivable, day sales outstanding was 39.3 days.

That compares to 39 days for the quarter -- or for last year's quarter.

Inventory turns were 5.6 turns for the quarter; that compares to 5.9 turns the last year's fourth quarter.

And finally, I will conclude my remarks by affirming our 2016 financial guidance as follows.

So for 2016, we expect adjusted diluted EPS attributable to Henry Schein Inc to be in the range of $6.55 to $6.65.

And that represents a growth of 10% to 12% compared to our adjusted diluted EPS of 2015 of $5.96.

As is always for us, our guidance for adjusted diluted EPS is for continuing operations, as well as any completed or previously announced acquisitions, but does not include the impact of any potential future acquisitions.

It also does not include the impact of restructuring costs, which we expect to be the range of $0.05 to $0.10 per diluted share in the first half of 2016.

Finally, I would like to note something that I think is important.

If you look at our quarterly progression, the adjusted diluted EPS growth for Q1 2016, is expected to be in the mid- to possibly high-single digits versus the prior year.

Historically, sales are lowest in the first quarter of each year, operating expenses as a percentage of sales are generally highest, seeing certain fixed expenses, and non-variable compensation expenses are recorded relatively evenly throughout the year.

Over the course of year, we expect to realize efficiencies through the restructuring, as well as get leverage on our infrastructure, as well as get synergies on recent acquisitions.

So for that reason, again, we expect Q1 to be in the mid- to possibly high-single digits growth of EPS.

Again, this growth assumes for the full year that exchange rates are generally consistent with current levels.

We have not seen really very wide volatility in that at this point, but we are continuing to watch exchange rates.

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

Thank you, Steven.

Let me begin my review of our four business groups for both the quarter and the year, starting with the Dental group.

I am pleased to report that fourth-quarter internal Dental sales growth in local currencies in North America, internationally and for the group as a whole, were all at multi-year highs.

In North America, consumable merchandise internal growth in local currencies of 6.1% was particularly strong, highlighted by market share gains and higher sales to our special-market customers.

Equipment sales and service internal growth in local currencies of 11.5% also was, in our view, excellent, and reflected strength in sales of traditional equipment.

International consumable merchandise internal sales in local currencies grew by 4%.

International equipment sales and service internal sales growth in local currencies was a solid 7%.

Let me point out that our global Dental sales growth, the local currencies for the full year was 5%, as we continued to gain market share globally.

This growth was well-balanced between our North American and international businesses.

A notable acquisition in our Dental group during 2015, was our 90% ownership in Dental Trey of Italy, which I discussed during last quarter's call.

Dental Trey had sales for the 12 months ended June 30 of 2015, of approximately $49 million US.

And complements our existing business in Italy, with a solid product offering and long-standing customer relationships.

Of course, they are particularly strong in the KOL and education area -- the key opinion leader area -- and education of dentists.

I'm very excited that we recently signed an agreement to acquire a majority interest in Dental Cremer, a distributor of dental supplies and equipment in Brazil.

This investment will build upon our existing business in Brazil, which we established in 2014.

Brazil's dental market is fueled by an aging population and a growing middle class that recognizes the importance of oral care.

With 2015 sales of approximately $70 million US, Dental Cremer serves approximately 60,000 dental practitioners across Brazil -- an important opportunity for us to sell additional products to an excellent customer base.

We look forward to welcoming the Dental Cremer team to Team Schein once the transaction closes, which we expect to be towards the latter half of 2016.

Or the first half of the latter part of the first half of 2016.

Now on Animal Health group side, normalized internal growth in local currencies was 5.6% for the quarter, including 8.4% growth in North America.

Growth in our North American group also continues to benefit from strategic acquisitions and investment.

And 2015 was an active year in particular in Europe.

We expanded our equipment capabilities through the purchase of scil animal care.

Scil sells, services and supports laboratory and imaging diagnostic products to veterinarians in the United States, Canada, Germany, France, Italy, the Netherlands and Spain.

And has a distribution presence in 25 additional countries.

We are particularly pleased with this acquisition, as it will no doubt advance our global presence in the animal health diagnostic field, given the terrific know-how that the scil team has, and their great product offering and relationship with many suppliers in this field, who are really itching to get involved in the global diagnostic field, seeking a channel.

Scil provides that outstanding channel, in conjunction with our distribution outlets in North America, Europe and actually, shortly, in Hong Kong, where we will launch our first Asia animal health presence.

And of course, our significant presence in Australia and New Zealand.

So this whole opportunity of scil, which had sales of approximately $75 million for the full year of 2015, gives us really a strategic benefit in the animal health space to advance diagnostics and equipment.

During the year, we acquired an 85% interest in Kruuse, a leading distributor of veterinary supplies in the Nordic countries, and globally through a worldwide distribution network.

Kruuse had sales in 2014 of approximately $90 million US.

With this investment, we extended Henry Schein's presence in Denmark, Norway and Sweden.

But more importantly, the broad offering through the Kruuse portfolio of products -- which is well-received in the markets that are currently served -- will present a huge base to expand our unique products in the countries that Kruuse is already serving, but also taking this product line globally.

We plan to expand our distribution products across our global animal health platform.

Many of our companies do not sell the Kruuse line yet.

Which is in line with our strategy to offer choices to our customers, so that they can select the products that best fit the specific needs of their practice.

Also in 2015, we acquired a 50% ownership investment in Maravet, which is a leading animal health distributor in Romania.

Maravet had sales of about $23 million US.

With the acquisition of scil, Kruuse and Maravet, Henry Schein's animal health business expanded to 23 countries.

Now let me turn to our Medical group.

As Steven mentioned, double-digit North American sales growth was quite robust during the quarter.

And I would like to make some general comments about this business.

You may recall that we announced a strategic agreement with Cardinal in late November of 2014.

This strategic agreement was born out of the vision to offer a seamless solution that supports improved care, increased customer satisfaction and lower costs for acute and non-acute sites of care.

And specifically where the two -- the acute and non-acute sites -- have common ownership.

Both Henry Schein and Cardinal have extensive experience in providing service to our communities across the United States.

We are using our experience and expertise to provide resources that we believe will drive better outcomes across the continuum of care.

By leveraging our spectral strengths, we are providing powerful solutions, we believe.

Including a wide breadth of products, analytics and other tools for smaller customers, to the very largest customers in this country, including the rapidly growing IDNs -- the integrated delivery networks.

We believe the value proposition provided by Henry Schein and Cardinal can maximize the success of our customers through our best-in-class service capabilities, health system touch points, and of course, the product offering.

Looking at the terrific progress we have made to-date, our sales teams have continued to make joint customer presentations, and the reception has been quite positive.

The transition of Cardinal's physician-related alternate care customers to Henry Schein's platform is substantially complete.

And we remain optimistic about our ability to win new customers by being uniquely positioned to jointly serve a broad continuum of healthcare, along with Cardinal Health.

During the fourth quarter, we further expanded the breadth of value-added products we made available to our medical customers, with two agreements in particular that I would like to highlight today.

We were named by Medtronic as exclusive distributor for certain diabetes products for primary care physicians in the US.

Also we entered into a non-exclusive agreement with Cepheid to distribute their GeneXpert system, which to-date has been largely targeted and available to US hospital labs.

I think you can expect Henry Schein to add significant numbers of value-added services and expand our offering in the medical arena in the years to come.

Let me conclude my business review with Technology and Value-Added Services.

Internal sales growth in North America was 4.2% in local currencies.

And this reflects particular strength in electronic services and value-added services.

International growth in local currencies was about 2.7%.

We recently acquired RxWorks, the practice management software company serving veterinarians in Australia, New Zealand, the UK and the Netherlands.

RxWorks had sales for the 12 months ended June 30, 2015, of approximately $7 million.

RxWorks brings Henry Schein an installed base of more than 1,500 veterinary clinics, strengthens our growing practice management software business, and of course, complements our expanding animal health technology business.

When I say that, it is all about intra-operability and connectivity.

The connection of our practice management software, we believe, by far the largest installed base, with diagnostic equipment and other digitalized equipment.

As in Dental, where we made good progress in this area, we have made good progress in Animal Health, and we expect this to be a key driver of our business, together with the data side.

Let me talk about the data side for a minute.

Early this year, we completed our acquisition of an 80.1% interest in Vetstreet, a leading domestic provider of marketing solutions and health information analytics.

Vetstreet had sales in 2014 of about $43 million.

We are particularly excited about the potential to pair our practice management software solutions with the data analytics capability of Vetstreet, which can offer valuable market insights to helping manufacturers and veterinarians improve the success of treatment of various kinds, and business efficiency.

We are particularly pleased with the expansion of our installed base, our practice management software in the vet space, and our big-data capabilities that we now will integrate into our platform as result of the acquisition of Vetstreet.

We believe we have the right team and the right vision to create real value for our suppliers and for customers in the veterinary arena.

Also this past summer, Henry Schein, Cerner, Lighthouse and eXtensia [won of good] for the Department of Defense healthcare management systems modernization project.

Henry Schein will provide dental software and services with our Dentrix enterprise product.

It is a privilege to be a part of this partnership aimed at improving the health care of our military, and our Dentrix enterprise software will allow for seamless sharing of medical and dental information in this community.

We are pleased to join with these industry leaders for the ultimate benefit of the Armed Forces of the United States.

And believe that we will also be in a better position with advancement of this contract to provide a wider variety of services to the larger practices in the developed world, and potentially even the developing world.

Very exciting progress for Henry Schein's practice solutions business.

Before we take questions, I would like to reflect back a moment on a few of the highlights of last year.

We are extremely pleased to have met or even exceeded many of the significant goals, while advancing our strategic plan -- of course, the strategic plan for 2015, 2016 and 2017.

We did receive a number of awards and recognitions last year -- very important for our team, who really work very hard daily to meet the expectations, or exceed the expectations, of our suppliers and our customers.

We were named to Fortune Magazine's list of the World's Most Admired Companies for the 14th consecutive year.

Been named a 2015 World's Most Ethical Company by Ethisphere Institution for the fourth consecutive year.

And been named one of America's Best Employers by Forbes Magazine in the overall ranking.

We were also recognized for our commitment to diversity, cultural competency and healthcare equity of our various Hispanics and LGBT organizations.

It is all about people, and it is the people of Henry Schein that have grown this Company into the largest provider of products and related services to office-space dental, medical and veterinary practitioners.

It's really terrific that our team is being recognized.

We continued our climb up the Fortune 500 list of America's largest companies, and now stand at number 287.

And in March, Henry Schein was added to the S&P 500 Index.

Educating future generations of dentists and supporting advanced technology, both are ongoing commitments of Henry Schein.

We combined these passions when creating the Henry Schein Digital Center of Excellence at the Kornberg School of Dentistry at Temple University in Philadelphia.

You can expect expansion of this kind of program through dental schools throughout the United States, and of course, in Canada and elsewhere.

Also during 2015, we announced the partnership with American College of Prosthetics -- Prosthodontists Education Foundation, along with other dental partners, to develop a new CAD/CAM technology curriculum for pre-doctoral and post-doctoral programs.

There's no question Henry Schein's number one strategy is to advance our digitalized presence in the prosthetic arena, both in the lab, in the dental office, standalone scanners, and full-integrated systems, all integrated into a chair-side capability, and into our practice management systems both in the smaller practices, the larger practices and the dental schools of the world.

Finally, after the Annual Meeting of the World Economic Forum in Davos in 2015, a number of public and private sector organizations, including Henry Schein, came together to develop a global supply-chain framework to enhance pandemic preparedness and response.

In the past year, these organizations have collaborated to develop a partnership called the Global Supply Network for Pandemic Preparedness and Response.

Once successfully launched, this supply network will serve a shared platform to save lives, inform intervention planning, and communicate critical information.

Plus disseminate lessons learned, so that the world's response to pandemic continuously improves.

Henry Schein believes in public-private partnerships as a core value and a key part of our success.

So with that overview of our quarterly and full-year financials and operating performance -- with a huge thanks to Team Schein, our suppliers and our customers, and of course, our investors, who we are committed to providing a reliable continuous stream of income -- I would like to thank you for your attention this morning.

And now, operator, we are ready to take questions.

(Operator Instructions)

Jeff Johnson, Robert Baird.

Thank you, guys, good morning.

Can you hear me okay?

Yes, we can.

Perfect.

Great.

Stanley, a lot of interest there.

I just want to focus in on maybe the dental equipment business, if I could, with my two questions.

First off, you talked about some basic equipment strength in the quarter.

Wondering if you could maybe give a little more color on what you are seeing in a couple areas?

I'd point to DSOs, maybe the pace of business you are seeing there versus private practice?

And maybe if you could talk about any benefits you might be seeing from one of your new basic equipment relationships?

Is that opening up new business?

Is that just replacing other branded sales you might have been making?

And then just on the technology side of equipment, any commentary there, as you pointed more to basic equipment than I think you did technology?

Thank you.

There's a lot of questions you're asking there -- probably the key question for our equipment business today.

So yes, our traditional business did very well.

But let me hasten to point out that in January 2015, we announced taking on the A-dec line, which we actually brought in around May.

We did, I think, do well on the A-dec line.

I believe we did live up to the expectations, or perhaps even exceeded what was expected from us by A-dec.

But let me hasten to say that we did well with our traditional suppliers that have supported us for decades.

And in that context, overall, we did well with the traditional equipment.

Obviously adding the A-dec line put stress on our organization from an equipment organization, and our field sales consultants from a learning point of view.

And from a service point of view, learning how to service the equipment and fine-tuning our design capabilities.

All of that was well-absorbed, while maintaining the relationship with our branded manufacturers that supported us for all these years.

So I would say overall, the manufacturers are pleased, and our sales organization is pleased.

Now, I'm of course dealing with United States and Canada.

On the digital side and the high-tech side, I believe we made pretty good progress as well.

We currently believe we are selling more than one of three new units in the CAD/CAM space, which is our number one global strategy, to advance digitalized prosthetics.

We are seeing strong growth in sales of our digital impression solutions, with our 3M, 3Shape and PlanScan offerings.

Of course, I think you know, Henry Schein is committed to open architecture, to the extent suppliers provide us with the products.

Henry Schein offers multiple brands of digital impression solutions, and provides dentists with innovative -- what we believe are innovative -- low-cost and efficient choices for a [scull work] of dentistry.

In addition, we continue to be well-positioned, we believe, and have made huge progress in the lab.

So when you look at equipment, it is not only the equipment that is sold to the dentist, but to the lab as well.

And it is in the digital restorations that we outsourced -- that is providing solutions for the digital restorations that are outsourced to lab facilities.

There, we also feel we are doing very well.

So it is the entire spectrum of traditional equipment, including digital imaging, 3D, et cetera, sensors, and of course, the digital prosthetics, that I think we have done very well.

And we believe overall, we have gained market share, balancing those suppliers that worked with us over the years, with A-dec.

And I believe we've satisfied our obligation, and more than satisfied our obligation, across the board.

We are particularly pleased with the level of integration between our practice solutions businesses, both at Dentrix and at [XL], which is the schools business.

So overall, I think we are very pleased with the direction of our equipment business in the United States.

You asked specifically about the large accounts.

Yes, the top 50 counts in the United States and our special markets group are very important to us.

And we continue to do well in that space.

Of course, there is competition.

You know about it; everybody's focused on it.

But I believe we have very good solutions for these accounts.

In addition, our mid-market group became quite active in a second half of the year.

That's the group that has multiple locations under common management, and generally owned by a dentist versus the very large practices that are generally owned by a financial sponsor or other public companies that's a financial sponsor.

So we have, covering both sides of the market as well -- so the very big, the midsize, and of course, the dental schools and other institutions.

I believe that continues to do well for Henry Schein.

And then internationally, we did well.

We were actually very pleased with the fourth quarter.

And that halo effect of the IVS continued into the fourth quarter, and we believe actually has spilled over into the first quarter.

So overall, our equipment business throughout the world is doing quite well.

I could go on and on, but I think that's probably enough.

Yes, I will just, Jeff, give you one or two quick points for color, as you were asking.

So when you look at CAD/CAM, we are continuing to see good growth there.

It was a little bit less overall than the 11.5% in North America.

But the dynamic that we are seeing is really very strong growth on scanner-only.

We are still seeing full-unit sales in addition to that.

But there's been a little bit of a change in the market over the last year or two, where customers are beginning to look at scan-onlys to start with, and then hopefully, in the future, they will add the milling machine.

So that's been nice opportunity for us.

And the only other point I want to add is, A-dec has helped the traditional equipment growth, obviously, but the good news is -- Stanley said this, I believe -- is that we have not seen it cannibalize other equipment lines.

So we really do think that we are penetrating new customers with the A-dec product line, for the most part.

And that's also good news; that's not just swapping out other equipment lines.

Robert Jones, Goldman Sachs.

Good morning.

This is Nathan Rich on for Bob this morning.

Steve, a couple questions on guidance.

First, definitely appreciate the detail you gave on Q1, but just wanted to confirm something you said.

Did you say that you expect sales trends to remain relatively consistent into Q1 at this point, at least on an internal basis?

And so any color you can provide on that -- maybe how sales trended coming out of the fourth quarter?

Sure.

So absolutely, we believe that sales trends and end markets are showing consistent growth.

They're very stable to growing, depending on the specific market.

But generally, the markets are cooperating.

We did see in January that continue, so we did see good organic sales growth in the month of January.

So we believe that will continue.

And we are hopeful that as the year progresses, maybe there could be a little bit more end-market improvement, but right now that's not baked into our guidance.

John Kreger, William Blair.

Hi, thanks very much.

Maybe just following up on the same theme, if you think about the various global markets that you touch, are you seeing any that stand out as particularly getting better, from your perspective, or getting worse -- again, setting market share gains aside?

I was just going to say that, no, I don't think -- the general answer is, I don't think that there are markets that are showing deterioration at all.

It is hard to measure on a month-to-month basis, John, as you know, but sometimes there's just little anomalies in growth for month-to-month.

But the sense is that the markets generally are very consistent and not showing any pullback at all.

Stanley, I don't know if you want to --

Yes, I think markets are stable, generally.

They could be a little -- one particular market may have a particular advantage from time to time because of the tax situation, et cetera.

But we think the dental, animal health markets are pretty stable, so I cannot point to anything in particular.

And of course, the medical market has huge challenges.

But we are uniquely positioned, I think, to deal with these huge changes, and particularly consolidation, creations of IVNs, insurance companies buying practices, practices merging into hospitals, et cetera.

And I think we are -- I don't think the market is improving per se, but it is working well for our kind of services.

Jon Block, Stifel.

Great.

Thanks, and good morning.

Maybe two quick ones, just the first one, if you guys can just update us on the size of the dental specialty business?

Is that now a close-to-$700 million or $650 million business that's growing maybe 100 or 200 basis points above underlying consumables?

I'm just trying to reconcile.

Obviously your consumable number in dental was big.

And just trying to reconcile your number versus that of your competitors, and what we're seeing coming out of some of the manufacturers.

Right.

Let me just give you context in one, then Steven can think through the specific numbers.

But there are two, really, component parts to this market.

The first is, specialty products per se that are only used by specialists, and used by those GPs that are doing specialty procedures.

What I'm talking about -- our oral surgery products, implants, bone regeneration, and a few other [transponders].

In the endodontics space, in those specific files that relate to kinds of products, and in the orthodontic space, the wires, specifically, and the brackets, and of course, the liners, which we don't really sell.

But then in addition to that, there are products that specialists purchase, such as equipment and consumables and gloves.

And oral surgeons buy pharmaceutical products, et cetera, that we've always sold as part of our general core business.

And I would say that business always tends to do a little bit better with expense of equipment, like the 3D x-ray, et cetera.

Because specialists -- of course, they need these products.

And secondly, they tend to make more money, so they can afford more specialty products.

When we talk about our specialty business, we are referring to not that product, the general products, which are part of our core business, and nor are we referring to the software, in particular, as part of our software business.

But we are referring to the specialty products like implants, oral regeneration, wires and brackets, and files, et cetera, in the endo space.

And in that space, it is hard for us to measure how the market is growing, because no one compares -- there's no like-information.

With that said, I don't know if we actually have disclosed the basket and [eric] of the second, but go ahead.

Yes, we can give some -- John, you are correct.

It is -- in dollars, it's over $600 million for 2015, the specialties group.

And remember, a fair amount of that revenue is outside the US, so you have currency negatively impacting that, if you are comparing year over year.

Where we are really seeing accelerated growth within the specialties group is primarily on dental implants -- both domestically in the US, as well as outside of the US, we are growing faster than the core consumable sales growth.

So that's, again, part of the strategy, and that is continuing.

Lisa Gill, JPMorgan.

Hi, thanks.

Good morning.

It's actually Mike Munchak in for Lisa.

Just a couple of quick questions.

First, as it relates to the Medical segment, obviously really strong growth trends there again, especially given the weaker flu season.

You talk about a focus on large-group practices.

Just wondering if you can talk about how much opportunity continues to remain there, and whether your guidance assumes a continuation of that strong double-digit internal growth trend?

Well, I will leave it up to Steven to answer what's in the guidance.

But we have a decent share of the medical space, in the physician and ASC arena.

We believe we are number two, but we believe we are going faster than anyone else.

But our market share is relatively small still, so we expect to have good growth, and believe we have the right product at this time.

We are certainly being called in practically for every single bid that's out.

There's a lot of bids out there.

Everybody is reconfiguring how they want to -- every provider, how they want to service their physicians, their ASCs.

We are in there, we are bidding, we have a great sales organization, and we have terrific GPO and other types of contracts and supplier relationships.

And the infrastructure we have is really good.

So we have a good product, we have a decent market share, and number two, we believe.

But we believe there is still a huge market share to go that will be split up over the major competitors of today going forward into the years to come.

So we are very bullish, but exactly what's in our guidance, I'll lead off to Steven.

So Mike, we still expect strong growth to continue in the Medical group.

We do have some visibility in that we know what bids are out in the market, we know what bids we've been awarded, we can estimate the onboarding of customers.

Even when you win a bid, though, it is important to note that you don't immediately start shipping all of that new business to customers.

So it may take three to six months to ramp up.

But it does have some visibility in being able to look at growth rates.

I would say, yes, expectations are continued strong growth.

And I would say somewhere in the high-single to low-double digits is what we are expecting.

And we think, again, based on the visibility, that's very achievable.

Michael Cherny, Evercore ISI.

Good morning, guys, and thank you for all the color so far.

Steve, in the past, you've been able to break down for us a little bit the underlying margin progression.

I know there's a lot of moving pieces regarding mix, regarding some of the new product lines, and obviously FX.

Is there any way to get a sense from you an underlying perspective what margin expansion was on a year-over-year basis?

Sure.

We did give some detail to that.

So if you look at on a full-year basis, we were a bit ahead of our goal.

I think we have always said, or for this year, we were saying, somewhere in the 20 to 30 basis points for the full year.

And again, excluding restructuring costs, we expanded by 34 basis points for the full year.

Again, that's at the high end or slightly over the high end.

So it is really a combination of things.

It's a combination of a concerted effort to drive towards higher-margin sales, it's partly the restructuring activities kicking in, it's partly new acquisitions.

So there's a lot of moving parts in it, but all of that is things that we expect that we can continue.

So we still feel comfortable at an operating margin expansion going into 2016.

It's still an important goal that, again, we feel that we can achieve going forward.

Sylvia, can we take the next question?

Kevin Ellich, Piper Jaffray.

Good morning.

Just a quick question on the animal health business.

Steve, thanks for the detail on the scil acquisition and how it is performing.

Just wondering how the sales are going for scil compared to the other diagnostic manufacturers?

Are your salespeople more incentivized to push one product over the other?

And I guess, do you have any updated thoughts on potentially expanding your livestock business as well?

Thanks.

Maybe I'll take the first part, and Stanley can talk a little bit about large animal.

Scil really is much stronger outside the US than in the US.

But the goal is to expand it in both markets.

It is not just the scil diagnostics that we are looking to promote to customers.

The scil team gives us the ability to install, to repair equipment.

So it really enables all of the diagnostic and equipment lines, not just the specific scil line, so it really should be beneficial to all of our equipment lines going forward.

I will turn it over to Staley on the production animal.

But as you know, in North America, we are predominantly companion -- maybe a few percentage of our revenues are production.

But outside of North America, we do have a significant portion of our revenues that are companion and production.

So maybe I will turn it over to Staley for some more color there.

Thank you, Steven.

Just on the scil side, scil really mirrors what we are doing on dental side, medical side, where we have great sales organizations for equipment, service installations, design organizations, and most importantly, interoperability -- the ability to connect our practice management solutions to equipment, with the goal to have the equipment really be open architecture.

And so -- or should I say, the middle way of being open architecture.

So we have capabilities of connecting software to various devices.

And scil -- just our various businesses in dental and medical provides that capability.

And we are very pleased with that team -- really are pleased.

And now you ask about large animals.

Nothing is never, but we don't think distributing branded pharmaceuticals en masse, on a logistics basis, for large animals, is really the best use of our capital.

It is not too different to us years go exiting the specialty pharma space, where there's huge amount of sales available that are relatively large-margin.

Better for the drug wholesalers to do that, than for us.

So in the large-animal space, we will continue to look for market opportunities.

Some countries present an opportunity.

For example, in the dairy industry, we are quite active in Ireland and parts of Europe, and in particular, New Zealand.

So there is an opportunity.

The equine area -- which is not really, I suppose it would be large animals, but is not really production animals -- is an area where we are very interested in, and believe we can bring value.

And then there are markets like Australia and New Zealand and pieces of Europe, where we believe that, through our logistics, we add value that others don't add.

And then there will be unique products for the large animal that, for example, Kruuse has, scil has, veterinary instruments, our orthopedic business, provides.

So we will be more select to find areas that we can bring value and that create high-margin opportunity, rather than shipping of masses amounts of low-margin branded pharmaceuticals.

Sylvia, I believe we have time for one more question.

Steven Valiquette, UBS.

Thanks for taking my question.

Good morning, Stan and Steve.

Congrats on these pretty strong results.

It's good to see the market reacting pretty favorable.

My quick question really has to do with the North American dental equipment in the fourth quarter.

Obviously pretty strong.

But there still just seems to be some investor confusion or mixed views, specifically as to whether or not the timing of the renewal of that 179 tax deduction helped overall dental industry equipment sales or not.

And also, I think, whether for you guys, for the industry, just thinking ahead for 2016, the upcoming 4Q 2016, given that's the start of [Henry] and has been for a couple of years.

How do we think about that year-over-year comp for North American dental equipment 4Q 2016 versus 4Q 2015, just in terms of whether it's a normalized comparison?

Just any thoughts on that as well?

Thanks.

Steven can provide more specific color, but Section 179 had virtually no impact this year.

Our year-end was just before Christmas, I believe, because that's the way our calendar works.

We had about three days to -- or four days, or 3.5 business days, to use the 179.

Our sales organization had given up on being able to really cultivate relationships based on specific equipment using 179, and you needed really complete plug-and-play.

So for example, CAD/CAM could not work, big traditional equipment couldn't work.

Maybe a few x-rays could work here and there.

But it had very little impact for 2015.

Assuming that Congress keeps it in place this year, I think it will be a very good opportunity for the end of 2016.

Steven, any more information?

Yes, I think you summarized it well.

It's hard to believe that in the short time that we had in 2015, that it really had any impact to us.

It certainly wasn't negative.

It could have been a very slight benefit.

But we don't really think it has much impact.

But we do think and we are hopeful that for 2016, it will be a benefit in Q4.

This provision actually has been made permanent.

So unless Congress decides to repeal it during 2016, it should be available in fourth-quarter 2016, and ongoing.

And the benefit is, the first $500,000 of equipment that qualified small businesses buy, can be expensed in the year that they buy it.

So again, we think it could be a nice benefit for Q4 of 2016.

Okay, so thank you all for your interest.

Good questions there.

We remain quite bullish on Henry Schein.

The morale in the Company is good.

We feel strongly about our strategic plan for 2015, 2016 and 2017, are executing on that both from an internal growth point view and new products point of view.

A reallocation of resources, including the optimization, and external sales through acquisitions.

And morale, as I mentioned early on, in the Company, is excellent.

So we will be back in, I guess, 60 days, with a report on the first quarter.

Thank you very much.

Ladies and gentlemen, thank you for joining today's Q4 2015 financial results conference call.

This concludes the conference.

You may now disconnect.