Patterson Companies Inc (PDCO) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the Patterson Companies, Incorporated first-quarter 2005 Earnings Conference call.

At this time all participants' lines are muted.

Following the formal presentation, instructions will be given for the question-and-answer session.

If anyone needs assistance at any time during the conference, please press the star followed by the zero.

As a reminder, this conference is being recorded Thursday, August 26, 2004.

I would like to now turn the conference over to Mr. Peter Frechette, Chairman and Chief Executive Officer.

Please go ahead, sir.

Thank you.

Good morning and thank you for participating in our first-quarter conference call.

With me today is Steve Armstrong, our Executive Vice President, Chief Financial Officer.

Steve will review some of the highlights from our recent operating results following my opening remarks.

And then at the conclusion of Steve's remarks, we'll be happy to take any of your questions.

A regulation FD prohibits us from providing investors with any earnings guidance unless we release that information simultaneously.

For this reason, we've included financial guidance in our earnings release.

But it's important to understand that Patterson's actual results may vary from our forecast.

Our guidance is subject to a number of risks and uncertainties, which are discussed in detail in our annual report on Form 10-K.

Since that information forms the context for what we'll discuss today, we urge you to review this material.

Turning now to our recent performance.

Patterson reported record sales and earnings for this year's first quarter.

Consolidated sales rose 33% to 578 million, while earnings increased 39% to nearly 41 million, or 59 cents per diluted share.

As we indicated in this morning's release, our first-quarter results include an extra or 14th week.

It's difficult for us to precisely quantify this impact.

Since certain aspects of our business, including equipment sales, were not directly affected by the extra week, while the CAESY and Medco acquisitions were completed following the close of the first quarter.

For this reason, we're using our best estimate of the impact of the extra week on Patterson's first quarter sales.

Excluding the impact of the extra week in the first quarter, consolidated sales were up an estimated 27%.

Now, for the next few minutes, I'd like to discuss a few of the factors that drove our performance.

First, a few words about our down business.

Sales of consumable dental supplies and printed office products increased 14% in the first quarter, lead by U.S. consumables growth of 15%.

All consumable sales growth was internally generated, while the extra week in this year's first quarter accounted for an estimated 8 percentage points of the U.S. sales increase.

This means that the internal sales growth of U.S. consumables was a strong 7% in this year's first quarter.

The growth rate of consumable supplies started accelerating during last year's third quarter in response to the strengthened focus that we've placed on this portion of Patterson's business.

Reflecting this renewed emphasis, over 42 field representatives were added during the first quarter, bringing Patterson's dental sales force to approximately 1,400 at July 31st.

We plan to continue a stepped-up level of the sales representative hiring and training throughout the current fiscal year.

At the same time sales of dental equipment and software rose 17% in the first quarter.

Substantially all of this growth was internally generated; and due to such factors as the length of time from initial order to installation, it is difficult to measure the impact of the extra week on equipment sales.

Our strong growth in equipment sales was generated by the continuation of robust demand for both basic and new generation in equipment, including the CEREC 3D dental restorative system and digital radiography.

Reflecting this growth, we can say with assurance that dentists are continuing to invest heavily in their practice.

Sales of our Webster veterinary supply unit increased 22% in the first quarter to 75.1 million, which includes the negative impact of a pharmacological distribution agreement that was converted into an agency arrangement in last year's third quarter, as well as the positive impacts of the April 2004 acquisition of ProVet and the extra week.

In the absence of these items, Webster's first quarter sales were unchanged, an outcome that fell below expectations for this period.

A number of factors contributed to this shortfall, including pricing strategies initiated by some competitors, backorders on products from suppliers, and merger activity at the supplier level.

These are generally short-term phenomena that we have dealt with in the past, and we will deal with them going forward as we execute our Webster strategy, which continues to be grounded in a full service, value-added business model.

Toward this end, Webster is deploying such tools as our very successful imagined electronic [INAUDIBLE] entry system and expanding its range of products and services.

Moreover, Webster has converted to our customer service and support system, that is the new standard for the entire Patterson organization.

By strengthening Webster's position as a full-service, value-added distributor, we believe that discount pricing strategies will be neutralized.

In addition to providing single-source convenience, this business model also will provide an added cushion of security in terms of product sourcing.

Webster's commitment to consolidating the veterinary supply market will also strengthen its competitive position.

The first step in this direction was the recent acquisition of ProVet, which has significantly expanded Webster's market reach through its five locations in the midwest and northwest.

Webster's management devoted considerable time and resources during the first quarter toward integrating ProVet into Webster's operations.

The integration of this business is proceeding smoothly and on schedule.

Finally, we're pleased with the performance of AbilityOne, the world's leading distributor of rehabilitation supplies and equipment.

Acquired in September 2003, AbilityOne reported sales growth of 37% to 77.2 million from the year earlier period.

The May 2004 acquisition of Medco Supply Company, Inc., and the impact of the extra week, accounted for an estimated 31 percentage points of this increase.

AbilityOne is continuing to perform at a high level, contributing significant earnings to our bottomline and serving as a platform for consolidating the highly fragmented rehabilitation market.

Turning to the topic of acquisitions, I'd like to briefly review the transactions that we've made since last fall.

In September 2003, we acquired AbilityOne.

Then in April 2004, we acquired ProVet, followed by Medco and CAESY Educational Systems in May.

These four transactions contributed 23 percentage points to our first-quarter consolidated sales growth.

Equally important, they have strengthened the market position of our dental, veterinary and rehabilitation supply businesses.

AbilityOne made a significant profit contribution in the first quarter.

As we stated in our last earnings release and conference call, the ProVet, Medco, and CAESY acquisitions are expected to have a combined accretive impact of 4 to 6 cents on the fiscal 2005 earnings, with the majority of this annual contribution forecasted during the second half of the year.

Several factors account for this, including the impact of integration costs and implementing the desired pricing strategies at each unit.

We are also in the process of rolling out CAESY's products to our dental sales force.

CAESY is the leading provider of electronic patient education services to dental practices in North America.

CAESY's communications media educate patients about proper dental care, procedures and treatment alternatives, with the goal of influencing patient decisions about dental services and increasing the productivity of the dental profession.

This line of products will equip our dental sales force with an important new value-added service that we believe has significant potential in the dental market.

I'll conclude my remarks by discussing the earnings guidance contained in this morning's release.

For the second quarter of fiscal 2005, ending October 30th, we are forecasting earnings of 62 to 64 cents per diluted share.

We are also [reiterating] our previously issued financial guidance of $2.68 to $2.72 for the full year fiscal 2005.

In closing, I'd like to say that we're optimistic about Patterson's prospects both near and longer term.

We feel our businesses are gaining market share and the strategies are in place to ensure a successful future for this organization and the creation of value for our shareholders.

With that I'd like to turn it over to Steve Armstrong to review the first quarter results.

Steve.

Thank you, Pete.

I'd like to make one further comment on our revenue growth for the quarter.

Foreign exchange had a nominal impact on consolidated results.

During most of the past fiscal year, we experienced a favorable foreign exchange impact of approximately 1 percentage point each quarter.

Okay.

Gross margins for the quarter, they increased 1.9 percentage points to 35.3%.

The acquisitions, including AbilityOne, contributed 1.2 percentage points of the improvement, while our ongoing business added 70 basis points.

Our dental operation accounted for the majority of the improvement in our ongoing business, due primarily to product mix.

If you recall, we were offering a trade-in opportunity on older generation CEREC units through the first quarter of last year.

Trade-in transaction resulted in lower gross margin in the sale of the new unit.

Since our CEREC sales increased in this year's first quarter, our CEREC margins strengthened and helped drive the improvement in total gross margins.

Our rehabilitation business was the primary driver of the 1.2 percentage point improvement in the gross margin attributable to acquisitions.

The first quarter of this year, our consolidated operating expense ratio increased to 23.6% from 23.0% in the prior year's first quarter.

This increase was due almost entirely to our recent acquisitions.

Basically, we are assimilating businesses with cost structures higher than our historic norm and absorbing the impact of identifiable and tangible asset amortization resulting from the accounting for the transactions.

During the first quarter we also absorbed the integration costs associated with these acquisitions.

The higher operating expenses of our veterinary supply business reflected the absorption of the ProVet operation, costs relating to rolling out a new order entry system, and the loss of leverage stemming from the termination of the distribution agreement that we have discussed over the past few quarters.

We believe that improvements in our operating expense ratio over the balance of the fiscal year should enable us to report a modest strengthening in this ratio on a year-over-year basis for all of fiscal 2005.

Our operating margins for the quarter reflect the overall positive impact of the dental and rehabilitation businesses on our consolidated results.

Operating margins increased 130 basis points to 11.7% with 60 points of the improvement generated by our historic business and acquisitions contributing to the remainder.

We historically have targeted a 50-basis-point per year improvement in our operating margin.

To attain this goal we have targeted an average of 10 basis points improvements in our gross margins and 40 points reduction in our operating expense ratio.

In our fiscal 2004 year-end conference call, we forecasted that due to the margin and expense dynamics of our recent acquisitions, including AbilityOne, our gross margin would improve by more than 10 basis points in fiscal 2005, while our operating expense ratio would improve by less than the 40 basis points.

Despite this short-term deviation from our historic matrix, we fully expect to achieve a minimum of 50 basis points in our operating margin in fiscal 2005.

Looking quickly at our cash flow, we generated over $65 million of cash flow from operations in the first quarter on net income of approximately $41 million.

Included in operating cash flow is an incremental $20 million of proceeds from the sale of finance contracts -- pardon the airplane, folks -- generated during the fourth quarter that could not be sold until this year's first quarter.

We invested $53 million in acquisitions -- in the acquisitions of Medco and CAESY, and approximately $8 million in capital expenditures during the quarter.

Capital expenditures include the final cost of our new distribution center in Columbia, South Carolina, which was occupied earlier this month.

A review of our balance sheet at the end of the quarter shows a reduction in the accounts receivable -- accounts and notes receivable of nearly $27 million.

This decrease is the net result of reduced financing activity consistent with the lower level of equipment business that we historically see between the fourth and the first quarters and reductions in trade accounts, each business net of the impact of acquisitions.

Our days sales outstanding likewise decreased to 43 days from 46 days at April 24th.

Inventory balance is increased by about $18 million.

This increase resulted from the Medco acquisition, in addition to our practice of temporarily increasing inventory during the year to maintain high service levels, but then reducing these inventories at year-end to mitigate the impact of our LIFO evaluation method.

And that concludes my comments.

Thank you.

I'd like to turn it back to the operator, who will poll you for questions.

Thank you, sir.

Ladies and gentlemen, at this time we will begin the question-and-answer session.

If you have a question, please press the star followed by the one on your push button phone.

If you would like to decline from the polling process, press the star followed by the two.

You will hear a three-tone prompt acknowledging your selection.

Your questions will be polled in the order they are received.

One moment, please, for our first question.

Our first question comes from Robert Willoughby from Bank of America.

Please go ahead with your question.

Thank you.

Pete, can you flesh out your comments on the supplier consolidation in the veterinary sectors.

Is there somebody new out there we should be thinking about, worrying about?

Secondarily, sounds like some of these issues -- no real near-term fix to -- should we be ratcheting down the Webster expectations from a top-line perspective?

I think -- first of all, let me say, Robert, that Steve and I are in two different places.

So for all the questioners, you might hear us chat back and forth about who ought to take the question as part of our response.

I think from Webster's perspective, we're counting on a number of things.

First of all, we have not altered our objectives for Webster for this year and do not want to convey that message to you.

The second issue is that what we're seeing in our view is consistent with the market consolidating as competitors look around, et cetera, et cetera.

And to some extent to take what we would call the normal response of some price reduction.

Now, we will continue to be competitive, but I think -- price competitive, but I think it's important to remember that we kind of review for everybody our rationale behind these acquisitions.

First of all, we talked about fragmented markets where customers want a relationship and have a low cost of goods, and therefore allow us to bring tangible value to those customers, which will continue to be the major portion of our thrust.

For example, Webster is currently in the position -- or moving ahead with offering our imagined order system to the veterinary customers with some considerable success.

Obviously we're going to continue to promote that effort.

So we're three months into the program, Robert.

We're comfortable that the value-added approach is going to work.

It is not going to happen overnight.

We see it as a similar market.

We've been through it in the dental business before and are comfortable we'll manage it and have more to say on it here at the end of the second quarter when we get three more months under our belt.

Any additional comments from you, Steve?

No, just as a point of clarification, the consolidation that we're seeing would be exemplified by Pfizer buying Pharmacia.

Pfizer goes direct into the animal husbandry market, so they took Pharmacia's products out of the marketplace, which cost us some revenue in the first quarter.

Secondarily, Steve, what are the plans for debt reduction over the course of the year?

As I stated previously, Bob, we had a one-year no-call on most of the debt.

As we now approach that anniversary date, we'll start becoming more aggressive in managing those debt levels.

I would probably intend here during the early part of the second quarter to take down some of the debt.

I haven't exactly chosen which pieces will go down yet, but our cash needs are such that we should be able to free up a fair portion of that cash and use it to reduce the debt.

And just a comment on the inventories, Steve, I typically would have thought they would have spiked up a little bit more in the first quarter.

Is there a change in the buy-ins that you're willing to do?

No, Bob.

I think what you're seeing is a lot of -- we obviously bought a lot of inventory with ProVet.

We worked that inventory off.

You saw that in the ending balances at April 24th.

That was netted against some expansion due to the Medco transaction.

We added -- obviously, the Columbia facility opened, so that had to be stocked.

But it was, I think, 4 to 6 million of impact, net impact there.

We'll quickly obviously rationalize that as we close down that other facility in the Columbia area.

And then we just kind of let the inventory grow back up a little bit.

But it didn't grow as fast this year as it did last year.

But there's really nothing abnormal in there, Bob.

Long answer to your very short question.

That's great.

Thank you.

Thank you.

Our next question comes from Glen Santangelo from Charles Schwab.

Please go ahead with your question.

Yeah, thanks.

Peter, I just had two quick questions.

You talked about these challenges in the vet business as being near term.

Do you think that they could potentially accelerate the acquisition opportunities in that market at all?

Then secondly, could you just sort of remind us your outlook for organic growth within the vet business as well as the rehab business?

I think -- let me take the first part and I'll let Steve take the second part.

From the point of view of the Webster business, we essentially at this point in time aren't changing anything in terms of our objectives, Glen.

And so from the point of view of the market, we expect to continue to perform and gain market share.

Where do you expect that market to perform at?

Well, we've historically said market growths at 6 to 8%.

We might be in this first quarter running toward the lower end of that at this point in time.

And with that, I'll let Steve make his comments.

Glen, could you hit 0.2 there, I fell asleep and fell off the chair.

I'm that exciting?

No, just kidding.

I was just sort of curious to look for the organic growth outlook for both the vet business, which Peter touched on, and then maybe the rehab business.

And then my second question was about, do the challenges in the vet business potentially accelerate acquisition opportunities there?

The second part of your question, accelerating acquisition opportunities, we don't predict acquisitions; and it's always difficult to really comment on when something could happen.

We're constantly looking at things, Glen.

That doesn't change.

But whether we bring anything to fruition or not, I can't really comment on.

The vet -- or the rehab market continues to grow, we think, at a very steady 6 to 8%.

We've said in the past we've got some pruning to do inside that business.

We believe the core of that business is growing faster than that market, but we do have some parts of that business that we need to take a look at and decide what we're going to do with long-term.

Okay.

Thanks.

Thank you.

Ladies and gentlemen, as a reminder, if you have an audio question please press the star followed by the one.

If you are using speaker equipment, you will need to lift the handset before pressing the numbers.

Our next question comes from Mr. Jeff Johnson from Robert W. Baird.

Please go ahead with your question.

Thank you.

Good morning, Peter and Steve.

Can you hear me?

Absolutely, Jeff.

Go ahead.

Just a couple of quick ones, here, Steve.

I think more for you than anything.

Could you remind us the exact closing dates of the CAESY and the Medco acquisitions?

Do you have those?

Jeff, I'm 55 years old, I can't remember my own birthday anymore.

I'm not even going to comment on that.

We closed the Medco transaction, I believe, on May 2nd, give or take a day; and we closed the CAESY transaction on May 12th.

Thank you.

Also I know you walked me through this before, Steve, but if you can just remind me.

The agency relationship now, will that convert back to a distributor, distribution agreement, or is that going to remain, at least as far as you know, as the agency-type relationship?

I could make a flippant comment, that would depend on how effective Jeff Webster is but I don't want to put him on the spot.

Longer term, you know, I think Pete would comment on this to the same extent.

And that is that we would hope that agency would basically be minimized as we execute our Webster strategy over time.

It's not going to be done in the next six months, probably not even in the next two years.

But we would see it and hope it would minimize.

But that [INAUDIBLE] arrangement should stay probably at agency now for the near term as much as we can predict it.

So as we get through the next quarter to in that anniversary, we should look back to a more historical Webster growth rate?

Yes.

Correct

You bet.

Final question here, can you at all quantify the EPS impact of AbilityOne this quarter?

Is that at about the 7 cent level?

It's obviously a little bit more because Medco added to it.

I think it was running at about 7 cents, and I think that's what we reported in the fourth quarter.

And we didn't -- we didn't spend a lot of time at this particular point, Jeff, analyzing down to EPS.

We look at our businesses at the operating line.

Fair enough.

I appreciate it, guys.

Let me just add one comment, Jeff, vis-a-vis, the agency relationship at Webster.

We've historically said what we need to do is build a national platform.

And getting that national platform built will give us some increased leverage so that obviously one of our objectives is to continue to move in the direction of building that national platform.

That's a significant issue for us.

And it won't happen overnight, obviously.

Thanks, Pete.

I appreciate it.

Thank you.

Our next question comes from Mr. Larry Marsh from Lehman Brothers.

Please go ahead with your question.

Thanks, everyone, Pete and Steve.

Could you be a bit more specific maybe in terms of what the impact of the Pharmacia volume was on Webster in the first quarter?

And would you define that as a bit of a surprise that Pfizer moved the business direct, or is this as expected?

The quantification, Larry, we typically don't give out individual product level [and locations].

I can tell you it was enough to move the needle, but not a substantial amount.

It obviously impacted their year-over-year comparisons.

Okay.

With regard to were we surprised?

No, we pretty much predicted -- Jeff and his books pretty much predicted that when acquisition occurred they would lose some of that business.

They are obviously disappointed, but that's been Pfizer's model, and we've worked hard to try to prevent that but they decided to take it direct.

Okay.

Then are you any more specific in terms of the impact on the extra week with Webster?

Was it about $5 million or so, if we calculate it right?

I'm not going to comment on specific dollars, Larry, because measuring an extra week is like trying to catch air.

But I think I would say you're probably in the range.

You might be a little bit high on it, but you're probably in the range.

Okay.

I guess, Steve, did you complete the new receivables purchase agreement in the quarter or consequence of the quarter?

You said $20 million of positive cash flow.

That was from last quarter.

Is that right or was there additional benefit?

What ended up happening, Larry, was that because the third and the fourth quarter of our fiscal year generally tend to be much higher equipment production quarters; and therefore, you're going to generate more financing contracts.

The first quarter we typically sell off most of the fourth-quarter production.

Yeah.

And so you net those two out.

We get a net reduction of about $20 million between fourth-quarter production and first-quarter production.

That comes through as receivable liquidation.

Now, you say why the hell didn't that happen last year?

Well, last year we were tied up and had a longer string on that commercial paper conduit.

We couldn't get those contracts turned quite as quickly.

We were able to get temporary amendments, and we believe -- if I can knock on wood.

I won't do that, it will hurt your ears -- but we negotiated some temporary relief from that contract, and we're in the process of renegotiating and getting the agreement done; and all the principals have agreed that we will have the first payment requirement waived so we can sell as soon as the contracts have been perfected.

That should not be an issue going forward.

I would not anticipate we would build that level of receivable on our balance sheet going forward.

Okay.

And when do you hope to complete that?

I don't know if the bankers are listening, but soon.

Sometime during the second quarter here, Larry.

We're on target to get it done in a matter of weeks.

Finally, maybe -- one more thing for you, Steve.

Do you have a breakdown at this point of depreciation and amortization expense, or a breakdown of the balance sheet between goodwill and net intangibles?

We are still fine-tuning that, Larry.

I don't know if I have that information with me.

I can tell you the amortization for the quarter ran at about $3 million.

So I think it's about half and half, right, if you look.

I think we're about 6 1/2 million on the cash flow statement as far as combined D&A.

I think the amortization accounted for about 3 million of that for the quarter.

Okay.

So slightly higher than Q4.

Yeah.

As we added those new acquisitions we had some additional amortization.

Right.

Finally a comment on CEREC.

Obviously, you had the tougher comparison last quarter year-over-year because of the trade up.

Any comment on sales trends and is this still your fastest growing equipment category of any size?

I would -- my statement, Larry, would be CEREC continues to grow nicely.

But quite frankly, basic equipment, CEREC and digital x-ray all grew very nicely in the quarter.

It would be tough at this point in time -- and I'll let you comment, Steve -- to say that one of them is leading the pack by significant margin.

Yeah.

I don't know that I would comment much further than that, Larry, other than to say that CEREC did have a tough comp.

And it was not unexpected.

But it grew pretty much in line with the rest of the equipment category, although it was a bit of a lagger this quarter compared to the rest of the category.

And that, we believe, is a function of the trade-up -- or trade-in program, Larry.

The other comment I should make about equipment.

We've mentioned this before, but basic equipment is growing very nicely.

And one of the contributors there, quite frankly, is the new and very innovative line of equipment from ADAC that essentially is basic equipment that dentists have responded to very positively.

Interesting.

So I guess your message was that trade-up impact that you saw in the fourth quarter also had a little bit of an impact in the first quarter, you think.

I think the comparison, if we're still talking about CEREC, vis-a-vis the quarters, is the issue, yeah.

The trade-in program, Larry, for all practical purposes ended last year at this time.

We should be now back to comps we were at third and fourth -- fourth and first quarter of last year were the primary quarters for the trade-in activity.

Okay.

Very good.

Thanks.

Thank you.

Ladies and gentlemen, as a reminder, if you have an audio question, please press the star followed by the one.

If you are using speaker equipment, you will need to lift the handset before pressing the numbers.

Our next question comes from Mr. David Veal from Morgan Stanley.

Please go ahead with your question.

I wonder if you could talk about the Greenfield opportunities in Ohio and Washington, whether they are progressing -- how they are progressing relative to your expectations?

You're talking about the Webster veterinary Greenfield (ph) operation, I'm assuming?

We probably are going slower in Ohio than we had anticipated, and we're doing better in Seattle.

But then it's important to remember that in addition to doing better on the Greenfield side that the ProVet acquisition had an impact in Seattle as well.

We intend to continue the Greenfield operations.

We I think it's a way for us to build market share; and, obviously, we'll be aggressively going after acquisitions where they are available as well.

Steve, any comments from you on the Greenfield thing?

No.

Just a little more color on Seattle.

ProVet had a very substantial operation up in that greater northwest area.

So we've merged our expansion into that operation.

That's all been done.

And so it's going to be very difficult to measure any Greenfield impact from that.

The answer is we won't be able to measure any Greenfield impact because those are all integrated resources at this time, and the sales forces have been integrated as well.

So we'll look at it as a unit.

Sure.

Absolutely.

Now that the South Carolina distribution center is live, is it still your intention to consolidate the Charlotte operations, the veterinary operations there into that facility?

It is indeed.

As we said in the past, part of our strategy over time will be to consolidate operations as need requires for us to either alter, change, rebuild, et cetera, distribution centers.

The other thing I would mention to you is that we are in the process of currently consolidating the AbilityOne West Coast facility into our Dynugal (ph) facility.

So those things are taking place as a normal course here.

We aren't going to accelerate the process from the point of view of distribution centers, new buildings, et cetera.

But as the need arises, we will definitely integrate them, yes.

One last question.

I wonder if you could talk about sales force turnover in each of the lines, because it seemed like at the investor day that there was some concern that the dental sales force in particular were seeing an uptick in turnover to around 7 to 8%.

Is that still the case or is that sort of coming back into line?

I'm not sure I can specifically comment to turnover numbers by unit.

But I can tell you that historically, our turnover in the dental business has been at 7 to 8% range, so we don't see that as an uptick at all.

We think, quite frankly, as we indicated to you, we added a net 42 sales reps here.

So we see the sales force growing and do not see an uptick in turnover.

Steve, what would you comment?

No, similar comment.

We're adding to the sales force, and the turnover is not a major problem.

That's true across both the dental and vet lines you'd say?

Yes.

Great.

Thank you.

Thank you.

Our next question comes from Robert Willoughby from Banc of America.

Please go ahead with your question.

Pete, can you give us any detail on the sales force in terms of the 42 reps you added in the dental sector?

Where are they coming from?

Are these all juniors out of school or are these vets from different places?

We really get sales representatives from three different locations, Robert.

First, the industry.

Second, the competition.

And third, we recruited some schools.

When we talk about these new sales reps, the majority of them would be either coming from the industry or recruited at school.

That's great.

Thank you.

Thank you.

Our next question comes from Christopher Arndt from Select Equity Group.

Please go ahead with your question.

I just had a question on the growth rate of the dental business.

The press release implies that the extra week in the quarter affected the consumables business and the internal growth rate of the consumable business.

But seems to imply it doesn't affect the internal growth rate of the equipment business.

Maybe you can help me understand why that would be the case.

As well, if I do the numbers, you know, assume the one week affected both equipment and consumables, and assume it's 8%, then I also make an adjustment of 2 or 2 1/2 million for the acquisition of CAESY, I mean, the internal growth number looks more like 4.6, 4.8%.

So if you could just help me square that, perhaps, with, you know, what would be, I guess, [INAUDIBLE] average of your 7% and 17%.

Steve.

Chris, you can -- I think you're right from the equipment perspective.

I can't give you a number.

Consumables is like sort of a retailer.

We can sort of measure that on a daily basis.

Equipment is much more difficult.

What we're trying to communicate in that comment is, intuitively, there's probably some impact on equipment from having five extra selling days in a period.

But a lot of the orders for equipment, you can sell them in the quarter but you're not going to get them until the following quarter or the quarter after that.

Another point of color I would add to that -- whatever percentage you want to put on equipment, we're going to let you go ahead and do that, because we can't begin to do it.

You've also got elements of our business, like our maintenance contracts and so forth, sale of our equipment finance contracts, some of the other services we provide to customers, an extra five days doesn't make a damn bit of difference in those revenue streams.

Okay.

Fair enough.

So by the time you sort of hone all that down, what we're trying to tell you is we think it's in the range of 4 to 7%.

You pick a number.

We don't know.

We don't spend a lot of time trying to digest it.

Okay.

Fair enough.

Let me just add, Chris, that is quite frankly the downside of the extra week, is that we simply can't quantify it, especially when you go back to Steve's comment that the customer orders a piece of equipment this week that's not installed if the customer is doing a new potentially for six or nine months.

So it is very, very difficult to quantify that.

I think the key point here is our statement that we continue to see and believe equipment continues to be very strong in the marketplace and dentists continue to invest, and we expect that trend to continue.

Okay.

Thanks a lot.

Management, at this time there are no further questions.

Do you have any further comments?

No.

Just that we appreciate everybody's continuing support.

We're very positive about our ability to continue to generate the kind of results that we've set in our guidance in the coming quarter and for the year, and we look forward to speaking to everybody at the end of our second quarter.

Thank you very much.

Ladies and gentlemen, this concludes the Patterson Companies, Incorporated first-quarter 2005 Earnings Conference call.

We appreciate your participation on today's teleconference.

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You may now disconnect.