Patterson Companies Inc (PDCO) 2005 Q2 法說會逐字稿

Welcome to the Patterson Companies Inc. second quarter 2005 earnings conference call. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded, Wednesday, November 24, 2004.

I would now like to turn the conference over to James W. Wiltz, President and Chief Operating Officer.

Please go ahead, sir.

Good morning and thanks for participating in our second quarter conference call.

As Patterson's President and Chief Operating Officer, I am filling in for Peter Frechette who was unable to be here today.

And to acknowledge that the timing of this call may be infringing on your Thanksgiving holiday plans, we're especially appreciative that you took the time to join us today.

Joining me today is Steve Armstrong, our Executive Vice President and Chief Financial Officer, who will review some highlights of our recent operating results following my opening remarks.

At the conclusion of Steve's remarks we will be happy to take any of your questions.

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

For this reason we have included financial guidance in our earnings release, but it is important to understand that Patterson's actual results may vary from our forecast.

Our guidance is subject to a rule of risks and uncertainties which are discussed in detail in our annual report on Form 10-K and our recent Form 8-K filings.

Since that information forms the context of what we will discuss today, we urge you to review this material.

Turning now to our recent performance, Patterson reported record sales and earnings in this year's second quarter.

Consolidated sales rose 21 percent to 578 million, which included contributions from four acquisitions earlier this year, in addition to the December 12, 2003 acquisition of AbilityOne.

Net income increased 22 percent to 42.5 million, or 31 cents per diluted share.

Just a reminder, all share and per share information has been adjusted to reflect our previously announced two-for-one stock split in the form of a 100 percent stock dividend to shareholders of record on October 8, 2004.

Second-quarter earnings came in at the low end of our previously issued guidance of 31 to 32 cents per share, due to that unexpected recall of a product distributed by our Webster unit and a shift in AbilityOne sales mix towards capital equipment.

Now, for the next few minutes I will briefly review the second-quarter performances of our three business units.

Sales of our Webster Veterinary Supply unit increased 21 percent in the second quarter to 64.1 million.

A mix of factors affected Webster second-quarter performance.

Webster's sales benefited from the acquisition of ProVet in April and of Milburn Distributions in October.

Webster has also enjoyed considerable success in introducing our Imagine order entry system to its customers.

Since the beginning of this fiscal year, more than 700 Imagine systems have been deployed and customers are very enthusiastic about the benefits of this value-added tool.

The positive impact of these actions was partly offset by $5 million of reduced sales related to the unexpected voluntary recall from the U.S. market in September of ProHeart 6, an injectable heartworm medication.

In addition to the lost opportunity to sell this product during the quarter, the impact of the recall was magnified by product returns that needed to be accounted for in our second quarter.

On an annual basis, ProHeart 6 contributed sales of approximately $12 million.

While we will recoup some of these lost revenues as veterinarians buy alternative heartworm medications, these sales will take the form of agency commissions, which have a lesser impact on sales volume and operating profit than ProHeart.

It is also worth mentioning that it is uncertain whether this recall will be permanent since ProHeart 6 is continuing to be marketed in Canada and Europe.

The second deployment took a bite out of Webster's second-quarter performance was the previously discussed conversion of a temporary pharmaceutical distribution agreement into an agency agreement late in last year's third quarter.

The conversion reduced Webster's second quarter 2005 sales by approximately $4 million when compared to the year-ago period.

We have been talking about this for the past year, but now that this development has been grandfathered into Webster's operation, we can thankfully lay this situation to rest going forward.

After adjusting for acquisitions, the ProHeart recall and the agency conversion, Webster's internally generated sales rose 8 percent in the second quarter.

Our AbilityOne unit reported strong second-quarter results, with sales totaling 75 million.

Excluding the May 2004 acquisition of Medco Supply Company, AbilityOne's second-quarter sales increased 9 percent on a pro forma basis, which gives (ph) effect to the approximately six-week period in last year's second quarter that Patterson did not own this business.

Despite this solid growth, AbilityOne's gross margin was affected by a shift in sales mix towards capital equipment, which does not generate the gross margin of consumable supplies.

The process of integrating Medco into AbilityOne operations is largely complete, and we are continuing to evaluate additional strategic acquisitions that can further strengthen our share of the rehabilitation market.

Finally, our dental business is continuing to perform at a high level.

Patterson Dental Supply reported sales growth of 12 percent to $439 million.

Substantially all of this growth was internally generated.

We acquired a very good equipment dealer in the Salt Lake City market during the quarter.

Although we believe this action will positively impact the local market, the small size of this transaction will have a very nominal impact on our total dental results.

Sales of consumable dental supplies increased more than 6 percent in the second quarter, lead by the U.S. consumable growth of nearly 7 percent.

This solid growth reflects the effectiveness of efforts over the past year to strengthen this portion of Patterson Dental's business.

Sales of dental equipment and software rose 21 percent in the second quarter.

That's included strong contributions from both our U.S. and Canadian operations.

Demand remains strong for both basic equipment and such new generation dental systems as the CEREC 3D, digital radiography and related networking systems, and the patient education offerings of CAESY education systems.

Based on the strong results of our equipment business, it remains clear that dental practices are continuing to invest heavily in a wide range of new equipment and software that can strengthen office productivity and improve clinical outcome.

As the leading distributor of dental equipment by a wide margin, Patterson Dental is well positioned to continue benefiting from ongoing technological and investment trends in this market.

As you know, we have made four acquisitions over the course of this calendar year which have strengthened the competitive positions of our dental, rehabilitation and veterinary businesses.

For the next few minutes I would like to discuss our most recent transaction, the October acquisition of Milburn Distributions.

Milburn is the largest distributor serving the $400 million U.S. equine veterinary supply market.

With sales of more than 50 million, Milburn holds an industry-leading share of approximately 12 percent.

Net sales have grown at a 24 percent compounded annual rate over the past three years.

Reflecting the specialized nature of this business, Milburn operates facilities in equine centers of Kentucky, Texas, Florida, Arizona and Pennsylvania, where it does business with approximately 50 percent of the nation's more than 3,400 equine veterinarians.

Both companion pet and large-animal veterinary supply distributors have not successfully served these customers due to the highly specialized nature of the equine market.

Milburn has capitalized on this opportunity by developing a specialized business model that focuses exclusively on the unique needs of the equine vets.

Built on the same value-added concept that characterizes Patterson's overall business strategy, Milburn's specialized approach to the equine market has proven to be highly effective at generating profitable growth by taking share of market share from the competition.

At this point, it is important to understand that the Milburn acquisition is thoroughly consistent with our overall Webster strategy, since the equine niche market is a subset of the companion pet market.

Horses are companion pets.

They are not part of the (indiscernible) animal market, a low-margin business in which Webster does not participate in any meaningful way.

In serving its niche market, Milburn will function within Webster by selling a specialized product line through specialized field reps.

Once we have completed the integration of Milburn into Webster's operation, we intend to expand Milburn's reach into the large equine markets, including California, New York, and the Pacific Northwest.

This geographic expansion could be accomplished through Greenfield start-ups, acquisitions, or a combination of both.

Milburn will also enable us to better serve Webster's existing customers that have a concentration of equine business.

For these reasons, we believe Milburn's growth prospects are very favorable.

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

Positive outlook for our three businesses makes us optimistic about Patterson's prospects for the second half of fiscal 2005, which will include the majority of the earnings contribution from our four most recent acquisitions, including Milburn.

For this year's third quarter, ending January 29, 2005, we are forecasting earnings of 36 to 37 cents per diluted share, which would make this period another record quarter for Patterson.

Moreover, we are reiterating our previously issued financial guidance of $1.34 to $1.36 for the full fiscal year.

Thank you.

Now Steve Armstrong will review some highlights of our second-quarter results.

Thanks, Jim.

I will start off by making one additional point about the voluntary recall of ProHeart.

The impact of the recall was amplified by the fact that it included product returns.

All such returns have been accounted for, meaning that further impact from the recall will be limited only to the lost revenue opportunity, partly offset by sales of alternative heartworm medications on an agency commission basis.

As a result, we estimate the revenue impact of the ProHeart 6 recall will decline to approximately $2.5 million in the third quarter, which is a seasonally-low period for Webster.

Now a few words about gross margins.

On a consolidated basis, Patterson's gross margin improved 60 basis points to 35.4 percent.

This improvement was driven by our dental operation, whose gross margin benefited from strong sales of new generation equipment and software, including CEREC and the new CAESY product line.

Consolidated gross margins also benefited on a year-over-year basis from the higher margins in the rehabilitation business compared to other business segments.

However, as Jim mentioned, AbilityOne's gross margins were lower than planned, reflecting a shift in its sales mix towards capital goods, which carry lower margins in comparison to consumable supplies.

This shift had a negative impact on our expected operating performance.

Webster's gross margin also declined in the second quarter, due primarily to the lower margins associated with the recently acquired ProVet and Milburn businesses.

To a lesser extent, Webster's gross margins were affected by some pricing pressure in the market -- a situation that we feel will be mitigated as Webster's national presence continues to expand and as new tools such as Imagine are introduced to more customers.

Looking ahead, we still expect to exceed our internal goal of improving our consolidated gross margin by at least 10 basis points for the full fiscal year.

As AbilityOne is now grandfathered into our operation, gross margin improvements in this year's second half will not be of the same magnitude as we have posted during the first six months of the year.

Moreover, the veterinary and rehabilitation businesses that we have acquired this year generate lower gross margins than those historically associated with Webster and AbilityOne.

However, we are working to strengthen the margins of these new businesses, and expect to see the initial positive results of these actions as the year progresses.

Our consolidated operating expense ratio increased 30 basis points to 23.3 percent year-over-year.

This increase was attributable almost entirely to our recent acquisitions.

Three things are really at play here -- first, we are assimilating businesses with higher cost structures than our historic norm; second, we are absorbing the impact of identifiable intangible asset amortization related to these transactions; and third, we are absorbing the integration expense associated with these acquisitions.

In the case of Webster, the operating ratio was also affected by the loss of leverage resulting from the ProHeart recall and the agency conversion.

However, we continue to anticipate improvements in our operating expense ratio over the balance of this fiscal year.

Our consolidated operating margin improved 30 basis points in the second quarter to 12.1 percent, as a solid gain in or dental unit was partly offset by reduced margins at Webster and AbilityOne.

We continue to expect to achieve our targeted improvement of 50 basis points in our operating margin for the full year.

I will wrap up this P&L discussion with a few words about interest expense.

The weighted average effect of interest rate on our debt was approximately 3.3 percent in the second quarter.

We are expecting a similar rate for the third quarter.

Turning now to cash flow, we generated over $60 million of cash flow from operations in the second quarter on net income of 42.5 million.

During the quarter we invested approximately 20 million in acquisitions and another 5 million in capital expenditures as we incurred the final costs at our new Columbia, South Carolina distribution center.

We expect a somewhat higher level of capital expenditures in the third quarter as work commences on a new facility for AbilityOne's home craft division in the UK.

During the current quarter we also used cash to pay down approximately $55 million of debt related to the AbilityOne acquisition.

Our accounts payable balance increased due to acquisitions and as a result of a difference in the sequencing of our routine cash disbursement cycle in our fiscal calendar.

This difference has caused about one additional week of trade payables at quarter end.

Our days sales outstanding were 44 days at the end of the second quarter, up slightly from 43 days at the end of the first quarter.

Inventory turns stand at 8 as we integrate the acquired companies' inventories.

Thank you, and now I'll turn it back to the conference operator who will poll you for your questions.

(OPERATOR INSTRUCTIONS).

David Veal, Morgan Stanley.

I was just wondering if you could comment on a couple of things.

On the acquisition landscape within each of the business units, how is that sort of playing out?

I mean, I sort of anticipated that to go in the veterinary front that we would see some -- maybe some expansion into California.

Can you talk to that?

And also, can you talk through the consolidation efforts in the network, particularly the Milburn acquisition and some of the facilities on the West Coast of AbilityOne?

Let me start with the Milburn question, Dave.

We view the Milburn acquisition as our ability to maybe crack the California market and give us -- let us go after both of the markets, both the equine and the small-animal vet.

Because if we are going to put a facility in there are, we think they ought to be able to share that facility.

I can't really speak to any acquisition things that we have ongoing, but obviously we are very desirous of getting into that California market.

Now, I'm not sure you understood your question on the AbilityOne issue on the West Coast.

I just wondered in terms of consolidating the network away, I know you had talked previously about the West Coast, some opportunities to consolidate the network there.

Also, moving some of the Charlotte operations into the South Carolina facility.

Can you comment on how those are going?

Yes.

We've completed the AbilityOne move out on the West Coast.

They had a contract warehouse out there that they were using when we acquired them, and we have since move them into our Dinuba facility and are distributing their product on the West Coast now.

And we are proceeding in the Carolinas with -- we've just opened it to the dental business.

We are proceeding as we speak with the veterinary business, and we intend to put AbilityOne product in their within the next three months as well.

And in terms of just the duplicative facilities -- for example, I think in Florida and Pennsylvania for example, you have got facilities that are pretty close to the existing Milburn facilities.

Do you plan -- do you have sort of a timeframe to consolidate those?

You know, I think we're going to take a wait and see on that.

Part of what goes on in the Milburn business that's very specialized is the equine vet is a very mobile individual.

Most of them work out of the back of a Suburban or a pickup.

And we have a lot of drop-in traffic, and we have showrooms in those locations that those equine vets use.

We even process some x-rays for them.

So we're not going to be quick to move those facilities that Milburn currently has.

We think they are an integral part of their business.

(OPERATOR INSTRUCTIONS).

Lisa Gill, J.P. Morgan.

It's actually Mike Minchak (ph) in for Lisa.

I had two questions on the dental equipment side.

First, are there any specific products that's driving the strong growth -- strong equipment growth?

And secondly, are you seeing any impact on CEREC ordering patterns, given the expected introduction of a competing product next Spring?

Mike, let me start by saying that CEREC has remained quite strong, and the piece that's really driven our core equipment business has been up dramatically in this third quarter, which has accelerated the growth, with digital and CEREC continuing to be strong performers.

When the D4D product -- I assume that is what you're talking about, Mike --

Yes, it is.

-- talked about being introduced, it was supposed to be on the market by October of this year, which it is not on the market yet.

When it was originally announced we saw a very brief slowdown in CEREC sales, but actually we have seen them spiking in this last quarter.

They're doing quite well.

Derek Leckow, Barrington Research.

I just had a question here on your salesforce expansion activities.

It looks like you're maintaining pretty high rates of internal growth at each of your divisions, and especially AbilityOne; you started with 74 reps there, and you had stated you have a goal of increasing that by doubling that number in the next three years.

Can you comment on your salesforce expansion activities, and is that another reason why we're seeing an increase in operating expenses here in the near-term?

Steve, do you have those numbers in front of you?

Sure.

Derek, we're expanding all three of the salesforces.

You're absolutely correct.

We are pretty much on target with regard to the plan to double AbilityOne's salesforce over the next now year and a half.

Webster continues to add salespeople, obviously, through its acquisitions, as well as internally.

And the dental business continues to add on the pace that we talked about before, where we increased our training classes from four to six.

So we're seeing growth in all three of those and it is right on target.

And you're absolutely correct, that does put pressure on the operating structure in the near-term.

Okay.

You haven't backed away from your guidance on the operating margin expansion of 50 basis points, so I'm assuming that as we get into Q3 and Q4 here, you're going to be seeing some savings from these acquisition integration activities.

And I wonder if you could just help us a little bit by providing some of your -- some additional guidance on where you see that in the next couple of quarters?

As far as the expense structure?

Yes.

Just as far as your operating margin assumptions in your guidance.

I think we are -- you know historically that third and fourth quarter are generally the stronger quarters in the business, and so we get some natural leverage because of the increased sales volume.

Specifically, we've never got into that kind of detail, Derek.

I guess what I would caution you is to review the remarks I made about the gross margin, but at the same time we should see improvement in our operating expense leverage as we get into the third and fourth quarters as well.

Could you provide the numbers on the salesforce in each of your divisions as well?

I'm sorry;

I missed that.

We didn't give you the specifics, but let me give them to you real quick here.

In the dental space, -- hold on a second, I've got to do some quick math.

I've got to add my Canadian guys in here.

In the U.S. dental operations, we have 1410 basically, Webster is up to about 140, and then AbilityOne is standing slightly over 120 right now.

So that's where we saw the biggest increase it looks like, in the AbilityOne division?

Yes.

They've added about 20 people during the quarter.

And then, Steve, just a comment on your cash balance in light of your 6 million share repurchase program.

You guys haven't started that yet, and I wonder if you could comment -- try to calculate what the interest expense might be.

If you can give us your expected debt level at the end of the year and your expected cash balance, and plans to use some of that authorization for share repurchase.

Okay.

That's kind of a double-pronged questions, so let me try to break it into two pieces.

With regard to the debt, as you know, our one-year no-call ends here in about two days, so we could start deploying cash to retire some of the debt.

It is still a very economical source of capital for us, Derek, and I'm not at this point anxious to get rid of it and pay it down.

I could pay a lot of it down, obviously, with the cash we've got.

I'm not anxious to do that because I think this business needs to have some capital coming from the debt market.

But, with that being said, if we cannot deploy this cash balance effectively for the shareholders, then obviously paying down some debt would be one avenue to consume some of it.

With regard to the share repurchase, we have stated previously we're not going to use that to aggressively control anything; we're strictly using it to fund our internal stock needs.

And also, as you know, we were out of the market for almost 18 months last year over the last 18 months because of acquisition activity.

So I've got to explore the potential for some other opportunities to get back in the market there with maybe a 10-B5 plans or something like that.

But we would intend to use some of the cash to acquire some shares over the next 12 months, but nothing aggressive.

Lawrence Marsh, Lehman Brothers.

Jim, great job on the rundown.

Maybe two things.

First of all, the elaboration on the vet margin, I know you had listed some of these issues last quarter and they are continuing.

What do you think is going to be the catalyst to really improving the gross margin, operating margin of that going forward?

Is it really just consolidating and building additional scale?

And there's some of the issues around the recall where you see you lost some of your operating leverage.

Does that say that you want to be that much more aggressive in building that national platform sooner rather than later?

I think we have always said we want to be very aggressive, and as soon as we had the Patterson platform in at Webster you saw us move quite quickly on the veterinary side.

And I think you'll continue to see us be fairly aggressive.

As far as the margin is concerned, some of these businesses that we are acquiring, as Steve said, are lower margin.

The ProVet and the Milburn Distributions were both at lower margins.

And I think particularly at ProVet that there is some pricing opportunity that we have not received yet.

And I think if you look back to my comments and the 700 Imagine systems that have been installed, hopefully many of those have been installed in these ProVet offices.

I don't know the number breakdown between Webster and ProVet, but we see that as an opportunity on the margin side.

Secondly -- and you may have already mentioned this, Jim or Steve -- earlier you had said you expected Medco and ProVet to be 4 to 6 cents, so 2 to 3 cents accretive second half of the year.

And you had not broken that down as to Q3, Q4.

Is that still your expectation, and do we anticipate about half of that coming in Q3 and had coming in Q4?

Steve, you want to take that?

Sure.

I think the answer to that, Larry, is I would guide you that it's probably going to be more skewed towards the fourth quarter than the third quarter.

There will be some of each -- some in each.

But each of those businesses the longer you keep them, and hopefully if we are executing properly the leverage keeps getting better, we're growing the sales and controlling the expense structure.

So I would tend to lean a little bit heavier with -- if you're trying to drop it into any one quarter -- I would look more into the fourth quarter, but there will be some benefit in each of the third and the fourth.

And you had said Milburn would be accretive this year but didn't give a number.

So that's what? (multiple speakers)

It's going to be a fairly small positive accretion, Larry.

So it is probably going to get caught up in the rounding.

Next question is for Steve.

You had mentioned payables picked up a bit, more of a timing issue.

What would you estimate that contributed to cash flow in the quarter, and was there any sale of finance contracts similar to what you sold in the first quarter that helped cash flow?

No.

On the second part of that the answer is no.

We're back to pretty much of a routine on our finance contract sales, so that cash flow is fairly stable.

We were, as you recall, working off an inventory of contracts we'd built up back in late calendar 2003, into 2004.

We have now modified all of our sale agreements so that we are no longer restricted to the 30-day or first payment requirement.

So that has helped, and that pretty much had flushed its way through by the end of the first quarter of this year.

Payables, probably best estimate in the 15 to $20 million range, it probably helped us.

It's a situation -- and not to get into a whole mess of bloody details here -- but that extra week that we're seeing this year kind of flipped our payable calendar a little bit, our disbursement calendar.

And so that extra week of processing is probably going to live with us for a long time now, until we move into -- as our year-end moves back away from the natural month-end, we will then start to see that deteriorate back out again.

But in the meantime on a year-over-year basis, it's going to look like we have processed some additional payables for about a week.

So it wouldn't necessarily flip back in Q3?

Is that what you're saying?

No, it's not going to flip out in Q3.

It's probably something that is already embedded in there and it will continue to be there.

I guess one question the equipment sales in dental continue to be very strong.

You mentioned CEREC.

It sounds like you are saying it continues to enjoy good market expansion.

As you look into '05, I know there is some change in accelerated depreciation for equipment, but I think you said before you really didn't see that as impacting your value proposition that much.

Is that still your view?

And do you still think that equipment sales cab continue to chug along at this kind of pace here in the next year?

We really do, Larry.

We're seeing a very robust market in the equipment business.

The dentist continues to be pressured to become more productive, and that's really the only avenue they have to become more productive today, is to make their shop have the ability to produce more dentistry.

And are the -- is there any -- do you have any particular color of this particular quarter?

I know you talked a little bit about this at your branch managers meeting, but any particular product lines specifically that you would say helped to really drive that?

I think that what we're really starting to see that we have been waiting on for about six months is the real impact of the introduction late last February of the new ADAC 500 equipment.

And I think even though we have seen robust orders at ADAC all along, we're just now starting to see the huge influx of installation and billings going on at Patterson from all the orders that have been (technical difficulty) Spring and Summer for that product line.

So the ADAC really -- you saw it kick in this quarter?

Yes.

But I would have to say it was really across the border on our (indiscernible).

Our basic equipment was very strong this quarter.

Maybe I could jump in here right now.

I know there have been questions in the past on the tax incentives.

And some of you may know, others may not, that as Larry alluded to, there is one provision in the tax code -- Section 168 -- that is due to expire this December, after December of this year.

And that is still targeted to fall back to 30 percent from its current level of 50 percent bonus depreciation.

However, the recent American Job Creations Act extended the Section 179 provisions which had increased about two years ago from $25,000 of deduction in the year of acquisition on capital goods to 100,000, and that has now been extended through calendar 2007 by the American Jobs Creation Act.

So hopefully that will take some of that concern out of the marketplace, if there was any.

Good point, Steve.

Thanks.

(OPERATOR INSTRUCTIONS).

David Veal, Morgan Stanley.

I just had one follow-up question on the gross margin issues in AbilityOne.

You mentioned that that was sort of attributable to a mix shift towards lower-margin equipment.

Is that an ongoing trend?

Is that something we should sort of be worried about in the future?

And what is driving that?

I think we are saying a large increase in redos at rehab centers, in hospitals.

And they buy a lot of treadmills and those sort of things, which are at lower margins.

But I think we've got some actions underway that hopefully will help keep our mix at a fairly constant pace.

I think we kind of got caught off guard with this issue.

So you feel like this is a fairly good run-rate level that we're at now, or should we look for more sort of expansion in the future?

I think that the run-rate where we are now is close to where we like to hold it anyhow.

And I think we have some programs underway that will help us do that.

Suey Wong, Robert Baird.

I had to step away from the call briefly, so if this question has already been asked, I apologize.

Did you see much of an impact from the hurricane weather in the Southeast on your businesses?

No, we have not been asked that question.

We had some impact, obviously.

Florida was virtually shut down for a period of time, and of course it is a strong market for us both in the Webster business and in the Patterson business and the AbilityOne business.

But it has been very difficult for us to quantify it or actually say how much impact it has had on any of those businesses individually.

But we know it had some impact.

Thanks, Jim.

Steve, I have a question about the equipment lines in dental.

In the past you've given out a number, a growth rate number for basic equipment.

Could you do that for this quarter please?

If you can bear with me for a second, I might be able to give it to you.

If I can't, I will have to ask those that are interested in it to call me later.

I've got it right here, I think, Steve.

Basic equipment --

We're up about -- you got it, Jim?

12.9 internal.

A little higher than that.

It's actually 13.

I'm sorry; 15 internal.

15 percent?

Yes.

And 17 -- 16.6 total was in the dental field.

Yes, right.

Steve, did you give out a number for the higher technology equipment?

Typically we have not, Suey.

Let me move over (multiple speakers)

If you can do your math you might be able to back into it now that I gave you two of the components.

You're that good a mathematician, Suey.

Jim, you had mentioned something about pricing pressure;

I couldn't write fast enough.

Which area was that pricing pressure in?

In the vet market.

What was causing that?

I think there's just a lot of activity because we're doing acquisitions, and I think everybody is fighting a bit for market share.

It's the first time, I think, the vet business has been shaken up for a while.

Richard Yett, Monness, Crespi.

Were there any changes in pricing levels that impacted the dental consumer segment?

Price increases?

Is that what you're asking?

Yes.

Nothing significant, no.

And there was no pricing erosion either?

No.

Not in the dental business.

It actually was an improvement.

Jay Lang (ph) with Searchlight capital.

Two questions.

What was the contribution in the quarter from CAESY in terms of revenues?

And two, what percentage of the dental revenues comes from Canada?

I don't believe we want to break out CAESY individually.

We have historically not done that on any of our product lines.

And Steve, do you have the percentage for Canada?

Canada typically as part of the dental business continues to run about 8 to 9 percent.

Could you at least say what the annual run-rate was for CAESY when you guys acquired it?

I think we talked about that before.

I think it was -- we said it was about a $9 million business.

That's correct.

About $9 million when we did the acquisition.

One last question.

This small equipment maker that you acquired during the quarter -- what were the annualized revenues associated with that?

The dealer out in Salt Lake City?

Right.

You know, that's a private transaction, and we typically don't give out that information.

The owner requests that we do not.

As Jim said, it is very nominal.

It would totally get lost in the rounding on a quarter-to-quarter basis.

Let me ask these questions in a different way.

The press release says that substantially all of the dental revenues were internal.

If you exclude CAESY and this acquisition and any other small acquisitions that you've done, what was true internal growth in the dental business, and also excluding currency from Canada?

11 percent.

11 percent?

So just about 80 bits in impact?

You're absolutely right.

(OPERATOR INSTRUCTIONS).

Suey Wong, Robert Baird.

Just one last question.

Did you guys have any special incentives on the equipment in the AbilityOne business this quarter?

For the customer?

Yes.

We had some minor programs, Suey, but nothing I would call real major programs that should have shifted business to the quarter.

Okay.

Are those programs ongoing this quarter?

There are some different ones ongoing this quarter.

It's fair to say we always have a few small programs going on, Suey.

Erik Olsen, MB Investment Partners.

You talked a little bit about the equine market share data.

Could you talk a little bit about share gains or share information in the other areas of this dental, AbilityOne, maybe other Webster?

Steve, do we have those numbers?

I'm sorry; was it Erik?

Yes, Erik.

Erik Olsen.

And you are asking for market share gains?

Kind of -- right, exactly.

Just kind of a sense of just the market, the market dynamics and year-end performance relative to that?

I don't think we've changed our assessment of the market.

I still think we believe that the vet market has probably grown in the 6 to 8 percent range.

That would be a similar range for the rehabilitation business; dental a bit stronger at 7 to 9 because of the robustness of the equipment business today.

Gentlemen, at this time we have no additional questions.

Please continue with any further statements.

Jim, do you want to wrap it up?

Thank you very much.

We appreciate all of you taking your Thanksgiving holiday to share with us.

We're very -- we feel very confident about the last half of this year.

And again, thanks for joining us this morning.

Ladies and gentlemen, at this time we will conclude today's teleconference presentation for Patterson Company Inc.'s second quarter 2005 earnings conference call.

We thank you for participating on the presentation.

At this time we will conclude.

You may now disconnect.