Patterson Companies Inc (PDCO) 2010 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Patterson Company first quarter 2010 earnings call on the 20th of August, 2009.

Throughout today's presentation, all participants will be in a a listen-only mode.

After the presentation, there will be an opportunity to ask questions.

(Operator Instructions) I will now hand the conference over to James W.

Wiltz, President and Chief Executive Officer.

Please go ahead.

Thank you.

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

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

We will be happy to take your questions at the conclusion of our remarks.

Since regulation FD prohibits us from providing investors with any earnings guidance unless we release that information simultaneously, we reiterated our previously issued annual financial guidance for 2010 in our press release earlier this morning.

Our guidance is subject to a number of risks and uncertainties that could cause Patterson's actual results results to vary from our forecast.

These risks and uncertainties are discussed in detail in our annual report on Form 10-K and our other SEC filings.

We urge you to review this material.

Turning now to our first quarter results, we believe that Patterson performed reasonably well amid a very challenging economic environment.

Consolidated sales of $789.6 million were up 6% from $743.9 million in the first quarter of 2009.

The CEREC line of Dental CAD/CAM products performed well during the quarter, as did our Veterinary segment.

Dental, Veterinary and Medical acquisitions transacted over the past 12 months accounted for most of our first quarter sales growth.

The positive impact of acquisitions was partly offset by negative currency adjustments on the revenues of our foreign operations.

We reported earnings of $45.1 million or $0.38 per diluted share compared to $46 million or $0.39 per diluted share in the first quarter of 2009.

In our last conference call, we spoke about a number of cost control measures that would begin implementing during the second half of fiscal 2009.

We took an additional step in this year's first quarter by enacting Company-wide salary reductions.

As a result of these measures, we have streamlined our overall cost structure and slowed our expense growth, which benefited from first quarter earnings.

Total operating expenses were up modestly in the first quarter, primarily due to acquisition related cost.

But we expect to more fully leverage the expenses of our acquisitions going forward.

Turning now to a brief review of our business unit performances, sales of Patterson Dental, our largest business, declined 2% in the first quarter, to $511 million.

Within Patterson Dental, internal sales of consumable Dental supplies and printed office products were down 1% from last year's first quarter, or 2% after the impact of foreign currency adjustments net of acquisitions.

We feel that consumable sales held up relatively well during this period, although many patients continued to defer high level and discretionary services for economy-related reasons.

Later in this call, Steve will discuss two additional items that negatively affected the year-over-year comparability of our consumable supply business.

The impact of the recession was particularly evident on sales of such basic dental equipment as chairs units and lights, which declined 16% from the year earlier period.

However, dental practitioners continued investing in new technology equipment at higher levels.

Sales of CEREC dental restorative systems rose 84% while sales of digital x-ray systems and related software gained 16%.

As we have said previously, we believe the recession is causing many dentists to limit their investments to equipment with rapid rates of return.

New technology products including CEREC and digital x-ray systems meet this return on investment requirement.

We believe the strong increase in first quarter CEREC sales also signals the growing market acceptance of CEREC's advanced CAD/CAM technology.

This trend, which has gained momentum over the past two years, has been driven by new product introductions that have further strengthened CEREC's industry-leading position as well as our more focused sales effort.

We believe this combination of factors has the potential to continue generating solid levels of CEREC sales.

We also are encouraged by the strong first quarter of digital radiography systems and related software.

Last year we implemented several changes to Patterson Dental's operating model to among other things strengthen our sales of digital products.

We believe these changes have started working as planned.

In addition, I would like to mention that sales of Dolphin's 3D imaging and practice management software are meeting our forecasted levels which represents another positive for our focus on new technology products.

Sales of Webster Veterinary increased 37% in the first quarter of 2010, to $169.2 million due primarily to the Columbus Serum acquisition.

Excluding the impact of Columbus Serum, Veterinary sales were up 8%, reflecting higher volumes of veterinary care for companion pets following several quarters of reduced patient activity.

However, many veterinary practices are continuing to defer equipment purchases in view of the weak economy.

The integration of Columbus Serum, a a large and well-established value-added distributor, serving the mid-atlantic and midwestern markets, is proceeding on schedule.

However, this significant acquisition could continue to negatively affect the operating margins of our Veterinary unit for several more quarters.

.

Sales of Patterson Medical, our rehabilitation unit increased 9% in the first quarter to $109.4 million, reflecting the positive impact of the April 2009 acquisition of Mobilis Healthcare Group in the UK and to a lesser extent, the June purchase of the Empi Therapy Supply unit of DJO Incorporated here in the US.

While currency adjustments continue to negatively affect Patterson Medical's reported revenues during the quarter, the impact was less severe than during the second half of 2009.

During the quarter, sales of rehabilitation equipment to acute care hospitals and clinics remained sluggish as the economy and uncertainty surrounding the healthcare reform debate tended to stall customer purchasing decisions.

The assimilation of the Mobilis acquisition which has substantially increased Patterson Medical presence in the UK rehabilitation market is proceeding on schedule.

The MP therapy supply operation is scheduled to be fully integrated by the end of this year's second quarter.

The operating margin of Patterson Medical is expected to improve during the second half of this year, as these acquired operations are more fully absorbed.

Turning now to the earnings forecast, contained in this morning's release, we are reiterating our previously reported full year guidance of $1.70 to $1.80 per diluted share for 2010.

Looking further down the road we remain optimistic about Patterson's future.

Our three businesses, each of which holds the number one or number two position in its served market, are aggressively marketing their products.

The long-term fundamentals of the Dental, Veterinary and rehabilitation market remains strong.

And we are continuing to generate substantial operating cash flows which are providing us with ample resources for supporting our various growth initiatives.

Given these factors, we are confident that Patterson is moving in the right direction.

Thank you.

Now, Steve Armstrong will review some highlights from our first quarter results.

Thank you, Jim.

On a consolidated basis, acquisitions accounted for just over seven percentage points of our revenue growth for the quarter.

While currency exchange had a negative effect of approximately 1.5 percentage points.

As Jim mentioned, as we discussed during our last conference call, there are two developments within the Dental segment that are negatively impacting the year-over-year comparability of revenues.

The first of these factors was a decision by a major consumer products company to take its professional toothbrush line direct as opposed to through distribution.

This change effective in January reduced our consumable revenue growth by almost two percentage points in the first fiscal quarter.

We expect this effect to diminish as we replace this lost volume with alternative products.

The second item affecting year-over-year comparability results from the adoption of the new Patterson Dental advantages loyalty program in January.

This program allows customers to accumulate points that they can use against future purchases.

We defer a portion of current revenues to account for the credits earned.

Consumable revenues were reduced by about 1% for the first quarter due to this change.

However, we are very pleased with the overall impact of the advantages program on our Dental business.

Our consolidated gross margin declined by 100 basis points from the prior year as a result of revenue mix.

This situation is a result of the relative growth of the Veterinary segment, which generates inherently lower gross margins than our other businesses, due to its pharmaceutical product lines.

The gross margins of the Dental and Medical segments were essentially unchanged for the quarter.

We garnered some operating leverage in the quarter due to expense control measures we have taken.

But the improvement was muted due to expenses related to the integration of the Columbus Serum, Mobilis, Dolphin and Empi Therapy supply operations into our system.

This was particularly evident in the Medical segment where the increase in operating expenses stemming largely from the Mobilis acquisition temporarily caused a 180 basis point decline in the operating margin.

We expect that the expense impact of these acquisitions will dissipate as we move deeper into the fiscal year.

By segment, our first quarter operating margins were 11.0% for Dental, 12.1% for Medical, and 4.4% for Veterinary.

Our balance sheet showed that our inventory levels increased by approximately $30 million at the end of this year's first quarter, compared to the year end balance at April 25th.

This temporary expansion results from the normal seasonal increases in our warehouse inventories to improve service levels along with some impact from the acquisitions we made during the year.

Our DSOs stand at 44 days, compared to 43 days in the prior year, while inventory turns are at 7.0 compared to 6.7 a year ago.

The DSO of 44 days at the end of the current quarter excludes approximately $95 million of finance contracts that were generated during a CEREC promotion in the second half of fiscal 2009.

These contracts will be sold to our regular funding sources during the second half of this year.

We generated cash flow from operations of approximately $47 million in the first quarter, compared to $33 million in the year earlier period.

Capital expenditures in the quarter reflect the expansion cost of the Jacksonville distribution center which will be completed in the second quarter.

At that time, Jacksonville will become the third distribution center within our system capable of handling product for each of our three operating divisions.

For the year, we still estimate capital expenditures will total approximately $25 million.

With that, I'll turn it over to the conference operator and poll you for your questions.

Thank you very much, sir.

(Operator Instructions) The first question is from Glen Santangelo from Credit Suisse.

Please go ahead with your question.

Thanks for taking my questions.

Hey, guys, revenues were clearly a little bit stronger than what we had been looking for, obviously led by CEREC and digital x-ray, and I'm trying to get a sense for on the CEREC side, maybe how much of that was kind of pent-up demand from the trade-in program, maybe versus what might be sustainable growth?

Any kind of clarity you could provide there on maybe how much the trade-in program helped you?

Well, there's no question, Glen, that it did help the sales.

I don't have the numbers in front of me of what percentage of it was trade-in and how much was new market.

I think one thing all of you need be aware of going forward, that trade-ins and replacement machines and so forth are a commonplace in that product nowadays.

With the number of installs we've got dating clear back to the original CEREC-2s, there's always going to be some activity in trade-ups with current users.

I do not have the number of --

Because Jim, what else I'm trying to do is basically on Sirona's conference call they suggested a very weak US equipment market and hence they had less shipments to the US market and yet you guys are obviously reporting pretty strong sales in the US market this quarter.

How do I reconcile those two statements versus what they're saying and you're saying?

Does it all come out of your inventory?

Where do your inventory levels stand?

Any comments there?

Our inventory levels are definitely down, Glen.

Obviously that's going to have some impact on Sirona.

I did not listen to their call.

But the sales continue to be quite robust for both new users and for trade-ups to the new blue cam.

Then my last question.

Seems like you have some pretty decent revenue momentum, yet you're just maintaining the guidance.

Any sort of preliminary comments on July?

Did we continue to see more of that momentum in July or was it a little worse than you thought?

We'll talk about that at the end of the next quarter, Glen.

I didn't see things much differently in July than we did in the first quarter.

Okay.

All right.

Thanks for the comments.

Thank you.

And the next question is from Lisa Gill from JPMorgan.

Please go ahead.

Thanks very much and good morning.

Just a couple of quick questions.

First, when we think about the equipment sales and I know you just talked about replacements, but how much of this do you think, Jim, has to do with the tax incentives that are currently in place?

With the CEREC?

Exactly, with CEREC and digital x-ray.

I mean, they're larger ticket items and clearly the tax incentives are still in place until the end of the year.

No, there's a trade-in opportunity, but there's no cash incentive on CEREC.

Tax incentive.

Oh, tax incentive.

I'm sorry, Lisa.

I don't think that's having any impact yet.

Typically, that doesn't really hit us until October, November, December when the dentist realizes that they need to spend some money.

And so do you think that you'll see a pick-up as we get into October, November and December, given that the expectation is that this will finally go away at the end of this year?

Answer is I don't know, Lisa, but we had a pretty strong third quarter last year, so the comparables are not going to be easy.

So I don't have any great hopes that we'll have a big increase in the third quarter in the core equipment business.

I think we'll continue to see CEREC and digital do well, however.

And then just secondly, Steve, could you just remind us, uses of cash flow?

You produced some nice cash flow and I think your expectations are pretty good for this year.

What are the top three things use your cash for this year?

The top three things would be investment in the current businesses that we have, and number two would be to return it to the shareholders if we can't deploy it within the business and number three we haven't decided on yet.

Okay.

And on number two, returning to shareholders, can you remind us of where you currently are on your share buyback program?

We have 6 million -- a little under 6 million shares available under the authorization.

We have discussed the possibility of starting a modest dividend program as well.

There is nothing concrete there.

That's a decision for the Board but it has been discussed a number of times as well.

So there's two ways of getting the money back to the shareholders, Lisa.

Okay.

Great.

Thank you.

Thank you.

And the next question is from John Kreger from William Blair.

Please go ahead with your question.

Thanks very much.

Could you just give us an update on your promotion activities within the Dental business?

Are you focusing that primarily on CAD/CAM and digital x-ray and should we expect that to continue into the next quarter or do those promotions pretty much wind down in July?

The only promotion that we've had on CEREC since the end of last year has been the trade-in program, John.

And is that over, Jim?

No, they --

Ran through July.

Yeah, through the end of July.

They had until the end of July for the trade-up program.

We have not installed all those, however, so you're still going to see some impact on our numbers through the next couple of months.

Okay.

Great.

John?

Yes.

If I could jump in here.

Remember, we always do a year-end equipment promotion.

That will start slightly after Labor Day.

So there will be no difference there.

Okay.

Thanks.

A follow-up question, you said the momentum has improved in CAD/CAM over the last couple of years.

What's your current thinking about a normalized level of growth for that category?

Well, I think that we're thinking in terms of about the mid-teens ongoing growth, to maybe as high as 20% annually, John.

There's still about 50,000 offices potential for the systems that we don't have any in so it's still a big untapped market.

Great, okay and final question.

Can you just give us your updated views on the Dental environment?

Have your views changed at all over the last three months?

And have the competitive dynamics changed at all in terms of pricing in certain categories?

We have not really seen much pricing, John.

There's been some around the country sporadically, but nobody that's just jumped at that approach.

We think that the market -- it still looks similar to us, John.

We think that market is slightly down and we can't see anything that would tell us any differently at this point.

Great.

Thanks very much.

Thank you.

The next question is from Derek Leckow from Barrington Research.

Please go ahead with your question.

Thank you.

Good morning, gentlemen.

Good morning, Derek.

So I'm looking at this pretty wide divergence in activity in the two equipment categories.

The very strong digital for the last couple quarters and still very soft basic equipment, that's been going on for -- I would say it started about six quarters ago.

Can you give us any comments about your backlog?

Are you seeing any activity level in terms of real estate transactions out there?

Any feedback from your sales force you could share with us on that?

Well, one thing I think that we do see a little more activity on projects that are taking place but again, we don't have a good system, Derek, for gathering that information.

We don't think that core equipment was soft back six quarters ago.

We had a pretty good calendar year end quarter last year in 2009 in core equipment.

We were actually up, the rest of the market was down pretty dramatically but we were up in the calendar fourth quarter of 2009 or 2008, I'm sorry.

Yes, I was talking about the downturn across the industry related to the recession and so forth.

And on the sales force, I know you had some incentives for the sales force in terms of some of the digital products.

Is it fair to assume that you'll again see some of the sales incentives back to the basic equipment as well?

Or do you think the sales force is more focused on selling the digital products right now?

No, I don't think they're more focused on it.

I think the customers are more willing to buy the digital and the high tech products that produced a medium return for them versus their idea of how a chair is going to return, give them a return.

Okay.

I don't think it has anything to do with the focus of our salespeople.

Is the sales force growing?

I mean, are you guys adding salespeople?

We are, but the growth has been slight.

Steve I think maybe has that number.

Actually on a quarter-over-quarter basis, we're down about 50 salespeople from a year ago on the Dental side of the business.

But we -- since the end of the third quarter of fiscal '09, we have been adding salespeople, so it's up about 20 heads during that time period.

So on a sequential basis you're up?

Correct.

Yes.

Okay.

All right.

Let me stop there.

Thanks a lot.

Okay.

Thank you, Derek.

Thank you.

(Operator Instructions) And the next question is from Lawrence Marsh from Barclays Capital.

Please go ahead with your question.

I like Lawrence.

Lawrence.

That's my new name now at Barclays.

Anyway, just wanted to touch base, a couple things.

Steve and Jim, I know you talked a little about the CEREC you blue cam trade-in program, but just qualitatively, were Brian and his team pleased with how the program went?

Did it exceed their expectations?

Did it meet it?

Or was there any other big surprises that you heard from them?

I think it exceeded everybody's expectations, Larry.

Okay.

Or Lawrence, excuse me.

(LAUGHTER).

I think the message then is we should expect these kinds of trade-in programs to be a more regular part of that business as the replacement market becomes more important to you.

Is that right?

Well, yes.

I think the point I was trying to make earlier is that with the number of machines that we have out there now, there's always going to be some process of where some current owners are going to be buying new machines because some of them had their old machines for 10 years.

Right.

But I mean, I guess typically you would spur that process through some sort of program like the one you had --

We have.

Every time that there's been a model change or some dramatic change, we have offered some trade-up programs and everybody doesn't buy it initially, so it's -- the incentive goes away, though, fairly quickly from our part.

But they continue to trade up as time goes on.

Got it.

Okay.

Secondly, on the Medical business, good to see the topline.

I'm sure David was pleased.

It seems like if you look at the numbers, maybe Mobilis added, what, $7 million or $8 million in the quarter.

Is that right?

Number one.

Secondly, how big is Empi?

How do we thing of that in terms of size and what contribution did that have in the quarter?

Maybe just a little clarity on the Medical numbers.

I think we maybe didn't give you enough information to help you there, but the 9 percentage points of growth, the internal growth rate if you just look at same store, what we had a year ago at this time, was essentially flat for the quarter.

Okay.

So acquisitions added about 12.5 points and then the currency took away about 3.5 points.

So that was about 50% of what the impact of currency was in the fourth quarter.

And if you look at the business, they were actually up 3 percentage points in their sundries business, so 80% of their volume was up 3%.

They were down in equipment category which is what Jim commented on in his presentation.

All right.

Okay.

But just in terms of sizing Empi, do you have any ballpark?

You've got it about right.

It was about $12.5 million of total contribution and Mobilis accounted for about 75%, 80% of that.

Okay.

In this quarter.

In this quarter.

They're comparable sized businesses, Larry, if we retain all of the revenue from the two businesses.

I got it okay.

And then is the $28 million of -- in the cash flow statement for acquisitions, is that a fair proxy for total consideration for both of those businesses?

No, because Mobilis was actually purchased in April of 2009.

Okay.

What you're seeing in there is a combination of the Empi Therapy Supply business, plus two other smaller operations.

Right.

Okay.

Smaller operations also in Medical?

One was in Dental and then the other was in Medical.

Okay.

But much smaller?

Yes.

Okay.

Couple other things, quickly.

The toothbrush impact, last quarter you had sized it about 1% of consumables, this quarter you're saying 2%.

That's a couple of million dollars.

Is that seasonal or is it really just somewhere in the middle in terms of size per quarter?

I don't really think it's seasonal.

I think it's going to be a changing target as we try to roll that business over to other suppliers.

So it's a little hard for us to predict, but we're starting to get some good traction with the replacement brush contracts we're putting out there.

The comparability issue Larry will be totally gone by the end of the calendar year because that program started in January.

But it is volatile from quarter-to-quarter as far as how much volume is going through that program and has gone through that program but not from a seasonal perspective, though.

Okay.

Just on the Vet side, just remind us, is Merck sale of it's 50% stake in Meriel to Sanofi, do you thing it will change the way the business is run through the distribution channel or do you think of it as a nonevent?

We hope that it has some hope of changing.

But they, if you read closely, what they propose to do when Sanofi bought the other 50% and then they said after they get the deal done, they're going to go back and do another 50/50 joint venture.

I can't imagine that the government's going to stand still for that but that's what they said in their statement.

But in terms of how you think about it possibly impacting your business, positively, negatively, Jim.

Depends how those pieces end up.

It can only be positive because we don't do business--

We don't do business with Merial.

That's right.

They switched it to (inaudible) a couple years ago.

Great.

Then finally, the -- you mentioned some takedown in comp starting this quarter.

How do we think of the size impact of that in terms of SG&A and is that going to be a more noticeable impact as we think about the rest of this fiscal year?

Well, it didn't take effect until June 1st so we only had two months in this first quarter impact.

And it will have a full impact of the remaining quarters.

Larry, maybe I can give you -- I'll give you some qualitative perspective on that.

Yes.

I think at the end of the second quarter last year, we told you we were looking to try to remove about $25 million of operating cost from the system.

Yes.

If we had had not had the acquisitions in this period, I think you would have seen a portion, that pro rata portion in this quarter.

Okay.

Got it.

So that you're on track in terms of overall including what you just announced in June?

Yes.

Correct.

And then finally, just a follow-up with the cash flow.

Normally I think of your cash flow from ops kind of mirroring net income but this year you'll see that 90 plus million of benefit sometime second half of the year.

Is that still the right way to think of that?

Yes.

It will start predominantly -- we'll see a little bit of it in the second quarter, Larry but most of it will come in the third and the fourth.

So it will be a normal plus 90 or so for fiscal '10?

Correct unless they take and refinance the money somewhere else which is always their option to do.

Very good.

Thanks.

Thank you.

The next question is from Robert Willoughby from Bank of America/Merrill Lynch.

Please go ahead.

Thanks.

Jim or Steve, can you comment on the Vet, the Columbus Serum acquisition, you indicated it's going to be a bit of a drag on profitability for a while longer, which is somewhat surprising.

I mean, what are the barriers to moving those margins up quicker?

What's left to be done from a consolidation standpoint?

Well, we have two pieces that we have to continue dealing with.

They were a distributor for Hills dog food and they were doing that on a -- they were doing the delivery themselves for the product at a relatively low margin compared to their other margins.

And the second piece we have is a piece called High Plains which is a mixture of production animal and small animal, primarily in the Dakotas, and Nebraska and that general area.

And we found that we can't just totally shut that production site down because too many of those veterinarians are mixed practices.

So it's going to take a while for us to work our way through that, Bob.

And the other big piece, Bob, is we have not -- mostly for regulatory, a little bit for systems issues, we haven't been able to shut down their primary distribution center yet.

Or consolidate it in any way and that really necessitates keeping their systems alive so we can't get some of the synergy out of the transaction at this point.

But that does happen somewhere down the line?

Yes, later this year.

Okay.

And I don't know, I'm sure you guys saw, VCA Antech bought a larger imaging technology company here.

What's your advantage relative to them selling imaging equipment into the vet sector?

Is there one?

Or are you at some disadvantage?

I'm sorry, I didn't hear the first part of your question.

Who was it that started?

VCA Antech has doubled down in that business.

Well, I don't know.

First of all, we've got much a broader product offering and we will see where they go with that.

I'm not sure how willing competing veterinary offices are going to be to purchase some of their equipment from their competitor.

But we'll see how they do with it.

Okay.

I don't think we have a big concern at this point.

We don't do a lot of business with VCA Antech today.

No, we don't.

I'm just wondering from the vet's perspective, and maybe Jim's addressed it, what's my incentive to buy from you over them?

I guess there is the competitive angle but do they bring any other advantage in terms of selling equipment that would come at your expense?

None that I know of.

They don't have the ability to take care of it.

We do.

Plus, we sell all the supporting software that goes along with it.

Okay.

And have there been any deals since the close of the quarter?

Any acquisitions?

We closed a very, very small one yesterday, in complete candor.

Complete candor.

Is that a new business line or is that -- ?

Key word interest is very, very small.

What business?

What division?

Medical.

Very strong distributor up in New England.

New England area.

Thank you.

(Operator Instructions) Thank you.

We have a question from Jeff Johnson from Robert Baird.

Please go ahead.

Thank you.

Good morning, guys.

Good morning, Jeff.

Good morning, Jeff.

A couple things here.

Jim, could I just go back and maybe get some clarification around your comments on CEREC inventory?

As I heard Sirona on their call talk about it, it wasn't so much that end user demand was slow which I think you guys were showing was not the case but you guys had good inventory levels that they were able to divert some inventory to their European markets.

Could you talk at all about your CEREC inventory levels, where they stood throughout the quarter?

Maybe where they are at the end of the quarter and whether or not you think there's probably some need with stronger end user demand to fill that inventory back up?

Steve's going through this file.

I don't know if we have the numbers in front of us or not.

One thing to keep in mind, all the sales that we're making of blue cam, acquisitions with the new camera, those are going out as soon as they come in.

So we have not been building any inventory in blue cams.

We haven't been able to.

Okay.

That's helpful.

And Steve, any color you can put around it?

Our inventory levels at the end of July compared to April were relatively flat.

They might have been up slightly.

But what's going on there is we're -- we obviously have to reequip part of our training facilities so we've got some duplicate in the training area right now.

But as far as saleable stock, it's almost dead flat.

Almost flat.

And gaining throughout the quarter.

That closed in July.

You're giving me that number in July versus when Sirona closed their quarter in June; correct?

That's correct but it stayed relatively flat throughout the quarter, Jeff.

It didn't yin and yang around.

That's fair.

And, Steve, just on the small dental deal you did recently in the last month or so over in Hawaii, any way you can break out the contribution we should be layering into our model and both the consumables and the equipment side there?

I would tell you that that was between -- it was around a $15 million business annualized and that's about as much clarity as I can give you right now.

I don't want to commit to anything because it is a -- it was a more complicated transaction, but I would expect that that will be between a $15 million and $20 million contribution annualized, ultimately.

We're taking a lot of product into that system in addition to what they already had, so we'll replace some of what they had.

We're changing manufacturers.

They will pick up the Adek line.

They'll have Sirona, [Mecca] lines that they didn't have before from an equipment perspective.

So it's very I think to look at history, Jeff, it's not all that indicative of what will happen or could happen but we are very impressed by the group over there and would expect them to make a nice contribution going down the road.

Yes.

Fair enough.

Can you remind us just when that closed?

So when we start layering that into the model.

Yes.

It actually closed late July.

July.

Okay.

Helpful.

Thank you.

And then Jim, back a few months ago when the news on the salary reductions came out and what have you, I think that was April, May, when the news broke on that, you had talked about being committed to a flat operating margin for the year.

Is that still how you're thinking about it in light of the Columbus Serum or how should we be thinking about your operating margin expectations for fiscal 2010?

As far as we're still shooting for a flat operating margin at 11 to 11.2.

That's helpful.

As I look at that and then add in a couple of these-- the Empi deal, the hawaiian deal on Dental side and look at some of the bounceback we've seen in the vet, organic and that, it is hard not to get to the upper end if not exceeding the upper end of your guidance for the year from an EPS standpoint.

So I'm just trying to reconcile should I be taking a more conservative look on the revenue side?

Am I missing something there?

Or is there something else going on here that would not point us to the upper end, if not even higher than that, to your guidance?

I would just make one comment to you.

When we were making those forecasts, we were already folding in the Mobilis and the Empi business into Medical.

Yes.

No, fair enough.

We assumed those volumes helping us get to our flat margin.

I'm sorry, Jim, could you say that one more time?

We were assuming the volume of those two acquisitions of Empi and Mobilis to be able to get to us the flat operating margin.

Understood.

I guess I'm just trying to reconcile with flat operating margin even at flat for the year, the upper 170s if not low 180s seems doable.

We're only 90 days into the year, Jeff.

Come on.

We're in a tough economy.

All right.

Well, fair enough.

I just wanted to get some color.

I appreciate it, thanks.

Spreadsheets work better than actuality though sometimes.

I come to realize.

I agree.

Thank you.

There are no further questions at this time.

Would you like to continue, sir?

We have no further questions.

We would like to thank everybody for joining us for our first quarter conference call and we look forward to reconvening with you on our second quarter conference call.

Thank you very much.

And this concludes the Patterson Company's first quarter 2010 earnings call.

Thank you for participating and you may now disconnect.