Patterson Companies Inc (PDCO) 2010 Q3 法說會逐字稿

Welcome to the Patterson Companies third quarter fiscal 2010 earnings conference call.

During today's presentation all participant lines are muted.

Following the presentation the conference will be open for questions.

(Operator Instructions)

I would now like to turn the conference over to our host, Mr.

James W.

Wiltz, President and Chief Executive Officer.

Please go ahead, sir.

Thank you.

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

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

Also with us is Scott Anderson, President of Patterson Dental Supply, and my successor to the CEO role at the end of the fiscal year.

At the conclusion of our formal remarks, Steve, Scott and I will be pleased to take your questions.

Since Regulation FD prohibits us from providing investors with any earnings guidance unless we release that information simultaneously, we provided financial guidance for full-year 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 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 and we urge you to review this material.

Turning now to our third quarter results, Patterson performed generally in line with our expectations during this period.

Consolidated sales rose 1% to $820.1 million.

Third quarter earnings of $56 million or $0.47 per diluted share were up 6% from $52.8 million or $0.45 per diluted share in the third quarter of 2009.

Over the past year, we have instituted a range of expense control measures in response to the economic downturn that has streamlined our cost structure and slowed our expense growth.

These actions have benefited our third quarter earnings.

Turning now to a brief review of our business unit performances, sales of Patterson Dental, our largest business, declined 2% to $572.1 million in the third quarter.

Within Patterson Dental, sales of Consumable Dental Supplies and Printed Office Products rose 2% from last year's third quarter.

We are encouraged that the internally generated sales of Consumables, excluding foreign currency adjustments and acquisitions, were up slightly, making the first cuts of Consumables growth since the fall of 2008 when the economy started to deteriorate sharply.

All in all, we feel that our Consumable business has held up relatively well during the first nine months of 2010, but many patients have elected to defer high-end and cosmetic procedures for economic related reasons.

Sales of Dental Equipment and Software declined 10% from the year earlier level, which was consistent with our internal forecast for this period.

We believe the purchasing decisions of dental practitioners for new equipment are continuing to be affected by the weak economy.

Sales of Dental Equipment also faced a difficult comparison with the third quarter of fiscal 2009 when we significantly outperformed the overall Dental Equipment market.

As we have reported since then, the Basic Equipment market has been soft.

Although sales of CEREC Dental Restorative Systems were down modestly in the third quarter, sales were up on a sequential quarterly basis.

This was encouraging since new CEREC systems accounted for a substantial portion of our third quarter sales as compared to the first half of the year when trade ups to the new Bluecam AC Imaging Unit represented the majority of the activity.

We believe the unequal performance of CEREC has made it the most viable choice for dentists purchasing next generation CAD/CAM equipment.

Sales of Webster Veterinary increased 5% in the third quarter of 2010 to $151.8 million.

Webster's third quarter results reflected the fact that the winter months marked the seasonally softest period of the year for Webster due to reduced demand for flea, tick and heartworm medications.

Moreover, sales of Veterinary Equipment remains sluggish as many veterinary practices remain cautious about purchasing equipment.

The integration of Columbus [Cirrus] Company, a large value-added distributor serving the mid-Atlantic and mid-Western markets that was acquired in 2008 should be largely complete by the end of our year.

This will allow us to remove additional costs from the combined operation.

The performance of Patterson Medical, our Rehabilitation Supply and Equipment unit also met our expectations in the third quarter.

Sales rose 18% to $96.2 million with the acquisitions of Mobilis Healthcare Group in April of 2009 and Empi Therapy Solutions in June 2009, accounting for most of this increase.

The integration of these businesses is proceeding on schedule and we are pleased with their contributions to our third quarter performance.

Patterson Medical continued to increase it's share of the global rehabilitation market in the third quarter.

We also believe that the overall rehabilitation market continued firming during this period.

All in all, we believe Patterson Medical's prospects are encouraging.

With only one more quarter left in 2010, we refined our full-year earnings guidance in this morning's release to $1.74 to $1.78 per diluted share from the previous reported $1.70 to $1.80 per share.

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

Our three businesses are aggressively marketing their products.

We are generating substantial operating cash flows providing us with ample resources for supporting our various growth initiatives.

And now Scott Anderson will provide some perspective on the Dental, Veterinary and Rehabilitation markets as we move into the next fiscal year.

Thank you.

Scott?

Thank you, Jim.

As I transition into my new responsibilities, I want to take a few minutes this morning to present my perspective on Patterson's future and our priorities for continuing to build on it's success.

My style will be different than Jim's, that's natural, but my core philosophies for leading and managing this business are very much in alignment with Jim and Pete Frechette, our Chairman.

We will continue to take care of our customers, create opportunities for our employees and build on our strong history of profitable operations to create value for our shareholders.

We are in three very strong markets today and in time, with the right opportunities, we could enter additional specialty markets, but that is not a high priority in the near term.

Our strategy for serving our markets will remain the same and is comprised of five key elements, being a value-added, single-source for supply of goods and services, building strong relationships with our customers through a knowledgeable dedicated sales and technical service force, bringing new, innovative products to the practitioner that allow them to treat more patients with improved outcomes, investing in systems and services and provide solutions to the practitioner's business needs and operating with a decentralized organizational structure, placing decision making close to the customer and providing local autonomy and accountability.

We believe that the Dentist, Veterinarian and Therapist entering their profession today and in the future will be embracing technology in an ever increasing pace.

To serve them and our existing customers, we have committed to a new 100,000 square foot state-of-the-art technology center that will replace our current facility, allowing our over 300 staff to continue to provide industry leading products, services and support to customers and vendors.

Turning now to some key priorities as I move into the leadership role of Patterson.

We are in difficult economic times and each of our business units is feeling the effect to some degree.

But, as the economy begins to recover, our first priority is to reestablish our historical industry leading operating performance.

Over the past several years, we have made numerous strategic investments in the Company, both internally in people, systems and programs and externally in acquisitions.

In various ways, these investments have dampened our operating performance.

We now need to sharpen our execution focus and deliver return on these investments.

Another priority will be creating better and more effective programs to train our people to meet the demands of our ever evolving customer needs.

Our legacy is one of leadership and innovation in our markets and we will continue to build on that history.

This will include finding new products and services to bring to our customers and building new systems that create competitive advantage for our customers and our people.

We are currently in our planning process, developing our operating strategies and programs for fiscal 2011, so we are not prepared to provide any specific guidance for this period, but it may be helpful to discuss briefly how we see our market shaping up.

In the dental area, we saw signs of stabilization in our Consumable business in the third quarter when we posted our first positive internally generated sales growth in five quarters.

We see this trend continuing in fiscal 2011.

Although progress with our Consumable business will likely be gradual, as we continue to contend with high unemployment and soft consumer confidence.

The market growth for Consumables could be in the low single digits for this period.

In the area of Dental Equipment, many dental practitioners postponed major office remodeling and expansion projects as a result of the weak economy.

We believe that once dentists regain sufficient confidence in the economy, they will push forward with their plans and resume purchasing new equipment.

If the overall economy sees modest growth in calendar 2010, we believe it is quite possible to see the Dental Equipment market grow mid to high single digits in our fiscal 2011.

The Companion Pet Veterinary market is probably growing in the range of 2% to 4% driven by steadily growing pet ownership and the fact that households tend to treat their pets as integral parts of their family.

We would see a continuation of this trend for fiscal 2011.

A major focus for our Veterinary unit for the next fiscal year will be building on the equipment and software business.

The demands by the pet owner for more extensive services from the veterinarian will require capital investment by practitioners to meet these demands.

We see this as a terrific opportunity for this portion of our business.

Patterson Medical's experience with the recession has been somewhat mixed as well.

It's Consumable Supply business has held up reasonably well, while Equipment sales have been soft.

Patterson Medical is strongly positioned to gain share from smaller competitors and continue making strategic acquisitions.

Additional geographic expansion is planned, primarily through a green field approach, a portion of which will be accomplished in a highly cost effective manner by using space in our dental branches.

Patterson Medical's growth also will be driven by continued expansion of it's sales force.

We believe the Rehabilitation and Therapy market could see growth in the low single digits in our next fiscal year and, of course, this is couched by whatever might come out of Washington in the way of healthcare legislation.

Taken as a whole, we believe that all of our markets should gradually strengthen during the coming year, barring the possibility of further negative macro economic pressure.

Let me conclude my comments by saying that it is an honor to be named as Jim Wiltz's successor.

Jim, having served in numerous management posts during his more than 40 years with Patterson merits our sincere thanks for his many contributions to Patterson's success.

He also leaves large shoes to be filled and I am pleased that we have an extremely deep, talented and capable management team to help lead Patterson into the years just ahead.

Thank you.

Now, Steve will provide additional details on Patterson's third quarter financial performance.

Thank you, Scott.

Let me begin with a couple of comments on our sales performance.

On a consolidated basis, acquisitions accounted for 2 percentage points of our revenue growth for the quarter, while currency exchange had a 1 point positive impact.

Each of our operating units produced positive growth in sales in Consumable supplies, but as Jim noted, capital goods remain soft.

Our decline in Equipment revenues was exacerbated this period from our relative strength in last year's third quarter, particularly in the Dental segment where we outperformed the market by 10 percentage points to 15 percentage points.

While the Equipment market remains difficult and we are not immune to the economic conditions affecting it, we believe this market has stabilized.

In addition, going forward the year-end -- the year-over-year comparisons become a bit easier.

Our consolidated gross margin in the third quarter improved by 50 basis points from the prior year's quarter, primarily as a result of product mix.

Both the Dental and Veterinary segments saw their product margins expand in the quarter.

While the Medical segment experienced some erosion in it's gross margin, we expect this effect to dissipate as acquisitions completed earlier this year are more fully integrated.

Because the Medical segment has the highest gross margin of our three segments and likely faster revenue growth until these acquisitions anniversary into our results, there will be a positive impact on our consolidated gross margins from this mix effect through the fourth quarter and into the first quarter of fiscal 2011.

Our operating expense leverage declined 30 basis points in the quarter, due to the expenses related to the integration of the Columbus Serum, Mobilis, Dolphin and Empi therapy operations into our system, including the intangible amortization arising from the purchase accounting process.

Again, we are expecting improvement in our expense leverage in the fourth quarter of the year.

By segment, our third quarter operating margins were 13.1% for Dental, 13.4% for Medical, and 3.9% for Veterinary.

As we reported last quarter, we are now estimating an effective tax rate for the year of 37.8%.

We have seen our effective state income tax rate increase this year, at the same time that we have realized less benefit from our tax reinvestment income.

For the current quarter, we had favorable discreet tax items that lowered the tax rate slightly and we anticipate a similar rate for the fourth quarter.

Our balance sheet shows our inventory levels are relatively consistent with this year's second quarter level.

The increase of $32 million from the prior year balance results from the normal seasonal increases in our warehouse inventories to improve service levels along with some impact from the acquisitions we made.

As we have historically done, we expect to work these inventories down before our year-end to minimize the impact of our LIPO valuation method.

Our DSO stands at 42 days compared to 42 days in the prior year, while inventory turns are at 7.2 days compared to 6.7 days a year ago.

The DSO excludes the impact of the finance contracts that have been generated during our CEREC promotions over the past year or so.

These contracts will continue to be sold to our regular funding sources in the fourth quarter of this year and the first quarter of fiscal 2011.

We generated cash flow from operations of approximately $98 million in the third quarter, compared to $15 million in the year earlier period.

For the nine months, our cash flow from operations was $153 million compared to $72 million for the same period last year.

Most of the change in operating cash flow for both the current and year-to-date periods resulted from the sale of finance contracts in the third quarter versus the build of contracts that we reported in the third quarter of fiscal 2009.

We are continuing to estimate that capital expenditures will total approximately $30 million to $35 million for the full-year.

As I mentioned last quarter, we are negotiating the purchase of an existing facility that will accommodate the consolidation of several of our smaller midwestern distribution centers.

This initiative is part of our continuing program to consolidate our distribution function.

We had originally planned a build-to-suit for fiscal 2011 and when an existing facility was identified, we decided to move the project forward into fiscal 2010.

We expect to close this transaction in the fourth quarter.

With that, I will turn it back to the conference operator who will poll you for your questions.

Damien?

Thank you, sir.

We will now begin the question-and-answer session.

(Operator Instructions) Our first question comes from the line of John Kreger with William Blair.

Please go ahead.

Hi, guys, thanks.

I have a couple of questions relating to your Dental Equipment business.

I think last quarter you gave us some visibility on how the pipeline was looking for the third fiscal quarter.

Would you be able to do that again for the fourth quarter?

And then a related question, how does the basic equipment line do this year or actually I should say this quarter?

And finally, if you could just expand a bit more on what you would envision to be among normalized CAD/CAM growth now that the trade-in situation has ended?

John, I'll take this, it's Scott.

I think when we look into the fourth quarter, this will be the first quarter where we do have an easier comparable because we started feeling the effects of the economy a year ago in our fourth quarter.

I think we're confident in the future of that business, but there still is definitely uncertainty about the economy.

In terms of CEREC, we do look at a more normalized growth rate when we get into more stable economic times of 15% over the coming years, but I would still say that we're not completely out of the woods in terms of capital purchases with the economy right now, but we feel definitely that it is stabilized and we think the worst is behind us in terms of the Basic Equipment business.

Steve, do you have the Basic Equipment number?

Yes, on a year-over-year basis, John, the Basic Equipment was down about 13% in the quarter, which is not unexpected considering what we had for comparison.

Okay.

Great.

Thanks.

And then one final follow-up.

Are you still seeing pricing pressure at the high end of the Digital Imaging market?

Not really, John.

I don't think we're seeing any irrational pricing in any parts of our business.

Yes, I would say on high-end Imaging, we've definitely seen a lot of strength out of our Galileo's product and there's a lot of excitement about the CEREC integration.

It's definitely a very competitive space, but we feel confident with all of the attributes that that product has that we'll be able to maintain pricing.

Great.

Thanks very much.

Thanks, John.

Thank you.

Our next question comes from the line of Lisa Gill with JPMorgan.

Please go ahead.

Thanks, it's actually Mike [Minjak] in for Lisa.

Just a couple of questions maybe to follow up on the revenue growth.

So, you've talked about CEREC and Basic.

Can you also talk about digital x-ray.

The performance there has jumped around a little bit, maybe give us some color on that?

Yes, our Digital business in the last quarter was basically flat.

I would say we're pleased with that, but not satisfied.

We still continue to fairly aggressively promote the product.

We're seeing a lot of traction with the CDR Elite product from [Schick] and definitely look at that space as a growth driver even in a tough economy looking into our next year.

Great.

And then just looking at the Consumables, Dental Consumables, in prior quarters you talked about the impact of sales of one of your customers taking it's toothbrush line direct as well as changes in revenue position under your loyalty program.

Can you remind us if both of those factors have anniversaried or if there was any impact on the Dental Consumables sales this quarter?

Yes, those anniversaried at the end of December, so we had one month in January where that wasn't affected.

So, going into our fourth quarter, all of those will be behind us.

Okay.

Mike, this is Steve.

Just a little additional metric color on that, the impact -- January was a short month this year, obviously, because of the way the calendar is moving on us, so if you look at the impact, it was still almost 2 percentage point in the quarter, about 1.8 percentage point to be exact from those two programs.

As Scott, said, it's now behind us and the numbers will be comparable going forward.

Okay.

Perfect.

And then just finally, shifting gears a little bit, can you talk about the competitive environment in the Veterinary business following some recent consolidation activity?

I don't think, Mike, we see a lot of difference yet.

I think they're still in the process of trying to integrate their companies, so we really haven't seen much happen out in the field yet because of the merger of Shine with Butler.

Great.

Thanks for the comments.

Thank you.

Our next question comes from the line of Derek Leckow with Barrington.

Please go ahead.

Thank you.

Good morning.

On the Dental Equipment question, I just want to follow up on that.

It's kind of encouraging to hear you talk about mid to high single digit growth.

I guess getting back to the question about the backlog, I wondered if you could maybe share with us some anecdotal commentary around things like plans to expand their -- expand offices or engage in any kind of real estate transactions that might spur more demand for some of those basic equipment items?

Yes.

I think one of the largest parts, as we all know, that happened in the last 18 months was the deferral of larger projects.

We've been very active over this time of making sure that we continue to fill that pipeline.

I probably don't want to give you, Derek, any anecdotal metric right now to say we've seen it turn, but we have a lot of projects in the pipeline.

One of the things we're encouraged about if the economy improves is the fact that dentists will be in a very strong position in terms of real estate negotiations and construction negotiations, which are usually the largest part of a major project.

So, we're just waiting for that tipping point to happen and a lot of that deferred equipment business to start moving through the pipeline, but no key indicator to give you quite yet.

As far as the equipment product lines themselves, are there any major changes or upgrades planned here for the mid-winter meeting launch?

Are you picking up some additional Basic Equipment products or have you seen anything exciting that might also lead to some additional demand.

I don't think there's going to be anything major at Chicago, but I would say that (inaudible) Blue and the (inaudible) integration and how CEREC, the whole CEREC modality is just growing and that story is getting stronger and stronger from dentist to lab and the whole digital workflow, so I would consider that new and exciting and something that we're going to be talking about for a long time.

As far as your personnel in the Basic Equipment or the Equipment category in general, are you adding sales people or any kind of technicians right now, have you changed your outlook in terms of the hiring in that category?

Well, we've been hiring throughout the year.

One of the things we have gone through in the last year was a transition when we reorganized our sales staff after we changed our model on Eagle Soft.

So, in terms of Sundries reps, I'll give you the number -- were at 1,083 versus 1,048 the year before.

And then we're down slightly on Equipment Specialists and mainly that's through the reorganization -- 266 versus 293 a year ago, but we will look to add particularly in the CEREC arena in our next fiscal year.

Okay.

Okay.

And then just one final one here on your distribution consolidation.

I know you're moving to this branch structure and kind of expanding the Medical into some of your dental branches, but then you talked about the distribution center consolidation.

Can you quantify maybe some of the economics around that?

Is there going to be a period of time during which you have to build inventory ahead of that or what -- how should I be thinking about that consolidation?

I don't think -- the spend, Derek, will be mostly in the area of capital, bricks and mortar.

There might be some modest inventory expansion during the move, but the way the licensing requirements are, you generally have to be up and inspected in the warehouse before you can start shipping out of it today.

So, there will be a bit, but we've got other warehouses that can basically serve that, so we shouldn't have to build too much.

And does the Medical expansion, you talked about adding branches to existing dental branches.

How many of those are you planning to do this year?

We're going through the planning process right now and that's a number we probably won't share for competitive reasons and we're still working on those plans with Dave and his team.

Okay.

Thanks a lot.

That's it for now.

Thanks, Derek.

Thank you.

Our next question comes from the line of Larry Marsh with Barclays Capital.

Please go ahead.

Good morning.

This is Adam [Cussard] calling in for Larry.

First question, how would you categorize the benefit at the end of the year as far as kind of the depreciation benefits on the sale of Dental Equipment?

The tax benefits?

Yes.

Probably had some mild impact, but didn't drive behavior just because the macro economic environment wasn't strong enough to support a lot of Equipment activity.

Okay.

And then looking forward, I guess, are there any plans for another CEREC training program and I then an ENIOS training program as well?

I think that's something we'll evaluate, but we definitely would not announce at this time.

Okay.

And then just I know the agreement with Schick, I believe that ended in the last of the year, has that been finalized yet?

We've getting closed.

We've just celebrated ten years with Schick and we've sold over $500 million of their product and we have an incredible relationship with them and we're just taking our time to make sure we get this right and be able to maximize the relationship from both sides going forward.

So, you should be hearing something soon.

Okay.

Then last question for Steve.

Could you elaborate on the receivable sales during the quarter and then maybe what you'd expect over the next few quarters?

We had -- of that promotional activity, we probably saw $35 million to $40 million of that liquidate in the quarter.

We'll probably see another roughly $40 million liquidate in the fourth quarter and there will be some trickle over effect.

As we've talked about on different occasions, Scott is continuing to run some lesser promotions in CEREC and we actually hope he has great success where he moves some of that cash flow into the first and second quarter on some of the shorter promotions because it means the CEREC is selling well.

But, a good portion of that build up should be liquidated by the end of the fiscal year.

Thanks a lot.

You are welcome.

(Operator Instructions) Our next question comes from the line of Jeff Johnson with Robert W.

Baird.

Please go ahead.

Thank you.

Good morning, guys.

Hi, Jeff.

Jim, just wanted to start off by saying best of luck.

I probably won't see you on the next call.

I'm not sure if we will or not, but it's been a pleasure working with you over the years.

Thank you, Jeff, I appreciate that.

And so just jumping in here on a couple of things, Scott, wanted to start with some comments you made on the Rehab business and green fielding some new offices there.

We've seen trailing 12-month operating margin in that segment contract here for three or four quarters in a row.

As you green field that, I'm assuming that is one way to stabilize those margins or at least not put additional pressures there.

Can you talk about that a little bit and where you think margins maybe the next couple of quarters on the Medical side go?

I think first you have to remember that one of the key things Dave did strategically was to invest in the branch model and that's something he has refined, he and his team has refined over the last two years.

So, I think we have a very solid model and have learned a lot over the last two years on how we can move into new markets in a cost efficient way and provide the services to his customers that really differentiate Patterson Medical and one of the things we can centralize.

So, as we look at our plan for the next year, green field expansion is one thing Dave will be doing and we feel good about the financial model for that.

In terms of giving any guidance on operating margins, I would rather defer that until, probably the next quarterly call and we'll give you some more color on that.

Okay.

Just to push that one step further, then, as Dave makes those moves, though, do you think they can be done in a relatively margin neutral way?

Jeff, this is Steve.

Let me clarify your comment.

There has been some margin softness or erosion in the Medical business, but it's almost entirely due to those two acquisitions.

Until we get those integrated, they're going to have some mild continuing impact on Dave's operations, particularly the one in the UK.

It was a fairly complex integration that he had to go through.

We're through most of that and I would expect that our margins in Medical, barring any further sizable acquisitions, will start to expand fairly regularly and I think that would be the intention of Medical.

Okay.

Great.

That's helpful, Steve, thanks.

And while you're on the operating margin line there, in the past you guys have talked about wanting to keep operating margin on a Company-wide basis flat this year.

Still expect to be somewhere near that range for the year when all is said and done?

Yes.

I think we talked about trying to keep it flat, but I think if you look at it mechanically now, we're probably going to be somewhere between 11% and 11.2% and it has mostly to do with the expense structure of those acquisitions.

To try to get back to 11.2% would not be possible at this point, Jeff.

No, that's fair enough.

I had 11% in my model anyway.

The last question, obviously, building a nice little war chest here especially as those finance contracts come off, Scott, your comments just on additional legs to the tool, maybe not not being the top priority.

Expectations on how to use that cash, would it be share repurchases, maybe a dividend program could be considered, just would like to get your updated thoughts there?

I would reiterate that our fourth leg is not a top priority and we're continuing to have discussions with the Board on capital allocations throughout the year.

So, I would probably just leave it at that right now.

Alright.

Fair enough.

Thanks guys.

That's all I have.

(Operator Instructions) Our next question comes from the line of Robert Willoughby from Banc of America Merrill Lynch.

Hi, this is Scott Green in for Bob.

Thanks for the question.

I heard 15%, I believe is a sustainable CAD/CAM growth rate.

Is that a growth rate you think is possible going up against a launch year?

Well, I talked about normalized times and the great thing about CEREC and about SERONA is their ability to innovate and now with almost 11,000 users, the reality is probably they are probably more often than not we're going to have new products and upgraded pieces of equipment to sell to the user base.

So, when you smooth that out over the next five years and what we feel is the growing acceptance month-by-month of this digital flow of dentistry, we absolutely feel that's attainable over the next five years.

Okay.

Great.

And so Galileo's Implant, that would be an example of some upgrade to the system that would help achieve that 15%?

It's not only product upgrades, but different products that allow that digital impression that can be taken by the AC to be used in many different ways and get labs, specialists and the general dentists all involved in those.

The work flow, I think, is going to be very powerful.

Okay.

Great.

And the other Dental Supply revenue number showed a strong uptick after being flat for a while now.

Can you talk about the drivers there?

The Other Dental Supplies?

Yes, in the Other Dental Supply revenue line.

I think that one comes to me, Scott.

Kind of a combination of things in there.

We had the integration of Dolphin, we had a full quarter of Dolphin in there now and their other services.

We also had a small benefit from the sale of the contracts, obviously, during the quarter.

So, that helped to boost that number.

Okay.

That's not something where Eagle Soft Service revenues might wind up?

That is the category where they are, but there wasn't -- I mean they contributed positively, but it didn't drive the change there.

Okay.

Okay.

And then last question, is there any seasonal impact we should be thinking about in a non-IDS year about sales coming up this quarter against when you had an IDS year last year?

Well, IDS really doesn't affect us because we're totally North American in Dental.

Very few of the dentists from the US and Canada go to that meeting, so really it's more product innovation and product introduction for us.

Usually that's two or three years out for that meeting.

They show things very early on in the process because of the differences in FDA regulations versus the European regulations.

Okay.

So, the Better Dental equipment comps here coming up next quarter would be more just due to general economic weakness last year?

Totally, yes, yes.

Okay, great.

Thank you.

That was our first quarter of real impact on the Capital Equipment side.

Okay.

Thank you.

Thanks, Scott.

Management, I show there are no further questions at this time.

Please continue.

Okay.

We would like to thank everybody for joining us for our call this morning.

All in all, we feel very positive about this quarter and the quarter looking forward and I'll be handing this thing off in the future to Scott.

So, thanks again for joining us.

Ladies and gentlemen, if you would like to listen to a replay of today's conference, please dial 1-303-590-3030 and entering the access code 422-0042 followed by the pound key.

The replay will be available until February 25, 2010.

This concludes the Patterson Companies third quarter fiscal 2010 earnings conference call.

Thank you for your participation.

You may now disconnect.