PDCO
#Thanks, <UNK>.
I'll talk to the early feedback on Zirconia.
I think this is a story that's going to play out over the long term, and we take a long-term perspective on this relationship having been doing it for well over a decade.
The initial feedback is the Zirconia really opened up doors once again for a large segment of the dental population to look at CEREC again.
And we always get excited when the innovation curve allows us to do that because many times the impression of CEREC may be a dentist who looked at the product, two, three, four, five years ago.
So we have a lot of activity, very pleased, and I would say if there was risk going into the fourth quarter, when you have a new product launch you have to train everyone up and you have to get the supply chain right and get the products in the right spot to serve the demand, there's a lot of risk in that.
So I could not be more pleased with our Dental team and how they, particularly our folks in the field and in the branches, on how they met that demand for the customers.
While generally historically summer can be a quieter period of time, I think we'll have a lot of interaction with customers over the summer about Zirconia.
And I'll turn it over to <UNK> to talk about inventories.
Okay.
Sure.
So you might recall, we were caring higher levels of inventory but also higher levels in our long-term receivables for a number of reasons.
You mentioned CEREC being one, which was certainly the case because of the delay in Section 179.
But we also had more caring inventory levels higher than normal because of the consolidation and integration activities within the Animal Health business and the SAP implementation.
So certainly we saw good reductions in our investments in working capital, both in inventory and long-term receivables.
Certainly CEREC was a portion of that, and they'll see inventory in total came down nicely about $90 million.
I think there's still room to improve in terms of working capital in total.
As we move into FY17, I think there's room to improve upon that, and as I mentioned in my remarks, we expect to get back to that 85% to 100% of net income to free cash flow conversion next year.
Yes.
Thanks, <UNK>.
As I've said, we were for years a great partner of IDEXX and have a ton of respect for their company, but at the same time I think we've established a great partnership with Abaxis and continue to incrementally grow that business internally, and it remains a really high focus item.
With that being said, I think one of the really exciting things that is coming out of the transformation of our Animal Health business is a real sense of excitement inside our companion business about what we can do to help our customers.
So we think it's a great market with really strong underlying dynamics, and we think the Patterson position is going to be a position that's going to grab market share over the coming year.
So continue to be very excited about that, and within the construct of our go-to market, Abaxis continues to be a very important partner to us.
Sure.
And then, <UNK>, just in terms of the sales results, you're right.
The diagnostics change actually annualized into our results last quarter.
But I think, as you know within that Animal Health segment, the terms and selling arrangements with the manufacturers do change from time to time, so what you saw this quarter with one manufacturer, their sales moved from an agency relationship with us to a more traditional distributor role, which we refer to as buy/sell.
And so that change that happened this quarter did add about 2 to 3 percentage points of revenue growth to that total Animal Health segment, and that change will continue to affect us for the next four ---+ the next three quarters.
Yes.
Hi, <UNK>.
Yes.
I would say we feel good about the supply chain.
There were some short-term issues on the speed fire oven, but most of those have been rectified.
And I would say just as we looked at the Omnicam strategy two, three years ago, the strategy will be around new users here in the short to medium term, but absolutely believe there is a growing opportunity longer term as people still have the opportunity to not only move into Omnicam, but also move into the dry mill and the speed fire with Zirconia.
So, exciting time in the CEREC community.
Sure.
I think I might start by giving you a breakdown of the $25 million in some rough ranges.
So what I would tell you is about 20% to 25% of the step up is depreciation.
Keep in mind that's a partial year depreciation because we're implementing it for about half a year, but about 20% to 25% of the $25 million step up is depreciation.
About 25% is rollout and implementation costs, so that's the piece that you can think about that would go away, right, in the back half of 2018 as we complete the rollout, and then the balance is what's required to support the system.
I think when you think about 2018 and how much comes out, we expect to see some benefits in the back half of 2018 because the training and implementation is done, you're fully up and running, and so now you can turn off the legacy systems and you can also now truly harness the benefits of the new system.
But I'm not ready to really publicly quantify dollar amounts at this time.
We're still working on those estimates, refining them.
Yes.
As we spend a lot of time with the management team at AHI, and this is a team that has really deep 10- , 20- , 30-year experience in the industry, and we put our plan together, really what they are beginning to see is a move in an expansion of the herd size as profitability gets better for the producer you've got some people holding back calves this year.
So we feel that is what they've talked about, the tailwind beginning to build throughout the fiscal year.
So we feel really good about the market and our opportunity to really execute in that type of market.
The other place I would point you, <UNK>, is the swine area, which is a significant piece of our portfolio.
And that's one where we're already starting to see some tailwinds in that area and would expect that to continue to improve.
Yes.
I would say, <UNK>, we've never spoken publicly about the details of the contract.
We continue to perform and have performed well over a decade as a partnership, but we don't discuss the contract specifics publicly.
Yes.
I would say we would anticipate in the coming fiscal year mid-single digits growth.
I would say the outlier to that, the potential upside would be if the Section 179 tailwind really kicks in and we would get back to sort of 2008/2009 levels in terms of the core equipment business, and you would see historical levels of new office construction.
So those would all be upsides to our model.
They're not included, so we would see stable growth in the coming fiscal year.
But would probably, I would say, lean towards optimism that this could be a year where we could begin to see growth trajectory move back up to a more traditional level.
Yes.
Our March/April time period is always a bit stronger, so I would say it's pretty traditional.
I would say and also I think it's important to note that there was nothing we did incrementally in terms of promotions in the quarter, particularly around CEREC, so I think it was really good end user demand and strong sales execution.
And I would say going forward we would do nothing that would be out of our past practices in terms of promotional activity.
Without a doubt, the biggest promotion that is out there for small business owners is the benefits from Section 179.
So the fact that those ---+ that extension was made permanent and it's something we are talking about every day today with customers, I would say is probably the biggest potential tailwind for the industry for the whole.
Well, I would say we're always looking ---+ we have a lot of activity going on.
As we talked about one of our strategic intents that we laid out was an expanded view of the market, but at the same time we will be very disciplined with the capital and we'll look for good partnerships at the right price.
I wish I was smart enough to perfectly time when an acquisition would happen.
But I would just say we're out there looking.
We think we're a great partner.
I talk a lot about this is the 140th-year anniversary of Patterson and this is a company started by two brothers in a drugstore.
So over those times we've combined with many other great businesses and family-owned businesses and will continue to build those relationships.
I would say from an internal capacity and from a financial capacity, we're in a good position to be able to integrate additional acquisitions at this time.
No.
I would say they are equally attractive.
I would say the underlying markets are probably growing about 200 basis points.
When we look at our sales market share with our major suppliers, the 3M, Dentsplys, KAVO, Kerr, Danahers, we feel confident that we're taking share and growing faster in the underlying market.
I think it's definitely an era of stability right now in the dental market.
And I would say if there is any bias over the next five years, it would be a bias towards an increase in market growth, driven by particularly how strong the underlying demographics are in the North American market.
But currently, you've got an underlying consumable market that we think has grown about 200 basis points.
Sure.
So our main exposures, just to remind you, are in the UK and Canada.
And we've got about 1% to 2% headwinds baked into the guidance from the top line.
Thanks, Leanne, and thanks, everyone, for joining us today.
Again, we're optimistic as we begin FY17, and we look forward to updating you on our results in the next quarter.
