Henry Schein, Inc. (HSIC) Q1 2011 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Henry Schein First Quarter Conference Call. [Operator Instructions] I would now like to introduce your host for today, Susan Vassallo, Henry Schein's Vice President of Corporate Communications. Please go ahead, Susan.

Thank you, operator, and my thanks to each of you for joining us today to discuss Henry Schein's first quarter results. If you have not received a copy of our earnings news release, you can access it on our website at henryschein.com. With me this morning are Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein; and Steven Paladino, Executive Vice President and Chief Financial Officer. Before we begin, I would like to state that certain comments made during this call will include information that is forward looking. As you know, risks and uncertainties involved in the company’s business may affect the matters referred to in forward-looking statements. As a result, the company's performance may differ from those expressed in or indicated by such forward-looking statements. Also, these forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's Securities and Exchange Commission filings. The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, today, May 3, 2011. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. I ask that during the Q&A portion of today's call you limit yourself to a single question and a follow-up before returning to the queue. This will provide the opportunity for as many listeners as possible to ask a question within the one hour we have allotted for this call. With that said, I'd like to turn the call now over to Mr. Stanley Bergman.

Thank you, Susan. Good morning, everyone, and thank you for joining us. I'm very, very happy to report once again we gained market share in each of our 5 business groups during the quarter. And I'm particularly pleased to report high single to low double-digit sales in local currencies in all of our business groups. And from an earnings perspective, the year is off to a very strong start with growth in adjusted earnings per share of 9.3% for the quarter, which is above the guidance we provided during our last quarterly conference call. In a moment, I'll provide some additional commentary on each of our businesses. But first, let me ask Steve Paladino, our Chief Financial Officer, to provide an overview on our quarterly financial results. Steven?

Okay. Thank you, Stan, and good morning, everyone. I'm also pleased to be reporting strong results for the first quarter of 2011. Our reported EPS growth for the quarter was 24.2%. However, I'd like to point out that the prior year first quarter reflects restructuring costs of $12.3 million pretax or $0.09 per diluted share. Excluding these costs in the prior year, our EPS growth was 9.3%. I will be providing growth rates compared to the prior year excluding the restructuring costs, and I will refer to those results as adjusted results from continuing operation. Exhibit B to this morning's earnings news release reconciles GAAP and non-GAAP income and EPS from continuing operations. So turning to our financial performance. Net sales for the quarter ended March 26, 2011, were $1.9 billion, reflecting a 10.6% increase compared with the first quarter of 2010. This consists of 9.9% growth in local currencies and a 0.7% increase related to foreign currency exchange. In local currencies, internally generated sales were up 3.8%, while acquisition growth contributed 6.1%. You could also note the details of our sales growth that are contained in Exhibit A in our earnings news release that was issued this morning. Our operating margin for the first quarter of 2011 was 6.4% and declined by 21 basis points compared to the first quarter of 2010 on a non-GAAP basis. It's important to note that excluding the impact of recent acquisitions, which serve to reset the base operating margin, we experienced a slight operating margin expansion in the first quarter of this year versus last year. Our effective tax rate for the quarter was 32.5%, which is in line with our guidance, and is down from 32.9% in the first quarter of 2010 on a non-GAAP basis. We expect our effective tax rate to remain in the 32% range for the balance of the year. Net income attributable to Henry Schein for the first quarter of 2011 was $76.5 million or $0.82 per diluted share. On a non-GAAP basis, which again excludes restructuring costs in the prior year, net income and diluted EPS increased by 10.6% and 9.3%, respectively, compared to the first quarter of 2010. You can see the non-GAAP adjustments in Exhibit B of our earnings release. Let me now provide some detail of our sales results for the first quarter, starting with North American Dental sales, which for the first quarter of 2011 increased 7.8% to $662.8 million, consisting of a 7.2% growth in local currencies and a 0.6% increase related to foreign currency exchange. Our consumable merchandise sales increased 8.9% in local currencies, and that includes a 3.3% increase in internal sales and 5.6% growth related to acquisitions. Our dental equipment sales increased 1.3% compared with the prior quarter in local currencies, and all of that was internally generated. When you exclude the sales of BIOLASE products from both periods, our dental equipment sales growth was 2.4% in local currencies. On an overall basis, local currency growth exceeded 7%, and we believe we continue to gain market share in the North American dental market. Looking at North American Medical sales, they were $319.8 million for the first quarter, and that's an increase of 12.4%. Internally generated sales increased almost 10%, or 9.9%, and acquisition growth was 2.5%. Our sales growth was particularly strong for clinical diagnostic products as well as certain pharmaceuticals. Our North American Animal Health sales were $230.6 million for the first quarter, an increase of 11.6%. Internally generated sales increased 7.5% and acquisition growth was 4.1%. I think it's important to point out also that the acquisition growth is related to the timing of the Butler Schein Animal Health transaction. And because it closed 4 days into last year's quarter, it results in sales for the first 4 days of this quarter being classified as acquisition growth. Our International sales for the first quarter of 2011 was $679 million, an increase of 11.4% compared with the prior quarter. This consisted of 9.8% increase in local currencies, primarily due to the acquisition of Provet Holdings and a 1.6% increase related to foreign currency exchange. Our internal sales decreased slightly by 1.1%, while acquisition growth was 9.9% in local currency. If you look at our international dental sales, which represent approximately 64% of our International business for the quarter, they were up 1.4%. There was really no significant impact from foreign currency exchange due to the mix of businesses among various countries that we operate. Our internally generated sales in local currencies increased 0.8%, and the acquisitions accounted for the balance of the growth. Looking at dental merchandise, dental merchandise internal growth in local currencies for the International group was 1.4%, and our dental equipment was relatively flat for the quarter. This was expected as our dental equipment sales primarily in Germany and Austria were negatively impacted by the IDS trade show, which was held in late March and we believe resulted in practitioners delaying equipment purchases. Also contributing to this were equipment sales growth in Australia, which reflects a difficult comparison due to a tax incentive in the prior year that drove strong equipment sales in the prior year. Our international Animal Health sales, which represent about 1/3 of our International business, increased, 40%. This consisted of 34.5% growth in local currencies and a 6.3% increase related to foreign currency exchange. And our internally generated sales growth in local currencies was down slightly, 1.6% for the quarter. If we look at Technology and Value-Added services sales for the first quarter of 2011, they were $55.6 million, up 23.7% compared with the prior year's quarter, and internally generated sales were very strong, 13.8% in local currencies, and acquisition growth was 9.1% due primarily to the acquisitions of McAllister and InproMed. During the first quarter, we saw continued strong growth in both our Electronic Services and Software businesses. Also during the quarter, we repurchased our common stock in the open market. Specifically, we repurchased approximately 410,000 shares of common stock during the quarter at an average price of approximately $66 per share, equating to approximately $27 million of cash outlay. The impact of this repurchase on shares on the first quarter diluted EPS really was not material. Our goal for share repurchase activities is to keep the number of shares outstanding for 2011 in line or even slightly down compared with the share count in 2010. Let me now take a brief look at some of the highlights of our balance sheet and cash flow. We saw a strong operating cash flow for the quarter of $47.6 million, and that compares to $21.7 million in the first quarter of 2010. Here, we continue to expect our operating cash flow to exceed our net income. With respect to accounts receivables, day sales outstanding from continuing operations, they increased slightly to 42.7 days for the first quarter of 2011 compared to 40 days from the first quarter of 2010. Our inventory turns from continuing operations for the first quarter was 6.1, and that compares to 6.3 turns for the first quarter of last year. I'd like to conclude my remarks by affirming our 2011 financial guidance as follows. We expect the 2011 diluted EPS to be in the range of $3.88 to $3.98 per share. And our 2011 guidance, as always, is for continuing operations as well as for completed and previously announced acquisitions but does not include the impact of any potential future acquisitions. So with that, I'd like to turn the call back over to Stan.

Thanks very much, Steven. Let's focus a little bit on the North American Dental business to start with. For the past year and a half, we have been reporting internal growth in sales of dental consumable merchandise in local currencies. Gains during the first quarter of more than 3% are quite impressive, we believe, in light of overall market conditions. And if we take a look at the dental equipment side, we are happy to report a fifth consecutive quarter of growth in dental equipment sales and service. We also believe that the strong consumable sales growth is potentially a positive indicator of increasing future equipment sales. Henry Schein's Special Markets group hosted our fifth annual national sales meeting last month in Orlando. Our Special Markets business is dedicated to servicing our large group practices as well as various institutional and government entities. The group is well established and has grown consistently for Henry Schein for almost a decade and a half. more than 125 Team Schein members and 75 of our company's supplier partners participated in the event. The event included numerous presentations by Henry Schein's leadership, strategic breakout sessions and supplier exhibits. Supplier partners also donated products from the exhibits at the end of the meeting to support Henry Schein Cares. Our annual Special Markets national sales meeting provides an opportunity for Team Schein members and our suppliers to learn from one another. By interacting directly with our suppliers, our sales team develops the best possible knowledge of the markets we serve and the products and services we offer. The Special Markets team servicing those customers that have multiple locations generally under common management or the larger providers of dental care in this country has done very, very well for us and continues to help us grow in our overall market share in the dental market in the United States. Canada, by the way, also had a very, very good quarter with terrific a national sales meeting as well. We are doing very well in Canada and continue to gain market share both on the consumables and, of course, also on the equipment side. The North American Medical business had a very good quarter with the internal sales growth up 10%. However, let me note that for first quarter of 2010, the sales growth for the group was only 2.4%. So it was not a particularly difficult comparable. But if you take the 10% and the 2.4% and you average them out, you'll see that about a 6% internal growth rate was generated in our Medical group in the first quarter of 2010 and 2011, and that in itself, we believe, is significantly above the market growth. So we are very, very pleased with the performance of our Medical group, which is focused on office space and related type medical practices. While lately we have been very active with veterinary and technology acquisitions, in mid-April, we announced the acquisition of Alpha Scientific. This acquisition strengthens our medical presence in the large and important California market, where we are somewhat underpenetrated, and gives us a very, very good opportunity to expand our market share in that important market. Alpha Scientific was a privately held company based in Los Angeles County with 2010 sales of around $10 million. Alpha distributes it and will continue to distribute traditional medical and surgical, pharmaceutical and laboratory products to approximately 2,000 physician offices and medical laboratories in that region. Similar to Henry Schein, Alpha Scientific has an integrated sales model, including field sales and telesales representatives. Alpha Scientific is an excellent strategic and cultural fit with Henry Schein, and we are delighted to welcome Charlie Patel, John Lee and their colleagues at the Alpha Scientific to Team Schein. Charlie Patel founded Alpha Scientific and grew it into the successful organization it is today. He will continue with our team as a field sales consultant. We are also pleased to welcome John Lee to Team Schein as the Director of West Coast Sales Operations. John has built a stellar reputation over the past 3 decades and will play an important role as we continue to grow our business in California. In addition, we see considerable benefits from Alpha Scientific's long-standing relationships with laboratory customers and look forward to continuing to build that business. So we are very pleased with the momentum, the overall momentum, of our U.S. Medical business. Now let's turn to the North American Animal Health business. As we discussed during our past 2 quarterly conference calls, we have turned our focus at Butler Schein Animal Health to various initiatives to drive sales growth by expanding the breadth and depth of our product offerings and strengthening customer relations. First quarter results provide a positive indication regarding the success of these initiatives. We look forward to building on the strong first quarter performance with continued gains during the full year of operation for Butler Schein Animal Health. Butler Schein Animal Health held its 2011 national sales meeting in Atlanta in March. More than 400 Butler Schein managers and sales representatives attended the event, along with 40 participating Butler Schein supplier partners. The meeting underscores the shared commitment of those in attendance to help support the growth of customer practices through our comprehensive suite of products and services. We look forward to a very successful year for our North American Animal Health business. Again, we are pleased with the performance at Butler Schein. The integration is largely behind us. Of course, there's always fine-tuning on the IT side in particular. And the sales force is highly motivated. It was quite an amazing experience to participate in a national sales meeting a year after we entered [ph]. And the team at Butler Schein and Kevin Vasquez has done a terrific job, and the business has gained good momentum. Mary Weinstein [ph] just joined us as the new CFO of Butler Schein Animal Health, and we believe the team to be a very strong team with great opportunity for us in the U.S. animal health market as a complement to our international animal health strategic footprint which I will now address. On the International side, as Steven mentioned, growth during the quarter was highlighted by the acquisition of Provet holdings, which for us completed early in the first quarter and has performed on plan with our expectation. I had the opportunity to spend time with the team, Butler -- with the Provet team, sorry, in Australia as well as the Henry Schein Dental team, and the morale and the atmosphere in our quite substantial Australia and New Zealand business is terrific. Butler Schein, I'm sorry, Henry Schein Australia had a very good national sales meeting. Morale was terrific, and the team at Provet are very, very excited to be part of our animal health global footprint. When viewing the sales performance for our International business during the quarter, it's important to note that over the past 2 years, this group has posted quarterly internal sales growth in local currencies of more than 5% on average. And as expected, sales of the dental equipment in Europe during the quarter were impacted by the biannual IDS trade show which was held in Germany in March. We had a strong turnout, an upbeat tone as the show suggests strength for the coming months in our European Medical business. So I would say the atmosphere and the momentum in our International business is also very, very good. We will be adding an additional manager or 2 to that team to supplement our already very good European and International management team. Technology and Value-Added Services also had a very strong quarter. In fact, our Technology and Value-Added Services group has posted double-digit sales growth in local currencies for 4 consecutive quarters, continuing a long-standing trend of solid growth. First quarter results include particular strength in Software sales in Australia and New Zealand and Electronic Services in the U.S. And that business is largely moving from sale of software into electronic services type of business, and that part of the business is doing, as I noted, very well. And while this segment of our business is highly profitable, it also plays a key strategic role within Henry Schein. Technology Products and Value-Added Services help our clients to operate efficient practices and deliver high-quality patient care. And oftentimes, they also are integral to the selling of advanced technology specifically on the equipment side. And you should note that our digital x-ray sales were quite good in the first quarter. And there is a strong connection between technology sales and, of course, software sales as the software allows for the integration of various aspects of the practice and, of course, positions Henry Schein for future high-technology product sales. The Technology business also provides a great platform for enhancing customer relations and increasing market penetration, as well as clear competitive advantage and, of course, a very, very good brand development mechanism. So in closing, we'd be happy to take questions. We're very, very happy with the momentum in the company. All of our business units are well positioned. We are completing our strategic plan that will end for the period ending January 1, 2015, a process that involved over 100 Team Schein member executives. And I can report that the team is largely on the same page, a lot of good healthy debate, huge engagement and the morale amongst our senior management team and those participating in the strategic plan was really, really terrific. In late March, we were ranked number one in our industry by Fortune Magazine in their 2011 list of the World's Most Admired Companies in 2 categories, namely Social Responsibility and Global Competitiveness. These are 2 key component parts of the Henry Schein strategy and help us advance overall shareholder value. We are honored to be included on this list with some of the most highly respected companies in the world. At Henry Schein, we have a long-standing, deep commitment to social responsibility, which has grown steadily as we expanded our operations throughout the world and has helped in driving penetration also from a business point of view with our customers. So with that overview of our business group, let's now take some questions, Susan. Operator, we are ready to take their questions.

[Operator Instructions] And your first question comes from the line of Glen Santangelo from Crédit Suisse. Glen Santangelo - Crédit Suisse AG: I just wanted to talk about the differences between what we're seeing on the consumable side and what we're seeing on the equipment side. Basically, consumable seems to be recovering a little bit faster than expected, while equipment maybe seems to be a little bit slower than expected. I'm not sure if you would say that's a fair characterization, but can you please elaborate a little bit more in terms of what you're seeing on the equipment side? Is there still a story here that the high-tech stuff is growing much faster than the basic equipment? Any additional details would be helpful.

Glen, I think equipment, one has to be a little bit careful in viewing it precisely quarter-to-quarter. You've got to look at it directionally. And directionally, the Equipment business is bouncing back. The digital is doing well. But also, the traditional business is doing quite well. And you have to also take into account that we are no longer exclusive for BIOLASE and that over time, we probably will diversify our offering of labels. So when you take that into account and you back that out, the positive growth, although not quite at the level of the Consumable business, was quite good. The Consumable business, I might hasten also to point out, was somewhat impacted by the bad weather. So that's -- the momentum really is even a little bit better. But if you take the 2 in context, we remain quite optimistic about the Equipment business, and we see some enthusiasm having returned to dentists looking at equipment. And in the U.S., we expect them, at least at this point in time assuming things remain stable in the worldwide economy, to continue to start buying a bit more. And we're quite optimistic, although cautiously optimistic, with respect to equipment sales for the year. Glen Santangelo - Crédit Suisse AG: Hey Stanley, if I could just follow up and ask one more. I wanted to tell you about the Medical business a little bit. Clearly, you had another very robust quarter of organic growth in that division. And can you give us a better sense for maybe what's driving that? I think you maybe alluded to maybe there are some market share gains in there. But clearly, your numbers are much faster than the market. I'm trying to bridge the gap on what's making up that delta.

Well, I think we noted a little bit in the earlier remarks 2010 was a particularly low internal growth quarter primarily because of the comparable growth to the previous year when we had a lot of sales in food-type products. If you'll recall, there was a flu scare in 2009. So 2010 was quite low. But if you take 2010 and you take 2011 you average them out, you'll see about a 6% average growth. And I think that's kind of more or less where we're heading, the scope of acquisition growth in there. But low single digits is probably where we're heading directionally. And that is ahead of the markets. And so we believe that we'll continue, as we have for many years, to be gaining market share in the Physician business. This is a pure quarter. There's no real adjustment for businesses that we got out of, as they have been in many of the previous quarters of the medical side. So I think low single digits is directionally where we're headed in the medical side, and that positions us to gain market share. On that side, there are 2 major focuses. One, of course, is the standalone practices. But then the other part are the emerging multiple practices under common management-type operations, and I think we're ideally positioned for that given our centralized distribution model, which I think is more geared towards that than perhaps some of our competitors.

And your next question comes from the line of Robert Jones with Goldman Sachs.

This is Verdell Walker for Robert Jones. Just following up really quickly on the medical question. How much would you attribute that to improving physician utilization in your view?

I don't know if it's 100% correlation between our performance in the market and physician utilization. I think we are doing well in some of the larger group practices, as I noted, and these are multiple locations under common management or bigger practices emerging. I think we're doing better in some of the areas, specialty areas. A little bit of rebounding there. And generally, I think we're taking market share. So there is a little bit of inflation here because of commodity prices. And generally, we've been able to pass that on to our customers. So I think that utilization has gone down, it's not gone up. We think In the dental world, the momentum on utilization is probably -- and these are all intuitive and directionally we think that the utilization, dentistry has a little bit better increase than in the medical side. And I think it's what we're doing internally that is helping us grow market share.

Right. And just a quick follow-up. Within the internal growth on the dental equipment side, can you provide a little bit more detail on which products you're seeing growth in, like any specific categories, which are based on your expectations?

I think I mentioned this, but we saw good growth on the traditional side, there's a bit of a bounce back there, and on the digital x-ray side.

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

Just 2 quick things, if I could. first of all, if I think about the -- can we talk a little bit about the Vet business, the Animal Health business? I know you had said in the last 6 months they let us pull the businesses together and then we'll start to see some accelerated revenue growth once we do that. Well, clearly, this quarter, you saw it. And I guess with Kevin and his team, how much confidence do you have that you're going to be able to plug along at this 6%, 7% internal growth rate, that market here the next year or so? And what are some of the initiatives that can help you continue to plug along at that rate, do you think?

Larry, it's hard to give you a precise growth rate by quarter for any one of our businesses. But I have to tell you I could just go on my gut reaction, my experience, my feel. I've been attending Henry Schein national sales meetings for a long, long time, and I have to tell you the momentum and the morale at our Animal Health meeting was terrific. And people believe they're on the winning team. People only spent less than a year on internal stuff. But usually, on the acquisition and merger of this size, a couple of years. So I would the morale is good. I would say that from a smaller practice point of view, we are gaining some market share there, and we're adding Henry Schein products to the mix. And we think that we will continue to grow our market share. There are a couple of new products coming out or have come out. There's a little bit of a threat from generics in one area. But overall, we're quite optimistic. I think our budget is a little less than the numbers we're showing, so we have to be cautiously optimistic. But the view that we have today is in line with the view that we had on the last call where we felt the integration was behind and now we should focus on sales. And so we've made some real important acquisitions in the software space.

Yes.

We have to bring those companies together. They're doing well. They are the leaders. And half the -- the United States use us, and we have to build a collaboration between the software people. And, of course, salespeople, all suffered down in Dental in the past. And we're quite optimistic. This is stuff we've done before. We've got a good management, good management. And we're quite optimistic. But I can't give you -- I'd love to give you a precise feel on the growth rate. But we don't think it's going to be much less. And directionally, we think we're going to continue to gain market share.

Yes, no, fair point. And I guess a follow-up. I've followed you guys for a number of years. And it always strikes me you guys', throughout the years, conservative view. And it strikes me certainly on the guidance here, given the trends you're seeing, given this first quarter, that you're sitting with a nice conservative view of that range for this year. And it strikes, if anything, the confidence level you have now is higher than it was a couple of months ago. And I guess my question is -- and maybe I'm just saying the obvious, but if you think about another sort of driver of your business, while last year it was using cash to buy businesses, I know in the first quarter you had completed Provet, it seems to me that one area of focus for you guys, been very successful overseas, has been the implant area, Camlog. So I guess specifically, how fast is Camlog running for you in Germany? And wouldn't that be a natural area for you guys to be more exposed to in the U.S. over time? And have you guys commented publicly about any interest at all or part of the assets of Astrotech?

Let's deal the Astrotech. We don't normally comment on acquisitions or non-acquisitions -- so I think we should leave it at that. But if you look at the Astrotech property, there's a lot more in there than implants. But we don't normally comment on the way they're bidding for a property or not. But what I will say is, and we've said this now for a while, our focus is to advance our position in the specialty area. And it's in that context that we're looking to provide more of a complete offering to specialists. I think we've done very well providing GPs with practically everything they need, and for specialists, we have a great offering for part of what they need. We, through our strategic plan thinking, are going to provide a more holistic approach to the specialists, providing everything they need under one stop, from the software to, of course, the basic consumables and equipment and for the specialty products that they need. So if you look at the oral surgery part, which is the part that relates to implants, you will see that we've invested resources in both regeneration products through the relationship we have with Ace. There is the relationship with Camlog. And we will be adding additional focus. We brought on board John Cox, a very seasoned sales executive from the implant area, and he is going to be helping, Jim Breslawski, Who is our President, and Lonnie Shoff, who is the President of our Specialties business, advance our specialties area in general. And we will continue to focus on expanding the growth of Camlog. Camlog, I think, was one of the few large implant companies that did well during the recessionary time. I can report that Camlog sales growth in the U.S. is really very good. That's off a small base. But I think finally, after several years, we've cracked the formula for growing implant sales in the U.S. So Camlog is doing extremely well in Germany and in a number of other markets. We will focus on expanding the Camlog business in other markets. And in the U.S., as I noted, we have a lot of momentum. We will add a specialty executive to focus on Europe in the next 3 to 6 months, probably 3 months, and we are quite focuses and quite optimistic about gaining market share in general with specialists on a holistic offering of the wide better range of products. And this is a strategy that we have tested now for the last several years in different component parts, and we'll be ready in the near future, certainly by the end of the year, to roll out a program, a holistic program, for specialties in the endo orthodontic oral surgery/implant areas.

And your next question comes from the line of Lisa Gill with JP Morgan. Lisa Gill - JP Morgan Chase & Co: First, Steve, I was wondering, maybe you could remind us of what your foreign exchange expectations are in the current guidance. And then secondly, Stanley, can you maybe talk about on the physicians side, are you starting to see hospitals buy up any of the physician practices? And clearly, if you are seeing that it's having an impact on the top line, but are you seeing any impact from changes in margins or changes in your contractual relationships, if that's starting to happen?

Lisa, I didn't catch the first question, foreign exchange.

Well, now foreign exchange is not my department. Lisa Gill - JP Morgan Chase & Co: Right.

Maybe you go first.

Yes, Steve don't very much of the foreign exchange end. So that -- on expansion of group practices, yes, there is a movement towards 1 or 2, 3 practitioners going to 3, 4, 5. There's a movement to larger practices becoming even bigger, and there's a movement towards hospitals acquiring practices. Now there is a lot written about that, and if you can follow, as I'm sure you do, all the various conference. I mean, a lot of that is taking place. There's a lot of debates. But I don't think it's a wholesale movement. But it is a movement. And Henry Schein is ready to work clearly in that area. We have, I think, close to 100 people, maybe a few more, focused on that part of the business. And there are salespeople, back office people, formulary people, GPO people and the people that are working GPOs. It's complex. It's a shift. It's a movement. We think we have actually the best solution today in the marketplace for those kinds of customers. And so profitable business. And we do well, but I think we deserve to do well because we provide very good services in that area. Lisa Gill - JP Morgan Chase & Co: And is the margin comparable to the business you do today or would we see a margin structure change as -- if we do really start to see that ramp, right? So if we start to see upsells and others start to buy, will we see potentially incremental revenue offsetting the margin impact or is the margin fairly comparable to what you see in your base book today?

Lisa, this is sensitive area for competitive reasons, not from an investor point of view. From an investor point of view, you can be sure that the return on investment here is quite good. We have done very well in this area on the dental side. We continue to do well. I think we continue to deliver value to our dental customers way beyond what anyone else does. And it's our full intention to do exactly that on the medical side. And, of course, you know that we do that through Butler Schein as well. So the big customers, I think, is Schein's specialty, and It's an area we will continue to focus on. We will to do well for our shareholders, but I believe we will do very well for the customers in that area and provide very good value. I think our methodology -- remember Schein came out of pharmaceutical industry where the whole GPO movement started. So our methodology, our management thinks this way. So I would say to you that this is good for our -- this particular aspect is good for our shareholders and good for our customers.

And your next question comes from the line of Steven Valiquette.

I think we have -- Steven was going to answer a question on foreign exchange.

Yes, just let me briefly answer the foreign exchange question before the next question comes on. So first, the foreign exchange impact to our EPS this quarter was really very nominal. It was slightly positive, less than $0.01 per share for Q1 this year versus Q1 last year. However, versus our internal budgets and guidance, there is an opportunity given where primarily the euro is versus our guidance. The euro was somewhere around $1.45 or so versus the dollar. Our original guidance and budgeting was done at a lower number, probably in the mid-$1.30s range. So there is a little bit of opportunity assuming the dollar to the euro stays where it is for the balance of the year. And again, for the first quarter, there really was no significant favorable benefit. So with that, we'll take that next question, please.

Okay. And your next question comes from the line of Steven Valiquette with UBS.

A couple of questions here. First on the International Dental. Given the flattish-type internal growth number you posted in International Dental in 1Q, it was obviously held back by IDS trade show, as you suggested previously. But the fact that 4% to 5% has been the more normalized recent internal growth trend, could we see a snapback maybe approaching the double-digit growth range for International Dental for the quarter or 2 do you think that's too aggressive? I'm just trying to get a sense for the snapback effect that we might see in International Dental.

I think we really have to be very careful being that precise in telling you what our sales is going to be in the third quarter. We can't -- for second quarter, we can't do that. But I think if you read the script, I think you'll see that we remain quite optimistic about our International business, which has 3 components: Animal Health is in good shape; the Provet acquisition being added; the Medical business in Europe is very small; and the Dental business in Europe, we continue to be the most important player in the German market. And Germany continues to be important for us; and we had a very good IDS. I cannot tell you the products we shipped precisely in the second quarter or third quarter, but I think for those that participated in the meeting, you would have noticed that there were lots of orders taken. Schein booth was very full. Our backlog is quite good. And I think our business -- if you want to go a little bit further than Germany, and Austria is quite good. And Benelux is quite good. France is quite good. Italy is doing well. U.K. is a challenge and so is Spain. But on balance, they're doing well. And I think we've noted in the past that Australia had a very strong 2010 because of tax stimulus. So that will depress the numbers slightly in 2011, but our market share remains strong in Australia. So overall, we remain optimistic about the International business. But very hard to give you a snapback definition for the first and second quarter of 2011.

Okay.

Yes. I think let me just add one other thing. If you looked at Q1 of last year, the International group total sales growth was 16%, and International Dental total sales growth was 18%. So we had a very strong Q1 of 2010. And that, coupled with the IDS impact that we talked about a couple of times, is, I think, the main reasons why when you look at the growth for this quarter, that the growth is less. But I would agree with Stan to give precise snapback definition is difficult, but I think there is some upside to growth rates because of those 2 factors. Okay. Now on acquisitions. And you guys talk about completed acquisitions that were in the margin profile on 1Q. But based on what you've completed to date, do you expect either margins to still expand in overall calendar '11 versus '10 or do you think M&As are going to wipe out most of the 30 to 50 bps you would normally expect? I'm just trying to get a sense for that as well.

Steve, for some reason, the question was breaking up. Could you just repeat it again, please?

Oh, sorry. As far as the acquisitions that you've completed where you talked about that hurting the margin profile on 1Q, so based on what you've completed to date, do you think that for the full year, 2011 versus 2010, do you still either margin expansion -- you sort of talked about 30 to 50 bps normally, of how that might be tougher. But I'm just trying to get a sense for how much M&A might wipe out margin expansion for the full year.

Oh, we still feel comfortable that we'll expand margins. You know our goal is an annual goal, not necessarily for each and every quarter. So there are still opportunities to expand margins, and we believe we can accomplish that, although some of it is because some of these new acquisitions. Provet is a reasonably big acquisition, $300 million approximate of sales. The other thing, when you look at our segment reporting, you'll see that although Technology group still has a very strong operating margin, you'll see that for the quarter, the operating margin is down. That's because the vet acquisitions, while still very profitable, are less profitable than our existing Technology group. And if you look at -- when we publish later today our 10-Q, you will see that the Technology operating margins are down probably from about 33% to about 27%. Still very healthy and still very good margins on the vet software companies. But because they don't have a scale of, for example, our dental software companies, the operating margins are not quite as good. So that's impacting us a little bit. But overall, the model is still intact of expanding operating margins.

And your next question comes from the line of A.J. Rice with Susquehanna.

This is Brandon Fajay [ph] for A.J. My first question is about the acquisition landscape across your various business segments and where you see most opportunities there. And then second, the minority interest line has kind of bounced around a little bit the last few quarters. It went back up a little bit this quarter after, I think, last quarter's $4 million from -- I think you mentioned increased the Camlog ownership stake as the reason for the decline. I guess where are you seeing that number for the rest of this year?

Steve will respond to the minority interest calculation. As far as M&A, our strategy since we went public, I think 61st quarter now, 62nd, has been to have a good mix between internal growth and acquisition growth. We continue to have that as a core part of our strategic plan going forward. There are still lots and lots of opportunities, actually more opportunities than we have the capacity to close on. Closing is not necessarily limited by financial resources but internal management, integration and other site capabilities. So we can't tell you exactly what quarter we'll close on deals, but we continue to expect to grow our business both in terms of products we're already selling, additional products focused on the office space, dentist, veterinarian and physician and entering into new geographies. So product expansion, new geographies in the products that we're in today present a huge opportunity for us, and that's both in acquisitions and in joint ventures. I think we have the management team to implement a lot more, and we will execute closings in a disciplined way in terms of financial return but also in terms of strategic intent. And so you can expect to see acquisitions continue, but it'll be very difficult to pinpoint quarters.

On the minority interest or what's called the net income or loss attributable to noncontrolling interests, there's a couple of things going on there. First, it's $6.4 million both for this year, 2011, and for the first quarter of last year, it was a little bit below that at almost $6.4 million. It has changed from the fourth quarter. There's a couple of reasons why. One is seasonality. Two is there's lower minority interests related to Camlog because we own a greater percentage. But what's offsetting that is because of greater profitability at Butler Schein from normal activities as well as elimination of integration expenses that we had last year. There's a greater minority interest related to Butler Schein. So all of that's kind of netting together. But I think what you're seeing in the first quarter of this year from a run rate point of view if we just take into account seasonality is the more normalized run rate.

And your next question comes from the line of Jeff Johnson with Robert Baird. Jeffrey Johnson - Robert W. Baird & Co. Incorporated: Stanley, I was hoping to start with you and just ask you to reconcile some of your medical comments. I understand that 2.4% organic growth comp you came up against this quarter. But the flipside of that is your organic growth comps actually turned negative over each of the next couple of quarters, at least if I've got my model correct. So just trying to reconcile kind of your comments on some of those growth rates maybe pulling into the low single digits over the next few quarters and the fact that the comps turn probably 500 to 600 basis points here over the next couple of quarters.

Yes, Jeff, maybe the low single digits was -- I kind of spoke too quickly there. I mean, when I say low single digits, I think you can expect us to grow beyond the markets. And I think it's closer to the middle than the low on the single digits. And really, we're now getting into a little bit to the size of the pen [ph] you've got, but I think our team, our senior team on the medical side are quite optimistic specifically as we're doing some of our bigger -- as we're performing some of our bigger accounts and even the growth in market share with the smaller accounts. And so I think the market will grow taking into account -- a little bit you have to take into account the impact on commodities, will they go further up, will they come down, are they switching to generics or not. But in terms of units, I think we're in a stable to growth area from a Henry Schein point of view, and I think we're ahead of the market. So I don't want to get -- it would be very difficult to get into dialogue with a 2%, 3% or 4%, 5%, but it's -- there is a growth rate that puts us ahead of the market, I think. Jeffrey Johnson - Robert W. Baird & Co. Incorporated: All right, that's helpful. And then the last follow-up question just on the dental equipment side. Your comments seem to indicate that you expect maybe a strengthening of that segment, at least in North America over the next few quarters and obviously in International coming out of IDS. But typically, you have a 45 or maybe even a 60-day book of business on the North American equipment side. So any insight into what you're seeing for at least the near term here? And I know I've heard that there has been some price increases on the basic equipment side that are picking up or that are sticking and maybe demand on the basic equipment side growing to low to mid-single digits. Obviously, your Driven to Excellence program that you hold those meetings each year seem to be filling up quite nicely and quite a bit of a demand there. So just wondering maybe how that book looks to be developing over the next few months.

Yes, Jeff, I think you can, I mean, we can all expect that the directional area for equipment will continue as we have been growing in the past year. The Dental large equipment backlog, which consists of traditional equipment, BIOLASE and Cone Beam at the end of 2011 was up from prior year. I think it was something like 6% or so, and we are getting rather fine here. So I just want to try to provide directional information and not get too precise because it's very hard to predict firstly the quarter. In addition, the backlog at the end of the first quarter was up from the fourth quarter. So I think these are all indications that the market is recovering. Yes, there is some inflation here, but I think mix is more important than inflation. I think the good news is that we're feeling a lot better on traditional equipment than we've felt perhaps in the last, I don't know, 6 quarters. Digital x-ray continues to do well. I think the momentum for the year should be good. I think the whole CAD/CAM section in dentistry is growing. And so we're feeling quite good about the dental market. Precisely when sales come is always a little bit difficult on equipment. I think you know this as well, IDS is an extremely successful show by any measurements: by product category, new introductions, new to the buyers. And generally, I think on equipment, with the exception perhaps of the U.K. and Spain and maybe a little bit -- and Australia where we really had a big run-up, I think the global equipment market has very positive attributes right now. And so I think that bodes well in aggregate for Henry Schein.

And your next question comes from the line of Bob Willoughby with Bank of America.

Any word from Oak Hill on the plans for the Butler stake? I know they can't put it to you this year, but what kind of advance notice must they provide you if they intend to do so?

We've had informal discussions with them. Right now, best I could tell is that they still like the property, they still believe there's good growth prospects for the company. So they have the ability to put, you're correct Bob, at this time, and that would be for 20-something percent of the ownership of Butler Schein. But again based on what they're saying that right now they feel good about the property and they want to continue to hold it. I think the notice period is at least 90 days, but I have to really doublecheck that. But like I said, that's what they've been telling us, that they like it and have no short-term interest on putting.

I think they're very happy. And it seems to me that they investing alongside us in the software businesses that we just acquired indicates they're happy with the space. They contribute at the board level, and overall, their joint venture with the Ashkins [ph] and Oak Hill now and a very strong management team is directionally heading in the right way.

And we do have time for one last question from the line of John Kreger with William Blair.

This is Robbie Fada [ph] in for John today. Just a quick question on the flu vaccine. What are your early expectations for that business this year? And are there any changes in strategy compared to last year?

That's a good question. Unfortunately, the market is really just developing now. What I can tell you is that what we're hearing from the manufacturers is that they expect to be able to produce the product in a timely fashion, which is generally good for the whole industry. It was a bit of a mild flu season last year. So sometimes, that could impact the current year. Our strategy remains the same. We have been taking prebook orders, which are indications what customers want. It's still very early. It's hard really to make any statement on flu vaccine as far as is it better or worse. So if prebook is ahead or below, it's still too early really to be making those comments. But again, given our philosophy on flu, which is selling a similar amount as last year, I think that we really have to wait and see how the market develops. But we still believe that selling that in that 13 million -- 13 million dose range, sorry. 13 million dose range, similar to last year. I wish I could give you more. But really, it's so early in the season that there's not a lot of information out there right now.

Understood.

Ladies and gentlemen, Steven, thank you. Thank you all for calling in. Thank you, Susan. Of course, if you have any additional questions, Steve can be reached at (631) 843-5500, and Susan at same but 5562. And we look forward to updating you in another 60 days.

90 days.

60 days, right?

What is it?

90.

90.

90 days. And yes, this is a normal quarter, so we look forward to that. And, of course, as you can tell from our remarks, we remain quite optimistic about Henry Schein. The morale of the company is good. Lots and lots of opportunities. And execution in general is going quite well. So we look forward to having good news again in 90 days. Thank you.

This concludes today's Henry Schein First Quarter 2011 Financial Results. You may now disconnect.