Henry Schein, Inc. (HSIC) Q1 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Henry Schein First Quarter Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's call, 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 to discuss Henry Schein's first quarter results. 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 the live broadcast, May 8, 2012. 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 please 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 would like to turn the call over to Stanley Bergman.

Good morning and thank you, Susan. And thank you, everyone for joining us. Before I begin to discuss the quarter, let me just note that last night the Fortune rankings, Fortune 500 rankings were issued, and Henry Schein placed 303 in the 2012 Fortune 500 Ranking of America's Largest Corporations. We are very pleased by this recognition of our ability to record steady growth even during challenging economic times. Our steady growth in -- position on the ranking is reflective of the wonderful work that our team of over 15,000 Team Schein Members around the world has undertaken in the past 16 years as a public company. Today, we are also pleased to be reporting overall sales growth of 7.8%. This is the first quarter that we are presenting net sales results for our global customer-centric business units and each of our global Dental, Animal Health, Medical and Technology and Value-Added Services units reported growth in local currency in mid single digits or better. So I think with the new way in which we're reporting our sales with these new global verticals, it'll give our shareholders a far better ability to understand the performance of the company and align the sales reporting and the profitability reporting of the company with our strategic plan. Based on the strength of our first quarter financial results and our continued confidence in our outlook for the rest of the year, we are increasing EPS guidance -- or our EPS guidance range for 2012. Reflecting this outlook, our Board of Directors recently voted to authorize the repurchase of up to additional $200 million shares of Henry Schein common stock. Earlier this year, as discussed during our last quarterly call, we are continuing to optimize our cost structure and improve profitability. We look forward to the future with more efficient organization; the organization will be far more focused and efficient at using our resources and in that context, even have a sharper global view of our customers and their evolving needs. In a moment, I'll provide some commentary on each of our business units. Again, thank you to our 15-plus-thousand team Schein members around the world who are producing outstanding results for our shareholders quarter-upon-quarter. But before I go into further details and provide commentary, let me ask Steve Paladino, our CFO, to provide commentary on the first quarter financial results.

Okay, thank you, Stan, and good morning to everyone. I am also very pleased to be reporting strong financial results for the first quarter of 2012. Before we begin, I'd like to point out that our 2012 first quarter results include restructuring costs of $11.8 million pretax or $0.09 per diluted share. We announced this restructuring on our last quarterly conference call and Exhibit B to this morning's earnings news release reconciles our GAAP to non-GAAP earnings and EPS from continuing operations. Turning to our financial performance. Our net sales for the quarter ended March 31, 2012 were $2.1 billion, reflecting a 7.8% increase compared with the first quarter of 2011. This consists of 8.4% growth in local currencies and a 0.6% decline related to foreign currency exchange. In local currencies, our internally generated sales were up 7.8% and the acquisition growth was 0.6%. You can see the details of our sales growth that are contained also in Exhibit A in our earnings news release. Let me point out that the comparison to the prior year first quarter was favorably impacted because the first quarter of 2012 did not include the December holiday week, whereas that particular holiday week was included in the first quarter of 2011. So this made for a somewhat easier sales growth comparison in the first quarter of 2012. If we adjust for that sales growth for that impact, our worldwide internally generated sales growth for the first quarter was 5.6% in local currencies, and that compares to the 7.8% I just mentioned. This impact was favorable on a worldwide consolidated basis on all of our sales categories, except for Dental equipment. This is because the last calendar week of the year is an exceptionally strong week for Dental equipment sales. This strong week was included in Q1 of last year in our reported sales, but again not in Q1 of the current year. And practitioners often make equipment purchases during the last calendar week of the year to take advantage of various tax incentives as well as other factors. This impact was primarily exhibited in our North American Dental equipment sales, and I will provide the specifics of this impact later on. We also believe that sales were somewhat favorably impacted by the overall mild winter weather this year. This factor had a positive impact in our Dental and Animal Health businesses due to increased patient traffic. However, we believe medical sales were adversely impacted by this mild weather as we saw a decline in sales of certain diagnostic consumable products for the quarter and I'll also talk about this impact later on. Our operating margin for the first quarter of 2012 is 6.4%, which is consistent with the first quarter of 2011. However, if we exclude restructuring costs, which we believe is the more appropriate measure, our adjusted operating margin for the first quarter of 2012 improved by 53 basis points to 6.9%. We are very pleased with the strong operating margin expansion for the quarter. Our effective tax rate for the quarter was 32.3%, which is in line with our guidance and is down from the 32.5% in the first quarter of last year. We expect our effective tax rate to remain in this 32% range for the remainder of the year. Net income attributable to Henry Schein for the first quarter of 2012 was $80.8 million or $0.89 per diluted share. Excluding restructuring costs, net income attributable to Henry Schein was $89.1 million or $0.98 per diluted share and this represents increase of 16.4% and 19.5%, respectively compared with the first quarter of 2011. I'd now like to provide some detail on our sales results for the quarter. As Stan just mentioned, this is the first quarter we are presenting sales growth results for our global customer-centric -- customer-centric business units. So with global dental sales for the first quarter of 2012 increasing 5.5% to $1.2 billion and that consists of 6.6% growth in local currencies and a 1.1% decline related to foreign currency exchange. In local currencies, our internally generated sales were up 6.2%, while acquisition growth was 0.4%. The 6.2% growth in local currencies included 8.2% -- 8.2% growth in global consumable merchandise and a decline of 0.2% in global equipment. As I mentioned earlier, Dental consumable merchandise sales were favorably impacted by the inclusion of the year end holiday week in Q4 of last year, and we estimate that this -- that if we exclude this impact, our global Dental consumable merchandise sales increased by 4.7% rather than the reported 8.2%. Internal sales growth in local currencies in our global Dental business is comprised of a 4.5% increase in our North American business and 8.9% internationally. I'll also discuss some detail behind each of these figures. The 4.5% internal growth in local currencies for North America included 7.1% growth in sales of Dental consumable merchandise and a decline in Dental equipment sales and service revenues of 5.6%. However, as I just mentioned, the fourth quarter of 2011 included the last week of the calendar year, which is when a significant amount of dental equipment is installed due to various tax incentives. We believe this negatively impacted our Q1 equipment sales results, and if we exclude this impact, our North American Dental equipment internal sales growth in local currencies was up 1.5%, rather than the reported decline of 5.6%. Our 8.9% international internal growth in local currencies included 10% growth of Dental consumable merchandise and 6% growth in Dental equipment sales and service revenues. We are obviously very pleased with our overall market share gains in the global dental market that we participate in. Turning to our global Animal Health sales, they were $525.6 million in the first quarter. That's an increase of 15.3%, consisting of 15.4% growth in local currencies and a modest 0.1% decline related to foreign currency exchange. In local currencies, our internally generated sales were up 14.8% and acquisition growth was 0.6%. As I mentioned earlier, our global Animal Health sales growth was also favorably impacted by the inclusion -- by the exclusion, sorry, of the year end holiday week in -- from our Q1 2012 sales. If we exclude that impact, our local internal sales growth was a very healthy 9.7% rather than the 14.8% on an as-reported basis. We also believe that the Animal Health sales growth was favorably impacted by a generally mild winter weather, although this is difficult to quantify with any precision. Our 14.8% internal growth in local currencies included 15.8% in North America, as well as 13.7% international growth for our Animal Health group. Our North American Animal Health growth was largely fueled by strong flea & tick products sales, and again, we believe we continue to gain market share in this business unit also. Turning to our global medical sales group. They had sales of $354.8 million in the first quarter. That's an increase of 4%, and consists of 4.2% growth in local currencies, offset by a 0.2% decline related to foreign currency exchange. In local currencies, our internally generated sales was up 3.6% and acquisition growth contributed 0.6% to our growth. If we look at the components of our 3.6% internal growth in local currencies, they were 3.4% growth in our North American business and 7.4% in our International business. We believe our medical sales were adversely impacted by a mild winter as we saw a significant decline in certain sales of diagnostic consumable products during the quarter, primarily in the North American market. Excluding this impact, our North American Medical sales growth in local currencies was 5.9% instead of the 3.4%. We believe there was also an impact related to lower sales of related products related to these diagnostic products, but again, that is also difficult to quantify with any precision. So again, despite the mild winter impact, we believe we also gained market share in the medical market. Turning to the global technology and value-added services sales group. Our sales were $62.9 million in the first quarter, an increase of 13.1% and that's 13.2% growth in local currencies with a 0.1% decline related to foreign currency. Our local currency internally generated sales was up 9% and acquisition growth was 4.2%. The 9% internal growth in local currencies included 9.9% growth in North America and 4% international growth. If we turn to stock repurchase, we continue to repurchase our common stock in the open market during the first quarter. More specifically, we repurchased approximately 544,000 shares of stock during the quarter, at an average price of $70.92 per share, or about $39 million. The impact of this repurchase on our first quarter results and EPS was not material. As Stanley mentioned, the Board has recently voted to authorize the repurchase of an additional $200 million of shares of Henry Schein stock in support of our goal of spending approximately $200 million to $300 million annually in the stock repurchase program to reduce slightly the number of average shares outstanding. If we take a brief look at some of the highlights of our balance sheet and cash flow, our operating cash flow for the quarter was negative $48.6 million and that compares to an operating cash flow of $48.5 million for the first quarter of 2011. The decline was primarily in working capital due to timing of cash receipts, which were very strong in Q4 of last year. We continue to believe that we will have a strong operating cash flow for the year, specifically our accounts receivable days outstanding were 40.1 days for the first quarter, down slightly from the 42.7 days in the first quarter of last year; and our inventory turns were 6.2 turns for the quarter, up slightly from the 6.1 turns in the first quarter of 2011. Let me now conclude my remarks by discussing our new 2012 financial guidance, which we announced this morning. We raised our 2012 diluted EPS guidance to be in the range of $4.30 to $4.40, and that represents growth of 8% to 11% compared with the 2011 actual results. This new guidance compares with our previously issued guidance of $4.25 to $4.34. Let me also point out that for 2012, our fiscal year includes one less week than 2011. We also estimate restructuring costs for Q2 of 2012 to be approximately $2 million to $4 million on a pretax basis, or $0.02 to $0.03 per diluted share, and all of our guidance excludes the restructuring cost in Q1 as well as Q2. Also, as always, our 2012 guidance is for the current continuing operations as well as any completed or 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 Stanley.

Thank you very much, Steven. I'd like to review the first quarter results from our business units that served the Dental, Animal Health and Medical practices on a global basis, as well as providing some commentary on our Global Technology and Value-Added Services business units. These 4 business units provide distinct organizational focus for reaching and serving each of our practitioner segments and are charged with implementing our 2012 to 2014 strategic plan, the plan that ends January -- December 31, 2014. And we do so with the benefits of a global perspective, strategy and operations, as well as global product and services offerings and global best practices. So let's take a look at the global Dental business first, which as Steven noted, was impacted by a number of factors relating to the holiday week of 2011, in fact, the way the calendar works and then the mild weather, which generally was favorable but did negatively impact our Medical business in the U.S. Suffice it to say though that apart from these impacts, we believe that we continue to gain market share in all of our business units. And as a further positive note, heading into the second quarter, I would like to mention that the North American Dental equipment backlog, as of now, was significantly higher than a year ago. So in understanding the business -- the performance of the business, I think it's very important to understand the impact of the calendar and some of the other variances and reasons for variances that Steven pointed out. We remain quite positive about the dental market in the United States. The traffic is -- seems to be stable to slightly growing. Consumables seem to be on the positive side and that looks to be holding, and equipment remains quite steady, of course, taking into account this anomaly at the year end. So now let's look at our global Animal Health business. This is a business that 5 years ago really was not significant to Henry Schein, although we've been in the Animal Health business for decades. The business continued to make very impressive gains in market share during the first quarter, due largely to expanding our breadth and depth of our product offering and to strengthening relationships with our customers on a global basis. Sales growth was favorably impacted by factors relating to the holiday week of 2011, just like in Dental, and the mild weather; obviously, with the mild weather, more patient visits. And we believe we continue to gain market share across the board, whether it's in the United States, in the companion animal arena, in Europe and Australia, New Zealand. About a month ago, we announced the signing of a definitive agreement to acquire the veterinary distribution business of AUV Veterinary Services for a purchase price of approximately $38 million. That's U.S. dollars. We expect the transaction to close before the end of the second quarter. This business is the leading distributor serving Animal Health professionals in the Netherlands and Belgium, and does a great job of course, not only on the distribution side but providing terrific value-added services to the veterinarians of Belgium and the Netherlands. When this transaction closes later in the quarter, it will advance our Pan-European strategy of providing Animal Health practitioners across the continent with products and related services they need it in order to operate a more efficient practice and deliver high-quality care. Let me point out that the AUV veterinary business currently carries approximately 1% operating margin, and will negatively impact our consolidated worldwide operating margins going forward. Of course, this is nothing new in the history of Schein, and our goal is to provide better value-added services our customers and accordingly -- and improve the efficiency of the business and accordingly, generate greater operating margin and therefore better return on investments for our investors. So shareholders may recall this is exactly the same scenario as we had when we acquired the Demedis business in Germany and in many parts of Europe -- Western Europe several years ago and many other businesses. We look forward to the opportunity to, of course, improve on the terrific service that is already being offered to the Animal Health practitioners in the Benelux countries, and improve on the operating margin as AUV over the course of the next few years improves efficiencies and implements our Value-Added Services model. It's a terrific team and really very, very knowledgeable on the Animal Health arena, great overall and I think a team that is very happy to be housed with Henry Schein, a company that is committed, in fact, the only really global Animal Health distribution company. We estimate this acquisition will negatively impact operating margin for the second half of the year by approximately 10 basis points. AUV veterinary services, as I noted, has tremendous reputation and a leader in the market it serves. Importantly it will be an excellent business and cultural fit with Henry Schein. AUV Services was founded in 1969 by 100 veterinarians. Today, it includes approximately 200 team members with headquarters and distribution centers in the Netherlands and another distribution center and a related headquarter in Belgium. AUV serves more than 2,000 large Animal Health veterinarians and their net sales for 2011 excluded -- exceeded $2.07 billion. Today, as I think our shareholders know, Henry Schein is the leading pan-European distributor of animal health products and services. We serve veterinary customers throughout Western Europe with operations in Australia, the Czech Republic, France, Germany, Portugal, Spain, Switzerland and the United Kingdom. And of course, our global Animal Health business also includes operations in the United States and Australia, New Zealand and a small operation in Hong Kong. With the addition of AUV, our annual global Animal Health sales will be well in excess of $2 billion. We are very pleased with the progress we are making in the development of our global Animal Health vertical. I think we have an outstanding team led here in the United States by Kevin Vasquez, and by Peter McCarthy in Europe, Nigel Nichols in Australia, New Zealand and with Lonnie Shoff as the head of the global vertical. Terrific leadership on the practice solution side in the software area; lots and lots of opportunity to work with our key suppliers in advancing their strategies, both on the product side and more importantly on the services side, using technology so very, very excited with this business. The business is in a process of taking Henry Schein's strategic plan and digging even deeper in regards to implementing their plan and developing the appropriate strategies and tactics, so very, very happy. So now let's take a look at the global Medical business. Just let me be sure to point out that the North American part of the Medical business comprises well over 90% of the global Medical business, and really, our only major presence in the Medical business abroad is our strong position in the German marketplace, although we have meaningful Medical businesses in a number of other European countries. Growth in this market during the quarter was largely fueled by increased penetration of large group practices here in the United States and solid growth in sales of pharmaceutical products. As Steven mentioned, the mild winter weather resulted in significantly lower sales of diagnostic consumable products. The overall business, the other products actually did very well, and we believe we continue to gain market share in the Medical business in the United States. Likewise, our business in Europe, although pretty small, did well and is positioning us to increase our global footprint in the medical arena, which is primarily focused on the office space and other alternate care site facilities. Now the global technology and value-added services units, very, very important, of course, important from a profitability point-of-view, very, very profitable business unit but more importantly, profitable, more importantly, this unit provides stickiness. The connection between our customers and Henry Schein in the area of Value-Added Services is terrific. Our goal is to help practitioners operate a better business so that our customers can provide better clinical care and the global Technology and Value-Added Services unit in fact is a key ingredient in this success formula. The performance of this group continued to be excellent during the first quarter, with strong internal growth in the United States, bolstered by our strategic acquisitions including our Animal Health businesses, which are really coming together very, very nicely in the practice solutions area and a great complement to the Butler Schein merger, which has been so successful. More than 85% of the technology and value-added services group revenue is at this point in time, still derived from North America. In mid-April, we acquired ImproMed, which is a small company with annual revenue of $4.5 million based in Barcelona, which provides practice management and software to dental practices in Spain. The $4.5 million is not as important as the fact that we have -- we continue to advance our strategy for tuck-in acquisitions on the distribution side, but very important on the practice solutions side, which is a business that's somewhere around $250 million today and plays as well as a critical role in the profits of Schein, but more importantly the stickiness of the relationship between Henry Schein and our customers and indeed, the connectivity between Henry Schein, our customers and many of our suppliers, lots and lots of exciting opportunity here. We strive to stay on the leading edge of technology solutions and in March, we launched Dentrix G5, which is a new version of the Dentrix practice management system. Dentrix G5 has multiple new features including new database architecture. The architecture improves product performance and also allows Dentrix to become an open platform for other dental applications and technology to link directly into Dentrix. Very exciting, and for those that are really interested in our business from a micro -- a more micro point-of-view, it's probably a good idea to take a look at what Dentrix is doing at the next dental show or speak to a practitioner that is a Dentrix customer. To support developers writing for the Dentrix platform, we launched the Dentrix developer program. Many developers, often not employed by the company, are now writing applications that are compatible with Dentrix, of course, the leading provider of dental software in the world and are in the process of joining the program. This means Dentrix soon will have a multiple of new applications that are integrated with Dentrix, which will allow them to build out their digital office. As another technology development, in mid April, we opened the Henry Schein TechCentral Solutions Center to provide comprehensive customer support for dental and office technology solutions. TechCentral brings together experts in Dentrix, Easy Dental and a multiple of other practice management solutions systems we offer, and more importantly, with various technology disciplines combined with software and other technology disciplines, including hardware and wiring of practices, et cetera. These professionals work together as one team to provide customers with a 360-degree support and not merely help for a single product. We know for a fact that the dental practice achieves greater efficiency, lower operating costs to provide better patient care within an integrated networking solution, and we have done a very good job in this area on the dental side and the Animal Health side. TechCentral continues to make it faster and easier for our customers to get the expert support they need without having to call multiple companies. We, of course, have similar programs in the medical arena, not quite as advanced as the dental and Animal Health, though. So Steven and I would be happy to take questions, but before we do that, let me just go through 2 further comments related to the industry rankings that Team Schein is so proud of, and again, so happy with the team today. Started out, we went public with a few thousand Team Schein Members, and now over 15,000 Team Schein members spread out over about 400 locations around the world, providing business and providing support to about 775,000 practices, about 1 million practitioners. Henry Schein was once again ranked first in our industry overall Fortune 2012 List of the Most Admired Companies. We repeated our first-place ranking for 2011 in the categories of social responsibility and global competitiveness, showing that the of twinning of global responsibility and business provides great results for the other constituents, mainly our suppliers, our customers, our team, our investors, in the context of making a difference in society. It really works in our formulation and is a great model for us. We also ranked first in the categories of quality in management, quality of products and services and long-term investment. Of course, we are gratified that the team was recognized for the strength in our global management, the quality of our products and services and our supplier partners -- and the relationship with our supplier partners, and the steady predictable return that we have delivered to our shareholders for so many years. Separately, Henry Schein was named to Ethisphere's 2012 List of the most -- the World's Most Ethical Companies. This is the first time Henry Schein appeared on this list, which has been published for the past 6 years. The Ethisphere Institute is an international think tank dedicated to creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anticorruption and sustainability. Out of the 5,000 nominations, Henry Schein was named to the list as -- list of 145 companies for raising the bar for ethical standards within the health care industry. A deep commitment to this highest ethical standards of business practice has been the hallmark of Henry Schein for the past 80 years. In fact, this is our 80th anniversary this year. This commitment continues to be at the very core of the business model as we become more of a global company advancing our team of 15,000 Team Schein members around the world. So on a final note, we're very excited as we go into the 16th year as a public company and the 80th anniversary of our founding. So thank you to those shareholders that have been with us since the beginning and those that have joined us along the way. We remain extremely bullish about the company. There are lots of challenges. The world economy is not stable in every respect. Not every metric is working in the right direction. Having said that, I think we have an outstanding management team, a committed organization and have a pretty good strategic plan that we're advancing and fanning out throughout the organization. So Steve and I would be now, be happy to answer any questions that callers may have.

[Operator Instructions] Your first question comes from Glen Santangelo with Credit Suisse. Glen J. Santangelo - Crédit Suisse AG, Research Division: Stan, I just wanted to follow-up with you on some comments you just made. You basically said like not everything is working in every market, and it's not perfect, but you showed pretty solid organic growth trends across all your businesses, across all your geographies, really, and I'm kind of curious as to Europe is particularly surprising given what we hear from the macro commentary. I'm surprised that your International business is growing faster than your North American business. And so I'm wondering if you can comment on that. Do you think if it's more share gains or is maybe the market over there maybe a little bit better than we all think?

Very good question, Glen. So I think one has to peel the onion a bit. Yes, let's deal with the challenges to start with. Italy, Spain, Portugal, the markets are not that good. We are gaining market share, but there's some challenges. Germany is on the positive side. We continue to gain market share, but the market overall is okay as well. The U.K. is challenged, although we are doing quite well in the U.K. We're working with some of the larger groups. I think we've adapted quite well to some of the concerns relative to the change in reimbursement. The Benelux countries are doing okay. France, at least from a Schein point-of-view, is doing okay. We, of course, are guarded and trying to figure out what the election -- the impact of the election will have on our business. And of course, our business is primarily a dental business, although we have an interest in a nonconsolidated Animal Health business. That's a nice business, we do not consolidate it. And it's a very small investment, but a decent-sized business. Australia and New Zealand, I think there are -- it is a lumpy market, but overall, the economy is healthy. I think just like Canada, Australia and New Zealand, did a little bit better during the recessionary period and both markets are quite solid. So in general, the comments I gave you are not specifically related to this quarter, but in general, giving you a feel. Of course, in North America the U.S. seems to be doing better. There are weeks that the economy, at least from our point-of-view, business is very good and there may be a week where we say, is there a challenge? But overall, I think our team is quite bullish, the pipeline for equipment, although there's no guarantee that we WILL actually install this equipment in the quarter, or uninstall it, seems to be solid, and so I think that’s sort of a bit of a view around the world. I think the dental market is okay around the world, the Animal Health market certainly seems fine, and medical is a very small business for us outside of the U.S., although we are doing okay and maybe 2 years ago, we're not doing so well, but now we are. Glen J. Santangelo - Crédit Suisse AG, Research Division: Hey Stan, maybe if I could just ask one quick follow-up on the equipment side, I mean, given the strong organic trends and it sounds like most of the markets are generally doing okay. What do you make of the equipment number continuing to lag? And what do you think's causing that, and you just sort of commented you think your pipeline on equipment looks good, and so would you expect those trends to reverse here as fiscal '12 unfolds?

Well, first of all, I think Steven was quite clear on the swing between the fourth quarter and the first quarter as it relates to the most productive week in the year. So and Steven can take you through that in specifics so I think the quarter was probably, if you adjust for this, but again, this is very hard to get the precise number, was a positive quarter and that was on the heels of a very, very strong previous year. So I think the equipment business is okay. We perhaps are a little bit more optimistic, but don't want to give predictions for the next quarter. But again, we're what, one month into the next quarter? So I think the trend you saw in the last, what, 8 quarters in equipment is kind of continuing. Dentists feel that they should invest in their practice, and they're doing that. Financing doesn't seem to be difficult, it's there, and the cost is very low and the traffic seems to be getting a little better. So we're not at 2006, and '05 levels, but we're definitely part of seeing a trend here that continued I don't know the exact quarter, but probably 8, maybe Steven knows or remembers, 8, 9, 10 quarters ago.

Yes, Glen, I would just echo that. I think if you look at that North American equipment, our North American Dental team really did an extraordinary job in promoting all of the year end tax benefits for buying equipment and we really had an outstanding Q4 that, to some extent pulled some sales from Q1. I think we certainly believe that the adjusted 1.5% equipment sales growth that we reported for Q1 for North American Dental equipment sales, we expect it to grow that sales growth. I don't want to give specific guidance on it, but we do expect it to grow during the year. So we feel like equipment sales was more of a timing impact with the strong Q4, and you will see improvement as the year progresses.

Your next question comes from Robert Jones with Goldman Sachs.

Just actually wanted to focus on Animal Health a little bit. Clearly much stronger results there in the quarter than what we've seen recently and certainly what we were looking for. It sounds maybe a little bit of the strength helped by flea and tick, but maybe taking that out, could you guys maybe just comment about how we should be thinking about the growth of the core business in Animal Health? And is maybe some of this just pent-up demand from a generally weak economy the last several quarters?

Without getting into micro, but it's very actually hard to get to specific trends, there are all sorts of indices one can look at, but I think when you take a look at this market in general, you have to understand how agency sales switch between GAAP sales, where the sale is fully recognized and agency sale, you have to look at that. You have to understand the large animal versus the companion animal information, and there's very little information available as to the performance of others in the marketplace on a bifurcated basis. You then have to take a look at price impact, and there have been some very nice launches in the field, to mention the Trifexis, Comfortis situation so one has to understand all of these. Having said that, the market seems to be growing. I don't think it went down as much as some people reported, and it may not be booming as much as others are thinking today. But it is a market that is growing in the 100s of basis points, and it's a good market, and from a Henry Schein point-of-view, we believe we're gaining market share. We believe that our software acquisition, the expansion of products that we're offering to veterinarians, the value-added side and -- is doing well. I think from a Henry Schein point-of-view, you have to remember that in 2010, our sales force was inwardly focused during the integration period. Some of that went into 2011, but as the year continued, and even going into the first quarter, we think we are in a good shape -- not good, outstanding shape from a sales organization point-of-view and that's helping us gain market share. So there's many puts and takes here, and I don't think we can give you a one-sentence answer on this.

No, that's helpful. And then I guess just a quick follow up around Animal Health, and specifically the acquisition of AUV announced in the quarter. It sounds like that acquisition is going to be slightly dilutive to 2012. I was wondering if that's still the case, just relative to the updated guidance that you gave today. I don't believe that was included before. And then, I guess longer-term around Animal Health and relative to this acquisition, I think you said it was about a 1% operating margin. Could you maybe just talk about the operating margin profile of the vet business in light of this acquisition? Or maybe timing that you expect to get those margins closer to current vet operating margins?

Sure, so yes, a couple of questions there. So first our guidance that we issued today includes the AUV acquisition, which will be slightly dilutive for the balance of the year, and we think it's $0.01 or $0.02, not something significant, slightly dilutive. A big factor for that is the professional and onetime fees needed to close the acquisition, which is driving some of that dilution and really, not much synergies achieved. Because remember, the deal is not closed yet; it's expected to close by, let's say end of Q2, maybe early Q3, at the latest. So there's not really a lot of synergies that we can achieve going forward in a 6-month period. Longer term, we believe that, that 1% operating margin has potential to get up significantly higher, mid single-digit range over a number of years. So it's not a one-year activity. And last I want to point out, because there were, we did talk about the purchase price, which was $38 million, and we -- there were estimates out there for significantly higher. Some people had estimates out there equal to onetime sales, which would have been close to $300 million. So we paid because -- we paid a price, which we felt was a fair price, but because the business is only 1% operating margin today. But again we think that the inclusion of some of our purchasing synergies and global expertise in distribution and things like that, we have good opportunity to raise operating margin. So we feel good with the acquisition. And it's a healthy size from a revenue -- just under $300 million in revenue. So overall, the main reason why Animal Health all-in margins are lower, I think we talked about this before, is because of the percentage of pharmaceuticals, which carry a lower gross and operating margin, and it’s critical to carry. Obviously, the pharmaceuticals are a big part of what veterinarians dispense and offer to pet owners. So again, we feel good about the acquisition and the opportunities, but I just will caution that it will take us a little bit of time to realize the synergies.

Your next question comes from Brandon Couillard with Jefferies. S. Brandon Couillard - Jefferies & Company, Inc., Research Division: Steve, was there an acquisition in the North American Dental unit in the period? And then does your revised outlook contemplate any incremental share repurchases due the balance of 2012?

So there was really, trying to just check. I think there was the tail end of an acquisition in Dental but it was very tiny. Just trying to check which one it was. Let me answer the second question first as I get that information from the -- the guidance really does not assume any significant amount of stock buyback. We don't want the guidance to get ahead of the stock buyback because if, for some reason, we wind up buying less than our expectations, we don't want to have the guidance at risk. So really, we think that there's a little bit baked in, but the bulk of it is not baked into our guidance. As far as the acquisition growth, the primary acquisition in global Dental was the Sogim acquisition in France, but there was in the U.S. a small, a very small acquisition that we didn't announce on the Dental side, so yes there was a little bit of acquisition activity in the global Dental piece. S. Brandon Couillard - Jefferies & Company, Inc., Research Division: And then secondly, what is your revised EPS outlook factor for FX headwinds? And I guess if you could be more specific around the euro-U.S. dollar rate, it’d be helpful.

Sure. We're still being a little bit conservative in our guidance on FX rates. We have utilized in our guidance a lower exchange rate specifically for the Euro, which is the primary currency that impacts us, so we're using a lower rate than the current $1.30, $1.02 exchange rate that we're at, to be a little bit conservative there, and given that we're not sure exactly which way it's going to go, and hard to predict, there's a little bit of conservatism still built into our FX rate and our guidance.

Your next question comes from Steven Valiquette with UBS.

Just wanted to make sure I heard a couple of numbers right. It’s clearly, a lot of moving parts this quarter, so when you guys mentioned there was a 10% growth in internal Dental consumables and 6% growth in internal dental equipment, I wasn't clear if whether that was the global sales or international sales. So I just want to try to confirm that first.

Okay, yes, so both of those numbers, the 10% local internal growth were for the international Dental merchandise, and the 6% was the international Dental equipment.

Okay, so that’s international. Okay so then do you happen to have the global numbers, then? Global breakdown between global Dental consumables and equipment internal.

Yes. So let me give you -- the reported numbers global Dental merchandise growth, this is again local internal, is 8.2% and global Dental equipment minus 0.2%, and that translates to overall local internal on a combined basis of merch and equipment of 6.2%. And again, just to highlight again the dental equipment sales were negatively impacted by this last week of the year, and that minus 0.2% becomes plus 3.6% on a global basis when you adjust for that.

Okay. And I think some of the other questions kind of touched on this, but just generally speaking, does it seem like consumables growth should be outpacing equipment for the rest of this year? Or just I guess any additional general thoughts on the consumables versus equipment growth within Dental for the rest of the year.

Well, remember, consumable growth had significant tail winds because of this calendar week issue, whereas the opposite was true on equipment. So when you normalize for that, again the worldwide global Dental consumable merchandise comes down a bit to 4.7%, and that's clearly, we think, gaining market share. If the market is growing in the 2% or 3% range, that's probably a bullish estimate of what the combined market is. So we're growing at close to double that on an adjusted basis. Typically, the merchandise sales as people are feeling more optimistic and patient traffic continues to be improving to steady, is where you first see a benefit and then as the consumable sales continue to do well, people become more bullish on equipment. So equipment generally takes a little bit longer to catch up to the market improvements than the consumables.

Your next question comes from Robert Willoughby with Bank of America-Merrill Lynch.

Steve, the organic trends look good. Congrats on that. They're ahead of where we thought they'd be, but we're still looking at the capital deployment side of your business model here. It looks like the deals added, I think you broke out 0.6% growth to revenues are about $12 million, and I’m looking at here minority interest line item and track only about $2 million, so if I look at all-in deal spending of about $211 million, looks like you generated maybe $3 million or so in incremental contribution. Is that the best use of your capital? I would think a share repurchase of size and magnitude would get you more.

Well, you know, we can offline, Bob; I don't think your math is accurate on using that minority interest, but offline we can go through that. As far as your general question on capital deployment, we feel like the balance sheet and the cash flow is strong enough that we can do a very sizable stock buyback annually, and again, our goal is $200 million to $300 million per year on a continuous basis, so it's not a one-time shot. We want to see that share count shrink continuously over time. But you can't buy back all your shares and get to prosperity that way. So we do feel that using capital to grow businesses and you've got to be careful on first-year impact of acquisitions. The way the accounting works with professional fees, per share benefit on acquisition growth is nominal; the second and third year we should get good returns on investments. Our goal is to get double-digit in fact, mid teens pretax return on investment by year 2 or 3. So we feel that, that's a good deployment of strategy, and you have to also realize that as we expand globally, take for example, on the Animal Health side, the benefits to all of the other business units because of supplier relationships and best practices and other factors aren't exclusively shown in the acquisition model. They also are shown in the existing businesses, so we think we should do both.

Okay, all right, that's helpful. And just a question. Did you break out a benefit from the leap year at all for the businesses?

The quarter had the same number of weeks. There is no benefit. We have said consistently is that 2012 has one less week versus 2011, so that's all baked into our full year guidance. It's not equivalent to, on a EPS basis, you know exactly 1/52 of a year. It's a little bit less than that because it's a slower week for consumables that drives it. But that we’ve talked about a couple of times, if that's helpful.

Yes, I was thinking the extra day in February, but that's fine.

Okay, so no, we didn't really, we didn't give any data on that. And again, because we're on the same number of weeks -- for us, we don't actually have an extra day for leap year. We have the same number of weeks, 13 weeks every quarter. It's not the same as a calendar month end.

Your next question comes from Jeff Johnson with Robert Baird. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Steve, you know what, you just touched on it, but I just want to, my inbox got flooded with about 20 e-mails as you were going through the timing issues in your prepared remarks. Just want to confirm, no extra selling week this quarter; it was purely timing of a soft consumables quarter last year in the first quarter that gets dropped out this quarter and that's what helped kind of the higher growth rates on the consumable side.

Yes, so again, just to be very clear for everyone on the call, and you have it exactly right, same number of weeks, same number of days in Q1 this year versus last year, but all of our adjusted sales growth were reflecting that last year's Q1 included the holiday week, the Christmas/ New Year's week, which is on consumables, on everything but Dental Equipment, a soft week. And what we broke out is that because of that easy comparable last year, that our sales growth was favorable because of that. And just to resummarize, the reported local internal growth on a worldwide basis was 7.8%. That's reported-to-reported, but the adjusted, when factoring in that favorable comparability in Q1, was 5.6%. So it's about 2 percentage points that it helped us during the quarter. And we wanted to be as transparent as possible and take people through that, because even though it was a very strong sales growth quarter, part of it was related to this. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Yes, fair enough. And just on the margin side, it sounds like AUV, at least my math, may be at 20 basis point headwind operating margins, once that deal closes, the company-wide margin for 4 quarters then. But you do 53 basis points this quarter. Maybe you've got a little bit timing benefit as well. But how do you think about margins developing over the rest of this year? A good quarter this quarter. Can some of the expansion continue over the next 3?

I would be cautious. Our goal, we were at the high end of our goal for the quarter, which is the 50 basis points. I think that was driven in part because of very strong internal sales growth. So we still expect margin expansion on a full year basis, but maybe not quite to the same level that we experienced in Q1. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: And last question, just why was working capital such a big use of cash this quarter that drove operating cash flow negative?

It was really 2 areas, trade accounts receivable, which we had very strong cash collections at the year-end for Q4. Again the timing of our year-end, which was December 31, in 2011, a lot of people for tax reasons, I think, paid at the end of the year in order to get the tax deduction if they're on a cash basis. So we think it was primarily timing on the working capital, both on the trade receivables and the trade payables, where we took advantage of cash discounts. It's just the timing of it. Overall, free cash flow and operating cash flow, we're still expecting to be very strong for the full year.

Your next question comes from Lisa Gill with JPMorgan. Michael R. Minchak - JP Morgan Chase & Co, Research Division: It's actually Mike Minchak in for Lisa this morning. First, just with respect to the updated 2012 guidance, you took the range up by roughly the amount of the beat in the first quarter relative to consensus. Can you talk about what drove the strength in the first quarter versus your internal expectations? And I know you had mentioned the weather benefit, but was there anything else that positively impacted the first quarter that you don't see -- expect to see a continuing benefit of, over the course of the year?

Well, it's a difficult question because it's not just the weather or the easy comparable on some of the sales categories. We had absolutely a very strong internal sales growth, despite all of those other factors that provided some tailwind across the board. We still think that the markets Stanley talked about, just a little bit, the markets still have some uncertainty. So we're trying to be conservative in our overall guidance I talked about earlier; foreign exchange that we're trying to be conservative. And you know, but we feel like things, certainly since last conference call and 2 conference calls ago, we’re feeling like our markets are continuing to improve gradually, and the ones that really aren't improving, maybe some of the Mediterranean countries, that they're at least stabilizing in our market. So we feel bullish, and we want to have guidance out there that we don't have to change on the downside, should some of these uncertainties materialize. Michael R. Minchak - JP Morgan Chase & Co, Research Division: Understood. And then maybe just to drill down a little bit on the equipment side, I was wondering if you could provide any incremental color or breakdown on the trends, both within high-tech and basic equipment in the quarter? Is one growing faster than the other? And then maybe if you can comment at all on E4D?

Sure. Well, high-tech and specifically, E4D had very -- had a very strong quarter for Q1, but we also saw improving growth in traditional equipment so it wasn't just related to the high-tech, but high-tech was stronger than traditional for us. And the strongest within high-tech was the E4D CAD/CAM business.

Your next question comes from Larry Marsh with Barclays.

This is Elliot Feldman filling in for Larry. Just a quick question on the Medical business. A bit of a sequential slowdown in organic growth but obviously, following a pretty good growth in 2011. Just wondering if you could provide any updates also for what you're seeing around broader utilization patient traffic trends, I mean, discuss about that a little bit and perhaps, maybe more importantly, the competitive environment in the space. I know you got some pretty nice market share gains last year, so any updated thoughts on that would be great.

Yes, I think again, we commented and Steven commented in, I think quite depth here, you need to take into account these sales of diagnostic products in the quarter. There was a significant dip because of the mild season, particularly relating to flu and that kind of problem. So we believe the 3.4% internal growth in local currencies for North American Medical sales would have been approximately 6%, somewhere around that, hard to tell, if not adversely impacted by the mild winter weather. So overall, I think this is in line with the kind of sales we've shown, the growth we've shown for a while now, for many quarters. Maybe it's a little bit, slightly better from, I can't recall, Steven, what it was last quarter.

It wasn't slightly better, but it was comparable.

Comparable. So I mean we've been showing this mid single-digit growth now for a while, hard to tell again what's the market, the exact market growth rate is because there's little data available. We believe we increased sales to our larger group practices by something like 20% in North America. And we had some strong pharmaceutical sales, specifically to the larger practices, so all of this contributed to our sales in North America, and we believe, as we have, I think indicated and shown for a while now, that we are increasing market share. So I can't give you more specifics than that. But I think it would be wrong to characterize our sales as anything but growing market share, and that the market is a solid market. It's changing significantly and, I think it was about 3 years ago we, or maybe a little longer that, when we created our Health Care Services group to focus on the larger practices and the new kinds of entities emerging. And this group has done very, very well and we continue to grow market share in the newer entities and the larger entities. So the Medical business is growing. Of course, there are some challenges with margins, but we have to manage through that.

Okay, that's helpful. And Steve, I know I may be a little bit too early in asking this. I know it's only May but just around flu, given some of the changes to the contractual agreements you guys have announced this year, coming off a pretty weak flu season, any early expectations you guys can provide us for that business, later this year we can – might be able to see in the back half?

It's still really early in the season and because of the mild winter, we believe that the pre-book activity, people haven't really mentally turned to thinking about buying flu vaccine for the upcoming season. Expectations are basically to sell a similar amount of doses as we sold last year, which was about 11.5 million doses. There's really not any reason at this point in any data points to have a different opinion than that. Our new contract, we think, provides us the opportunity for better profitability, as well as the age indications on the new manufacturer are lower, so that's helpful to some practitioners that are serving younger patients. But it's still very early on, really, to have any better intelligence in that market.

We only have time for one more question and your question comes from Jonathan Block with SunTrust.

Maybe just 2 quick ones. The first is on the Animal Health side. Several weeks ago, one of the manufacturers announced their intention to have at least one of their distributors go ahead and be able to become sort of a generalist, selling products of some of their competitors, and so maybe just your thoughts on IDEX’s announcement and how you view that relationship going forward?

Yes, first of all, we view our relationship with IDEX to be a very good one. I think our value-add service model is a good one. That, I think, fits in very well with their strategy. We are both committed to advancing the operating efficiency of practices, helping them run a better practice, so that they can provide better clinical care. Obviously, the announcement by IDEX is a new one. We are in dialogue with them; we're evaluating, and I think we need to understand more of what this means at this stage. And so I would say that's -- we are a very good customer of IDEX and the relationship between the 2 companies, it's very good. We see global opportunity, actually, in expanding our relationship with IDEX so, and I think the services that our practice solutions business can offer to IDEX and to others out there, I might add, is something rather unique. And so we are committed to advancing our relationship with IDEX, but can't comment on any specific economics much there.

Fair enough. And then last one, Stanley, earlier in the call, you gave a lot of great color on international markets, how things are playing out. On just big picture, can you speak to maybe where you're seeing some more resiliency? In other words, again, you gave color by market, but when you look to sort of Vet versus either Dental, does one stand out more than other, showing a bit more resiliency in some particular markets?

That's a good question. I think actually on average, both the Dental market, as a global vertical and the Animal Health market on a global vertical basis are in much better shape than we were in fourth quarter 2008 and of course, 2009. We started seeing positive trends in 2010, which continued in '11. I would say if I look at what's really directly in front of us, I would be bullish, but I think one has to remember that there's a wider -- there are wider macro trends out there, and we have to run our business very conservatively in case we experience macro bumps along the way. But having said that, I think both markets at the second, looking out, very short-term, look to be okay, globally. I mean, we covered all the specifics by country, but I think the global Dental market is, at this point in time, looking short-term, is much more positive that it's been in a while. I think the same is on the Animal Health side, but again, one has to be very, very cautious in this environment, and I think everybody on this call is aware that the economy looks to be like it's doing a little bit better, but none of us would be surprised if there were negative bumps along the way. So, and we have to deliver on our commitments. So we are optimistic, but very cautious. So thank you, everyone for participating in the call. Thank you for the good questions. Of course, Stephen is available should anyone have any questions at (631) 843-5915. Susan Vassallo is -- who heads our communications, can also be reached at 5562. And again, as noted, I think the tone is that we're feeling very good about the state of the company, about our strategy. I think we've made good investments. Obviously, when you make an investment, the return doesn't come right away. Businesses that we invest in take time to integrate and to optimize. We are investing and expanding our global footprint, and investing and expanding our product offering. We didn't cover the Dental side in much detail. With regard to that, we're investing in the specialty areas, doing very well over there. I think our global Dental footprint is a good one. I don't know the exact number, but somewhere around the $5 billion Animal -- Dental business, lots of synergies from best practices point-of-view here, implementing technology ideas, implementing a greater focus on providing a one-stop shop to specialists. All of this is working well in combination with our advancements in the whole change in digitalization of the prosthetics and implants field. I think the Dental business is very, very exciting. The globalization of our Animal Health business is exciting and the terrific work we're doing in the U.S. to address some of the new forms of health care delivery and expansion of some of the larger clinics and IDNs is all very exciting. So we're very optimistic about our capabilities and the morale in the company, the talent we've added. But you know, and I think Steven is right, when he's cautious about providing too positive an outlook for the future, as we -- none of us know what kind of speed bumps we will encounter along the way, and we want to make sure that we deliver on our commitments as we did throughout the recession. So thank you, all, for your interest, and we look forward to speaking, I guess, in another 12 weeks or so. Thank you.

Thank you, ladies and gentlemen, for participating in Henry Schein's First Quarter Conference Call. You may now disconnect.