Henry Schein, Inc. (HSIC) Q3 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Henry Schein Second 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, Carolynne Borders, Henry Schein's Vice President of Investor Relations. Please go ahead, Carolynne.

Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's third 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 contents of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, November 5, 2013. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. [Operator Instructions] With that said, I would like to turn the call over to Stanley Bergman.

Thank you, Carolynne. Good morning, everyone, and thank you for joining us. Solid growth in sales and earnings during the quarter reflects our strategy of organic growth, complemented by strategic acquisitions and our ongoing commitment to controlling expenses. Once again, we believe a positive indicator of the continued success of our diversified strategies is that we have gained market share in each of our businesses. We're also pleased today to be affirming 2013 financial guidance while introducing guidance for the year 2014 diluted EPS that represents growth of 10% to 12% compared with the midpoint of our 2013 range. So we are pleased with the performance of the company in general. The sales reflect a continued market share growth in each of our business units, Dental, Medical, Animal Health. And we're pleased that we are able to reaffirm guidance for the remainder of this year for next quarter and introduce the guidance for 2014 of 10% to 12% growth. I'll provide additional commentary on our performance a little bit later, but let me now ask Steve to review our quarterly financial results.

Okay. Thank you, Stan, and good morning to all. I'm also pleased to report solid results for the third quarter of 2013. As we begin, I'd like to note that our third quarter results include certain onetime items. The net impact of these 2 items on our GAAP results is a positive $0.01 per diluted share. The first of these items is a one-time charge of $12.5 million or $0.14 per diluted share related to the previously announced divestiture of a noncontrolling interest in a dental wholesale distributor in the Middle East. We separately have talked about that and it occurred during the third quarter. I'll also point out that there is no tax benefit on that loss. Second, our Q3 results include a benefit of $13.4 million or $0.15 per diluted share related to an overseas tax restructuring that will allow us to utilize tax loss carry forwards in the future to reduce future tax obligations. We have prepared our commentary excluding these items and so we think these one-time items, it is more comparable to show the effects excluding them and we will refer to our adjusted net income and adjusted EPS when excluding both of these items. If you look at Exhibit B of this morning's news release, it contains a reconciliation of GAAP to non-GAAP income and GAAP to non-GAAP diluted EPS from continuing operations. So now turning to our sales for the third quarter. Our net sales for the quarter ended September 28, 2013 were $2.3 billion, reflecting a 5.3% increase compared with the third quarter of 2012. This consisted of a 5.2% growth in local currency and a 0.1% growth related to foreign currency exchange. In local currencies, our internally generated sales increased 3.4% and acquisition growth also contributed an additional 1.8%. Again, you could see the details of our sales growth that are contained in Exhibit A of our earnings news release. The operating margin for the third quarter was 6.8% and expanded by 13 basis points compared with the third quarter of 2012. This was primarily driven by a reduction in operating expenses as a percentage of sales which was partially offset by a lower gross margin due mostly to product mix. We also like to show the impact of our margin, excluding the impact of current-year acquisitions that were completed during the past 12 months, as well as the impact of flu vaccines from both periods. And when you do that, our Q3 operating margin expanded by 20 basis points which was in line with our expectations. If you look at our tax rate for the quarter, the reported tax rate was 21.7%. However, if we exclude the impact of the benefit of the overseas tax adjustment that I just mentioned, the effective tax rate on a going forward basis or on a continuing basis was 30.1%, which is down slightly from the third quarter of 2012, down 0.4%. But it is in line with the guidance that we gave last quarter and we do expect our effective tax rate to continue to be in that 30% range or maybe even slightly below for the balance of the year. If you look at net income attributable to Henry Schein for the third quarter of 2013, it was $107.4 million or $1.23 per diluted share. Excluding the 2 items I just mentioned, our adjusted net income for the quarter was $106.5 million or $1.22 per diluted share and that represents growth of 10.1% and 13.0%, respectively, compared with the third quarter of 2012 on a non-GAAP basis. Again, you can look at Exhibit B for the details of those comments. I'll also note that the foreign currency exchange fluctuations did not have a material impact on our EPS for the quarter. I'd also like to provide some details on our sales results for the third quarter. If we look at Global Dental sales for the third quarter of 2013, we have shown an increase of 5.7% to $1.2 billion and that consisted of 5.2% growth in local currency and a 0.5% gain related to foreign currency exchange. The local currency internally generated sales growth was 3% and acquisition growth was 2.2%, totaling that 5.2% local currency growth. If we look at the internal growth of 3% in local currencies that was comprised of 4.8% growth in North America, so very strong growth in our North American business and a slight decline in the International business of 0.1%. Let me now go through some of the details behind each of the North American and International results. The North American growth of 4.8% included 3.4% growth in Dental consumable merchandise sales and 9.9% growth in Dental equipment sales and service revenue. We're really very pleased with the North American Dental equipment sales growth for the quarter approaching 10%. Our International Dental sales at 0.8% -- included a 0.8% decline in consumable merchandise but also a 1.4% increase in Dental equipment sales and service revenue. We continue to believe that our International Dental market is stable and we're hopeful that we'll see improvement in the not-too-distant future. Our Global Animal Health sales were $642.3 million in the third quarter, an increase of 7.4%. This included 8% growth in local currencies and a 0.6% decline related to foreign currency exchange. In local currencies, our internal generated sales growth was 5.9% and acquisition growth was an additional 2.1% which was primarily related to the C&M Vetlink acquisition. If we look at the 5.9% internal growth in local currencies, it consisted of 10.4% growth in North America, so double-digit growth in North America and 2.1% growth in International. We've shown over the last few quarters normalizing our sales growth results in North America to account for the switch from agency sales to normal traditional sales. And when we normalize our sales growth results in North America, that growth was 4.8%. And we believe we gained market share in this business unit also. Turning to Global Medical sales, they were $444.5 million in the third quarter. That's an increase of 0.5% which consisted of 0.3% growth in local currencies and 0.2% growth related to foreign exchange. There was no acquisition activity during the quarter that contributed growth. It's important, I think, to look at our growth, the components of it. If you look at North America, which is the lion's share of our medical business, we did have 0.5% growth and we did see a decline of about 5.8% but on a small base in International. It's also important to note that influenza vaccine sales were lower this quarter than in the prior-year quarter. So for us, that's a timing impact, lower sales this quarter. We do expect those sales to occur in Q4. And if we exclude the impact of the flu vaccine sales, our Global Medical sales growth for the quarter was 2.6%, with 2.4% growth in local currencies and 2.8% growth in North America. It's also important to note that we really don't have any risk related to flu vaccine sales. Since through today, we have essentially sold all of our commitments of approximately 8.3 million doses for the season. So you'll see the rest of those sales occurring in Q4. And again, we believe we gained market share in the North American Medical market which we believe was flat to slightly down in Q3. Turning to Global Technology and Value-Added Services sales, the sales were $78.9 million for the quarter, an increase of 11.2%. This included 11.8% growth in local currencies and a 0.6% decline related to foreign currency exchange. The local currency growth included internal sales growth increase of 8.5% and acquisition growth of 3.3%. If you look at the components of that 8.5% internal growth, 7.3% was in North America and 16.2% was the growth internationally. And we continue to be very pleased with our sales growth in the Technology and Value-Added Services business. We also continued to repurchase common stock in the open market during the third quarter. More specifically, we repurchased approximately 730,000 shares during the quarter at an average price of $102.74 which was approximately $75 million of cash. That current buyback, the impact of the repurchase on our second quarter was not material. At the close of the quarter, we had approximately $74 million of authorized for future repurchases and we do expect to continue to repurchase our stock and probably use up the balance of that $74 million by year-end. If we look at some of the highlights of the balance sheet and our cash flow, we had very strong operating cash flow for the quarter, $152.8 million and that compares to $78.5 million in last year's third quarter. And we continue to believe we'll generate strong operating cash flow for the balance of the year. Our accounts receivable days sales outstanding was 41.6 days and that's comparable to 41.1 days last year. And inventory turns was 6.2 turns, which is also comparable to the 6.3 turns last year. Let me just conclude my remarks by discussing our guidance for 2013 and 2014. For 2013, we are reaffirming our expectations for adjusted diluted EPS attributable to Henry Schein, Inc. to be in the range of $4.86 to $4.91 and this represents a growth of 9% to 11% compared with 2012 results. And that's comparing it to 2012, excluding restructuring costs. The guidance for 2013 continues to exclude the one-time items in the current year and those one-time items are noted on Exhibit B. Also, our guidance, as always is for continuing operations, as well as any completed or previously announced acquisitions but not for any future acquisition activity. If we look to next year, we are introducing 2014 financial guidance as follows. For 2014, we expect diluted EPS attributable to Henry Schein to be $5.37 to $5.47 per share and that represents 10% to 12% growth versus the midpoint of our 2013 guidance range. Again, this 2014 guidance is for continuing operations including any completed or previously announced acquisitions but does not include any future acquisition activity, if any. So with that, I'd like to turn the call back over to Stanley.

Thank you, Steven. Let me now take a few minutes to provide some additional details on each of our business units. So starting with Dental group, the Global Dental group, our third quarter gains in the North American Dental sales were highlighted by nearly 10% internal growth in local currencies for equipment sales and service revenue which is up sharply from the 1.4% growth we reported in the previous quarter. This growth was driven by higher sales of traditional Dental equipment and E4D. We believe our CAD/CAM category is poised to do well. The North American Dental Consumables merchandise growth was in line with the previous quarter when adjusted for the benefit from timing of various holidays, as we discussed last quarter. Again, we believe we are gaining market share and continue to gain market share on the consumables side in North America and of course, on the Dental equipment side. Our International Dental equipment internal sales in local currencies increased slightly following the strong second quarter that benefited from the biennial IDS meeting in Germany, in Cologne. And while International Dental consumable merchandise internal sales growth in local currencies declined due to the challenges primarily in Australia related to a reduction in government funding for certain patient procedures, it also represents strong growth related to acquisitions. So we believe, in Europe, we continue to gain market share and I think the same could be said in Australia. Having said that, the Australian Dental market saw a reduction because of the changes in government funding which we're hopeful will reverse itself with the new government in the near future. During last quarter's call, I discussed at length the unveiling of the E4D NEVO Scanner and Design Center at our National Dental Sales meeting. Since then, we have been introducing this exciting product which represents a new level of precision, proficiency and productivity in the CAD/CAM category. In late September, we began a commercial rollout and the customer response has been really very, very good. Dentists recognize the many benefits of E4D NEVO, including speed and ease of use. We are also pleased that Aspen Dental will be using NEVO technology in their practices. We do expect strong sales of E4D NEVO systems in the fourth quarter, although there is a possibility that the growth could exceed the ability to provide systems as the growth is looking quite good at this time and we may have to deliver some in the fourth quarter -- in first quarter next year, although we do expect the sales to be quite strong in the fourth quarter as well. I'd like to remind you that, please remember this, that last year's fourth quarter, we had exceptionally strong growth in the North American Dental Equipment business, nearly 22%, which was fueled by various tax concerns. So while we fully expect to report positive growth in our North American Dental equipment business during the fourth quarter, it'll be on the heels of a 22% growth in the fourth quarter of 2012 and the rate, obviously, will be lower than prior year due to the difficult comparison. And we've covered this in the last couple of calls. Having said that, just let me reiterate that we believe our Dental equipment business is doing very well and continues to gain market share in North America. Staying with our Dental equipment business for another minute. Subsequent to the close of the quarter, we announced the expansion of our geographic presence to the African continent with the acquisition of a minority ownership position in the Dental Warehouse. Dental Warehouse has a very good brand, essentially at this time a consumables business which we hope to expand into the equipment field into the near future. The Dental Warehouse organization is headquartered in Johannesburg. It is a leading distributor, as I noted, of Dental consumable merchandise to dentists, and to private clinics, the universities and government agencies in South Africa. They're rather -- relatively small beginning from the Henry Schein overall point of view, about $10 billion -- $10 million, sorry, in sales annually and the company offers branded consumer products and enjoys number of exclusive relationships with multiple suppliers. We expect to expand the business by adding additional Schein products and expand the presence of the business north of Johannesburg into the African continent. We also have the option within a short period of time to increase our ownership position to that of a majority position and we'll do that at some point in the future. So this is a strategic transaction for Henry Schein as we continue to expand our global footprint and specifically into the developing world. So we started out in Hong Kong. We then expanded into China. We made our very successful investment in our Thai joint venture, which is going well. And now, our expansion to Africa continent. We believe that the opportunity for oral care in the developing world is quite good and Henry Schein is ideally positioned given our product offering and knowledge base, from a management point of view, to expand into the developing world over time. Let me now take a look and discuss a bit about our Global Animal Health business which continued to perform well during the quarter. North American internal sales performed slightly above our expectations for growth in the high single-digits. We recorded particularly strong sales during the quarter of parasiticide products. In addition, we are delighted to return to positive internal growth in local currencies in the International Animal Health arena with modest growth in most countries we serve. Again, I think we're comfortable that we continue to gain market share in each -- both in North America in, shall we say, the U.S. in Animal Health and Europe and as a Global business. Let me take a moment here to comment on our Global Animal Health business on perspective of increasing presence in that market. In the third quarter of 2013, our Global Animal Health business represented approximately 27% of our worldwide sales, behind only Global Dental among our business segments. As recently as 2008, our Global Animal Health business represented only approximately 13% of our global sales. We are extremely pleased with the success we have had in growing our worldwide footprint in this important market through a combination, of course, of acquisitions and good organic growth. And in our ability to improve profitability, this has also been a hallmark of this group, while doing so through an effective sales and marketing strategies and of course, our Henry Schein distribution expertise. Let me now turn to the Global Medical group, which is essentially our U.S. Medical business. While we continue to make inroads in the IDN networks, the Integrated Delivery Networks, urgent care settings and ambulatory surgery centers, we do believe that patient traffic to U.S. physician offices was slightly down during the quarter compared to recent trends. However, we really feel that our big opportunity lies in the larger practices and remain confident that our focus on large practices will allow us to continue to gain market share and we expect growth to be higher in the fourth quarter as we bring on some additional larger customers. This business of large customer onboarding can be lumpy from time to time. So let me just conclude with the seasonal flu, conclude on the medical side. We sold approximately 3 -- 6.3 million doses of seasonal flu vaccines during the third quarter. And as of today, I think Steven mentioned already, approximately 8.3 million doses. And this represents essentially all of our season supply. As previously mentioned, our sales of flu vaccines were lower this quarter. So it's very important to look at our medical sales, excluding flu, as the flu vaccine shipped really in the months significantly of September and October. So this year, we shipped less in September and more in October. But as we, I think, indicated on earlier calls, we did expect the profit margin to be higher and indeed, the profit margin was good this year, a little bit higher than last year. So now, let me conclude with a business overview, with our Global Technology and Value-Added Services businesses. Sales growth in those business units continue to be strong and in particular, on International side. Once again, growth was driven by the electronic services reoccurring revenue and, to some extent, software sales. So before we take questions, I'd like to speak for a moment on a topic that we at Henry Schein take rather seriously, and that is our Corporate Social Responsibility. Our commitment to being a good corporate citizen is shared by all Team Schein members globally and it's really at the heart of our culture and enables us to align our interests with those of our customers and our suppliers and enable the company to do well by actually doing good. It's a key part of the success story at Henry Schein. And we've had some really good brand recognition in this regard, but also had the opportunity to make a difference in many parts of the world. And in an effort to support our Corporate Social Responsibility focus in the third quarter, we celebrated the dedication of the Dr. Musa Bajali Henry Schein Care Education Center at Al-Quds University in the Palestinian Authority, promoting educational research and clinical programs in dental medicine. And we participated in the National Health Center Week with the National Association of Committee Health Centers, an important partner in our efforts to provide high-quality care across the United States and particularly in underserved communities. This weekend, this past weekend, at the American Dental Association meeting, we were once again recognized as one of the founders and drivers of the award-winning and most successful American Dental Association, Give Kids A Smile program. Our Home Health program provides full-spectrum medical and oral health support, including supplies, equipment and client health records, software and influenza vaccine programs. So I could go on and on and on talking about this, but the Henry Schein brand recognition today stands at an all-time high and I believe a large part of that of course is driven by our quality service and our terrific field sales and telesales organizations who deliver and who are supported by our services team that deliver on the commitments made by the sales force. But I do believe our corporate social responsibilities at Henry Schein Cares program are adding to our brand recognition. And as a final comment, I'd like to remind you that we'll be hosting an Analyst Day, an Investor Day in New York City on December 11. The event will run from 8:00 a.m. to 2:00 p.m. and institutional and analyst attendees must register in advance. For those of you not participating in person, the entire event will be available via webcast at henryschein.com. So lots and lots of activity going on at Henry Schein. We believe that the financial operating performance of the company is good. Actually, it's quite solid and we'd like to thank you for your attention this morning and also, of course, thank the team that is delivering on these very good results. Now, operator, we're ready to take some questions.

[Operator Instructions] Your first question will come from Robert Jones with Goldman Sachs.

Stanley, just wanted to start on the Medical segment. You shared again that you gained share across all your businesses and I would assume that obviously includes the Medical segment. The growth there, even when adjusted for the flu, certainly looked like it decelerated. The growth, that is, decelerated a bit from what we've been seeing. Any more details you can share with us on what you're seeing within North American Medical, specifically maybe as it relates to the changes in the competitive landscape?

Yes, Bob, I think we've mentioned this in previous calls. I think it's not the right thing to view the Medical growth quarter-to-quarter because the onboarding of these larger accounts can be quite lumpy. So I think it's better to take a several quarter approach. And I'm quite comfortable that we continue to gain market share in both the smaller practices, which of course there are less of, as well as these newer enterprises of size, whether they are IDN, or whether they are large multi-specialty or single-specialty group practices. And I think we are well positioned to service this new landscape that is emerging. I think the traffic to the physician environment went down. I think it probably didn't go down a material way, but it was down. But again, I don't view that as the leading indicator of our success -- our ability to keep pace with the market adjustment for patient traffic, I don't view that as the measure of our success. What I view as the measure of our success is the ability to convert these larger groups to Henry Schein, whether it's IDNs or group practices. In that context, I think we're doing well. As for the competitive landscape, I don't think much has changed. It's really a couple of large players that are fighting for the business based on value-added services, and I think we have very good value-added services driven by terrific computer platform, an IT platform and tied into our supply chain capabilities that gives these larger practices what they're looking for. We've always been pretty good with the small practices, essentially through our telesales, field sales and direct mail businesses. But the real fight and opportunity for the future is with these large practices, and I think we're well positioned and I would encourage analysts to talk to some of the large groups and some of the large hospitals and just find out how we're doing. And I think the comment I made will be collaborated -- corroborated, shall we say.

That's fair. And then if I could just move over to Dental, some exciting announcements around E4D in the quarter with NEVO and Aspen. Specifically as it relates to the Aspen agreement, can you share anymore specifics around this opportunity? As we think about roughly 400 practices, how much of that would you expect to place E4D with? And then taking a step back around the CAD/CAM market, any overall comments you can share with us as far as CAD/CAM market growth and market share changes that are going on recently?

Yes. As to the number of units that Aspen will place, I think it's far too early to tell. Suffice this to say that of the large group practices, the DMOs, Dental Management Organizations, Aspen is one of the first to take CAD/CAM very seriously. There are 1 or 2 that have already advanced the ball, but I would say Aspen is taking it quite far. And this is the first opportunity for a DMO to really look at E4D compared to competitive products. I would say, the 1 or 2 other group practices that are working in CAD/CAM, when they decided to move into CAD/CAM, E4D was really not ready. So this is the first time E4D really has competed heavily for a DMO's business, and we won the business based on product benefits and features and the overall technology, advantages of the technology, so we're quite pleased with that. As it relates to CAD/CAM, I think Wall Street needs to be a little careful. It's not about chair side only. Of course, that's a key part of it, it's -- CAD/CAM is much more than that. It's about the automation of the laboratory, the whole digitalization of prosthetics, and that's an area that Henry Schein is very much focused on. We are as focused on that as we were, for example, with sensors. I would say, 7 or 8 or 9 years ago we said, we wanted to be the biggest player in sensors, and I believe today, we sell more image sensors than anyone else. The same can be said of 3D. And we are very, very committed to the CAD/CAM space, whether it's chairside, or as I mentioned now, the important segment of the lab. And there's a lot going on there. There are many new ones out there: Sensors, scanners for CAD/CAM, quite a few software systems out there, both for the chairside and the lab, and many, many MLS. So it is our job at Henry Schein to advance our open architecture and be the one-stop shop in a market that today is a little bit confused. Dentists understand the importance of CAD/CAM, but are not sure where to go. So we will do what we've done before when we introduced software almost 2 decades ago, and be the first to come out with a really good priced software that had national service that's supported by a well-capitalized company. We did the same with sensors, we did the same with 3D, and now CAD/CAM presents this huge opportunity. But it is confusing because there are a lot of products out there, and one must be careful not to view this whole space as just a chairside space. This chairside, of course, it's important, it is the laboratory and it is the materials.

Our next question will come from John Krieger with William Blair. John Kreger - William Blair & Company L.L.C., Research Division: Stan, maybe just a quick follow-up to Bob's question. Can you give us a sense, looking at your North American Dental equipment business, kind of relatively growth rates of CAD/CAM imaging and the more basic categories?

Yes, on specifics, let me turn it over to Steven.

Yes. So, John, we saw really across-the-board strong growth. We had strong growth in traditional equipment, we had strong growth in high-tech equipment. In high-tech, our strongest growth category was E4D for the quarter. But the variation, if you look at traditional equipment, it was right around that 10% range also, and high tech was a bit above that because of the strong E4D sales growth. So again, really across-the-board growth in all equipment categories. John Kreger - William Blair & Company L.L.C., Research Division: Excellent. On the consumable side, how is the specialty part of the market doing for you versus the general practitioners?

So I think we're doing well in Specialty. Remember, some markets, implants in Europe is under a lot of pressure. We continue, I think, to do better than the market. We are growing in the U.S. in implants and other specialty things. I just would caution though, John, remember, our total Specialty sales business globally is $400 million, plus or minus. So even though we're doing nicely there, it's still off of a relatively small base compared to our overall sales, but we certainly feel we are taking market share in that product category. John Kreger - William Blair & Company L.L.C., Research Division: Great. And then maybe just one quick one. You've given us some comments on sort of your perception of patient traffic trends in medical. Are you seeing any changes in the dental and vet markets for foot traffic?

I think both those markets, it's quite stable. On the dental side, I think it's relatively stable. On the animal health, I would say it's stable, but there are some reports that it's in the positive area, and I think there are some reports that indicate some of the large practices may be down in terms of traffic. But on balance I think in both those markets, it's pretty stable, with sales growing just a little bit more than the GDP, maybe 3-plus-percent.

The next question will come from Jeff Johnson with Robert Baird. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Let me just follow up, I guess, on John's question there on the consumable side of the dental business. Steve, wondering if you could give any color on, maybe, price versus volume mix in the quarter and how you're thinking about volume trends, especially in the next year you'll lose maybe 100 to 150 basis points of pricing tailwind into next year. So do you think volume growth can kind of backfill that and keep you in the 3% to 4% range on the consumable side?

We do. And we do feel that a big chunk of our sales growth is related to price increases that are standard in the market every year. We've consistently said that throughout the years, dental price increases range maybe from 2% to 2.5% per annum. This year really was no different -- sorry, this year was a little bit different because of medical device excise tax. But we believe that the patient traffic in procedures is relatively flat in the U.S. market. And we do believe that we have potential to see that market expand to get some additional growth in procedures, and then obviously, that'll drive our consumables sales growth. So we feel comfortable that sales growth will not decline because price increases might be a little bit less next year. If anything, we're a little bit more optimistic than that because we do believe that the markets have greater potential, especially in the U.S., to show some acceleration. Again, that's not something that we're baking into our guidance, but we do believe that, that potential is pretty strong right now. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: All right. Great. And then on the working capital front, Steve, you mentioned that you'd expect operating cash flow to stay strong in the fourth quarter. Wondering how much you expect to work inventory down this year in fourth quarter versus last year in the fourth quarter? And really trying to feel out, I know last year, ahead of med tech tax, you bought forward some extra inventory, I think on both consumables and the equipment side. Can you just remind us how much in a typical year you buy forward? How much last year did you buy, an extra week's worth of inventory, things like that? Just trying to size that a little bit.

Okay. Well, last year, because of the medical device excise tax, we bought approximately an additional $150 million of inventory. It wasn't all in the fourth quarter, some of it was in the third quarter. But by the year end we had an additional $150 million worth of inventory, really because we thought it was a good financial return because of the medical device excise tax. But our normal volumes, my guess would be will be consistent year-to-year, but we should show that decrease of $150 million at the year-end versus the year-end last year. And you've got to normalize for acquisitions and things like that, but on the core business, that should be the result. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Yes, I was just trying to remember, and I don't know that you ever broke it out, but what that $150 million, how much of that, maybe was skewed towards Dental consumables versus Dental equipment on the North American business?

Yes, it was skewed much more towards consumables, but I don't have the exact breakout. And the reason being, just because of cube size, it was easier to store the consumables rather than to store large equipment. So it was very much skewed towards consumables.

The next question will come from Glen Santangelo with Crédit Suisse. Glen J. Santangelo - Crédit Suisse AG, Research Division: Stanley, just want to follow up on some of the comments you made. I mean, when I look across all your major business lines, you see a pretty historic prevailing trend of the U.S. businesses seem to be doing very well, maybe even better than expected. While on a relative basis, the European or the International segment results, probably a little more anemic, and I think in your prepared remarks, you suggested that Europe is stable. And so I guess what I'm trying to ask is, if I look to your fiscal '14 guidance, what sort of embedded assumptions have you made about your domestic and international segments within that guidance?

It's a good question, Glen. I think it's -- without getting to granular, it's our sense that the Dental market continues to be growing at low single-digits here in North America and is down slightly in Europe. Not a lot, but slightly, and it could tip into positive. And Australia is the one that's been quite a bit down. And I don't think we're going to bake too much positive into it, but I do believe there's an opportunity that the government will reinstate the reimbursement methodology that I think they had promised. On the Animal Health, the U.S., I think, is somewhere north of 3% to 4% internal growth. I'm talking about companion [ph], and maybe down slightly. But again, in both markets we -- and dental, we would hope to continue to gain market share. I think we have to be careful in the Animal Health because there was some softness in the parasiticides product category related to timing this year, so you have to take that into account when looking at the markets. Steven will be happy to give you more color on that. And the medical market, I'm not sure if it's growing, but the opportunity for Henry Schein to gain market share is very strong. So I think -- we will hope to continue to grow in mid-single-digits in that space without giving specific guidance, because I think we shouldn't do that. But that's sort of our hope, maybe a little bit higher. So and then if you pepper that with our continued growth in the technology in the value-added services area, that should also add with -- and that's higher margin, that should add to our profitability for next year. So that's sort of the kind of thinking. Our budget for 2014 is not done from a micro point of view, but from a macro point of view, but that's the kind of thinking. Maybe Steven, you want to add some additional color?

Yes. So I think it's important to note there's a difference on how we prepared our guidance, versus what we believe could happen in the markets. So to be specific, we prepared our guidance really assuming that in all markets, we would see stable conditions, maybe with a slight improvement more geared towards the North American market than the International market. However, we do believe that, that is being conservative. We do believe that the North American markets, both in dental and in veterinary, could see -- the potential was there to see a little bit faster growth in the markets than what we're assuming, although, again, we want to be conservative in our guidance. And really, we think that international, while it's less likely to happen in 2014, because it just may take a little longer, there is the opportunity for some better market conditions, maybe even in the tail half of 2014. But again, because the timing of exactly when that happens and because it's really impossible to predict, our guidance is really geared toward being a little bit more conservative on market conditions than what we think is likely to happen. The same thing would be true when you look at foreign exchange. We took a slightly conservative position on exchange rates in our guidance. No one really, I believe, knows exactly which way that's going to go, but we tried to be conservative on that. And I'm not trying to paint a picture that we're being ultraconservative, we're not. But we do have slight conservative -- conservatism built into our guidance because of the uncertainties and the unknowns in the marketplace. Glen J. Santangelo - Crédit Suisse AG, Research Division: I appreciate all that detail. Maybe if I could just ask one quick follow-up with respect to the company's acquisition strategy. Stan, on this call you talked about new markets like Hong Kong and Johannesburg, and it's clear the company has obviously been on a pretty feverish pace in terms of acquisitions the last several years. And while it doesn't seem like you're constrained from a balance sheet capacity perspective, I'm just kind of curious to get your view on the sustainability of the pace of acquisitions, given the management depth and whether you think the company can basically just sustain its current pace?

We -- I think I mentioned this in the last call. We continue to be rather bullish on the ability to close on acquisitions. For 2013, as of this point in time, we have not closed on anything, in the aggregate, deals of substance. Whereas, we cannot commit that we're close on any deal, because deals are only closed when they're actually closed, we still are very much committed to our formula of taking about 1/3 of the cash we generate and a little bit more than that investing in acquisitions, 1/3 to buy back stock and 1/3 to deal with working capital and pay down debt. So I think we, hopefully, will close on acquisitions. We have very good depth in management. We have somewhat of a funnel in the number of deals we can close at any one time, because integration is always limited by human capital, but we remain quite optimistic that over the months to come, we will close on some deals, and I think the Hong Kong and China and Thailand and Johannesburg are more longer-term and less relevant to current earnings. The deals that we would hopefully close on in the not-too-distant future will be more related to earnings a year out or so, and they would be in the developed world. So areas that we're looking at, of course, are the Specialty areas and also Animal Health and Dental. So I'm quite optimistic. But these things are lumpy and they don't close until regulatory has done their work, legal has done theirs, finance has done theirs and human capital is lined from a business point of view.

The next question will come from Jon Block with Stifel. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: Some of the big picture ones have been answered, so maybe just a little bit more of a specific question. In your Specialty business, I think the Easy implant was rolled out in German at a price of around EUR 99 to EUR 129 roughly 6 months ago. And if you can just talk to what you've seen there post-launch. Do you think it's allowing per share gains? And then your thoughts on bringing that type of an offering to the U.S. in 2014?

Yes, I think that's a good question. I'm not sure we expected Easy to help us gain market share in Germany. It's more a placeholder in case the low-price implant will -- emerges. And at this point in time, the low-price implant has grown to some extent in Germany, but not become a material factor. Yes, there are a couple of players that are gaining some market share, but it's really not a major factor from our point of view, because Camlog is not at the high price of the equation. So it's there, we have sold some. We expect to bring it to the States at some point in the future. It's going through a regulatory review at this point. But I don't think we ever implied that the Easy would move the needle in a significant way at Camlog, but it's more in place to deal with a discounting reality, if that is needed in the implant field. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: Great. And then, Steven, maybe some just detailed questions on the model. When we look towards next year, tax rate has come down a bit. So should we shake out closer to 30% or 32% when we look out to '14? Does your '14 EPS number assume that ongoing share repo? And then lastly, the noncontrolling was down q-over-q, is that just a function of you guys consolidating some of that up to the top line?

Okay. So on our tax rate, yes, we would be looking for our tax rate to remain in that 30% range. So that's for Q4, but it's also true for 2014. That's what we think is achievable. So I know when I looked at some early sell-side notes, some people thought it was a one-time benefit for the 30%, but we don't believe that's true. We believe that'll stay in that range. With respect to share repurchase, we are expecting to do a small amount of share repurchase. Really what we're expecting is to finish our authorized share repurchase amount of $75-ish million as part of our guidance, but we really don't have more than that built in. We do believe that we will continue with between $200 million and $300 million of share repurchase per year. We expect to talk about that in upcoming board meeting, but at this point we don't have approval for that, although I feel like the board is very positively inclined on the share repurchase program. I'm trying to remember, was there a third piece... Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: Last one was the noncontrolling.

Yes, the noncontrolling really, what happened there, we talked about it a quarter or 2 ago. We had a change -- we had an entity in Europe that we did not have a controlling interest. It was included in equity in affiliates and we bought up our interest in that entity. That's really what's showing if you look at the International Dental sales growth. There's some acquisition growth there, that's where it resides. So really, it was -- we don't really -- it's really a move geographically on the P&L, because it was in equity and earnings in affiliate, and now it's a consolidated entity. So we consolidated the whole thing, and the piece of it now comes out of noncontrolling interest.

The next question will come from Michael Cherny with ISI.

So a lot of my questions have been answered. I want to go back to the medical a bit, and maybe, Steve, kind expounding on some of your comments for next year. Obviously a lot of noise surrounding the rollout of ObamaCare. I know that in the past you've talked about not really knowing the specific amount that you may expect going into next year, but as you think about specifically the guidance, does it have any impact related to the expansion of healthcare reform? Any thoughts around coverage? And maybe given where you sit and the amount of physicians you touch, any feedback you're getting as to how they're positioning themselves for whatever current reform may actually work out?

Well, that's an obviously very difficult question. The easy part of the answer is, we're really not assuming any significant, or really any benefit in our guidance related to the Affordable Care Act, although we do believe that there'll be more covered lives, somehow, some way. We do believe that it should help patient traffic to our core customer, the physician practice, because it's trying to drive more efficient health care by moving patients out of acute care settings into physician or alternate care settings. But again, there's still so much uncertainty around what's going on there that we didn't feel it was wise to put any of that into our guidance.

Final question will come from David Larsen with Leerink.

I just had a quick question. Was there an impact on the medical growth rate due to a switch to or from agency sales? And if so, what was that impact?

On the medical side?

Or in any one of your segments. I know that there had been a change in the way that you reported your growth rate. There was like an agency sales component versus -- there was a change there.

So, David, that only occurs in our U.S. Animal Health business. And we did say that the sales growth, normalized for that switch, was 4.8% for the quarter. There is not any similar agency sale concept in any of our other markets, although on the medical side, I think what's important to note is timing of flu vaccine sales, and I think it's important especially when looking at profitability and growth rates in the current quarter. We had about $8 million less flu vaccine sales in Q3 versus Q3 last year. For us, we don't really get concerned over that, because it's purely timing that will reverse in Q4. And as Stanley said, the timing of selling flu vaccines, the peak time is September and October, and this year it just so happened that more was weighted towards October than September. But that's the only kind of normalization adjustment on the medical side.

So thank you, everyone. We wanted to end the call on time. We got comments the last time that we went over too long. So thank you for participating. If you have further questions, please feel free to reach out to Carolynne Borders and her phone number is (631) 843-5500. You can ask for her, or to Steve Paladino at the same number, (631) 843-5915. And also, please use Carolynne as your point person for RSVP for our Analyst and Investor Day. So to conclude, we remain quite bullish about the company. We're excited with our market share gains and the increase in our operating margin. The cash flow continues to be very good, and strategically, I think we're well-positioned to execute on our strategic plan, which goes through to the end of next year, and we will start shortly with developments of our strategic plan for January 1, 2015 for the 3 years thereafter. Thank you very much, everyone, and I'll speak with you in February. Okay, thank you.

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.