Henry Schein, Inc. (HSIC) Q1 2014 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, 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 results for the first quarter of 2014. 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. These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission. In addition, all comments about the markets we serve, including growth rates and market share, are based upon the company's internal analysis and estimates. The contents of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 6, 2014. 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. We are pleased to begin 2014 with a solid first quarter financial report despite severe weather conditions throughout much of the U.S. While we believe our U.S. sales in each of our business groups adversely impacted by weather, we are pleased with our first quarter EPS performance and to be affirming our 2014 financial guidance. In a moment, I'll provide some additional commentary on our performance, and we are generally quite pleased with the performance of each of our business units and generally across the board, taking into account the weather-related issues. And so Steven will now take you through the specifics of the quarterly financial results, and I'll be back with some additional comments.

Okay. Thank you, Stan, and good morning. I am also pleased to report solid results for the first quarter of 2014. Before we begin, I'd like to point out that our prior year first quarter results included a onetime noncash expense related to the refinancing of the Henry Schein Animal Health debt. If you look at Exhibit B of this morning's earnings release, you can see a reconciliation of that onetime non-GAAP item to GAAP net income and EPS from continuing operations. So I'd like to begin by discussing a factor that affected our sales growth for the quarter. Our 2014 first quarter U.S. sales for Dental, Animal Health and Medical were negatively impacted by severe winter weather, as Stanley just mentioned. So while it's extremely difficult to quantify the precise impact, there are a few important comments I'd like to make about that. First, we do not believe that the weather conditions had any material impact on our equipment or our Technology sales in the quarter. Second, we estimate that the impact was in the range of 1% to 2% of our sales in both our Dental consumable and Medical businesses. Third, we believe that the Animal Health sales in the U.S. was impacted by a greater amount since the adverse weather conditions across most of the U.S., especially in the south, delayed the start of the parasiticide season. Finally, with that as a backdrop, let me also mention that we have seen all of our U.S. businesses rebound in April, giving us confidence that the weather impact in Q1 was an anomaly. So let's turn to the specific sales performance for Q1. Our net sales for the quarter ended March 29, 2014, were $2.4 billion, reflecting a 6% increase compared with the first quarter of 2013. This consists of 5.6% growth in local currency and a 0.4% growth related to foreign currency exchange. In local currencies, internally generated sales increased 2.9% and acquisition growth was an additional 2.7%. You can see the details of all of our sales growth contained in Exhibit A of our earnings news release. If you look at the operating margin for the quarter, it was -- 6.5% was the operating margin for first quarter 2014, and that declined by 23 basis points compared to the first quarter of 2013. However, when excluding the impact of acquisitions completed during the past 12 months and related expenses, our operating margin was relatively flat and contracted only by 4 basis points. I'd also like to point out that in the "other income" section of our P&L, included in the "other, net" line is a contractual payment of $4.2 million pretax or $0.03 per share from a European Animal Health supplier. This payment was due to a change to a nonexclusive sales model. Previously, it was an exclusive sales model. So while we continue to sell this product on a nonexclusive basis, we have also begun to distribute other brands in this product category. If you look at our effective tax rate for the quarter, it was 31.2%, which is down from 31.9% in the first quarter of 2013 and is in line with our previous guidance. The lower tax rate is due to the implementation of ongoing tax planning strategies, as well as high earnings in countries with lower corporate tax rates. We expect our effective tax rate to be in the 30% to 31% range for the remainder of the year. The net income attributable to Henry Schein for the first quarter of 2014 was $102.1 million or $1.18 per diluted share. This represented growth of 8.4% and 11.3%, respectively, compared with the first quarter of 2013 when excluding the onetime expense related to the debt refinancing that I previously mentioned. Foreign currency exchange did not have any material impact on our EPS for the quarter. If you look at some of the detail of our sales results, our Dental sales for the first quarter of 2014 increased by 8.9% to $1.3 billion. The 8.9% growth included 8.6% growth in local currencies and 0.3% gain related to foreign currency exchanges. If you look at the local currency internally generated sales growth, that was 3.5% and acquisition growth contributed an additional 5.1%, which is primarily related to the completion of the BioHorizons and Arseus acquisitions. The 3.5% internal growth in local currencies consisted of 3.6% growth in North America and 3.3% growth in International. And both of these figures are local internal growth. I'll give you some detail behind each of the North American International sales growth results. The 3.6% local internal growth in North America included 0.8% growth in sales of Dental consumable merchandise and 15.7% growth in Dental equipment sales and service revenue. Let me point out that the U.S. Dental equipment sales in the first quarter of 2013 were impacted by the medical device excise tax that accelerated sales into the fourth quarter of 2012. This resulted in a little bit of an easier comparison in the first quarter of 2014. The 3.3% local internal growth in the International Dental sales included 3.7% growth in Dental consumable merchandise and 2.4% increase in Dental equipment sales and service revenue. Remember that Easter and Passover holidays, as well as the IDS show, all occurred in Q1 2013 and that also made for a little bit of an easier comparison this year. And just to note, of course, Easter and Passover are in the second quarter this year and the IDS show is not in 2014 and scheduled for 2015. Let me comment although there were several factors including the severe weather that I previously discussed that impacted our Dental sales growth in Q1, we continue to be very pleased with the overall performance. If we look at the Animal Health sales, there were $654.5 million in the first quarter, an increase of 2.4%, and that included 2% in local currencies and 0.4% in foreign exchange. If we look at the 2% local currency growth, it included a small decline of 0.4% in North America and 4.2% growth internationally. Again, the decline in the North American sales is largely attributable to the weather, which had a larger impact on the Animal Health business since adverse weather conditions, again, also delayed the start of the parasiticide season. I'd like to mention that in previous quarters, we normalized our results for the North American Animal Health sales for the switch to agency sales. However, this quarter, it did not have any material impact on our sales for the quarter. Medical sales were $397.4 million in the first quarter, an increase of 2.2%, which includes 2% local currency growth and 0.2% foreign currency exchange growth. In that 2% internal growth at local currencies, North America grew by 2% and International grew by 0.9%. Again, sales growth in the Medical business was impacted by the adverse weather conditions also, but despite that impact in Q1, we remain confident that our strategy of focusing on large group practices resulted in market share growth. Turning to our Technology and Value-Added Services sales, they were $81.3 million in the quarter, an increase of 8.9%, and this included 8.6% local currency growth and 0.3% growth related to foreign currency exchange. The internally generated sales growth in local currencies was 6.2% and acquisitions contributed an additional 2.4%. Within that 6.2% growth, North America grew by 4.8% and International grew by 14.2%. Remember though, I mentioned last quarter that we are now selling a specific U.S. dental software product on an agency basis. Last year was a traditional sale and this year, it's now an agency sale. And while that change lowered our sales in the Technology and Value-Added Service business by about $3.8 million in the quarter, again, there was no change in the profitability of this product line. It's really just a switch to an agency sale. When you normalize results and take into account for the switch to an agency sale, our internal growth in local currencies was actually 11.2%, including 10.7% in North America. So we're really very pleased with the double-digit normalized sales growth in our Technology and Value-Added Services segment. With respect to stock repurchase, we continue to repurchase stock, common stock in the open market during the quarter. Specifically, we repurchased 647,000 shares at an average price of $116.34, which translates to about $75.3 million in cash. The impact of this repurchase in the first quarter EPS was not material. And to remind people, at the end of the quarter, we still have about $225 million authorized for future repurchases, and we remain committed to our goal of repurchasing between $200 million and $300 million of our stock for the year 2014. If you look at the balance sheet and cash flow, as is typical for us, our operating cash flow for the quarter was negative. It was negative by $55.2 million. That compares to a negative $38 million in last year's first quarter. And one of the reasons for the high negative cash flow in 2014 is that we did see the reversal last year of the inventory investments made related to the medical device excise tax that occurred last year. Our accounts receivable days sales outstanding was relatively flat at a little over 40 days or 40.8 days for the quarter, and our inventory turns for the first quarter also are relatively unchanged at 5.6 turns. I'll just conclude my remarks by affirming our 2014 financial guidance as follows: for 2014, we expect diluted EPS attributable to Henry Schein to be in the range of $5.29 to $5.39, and that represents a growth of 7% to 9% over the actual 2013 results, again, excluding that onetime item. And as always, the 2014 guidance is for continuing operations, as well as any completed or previously announced acquisitions, but not any future acquisitions. So with that, I'll turn the call back over to Stanley.

Thank you, Steven. Let me take a few minutes to provide additional detail on each of our business units. In doing so, I'd like to underscore the theme of our 2013 annual report, which shareholders recently received in the mail. That theme is Rely on Us, and it speaks to enhancing engagement with all 5 of our constituents, namely: our customers, our supplier partners, Team Schein Members, society and, of course, our shareholders. Let me start by reviewing our Dental business. Growth in North America was highlighted by equipment sales and service revenue, which posted robust internal growth in local currencies of 16%, albeit against a somewhat easier comparison to growth of less than 1% in the same quarter in 2013. The strong growth was evident across the board in our Dental equipment business. In our International Dental business, consumable merchandise growth accelerated sequentially with internal growth in local currencies of 3.7%. This is the highest we've seen in nearly 2 years. International equipment sales and service revenue, total growth was 11.7%, including 2.4% internal growth and was bolstered by strategic acquisitions. Last December, Planmeca announced a strategic investments in E4D technologies, the manufacturer of our E4D chairside scanning and milling system. Today, the system is marketed under the PlanScan brand, and reception by the dental community to date has been quite positive. Henry Schein continues to exclusively distribute the E4D product, the PlanScan technology, in the U.S., Canada, Australia and New Zealand. Planmeca has a reputation as a well-respected innovative, multinational dental equipment manufacturer. The alignment with E4D is expected to help improve continued adoption of chairside industry, and a strong knowledge of manufacturing should open the door to greater capacity in developing new systems, primarily in the E4D facility in Texas. In addition, Planmeca is delivering benefits in terms of seamless integration with digital imaging technology used in many dental practices today, and we are very pleased with our PlanScan E4D sales growth for the first quarter of 2014, which continues to be one of our fastest categories. Let me just also add that the E4D system will integrate with many other brands as well, but we are very pleased with the progress that has been made from a manufacturing point of view and from a sales and marketing point of view with the now PlanScan system that we are selling in these specific markets for U.S., Canada, Australia and New Zealand. The first part of every year is a especially busy time for Henry Schein as we hold various national sales meetings. The Dental Special Markets meeting brought together about 125 Team Schein Members throughout the country and approximately 100 representatives from the 60 supplier partners. Our Dental Special Markets business focuses on large group -- large corporate accounts. These are the large groups, government agencies, dental schools and other institutions. As is true with all sales meetings, this event included presentations by company executives, breakout sessions, educational seminars and, of course, the supplier exhibit. Importantly, the meeting presented opportunity for Team Schein Members and our supplier partners to learn from one another. By interacting directly, we can be sure that our sales team has the best possible knowledge of the market we serve and the products we offer. Prominently featured at this year's National Sales Meeting for our corporate accounts in Dental Special Markets group was the implant product line from our recently completed acquisition, BioHorizons, and we are pleased that BioHorizons is performing slightly ahead of our expectations. And a lot going on in the Special Markets arena. In particular, very large accounts and there's a group of midsized accounts. And as you would expect, Henry Schein is breaking down these various accounts into appropriate categories and providing the appropriate specialty sales support, backed up by specialty marketing support and value-added services for these groups of accounts. Certainly, we'd be happy to answer more questions on this in the Q&A. Let me now focus on the Animal Health arena. Although we face some challenges in the quarter due to weather here in North America, it's important to note that because we operate in a leadership position in an attractive market, we look forward to continued steady growth here in North America in the mid, potentially even towards the high single-digit in future quarters. These growth expectations are consistent with our previous comments and, of course, one has to take into account adjustments as one moves from GAAP sales to agency sales and back again. Indeed, during the first quarter, we were delighted to be named as the exclusive distributor in the U.S. for Iams' therapeutic line of dog and cat food solutions. Henry Schein shares a strong commitment to supporting animal nutrition and the veterinary care, and raising awareness of its vital impact on the overall pet market and pet health care in general. Our International Animal Health internal sales growth in local currencies during the first quarter was solid and was, in fact, the highest we have reported in 1.5 years. We saw particular strength in the U.K., Belgium, Spain, Portugal and Australia. And just at the close of the quarter, we announced the completion of the acquisition of approximately 80% of the shares of Medivet with annual sales of $86 million. As we have previously discussed, Medivet is the leading distributor of Animal Health products and services in Poland and provides a strategic base for expansion into Eastern Europe's growing Animal Health market. Now in early March, we held our Animal Health National Sales Meeting. This 5-day event featured a record number of more than 600 Team Schein Members and participants from suppliers. As with Dental Special Markets Meetings -- as with the Dental Special Markets meeting, this forum included a multitude of training and educational sessions along with opportunities to learn about new products and services offerings from suppliers and a sharing of best practices. Really, another very, very good meeting. If we look forward to the fall, we recently announced we will be hosting the second annual Veterinary Technology Summit in early September. This is a particularly exciting industry event that combines practice management courses with training on our cutting-edge software for veterinarians and their staff and more. We take pride in the technology leadership for many reasons, not the least of which is that it strengthens the bond between Henry Schein and our customers and allows veterinarians to run efficient practices while providing the highest level of clinical care. We are proud to have a leading market position in the U.S. for installed systems and believe that more than 50% of companion animal clinics are using one of our many software systems, 2 major systems and other 3 or 4 other systems. Continuing with our commitment to advanced technology and practice efficiency, early in the second quarter, we launched a free iPad app for our U.S. Animal Health customers. This app includes features such as product search capability and purchase history and ability to browse and select from more than 17,000 products available on the Henry Schein website in Animal Health space. Our new mobile ordering app raises the bar for flexibility and convenience, and coupled with expert advice and tailored solutions we provide makes Henry Schein Animal Health a unique resource to our veterinary customers. Let me now turn briefly to our Medical group. As I think everyone knows, North America represents 94%, about 94% of group sales. So it's primarily a U.S. business. Our strategic sales force for the past several years has been focused on large group practices and the IDN methodology, the IDN, integrated delivery networks. We are making solid progress with this strategy and are seeing positive results. Yet, I note that onboarding of these new accounts, these large accounts, generally takes longer than is for the small accounts or solo practitioners, so we're quite optimistic that this program, which has generated good interest amongst these larger accounts, specifically IDNs, will yield good sales results as the year goes by. At our annual Medical National Sales Meeting, more than 700 Team Schein Members, along with representatives from 145 exhibiting companies, gathered together to ensure our continued success in serving our physician customers. There's a lot of change occurring in this marketplace, and we believe we're still the fastest-growing provider of products to physician offices and alternate care sites. And we look forward to benefiting from the trends being driven by public policy as manifested by the Affordable Care Act, that are changing business models and deliveries of health care and as the movement towards wellness, the movements toward preventative care and the movement from the hospital to the alternate care sites, all we believe play well into our focus in the medical arena. So let me conclude my business overview with some discussion on Technology and the Value-Added Services group. Growth in this unit was driven by software sales, which were good, and Value-Added Services. More if anyone has any questions. But generally, sales performance in this area was heavily driven by recurring revenue as we leverage and expand our relationship with our software customers. This group remains a very, very good contributor to profits, but, more importantly, to providing value-added services and stickiness in terms of relationship building with our customers. So let me conclude. Some very good news, which I think many of our shareholders may be aware of. And I think these 2 points that I want to stress run to the success of Henry Schein, run to our corporate culture, which in the end has been the driver of success. The markets -- many of the businesses that we're in have lots and lots of competitors, and barriers to entry are relatively easy, but what has resulted in us being, we believe, so successful is our culture. We were recently recognized as 2014 World's Most Ethical Company by Ethisphere Institute, which is an independent center of research promoting best practices and corporate ethics and governance. We're 1 of only 144 companies awarded this honor across 41 industries, 22 countries and 5 continents. This is the third consecutive year Henry Schein has received this award, which recognizes organizations that continue to raise the bar on ethical leadership and corporate behavior. Also, we were ranked first on Fortune's World's Most Admired Companies list for 2014 in the wholesale health care industry. According to Fortune Magazine, the World's Most Admired Companies list is the definitive report card on corporate reputations. We also are first in each of 9 subcategories of ranking, an accomplishment we never achieved before. This year marks the 13th consecutive year that Henry Schein was named on the Fortune Most Admired Companies list. I think we became a Fortune company 13 years ago. So with that overview on our quarterly financial and operating performance, thank you for your attention. There's so much to talk about Henry Schein, so we'd be happy if shareholders or investors would like to ask specific questions about specific areas. So I'll turn the call over to the operator now.

[Operator Instructions] Your first question comes from the line of Robert Jones, Goldman Sachs.

Just on the North American sales. You guys highlighted equipment and clearly, some very strong growth there in what I imagine was a fairly tough environment in North America. You also, Stanley, highlighted the relationship with Planmeca and the satisfaction you guys have there around E4D product. I was wondering if maybe you could spend a little time discussing within equipment, what drove the significant growth in Q1. Just trying to get a better sense for how much of it was market-driven versus share gains.

It's a very good question. There's no IMS data that is that accurate on the equipment side. But we believe that overall, the equipment market in the U.S. is doing better. We believe that we are much better positioned today than we've ever been to offer every kind of system that a practitioner may need. We believe we have an outstanding offering. Major suppliers are working quite well with us generally. Always room for improvement here or there. But overall, I think we are -- we've done well in traditional equipment and generally across the board in North America. So I mean please do remember, as Steven pointed out, that 2013 first quarter was a particularly challenging quarter. I think we only had 1% growth, but so if you take the 1% and you take the and another 16% or something like that, you add it together, 17%, it's still 8.5% internal growth or something like that, right? This is all internal growth, Steven?

Yes.

It's quite good, it's 3x the GDP. Yes, I think we are gaining market share, we believe, in most categories, but we think the dentists are investing in their practices.

Yes. Let me just add, Bob, just to give a little more color. As Stanley said it, but to give you a little bit more detail, across-the-board equipment sales growth was strong. Traditional was in the high single-digit growth. High-tech was much faster than that, and it blended obviously to that 15.7%. And within high-tech, PlanScan, I think was one of -- it was either the highest or one of the highest product category. So PlanScan/E4D did very well also. So really, it was broad-based and across-the-board, so we were pleased with that.

That's helpful. And I guess just switching gears over to the international business, it sounded like consumables there was actually very strong. I was just curious if maybe you could talk about within Europe what pockets exceeded your expectations, and how are you thinking about the consumable growth across Europe for the balance of the year?

Yes, I think we've been saying this for a while. Europe is stabilizing not back to where it was, but I think it would be fair to say that there are not many markets that are in heavy decline or immediate decline. So the mood is a little bit better. Of course, there's challenges not the way it was, but generally practitioners can access funding. I think we have done, perhaps, a little bit better job in the marketplace, because our funding services, we've taken the Henry Schein Financial Services to Europe and that's doing quite well. But overall, I think the big markets Germany, France and the U.K. are okay. Please take into account that in the first quarter of 2013, we had the IDS impact. Some people didn't buy it because of holding off for the IDS to take into account, but generally those few markets are okay. Italy is still not good, but the 3 anchors are okay, and the rest kind of cancel each other out, but it's definitely leaning well into the positive category from a mood point of view, although there are, of course, challenges. Europe is still not completely back to where it was.

Your next question comes from the line of Glen Santangelo from Credit Suisse. Glen J. Santangelo - Crédit Suisse AG, Research Division: Stanley, just want to follow up on some of the comments that you made with respect to the U.S. I think you seem to suggest that consumable growth was maybe 0.8%, maybe weather sort of impacted that in the range of 1% to 2%. So as I think about growth in the U.S., is it kind of fair to say that normalized to weather, we're kind of in that 2% to 3% range, which really doesn't feel like it's gotten any stronger or any weaker from where we were trending in the past couple of quarters. And then just to kind of reconcile that to Bob's question around Europe, it kind of sounds like Europe clearly organically, it grew faster this quarter than the U.S, which is a definite change from where we were for the last couple of years.

Yes, that's an interesting and obviously a very logical conclusion. When we're talking about such small basis point differences, it's very hard to make concrete conclusions. I think the U.S. economy we know is growing a couple of hundred basis points, and dentistry is about there and Henry Schein picks up a little bit of market share. So we do maybe a little bit better with some of the bigger accounts. Some say that, that's pricing issue in those accounts. Yes, but we also -- there are some pricing issues, but we get good support from manufacturers, and above all, I think we have the best systems in that field. So generally, I think we're doing Henry Schein little bit better than the economy, and so I think the U.S. is in the 2%, 3% range, it's definitely more than 2%, how much more than 3% it is, I don't know, but we're talking about those kinds of ranges, maybe a little bit better than 3% for the time being, and Europe had good equipment sales in there, but I think Europe is doing a tad better than we thought for the time being. Also, please, please remember the Easter affect. I hate to go into these little basis point adjustments, but you've got the weather, you got Easter, but we are comfortable that we're going to grow at the GDP plus 100, 200 basis points, something like that. That's what we've been talking about for years. We believe that our businesses are well positioned to do that. Glen J. Santangelo - Crédit Suisse AG, Research Division: Maybe if I just follow-up with Steve, 1 question on the guidance. It kind of sounds like you had a pretty big beat here, at least on an EPS basis, and I listened to prepared remarks, it sounds like the acquisitions are doing well, you saw the business rebound in April, you know ultimately Animal Health, I think, Stan suggests it was going to rebound up to mid- to high-single digits. And so as I look at the range that you provided for the full year, it kind of implies decelerating growth, at least on an EPS basis throughout the balance of the year. I'm just trying to reconcile the comments with that expectation, and maybe it's just sort of 1Q and you want to remain on the conservative side here, but I'm just kind of curious if there's anything that will impact the growth over the past couple, I'm sorry, over the next couple quarters that are worth calling out.

Sure. So first, I think your last comment is true. I think it's still early in the year, and we want to have a little bit of a conservatism to our guidance. If you recall last quarter, I was saying that we thought EPS growth would accelerate beyond Q1. And if you look at the benefit we have on other income, which was about $0.03, we weren't expecting that to occur in Q1. It was part of our original guidance. It was either 1 or 2 things were going to happen when we gave guidance with that European Animal Health supplier, either we were going to continue the exclusivity, and that would have continued for the year, or the change would have occurred, which happened, and we weren't expecting that benefit in Q1. So really when you exclude that, our EPS growth was just under 9%, which is still at the high end of our full year guidance. And again, other than trying to be a little bit conservative, and it's early in the year, that was really the change in Q1 from what we thought would happen from a timing perspective the last quarter.

Your next question comes from the line of Jeff Johnson with Robert Baird. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Steve, maybe I can start with you on the equipment side. On the traditional versus the high-tech break out that you gave on the growth rates, could you remind us kind of what percentage as you fill in buckets of traditional versus high-tech, what percentage of your North American Dental equipment would fall into traditional versus high-tech?

Sure. Generally, the traditional equipment runs about 60%, 65% of overall equipment in the high-tech as a balance. There is a little bit of variation between quarters, because sometimes the high-tech equipment accelerates at a faster rate, but that's a basic breakout that we typically see. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Yes, fair enough. And then do you feel like with upper single digits on the traditional side, and I know the corporate business seems like it's helping you out this year a decent amount, but do you feel like you're taking share there across the industry on the traditional side. And then on the PlanScan side, I hear your numbers or I hear your comments that it was your first or second highest growth rate product in the quarter, is there any independent data out there or anything you could point to on a unit basis? Are you from a new system sale taking 10%, 15% of new system sales currently, higher, lower than that? Just anything you could ballpark would be helpful there as well.

It's -- I think we're definitely doing very well in PlanScan. It's really hard to tell how many units versus the competition, but it feels like we're accelerating our market penetration. There's really not good data on that, that I know off, so it's hard to say with certainty. We have the benefit this quarter that not only were we shipping new units on PlanScan, we also shipped a fair amount of upgrades, and we have the upgrade program for -- it wasn't a big part of our customer base that had the potential from upgrades, but it still did have an impact in Q1. And the good news is also we're not feeling like we're constrained from a supply point of view, we're feeling like the supply is now catching up to where it needs to be. So I still feel like PlanScan will be a very strong grower for the remainder of the year and into the future years also. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: And your comments then if I could follow up on anything on traditional side if you feel like you're taking share, or even in the private practitioner channel there?

Yes. I think we have to be, because I can't believe that the market grew at high single digits on the traditional side. I Just can't believe it grew that high. So again, there's not good data on that, there is some data that comes out, but by the time it comes out, it will be 30 or 60 days from now, so we'll know at that point with some of the market data that comes out. But again, you know the market pretty well also, I doubt the market was growing high single digits in Q1 in traditional. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Yes. Fair enough. Last question, Stanley, I think, over the years, you guys have had trouble finding any credible partners in Russia, I guess is one way to phrase it, but just to confirm, you don't -- no real exposure to Russia, Ukraine in some of the issues going on there?

No, no. Anybody from Russia wants to buy, we'll be delighted to sell, but had to come to one of our operations in Europe or in the U.S.

Your next question comes from the line of Kevin Ellich with Piper Jaffrey.

First, in the Animal Health business, just wondering if you have any updated thoughts on what potential industry consolidation between Novartis Animal Health and Elanco might have on the business? And also there were a number of new products that were introduced this year, wondering if you've seen any benefit or any issues with supplies on next [indiscernible]

2 Maybe Steven knows the specific products, but I really can't comment, they were reported on some board meeting, but I just don't remember. Look, we have a good relationship with both Novartis, and Elanco Eli Lilly, just been a very good relationship with both of them. We do not expect any significant impact to ourselves once the Novartis business becomes part of Lilly, and we expect Lilly to continue to support us and enjoy -- and we believe we'll enjoy the benefits of really outstanding relationship that we built with the Lilly Elanco team over the years, not only here in the U.S. but worldwide. We also had a very good relationship with Novartis, so I have to say that we are very pleased with this combination and believe it will be a benefit to the industry, and I believe Henry Schein will be a beneficiary of this too, so we're very pleased. But, of course, I think a lot of this will only have an impact in one way or another in 2015, because these are quite substantial companies from a Animal Health point of view, and there's going to be a lot of merger activity taking place. So I think there are going to be, my guess is internally focused for a while before they spend a lot of time advancing market share et cetera, but could not be happier.

So I was going to add with respect to the specific products you just mentioned, while I'm quite frankly, not familiar with those 2 specific products, I think I can say that I'm not aware of any significant product issue on the Animal Health side. So we can double check that for you, but I think if there was a significant issue I would have heard about it.

The only issue in the Animal Health Care was the seasonality thing. That was a big issue because of the weather.

And you've seen improvement in April from the weather impact, is that correct, Stan?

Yes. I'm not sure you can conclude that April is a trend, but April so far -- and we generally do not provide monthly guidance, but I think given the severe impact in the first quarter, we thought it was important to provide essentially what happened in April. And yes, it's not bad.

Got it. And then just last question. On the medical business, we saw a little bit of internal growth this quarter in North America. As we move throughout the year with ACA benefit expanded coverage, are you expecting a ramp? And does your guidance -- have you built into your guidance a ramp in utilization and volumes that might drive incremental growth in that business?

Yes, I think we can't confirm specific numbers obviously, but I think from the tone we tried to convey perhaps, over the last 2 years or so, or even longer, we're quite optimistic that our position in the U.S. medical space, we decided to focus on consolidating entities, the large entities multiple locations under common management, as well as the IDN, these are the integrated delivery network systems. These are hospitals that are earning practices, et cetera. And we believe this is the rapidly growing part of the market, these two. And that's an area we focused on. We believe we're well positioned, we believe we're landing some very nice accounts. They take time to integrate, it's hard to tell the exact day when business moves over, but we've actually done quite well in winning some of these accounts, and believe we're in a very good position to serve these accounts. Exactly when the business comes, it's so hard to tell so we have to remain quite conservative. And so I think the Affordable Act will, in the end, result in many more Americans seeing a primary care physician, that is a fact. When this all kicks in, very hard to tell. But the part of the market that we serve will be servicing more, the practitioners will be seeing more patients in a preventative wellness setting, and that means more gloves and masks and all things that we sell. So we remain quite optimistic, but I think Steven rightly so has been quite conservative with our internal budgets, and I think that's where we are today. But in the long run, we believe this is a very good business to investment in from our point of view.

Your next question comes from the line of Michael Cherny with ISI Group.

I just want to dig in a little bit more and follow-up on that question from ACA perspective. You talked about the utilization improvement. Steve, you said you saw a pickup in April, some of the utilization metrics you track, particularly if the weather seems to have thawed out a bit. And you also think about some of the earlier potential increased lives that are getting covered, it's Medicaid, it's people that maybe who not had insurance ever, and so something like basic medical requirements, something like a first dental visit, maybe the first place that they go. As you think about what could be the driver of utilization, are you seeing any of that maybe whether it's Medicaid expansion or some other areas that could very specifically be the early impacts from ACA that have already found their way into your book?

Again, it's so hard to tell. If you're asking us to guess, my guess would be we really haven't seen much of an impact yet, that whatever impact we'll have is still to come. Again, the reason why we really haven't factored anything into that in the 2014 guidance is because determining the timing of when that will happen is difficult. I think I personally believe that, that should help our medical, as well as a little bit to a lesser extent, our dental business, but I don't think we've seen any impact just yet.

I agree with Steven. On the impact of the Affordable Act not yet in terms of the number of new patients. Having said that, I think the consolidation trends in the large group practices is a motive, and the IDNs has accelerated over the last couple of years. A lot of these providers were looking for new providers of products, and I think we've landed some nice accounts in those areas. Although, not all those accounted obviously have not been converted yet, because that takes some time.

Your next question comes from the line of John Kreger with William Blair. John Kreger - William Blair & Company L.L.C., Research Division: Could you expand a bit more on your dental specialty groups, and if you're willing, perhaps give us what kind of organic growth you're seeing in implants or filling [ph] end up?

Yes. I'll leave the guidance, the information on the sales growth, and I'm not sure Steven, what specific numbers we provide. But generally, on the implant side, BioHorizons and the 2 big properties of BioHorizons and Camlog a little bit ace. BioHorizons is doing well. Again, not prepared to say it's a trend, but the first quarter has done quite well in terms of sales ability. Camlog, I think you know significantly German-focused. The German implant market did not really grow much last year, and we're seeing I think, our market share moving -- continuing to move in a good direction in Germany. So overall, our implant businesses are doing quite well. Orthodontics is really not material. I think we're doing quite well domestically in the U.S. and we expect to do well internationally over time and the endodontics on balance I think is more or less similar to the general dental trends. So overall, I think the organic side is perhaps being just a little bit better than our overall Dental business. And we will continue to invest in this area from an inorganic point of view as well. By the way, I will say, as I think this is true, that where we're doing particularly, well I think, is in selling equipment to specialists, because our sales force in the area of specialty products has had an impact on overall brand awareness of our equipment offering in the specialty area, and I think it's paid off well. And I'm particularly referring to the U.S. here. John Kreger - William Blair & Company L.L.C., Research Division: That's very helpful, Stan. And maybe just one quick follow-up. If you think about your corporate dental business versus the more traditional customer, are you seeing any differences in trends there?

John, anything specific you're looking for as far as the question? John Kreger - William Blair & Company L.L.C., Research Division: Yes, one specific, are the corporate buyers more likely and more comfortable making the larger capital equipment-type purchases?

Yes, the large corporate practices.

Yes. I think that's, yes, they continue to do that. It's probably a little bit -- and last year, I think we saw a few portfolio changes among some private equity firms, but of management change, I'm referring to the U.S. and I think we're seeing a lot more interest in equipment now.

And remember, there are some of those corporate accounts that their model is not to buy new dental practices or maybe not to do that exclusively, but really to start up new dental practices. So those that have that model that do more startups than acquisitions, obviously, the bigger equipment buyers with traditional equipment, and there seems to be a lot of interest with the corporate accounts on technologies like PlanScan to improve efficiency, because they understand it. They tend to be a little cautious on overall capital expenditures, because they're using a lot of cash to grow the business, but I think that they're all looking very hard at improving efficiencies and their practices and CAD/CAM is a big driver of that.

And we do have time for one more question. And your final question comes from the line of Jon Block with Stifel. Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division: Maybe just 2 or 3 quick ones. First, Steven, the cadence of internal revenue growth for the balance of the year, last year was pretty stable in that 3.5% to 4% range. You had the slight step down in 2.9%, and you called that weather headwinds in 1Q. But is there a way that we should think about the cadence for the balance of this year?

The only thing that we should see a little bit -- Stanley mentioned the Easter passover holidays, which is in Q2. That tends to have a muted impact in the U.S., it has a little bit of an impact, but it tends to have a better impact in international, but there are some European markets that, for example, Good Friday is virtually a national...

And the Monday.

Yes. And maybe even Monday, effectively national holidays, almost everything is closed. So we'll see a little bit of that in Q2, but other than that, and other than our typical strength in equipment and technology sales in Q4, a little bit tax-related, I would say no other things to note on that. Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then just next on the -- call it adjusted dental consumable number in North America. It seems like earlier reference, even if you make some adjustments maybe it was up 2% to 3% in 1Q and arguably that was off of somewhat of an easier comp from a year ago. Last quarter, you talked about maybe 4% was back. Are you still thinking in and around that number, in other words, for balance of the year are you seeing the underlying demand in North America in and around the 4% dental consumable number?

I don't want to be that specific on 4%. By the way when we look at demand, our consumable business, we look at trends, because unlike equipment, we get an order today, we're shipping it today. So there's no backlog, there's no -- so the way to look at how is the business doing is to look at the trend line of average daily sales and compare it to other periods. Now, unlike equipment where we know, for example, we feel very good about equipment going forward, because we have the backlog report, and if you look at our U.S. backlog report, it's grown from the end of the quarter to the -- from the beginning of the quarter to the end of the quarter in Q1, so that you have a little bit more where you can -- predictability. But I do think that overall, we should see the markets return to normal as we said we saw April results rebound in all of our businesses. So we were pretty confident, the weather was a negative impact there. And I think that even though we haven't really seen it, it's hard to tell in Q1, we should see a little bit of I think market improvement as the year progresses. Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And very last one. I know you guys have a million products, but your partner on this one actually had a conference call specific to it. So any color on realign. I mean, there's been some clarity in Align's [ph] numbers that maybe got off to somewhat of a slow start, if you just isolate their express-type of product growth. Can you guys speak to that, Stan, what your sales guys are seeing with it out there. It's obviously a very big market opportunity being the clear align [ph], I don't know how do you see the traction with that product going forward?

I don't have the specifics, and I'm not sure if we really should comment on specific products, because it's clearly not material to the whole of Henry Schein. Although it's a very nice product for us to provide a value-added service to the GPs. I know our sales force was excited, I know that we will be doing quite a bit around this product in our national sales meeting, when is that July?

Yes.

But I don't have the specifics. And, I don't know if...

I don't have the specifics either, but I would say, the comment that slow start, I think you have to have a backdrop that this is a sale that's a longer sales cycle. So it's not unusual to start a little bit slow, because it takes a little bit more time to get the training and to get the customers to ultimately start buying. So it is a little bit of a longer sales cycle, so maybe that's consistent what you're hearing, but it's just a different way of I guess, explaining it.

So thank you for all those questions, everyone. And thank you for participating. We continue to feel pretty good about the company, each of our business units has very good plans executing more or less to those plans with a couple of things ahead, and couple of laggards here and there. But overall, the company's good. We are using 2014 to prepare our strategic plan for years 2015, '16 and '17. And that is well underway. So I think the momentum is good. The economies generally are moving nicely in a positive direction, and we remain cautiously optimistic for the rest of the year, and thank you very much again for calling in. If you have any questions, please feel free to call Steven or Carolynne. And just call at (631) 843-5500 and they will -- the operator will put you through to Carolynne or to Steven. So, thank you very much.

Thank you for participating in today's conference call. You may now all disconnect.