Henry Schein, Inc. (HSIC) Q4 2014 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Henry Schein Fourth Quarter Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [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, Natalya, and my thanks to each of you for joining us to discuss Henry Schein’s results for the fourth quarter of 2014. With me this morning are Stanley Bergman, Chairman of the Board 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 content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 11, 2015. 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.

Good morning everyone. Thank you, Carol. And thank you for joining us. We closed our 2014 year with strong fourth quarter financial results that once again included market share gains in each of our business groups. The global markets we serve remain generally healthy highlighted by of course continued strong patient traffic in North America. And we are particularly pleased with the solid internal sales growth in local currencies in our international businesses too. We achieved adjusted EPS growth for the year of 10% and are firming our guidance range for 2015 diluted EPS. I’m also pleased to mention that in 2014, for the first time, the Henry Schein exceeded the $10 billion sales mark on an annual basis. In a moment I’ll provide some additional commentary on our performance along with a review of some of our key accomplishments during 2014. Needless to say, we completed our three-year strategic plan for the period 2012 to ‘14 and did very well from our point of view on of course planning and executing on that plan. We feel that our business units are in good shape, we have a great management team in each of our business units. And at the corporate level, and are well positioned for a good 2015 and beyond. So, before I give you further comments and highlights on the company per-say, Steven will review our quarterly financial results. Steven?

Okay. Thank you, Stan, and good morning to all. I’m also pleased to report strong results for the fourth quarter of 2014 as well as the full year. If you look at our Q4 results, our net sales for the quarter ended December 27, 2014 were $2.7 billion reflecting a 7% increase compared with the fourth quarter of 2013. This consisted of 9.9% growth in local currencies and 2.9% decline related to foreign currency exchange. In local currencies, internally generated sales increased 4.9% and acquisition growth contributed an additional 5%. You could see additional details of our sales growth in Exhibit A of our earnings news release that was issued this morning. Our operating margin for the fourth quarter was 7.5% and expanded by 11 basis points compared with the fourth quarter of last year. And, even if you exclude the impact of acquisitions completed during the past 12 months, our margin also expanded by 6 basis points compared with last year’s fourth quarter. Our effective tax rate for the quarter was 29.7% and this compares with 29.8% in the fourth quarter of 2013. The slightly lower tax rate is due to implementation of our ongoing tax plan strategies as well as high earnings in countries with lower corporate income tax rates. Going forward for 2015, we believe our effective tax rate will continue at a similar rate and be in the 30% range. Our net income attributable to Henry Schein for the fourth quarter of 2014 was $133 million or $1.56 per diluted share. This represents growth of 7% and 9.1%, respectively, compared with the fourth quarter of 2013. I think it’s important to note that foreign currency exchange had a negative impact of approximately $0.04 on the current quarter’s EPS for the quarter. So, $0.04 negative impact is included in our numbers. Looking to the results for the full year, there were a number of highlights. Sales increased 8.5% exceeding $10 billion for the first time as Stan just mentioned. Our cash flow was very strong at $593 million and exceeded net income by over $126 million. Diluted EPS increased almost 10% at 9.9% to $5.44, and that’s the increases after adjusting non-GAAP items in the prior year. And we believe overall 2014 was an excellent year from a financial perspective. You can see a reconciliation of GAAP and non-GAAP income and EPS in Exhibit D of our news release. If you look at some additional detail on our sales results for the quarter, Dental sales for the quarter, for the fourth quarter of 2014 increased 3.9% to $1.4 billion, this 3.9% growth consisted of 7.5% growth in local currencies and a 3.6% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.3% and acquisition growth contributed an additional 5.2%, primarily related to the acquisitions of BioHorizons and Arseus. If we look at the 2.3% internal growth in local currencies, the components are 1.9% in the North American market and 2.9% in the international market. If you look at the components within each of North America and international, the 1.9% internal growth in constant currencies in North America included very strong growth in Dental consumable merchandize of 4.9% and a decline in Dental equipment sales and service revenue of 4.7%. We believe that the equipment sales declined in North America substantially due to this late reinstatement of tax incentives for the U.S. market in 2004. These tax incentives were reduced to $25,000 at the end of 2013 and were not returned to the previous level of $500,000 until December 19, 2014. And we believe it was really too late for our customers really to take advantage of that increased benefit in the fourth quarter to impact sales growth. If you look at the 2.9% growth in the international market we have 3.1% in consumable merchandize and 2.6% growth in equipment sales and service revenue. Turning to animal health, our sales was $731.6 million in the quarter, an increase of 12.3%, which included growth in local currencies of 15.9% offset by a decline again in foreign currency but of 3.6%. The internal sales in local currencies grew 7.8% while acquisitions included an additional 8.1%. That 7.8% internal growth in constant currencies included 6.9% growth in North America and 8.6% growth in our international animal health sales. If you normalize our North American animal health sales for the impact of certain products that switch from agency sales to standard sales, North American internal sales growth was a little bit less at 5.9%. Turning to medical, our medical sales were $461.7 million for the quarter, an increase of 9.4% that 9.4% consisted of local currency growth of 9.9% offset by foreign exchange currency declines of 0.5%. And the internal sales in local currencies, was 9.4% and 0.5% related to acquisitions. That 9.4% growth consisted of 9.5% slightly higher in North America and that was led by up-market and mid-market customers and growth also strong in international of 8.4%. During the quarter, we sold seasonal influenza vaccines at the rate of $26 million for the quarter and that’s up slightly from the $23.8 million in last year’s quarter. I’ll also point out that our fourth quarter results include about 1.5 months of agency revenue resulting from the strategic agreement with Cardinal Health and Stanley will discuss a little bit more details on this agreement later on in the call. We remain confident that our strategy of focusing on large group practices and IDNs, resulted in continued market share gains. Technology and value-added service sales were $91.3 million in the quarter, an increase of 3.3% and that includes 4.4% growth in local currencies offset by 1.1% decline related to foreign currency exchange. In local currencies, the internally generated sales growth was 1.5% and acquisition growth was an additional 2.9%. That 1.5% growth was of slight decline in North America of 0.7% and 15% growth international. But remember, in the North American market, we also have a shift in sales from standard sales to agency sales. And if you adjust for that and normalize for that, our internal growth in local currencies, were 6% and included 4.6% growth in North America. This would be the last quarter for this normalizing adjustment in technology since that shift is now annualized. We continue to repurchase common stock in the open market during the quarter specifically we repurchased 595,000 shares at an average of $124 per share, approximately $74 million. The impact of these repurchases in the fourth quarter was not material to our EPS. And looking forward, we still have $300 million available for 2015, repurchases and for 2014 we did achieve our stated goal of repurchasing about $300 million for the year. If you look at our balance sheet and cash flow, we had strong operating cash flow for the quarter, $274 million which is substantially the same as the $274.6 million last year. Our operating cash flow for the year was $592.5 million and free cash flow was $510.4 million. Again, we’re pleased that we exceeded our goals related to cash flow and free cash flow for the year. Looking at accounts receivables days outstanding, really not much changed there, we improved a little bit from 40 days last year to 39.9 days. And inventory turns were pretty much consistent at 5.9 turns this year versus 6.2 turns last year. Let me conclude my remarks by affirming our 2015 financial guidance, as follows. For 2015, we expect adjusted diluted EPS attributable to Henry Schein to be in the range of $5.90 to $6. That represents growth of 8% to 10% compared to our 2014 actual results. The U.S. dollar as I think everyone knows has strengthened. And assuming it stays at its current level, we would expect adjusted EPS to be toward the lower end of the range for the year. Keep in mind that approximately 35% of our sales are based in currencies other than U.S. dollar and primarily the Euro is our largest currency. And we do not hedge against the translation exposure for foreign exchange. I think it’s also important to point out that we expect adjusted EPS growth to accelerate during the year. This is typical for us as we typically make investments at the beginning of the year that will pay off later in the year. And this acceleration reflects continued leveraging of our infrastructure and controlling of expenses, as well as realizing efficiencies from recently acquired acquisitions. The 2015 guidance excludes restructuring costs related to a planned corporate initiative to rationalize some of the company’s operations and provide significant expense efficiencies. We believe it’s important to reduce our cost structure so we can invest further in new initiatives to drive future long-term growth. This initiative is expected to continue throughout 2015 and the costs are estimated at between $35 million and $40 million pre-tax or $0.29 to $0.33 per diluted share. As always, our guidance is to continuing operations as well as completed or previously announced acquisitions but does not include the impact of any future acquisitions. Let me now turn the call back to Stan.

Thank you very much, Steven. So, let’s begin a discussion on our four business groups with Dental. In North America, internal consumable merchandise sales growth in local currencies remained strong at nearly 5%. Equipment sales and service revenue as Steven noted, declined in North America, due to the issues surrounding the timing of tax incentives in 2014 that Steve mentioned. We of course had a lot of purchases in the fourth quarter of 2013 that were driven by the large amount of accelerated depreciation that was available to customers. And of course, advising customers on December 19 that was now available for a window of 10 days or so, was just not practical to have, and had no real impact. Our International Dental growth was solid for both consumable merchandise and for the equipment side, with internal growth bolstered by strategic acquisitions made earlier in the year, especially on the Dental equipment side. In early January, we announced that during the year’s second quarter, we will be expanding our Dental equipment product offering in North America by adding the tag-line of A-dec equipment. Our commitment to our dental customers has always been to provide the widest possible selection of products equipment and value added services to create customized solutions that meet our customer’s needs. Products from A-dec along with those from our other valued equipment supplier partners, firm this commitment by providing greater access to the broadest range of Dental equipment from industry leaders. Let me just confirm that, we will only be adding A-dec line around the middle of the second quarter. We also recently announced the Acquisition of ADS Florida, which is one of the largest Dental Practice Transition and Brokerage Company serving the State of Florida. Although this transaction represents only a few million dollars in revenue, it is very important strategically for several reasons. It expands the geographic reach of our practice transitions offering to dental practice owners looking to buy a cell their practices to build upon, and builds upon last year’s acquisition of the Maddox Practice Group in California. This transaction also adds to our practice transitions footprint, a large market where the dental industry is flourishing and incorporates ADS into the professional practice transitions group of Henry Schein Financial Services. Our goal is not only to provide national coverage on brokerage services, which I think we by in large had but to add depth in key markets around the country. And although these acquisitions are not huge from a capital commitment point of view, they are adding a strategic importance to the Henry Schein value-added service offering such that we can now help put a practitioner into practice, and when the practitioner is ready to sell the practice, help the practitioner exit. So, overall, on the animal, on the Dental side, we are comfortable, more than comfortable actually quite happy with the progress we’ve made. We have an outstanding management team across the board. We’ve added to that, we’ve added young people to the team as well. And we believe that we are on the solid footing to execute on our major strategies there ranging from advancing our specialty business to our practice management software business and of course most importantly to advancing the digitalization of prosthetics on a global basis. So, overall, happy with the animal health -- with the Dental business, now let me turn the animal health business for a few minutes. With sales growth in the fourth quarter featured double-digit gains in local currencies in North America, and international with international internal sales growth in local currencies at a multiyear high. Internationally we saw particular strength in the U.K. as well as Australia, the Netherlands and Belgium. We currently, we recently expanded our animal health equipment capabilities with additional capabilities and capacities, and particularly through the recent announced acquisition of scil animal care. Scil will bring to Henry Schein new value-added services offering while deepening our relationship with veterinary practices in the technical -- from a technical point of view in the equipment area specifically, and of course the software area too building on our installed base of practice management software which we believe is the largest installed base of its kind. The Scil animal health professionals will enhance the equipment sales and support capabilities of our animal health business, representing our key supplier partners and introducing veterinaries the important diagnostic options. We believe strongly that diagnostics are critical elements to help veterinarians provide high quality care and increased practice revenue. We furthermore believe this will significantly -- that Scil will significantly expand our diagnostic products category. Not only do we have a very good offering of diagnostic equipment but it’s a value-added service on the connection between the value-added services and our practice management software and the electronic medical records that is so important. And Scil will add a very, very important element connecting the hardware and the software. And enable us to gain market share for our animal health diagnostic partners which of course include amongst others Abaxis and Heska but there are others as well. But these are the cornerstones in our mould. And of course the Scil software and the professional’s knowledge will tighten the ability of Abaxis, Heska and others to work with Henry Schein. We are pleased with our progress to date in representing the product lines from both of these companies. Let me remind our investors that we really only added these lines towards the end of the fourth quarter and are now up and running with our suppliers in the diagnostic space. Scil hasn’t closed yet but will close soon. And once this is done, we will really have very good momentum in the equipment of diagnostic space as well as the software space. Scil is based in Germany. Self-services and supports, laboratories and imaging diagnostic product and services to veterinarians of course in Germany but in the United States, in Canada, France, Italy, Netherlands and Spain with a distribution presence in 25 additional countries. With the skill we are adding Canada and Italy to the list of countries where Henry Schein animal health service veterinarians, we also are gaining more than 200 employees including 32 veterinarians. And I would like to stress this, 32 veterinarians, of course 26 equipment specialists and more than 70 sales representatives. Scil had sales for the 12 months ended September 30, 2014 of approximately $17 million. We do expect this transaction to close in the second quarter of 2015. Of course subject to standard regulatory approval but we don’t expect any real concerns over here. The sales are not hugely material from a Henry Schein corporate point of view but the know-how knowledge of the Scil Group together with the know-how knowledge of the Henry Schein group not only in the animal health space but generally in the equipment space in medical and of course dental will put us in an excellent position to advance our sales in this regard. At the 2015 North American Veterinary Conference in late January, we showcased the choices we offer veterinarians in diagnostics from software to equipment to business solutions. We introduced a new software product called Axis-Q, a biodirectional important - biodirectional integrated solution that improves workflow and reduces miss-patient charges. Axis-Q operates between the practice management software such as important -- such as the important offering of software that we offer such as AVImark, Infinity and Triple Crown, and the clinics’ Abaxis and Heska diagnostic equipment. Axis-Q automates the workflow of diagnostic tests so the clinician does not have to manually input codes. And it automatically returns the results to the electronic medical record. Feedback from the show was very positive. We worked on the system rather rapidly. And you can expect a lot more features and functions to be unfolded in the near future. We are committed to the practice management arena in animal health as internal software, electronic medical records, counting systems on the cornerstone. But what differentiates Henry Schein in the dental space, the physician space is the ability to offer a complete integrated system integrating key machinery, diagnostic, other equipment in the office and software in the office to our software. We will now further advance this in the animal health space as well. We expect to formally launch Axis-Q in the second quarter of 2015. Let me now turn to the medical group. Medical sales growth accelerated in the fourth quarter compared with the third. And while it’s a multiyear high, as we made continued progress with large group practices and IDNs, the integrated delivery networks. This progress will be significantly enhanced under our strategic agreement with Cardinal Health. The agreement is designed to provide one of the most comprehensive service and product offerings to office-based medical practitioners. As we announced in late November, the agreement combines Cardinal Health’s product-line and extensive touch-points across the healthcare system with our outstanding service capabilities and our history of servicing the office-based practice. And when we talk about the office-based practice, we’re not talking only of the independent or the large group practices, but we’re talking about the practices owned by IDNs we have shown a track record now of being in a position to deliver outstanding service. Together with Cardinal, we believe we will deliver to our integrated network customers, the IDN customers and individual physicians, small practices and multi-specialty, solo-specialty practices, vastly improved efficiency, wider breadth of product, world-class service and a value for the ultimate benefit of the patient. In essence, there are three components of this new agreement. First, we acquired Cardinal’s physician office focused commercial organization and will integrate it into Henry Schein’s medical business. This will add more than 25,000 physician office locations and more than $300 million in revenue to our medical business and will be slightly accretive to 2015 earnings. Of course the second component includes a multiyear supply agreement where Henry Schein will purchase Cardinal branded products and utilize Cardinal Health as a source for various other medical products. We view this as a real win-win relationship as we expect to have lower or comparable pricing on a wide range of products. And of course Cardinal also benefit from increasing their sales into the sector through our focused approach. And then there is the third component of the agreement. We are excited about providing a unique combined solution to integrated delivery networks. The timing is ideal as IDN seek to improve the coordination of care, increase efficiency and drive consistency and standardization across their networks. Of note, more than half of the U.S. physician practices interact with an IDN and that percentage of course continues to increase. The cooperation to date between Henry Schein and Cardinal Health has been excellent. And the teams are really off to a great start. We are working to transition customers and the sales team and expect to complete the integration of this business towards the end of the second quarter. At that time we look forward to welcoming more than 200 Cardinal Health employees to team Schein, we will keep you apprised of course of the progress of this strategic alliance on future calls. So, I think you get a sense for how much progress it made in our three verticals, dental, medical, animal health. This progress was really all chartered out in our strategic plan, the last few strategic plans. But I believe we’ve made terrific progress in the 2012 to ‘14 plan to advance the needs and the market share and the profitability of these three global verticals. As investors are aware, we have a horizontal as well and that’s in the technology and value-added services arena. We’re also delighted to report that our internal international technology of value-added services sales growth and local currencies grew by double-digits for the eight-consecutive quarter. The growth rate more than doubled when including the impact of strategic acquisitions. Of course this is a business that has some good sales but more importantly good profits. But what is more important here is the stickiness and the value added service that we provide to our customers such that it keeps our customers bound to us when they view us, this is our competition. And the options are driven the answers to that, the options are driven towards us as people understand, as our customers understand our value-added services specifically around the technology and value-added services group. We believe that equipment financing as well as lower software sales in North America were both negatively impacted by the late reinstatement of tax incentives in the U.S. Having said that, our reoccurring revenue continues to grow and this is a great, great business for us. So, before taking questions, Steven and I, I’d like to reflect back a moment on a few highlights of the year from overall point of view. We are extremely pleased to have met and even exceeded many significant goals while advancing our strategic plan. We reported diluted earnings per share for the year of $5.44, which exceeded the top of our EPS guidance range established in November of 2013 by $0.05 per diluted share. We achieved operating cash flow of close to $600 million and free cash flow of over $500 million both well in excess of net income. So it’s not only good enough to have good earnings per share on accrual basis, but it is important to turn that accrual based earnings into cash flow which we have done now for several years. And we also repurchased about $300 million of stock which is aligned with our stated annual goal. And we also entered three new geographies during this period, three critical markets, Japan, Brazil and Poland. And that was on the heels of entering the South Africa market just before the beginning of the year. We became a significant participant in the U.S. equine market via an acquisition and enhanced domestic group via the strategic transaction of Cardinal as we discussed. We strengthened our corporate governance with two appointments of outstanding Board of Directors members, Dianne Rekow, the Dean of King’s College and formerly of NYU is a materials expert and an orthodontic expert and Dr. Larry Bacow, former president of Tufts University, who also serves on several other boards. And these are just simply outstanding directors. Our commitment to advance in technology and of course the digital dental office was evidenced by opening our new headquarters for our domestic dental practice solutions business and hosting the first international symposium on digital dentistry. We are of course undertaking similar activities in Europe, invested in terrific new facility in the U.K. with similar kinds of capabilities to the one we now have in Utah. And lastly, we received a number of awards and recognitions including being named the Fortune Magazine’s list of world’s most admired companies, being named among the year’s most ethical companies but it is an institute and climbing a few notches of the Fortune 500 list of America’s largest companies. During the last quarter call, I discussed some of the key pillars of our 2015 to ‘17 strategic plan. These most recent accomplishments from 2014 were an excellent foundation for us to go into the 2015 plans. We have our priorities lined up as we always do. We will focus on them but we will remain nimble enough to take advantage of additional opportunities that come our way. But we as we have been for years, actually foundation of the company’s and our history is to be a very focused company. We know what we have to do over the next three years, particularly as it relates to new product categories, more product exclusives, new geographies, enhanced margins of course, very important, new clients, specialty customers, new technology solutions and above all in 2015 it’s about human capital talent investment, management. And you can be sure that team Schein is focused on this great succession at all levels of the company. So, with that overview of our quarterly financial and operating performance and the summary of the year, I’d like to thank you for your attention this morning. For those that are our investors thank you for your confidence. And we’re open for questions.

Natalya, we’d like to start taking questions please.

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

Great, thanks for the questions. I guess if there was a soft spot in the quarter, you guys called out dental equipment, and I understand you believe that a lot of that was from Section 179 and the timing there. Any sense you could give us on what you would have expected to see in equipment had it not been for that change in timing? And then, maybe more helpful even than that, could you maybe just talk about what you are seeing in your equipment backlog as we move into year 2015?

Sure, Bob. On the first part of your question, I don’t know if I want to give a specific number because it’s really difficult to quantify what customers would have bought because of tax incentives that ultimately didn’t buy. But we certainly believe we would have had good growth, if I peel the onion on the equipment categories in North America, I think it’s important to note that our CAD/CAM sales growth was strong, traditional equipment was down a little bit but not as much as the overall category. And really I think people, on some of the discretionary digital solutions that’s really where we saw people hold back. In my opinion a lot of that really is timing that people would have accelerated their purchases in Q4. They will ultimately buy some time in 2015 not necessarily in Q1 but sometime in 2015. Right now the tax incentives, the way that U.S. government did it, they reinstated them December 19, but the re-expired on January 1, 2015. So, no one knows whether they’ll reinstate them again and at what time. But right now they are the tax incentives are only at the $25,000 level. The second part of your question really, again, I gave color on the components, I’m not sure there is a lot more to add there other than, again, we feel like with the addition of additional equipment lines, including A-dec, we feel like we’re going to have a good equipment year in 2015. And I think most people realize that the consumables sales growth which was strong just under 5% really is a better indicator of how the market is doing than this one quarter of equipment sales.

That’s very helpful, Steve. I guess just switching gears to medical, I believe the guidance that you are reaffirming today was actually given prior to the Cardinal announcement, so as we think about the ramp of the expected synergies and savings from that arrangement, which I know -- I think is expected to close in 2Q, anything you can add just as part of how we should think about how additive that deal could be in your 2015?

Yes. So, we did say at the time of the announcement it was slightly accretive. That’s somewhere, couple of pennies or so of accretion for 2015. Remember that’s net of all integration costs and one-time costs. So we’re not expecting to complete the integration until Q2. So, really in Q1 there is really mostly expenses and not a lot of benefit. So, it is slightly accretive but we do expect increased accretion. And really we’re being very conservative on the potential for procurement and buying at better prices because we really don’t know the impact of that yet, so that could be an additional upside on certain products. Obviously we would think that Cardinal Health buys at better prices than we could do on our own, especially on the pharma side. So, hopefully that will be benefit. But it’s too early really to quantify what that benefit will be.

Okay, got it. Thanks so much.

Your next question is from the line of Glen Santangelo with Credit Suisse.

Hi guys, thanks for taking the question. Steve, I just wanted to follow-up on the medical segment. I mean, you obviously reported some decent organic growth in there, but could you maybe talk about the Cardinal revenues that you booked? You booked them on an agency basis. How should we think about that transition and when you’ll book them as regular revenues? And were there any incremental revenues that augmented that internal number or did that fall at acquisition, how do I think about all that?

Okay, yes, Glen, good question. So, because right now, Cardinal is continuing to service customers they are taking orders, they are shipping, they’re billing, they’re collecting, they’re really doing all of the functions until integration. U.S. GAAP doesn’t allow us to record that revenue gross with all of the expenses. So we get a fee based on sales from Cardinal which is designed to represent the estimated profitability of those sales that they’re collecting on our behalf. And that number is what we included in the acquisition growth. So, the organic growth does not include any impact from the Cardinal agency fee that we are receiving, once integrated, so sometime during Q2 is the plan. We’ll shift over to having those sales fulfilled through our distribution network and we’ll be taking the orders and doing all of the traditional distribution work. And at that time we’ll record the gross revenues again which should be north of $300 million on a full-year basis going forward.

All right, that’s helpful. Stan, maybe if I can just follow-up with you on what you are seeing on the M&A landscape, essentially, there was a pretty interesting animal health deal announced in the sector with one of your, obviously, closest competitors being acquired here recently. Your closest dental competitor has made inroads across the pond on the animal health side as well. And so, are you starting to see any changes in the competitive landscape as some of these other companies maybe start to look more globally from a competitive perspective, any rise in prices or anything we should be aware of?

No, I don’t think our competitors changes in ownership or expansion of broad or impact much. Our pipeline on acquisitions is as full as ever, which we could close all the deals in the pipeline, it’s not a matter of capital it’s a matter of capacity because integrations are something that goes along with every acquisition. So we don’t have an issue finding acquisitions, I think we will have no issue in putting the capital to work that we’ve outlined. I think something like, certainly between 45% and 50% of our cash flow will go into acquisitions. We will continue with our formula of accretive acquisitions. And in fact, I think we’re on a better position today to make acquisitions than ever before. Our track record is outstanding for keeping management where we make commitments upfront. Our suppliers are generally supportive of us because they’ve seen us enter markets and not disrupt markets. But in fact add to the distribution capability and the value added services in the market which generally gets better after we enter from the competitive landscape point of view. So, I don’t think there is any issue from that point of view. We have no problem in keeping the pipeline full. We will expand our geographic presence in our dental and our animal health business. We will probably do that in medical again, at some point but we want to get the Cardinal integration behind us. That’s a big opportunity, we have the right to sell the Cardinal products abroad and we will do that. And I think you’ll see us adding much more in the value added service area, continues to be important to us across the board, all countries. And of course the specialty area, there is lots and lots of opportunity. Meanwhile we’ve become an important player in the specialty only products we’re always an important player in selling general products equipment consumables to specialists. But it was the specialty products, the implants, and the bone regeneration, the wires and brackets and related products and the endodontic type specific products we are doing well growing that throughout the world inorganically and of course organically. So, I don’t think we have any issue in continuing to expand and I don’t think we’ll be paying a penny more than we used to pay. We have a very good reputation in this area and very good integrating businesses once we acquire them.

Okay, thanks for the details.

Next question is from the line of John Kreger with William Blair.

Hi, thanks very much. Stan, towards the end of your remarks, you listed off some of the newer countries that you’ve entered in recent years. Can you just expand a little bit upon how that portfolio, of countries are doing? Are they generating higher levels of growth than your more mature markets? How does the profitability in that portfolio compare to your more mature markets? And should we expect more of these types of entries as we move through ‘15?

Yes. First of all that’s a very good question, John. It’s something that’s very important for us. It’s clear that Asia and the developing world are growing at a much faster rate than the developed world and certainly faster than Europe. So, and that there is a big market, there is at least a third of the world’s dental business that’s available in these developing world markets/Asia. And of course Japan is not a developing, or Korea is not a developing world country. So, we continue to expect to increase our presence. Having said that at the moment it’s relatively small, and the entry into Japanese market for example is not a consolidated entry acquisition nor is the one in Brazil, nor is the one in South Africa. We are doing well in all of these businesses, but they’re not material. China, we are not material, we are growing but it’s not profitable, the others are all profitable. And Thailand is profitable although there was an issue for a couple of quarters because of the coup. But I think it’s quite balanced today. We think we’re going to have is from an economic point of view things are looking better. So, overall, I think these markets are all markets that are growing faster on even if you take into account some of the losses in China where it was, have a team much bigger than we need much more sophisticated team and outstanding team actually. We believe we have the best professional team in China or anyone really in our space. So, overall I think you’ll see that from a profitability point of view it’s pretty good. We’re particularly pleased by the way with Brazil, where our growth is really fantastic and South Africa too. And so, I would say that these are opportunities that are doing very well for us, except for China which is growing nicely on the top line but at this stage still requiring quite a bit of an investment.

Great, thank you. Then, similar question on your dental chain business how is that going versus dental overall? And should we view that as being additive to margins over time or maybe a little bit below the average?

Yes. First of all, our corporate accounts business not only in this country in the U.S. but throughout the world is growing. And it’s gaining a greater market share of our total business, number one. Number two, it’s not dilutive to our general gross profit because there is, this is incremental business. We don’t need to put new catalogues. We have a different compensation structure for our team. It’s quite complex because of the very large accounts, we don’t really pay commission. It’s a customer service type bonus. But in for the mid-mark and for the middle market customers we do have compensation but it is modified. So, overall its profitable business. These customers are working with us to advance the purchases with specific manufacturers that are interested in this sector and supporting us. So, overall this is not dilutive to our gross margin - operating margin sorry, thank you Steven. But I wouldn’t want to go beyond that for competitive reasons. But this is good business for us. And we have a real good market share.

Great, thanks very much.

Your next question is from the line of Jeff Johnson with Robert Baird.

Thank you, good morning guys. I wanted to start maybe on the A-dec news from a few weeks ago. Steve or Stanley, how do we think about that as far as the incremental impact this year? We’ve talked in a couple of our notes about some low-hanging fruit we believe you will be able to capitalize on in the near term here once that contract goes live. But the basic equipment market growth as a whole market probably doesn’t change a whole lot. So, do you lose a little bit somewhere else or do you take share this year because of A-dec? How should we just think about the pie versus your part of that pie this year with A-dec in there?

Yes, it’s a very good question. The goal here obviously is try to expand the market a bit, which I think we can because we have customers that have older units of A-dec chairs that like to replace them. And they don’t replace them necessarily with another brand, so that’s a good place to start. But our goal is not to be disruptive in the marketplace because we are in the sort of long-rule. There are certain customers that the A-dec line naturally fits in with. And there are customers that are happy with the products we’ve been offering. Our goal is to expand the A-dec business together with ours. But at the same time not in any way distract from our loyal suppliers over the years. So, we will go carefully, I think A-dec is aware of this. And we hope to add to the marketplace in general, the A-dec chairs are slightly more expensive than chairs that we have been offering today. Overall, we think we have an outstanding offering A-dec adds to that. But we also believe that the offering we have from our existing suppliers is a good one, it’s been an outstanding one. It allows us to become a very significant player in the equipment business. In fact, we believe we’re the largest provider of equipment in the world, general equipment. So we just have to be careful not to disrupt the market and make sure that we’re additive. And I think that over time we will do well for A-dec as well as for our existing suppliers and more importantly for our customers and our sales team.

Great, that’s helpful. Thank you, Stanley. And then, Steve, just as my follow-up, the A-dec is maybe slightly, the A-dec deal may be slightly accretive this year or additive this year, Cardinal obviously. But what I haven’t heard is how much currency since you last provided guidance, maybe how much do you think currency is going to take from the year relative to the last time you provided guidance or the first time you provided guidance back last quarter, and even on a year-over-year basis if you can kind of give us the total impact you’d expect from currencies?

Sure, Jeff. So when we issued guidance and I’ll just focus on the dollar to the Euro because that’s our major currency although, now there was a little bit of impact on some of the other currencies too. But Euro to the dollar was a $1.24 when we issued guidance. Right now as of yesterday or today, it’s probably $1.13. So, assuming that the $1.13 stays for the entire year which I’m not sure is it good or bad assumption but we have to start with an assumption. That would have anywhere versus our previous guidance, anywhere between $0.08 to $0.10 EPS impact. And that’s why on the conference call we said while we’re still comfortable with our range, we’re really at this point saying the lower end of the range. Yes, there are a few offsets Cardinal is a little bit of an offset. Actually fuel prices are a little bit of an offset to it also but not significant. And again, we don’t know which way fuel prices are going to go over the next 8 or 9 months. But I think we still feel like achieving our full year guidance is very doable. And obviously if the dollar continues to strengthen, we’ll look to see if we can continue to achieve the guidance by doing some other activities or not. But again it’s so hard to predict and I really don’t want to predict but I think the full year impact will be, because I think it’s too difficult and there are too many variables.

Understood. Thanks, guys.

Jeff, I think Steven’s view is quite correct. It’s much too early in the year to change guidance. And we have to remember that on the one side our earnings don’t translate any U.S. dollars and European earnings as before. On the other hand, we’re hopeful that because of a low Euro, we will see a stimulation of the economies in Europe. That will happen right away, but I think my sense is having spent some time in Europe now, in the last couple of weeks, last month or so that we will seize some recovery in some of the markets in Europe from an export point of view which then in the end, trickles into some of our business. So, I think and at the same time, if Euro stays low, our imports or products go down in price, not only in terms of products from Europe but also from Asia. So, it’s much too early and I think Steven is correct to signal lower end but there is so many variables that can move in a positive direction as well. So, but it’s much too early to go much further than that.

Understood, thank you.

Your final question is from the line of John Block with Stifel.

Great, thanks. Good morning. I’ve got one dental and one vet. Maybe I will start with vet. The North American vet internal number was certainly solid, but it was a slight step down from the 3Q levels and we are hearing through the market, overall market remains pretty strong. So was that North American number hit a little bit as you terminated the IDEXX deal before year-end? And then, can you also comment on your experience in the early days trying to convert IDEXX accounts to either Abaxis or Heska? And then I’ve got a follow-up on dental. Thanks.

So, I don’t know exactly the impact. I’m sure Steve would be happy to get back to you on IDEXX on our fourth quarter 2014 versus ‘13. But clearly it was distraction as it was to others in the marketplace. I don’t know whether this quarter is indicative of the trends or not, but I will tell you that our animal health business is solid. We will do well in the diagnostic field I’m quite convinced about that. We’ve had this type of issues so many times in our history. And we’ve always come out in the end quite strong, to welcome wake-up call because I think you will see us investing much heavier in our software businesses. And so we will move towards despite bidirectional integration that improves the quality of our systems. The use of the system shall we say. And I think overall in the end, Henry Schein will be a better investment for our shareholders from this point of view. So, I will say that also then I think you’ve seen this from others who have reported traffic into the animal health space is okay. It’s a great market we’re seeing lots of capital coming into this market. And we remain very bullish we’ve invested heavily from a management point of view in Europe and Australia and New Zealand. Our CEO of animal health business in the U.S. retired, he’s still a consultant to the company. We’ve replaced Kevin with an outstanding new president, who’s presiding over an outstanding team. So, we remain extremely excited about the third leg to Henry Schein that we added really about four or five years ago in a material way. It’s a great investment. And you’ll see us making more investments not only on expanding our distribution but in value-added services and in advancing unique products in this area. A great market and I think we should have, it’s hard to give you precise numbers but we should have a very good 2015 in the animal health space.

Okay. And then the dental is two parts. Stanley, the first one is for you. About a year ago, I think it was around then, you laid out what looked like some aggressive goals to move from sort of one out of every three new North American CAD/CAM users to one out of every two. How are you tracking against that now nine or 12 months later? And then, Steven, to an earlier question, I just want to make sure I’m thinking about this correctly. If I estimate about a $40 million shortfall in North American dental equipment because of the 179 delay, we should view that largely as a pickup from 4Q ‘14 to 4Q ‘15 as those accounts await the reimplementation of 179, rather than trickling in throughout 2015? Thanks, guys, for your time.

Yes. So, it’s hard to give you in one quarter whether we are at 50% or a third of the new systems. What I can tell you is that we’re continuing to do well in CAD/CAM in the U.S., in Canada, in other markets where we have E4D, and in the markets where we have CEREC, we’re doing well. And our global category or CAD/CAM the hardware, the entry devices, the materials is doing well and is growing. We have a team in place it’s been in place for four years now. And really are doing very, very well. So, I think this category is probably the -- at least from the big categories, the fastest growing category. I believe that overall we’re doing quite well. But in fact we’re gaining market-share globally. But to give you precise number of new units sold in the fourth quarter versus what our competitors sold, or competitors with similar influence, it’s very hard to tell. We’ll track that in a much longer period of time.

Yes, I’ll pick up on the second part of your question, John. But I’ll add to Stanley’s first part. Q4 I think when you look at how much market share we grew on CAD/CAM, because of the reduced sales were tax incentives, I don’t know if it’s really indicative. But while saying that, we still had something in the high-teens sales growth in CAD/CAM in North America. So we still had very strong growth, probably it would have been a lot stronger if the tax incentives were available. But they just weren’t. With respect to the second part of your question, if nothing changes from where we are, we’ll kind of have a normal year I believe for equipment because we did not get pull-forward in 2014, in Q4 2014 from 2015. And if nothing changes, the tax incentives aren’t increased, we probably won’t get much pull-forward in at the end of 2015 pulling forward from 2016. So it would be kind of a normal year, which would be good I think. We’re still hopeful and I think there is, still possibilities that the tax incentives could be reinstated at some point. But right now we have to go with whatever the tax logos that exist. And it’s only for the first $25,000 of capital expenditures, which is a relatively small amount. As you know CAD/CAM is over $100,000, a lot of other equipment is expensive. So without that tax incentive, it doesn’t give people the incentive to buy now and they’ll still buy but they’ll buy in due course rather than trying to accelerate it. So, hopefully that answers your question.

It does. Thanks for your time guys.

Okay.

So, thank you all for your interest. The questions actually were as usual very good. If you have additional questions, please feel free to call Steven Paladino or Carolynne Borders at 631-843-5500 and the operator would put you through. And so, as we finish off the reporting for 2014 and go into 2015, we are extremely excited as a company. There is so much going on and we just have an outstanding team. Our brand is doing well in the marketplace and we’re excited to be implementing our strategies for the, in connection with 2015 - 2017 Strat Plan, I think it’s well thought out. The team is galvanized behind it. And we’re excited going forward. Thank you for calling in. And I guess we speak to you in six days’ time. Thank you.