Leslie Nagel - Investor Relations Scott Anderson - Chairman and CEO Ann Gugino - Executive Vice President and CFO

Kevin Ellich - Piper Jaffray Michael Cherny - Evercore Nathan Rich - Goldman Sachs Robby Napoli - William Blair Steven Valiquette - UBS Jon Block - Stifel Robert Willoughby - Bank of America

Please standby, we are about to begin. Good day, ladies and gentlemen. Welcome to the Patterson Companies First Quarter Fiscal 2016 Earnings Announcement. Today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the conference over to Ms. Leslie Nagel. Please go ahead, ma’am.

Thank you, Catherine. Good morning. And thank you for participating in Patterson Companies fiscal 2016 first quarter earnings conference call. With me today are Scott Anderson, our Chairman and Chief Executive Officer; and Ann Gugino, Executive Vice President and Chief Financial Officer. After a brief review of the quarter by management, we will open up the call to your questions. Before we begin, let me remind you that certain comments made during the course of this conference call are forward-looking in nature and subject to certain risks and uncertainties. These factors which could cause actual results to differ materially from those indicated in such forward-looking statements are discussed in detail in our Form 10-K and our other filings with the Securities and Exchange Commission. We encourage you to review this material. Also, a financial slide presentation can be found in the Investor Relations section of our website at pattersoncompanies.com. Please note that in this morning's conference call, we will reference our adjusted results for both the fiscal 2015 and 2016 first quarter, which exclude the impact of one-time transaction related costs, deal amortization, non-recurring training costs related to our IT initiative, tax costs related to cash repatriation and currency. Additionally, our discussion of results is adjusted to reflect the reclassification of Patterson Medical as a discontinued operation. A reconciliation of our reported and adjusted results and foreign currency impact can be found in this morning's press release. Today’s earnings announcement and our discussion also reflects the realignment of our reportable segment, which organizes our legacy Veterinary business and recent acquisition into one Animal Health segment, and move certain centralized shared functions that were previously embedded within the Dental segment into a separate corporate segment. Be advised that this call is being recorded and will be available for replay starting today at noon Central Time for a period of one week. With that, I'd like to hand the call over to Scott Anderson. Scott?

Thank you, Leslie. Welcome everyone to today’s conference call. Our fiscal 2016 first quarter marks the beginning of the transformation of Patterson Companies. Over the past several months our goal is to fundamentally shift the company's long-term growth profile began to take shape and culminated in two transactions, the addition of Animal Health International and the pending sale of Patterson Medical. I am pleased to say that the thoughtful measured approach we have taken to this transformation has allowed us to stay focus and continue to execute on our plan. We demonstrated this in the 2016 fiscal first quarter. During the quarter, we began the all important work of starting to unify Animal Health International and our legacy Patterson Veterinary operations. This process has produced some important observations and reconfirmed our conclusions after our due diligence was complete. In particular, it’s apparent that our organization’s clearly share the qualities that will be absolutely essential for the success. We found a deep commitment to professionalism and delivering an exceptional customer experience. The leadership team at Animal Health International is collaborative, strategic and results driven, which has helped to make our early integration effort very smooth, and like our team they have a highly motivated sales team that’s driven to succeed. Today, we have a clear integration and synergy roadmap that matches our assumptions at the outset of transaction and we believe we are executing against it. During the quarter, we held successful national sales meetings for both the companion animal side of the business where we integrated our two sales forces and the production animal side. Further, we have made significant progress on the cross-selling front. We are already seeing the benefits of the brother product portfolio for the new companion animal sales reps and Patterson Veterinary sales reps to call on mixed practices. Given that we are only two months into the integration process, I am very pleased with our progress and momentum. During the quarter we also signed a definitive agreement for the sale of Patterson Medical business. While the transaction has not yet closed, the sale will allows us to dedicate our entire focus to the two highly promising end markets we have chosen. I want to take a moment to extend my gratitude to the management and employees of Patterson Medical. They delivered solid performance in the quarter and we look forward to seeing Patterson Medical thrive under its new owner. We expect the sale of Patterson Medical to close in the second quarter. In terms of the company’s financial performance during the quarter we came in on plan. Clearly, there are many moving parts to the financial picture as Ann will clarify later. Consolidated revenue from continued operations rose 24% on a constant currency basis to $1.1 billion. Adjusted earnings per diluted share from continuing operations improved 18% to $0.47. The market fundamentals we have seen for the past several quarters continued in Q1, stable to strengthening market conditions, gradually improving job market and the long-term trend for ever higher global animal protein demands give us confident that we are taking on this transformation at the right time and that it will create both near and long-term growth. Now let’s take a look at our segments, starting with dental. Dental which represents roughly half of our total sales going forward, consolidated sales performance on a constant currency reflected a number of items. Looking at dental consumables, sales growth excluding the extra week was 3.8% in constant currency. We are confident in our ability to expand this growth. On the equipment side, you recall that our fiscal 2015 fourth quarter was particularly strong and we took full advantage of the heightened demand. Equipment demand soften slightly in the first quarter and during the period we invested in further building our relationships with new core equipment manufacturers and training our sales force. Of course, our relationship with A-dec remains strategic to our future growth plan, but we're bringing to market a wider range of offerings, including new relationships with company such as Pelton & Crane, the Belmont Co. and the Sirona line of treatment centers and traditional equipment this fall. These along with our existing partners, gives us a great portfolio of products to present to our dental customer as they update their practices. It's important to remember that approximately two-thirds of our equipment sales typically occur in the back half of our fiscal year. We are in the strong position to meet demand we anticipate in the fall and winter buying season. Patterson remains the partner of choice for dentists investing in their practices. We're excited at the prospects of this broader portfolio of equipment offerings and believe it will stimulate additional growth in quarters to come. We're certainly pleased with our growth during the quarter and technology-oriented sales and at the same time are very excited as we move into the balance of our year and look forward to the CEREC 30 event coming in September. Over 5000 dental professionals will join us in Las Vegas for this event. We remain confident that dentists continue to see technology that improves patient experience and clinical outcomes as a critical and high priority area of investment. We believe that our offerings and the continued healthy conditions of the dental market position us well for continued growth and market share gains. One the additional initiatives we have undertaken to boost our effectiveness in detail, is to restructure our management team. Paul Guggenheim is now Chief Executive Officer of Patterson Dental, with responsibilities for all North American dental operations. Dave Misiak, formerly Vice President of Sales, now serves as President, U.S. Dental and leads our U.S. Sales, Branch and Technical Service Infrastructure. John Bettencourt, formerly Vice President of Core Equipment and Technical Service, is focusing purely on our Next Generation Systems initiative as Vice President of NSG and Organizational Change Management. John will report directly to me. His extensive background with Patterson will be critical as he takes on his vital role in assisting our technology transformation over the coming years. Josh Killian, formerly Vice President of Digital Technologies, is serving as Vice President of Marketing for Technology and Equipment. And Tim Rogan, formerly Vice President of Merchandise, is now Vice President of Strategy and Organizational Effectiveness for Patterson Companies reporting directly to me. Tim is responsible for driving the companywide strategy process and key strategic initiatives to make the most of the natural synergies that exist between our dental and animal health businesses. These changes are being made to improve our performance and create further development opportunities. We continue to benefit from a deep management bench and look to build on that strength in the years to come. Overall, our offerings in dental, operational discipline and formidable sales force do advance make us encourage by what we can achieve in this segment over the fiscal year. Moving on now to Patterson Animal Health. By adding production animal to our revenue mix, we have significantly diversified the market dynamics and growth drivers that will contribute to our success. Like in dental, we are well-positioned today in animal health to more fully capture the opportunities before us. In companion-animal, the trends at both stable to improving market conditions and the rise in pet ownership continue. Add to this the long-term global acceleration in demand for animal protein and we have now more catalyst for growth and diversified sources of revenue to balance out some of the volatility that can occur. Animal Health sales were up 48% on a constant currency basis, mainly reflecting the contribution from Animal Health International. While we're just now beginning the process of setting the bar for performance and growth in production animal portion of this segment, we are pleased with the early results produced by Animal Health International. These results were solidly in line with our internal plan and we believe that we are taking share in the production animal market. Excluding the acquisition, sales rose marginally due to partially offsetting factors. We are pleased with the solid constant currency organic sales growth in the U.S. and stability in the U.S. consumables during the period. However, this growth was offset by a flea and tick season in the UK that was less than tense this year than last, which ultimately provided the tougher comparable. Equipment and technology will continue to be a growth opportunity and differentiator in this segment. During the quarter, sales in this category improved more than 15% in local currencies. We continue to make progress in our new relationship with Abaxis, a market leader in point-of-care blood instrumentation and consumables for the veterinary market and medical and research customers. As you know, IDEXX adopted the direct sales model starting in January that impacted the entire industry. Patterson is selling the full-line of Abaxis veterinary diagnostic products, including external reference lab services and in-clinic testing and we are pleased with stability in our Abaxis placements. All-in-all, we are where we want to be in our Animal Health segment and excited about the prospects ahead. With that, I'll ask Ann to review the financials. Ann?

Thank you, Scott. As Scott mentioned, the overall financial performance of Patterson Companies came in on plan for the quarter. Of course, we have some added complexity in our results related to a number of items. Therefore, I will be concentrating my remarks on sales and adjusted results from continuing operations to help focus on the transformed Patterson Companies. It’s helpful to run through the main items that shaped the character of the quarter and the year-over-year comparison. They are as follows. The definitive agreement to sell Patterson Medical resulted in the reclassification of this business segment as a discontinued operation at the beginning of the 2016 fiscal year. Accordingly, results from Patterson Medical for the entire quarter have been excluded from our EPS. The closing our Animal Health International acquisition added a 1.5 month contribution to our Animal Health segment. As I will discuss later in my remarks, the timing of the closing of the acquisition and the sale of Patterson Medical changes the basis for our fiscal 2016 guidance. Sales for the 2016 quarter include the impact of an additional reach. Where appropriate, I will refer to organic sales within the segment discussion to provide a more normalized view of sales performance. The extra week added roughly 5 to 6 percentage points of incremental growth for the quarter. Reported results for the quarter reflect tax costs to repatriate about $200 million in foreign cash. Lastly, my discussions of adjusted EPS exclude deal amortization, deal-related one-time costs, nonrecurring IT training expenses, and the cash repatriation tax costs, I just mentioned. Now to our top and bottomline, reported consolidated sales from continuing operations totaled $1.1 billion, up 24% on a constant currency basis. This reflects the contribution from recently acquired Animal Health International. Going forward, between 15% to 20% of our total revenue will come from international sources. On a consolidated basis, currency translation reduced sales by 2.4%. On the bottomline, adjusted EPS from continuing operations totaled $0.47. This excludes $0.10 of earnings per share from the discontinued medical operations and includes 1.5 months of operations from Animal Health International. Now a look at results in dental. In this segment, my reference to organic sales excludes the impact of the extra week. Organic sales in dental improved about 2% on a constant currency basis. On the same basis, consumables grew 3.8%, which was consistent with the prior three quarters. As Scott noted, we are excited about the new core equipment offerings we are bringing to market and our technology sales in the quarter, especially demand for CEREC final users. Their sales were up high-single digits in constant currency. But as Scott mentioned, we experienced some softness in overall equipment this quarter, down 1.9% on a constant currency basis. This reflects some disruptions from adding new manufacturing relationship to our offerings. Due to factors such as time from orders to installations, which can span several months, the extra week has little impact on equipment sales. Turning next for Animal Health segment. Here references to our organic sales will exclude where relevant the extra week, the contributions from Animal Health International and the impact of the diagnostic manufacture change to Abaxis. On a constant currency basis, organic sales in the segment were up nearly 2% for the quarter, mainly driven by two factors. First, organic sales from the U.S. companion legacy animal business expanded 5.1%. This, however, was partially offset by a 2.3% decline in constant currency organic sales in the U.K., which faced a tougher comparable this year due to last year’s more intense flea and tick season. As Scott mentioned, we are pleased with the contribution from Animal Health International during the period and they are performing on plan. Sale from Animal Health International were $171.9 million in the quarter. Adding in the contribution of Animal Health International, consolidated reported sales grew 44%. The acquisition contributed about $0.02 of adjusted EPS in the quarter. Now turning to margins, it’s important to note that excluding the acquisition, Patterson Companies expanded operating margins by 60 basis points during the quarter due in part to leverage from the extra week. When you add in the acquisition, operating margins were largely flat and on plan. Consolidated gross margin was 25.2%, down 145 basis points in the same period last year, reflecting the acquisition of Animal Health International. Excluding the acquisition, consolidated gross margins expanded by 40 basis points. From an operating leverage standpoint, Patterson Companies gained 145 basis points of leverage on expenses mainly due to the acquisition. Excluding the acquisition, the business gained 20 basis points of operating leverage. Operating profit including the acquisition increased 20.7%. In Dental, operating margins improved 30 basis points year-over-year. In the Animal Health segment, we expect operating margins to improve as the year progresses. Operating margin within the Animal Health segment declined 60 basis points, mainly due to two factors. The first is a function of the sales growth in the U.K. reflecting the tougher comp that we discussed. The second is due to a bad debt write-off associated with one large customer in the U.K. We anticipate full-year operating margins on an adjusted basis of 4% to 5% in the Animal Health segment. As Scott noted, we are executing on a solid integration and synergy plan and fully expect to achieve between $20 million and $30 million in synergies over a three-year period. Now, I’d like to discuss cash repatriation. The acquisition of Animal Health International and the sale of the medical business created a unique opportunity to efficiently repatriate excess foreign cash balances. We are repatriating roughly $200 million in cash from both the Patterson Medical Group and Patterson Dental Canada. Performing all of these repatriations within the same fiscal year will allow us to gain tax efficiencies with estimated tax savings in the range of $15 million to $20 million. It also allowed us to pay down $100 million on the revolving line of credit that was needed for the Animal Health International acquisition and save on future interest expense. The full cost of the repatriation was recorded as additional income tax expense in the current quarter and is about $12 million. For the full year, we expect a more normalized income tax rate of about 35%. A few balance sheet and cash flow item, operating cash flow from continuing operations in the quarter generated $8 million of cash versus $68 million in the prior period. The swing is due to the timing of quarter end and the extra week which increased the accounts payable disbursement between this year’s first quarter and the prior year’s quarter. We expect to convert 100% of net income in the free cash flow for the year. We remain confident in our ability to generate growing cash return on our business investments and growth opportunities. First quarter CapEx totaled $17.1 million and included investments for normal replacements as well as our corporate-wide information technology initiative. For the fall of fiscal 2016 year, we are currently estimating CapEx of approximately $60 million to $70 million. We also remain committed to our capital allocation strategy in the full range of options for delivering shareholder value, including share buyback, dividends and additional investments in our businesses. I’ll wrap up with the discussion of fiscal 2016 guidance. Today, we are updating our guidance to reflect the continuing operation basis on which we now report. Previously we have provided an adjusted earnings guidance range for 2016 of $2.40 and $2.50 per share, a range that was predicated on full year contribution from dental, our legacy veterinary business and Patterson Medical. As such, this range excluded the impact of the Animal Health International acquisition and the planned sale of medical. Excluding $0.42 to $0.44 per share for the discontinued medical business, Patterson’s prior adjusted guidance on a continuing operations basis would have been $1.98 to $2.06 per share. With these transactions now completed or pending, we are changing the basis for our guidance. With the June closing of the acquisition, we are now including ten and half months of operations from Animal Health International. So, on a continuing operations basis, our adjusted earnings guidance range for fiscal 2016 increases to $2.40 to $2.50 per share. The guidance range assumed stable North American and International market. It includes the impact of an extra week in fiscal 2016. Our guidance range excludes transaction related cost, integration expense and dealer amortization, non-recurring IT training cost and cash repatriation. All-in-all, well I know this is a lot to process, we are performing as anticipated and look forward to the balance of the year as a transformed company focused on dental and animal health. With that, I’ll turn it back to Scott for some further comments. Scott?

Thanks Ann. The success of any transformation really hinges on the commitment, enthusiasm and ambition of those involved. These qualities have to come together right at the outset. I’m deeply proud to say that the employees and leaders of Patterson Companies and Animal Health International have and continue to rise to the occasion and stay focused on success. Many of you will get the opportunity here from these leaders for transforming Patterson Companies this October. We have scheduled an Analyst Day in New York on October 14. There is more information to come but please mark your calendars. So far in fiscal 2016, we have achieved some very important early milestones that will be crucial to leveraging the combined strengths of our new organization and accelerating the growth we aim to achieve. In Dental, the work we are doing to broaden our equipment offerings and enhance our performance, combined with our industry-leading salesforce puts us in a solid position for growth this year. In our Animal Health segment, our shared experience with the Animal Health International team reaffirms for us that they are the ideal partner with whom to build the comprehensive platform in the production animal industry. They immediately bring to Patterson extensive leadership in the production animal space, diversify our revenue mix and expose Patterson to additional highly compelling market opportunities. Their expertise in serving beef, dairy, cattle and swine producers complement the strengths both company share in its companion animal and equine markets. Operationally, we continue to move forward with our enterprise resource funding initiative. We remain on track for pilot testing of this new system in the fall. Animal Health’s International experience with its own such initiative will be an invaluable resource as we move through pilot towards implementation. We are confident that as we go forward, our concentration on thoughtful integration, everyday execution and organizational effectiveness will bear itself out in our results. Now with that, we’d like to take your questions. I will turn the call back to Catherine. Thank you.

Thank you. [Operator Instructions] We will take our question first from Kevin Ellich with Piper Jaffray.

Good morning. Thanks for taking the questions, guys. Scott, just starting off with the Animal Health segment, could you give us a little bit more color as to what’s going on with in both the livestock and companion animal trend? And I guess how much impact did we see from the diagnostics manufacture change this quarter on an apples-to-apples basis and then can you give us more detail on the bad debt write-off in the U.K. that you talked about?

Well, I will talk about the first two and then I will have Ann give little more color on the bad debt. We are seeing really good market trends across all segments and more then anything I would say strong execution in our U.S. companion business and with the new production business. A big piece of acquisitions is culture fit and I will tell you as I spend a lot of time with our sales people at both the national sales meeting for our companion group where we put the two sales forces together and then with our new sales reps. I couldn’t be more excited about the quality of people and really an excitement throughout the organization about the size and scale and scope we have and the ability really to leverage so many different capabilities of Patterson Companies to really increase the experience for customers. And I have also had a chance to talk to some of our key customers about what Patterson brings to the table. So on that I’m excited. The diagnostic front, I would say we continued to make progress and I’ve said many, many times, this will be long turn game for us. We are absolutely committed to being a major partner for Abaxis in driving those technologies and I would say we are pleased but there is still a long runway ahead and room for improvement on execution on our front and we are right on point on that. I will turn it over to Ann for some color on the bad debt.

Okay. Just to quantify, Kevin, you asked for the quantification of the impact of the diagnostic teams. Net, if you pull out the net impact of the diagnostics and the switch, it hurts reported revenue growth by about 5% or 5 percentage points. And then with regard to the bad debt, it was $4 million write-off in U.S. dollars and it reduced the Animal Health segment margins by about 70 basis points. I would say it was with one large customer as I mentioned in my remarks and I would say there weren’t really any huge bad debt swags. The business was never delinquent. They were actually paying where we were deducting directly from their bank accounts. With that said, anytime you have an expense like this you always take the opportunity to review your processes and controls and improve the more you can. But I would just say all business occur some bad debt expense and in our course of business, it’s just the risk of doing business. But I think the difference in the U.K. Animal Health business is that there is a greater concentration of large customers. So unfortunately, when a customer there defaults, it’s a little more impactful and painful unfortunately.

And then has that situation been rectified or you seeing any other potential issues in the U.K.?

Yeah, no -- so that issues have been rectified and it’s a non issue going forward. And I would say that this was pretty isolated and unique about customers. It’s not prevalent across the market in anyway.

Great. And then just one quick one, Scott, on dental. So you mentioned equipment, I think was little soft in the quarter, wondering if you’ve seen any rebound in the equipment business and kind of what we should expect for the year?

Yeah. I would say we are very confident about the full year. Our sales force is very excited as we are getting them trained in new products and at the same time, I think we’ve got a great marketing plan with our largest partner, ADAC. I think if you look industry wide and sort of results over the summer time, there was some softness on the core side. But I feel like we really have a lot of potential tail winds behind us including the Section 179 issues that impacted us last year. I think that will be rectified and then a lot of momentum coming out of CEREC 30. So, I would say we are very cautiously optimistic about the dental equipment scene going forward. And as we’ve always said, there is a correlation between consumable growth and the stability of dental practices with our customers’ willingness to invest and the North American markets are very stable and we are continuing, I think to see some nice tail winds on consumables that we are seeing right now in the summer time months as well.

Great. Sounds good. Thank you.

Thanks, Kevin.

Thank you. Now, we will go onto our next caller, Michael Cherny with Evercore.

Good morning, guys. Thank you for the details on moving pieces. That being said, I just want to dive in a little bit, understand -- make sure I understand everything. So your guidance range stayed the same, the pure headline numbers. Obviously, you called out the $0.42 to $0.44 on medical. If I’m doing the math, that’s the negative. The positive adjustments are on AHI and then also there is shift into what I believe is a pure cash EPS number. Is there anyway you can give us on the positive side what gets you back to the $2.40, $2.50 number in terms of breaking out AHI versus the other moving pieces.

Sure. And you’re right. First of all, I just want to kind of start by backing up and saying, when we originally announced the two transactions, we said that the divestiture of medical and the acquisition of AHI would be neutral to earnings and that really was predicated on the simultaneous closing of the two transactions. So since the closing did not closed simultaneously and they were staggered, that cost hurt us by about $0.05 and $0.06. So, medical pulled out, hurtful 12 months, that’s the $0.42 to $0.44 and then AHI is only in for about 10.5 months. And I would quantify that net of interest expense and synergies but excluding deal amortization at between $0.36 and $0.39. And then the prior deal amortization is about $0.07. So the way, I would characterize it is that prior deal amortization helped us by $0.07 and then the timing of the transactions hurt us by about $0.05 to $0.06 and you net those two together and yes, you get to the same range.

Thank you. And Robert Jones of Goldman Sachs. Please go ahead.

Hi. This is Nathan Rich on for Bob this morning. Just a follow-up on dental equipment. Curious to know if you saw any delay in purchasing ahead of Sirona’s launches their new imaging system, which I believe is coming up in the next several months and if so, any quantification on how that might have impacted equipment results?

Yeah. I think there is definitely excitement about the ORTHOPHOS SL project that will come up this fall. It’s hard to quantify any pullback in the market. And I would really say that would be one of a, sort of a net catalyst going forward. All-in, our digital business performed well but not great. And I think there could be some reasoning of some delay because of ORTHOPHOS SL. So as I said to Kevin in the prior question, we really like how things are stacking up as we move into sort of the key selling season.

Great. Thanks. And then just a question on guidance. Could you just kind of go through what you’re assuming in terms of both debt pay down and then any share repurchases that you are thinking about for fiscal ’16?

Sure. The proceeds from medical will go directly to pay down the debt and right now we’re anticipating the net proceeds at about $670 million to $680 million. And then the rest we will leave outstanding on the term loan just because it’s a pretty attractive interest rate, I think that leaves around $325 million outstanding under the term loan. The interest expense going forward actually pay that down would be just under 2%, I believe. And then as far as share repurchases, I think the expectation in the intermediate term would be that we plan to get back into the market as soon as we can. I’m just throwing out the reminder that we’re still technically out of the market in some medical clauses in the second quarter. With respect to guidance that share repurchase isn’t specifically baked in, but I would say, it’s a lever that could help us get to the upper end of the range.

Great. Thank you.

Thank you. Our next question comes from John Kreger with William Blair.

Hi. Good morning, guys. It’s actually Robby in for John. Thanks for taking the question. Just the first one on the Dental business. So how does the margins of the new equipment lines that you’re bringing on compared to the historical lines and are there any special promotion planned as you ramp those throughout the remainder of the year?

Yeah. Robby, they would be very consistent with our historical margins and I would say, there would be nothing incremental in terms of marketing expense versus what we’ve historically done.

Okay. Thanks. And then, I know, in recent quarters you’ve talked about some performance in larger sales with large customer groups? How had did that trend in the quarter? Did you see any meaningful difference between growths trend, is on the consumable side or equipment side with large versus small practices?

Yeah. I would say, our growth was consistent to probably the fourth quarter, but our special market division is very active in the marketplace and we definitely look at that segment as a growth opportunity, not only through the rest of our fiscal year, but beyond. So, I would say, we’re very pleased with the reception we’ve gotten in the market.

Great. Thanks very much.

Thanks, Robby.

Thank you. We’ll go to Steven Valiquette with UBS.

Hey. Thanks. Good morning, Scott and Ann. I guess, for me really just a couple of questions on some of the margin trends. I got first, the question that kind of in related, but the first one is, for these the one-time items in the quarter, the transaction related costs, I guess the integration expense, the non-recurring IT training costs. Are those all essentially in your operating expense line or SG&A line and hopefully, none of them were in your COGS? I’m really just trying to figure out whether or not the 25% gross margin as reported in the quarter is kind of a good run rate, just giving all the moving parts? But also if you want to back out some of those one-time items, so you sort of gave us obviously, the net income result, but if you want to pull some of those out of the P&L and the various line? I’m just to make sure exactly where we would pull those out? Thanks.

Yeah. Sure. I’ll take that. So, yes, all of those one-time items that we listed are SG&A items. They differ by segments. So I would say a lot of the transaction costs would be pulled out of our corporate operating margin and when you think about that segment operating margin and then the deal amortization would be allocated to the new Animal Health segment, but all lot of the SG&A. And I think, the gross margins are very -- a pretty good run rate, although, obviously, with the softer equipment sales. I would just point out, when you think about going forward or expecting the equipment growth to accelerate in that mix because there is 30% gross margin on equipment versus say in the 35% range for consumables that 5% delta can sometimes from a mix perspective hurt the gross margin rate. I would just expect the only caution I would give you as you’re moving that run rate forward.

Okay. And now the other quick question to is the -- with your new segment breakdown you had roughly that $10.5 million of corporate expense on the quarter. Now just curious if that’s a good run rate to use going forward or whether there is some one time thing than there is such that might be different run rate on that line?

Yes. So, there are some one-time costs in there. And as I mentioned, if you think about that breakout, it’s really the transaction-related cost of the professional fees. I think we labeled it.

That’s really all of it then.

Most of it. Yeah.

But that corporate expense theoretically be zero going forward then if there is no sort of point in time to start…

No. No, it’s not zero. There is some -- it’s not a 100% of the transaction cost. That was just kind of a rough estimate. I do not have the corporate segment numbers in front of me but what I can tell you is when you look at it, it should increase at about 5% rate on a normalized basis. And I think there is about we’re estimating for the full year to have about $18 million to $20 million of one-time cost hitting that segment.

Okay. All right. That’s helpful.

Yeah. But I would tell you it’s not zero for the current quarter.

Okay. All right. That’s great. We can follow-up maybe a bit more offline, probably little too granular for the earnings call. Okay. All right. Thanks.

I just don’t have all the detail in front of me. So, yes I’ll give you a call.

Okay. All right. Thanks.

Thanks Steve.

Thank you. [Operator Instruction] We’ll continue onto Jon Block with Stifel.

Great. Thanks guys and good morning. A lot of moving parts, so maybe just one, your dental seem to have some more statements should add a consumables in other, and I think that falls last year’s add a consumables in equipment when you should have reclassified some of the hand pieces. I know these adjustments are being made, I believe to both periods. But I guess, there are two questions. One, are we done there with the moving parts within dental and then two is it all aiding the consumable reported growth rate because you are essentially just lowering the base or am I not thinking about that correctly?

Yeah. Jonathan, first it’s really office supply that we reclassified out of consumables and into other and we restated the prior year to answer your question. Yes, we are done. We don’t anticipate having any more moving pieces. I do not believe that it aided consumables growth in any way, it’s just too small to really move the number.

Yes. I think it just gives you more consistent look for the industry that really we’re normalizing how most people would classify the consumables category.

Got it. Perfect. And then Scott, you went down the road a little bit earlier on dental equipment. I guess that at least relative to our estimates is where some of the weakness was. But, was there just a little bit more disruption with the manufacturer specific to the quarter? And do you believe you are fully through that and guys are trained on all options out there? And sort of the last question, I think the last quarter you said, do you expect the equipment to accelerate from fiscal '15’s call it 3%, 4% range. Is that still intact even with the 1Q numbers now in place? Thanks, guys.

Yes. I would say absolutely. As a reminder, the Q1 is the lowest volume quarter. I would say from the macro tailwinds of consumable business strengthening, job market improving, really interesting a year ago calendar fourth quarter, our third quarter with the Section 179 effect. And then increased portfolio, I would tell you we are very comfortable with the back half of the year, it could be particularly strong. And as a reminder and I had said in my opening remarks, two-thirds of our equipment is sold in the last two quarters. So I wouldn’t say we are changing our story at all on dental equipment. And it potentially could be a upside improvement to the business if we outperform.

Perfect. Thanks, guys. Ann, we'll bother you offline for some of the details. Thanks.

Sounds good.

Thanks, John.

Thank you. And we’ll now hear from Robert Willoughby with Bank of America.

Thanks. Scott, do you have any plans for that call little office supply business? Is that something you'll hold onto? Or is there value in parting with that? And then just secondarily, more broadly, you haven’t commented on M&A in this call still in the cards for you going forward?

I would say on office supply business, it’s a strong cash flow business. It’s a nice part of our value proposition. And I wouldn’t anticipate that we would look to divest that. On the M&A front, I would say we are going to take a little short-term breather here. Obviously, we’ve digested a lot. But I would say from a balance sheet perspective, our ability to act on really good smart strategic acquisitions is absolutely there for us. So our roadmap is still in place. I would say sitting here today with 95% plus of our profit coming from North America, I think it positions us in the short term very well, but also speaks to our growth opportunities as the company over the next decades if and when we expand in these two verticals internationally.

Good. Thank you.

Thanks, Bob.

Thank you. And I would now like to turn the conference back over to Mr. Anderson for any additional or closing remarks.

Thank you, Catherine. And thanks for joining us today. Again, the transformation of Patterson is off to an excellent start. And we really look forward to seeing all of you at our upcoming Analyst Day in New York and giving you a deeper look into the company. And we also look forward to updating you in 90 days out as to our progress. Thanks for your time this morning.

Thank you. And again, ladies and gentlemen, that does conclude today’s conference. Thank you all, again, for your participation.