John Wright - Vice President, Investor Relations Scott Anderson - Chairman and Chief Executive Officer Ann Gugino - Executive Vice President and Chief Financial Officer

Kevin Ellich - Piper Jaffray Robert Jones - Goldman Sachs Steven Valiquette - UBS Securities John Krieger - William Blair Luke Lemoine - Evercore ISI Michael Minchak - JPMorgan Jon Block - Stifel

This is the conferencing center. Please standby. We are about to begin. Good day everyone, and welcome to the Patterson Companies Second Quarter Fiscal 2016 Earnings Announcement. Today's call is being recorded. At this time, I would like to turn the conference over to John Wright. Please go ahead.

Thank you, Kim. Good morning everyone, and thank you for participating in Patterson Companies fiscal 2016 second 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 materially differ 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 fiscal 2016 second quarter, which exclude the impact of one-time transaction related costs, deal amortization as foreign currency. Additionally, our discussion of result is adjusted to reflect the reclassification of Patterson Medical, as a discontinued operation. A reconciliation of our reported and adjusted results can be found in this morning's press release. Today's earnings announcement and our discussion also reflects the realignment of our reportable segments. In additional to our Dental segment, as we previously described, our companion-animal business and our new production animal distribution business are reported as the Patterson Animal Health segment. Our other and more centralized shared functions that were previously embedded within the Dental segment are now being reported in a separate corporate segment. This call is being recorded and will be available for replay starting today at noon Central Time for a period of one week. Now, I'd like to hand the call over to Scott Anderson.

Thank you, John. Welcome everyone to today's conference call. We've reached the midway point in a pivotal and exciting year for Patterson Companies in each of our two businesses, Patterson Dental and Patterson Animal Health. Since, we completed the acquisition of Animal Health International in June, we've taken a thoughtful and disciplined approach to bring the production animal business together with our legacy companion animal operations. As all of you know, meeting key milestones is critical for the successful integration. We are pleased to say that we achieved several of these milestones in the fiscal 2016 second quarter. During the quarter, we made substantial progress on the headquarters relocation of our new Animal Health segment, and are well on our way to consolidating the segments functions in Greeley, Colorado. We integrated and solidified our Animal Health leadership team. It's worth emphasizing that the combination of Patterson Veterinary with the Animal Health International has led to what we believe is the strongest leadership team in the Animal Health industry. We completed the integration of our production and companion animal sales forces. We've also made significant progress on our IT system conversions. Let me assure you that we are 100% focused on serving our customers. Of course, we have milestones ahead of us. With these accomplishments under our belts. I believe that Patterson Companies is heading into the second half of fiscal 2016 with the strong ability to execute and grow with momentum. In terms of the company's financial performance during the quarter, consolidated sales from the continuing operations rose 44% on a constant currency basis to $1.4 billion, reflecting Animal Health International acquisition. Our adjusted earnings from continuing operations grew 27% to $0.56 per diluted share. Let me spend a few moments on things we're seeing our business on a macro level. The market fundamentals we have experienced for the past several quarters largely continued in Q2. In dental and on the companion-animal side of our Animal Health business, we saw a stable to strengthening market conditions in North America. We believe these portions of our businesses will continue to benefit from the gradually improving job market and its positive impact on consumer's spending for dental services and pets. When we added production animal to our business mix, we not only diversified our product and service offerings, but also diversified the market drivers that affect us. Our production animal business space is a different set of market dynamics in cyclical factors. As we explained in some detail during the last month's Analyst Day, short-term factors can affect the timing of the production in animal revenues. However, we're also not tied to the compelling long-term trend for an ever higher global animal protein demand. Demand, the U.S. livestock industry will play a lead role in satisfying. This brings to Patterson a promising new long-term growth catalyst. With that backdrop, let's take a look at our segments, starting with Dental. This quarter, Dental represented just less than half of our total sales. The consolidated sales performance on a constant currency basis reflected several factors. First, our sales growth in consumables was a solid 3.3% in constant currency and consistent with prior quarters. We are encouraged by the stability of the consumable market and look to continue to grow our businesses as we help our customers grow their practices. Second, dentists continue to see technology of the high priority areas of investment. Again this quarter, we are encouraged by technology sales in particular our CEREC sales among new users. We faced a significant comparison from the year ago quarter, and are very pleased we have improved over the last year. And we entered the calendar year buying season with high confidence. The CEREC 30 event in September was an important success evidenced by the strong attendance and enthusiasm of over 6,000 dental professionals. It is clear that this growing CEREC community is not only passionate about high quality chair side dentistry, but is also taking a leadership role in the advancement of digital dentistry. As mentioned, we saw a very strong new user demand, but trade up activity to Omnicam during the quarter was lower than we anticipated. Our Bluecam customers continue to have a very high level of satisfaction with the product. However, we believe the benefits and growing feature differentiation of the Omnicam, will create strong upgrade demand over time. On the traditional equipment side of the business, we're in the process of broadening the portfolio of products we can now offer to our customers. In addition to our valued and strategic relationship with A-dec, a wider range of offerings now include new relationships and opportunities such as with Pelton & Crane, the Belmont Company and the Sirona line of treatment centers and traditional equipment. We are seeing early success in gaining access to more customers through this offering. While our revenue in this category declined moderately in the quarter, we are very pleased to have increased our unit volume across the chair, dental unit and cabinetry categories as we now address a wider range of customer needs. We are very excited to have begun training on the Sirona lines of equipment this quarter. The TENEO and INTEGO products allow us to offer our customers a new level of seamless technology integration in their practice. Initial reaction to the products from our sales force and customers has been very encouraging. We began installing initial sales of this product in November. Bottom line is, we believe no company has a more compelling portfolio of products for the dental community than Patterson. We dedicated a week in late September for our first North American dental sales meeting. This was a great opportunity to have over 1,800 Patterson sales people get aligned on the significant opportunity in front of our customers and Patterson. Our industry best sales force is absolutely committed to advancing dentistry, growing market share and supporting our customers' business needs. We are confident in our ability to build on this growth in the second half of our fiscal year where historically the greater percentage of our sales occur. The breadth of our offerings and commitment to exceptional service continues to make Patterson the partner of choice for dentists investing and modernizing their practices and enhanced patient experience and outcomes. Moving on now to our Animal Health segment. During the quarter, sales in this segment represented about 56% of total revenues and more than doubled year-over-year on a constant currency basis. Our companion animal business continues to benefit from the trends of both stable to improving market conditions and the rise in pet ownership and spending. Setting aside the acquisition's revenue contribution and the impact of the shift in veterinary diagnostic vendor relationships. Sales in the legacy companion-animal business improved 3% in constant currency during the quarter. U.S. companion-animal performed very well growing organically by 5%. Like last quarter, this growth was partially offset by a milder flea and tick season this year in the United Kingdom compared to last year. Equipment and technology will continue to be a growth opportunity and in a differentiator in this segment. During the quarter, sales in this category improved more than 17% in local currencies. Our progress continues with Abaxis, a market leader in the point-of-care blood instrumentation and consumables for the veterinary market, and medical and research customers. While pleased with our Abaxis placements, which include a full line of a veterinary diagnostic products including external reference lab services, and in-clinic testing, we know there is more opportunity in front of us, and we are focused on increasing our sales effectiveness in this area. As you have seen in the press release, sales from Animal Health International added $414 million to our Animal Health segment in the quarter. Keep in mind, what we discussed that at our recent Analyst Day, when we describe the factors unique to this business that can affect timing of product demand and our resulting revenue. For example, during the second quarter cattle producers benefited from the seasonably what milder weather that enable them to leave their herds in the field longer than usual. This factor delays the sales of pharmaceuticals that would need to be applied, when the herds move from outdoor grazing areas to their field lots. While these delays impacted sales in the pharmaceutical category, our diversified portfolio of products and services help us to navigate the natural cycles our customers will experience. While we know end market pricing and customer profitability are currently soft compared to historical levels. Customers only make minor spending adjustments as they manage the health of their animals over the long term. Most importantly, we now possess the foremost production animal business in North America. And we're especially pleased that how well we executed in the market while dealing with all the integration activities involved with the acquisition. All in all, we've made the progress we expected in our Animal Health segment and are optimistic about the prospects ahead. With that, I'll ask Ann to review the financials.

Thank you, Scott. As Scott mentioned, there were several great spots in Patterson Companies financial performance in our second quarter at Marriot [indiscernible]. As we outlined the last quarter, we have some added complexity in our results related to a few items, namely the divestiture of our Medical business and the acquisition of Animal Health International. Therefore, as a reminder, I'll concentrate my remarks on sales and adjusted results from continuing operations to help focus on the newly transformed Patterson Companies. Where appropriate, I'll refer to organic sales to provide a more normalized view of sales performance. With respect to our top and bottom line, we reported consolidated sales from continuing operations that totaled nearly $1.4 billion, up 44% on a constant currency basis. We're encouraged by the fact that organic growth on a consolidated basis was 3.3%, up sequentially from 1.8% in the first quarter. This quarter's performance also reflects a full quarter contribution from Animal Health International. On a consolidated basis, the currency translation reduced sales by approximately 3%. We continue to anticipated that 15% to 20% of our total revenue will come from international sources. On the bottom line, adjusted EPS from continuing operations totaled $0.56. Now turning to margins. Our consolidated operating margins for the quarter excluding the Animal Health International acquisition averaged 8.1% or 40 basis point improvement over the prior year. This improvement was led by gross margin expansion of a 120 basis points, reflecting solid margin expansion within both of our business segments. I want to point out that we achieved 40 basis points of operating margin expansion in spite of an anomalous spike in employee health insurance claims, which totaled approximately $5 million in the quarter. While these claims affected the quarter, we do not believe the impact will be ongoing. The Animal Health International acquisition give Patterson a much broader base of revenue and growth opportunity, but at a lower margin. When we include the acquisitions, operating margins in the quarter declined from 8.1% to 7% and gross margins in the quarter are reduced from 27.7% to 23.8%. Year-over-year operating profit increased 30%. Now let's turn to our segment. In our Dental segment, organic sales improved 3.1% on a constant currency basis. On the same basis, consumables grew 3.3% reflecting continued stability in this end market. As Scott noted, our overall equipment sales this quarter were up 2%, and driven by technology. Traditional equipment was negatively impacted by a shift in mix. We have strategically broadened our product line with new manufacturers to offer a wider range of price point. Their sales grow double-digits among new users demonstrating continued strength in this technology adoption. Dental growth margins were up 50 basis points over the prior year. Operating margins declined 10 basis points year-over-year, after absorbing the entire incremental costs related to our National Sales Meeting. Turning next to our Animal Health segment. Organic sales methods exclude both the contribution from Animal Health International and the impact of the diagnostic manufacture change to Abaxis. On a constant currency basis, organic sales in the segment rose over 3% for the quarter, mainly driven by two factors. Solid growth in both the U.S. consumables and equipment offerings. Organic sales from the legacy U.S. companion-animal business expanded 5%. This was partially offset by only modest growth of less than 1% in constant currency sales in the UK, which face a tougher comparison this year you see a last year's more intense flea and tick season As Scott mentioned, we are pleased with the sales contribution from Animal Health International during the period, which totaled $440 million. With that contribution failed to the consolidated Patterson Animal Health segment more than doubled from that prior year. Operating margin within the Animal Health segment rose 40 basis points, primarily driven by increases in operating margins in the companion-animal business. In the Animal Health segment, we expect operating margins to improve as the year progresses. We anticipate full year operating margins on an adjusted basis of 4% to 5% in the Animal Health segment. We are executing on a solid integration and synergy plan and fully expect to achieve previously announced synergies of between $20 million and $30 million over a three year period. And now for few balance sheet and cash flow items. We use operating cash flow from continuing operations in the quarter of $53 million versus generating $98 million in the prior period. This swing is due to our investment in inventories for the Animal Health business and to support new equipment product launches in preparation for the peak selling season in the Dental business. We continue to expect to convert 100% of net income into free cash flow for the year. We remain confident in our ability to generate growing cash returns on our business investments and growth opportunities. Second quarter CapEx totaled $24 million and included investments for normal replacements as well as our corporate wide information technology initiatives. For the 2016 fiscal year, we're currently estimating CapEx of approximately $60 million to $70 million. As you know, during the quarter, we completed the sale of Patterson Medical to Madison Dearborn Partners for $715 million in cash. This sale gave us the opportunity to quickly de-lever and immediately apply the net proceeds from the sale to reduce the debt incurred to help fund the acquisition of Animal Health International. Year-to-date, we have returned a total of $221 million for our shareholders through a combination of $45 million in dividends and a $176 million of share buybacks. I'll wrap up with a discussion of fiscal 2016 guidance. Based on our performance in the first half of fiscal 2016, and expectation for second half results, we are maintaining our adjusted earnings guidance range of $2.40 to $2.50 per diluted share. This guidance range assumes stable North American and international market, includes the impact of an extra week in fiscal 2016, and excludes any impact of additional share repurchases for the balance of the year. Let me reiterate that due to sales patterns in equipment, we expect sales in the back half of the fiscal year to be stronger than the first. Our guidance range excludes one-time transaction related costs, integration expense, deal amortization, non-recurring IT training costs and tax costs related to cash repatriation. With that I will turn it back to Scott for some further comments.

Thanks, Ann. As I mentioned earlier in today's call, we now enter the second half of the fiscal year which is traditionally stronger from a sales perspective. We do feel from a position of strength. In Dental, we have momentum and are optimistic that dentists will continue to place the priority on technology investments, to help propel their practices to greater levels of productivity. We are well positioned to capitalize on this trend toward the ever more digital dental practice. Our broader equipment offerings and more diverse product portfolio now appeal to a much larger number of customers. This creates new opportunities for us that are well timed for the second half of the fiscal year. In Animal Health, the integration work is going smoothly, and we are pleased with the synergies, we are capturing. We will continue to drive the current pace of activity. I could not be more pleased as to how our newly formed teams are working together. We believe, we have the most formidable Animal Health offering in North America and the United Kingdom with strong leadership to drive this business. Operationally, we continue to move forward with our enterprise resource planning initiative, and are on-track for pilot testing over the next couple of months. Animal Health International has experienced with its own ERP initiative has been highly instrumental in affirming our approach. We intend to diligently execute on our capital allocation strategy. In this quarter, we demonstrated confidence in our future, by investing in our business, paying dividends and repurchasing shares. Together, these three components, will continue driving long-term shareholder value. Before, we open up the call for questions, I am delighted to welcome John Wright, as our new Vice President of Investor Relations. John joins us from the Toro Company, where he held a variety of leadership roles over 19 years, including time in investor relations. We look forward to the expertise and dedication he will bring to this role. Now, we'd like to open up to questions. So, I'll turn the call back over to Kim.

Thank you. [Operator Instructions] Our first question today is from Kevin Ellich from Piper Jaffray.

Good morning. Thanks for taking the questions and congratulations to John on the hire. I guess, Scott, starting off, could you talk a little bit about the Animal Health business. So, $414 million of revenue was much little bit higher than we're expecting. How's that tracking relative to your expectations, and I guess, how should we think about that trajectory for the full year?

I'll say, we're, as I said in our prepared comments, Kevin, a lot was accomplished in the quarter. And I think, well, we are very pleased that as well we accomplished the lot in terms of integration activity and just change management, our sales people remain very focused on helping their customers. So, I would say, we're very pleased on how we begun the year, and I think, we'll give more color to the sales volumes as we grow through the second half of the year, but I'll just start by saying, we can be more pleased that how well we started off.

Great. And then with your prepared comments you talked about the milder weather, so the total cattle run probably took place a little bit later. So, should we actually expect Animal Health International revenues to increase sequentially since we should see more pharmaceutical sales in Q4, when those cattle move into the feed lots?

Yeah, Kevin, this is Ann. So, what I would say as you will see, I don't know that you would necessarily see a sequential improvement. When I look at the model, the revenue is actually fairly consistent quarter-to-quarter. So, I think it's fair to look at this quarter's contributions and kind of look at that as what we would expect in both the third quarter and fourth quarter. I think while there is some timing, because of the cattle run like Scott suggested, there is also some softness in the end markets around like milk prices. So, when you kind of add all the balance together, I guess what I would say and guide you is that the third quarter and fourth quarters should have volumes similar to what you're seeing in the current quarter.

Got it. And then Ann, since they had - have, could you talk about the 5 million of the healthcare claims. I guess what sort of items jumped out as you guys in terms of causing with higher healthcare claims and which line item did that show up, and was that your operating expense or did that actually hit some place in the cost of sales?

Sure. So, I would start out by saying, we're self-insured for health insurance claims up to a certain point and the individual claim and then it kept off. And unfortunately, this wasn't usually high quarter for us. So, historically, the company's averaged about a say a 4% to 5% increase in the healthcare costs over the past several years annually. And in the current quarter, what happened is - as we saw a number of large claims, what they call them, catastrophic claims that were far accessed of what we've experienced in current - in recent years. So, specifically, we saw a 35% spike in the number of high dollar catastrophic claims, which cost us about $5 million. And to answer your question, most of that hit in the corporate segment, I don't have the exact correct number, but most of it hit in the corporate and the operating expense lines. And I think the thing that I would stress here is, because of the caps of the individual limits and just we think the bowling ball is to the snake, so to speak and we certainly don't believe that this will be our continued run rate going forward to the remainder of the year.

And since, I have two, can you talk about how much added expense did you guys incur from the National Sales Meeting. You said Dental gross margin was up 50 basis points, but operating was down a little bit because - partially because of the impact of the National Meeting?

Yeah, it was between $3 million and $4 million of incremental expense this year roughly.

Okay, got it. And then Scott, one last one for you. In your prepared remarks, you talked about Abaxis and how placements are going okay. You also said, they sell external reference lab services. So does that mean, are your sales people actually selling VCA lab services and the Abaxis doesn't have a lab?

Yeah, it's more joint venture strategic partnership.

Got it.

As you described.

Great. Thanks, Scott.

Thanks, Kevin.

And moving on, we'll hear from Robert Jones from Goldman Sachs.

Thanks, guys. I still got to be used to, you guys are talking about cattle lines and cattle runs, but I actually wanted to go back over the Dental side and specifically around Dental EBIT margin. Relative to the full year target, the 12.8% to 13% clearing tracking a little bit below that, but totally understanding that the back half is historically higher than the front half. It does still seem like you're expecting more year-over-year margin expansion in 3Q and 4Q. So, I'm just curious if you could maybe call out a few of the specific things you guys anticipate over the next couple of fiscal quarters that should get you closer to that full year range that you laid out in guidance?

Yeah. I mean, I think you actually hit it and as we were talking, so it's mainly leverage that we get after fixed and semi-variable cost in the back half of the year because of the higher sales volumes. And I think the other piece of that, that I was going to point out is that, the vendor rebate tend to be backend loaded as well. So, if you just look historically, about 3% of our profit kind of hit in those past two quarters and you definitely see, even if you look at last year as a model, just continued sequential improvement in the operating margin rates as we move through the year.

Okay. Got it. And then, I asked this of your manufacturing partner, but who we are again, the government still has not renewed Section 179 tax credit, how was that factored in both if it doesn't get renewed or if it does into how you guys are thinking about the balance of the year relative to guidance?

Yeah, I would say, Bob, I think it has less downside impact as the level of uncertainty I think is less this year than it was last year. There are sort of two important dates we think where Section 179 could come through with two different legislative vehicles. It could happen on the 4th with the transportation funding bill or on the 11th with the budget bill funding the federal government. Most of the talk has been about a permanent extension for Section 179 and their negotiations on whether or not potentially they'd settle with a two-year extension. So, we wouldn't have to deal with this issue two years down the road. We believe it's more likely the not - that it will go through just because this is sort of in the sweet spot of helping small business not just in our industry, but across all industries in the U.S. So, our plans and our forecasts are really around business as usual. And if we had a stronger than anticipated equipment third quarter that would help our guidance story.

Got it. All right. Thanks for the questions. Appreciate it.

Thanks, Bob.

[Operator Instructions] Steven Valiquette from UBS Securities.

Okay. Thanks, good morning everybody.

Hi, Steve.

Well, just a couple of questions from me. I guess, first on the - just a separate question on the - those employee medical costs. Just curious in a normal year when you think about those as a percentage of your revenue, what's kind of the average number just we kind of know what's the baseline is for that?

Okay. So I am not sure. But I can do the math on my head as a percentage of revenue. But what I can tell you is that our claims on a normal month run between on a normal year around $4 million a month.

Okay. That's helpful, I guess, as far as the baseline.

Okay.

Okay. Yeah. And it's a shame that the higher costs were not tied to dental expenses, but I guess we'll just have to typically give the [indiscernible] I guess, but ...

Yeah. I hear - yeah.

And just one another question, just curious obviously a little more time has passed since the Sirona Dental disclaimer, just curious if have any further thoughts around what that mean for you guys good or bad or is the message there still pretty much the same that you conveyed at your Analyst Day? Just any further update on that. Thanks.

Yeah. Steve, I would say, exactly that just reiterating what we said at our Analyst Day that, number one, we're excited about the potential merger. But I think we withhold any further comment till after the deal is closed. And as I said in New York, we have a great relationship with both Sirona and DENTSPLY. And in my 23 years of Patterson, I don't think the relationship has ever been better with either partners. So, we look forward to what the future could bring.

Okay, got it. Okay. All right. Thanks.

Thanks, Steve.

Moving on, we'll hear from John Krieger from William Blair.

Hey, Scott, just to go back to Bob's question. Can you just tell us, how your pipeline looks for general equipment as you move into the calendar year end?

Yeah, I would say, we're encouraged by the pipeline across the board. At the same time, there is always some volatility in our third quarter, because you have a shorter timeframe of decision-making. But I'll absolutely like where we're positioned not only heading into the calendar year end, but really the momentum coming out of our National Sales Meeting as well and what that will mean to us over the back half of the year.

Great, thanks. And again, just to clarify, you are assuming Section 179 gets a - gets passed in a normal timeframe versus something at 11th hour so to speak, or do you not feel like it's a swing factor either way?

I think, it can be a swing factor, but not as dramatic as it was last year.

Okay. Great. And then, you just mentioned in the National Sales Meeting again. Can you - you've talked about a fairly significant goal of I think doubling the CEREC user base over the next four years or five years. How are you feeling about the sales force productivity at this point, and maybe if you put in place any sort of newer initiatives to drive that, just kind of give us an update on it? Thanks.

Yeah, without sharing competitive information, I think at a very high level, the meeting talked about the vision and how important it is we feel to the dental industry to reach that goal of doubling the install base for CEREC, it also was a great opportunity to really educate our sales force on the investments we're making internally to help them with productivity and help just become a company that is much easier to do business with in the future. I would say, the meeting was an overwhelming success, and our folks are very focused on what they need to get done here over the back half of the year.

Okay. Great. Thank you.

Thanks, John.

Michael Cherny from Evercore ISI has our next question.

Hi, guys this is Luke on for Mike. I just wanted to know, if you could start off and talk about kind of the next areas of focus for your internal investment priorities, now that the European competition is underway?

Yeah, I would say, as I talked about our capital allocation strategy, its investment in the business, which I think we're showing not only through acquisition but also ERP investments to drive productivity within the company. But also having sort of this three-legged stool approach of growing our dividend with earnings but also repurchasing shares in which we activated or executed on, roughly $176 million during the quarter. So, I think we're very focused on the two segments we have currently.

Okay. Great. And then if you guys could talk about any of the synergy capture that you have from AHI and how the integration is going?

Well, I can take the synergy piece and then I'll let Scott comment on how he thinks the integration is going. So, we still expect to ramp to $20 million to $30 million of annual synergies by year three. The current year guidance assumes between $7 million and $8 million of synergies were on pace to achieve that, the current quarter had roughly between $1 million and $2 million of synergies in it mainly around, as Scott mentioned in his comments, the integration of the companion-animal business post the sales forces, and then the backend operations as well.

Yeah. I would add that from a marketplace strategy perspective. We're on plan, and I'm very impressed at the pace in which our teams continue to move. As I said in my prepared remarks, I think we put together a combination of really strong folks in terms of the management team that's leading the combined business with any acquisition culture is a huge deal, and absolutely we feel we have a very strong cultural fit between the two businesses. And I would also add, I think our - like I know our manufacture partners are very excited to have Patterson as a full line Animal Health channel to end customer. So, we'll continue to execute our plan in the months ahead.

Okay. Great. Thanks.

[Operator Instructions] Our next question from Lisa Gill from JPMorgan.

Thanks. It's actually Mike Minchak in for Lisa. So, just wanted to go back to dental equipment again. The growth trends there bounced around on a quarterly basis, you commented about growth in CEREC this quarter and discussed some of the basic equipment categories. Can you maybe talk about what you're seeing in terms of some of the other hi-tech categories? And then maybe just more broadly, what do you see as a more normalized longer-term growth rate for the overall dental equipment category going forward?

Yeah, sure, Mike. We're seeing some very nice growth in some of the digital technologies, particularly the 3D cone beam. And it's sort of goes back to what we're talking about with CEREC as well and how all of this is integrated. At the CEREC 30 event, we spoke about the ROI strategy, which is really around restorative excellence, implantology workflow and growing orthodontic capabilities. So, it's hard to sort of cherry-pick one category over the other, because it really is a story of all of these technologies working together. We've set the underlying market in terms of technology growth should continue to grow at a CAGR of north of 10% and the traditional equipment business will grow in the mid-single digits. And really one of the big catalyst that will help the traditional businesses when you start seeing really a renascence of new construction in terms of office expansion. And we believe, to meet the demands - the future demands that the North American dental population will create, that we will see that expansion over time. But we would probably look towards mid single-digit growth in the traditional equipment over the next one to two years.

Got it. And then, maybe, on the M&A front. Obviously, you have a lot in your plate with the Animal Health International integration. But can you talk about your interest in pursuing additional acquisitions and if so, sort of what areas do you feel is attractive from a standpoint of first these availability of attractive targets out there and then maybe in terms of valuations?

I'd say, we've been very clear that investing in our business and expanding our business is the top priority, I would say, as we've worked through our strategic plan and it really came to life last year, what we've invested in medical business and really now are concentrating on the dental vertical and the Animal Health vertical. That leaves us with plenty of potential. We believe from a financial perspective, we have the dry powder to execute on any opportunities in front of us. That being said, we've done a lot in the last year and our number one goal is successful execution of the M&A strategy that we currently have on our place. But, from an opportunistic standpoint, we'll continue to survey how we could improve our business by adding different potential companies or products to our portfolio. Ann, do you want to give any additional color?

No, I think you nailed.

Great. Thanks for the comment.

Thanks, Mike.

And next question will come from Jon Block from Stifel.

Great, thanks and good morning.

Hi, Jon.

Maybe the first, good morning. Maybe just the first one for you on the consumable trends. I believe you mentioned good tailwinds on the fiscal 1Q 2016 earnings call. The 3.3 was solid, but sort of in line with where it's been not an acceleration. I know there was some chatter that it's been choppy as of late. So, can you just talk about the trends of consumables as you guys experienced throughout fiscal 1Q, and maybe even what you're seeing in the month of November?

Yeah, we're continuing to see stable trends in November. I think based off the information we get from all of our manufactures and our manufactures that are public companies. I would - I would say we're comfortable in saying we continue to grow slightly faster than the underlying market. But, I wouldn't say we're seeing much choppiness in the consumable business, it's been fairly consistent.

Okay. Got it. And just second question, maybe two part. Just on the UK event business, there has been some commentary from other guys that international has been weak. So, just your level of confidence that, that is more the overall market relative to market share? And then just - and to conclude, it looks like you guys were aggressive on the share repo once the window opened. Is your commentary is still that sort of the share repo take you to the upper end of your range of the thought for fiscal 2016? Thanks guys.

Yeah, I'll talk about the UK market and then I'll let Ann talk about guidance and then give some color after Ann. Yeah, it's been pretty consistent for about the last six months that the UK underlying market is very stable, but is really running into a tough comp issue. So, we're comfortable with what management is doing in the UK to adjust those circumstance and we will drive the business accordingly. I'll turn it over to Ann to give some color on the share repurchase.

Yeah, so the accretive effect of the share buyback to date was about $0.005 and we expect it to add between $0.02 and $0.04 for the balance of the year, based on what we've purchased so far. But of course, in any period, there is a number of items that can effect EPS either way right, and so picking one individual item, so for example, we had the FX tailwind, we had the insurance claim. So, we think it's prudent to keep the original range at this point. And I think, in terms of getting to the upper end of the range, I think Scott alluded to it, I think with 60% of the revenue coming in the back half of the year, it's really going to depend on the equipment pipeline more so than the share repurchase I think at this point, given what I'm looking at.

Yeah, I'd say, we - as we look at the back half of the year, our ability to get to that upper end of the range is really going to come down to sales execution. And because of the size and some volatility that can happen in our third quarter, which is the calendar fourth quarter we're just being prudent and keeping our guidance range where it's at, but obviously the share repurchase, I think shows our confidence in the business and strengthens our story.

Got it. Very helpful. Thank you, guys.

Thanks, John.

And that's all the time we have for questions today. Mr. Anderson, I'll turn the conference back to you for additional or closing remarks.

Thank you, Cam, and thanks for joining us today. Again, we're very optimistic for the second half of this fiscal year and we look forward to updating you next quarter. On behalf of every one at Patterson, we'd like to wish you all a happy Thanksgiving and hope to see many of next week in New York at the Greater New York Demo Show. Thank you.

And that does conclude our conference today. Thank you all for your participation.