Patterson Companies - Q4 2024

Executive Summary

• Q4 FY2024 revenue was $1.72B (+0.1% YoY) and adjusted EPS was $0.82; GAAP EPS was $0.74. Both GAAP and adjusted EPS were reduced by ~$0.04 from the Change Healthcare cyberattack that disrupted Dental value‑added services billings.
• Dental consumables remained the bright spot (+3.7% internal), while Dental equipment (-11.9% internal) and Dental value‑added services (-11.0% internal) weighed on mix; Animal Health delivered 2.5% internal sales growth, led by production animal.
• Management initiated FY2025 guidance: GAAP EPS $2.00–$2.10, adjusted EPS $2.33–$2.43 (excludes ~$0.33/share amortization), with low single‑digit sales growth, roughly flat operating margin, 24–25% tax rate, slightly higher interest expense, and lower average share count YoY; Change Healthcare headwind is largest in Q1 FY25, easing through Q3, with a positive comp in Q4.
• Potential stock catalysts: resilient Dental consumables share gains, production animal strength, pace of Dental equipment recovery (macro/innovation dependent), and execution on software/value‑added services monetization now that claims processing has transitioned to a new provider.

What Went Well and What Went Wrong

• What Went Well

  • Dental consumables delivered sustained above‑market growth (+3.7% internal in Q4; nearly 4.5% for FY2024, ~6% ex infection‑control deflation), reflecting steady patient traffic, strong execution, private label traction, and DSO investments.
  • Animal Health: production animal grew high single digits in Q4 (+8.8% internal), and segment adjusted operating margin expanded to 5.8% in Q4 and 4.4% for FY2024, driven by mix, rebate optimization, private label, and expense discipline.
  • Strategic tech investments advancing: CarePay+ in Dental, Pearl AI “Second Opinion” integration into Eaglesoft, Turnkey Insights for production animal, and a relationship with Weave to enhance vet client engagement.

• What Went Wrong

  • Dental equipment sales declined 11.9% internally in Q4 on tough comps, macro pressures, and a thinner innovation cycle; management remains cautious on near‑term equipment demand.
  • Dental value‑added services fell 11% internally, primarily from the Change Healthcare cyberattack; Q4 EPS impact was ~$0.04, with lingering volume headwinds while onboarding an alternative claims provider.
  • Consolidated margins compressed YoY: Q4 gross margin 21.5% (Adj: 21.8%) and operating margin 5.1% (Adj: 6.0%), reflecting lower Dental equipment/value‑added services contribution and elevated software investments.

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Patterson Companies' fourth quarter fiscal 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question again, press the star 1. Thank you. I'd now like to turn the call over to John Wright, Vice President of Investor Relations. You may begin.

John Wright (VP of Investor Relations)

Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Companies' fiscal 2024 fourth quarter and full year conference call. Joining me today are Patterson President and Chief Executive Officer, Don Zurbay, and Patterson Chief Financial Officer, Kevin Barry. After a review of our results and outlook by management, we will open the call to your questions. Before we begin, let me remind you that certain comments made during 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.

In addition, comments about the markets we serve, including growth rates and market shares, 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, June 18, 2024. Patterson undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. 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 the fourth quarter and full year fiscal 2024. The reconciliation tables in our press release are provided to adjust various reported GAAP measures for the impact of deal amortization and an interest rate swap, along with any related tax effect of these items.

We will also discuss free cash flow as defined in our earnings release, which is a non-GAAP measure, and use the term internal sales to represent net sales, adjusted to exclude the impact of foreign currency, contributions from recent acquisitions, and the net impact of an interest rate swap. These non-GAAP measures are not intended to be a substitute for our GAAP results. This call is being recorded and will be available for replay starting today at 10 A.M. Central Time for a period of one week. Now, I'd like to hand the call over to Don Zurbay.

Donald J. Zurbay (President and CEO)

Thanks, John, and welcome everyone to Patterson's fiscal 2024 fourth quarter and full year conference call. On today's call, we'll provide an update on the considerable progress we've made on our core strategic objectives throughout the fiscal year before discussing the financial performance of our dental and animal health segments. But I'd like to start with a few key takeaways. On the top line, we finished fiscal 2024 with internal sales growth of approximately 1%. For both the fourth quarter and full year, our sales performance was highlighted by strong growth in both dental consumables and production animal. Our fourth quarter was negatively impacted by the widely reported cybersecurity attack on our claims processing vendor, Change Healthcare, which resulted in many dental practices being unable to utilize their services for insurance claim processing.

The financial impact to Patterson is seen within the value-added services category of our dental segment, as many of our practice management software solutions incorporated a fee-based integration with Change Healthcare for claims management. During the outage, Patterson suspended charging for that service, resulting in a $0.04 impact to both our GAAP and adjusted EPS in the fourth quarter. Excluding the impact from Change Healthcare's cybersecurity attack, our underlying fourth quarter EPS would have exceeded last year, and our full-year EPS performance would have landed at the high end of the guidance range we provided last quarter. Ultimately, we delivered adjusted EPS of $0.82 in the fourth quarter and $2.30 for the full fiscal year, reflecting our top-line performance along with ongoing cost discipline measures, balanced against the continued strategic investments Patterson is making across our businesses to further enhance our capabilities and profitability.

Finally, our performance during fiscal 2024 allowed us to return approximately $328 million to shareholders through dividends and share repurchases, in alignment with our balanced capital allocation priorities. We are encouraged by our performance through a dynamic and evolving macro environment, marked by persistent inflation, elevated interest rates, and uncertainty. Our continued ability to advance our strategic objectives while delivering value to our customers and shareholders speaks to the strength of our team and competitive position, as well as the attractive and resilient end markets we serve. What I'm most proud of over the past year are the many steps we've taken to better position Patterson for the future. As a reminder, our long-term strategy is designed to achieve four core objectives. First, drive revenue growth above the current end market growth rates. Second, build upon the progress we've made to enhance our margin performance.

Third, evolve our products, channels, and services to best serve the customers in our end markets. Fourth, improve efficiency and optimization. We entered this fiscal year laser-focused on those objectives, with an emphasis on expanding investment in strategic growth opportunities like software and value-added services. In response to growing demand among our customers and vendors for tightly integrated software, technology, and actionable data and insights to drive growth and profitability, and to compete more effectively. For Patterson, investing in these capabilities advances these strategic objectives, adding margin-enhancing software and services to our business and deepening the value proposition we bring to our customers. Our investments in fiscal 2024 yielded meaningful progress in our software and value-added service offerings across both our dental and animal health segments.

For example, we recently introduced Patterson CarePay Plus, a new all-in-one patient financing, dental insurance, and payment solution available to new and existing Eaglesoft customers. Patterson CarePay Plus provides alternative payment options to patients for care, enabling increased patient retention and streamlined practice operations for our dental customers. Another investment we made during the year occurred during the third quarter, when we announced an agreement with Pearl, a leading AI solution provider for the dental business, to integrate a pathology detection feature set called Second Opinion into Patterson's Eaglesoft practice management software. Second Opinion uses AI to help dentists detect conditions commonly diagnosed in X-rays and will enhance productivity and improve clinical outcomes for our dental customers, exemplifying how Patterson continues to offer solutions that transform practice performance.

On the animal health side, we invested in Turnkey, a market-leading enterprise resource planning system for cattle producers throughout the fiscal year. The Turnkey platform is an integral platform for our producer customers, who view their business as highly tech-enabled. In fact, a majority of U.S. cattle on automatic feed systems are managed by Patterson's Turnkey platform. The recently launched Turnkey Insights platform meaningfully advances Turnkey beyond tracking to a tool that supports better business decision-making. Turnkey Insights enables customers to view and leverage historical data, analysis, and actionable insights about their feed yards, bridging operational and financial data through a customizable dashboard in a cloud-based mobile app. We also added to our animal health software portfolio through a relationship with Weave, a leading client engagement platform for veterinary practices.

Weave's suite of automated tools for marketing, scheduling, reminders, payments, and analytics will integrate seamlessly with our veterinary practice management systems, unlocking powerful capabilities to streamline workflows and elevate the client experience at our veterinary customer, customers' clinics. These investments demonstrate our commitment to delivering cutting-edge technology to meet the evolving needs of our customers and long-term growth opportunity for Patterson in this important arena. Fiscal 2024 was a notable year of investment in these types of solutions. While our focus on enhancing Patterson's leading suite of software solutions remains ongoing, we are confident that these investments will provide appreciable value over time. Looking ahead to fiscal 2025, our focus will remain on our core strategic objectives and on investments in our businesses that will deliver long-term growth.

In addition to our software and value-added services capabilities, our acquisitions of Dairy Tech and RSVP and ACT provide a roadmap for value-enhancing M&A that we will continue to pursue. Both of these businesses continue to outperform our internal expectations and create a track record of success, integrating and enhancing acquired businesses in line with our strategy. And of course, balancing our investments, we remain committed to managing the organization with a keen focus on cost discipline. The adjusted earnings guidance range of $2.33-$2.43 per diluted share that we initiated today reflects the continued confidence in our strategy, focused on investing to drive enhanced growth and profitability over the long term, combined with the current conditions in our end markets that we expect to continue in fiscal 2025.

Now, I'll provide more details on the financial performance in each of our two business segments during the fiscal 2024 fourth quarter. Let's start with dental. In dental, internal sales declined about 4% in the fourth quarter, driven by the expected moderation in dental equipment and the unexpected impact of the Change Healthcare cybersecurity attack to our value-added services sales, partially offset by strong performance in our consumables business. Our consumables portfolio delivered nearly 4% growth year-over-year in the fourth quarter and nearly 4.5% for fiscal 2024. Excluding the deflationary impact of certain infection control products, our growth was even stronger, at nearly 6% for fiscal 2024.

Our performance, which encompasses the entire fiscal year, reflects the resilience of our product portfolio within the dental market, and even more so, the strength of Patterson's relationships with our customers and the value of our comprehensive consumables offering, spanning both branded and private label products. Both contribute to our ability to drive above-market growth. Within our infection control product portfolio, we are still experiencing some deflationary impact for certain products, but expect the year-over-year impact of that phenomenon to be negligible after the first quarter of fiscal 2025. Turning to dental equipment, internal sales decreased approximately 12% in the fourth quarter as we continue to lap tough prior year comparisons for the core equipment and CAD/CAM categories in a challenging time in the economic cycle, leading to moderation in equipment spending, combined with the lack of product innovation.

This challenging period for our dental equipment category does not change Patterson's leading value proposition in dental equipment and technology. The market has long recognized and rewarded Patterson for our unique ability to support customers through the entire equipment lifecycle, from financing and purchase to installation, training, maintenance, and repairs. In the fourth quarter, we strengthened our relationship with Convergent Dental by becoming the exclusive North American distributor of the Solea laser. The Solea is the only CO2 laser cleared by the FDA for all tissue indications. This versatile solution can benefit almost every dental patient, helping to address a range of common procedures in a way that is anesthesia-free, blood-free, and pain-free. Importantly, this novel technology enables dentists to elevate their practices through improved efficiency, patient experience, clinical effectiveness, and procedural expansion.

Patterson has a proven track record of driving widespread adoption of leading technologies, and we believe our exclusive arrangement with Convergent will further strengthen our ability to help dentists achieve better clinical outcomes, improve patient experiences, and drive growth for their practices. Finally, as I mentioned earlier, internal sales in our Dental Value Added Services category declined 11% in the fourth quarter compared to the prior year period, primarily due to the Change Healthcare cybersecurity attack. Now let's move on to our Animal Health segment. Internal sales in the Animal Health segment grew at approximately 3%, driven by strong performance in our production animal business.

The Animal Health segment also achieved operating margin expansion in both the fourth quarter and for the full fiscal year, driven by our focus on managing our sales mix and execution, disciplined cost management, and commitment to driving business with customers and partners, to recognize and reward us for our value-added approach to both our companion and production animal customers. Our production animal business continued its strong momentum as internal sales grew high single digits in the fourth quarter of fiscal 2024. We see our strong performance in production as continued validation of the strength and effectiveness of our omni-channel presence, highly tailored distribution strategy, and comprehensive offering across animal species. Our team's ability to execute these strategies and provide value-enhancing solutions tailored to our customer needs has enabled us to continue winning new business and outperforming the broader production animal market.

Companion Animal internal sales in the fourth quarter declined by low single digits, driven in part by the moderation in veterinary clinic traffic and our own strategic decisions and continued discipline to focus on more profitable business in ways that modestly reduced our top-line growth while supporting margin expansion. We remain encouraged by the underlying market fundamentals and positive long-term trends in pet parenting, and confident in the value proposition of our companion animal business. Going forward, we expect the companion animal market to continue to grow in the low single digits, and we are focused on aligning our value proposition with where pet owners are spending. Across the Animal Health segment, the value-added services category continued to be an area of strength, achieving double-digit internal sales growth in the fourth quarter.

As we look to fiscal 2025, we believe our Animal Health business is positioned for continued success amid a dynamic end market. Now I'll turn the call over to Kevin Barry to provide more details on our financial results.

Kevin Barry (CFO)

Thank you, Don, and good morning, everyone. In my prepared remarks, I will cover the financial results for the fourth quarter of fiscal 2024, which ended on April 27, 2024, as well as our full year results for fiscal 2024. I will also discuss our fiscal 2025 earnings guidance we issued this morning, along with several modeling assumptions related to the financial outlook for the next fiscal year. Consolidated reported sales for Patterson Companies in our fiscal 2024 fourth quarter were $1.72 billion, an increase of 0.1% versus the fourth quarter one year ago. Internal sales for the fourth quarter of fiscal 2024, which are adjusted for the effects of currency translation and the net impact of an interest rate swap, decreased 0.5% compared to the same period last fiscal year.

For the full year of fiscal 2024, consolidated reported sales for Patterson Companies were $6.6 billion, an increase of 1.5% versus the same period one year ago. Internal sales for fiscal 2024, which are adjusted for the effects of currency translation and the net impact of an interest rate swap, increased 0.8% compared to fiscal 2023. Our fourth quarter fiscal 2024 gross margin was 21.5%, a decrease of 110 basis points compared to the prior year. We also provide the financial metric of adjusted gross margin, which is a non-GAAP financial measure that adjusts gross margin for the impact of the mark-to-market accounting related to our equipment financing portfolio and the associated interest rate swap hedging instrument.

The accounting impact of the mark-to-market adjustment affects our total company gross margin, but not the gross margin within our business segment. As previously mentioned, the net impact of interest rate fluctuations between the swap and the equipment financing portfolio has a minimal impact. For the fourth quarter of fiscal 2024, our adjusted gross margin was 21.8%, a decrease of 90 basis points compared to the year-ago period. The year-over-year decline in gross margins primarily drew to the revenue and profit shortfall in our dental segment related to the cybersecurity attack on Change Healthcare. Patterson's relationship with Change Healthcare and their cybersecurity attack significantly impacted many of our dental customers, as they were unable to submit insurance claims. During the disruption at Change Healthcare, we were unable to bill our dental customers for this valuable service, resulting in lost revenue and profit to Patterson.

Our software team worked diligently and quickly to connect our software platforms to alternative solutions to allow our customers to be able to process their insurance claims. Adjusted operating expenses as a percentage of net sales for the fourth quarter of fiscal 2024, 15.8%, and favorable by 10 basis points compared to the fourth quarter of fiscal 2023. For the full year of fiscal 2024, adjusted operating expenses as a percentage of net sales were 16.5% and unfavorable to the prior year by 20 basis points compared to fiscal 2023. In the fourth quarter of fiscal 2024, our consolidated operating margin was 6.0%, a decrease of 70 basis points compared to the fourth quarter of last year.

For the full year of fiscal 2024, our consolidated adjusted operating margin was 4.6%, a decrease of 40 basis points compared to the prior fiscal year. Our adjusted tax rate for the fourth quarter of fiscal 2024 was 23.3%, a decrease of 110 basis points compared to the prior year. For the full year of fiscal 2024, our adjusted tax rate was 23.7%, an increase of 10 basis points compared to the full year of fiscal 2023. Reported net income attributable to Patterson Companies, Inc. for the fourth quarter of fiscal 2024 was $67 million, or $0.74 per diluted share. This compares to reported net income in the fourth quarter of last year of $75 million, or $0.70 per diluted share. Adjusted net income attributable to Patterson Companies, Inc.

In the fourth quarter of fiscal 2024, which excludes deal amortization, was $74.4 million, or $0.82 per diluted share. This compares to $82.4 million, or $0.84 per diluted share in the fourth quarter of fiscal 2023. The year-over-year decrease in reported and adjusted net income attributable to Patterson Companies, Inc. in the fourth quarter of fiscal 2024 is primarily due to lower sales of equipment, as well as the Change Healthcare cybersecurity attack, which negatively impacted both reported and adjusted net income in the fiscal 2024 fourth quarter by $0.04 per diluted share. For the full year of fiscal 2024, reported net income attributable to Patterson Companies, Inc.

was $185.9 million, or $1.98 per diluted share, compared to $207.6 million, or $2.12 per diluted share in fiscal 2023. Adjusted net income attributable to Patterson Companies, Inc. in fiscal 2024, which excludes deal amortization, totaled $215.3 million, or $2.30 per diluted share, compared to $236.4 million, or $2.42 per diluted share in the prior fiscal year. Now let's turn to our business segments, starting with our dental business. In the fourth quarter of fiscal 2024, internal sales for our dental business decreased 3.8% compared to the fourth quarter of fiscal 2023.

Internal sales of dental consumables for the fiscal fourth quarter increased 3.7% compared to one year ago. Internal sales of non-infection control products increased 4.4% in the fourth quarter of fiscal 2024 compared to the year ago period. This negative impact from infection control product deflation has steadily moderated over the past year, and we believe the year-over-year deflationary effect has nearly normalized and will have minimal impact in the next fiscal year. For the full year of fiscal 2024, internal sales of consumables increased by 4.4% compared to the prior year. Internal sales of non-infection control products increased by 5.8% for fiscal year 2024 compared to fiscal 2023.

The strong above-market growth in consumables is a testament to the solid sales execution of our dental sales team and their passionate efforts to be indispensable partners to our dental customers across all types of practice models in the market. In the fourth quarter of fiscal 2024, internal sales of dental equipment decreased 11.9% compared to the fourth quarter of fiscal 2023. Sales of all equipment categories declined year-over-year in the fourth quarter due to a number of factors that we've discussed previously, including the comparisons to the strong double-digit growth percentages in the fourth quarters of fiscal 2023 and 2022. For the full year of fiscal 2024, internal sales of dental equipment declined by 6.9% over fiscal 2023.

Internal sales of value-added services in the fourth quarter of fiscal 2024 decreased 11% over the prior year period, primarily due to the negative impact of the cybersecurity attack on Change Healthcare. Value-added services represent the entire suite of offerings we provide to our customers and help make us an indispensable partner to their practice, and these valuable offerings are also mixed favorable to our PL. For the full year of fiscal 2024, internal sales of value-added services declined 0.8%. Adjusted operating margins in dental, 10% in the fiscal fourth quarter and a 210 basis point decline over the prior year period. For the full year of fiscal 2024, adjusted operating margins in our dental business were 9% and a 100 basis point decrease over the prior fiscal year.

The fourth quarter and fiscal 2024 dental adjusted operating margin was negatively impacted by the cybersecurity attack on Change Healthcare. Now let's move on to our animal health segment. In the fourth quarter of fiscal 2024, internal sales for our animal health business increased 2.5% compared to the same period one year ago. For the full year of fiscal 2024, internal sales for our animal health business were up 1.3% compared to fiscal year 2023. Internal sales for our production animal business in the fourth quarter of fiscal 2024 increased 8.8% compared to the same period one year ago. For the full year of fiscal 2024, internal sales in our production animal business increased 4.2% compared to fiscal 2023.

This strong above-market growth in the fourth quarter and for the entire fiscal year reflects the focus and dedication of our team, our ability to serve various types of customers across multiple channels, and the value-added services that we deliver that drive deep and productive customer relationships. Internal sales for our companion animal business in the fourth quarter of fiscal 2024 declined 2.7% compared to the prior year. For the full year of fiscal 2024, internal sales in our companion animal business decreased 1.1% compared to fiscal 2023. While market growth rates in companion animal have moderated recently, our performance is more related to how we intentionally choose to nurture relationships and work with strategic partners who reward us with a high degree of value we provide in the channel and to our veterinarian customers.

Adjusted operating margins in our animal health segment, fiscal fourth quarter, were 5.8%, an increase of 30 basis points from the prior year. For the full year of fiscal 2024, adjusted operating margins in our animal health segment were 4.4%, which represents 20 basis points of margin expansion compared to fiscal 2023. Our animal health team continues to deliver improved profitability with their solid execution of margin-enhancing initiatives, including driving operational efficiencies, exercising expense discipline, growing their private label business, and maximizing rebate performance with the strategic manufacturer partners to reward us for our strong performance in the market. Now let me cover free cash flow and capital allocation.

During fiscal 2024, our free cash flow declined by $8.6 million compared to the same period one year ago, due to our operational performance and an increased level of capital spending, reflected in the investments we made in fiscal 2024 to improve our distribution capabilities and enhance our software and value-added services. We continued to execute our strategy to return cash to our shareholders. In the fourth quarter of fiscal 2024, we declared a quarterly cash dividend of $0.26 per diluted share, which was then paid at the beginning of the first quarter of fiscal 2025. We also spent $14.9 million to repurchase shares during the fourth quarter of fiscal 2024, returning a total of $38.2 million to shareholders through dividends and share repurchases in the fourth quarter of fiscal 2024.

For the entire year of fiscal 2024, we returned a total of $327.9 million to shareholders through dividends and share repurchases. Let me conclude with our financial outlook for fiscal 2025. This morning, we issued a GAAP earnings guidance range for fiscal 2025 of $2.00-$2.10 per diluted share, and an adjusted earnings guidance range of $2.33-$2.43 per diluted share. For modeling purposes, let me highlight a few additional items to factor in as you think about our guidance for fiscal 2025. Our guidance range assumes a low single-digit sales growth, primarily reflecting the current macroeconomic conditions in our dental and animal health markets and roughly flat operating margin performance.

The cybersecurity attack on Change Healthcare will have a modest negative impact on both sales and margin performance for the full year, due to the continued inability for some customers to process their claims near term, as well as the impact of our transition to alternative claims processing solutions. We expect the year-over-year impact to be the greatest in Q1 and lessen until a positive comparison in Q4 of fiscal 2025. Our operating margin expectations also reflect the impact of our continued investments in our commercial software franchise, offset by ongoing initiatives to drive improved margin mix and additional operating efficiencies. We are assuming that interest expenses will be up slightly compared to fiscal 2024. Our tax rate will be in the range of 24%-25%, and our average share count in fiscal 2025 will be lower than our average share count was in fiscal 2024.

Our adjusted earnings guidance range of $2.33-$2.43 per diluted share implies approximately 3% year-over-year growth in midpoint, which is enhanced by the yield provided by our dividend. Now, I will turn the call back over to Don for some additional comments.

Donald J. Zurbay (President and CEO)

Thanks, Kevin. Before we open it up for Q&A, I want to thank the entire Patterson team for their continued hard work and commitment to our strategy in serving our customers. As we enter fiscal 2025, we remain committed to executing our proven strategy focused on driving enhanced growth and profitability. Patterson's strong position, combined with disciplined capital allocation and the fundamentals of our end markets, gives us confidence in our ability to deliver long-term value creation for our shareholders.... That concludes our prepared remarks. Kevin and I will be glad to take questions. Operator, please open the line.

Operator (participant)

Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of Kevin Caliendo from UBS. Your line is open.

Kevin Caliendo (MD and Senior Equity Research Analyst)

Thanks. Thanks for taking my question. Congrats on the quarter. Just wanted to talk about, first, the strong consumables number you put up. You said it was growing faster than market. It clearly looks like you're taking market share. Can you maybe talk about what you think the market's actually doing in terms of consumables and visits, how that's trended, and maybe, you know, why and how you've been able to take share in the quarter?

Donald J. Zurbay (President and CEO)

Yeah. Hey, Kevin, it's Don. Thanks. Good morning. Good question. You know, I think the way we would view the consumable situation is that, you know, the market traffic has been steady, so that's been helpful. But, you know, this is six quarters in a row, at least by my count, that I feel like we've substantially exceeded the market in terms of growth and that, you know, we're taking share. And if you really look at the year, ex PPE, you'd get a 6% growth for the year. So this is kind of a sustained program. I think when we look at this, you know, there's a number of factors involved here. We've had a very strategic approach to how we wanna look at our consumables business.

And so the strategies that we've employed, I think, are starting to really take hold. You look at our value proposition to our customers. We've always been very focused on this piece of the customer experience. And so a sales force execution, and then, you know, we've made some very significant investments in how we service DSOs and that segment of the market as well, that I think are starting to pay off. So really, when you put all those together, there's just been sustained performance that we're very happy with.

Kevin Caliendo (MD and Senior Equity Research Analyst)

That's, that's helpful. If I can ask a quick follow-up. When we think about the sort of low single-digit revenue growth, you know, animal health is usually pretty relatively more predictable than what we've seen in dental. Should we assume that this sort of mid-single digit consumables growth continues? Does that underlie your assumption in dental, and what do you expect for equipment? I'm assuming that might be a drag on your growth rate, but I would love to hear your expectations around that for fiscal 2025.

Donald J. Zurbay (President and CEO)

Yeah. Yeah, good question. Well, let me maybe have Kevin give you just a little bit of color on that piece.

Kevin Barry (CFO)

Yeah, I think, I agree with you, Kevin. I think, you know, as we look at our, our mix for next year, you know, I, I would expect that consumables is gonna be the giver on the dental side. And, you know, as we watch the dental equipment market, you know, we're, we're being somewhat cautious, just, you know, looking forward of, you know, what we expect out of those categories. You know, we still feel like those teams, similar to the, this consumable story Don told, you know, we're executing really well with our customers. It continues to be a big part of our value proposition. But just given the overall market dynamic, especially early in the year here, we're a bit more cautious on equipment. But we do feel good about the dental consumables gains we've made to be sustainable.

And as traffic maintains in the offices, we'll continue to get, you know, you know, our more than our fair share there.

Kevin Caliendo (MD and Senior Equity Research Analyst)

So net-net, animal health and dental should both support the low single-digit growth?

Kevin Barry (CFO)

Yes. Yeah.

Kevin Caliendo (MD and Senior Equity Research Analyst)

Yeah.

Kevin Barry (CFO)

On animal health, yeah. Yeah, I agree. We see growth in animal health next year as well. You know, but I was speaking more specifically to the dental dynamics for you there.

Donald J. Zurbay (President and CEO)

Yeah. I mean,

Kevin Caliendo (MD and Senior Equity Research Analyst)

Thanks.

Donald J. Zurbay (President and CEO)

This is Don. Again, I think our story is somewhat similar to kind of where we've been over the last few quarters. And, you know, if you really break our business down, you know, we feel good about the sustainability of the dental consumables. The animal health markets and sales have been good, particularly as they translate those sales dollars to bottom-line profitability. And, you know, the equipment market's been soft, and so, you know, we're looking for that to rebound. And when it does, I think that we feel like we're in an excellent position to take advantage of that.

Kevin Caliendo (MD and Senior Equity Research Analyst)

Thanks so much, guys.

Operator (participant)

Your next question comes from the line of Nathan Rich from Goldman Sachs. Your line is open.

Nathan Rich (Research Analyst)

Great. Good morning, and thanks for the questions. Maybe just following up on the comments on animal health. You know, companion animal, I think, was down in the quarter. You know, when we look at things like vet clinic revenue, I mean, it's still growing. Could you maybe just talk about what drove that performance? And it sounded like you may have changed some manufacturer relationships. Can you just maybe talk about, you know, why those were made as you kind of focus on kind of the higher margin areas of the business? And then, Don, I think you said that longer term, you're kind of expecting low single-digit growth for companion. I feel like that's maybe a little bit softer than what we're used to hearing from companies in this space.

So could you maybe just talk about that longer term outlook?

Kevin Barry (CFO)

Yeah, hi, Nathan, it's Kevin. I'll start and turn it over to Don. He's on the modeling side. Yeah, I think, you know, for what we're seeing in the companion animal business from a market standpoint, it aligns with your review. You know, we expected a moderation this past year, the highs kind of coming out of COVID, and we do see the traffic become more steady now. What we've made the strategic decision around is, you know, certain parts of our business, when we looked at them, that we said, you know, they weren't delivering the contribution margin we needed, and the teams made some decisions to shift our mix to new customers and new products away from some of those customers and manufacturers.

We still see a little bit of that's gonna weigh on the top line here in the early part of fiscal 25. But like Don alluded to earlier, you know, these are really healthy things for that business to do from a overall business model standpoint that we'll continue to manage through this year.

Donald J. Zurbay (President and CEO)

Yeah, I think for me, one of the important things that I think might be a bit lost in the numbers and kind of the way we report this, but both sides of the animal health business, the companion side and the production animal side, actually reported a record operating profit this quarter, you know, all-time record operating profit this quarter. So, you know, sales aside, I think what's translating to the bottom line is exactly what we want.

Nathan Rich (Research Analyst)

Okay, maybe just on the longer-term outlook for low single-digit growth for companion.

Kevin Barry (CFO)

I think that's alluding more toward... I, I wouldn't say that's long term beyond kind of our, our fiscal year guide and outlook, Nathan. I mean, I think-

Nathan Rich (Research Analyst)

Oh, sorry.

Kevin Barry (CFO)

The fundamentals-

Nathan Rich (Research Analyst)

Okay.

Kevin Barry (CFO)

Yeah, the fundamentals of that market, we still see in terms of the trends, in terms of, you know, how pet owners spend on their pets, the innovation that's coming in that category to service, you know, pet health, those, those fundamentals are absolutely still continuing. So we still think over the, you know, a longer-term horizon, we'd expect that to be, a growth accretive to our portfolio.

Nathan Rich (Research Analyst)

Okay. Sorry, I misunderstood. So the low single digit more referred to fiscal 2025?

Kevin Barry (CFO)

Yep, correct. Yep.

Nathan Rich (Research Analyst)

Okay. Sorry. And then just a quick follow-up. The impact from the Change disruption, I think, continuing into the first quarter, I guess, Kevin, any sense of magnitude relative to what you experienced in the fiscal fourth quarter? And then, you know, I guess, you know, can you talk about maybe what the lingering impact is? 'Cause I thought that kind of Change was largely back up and running, but I'd just be curious kind of what you're kind of seeing more real time in terms of the impact that you expect to continue.

Kevin Barry (CFO)

Yeah. And, you know, as we look in terms of the impact, you know, we quantified it at about $0.04 here in Q4. I think it will be a little bit less than that in Q1, on a comparative basis, compared to Q1 of last year. And then Q2 and Q3, slightly less than that, and then Q4 will have a positive comp. And the dynamic is, you know, what we're dealing with here in the near term is, you know, the team is still working really diligently to get some customers back up onto our new provider for claim services. So we have there's a gap in terms of the customers and the number of claims that are running through our software. So that's a bit of a near-term gap.

You know, longer term, you know, we do expect that there's gonna be some leakage from the franchise we had with Change Healthcare and our Eaglesoft franchise, compared to what the new environment's going to be. And that's really what we're gonna see in Q2 and Q3 until we lap the issue here in Q4 of this year. The issue here we had in Q4 of fiscal 2024, it was really, you know, we just couldn't charge our customers. The service wasn't being provided there for a couple of months, and that was, you know. And now we're back providing the service again, but just at a lower volume.

Donald J. Zurbay (President and CEO)

Yeah, and just to be clear, I, I'll add, you know, the move from Change Healthcare... We moved from Change Healthcare, so we now have a new provider. So you had mentioned Change is back up, but in terms of what, the way we approach this, we moved to a different provider for this service.

Nathan Rich (Research Analyst)

Okay, great. Thanks very much for the questions.

Operator (participant)

Your next question comes from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Elizabeth Anderson (Senior Managing Director and Research Analyst)

Hi, guys. Thanks so much for the question. One thing I wanted to dig into a little bit more was the equipment performance in the quarter. That came through very nicely despite a tough comp. And I know last year you had some, like, pull-forward in dental equipment into the fourth quarter, and then some, you know, outperformance in some of the base equipment in the first quarter. So can you sort of help us make sure we understand sort of the areas of strength in the fourth quarter, and then how to think about maybe the first quarter in a little bit more detail? Thanks.

Kevin Barry (CFO)

Yeah. So, you know, I'd say, you know, here in the fourth quarter, and like you mentioned, Elizabeth, we expected, you know, coming up against a tough comp, we were gonna see some some lower sales volumes. And that came through, I'd say, fairly consistently across the subcategories, you know, core and our technology, which it was really a unit story. You know, it was, you know, you know, lower units compared to a year ago. Again, as we somewhat expected, given the performance in Q4 of fiscal 2023, compared to two really strong quarters the years before. So that was. So there wasn't necessarily one category that stuck out. It was fairly broad.

I think as we look, you know, here into the new fiscal year, you know, like I said earlier, we're being fairly cautious in our outlook here. In the near term, like you alluded to, we had a fairly strong equipment quarter last year in Q1 and core that we'll be comping over here. But more broadly, you know, I think we still see good opportunities for us to service our customers that you know, have a need for new equipment upgrades this year. But in a year where, you know, there's not necessarily a macroeconomic catalyst that we're projecting at this point, you know, we're expecting it to be fairly, fairly modest in our FY25 guide.

Donald J. Zurbay (President and CEO)

I mean, I think the other thing I'd add is, you know, the other reason we're being cautious is there's not as much insight into a bit of an innovation cycle this year. So, innovation is a topic. You know, I mentioned our partnership with Convergent Dental, which we're very excited about, as innovation here, but overall, we're probably a little bit down on the innovation side.

Elizabeth Anderson (Senior Managing Director and Research Analyst)

That, that makes total sense. And I know, just I wanna follow up, too, about what you were saying about the sort of PPE impact to be mindful of in the first quarter as well. I know in 1Q, I think last year, you called out on the dental side, maybe close over a 2% impact from that, year-over-year negative PPE price. Can you help us sort of, like, relatively size that? Because it seemed to be, again, about, you know, 2%, 2% or so in the fourth quarter, just so that we make sure that we're not, you know, missing that, in terms of that versus the underlying strong consumable growth.

Kevin Barry (CFO)

Yeah. So those are the way that we've been tracking it. We've got a basket of goods that have really been impacted by that deflation, and we, we sort of look at the, the average price of that basket. And in our fiscal 2024, really, we saw that kind of aggregate price stabilize, I'd say, you know, late Q2 of this past fiscal year, where it's kind of been in the same relative zone since then. And so we'd say that the pricing has stabilized. You know, so for us, looking at fiscal 2023, you know, we'll have a minor comp to that compared to fiscal 2024 a year ago, where the pricing was...

It wasn't as dramatic a drop as we saw in fiscal 2024 versus fiscal 2023, but it's still gonna be somewhat of a drop for that basket, and then moderating, really, and hopefully much more negligible in Q2 and beyond.

Elizabeth Anderson (Senior Managing Director and Research Analyst)

Got it. That's super helpful. Thank you very much.

Operator (participant)

Your next question comes from the line of Alan Lutz from Bank of America. Your line is open.

Allen Lutz (Senior Equity Research Analyst and Director)

Good morning, and thanks for taking the questions. You know, as you talked about, the higher OpEx last quarter around distribution facilities coming online and then the ongoing investments in software, how should we think about how those expenses are gonna move forward into fiscal 2025 and what's embedded in the guide? And is it fair to assume that maybe 3Q or 4Q of 2024 was peak spending in those areas? Thanks.

Kevin Barry (CFO)

Yeah, I'd say, from an investment standpoint, there are really two big drivers. One was, like you alluded to, we brought on two new facilities, recently, and we did an ERP implementation in our Canadian dental business. Those expenses, there is some tail on those expenses now that the business has those capabilities, but for the most part, the kind of start-up costs are done. But and so that, that's a little bit of a tailwind we have going into next year. But what's sustaining in our OpEx structure is the investments that we're making in our commercial software franchise, particularly in the dental business. You know, this is an investment that we've made. It shows up somewhat in our capital expenditures, but also in our OpEx.

And this is really around our dental practice management systems, Eaglesoft and Fuse, as well as our ortho system, Dolphin. And those investments, we've seen really good progress in the product development cycle on those over the past years. We've increased our investments there. We've gotten really good feedback from our customers, and we still have some work to do to continue enhancing those and also improve our go-to-market capabilities to commercialize those products. That will continue here into fiscal 25.

Allen Lutz (Senior Equity Research Analyst and Director)

Thanks, Kevin. One quick follow-up here. The revenue, that $0.04 headwind from Change, I know that you said you stopped charging. Is that revenue that was impacted there completely lost revenue, or should we expect at some point that the revenue from that flows through? Just trying to get a sense of whether or not that could be a tailwind or if it's just completely lost revenue. Thanks.

Kevin Barry (CFO)

Unfortunately, that's just, that's just lost. That's just lost. Folks had to find some other workaround in that timeframe to get their claims processed. You know, so that's just lost revenue from our standpoint.

Allen Lutz (Senior Equity Research Analyst and Director)

Makes sense. Thank you very much.

Operator (participant)

Your next question comes from the line of Jeff Johnson from Baird. Your line is open.

Jeffrey D. Johnson (Senior Research Analyst)

Thank you. Good morning, guys. Kevin or Don, either one, I guess, maybe if I can just pull together a few comments you've made and just make sure I'm kind of understanding things correctly. So it sounds like you're saying that you would expect both the dental business and the animal health business to grow maybe low single digits in 2025. And then within dental, it sounds like, Don, you've mentioned stability a few times, that mid-single-digit growth rate on the consumables. So if we kind of plug that into the model, would it be fair to assume equipment, then, kind of your internal assumptions? And I know you don't guide to revenue, but is down low to mid-single digits for equipment this year. Was there any kind of change in trend line?

Is that equipment market getting better, worse, no change, just kind of down that low to mid-single digits as you've seen most of the past 12 months? Thanks.

Donald J. Zurbay (President and CEO)

Yeah. No, I think you have it exactly right. I mean, that's kind of how we're looking at our performance in the market, and we look at the market that way. And, you know, we're just trying to take a fairly cautious outlook on that recovery.

Jeffrey D. Johnson (Senior Research Analyst)

... All right, fair enough. And then, Don, I think you've had, you know, 3 leaders at the dental business here over the last 5 years. Presumably, we'll be getting a 4th here at some point down the road. So I guess just, you know, it's a little more change or a little more turnover than we're used to seeing kind of as leading up some of these businesses. So just wondering, kind of, what's been the underlying issue there? How are you viewing kind of the long-term stability or hopeful stability of that position going forward? What are you looking for in a new leader there? Just any thoughts on the dental side of the leadership. Thanks.

Donald J. Zurbay (President and CEO)

Yeah. Well, I appreciate the question, Jeff. I think, you know, there's always—these are always tough, and there's always multiple factors involved in terms of each individual situation. But I would say, you know, when I look at this, obviously, this is a key role for our company. You know, as we sit here today, one of the things I'd just let everybody know is, you know, we have a great dental team. So we have full confidence in the team that's here. I think in terms of a leader and how we move forward, we have a lot of plans. We have a lot of good strategies in terms of our dental business.

And when I look at a leader and think about, you know, what are we thinking about, we're looking at somebody that can be aligned or is aligned, and that can execute on where we wanna be in the future, not necessarily where we are right now, and the roadmap to get there. And so that's gonna be the most important thing. I think beyond that, you know, I believe strongly in the culture at Patterson. Each of our businesses has their own unique culture, and I'd say there's been an overarching culture that is strong. That's been, I think, an advantage for us.

And so, you know, I also wanna make sure that, you know, we have a leader that's gonna honor that, maintain that culture, and really keep that competitive advantage there. So I'd say those are the things that I'm focused on, in terms of where we go now.

Jeffrey D. Johnson (Senior Research Analyst)

Thank you.

Operator (participant)

Your next question comes from the line of Erin Wright from Morgan Stanley. Your line is open.

Erin Wright (Senior Equity Research)

On the back of that question, just in terms of where you go now, on capital deployment, has there been any change in how you're thinking about M&A or the M&A pipeline and capital deployment priorities just more broadly? It just seems... the focus seems to be just still leaning more on the organic side and just opportunities you see out there. Has any part of your philosophy changed at all? Thanks.

Donald J. Zurbay (President and CEO)

No, I don't think the philosophy has changed, and I think as, you know, we move forward, you know, we would like to look at the, you know, maintaining that philosophy, maybe maybe accelerating, you know, kind of where that philosophy's been. But really no change in what we're trying to do. I think the other thing that gets lost in this type of conversation is just all the investment we're making internally. You know, so we look at investment. I look at investment, we look at investment as, you know, internal and external and kind of what's the best use of the capital, because we have a lot of good things internally we're doing as well, so, but no change.

Erin Wright (Senior Equity Research)

Okay, thanks. And then on the animal health side, can you speak a little bit about the opportunity? And you kind of spoke to this earlier a little bit, but just adding some of these new categories and product lines, especially across areas like dermatology, a billion-dollar category, and some other areas as well that are coming down the pipe. Like, how does that kind of underscore your value proposition, especially as the animal health manufacturer landscape gets more innovative and more competitive, especially as we go into the second half of the calendar year? I mean, how can you leverage that and, and get some better economics from some of your vendor partners in that sort of environment? Thanks.

Kevin Barry (CFO)

Yeah. Hi, Erin. It's Kevin. Yeah, I'll start. I mean, yeah, we think that's right on our wheelhouse of our value proposition. And it's good for us when there's innovation. Obviously, our sales team is well equipped to go out and partner with a manufacturer to get, you know, that innovation seeded out in our hospitals. And like you alluded to, competition is good for us, too, because we know the strength of our customer relationships and our ability to influence the hospitals and the veterinarians with the right products. And so yeah, so we're excited about the innovation that's coming. And, you know, our... You know, George and his team are working closely with those manufacturers.

You alluded to dermatology, that's something we're watching here for the year. But it's something we're in constant conversation with the manufacturers on.

We're well equipped for this. So I think this kind of thing for us is something that we think is gonna play out as an advantage.

Erin Wright (Senior Equity Research)

Okay, great. Thank you.

Operator (participant)

Your next question comes from the line of Michael Cherny from Leerink Partners. Your line is open.

Jonathan Block (MD)

Good morning, guys. I guess I just have one follow-up related to everything else. Just targeting dental equipment. Don, you mentioned the dynamics of no huge innovation you're expecting this year. As you think about, though, the breakdown of what's embedded in guidance, how do you see the market dynamics on growth? There's been, obviously, a lot of concerns over underlying growth in various different areas of both high tech and basic. You have talked about the challenging comp at the start of the year. What does it mean, though, for the rest of the year in terms of core market growth and the visibility you have, whether through backlog, through other conversations, into where the general equipment growth should see over the course of the year?

Donald J. Zurbay (President and CEO)

... Well, maybe I'll start, and I don't know if Kevin has any comments, but, you know, we look at all these factors when we try to peg the market. As you all know, it's a variable market, so that's difficult. We do have visibility to some extent, and on some detail to what's in the pipeline in terms of orders, obviously. But, you know, in terms of innovation, the innovation comment was really more, you know, that's kind of where we've been. We have, again, some visibility there as well, clearly. But, you know, my point is that that's been the history here recently, and, you know, we'll see where that takes us as we get toward maybe the back half of the year.

But as we start the year, you know, that's still something that's hampering the market just a bit.

Kevin Barry (CFO)

Yeah. I think maybe what I'd just add is, I think, you know, when we look at our equipment business, you know, there's also, you know, a kind of a replacement cycle that our sales force is well attuned to, that's gonna help them, you know, make sure that we're there, and we've got the right promotions. And, you know, at certain times of the year, we do financing offers and things like that to drive demand to make sure that, you know, even without necessarily a tailwind from innovation, we've got the team out there that's really good at making sure the practices know when it's time to invest and how to get a good return on those investments in their equipment.

Jonathan Block (MD)

If I can just ask one more really quick modeling question. You talked about the change impact on the income statement. Beyond the flow-through, any dynamics on the balance sheet that we should think about in terms of the change hit, both in the quarter as well as into 25?

Kevin Barry (CFO)

No, no, no balance sheet impact other than just the earnings flow-through from it, Michael.

Jonathan Block (MD)

Awesome. Thanks.

Operator (participant)

Your final question comes from the line of Jonathan Block from Stifel. I'm sorry, will not be the final question. It is from Jonathan Block from Stifel. Your line is open.

Jonathan Block (MD)

Okay, great. Thanks. Good morning, guys. I'll clean up a little bit. Kevin, sorry if I missed this, but with the fiscal 2025 OMs expected to be flat year-over-year, just trying to sort of tease that out a little bit. Is that reflecting, call it maybe some gross margin expansion more in the back part of the year due to the year-over-year change comp-

Kevin Barry (CFO)

Yeah.

Jonathan Block (MD)

but then maybe some OpEx deleverage due to the ongoing investments? Maybe if you can just talk to that, and then I'll ask a quick follow-up.

Kevin Barry (CFO)

No, I think you got it, right.

Jonathan Block (MD)

Okay.

Kevin Barry (CFO)

You know, we expect that, you know, we get some deleverage, you know, typically we, you know, we see op margins improve as the year goes on, generally from, you know, some mix of business that evolves with our seasonality as well as just leverage. So Q1, we're gonna have, you know, we usually have our lowest OM quarter in Q1 from that dynamic. It's gonna be exacerbated a little bit this year because of that change dynamic, and it will, but then we'll have a favorable comp there in Q4 that helps us a bit.

Donald J. Zurbay (President and CEO)

If I were to add, you know, we're balancing, John, the investment we want to make with margin expansion. There's a little bit of that in there, and obviously, you know, as sales improve and to the extent their sales are above our expectations, that's gonna be a big leveraging point, potentially.

Jonathan Block (MD)

Understood. And then, you know, Don, any color you can give on trends of late? I mean, you know, dental has just been under a lot of pressure, all stocks. Hopefully, yours is gonna be under less pressure today, you would say. But, you know, can you talk to the trends of late, anything specific to April, May? Any color around patient traffic versus maybe some more discretionary items? Anything you got would be, would be helpful. Thanks, guys.

Donald J. Zurbay (President and CEO)

Yeah. You know, I'd say that, you know, it sounds a bit like a broken record here, you know, but, but again, I think, you know, we look at the consumables market in dental, the traffic's been steady. I, you know, I think there's not a lot there. And then I think what's lost in our story, again, you know, not to harp on this, but, is the continued excellent performance in both of our animal health segments, is particularly on the bottom line. And so, you know, our story has a lot—there's a lot of positives here that, you know, we're focused on. I think, again, what we're looking for is, and it will, the equipment business to get better.

We're gonna be perfectly well positioned at that point to take advantage of that. And then, investments we're making in technology, software, some of the things we talked about today, driving that value-added services line item. And so if you really get into it, it gets down to just, you know, the equipment market and that improving. But the rest of the businesses, the P&L, you know, from that standpoint, look good. And so I think that's kind of our go-forward view, that I think maybe gets lost a little bit in all the focus on equipment.

Jonathan Block (MD)

Thank you.

Operator (participant)

Okay, we have time for one final question, and that question comes from the line of Jason Bednar from Piper Sandler. Your line is open.

Jason Bednar (MD and Senior Research Analyst)

Hey, good morning. Thanks for squeezing me in here. Don, I wanted to start. I'm trying to square the direction of margins, you know, relative to what you're posting for consumables growth in your two segments. Animal growth's been fine, margin's pretty solid. Dental consumables has been surprisingly good, but operating margins have been going the wrong direction, and really, I think, opposite to what conventional thinking would suggest when consumables are strong. So I guess the question is. Why isn't that dental consumables performance translating to better margins for that franchise? You know, maybe it'd be helpful if you could quantify some of those software investments you've referenced, so we can get a better sense of underlying margins and give you credit for that core profitability.

Kevin Barry (CFO)

Which is, I can start, and Don can add anything. I mean, I think from a consumables margin standpoint, you know, I think you're correct that, you know, from a gross margin standpoint, you know, that's, you know, about average, slightly accretive to our portfolio in the dental business. I think what you're seeing in the near-term year one is, you know, because you're in Q4, we keep bringing up Change Healthcare, but that was a very profitable part of our business that was disrupted here in Q4. So that's, that was a significant gross margin drag for us here in the quarter. You know, as we look at margins for dental, then going to the bottom line, you're right, we have the software investments year over year, that's a drag.

We also did have a one-time gain a year ago in Q4, related to an asset sale that was worth a bit in dental that helped that we're comping over here in Q4. So there's a couple of specific dynamics here. I think to your broader question around how do we see margins for the dental segment going forward? You know, one, you know, we'll start comping over some of the software investments. That'll be less, it'll be a slight headwind year-over-year here early in the year, but less so than it was this past year. And as we do continue to see the consumables strength, you know, if that continues, and we continue on the trend that we're on with from a market share standpoint, I would expect that to flow through to margin expansion.

You know, that's still definitely part of our business model.

Jason Bednar (MD and Senior Research Analyst)

Okay. All right, very helpful. And then just maybe a clarifying question, Kevin. I think you said the assumptions for share count to be down year-over-year. I think that probably goes without saying, with how active you've been, buying back your stock the past 12 months. Can you clarify whether your guidance assumes additional share repurchase activity in fiscal 2025? I don't think I heard that comment.

Kevin Barry (CFO)

Yeah, we're assuming not the same level that we had here in fiscal 2024, but you know, kind of a more balanced, you know, return to giving us some flexibility that, you know, like Don said, as the right M&A opportunities come along, we maintain our flexibility to execute on that. But we do assume some level of share count repurchases, just to kind of stay anti-dilutive and maybe a little more if we see the opportunity.

Jason Bednar (MD and Senior Research Analyst)

Okay, makes sense. Thank you.

Operator (participant)

That concludes our question and answer session. Don, back over to you.

Donald J. Zurbay (President and CEO)

All right. Thank you for all your time today and interest in Patterson Companies, and we'll talk to you next quarter.