Patterson Companies, Inc. (NASDAQ: PDCO) Q4 2023 earnings call dated Jun. 21, 2023
Corporate Participants:
John M. Wright — Vice President of Investor Relations
Don Zurbay — President and Chief Executive Officer
Kevin Barry — Chief Financial Officer
Analysts:
Jason Bednar — Piper Sandler — Analyst
Michael Cherny — Bank of America — Analyst
Nathan Rich — Goldman Sachs — Analyst
Jonathan Block — Stifel — Analyst
Jeffrey Johnson — Robert W. Baird & Co. — Analyst
Elizabeth Anderson — Evercore ISI — Analyst
Kevin Caliendo — UBS Equities — Analyst
Brandon Vazquez — William Blair & Company — Analyst
A.J. Rice — Credit Suisse — Analyst
Presentation:
Operator
Hello, and welcome to the Patterson Companies Inc. Fourth Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions]
I will now turn the conference over to John Wright, Vice President of Investor Relations. Please go ahead.
John M. Wright — Vice President of Investor Relations
Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Companies fiscal 2023 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 statements 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 21, 2023. 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 ’23. The reconciliation table in our press release is provided to adjust reported GAAP measures, namely operating income, other income, expense, net income before taxes, income tax expense, net income, net income attributable to Patterson Companies, Inc. and diluted earnings per share attributable to Patterson Companies, Inc. for the impact of deal amortization, integration and business restructuring expenses, legal reserves, inventory donation charges and gains on investments along with the related tax effects 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 extra week of selling results in the first quarter of fiscal ’22. 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 at 10 AM Central Time for a period of one week.
Now, I’d like to hand the call over to Don Zurbay.
Don Zurbay — President and Chief Executive Officer
Thanks, John, and good morning, everyone. Patterson had an exceptionally strong fourth quarter, including a fiscal year in which we achieved our financial goals and delivered value for our customers and shareholders. On the top-line, year-over-year internal sales increased approximately 6% during the fourth quarter and increased nearly 3% for the fiscal year, including sales growth across both the Dental and Animal Health segments.
We delivered year-over-year adjusted operating margin expansion in both of our business segments and for Patterson overall, achieving adjusted operating margin of nearly 7% for the fourth quarter and approximately 5% for the fiscal year. Our strong performance enabled us to return $157 million to shareholders during fiscal ’23 in the form of cash dividends and share repurchases. And we delivered fiscal ’23 adjusted EPS growth of 7% year-over-year culminated by our record fourth quarter of $0.84 per diluted share, an 18% increase compared to the prior year. These results are a clear demonstration that our value proposition continues to resonate with customers, progress we are making to drive margin improvement and outstanding execution against our strategic plan. I’m proud of the entire Patterson team and grateful for their continued hard work and dedication.
Before we jump into the details of the quarter, I’d like to take a step back to put our results in context. Our strong performance during the fourth quarter and throughout fiscal ’23 is a continuation of the momentum we’ve been building for several years. I joined Patterson five years ago during the early months of fiscal 2019. At that time, Patterson was experiencing challenges that reflected in several areas, including the company’s financial results.
In my previous role as CFO, I worked closely with the rest of our leadership team to develop a strategy to change the trajectory of the business, accelerate our performance and position Patterson for sustainable long-term value creation. Thanks to the focused efforts of the entire Patterson team, I believe we have more than delivered on these objectives.
During the period from fiscal ’19 to fiscal ’23, we have increased reported net sales by $1 billion with average annual internal sales growth of 5%, increased our adjusted operating margin from 3.7% for fiscal ’19 to 4.9% in fiscal ’23 with an average annual improvement of 30 basis points and we increased our adjusted EPS for $1.40 for fiscal ’19 to $2.42 per diluted share in fiscal ’23 with an average annual improvement of 15%. Our strong and continually improving year-over-year financial results is clear evidence that our strategy is working. And the numbers are particularly impressive given the past five years include the historic challenges posed by the pandemic and other macro economic factors.
The key takeaway is that we have a great foundation to build from and a proven track record of success. And with the combination of our culture, strategy and people, I am confident we will continue to drive improved performance over time.
Now I’ll provide some more detail on the growth drivers in each of our segments during the fiscal fourth quarter before sharing some perspective on the path ahead. I’ll start with Dental. In the fourth quarter, Dental segment internal sales increased 8% year-over-year, including growth across our consumables, equipment and value-added service categories. We also achieved year-over-year operating margin expansion in the fourth quarter and for the full fiscal year.
A few specific highlights from our Dental segment. First, equipment sales were up 19% in the fourth quarter on a tough prior year comparison driven by strength across all equipment categories. As we’ve discussed previously, our quarterly equipment results can fluctuate quarter-to-quarter due to factors that influenced the timing of sales. But when you widen the lens, the long-term trend of our equipment sales performance provides a clear view of our strength in this category. Over the last eight quarters, our average quarterly equipment internal sales growth is 8%, evidence that our Dental customers are investing in their practices and a testament to our value proposition and market-leading capability to sell, finance, install and service new technology innovation.
Second, our consumables portfolio of non-infection control products continued to perform well with over 4% internal sales growth. Within our infection control product portfolio, we are still experiencing deflationary impact for certain products compared to the year ago period. While this impact is moderating, we expect this trend to persist in fiscal ’24 and stabilize in the second half of the year.
And third, our value-added services category achieved double-digit internal sales growth during the fourth quarter, primarily due to strong performance in technical service, software and e-services. Value-added services represents a comprehensive suite of offerings we provide to our customers that makes us an indispensable partner to their practice. These offerings are central to our value proposition, create sticky customer relationships and enhanced profitability.
A comprehensive suite of software and e-services products includes on-premise and cloud-based solutions that handle everything from revenue cycle management to practice analytics and insights and patient communication. These products truly are the nerve center of a dental practice and help our customers operate efficiently, scale their business and provide a better patient experience. Software and e-services are a key part of our strategy going forward. And we will expand our investment in this area to ensure Patterson remains the partner of choice for dentists looking to modernize their practices.
Additionally, our leading technical service offering both contributes to and benefits from our strong equipment sales and allows us to serve our customers at a higher level. We believe our technical service offering is a competitive advantage for us as our customers turn to and trust Patterson for ensuring their equipment is delivering for their practice.
Looking ahead, the dental market remains healthy and we are confident that our Dental business will continue to benefit from strong fundamentals, including an aging population, demand for practice modernization, a growing appreciation for oral health as a key link to overall health and consistently strong traffic following a rebound from pandemic level. I’m proud of the Dental team’s execution and commitment to serving our customers.
Let’s now turn to Animal Health. During the fourth quarter of fiscal ’23, our internal sales increased 3% year-over-year, driven primarily by sales growth in the companion animal business. The Animal Health segment also achieved operating margin expansion in both the fourth quarter and for the full fiscal year. In companion, our internal sales in the fourth quarter increased by mid-single-digits as we continued to outperform a healthy and growing market. This sustained growth demonstrates the successful continued execution of our plan, including excellent performance from our internal and external sales teams, operational discipline and our value-added consultative approach.
On the production animal side, fourth quarter internal sales decreased nearly 1% year-over-year from the impact of certain market headwinds, including the drought impact on cattle herds and antibiotic pricing pressure that we’ve discussed previously. Despite these challenges, Patterson delivered low-single-digit internal sales growth for the full fiscal year as we benefited from the depth of our offerings and omnichannel presence. Patterson is well positioned to navigate different market cycles because of our comprehensive solutions for diverse customers across a wide range of animal species.
Across the Animal Health segment, our value-added services category delivered double-digit growth during the fourth quarter and for the full fiscal year, largely attributed to strong sales of our software solutions and equipment service. Similar to our Dental business, we offer robust software portfolio to our veterinary customers and provides them with critical infrastructure to manage and execute their daily workflows. We remain focused on positioning Patterson Animal Health as the leading provider of technology, software, data insight services and products to the animal health industry.
As we enter fiscal 2024 with momentum across the business, I want to take a few minutes to touch on our key areas of focus going forward. We continue to execute and refine our overall strategy, which 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, continually evolve our products, channels and services to best serve the customers in our end markets. And fourth, improve efficiency and optimization. This objective includes a rigorous focus on cost discipline as well as targeted investments to leverage best practices and advanced operational excellence across the entire enterprise.
Patterson is well positioned to achieve these objectives. And our team is aligned around several initiatives to build upon our momentum and advance our strategic goals. I’d like to highlight a few of the key areas of focus in the year ahead, which includes expanding our investments in strategic growth opportunities like software and value-added services. There has been a growing demand among our customers and vendors for tightly integrated software, technology and actionable data and insights to drive top and bottom line growth and compete more effectively.
As we’ve discussed today, Patterson already offers a robust suite of software solutions in both our Dental and Animal Health segments. But we believe the opportunity for growth within software remains significant. As we move forward, we are expanding our investment in our existing solutions to better leverage our strong foundation and to our capabilities and address evolving customer preferences.
Beyond software, we are also focus on expanding our value-added services more broadly. Customers are increasingly turning to partners like Patterson to address their essential business needs and ease their administrative burden. Value-added services have been an important and differentiating category at Patterson for some time. However, I believe we can achieve more in this area and it will remain a top priority. Importantly, our comprehensive value-added services offerings are central to the value proposition of our core distribution categories and drive sales across consumables and equipment. While we expand investments in key areas, we are also focusing on adapting our business to meet evolving industry dynamics.
As our customers’ needs change, we will adapt to meet them where they are and exceed their expectations, including a continued focus on product and channel optimization to ensure our go-to-market approach is designed to best serve and strengthen the people who keep us and our animals healthy. To meet these changing expectations, we also are willing to drive greater efficiencies within all areas of our organization. Across the business, we are committed to expanding our best practices, managing our expenses and leveraging common platforms and eliminating redundancies.
Taken together, our strategic areas of focus build upon our strong foundation and success over the past several years to further distinguish our market position, to drive enhanced growth, profitability and value creation over the long-term. Our strategy is reflected in fiscal ’24 adjusted earnings guidance range of $2.45 to $2.55 per diluted share that we initiated today. This guidance accounts for our plans to invest behind strategic growth opportunities as well as our commitment to deliver year-over-year internal sales growth and adjusted operating margin expansion for the total company and across both our Dental and Animal Health segments.
Now, I’ll turn the call over to Kevin Barry to provide more detail on our financial results.
Kevin Barry — Chief Financial Officer
Thank you, Don, and good morning, everyone. In my prepared remarks, I will cover the financial results for our fourth quarter of fiscal ’23, which ended on April 29, 2023, as well as our full year results for fiscal ’23. I will also discuss our fiscal ’24 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 ’23 fourth quarter were $1.7 billion, an increase of 5.0% versus the fourth quarter one year ago. Internal sales for the fourth quarter of fiscal ’23, which are adjusted for the effects of currency translation and contributions from recent acquisitions, increased 5.7% compared to the same period last fiscal year.
For the full year fiscal ’23, consolidated reported sales for Patterson Companies were $6.5 billion, a decrease of 0.4% versus the same period one year ago. Internal sales for fiscal ’23, which are adjusted for the effects of currency translation, contributions from recent acquisitions and the extra week of selling results in the first quarter of fiscal 2022, increased 2.9% compared to fiscal 2022.
Our fourth quarter fiscal ’23 gross margin was 22.6%, an increase of 140 basis points compared to the prior year. Our gross margin in the fourth quarter of fiscal ’23 was negatively impacted by 10 basis points by the mark-to-market accounting adjustment from rising interest rates on our equipment financing portfolio. Any positive or negative impact related to our equipment financing portfolio is nearly offset by our corresponding hedging instrument, which is reflected in the interest and other expense line on our P&L. So the net result has a minimal impact on our adjusted earnings per share.
If you recall, this dynamic also occurred in the fourth quarter of last fiscal year when the negative impact of the mark-to-market accounting calculation was 50 basis points. When normalizing for mark-to-market accounting adjustments in both periods, our gross margin rate in the fourth quarter of fiscal ’23 is 100 basis points higher than the fourth quarter of fiscal ’22. Remember, the accounting impact of the mark-to-market adjustment impacts our total company gross margin, but not the gross margin within our business segments.
For the full year of fiscal ’23, our adjusted gross margin was 21.2%, an improvement of 138 basis points compared to the full year of fiscal 2022. Normalizing for the impact of the mark-to-market accounting adjustment to the equipment financing portfolio in both periods results in a 50 basis points improvement in our gross margin in fiscal ’23 compared to fiscal ’22.
Importantly, during the fiscal fourth quarter and for the entire fiscal ’23 year, each of our business units posted a year-over-year increase to their respective gross margins versus the prior year period. Across the company, we continue to focus on pricing and cost execution and improving our mix by driving higher growth in the margin-accretive product categories.
Adjusted operating expenses as a percentage of net sales for the fourth quarter of fiscal ’23 were 16.0% and favorable by 26 basis points compared to the fourth quarter of fiscal ’22. For the full year of fiscal 2023, adjusted operating expenses as a percentage of net sales were 16.4% and slightly unfavorable to the prior year by 15 basis points compared to fiscal ’22.
In the fourth quarter of fiscal ’23, our consolidated adjusted operating margin was 6.7%, an increase of 166 basis points compared to the fourth quarter of last year. For the full year of fiscal ’23, our consolidated adjusted operating margin was 4.9%, an improvement of 48 basis points over the prior fiscal year. Again, when normalizing for the accounting impact of the mark-to-market adjustment in both periods related to gross margin, our consolidated adjusted operating margin for the fourth quarter of fiscal ’23 expanded by 110 basis points compared to the fourth quarter of fiscal ’22. And for the full year of fiscal ’23, consolidated operating margin expanded by 40 basis points over the full year of fiscal ’22.
I’m proud of our team’s efforts to deliver on our commitment to drive operating margin expansion in each of our business segments and for the total company in fiscal ’23. Foundational initiatives we’ve put in place to improve gross margin with pricing and cost execution, working more closely with strategic vendors who reward us for our sales performance, driving improved mix, exercising expense discipline and leveraging our cost structure has certainly translated to a higher level of profitability for Patterson.
Our adjusted tax rate for the fourth quarter of fiscal ’23 was 24.4%, an increase of 140 basis points compared to the prior year. For the full year of fiscal ’23, our adjusted tax rate was 23.6%, a decrease of 20 basis points compared to full year of fiscal ’22.
Reported net income attributable to Patterson Companies, Inc. for the fourth quarter of fiscal ’23 was $75 million or $0.77 per diluted share. This compares to reported net income in the fourth quarter of last year of $63.9 million or $0.65 per diluted share. Adjusted net income attributable to Patterson Companies in the fourth quarter of fiscal ’23, which excludes deal amortization and gains on investments, totaled $82.4 million or $0.84 per diluted share, a record quarter for Patterson. This compares to $70.4 million or $0.71 per diluted share in the fourth quarter of fiscal ’22.
This 18% year-over-year increase in adjusted earnings per diluted share for the fourth quarter was primarily due to increased sales of dental equipment and value-added services as well as operating margin expansion in both business segments. Both reported and adjusted net income in the fiscal 2023 fourth quarter contain a one-time gain of $3.6 million or $0.03 per diluted share related to the sales of real estate assets.
For the full year of fiscal ’23, reported net income attributable to Patterson Companies, Inc. was $207.6 million or $2.12 per diluted share compared to $203.2 million or $2.06 per diluted share in fiscal 2022. Adjusted net income attributable to Patterson Companies, Inc. in fiscal ’23, which excludes deal amortization, integration and business restructuring expenses, legal reserves, inventory donation charges and gains on investments, totaled $236.4 million or $2.42 per diluted share compared to $223.7 million or $2.27 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 ’23, internal sales for our Dental business increased 8.0% compared to the fourth quarter of fiscal ’22. When excluding the impact of price deflation — infection control products, internal sales for our Dental business increased 10.8% in the fourth quarter of fiscal ’23 compared to the fourth quarter of fiscal ’22. Internal sales of dental consumables in the fourth quarter increased 0.3% compared to one year ago, and again, were impacted by the continued moderation of infection control products compared to the pandemic-related performance last year.
Internal sales of non-infection control products increased 4.4% in the fiscal fourth quarter compared to the year ago period. For the full year of fiscal ’23, internal sales of consumables declined by 2.1% due to the price deflation of PPE products during the year. Excluding the impact of these products, Dental consumables increased by 3.1% in fiscal ’23 compared to fiscal ’22.
In the fourth quarter of fiscal ’23, internal sales of dental equipment increased 19.2% compared to the fourth quarter of fiscal ’22 with strong growth across all product categories. Our sales team drove equipment demand to finish our fiscal ’23 with strong momentum, as dental customers continue to invest to maintain and improve their practices or open additional offices. For the full year of fiscal ’23, internal sales of dental equipment increased 4.9% over fiscal ’22.
Internal sales of value-added services for the fourth quarter of fiscal ’23 increased 13.4% over the prior year period, led by solid year-over-year performance of our technical service team and continued growth of our software and e-services business. 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 mix favorable to our P&L. For the full year of fiscal ’23, internal sales of value-added services increased 8.1% compared to fiscal ’22.
Adjusted operating margins in Dental were 12.1% in the fiscal fourth quarter and a 205 basis point improvement over the prior year period. This operating margin performance in the fourth quarter of fiscal ’23 reflects the continued efforts of our Dental team to improve gross margins through driving higher growth plus margin-accretive products as well as exercising continued expense discipline to deliver operating margin expansion in the fiscal fourth quarter of fiscal ’23. In addition, the Dental operating margin contained a one-time gain of $3.6 million related to the sale of a real estate asset in the fourth quarter. For the full year of fiscal ’23, adjusted operating margins in our Dental business were 10.0%, a 65 basis point improvement over the prior fiscal year.
Now let’s move on to our Animal Health segment. In the fourth quarter of fiscal ’23, internal sales for our Animal Health business increased 3.2% compared to the same period one year ago. For the full year of fiscal ’23, internal sales for our Animal Health business were up 3.4% compared to fiscal year 2022. Internal sales for our companion animal business in the fourth quarter of fiscal ’23 increased 6.7% compared to the prior year. For the full year of fiscal ’23, internal sales in our companion animal business increased 5.3% compared to fiscal ’22. Internal sales for our production animal business in the fourth quarter of fiscal ’23 decreased by 0.7% compared to the same period one year ago. For the full year of fiscal ’23, internal sales in our production animal business increased 1.2% compared to fiscal ’22.
Adjusted operating margins in our Animal Health segment in the fiscal fourth quarter were 5.5%, an increase of 57 basis points from the prior year. For the full year of fiscal ’23, adjusted operating margins in our Animal Health segment were 4.2%. This represents 36 basis points of margin expansion compared to fiscal 2022. Our Animal Health team continues to drive business with strategic manufacturing partners who value our ability to increase sales, while also exercising expense discipline as our Animal Health team delivered operating margin expansion for the fourth quarter of fiscal ’23 and for the full year of fiscal ’23.
Now let me cover the free cash flow and capital allocation. During fiscal ’23, our free cash flow declined by $14.4 million compared to the same period one year ago. This was primarily due to an increased level of capital spending in fiscal ’23 as well as a slightly higher level of receivables related to the strong sales month we had in April.
Now turning to capital allocation. We continue to execute on our strategy to return cash to our shareholders. In the fourth quarter of fiscal ’23, we declared a quarterly cash dividend of $0.26 per diluted share, which has been paid at the beginning of the first quarter of fiscal ’24. Also in the fourth quarter of fiscal ’23, the company repurchased approximately 1.5 million shares of stock. During fiscal ’23, Patterson Companies returned $156.8 million of cash to shareholders in the form of dividends and share repurchases.
Let me conclude with our financial outlook for fiscal ’24. This morning, we issued a GAAP earnings guidance range for fiscal ’24 of $2.14 to $2.24 per diluted share and an adjusted earnings guidance range of $2.45 to $2.55 per diluted share.
For modeling purposes, let me highlight a few additional items to consider as you think about our guidance for fiscal ’24. First, as mentioned earlier, our fiscal 2023 adjusted EPS of $2.42 benefited from a one-time gain related to the sale of real estate assets, which represented approximately $0.03 of adjusted EPS. Second, we are modeling low-to-mid single-digit revenue growth in fiscal ’24. This is inclusive of some continued deflation of PPE products compared to the pricing of these products during fiscal ’23. We are also modeling operating margin expansion for both business units and the total business. Third, as Don noted, our guidance reflects expanded investments to further develop and grow our software and value-added services capabilities. Fourth, we are modeling a higher overall tax rate of approximately 25%. This is higher than where we finished fiscal ’23 due to increased tax rates in the U.K. and other adjustments to our tax expense. And finally, we expect to face additional headwinds in fiscal ’24 regarding higher interest rates on our variable rate debt.
If you exclude the one-time $0.03 per share benefit associated with the sale of the real estate assets from our fiscal ’23 adjusted EPS performance, our fiscal 2024 adjusted EPS guidance range of $2.45 to $2.55 per diluted share implies a 5% year-over-year growth at the midpoint and 7% year-over-year growth at the top-end of our range.
And now, I will turn the call back over to Don for some additional comments.
Don Zurbay — President and Chief Executive Officer
Thanks, Kevin. Before we open it up for Q&A, I’d like to reiterate a few key takeaways from our call this morning. Patterson had an exceptionally strong fourth quarter, including a fiscal year in which we achieved our financial goals of delivering year-over-year sales growth and adjusted operating margin expansion. Our performance during the fourth quarter and throughout fiscal ’23 is a continuation of our track record of success over the past several years. We continue to execute and refine our proven strategy to build upon this momentum and we are well positioned to drive enhanced growth, profitability and value creation over the long-term.
That concludes our prepared remarks. Kevin and I will be glad to take questions. Operator, please open the line.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Jason Bednar of Piper Sandler. Please go ahead.
Jason Bednar — Piper Sandler — Analyst
Hey, good morning, and congrats on a real nice quarter to close out the fiscal year. Don or Kevin, the margin performance here was extremely impressive in the fourth quarter. We’ve been going along the path of modest margin expansion for the last, call it, few years, but the last couple of quarters, you’ve just blown them out of the water. I understand that dental equipment strength this quarter probably helped, but you are sitting at multi-year highs in each of Dental and Animal Health, even after adjusting for the one-time gain in Dental that you mentioned. So it’s been a long road to get to where we’re at, but could you talk about how you think about these multi-year high margin performances as we think forward to the coming years? I know you don’t have a formal LRP out there, but where do you see the potential for Dental and Animal Health as you look ahead over the next few years?
Don Zurbay — President and Chief Executive Officer
Yeah. Thanks, Jason, and appreciate the comment. I think the margin journey has really been the last — I mean, you could say the last four or five years, but what we’re looking at is the fact that the programs we’ve put in place are working. The things that we’re doing we think are impactful and sustainable. And so as you look forward, I think we would talk about, and I think we have talked about, our profit margins for the company.
We like the 20 to 30 basis point improvement on a year-over-year basis. That could go up or down. And certainly, as we make some investment decisions that could impact that. But we’re committed to operating profit improvement in both of the business units and the overall company, and that’s a drumbeat that’s constant here. We work really hard. There’s a lot of programs in place. And the focus, as I mentioned, when we talk about those programs are sustainable programs.
So I don’t know, maybe Kevin, if you have any additional comments or thoughts on some specific things that you might mention, but we’re pretty pleased with it. We’re not surprised by it. And more importantly, we’re excited about what that looks like going forward.
Kevin Barry — Chief Financial Officer
Yeah, Jason. I think the strength this year and this quarter, it really starts with the gross margin performance and that speaks to some of these internal initiatives and focus areas that we’ve implemented around, our mix of products, our efficiencies in our distribution network, our ability to drive that gross margin line really helps. And I think what’s also — long-term for us too is we feel like we’ve got a cost base that we can leverage. So as we’re out winning with our customers and driving that top-line, we feel really good that we can get some leverage out of our operating expenses with how we are operating today. That’s going to allow us to both reinvest in the business as we need to, but also continue that margin expansion journey we’re on.
Jason Bednar — Piper Sandler — Analyst
Okay, great. That’s helpful, and it sounds like a lot of sustainability there. The dental equipment strength was probably the other big outlier in the quarter, at least to me. It seems like a nice improvement in demand and tone from you all regarding overall demand across the portfolio. How much of this is real-time and therefore an improvement in demand trends from what we’ve seen across the last couple of quarters versus how much is maybe a clearing of demand backlog that’s been in place? Anything you can share on the order book exiting the quarter and maybe your confidence in seeing dental equipment sales grow in fiscal ’24 within that low-to-mid single-digit company-wide revenue guide you gave today? Thank you.
Don Zurbay — President and Chief Executive Officer
Yeah, I think you’d have to look at both things really. I mean, certainly, the second half of our year, particularly the fourth quarter, just given the cadence of some of the things we do, show strength. So there’s always a little bit of second half bias. There’s probably some clearing of the backlog.
I think the most important thing though, and if you go back here, equipment is lumpy. It was a very good quarter. We’re not going to minimize it because we know what’s behind it and it was across the whole equipment portfolio. But I look back, and we’ve talked about this before, three month increments are important, but in equipment particularly, I think if you look back over longer periods of time, and I’m particularly proud of 8% growth average over the last eight quarters. I think that really smooths out all of the things you’re talking about and kind of gives you a good snapshot of what we’re doing.
We think that’s above the market growth. We think it’s our — it shows kind of our advantage that we have in this area and kind of the full suite of products and really the lifecycle management that we use when we talk to our customers about equipment sales. So I think a little of all that, but again, I think kind of step back and say, how are we doing, we’re better than the market and we’re pretty proud of that.
Operator
Your next question comes from the line of Michael Cherny of Bank of America. Please go ahead.
Michael Cherny — Bank of America — Analyst
Good morning. I want to echo the comments on a strong quarter and robust outlook. Maybe a two-part question kind of interlocked. But you mentioned some of the dynamics regarding the pricing on PPE, can you give us a sense aside from that about any variations to either the up or downside you expect over the course of the year? And I guess, alongside that as well, any dynamics either quarterly or at least from a total perspective of the magnitude of some of the innovation investments that you’ll be making?
Don Zurbay — President and Chief Executive Officer
Maybe I’ll let Kevin kind of walk through a little as much as we’re going to share here.
Kevin Barry — Chief Financial Officer
Yeah. Thinking on the PPE dynamics, Michael, what we expect going forward is that we’re starting to see the prices of that basket of products stabilize. But on a year-over-year basis, when you compare back in our first quarter of F ’24 to ’23, we still expect to see a bit of a headwind that really should dissipate as we go through the first half of the year. That’s really when we should lap it. That is built into our guidance. So in the guidance details I gave on the call, that’s all built in there. I’d say, on some of the investments that we’re anticipating making here this year, I’d say, those — we’re starting those now, there probably will be a bit of a ramp as we go over the course of the year on the opex line.
Michael Cherny — Bank of America — Analyst
And anything else that’s seasonally different from what you would expect normally? Obviously, I think Jason asked about coming off the strong equipment quarter. But any other moving pieces, any product launches on either segment that you are expecting to have a meaningful variation versus what you’d normally expect in a given year or what’s built in the guidance?
Don Zurbay — President and Chief Executive Officer
No, I don’t think so. And again, I think Kevin mentioned some things that year-over-year you can look at the impact when he talked about guidance, obviously, includes the increasing interest rate environment, at least, just on a year-over-year basis is a headwind and the software investments and those kind of things, but that’s all built into the guidance. I think what it really shows is even with the guidance we’ve given, which is strong, we feel the underlying business is really set-up to overcome those headwinds.
Operator
Thank you. And your next question comes from the line of Nathan Rich of Goldman Sachs. Please go ahead.
Nathan Rich — Goldman Sachs — Analyst
Hi, good morning, and thanks for the questions. I wanted to start on dental consumables, I think up 3.1% for the fiscal year ex infection control. And Don, I think you called out kind of consistently strong patient traffic. Can you maybe talk about how you feel about the health of the end market? And maybe for the fiscal year, how volume kind of compared to price? And should we think about a similar level of dental consumables growth into fiscal ’24?
Don Zurbay — President and Chief Executive Officer
Yeah. I think this is an area where, at least in our business, what we’re seeing is very steady traffic. I think our own internal data and the ADA data utilization really is kind of bearing that out, but we’re certainly seeing that in our customer base and it’s a combination of price and utilization. And I think as we look into next year, we’re really not modeling any significant fluctuations in that. I think that’s a good proxy right now for the way the business is operating. And probably, if you’re modeling it for next year, for us at least, you’d look at that same kind of dynamic.
Nathan Rich — Goldman Sachs — Analyst
Great. That’s helpful. And as a follow-up, I wanted to go back to the earlier comments on margins, I think you talked about the 20 basis points to 30 basis points as being a good target. But could you maybe just frame the opportunity from here relative to what it was in fiscal 19? You obviously talked about the progress that you’ve made, but margins are kind of now kind of back above where they were kind of five years ago. Where do you kind of see the longer term margin potential for this business? It used to be a kind of 6% to 7% margins. Is that eventually where you can get back to if we look over the next three, five years and play this forward?
Don Zurbay — President and Chief Executive Officer
Yeah, Nathan. Well, I think I’d like to stay away from too much long-term guidance on specifics. I think over the last five years — in the earlier years on that cycle, we probably benefited a little bit more just from the idea that we were getting the business back on track and improving with where we were, but at the same time, we are putting in programs that were sustainable and that we thought would benefit our margin on a more consistent basis and long-term basis going forward. So right now, what we’re seeing is the benefit of those types of things.
And again, when we look at this and we really think through margin initiatives we’re thinking through it from a standpoint of not a one-time or short-term basis, but really what’s a long-term sustainable program. And so for me, as I look forward and we kind of talk about future, I would say, for our horizons foreseeable future, we’re looking at that, again, at that 20 basis point to 30 basis point improvement each year.
Operator
Thank you. And your next question comes from the line of Jonathan Block of Stifel. Please go ahead.
Jonathan Block — Stifel — Analyst
Great. Thanks, guys. Good morning. Just the first one, maybe just in light of some of the recent news from other companies. Can you talk to trends throughout the most recent quarter? Kevin, if I heard you correctly, you might have touched on it a little bit regarding the AR comments, it seems like April was strong. Is that correct? How did that sort of continue into May? And then importantly, what are you extrapolating when we think about the full year guidance? If the recent trends were strong, April to May, is that a continuation in the recent guide or did you build any conservatism around that? Thanks.
Kevin Barry — Chief Financial Officer
Yeah. I think talking about the dental market, specifically, I’ll just reiterate what Don said, we’re just seeing very steady end market patient traffic. And for us, we start with kind of our consumables business, our value-added services business. I think that will stay throughout the fourth quarter or at least like Don said, we see that being fairly consistent as we look forward.
Equipment, we did have stronger equipment quarter. That was more back ended in the quarter for us. But again, I think we have, as we look forward, like we saw strength across all the sub-categories within equipment, which again to us, speaks to the health of the end market. Dentists continue to invest in their practices whether through expansion or optimize within the practice, they have new technology and that’s a strength of ours. And so as we look forward, we’re going to continue to work with those dentists and make sure that we’re meeting them where they need to go with the products that we offer. So I see those dynamics continuing as we go into F ’24 here, Jon.
Jonathan Block — Stifel — Analyst
Okay. Fair enough. Thanks for that. And then maybe just to pivot from Dental to Animal Health, Animal Health had solid results, it seems like companion continues to lead the charge. But if I look at the companion animal numbers, if I’ve got it right, it looks like the fourth straight quarter of the two year stacked decelerating by a decent clip, right, I mean from crazy levels of call it mid-30s to low-double-digits more recently. Maybe if you could just talk to you the companion animal market, the amount of resiliency? And then what your rough expectations are going into fiscal ’24, again, most specific to companion? Thanks guys.
Don Zurbay — President and Chief Executive Officer
Okay. Yeah. Well, thanks, Jon. I think you’re right, over that period of time that you’re referencing, there definitely has been moderation. You kind of talked about all the dynamics of the pandemic and the other factors. What we’re seeing right now is with that moderation, visits are down slightly, but spending is up. I think as people are bringing us back to the vet, there is maybe a catch-up element as well. But I think when we cut through it, again, we’re in a healthy market. And I think from our data standpoint, we’re outperforming the market. So we’re a market share gainer and that’s where we want to be particularly. There will be some movements in the market, but we think we’re gaining share.
Operator
Thank you. And your next question comes from the line of Jeff Johnson of Baird. Please go ahead.
Jeffrey Johnson — Robert W. Baird & Co. — Analyst
Thanks, guys. Good morning. I think most of my questions have been answered, but you used the word stability here a lot around the Dental business. So I probably heard you already answered this question as well. But Don, when I think about the dental equipment business notwithstanding your 8% growth over the last eight quarters, I think over the last six months it’s been 5% growth, over the last 12 months it’s been 5% growth. So is that a reasonably good with what you’re seeing in the backlog and order trends? Is that kind of mid-single-digit on dental equipment a good jumping off place to be thinking about as we go into fiscal ’24 here? And then maybe if you could just talk about pricing around tech in equipment versus basic, I know basic is up very nicely. Is that helping offset fully some of the deflationary pressures on the tax side or just how those two are balancing out on pricing? Thanks.
Don Zurbay — President and Chief Executive Officer
Yeah. Well, Jeff, I think, good question. I think on your 5% over the last 12 months and we have 8% over the last eight quarters, but I think that mid-single-digit range is good. I think that’s a good way to think about this over the slightly longer term. On the pricing, I think for us, we’re seeing — again, not to beat on stability, but I think we’re seeing pretty good stability on our pricing in this area. We have a healthy program and a disciplined program and the pricing has held up in spite of some of the macro economic trends and so has the demand. So for us, this has been a good story and expect it to continue to be.
Jeffrey Johnson — Robert W. Baird & Co. — Analyst
Yeah, that’s helpful. And then I guess a follow-up question, just on the consumables business. Obviously, you guys are overweight kind of general consumables, but what’s the Dolphin business and that I think you probably have some decent insight, at least on the orthodontics side. One of the things we’ve been seen in our survey work is clearly the patient volumes are holding in, but maybe spend per patient or some of the high end — high acuity mix coming down a little bit. So just what’s your sense on kind of how much that yield that study patients always really helping the hygiene and the general consumables side versus the spend per patient? And maybe what you’re seeing in some of your orthodontic data or anything like that that would help us understand kind of that higher acuity spend levels versus the general hygiene? Thanks.
Don Zurbay — President and Chief Executive Officer
Again, I think if you’re getting a mix of just demand and pricing, I mean — I think it’s kind of a little of both. I guess, I’m not — the orthodontic data probably isn’t quite as applicable to us. So I would reference those back to more to the Dental data, the ADA utilization. And just again, all the different elements of data that we are looking at, really point to that kind of steady traffic theme.
Operator
Thank you. And your next question comes from the line of Elizabeth Anderson of Evercore ISI. Please go ahead.
Elizabeth Anderson — Evercore ISI — Analyst
Hey, guys. Thanks so much for the question. Talking about some of the investments that you guys are thinking about in terms of software and value-added service, I think I heard you on one of the prior questions say that that should be reflected in the opex line. I guess, I just wanted to, A, confirm that. And B, I’d like to just sort of understand a little bit more, do you have any sort of more details on specific areas? And then two, how do you think about that kind of buy versus build? Is that kind of evolve in your calculation or how do you guys think about that? Thanks.
Don Zurbay — President and Chief Executive Officer
Yeah, Elizabeth, thanks for the question. I think — let’s maybe start with the buy versus build. I mean, we’re looking at both as we continue to enhance our capabilities, we are generally committed to build. I think that’s been our history and that’s been where we’ve been with Fuse. The investment themselves that it is reflected in the guidance. There is an element of operating expense, there is an element of capital that’s involved. But overall, the higher investment is reflected in all the comments and the numbers we’re talking through here today.
And then additional capabilities, I guess, I wouldn’t get into all the — just competitively get into all the specific capabilities. I think I would say that we are making investments in both our Eaglesoft platform and Fuse. I think our view is that we really are excited about where these products are and where they’re headed. It’s a very fast paced and evolving area. So for us, having the features and functionality we need is important, but again, not only on the on-prem side, but on the cloud base side. So there’s a lot of things happening here, a lot of technology and innovation and it’s happening quick. And so we’re determined to stay ahead of that.
Elizabeth Anderson — Evercore ISI — Analyst
Okay, that’s very helpful. And I guess, my next question is, should we think about the general dentistry market and sort of your presence among DSOs. How is that strategy at all changing? Have you seen any new dynamics there? I mean, obviously, you have some large customers, how are those relationships? We haven’t heard an update on that in a little while. So I’d just be sort of curious how you’re viewing that in the current environment?
Don Zurbay — President and Chief Executive Officer
I think it’s really pretty steady, this area. I mean, it’s evolving, but our strategy is consistent. And so overall, I think this is a good story. I don’t really — there’s the national side, there’s the regional side, obviously, we’re working on both of them. We think we have a good core competence, particularly on the regional DSO kind of area, but probably nothing new to report in terms of any different dynamics.
Operator
Thank you. Your next question comes from the line of Kevin Caliendo of UBS. Please go ahead.
Kevin Caliendo — UBS Equities — Analyst
Thanks. I guess, the first one is just on cadence. I know you don’t like to give quarterly guidance and the like, but there is some lumpiness to some of the numbers. And just any kind of color you can provide us or help you can provide us as we think about modeling out the year to get to the guidance for the full year in terms of quarterly or first half, second half or even just sort of revenue growth expectations or margin expectations?
Don Zurbay — President and Chief Executive Officer
Yeah. Kevin, I’d say, I think as we look forward, our first half, second half split should be fairly in line with the past couple of years in terms of how we’re modeling it right now.
Kevin Caliendo — UBS Equities — Analyst
Okay, great. That’s from an EPS perspective is what you’re describing?
Don Zurbay — President and Chief Executive Officer
Right.
Kevin Caliendo — UBS Equities — Analyst
Perfect. You talked a little bit on the equipment side and said there was strength across all three categories. I think you also said maybe there was a little bit of a drawdown in backlog. Can you maybe talk about where you’re seeing demand, where maybe you saw some of the backlog come in a little bit, where maybe demand increased a little bit across the categories as best you can? Any sort of color across the three about the changing dynamics between demand and backlog, but what you expect to be going forward more than looking back?
Don Zurbay — President and Chief Executive Officer
Yeah. I think, again, as we mentioned, it is a bit lumpy. So to me, we watch it back — we watch it through each of the categories and look at the data, I think the backlog kind of reflects the lumpiness. So backlog at times is high, other times it’s low. But I haven’t — I’m not drawing and I don’t believe there is a correlation here between anything that’s going on with our backlog at any time and kind of overall traffic and demand. It depends more on innovation cycle, inventory we’re holding and then installation. So — but nothing that we think would be interesting in terms of reporting this out right now that would give you more insight.
Kevin Caliendo — UBS Equities — Analyst
If I can ask one…
Operator
Pardon for that. I’m going to go on — move on to the next question. I’ll bring up the person again in a second. And your next question comes from Brandon Vazquez of William Blair. Please go ahead.
Brandon Vazquez — William Blair & Company — Analyst
Hi, everyone. Thanks for taking the question. Just one on consumables — sorry on equipment that we were talking about before. Some of the other peers in the space have been talking about how equipment demand has been strong. But there has been a little bit of a shift, maybe in some markets, especially like internal scanners towards lower price may be as we get higher in adoption curve. Curious if you guys are seeing any — maybe the answer is no given how strong of a quarter you had within equipment, but curious if you’re seeing any higher demand for lower end prices within that segment or not?
Don Zurbay — President and Chief Executive Officer
Yeah. I think — I guess, what I’d say is I think our teams do a really good job of managing through those dynamics when they pop up. And we’ve got a pretty broad selection of multiple equipment categories and technologies. And our team out in the field does a really good job of understanding what a dental practice needs and how to meet those needs. And in most markets, there is price declines, you generally see it, demand increase and adoption increase when those things happen. So I think that’s what I’d say is we benefit from a really skilled sales force that knows our customers and knows what’s going to be a good match for them at a wide variety of products to meet those needs.
Brandon Vazquez — William Blair & Company — Analyst
Okay, great. Thanks. And then my second question, looking back at the value-added services and software segment, another great quarter for you guys there. And we asked a little bit earlier about what’s in the pipeline, but maybe I’ll ask that question slightly different. Is there any way you can frame the opportunity for us within value-added services and software? Maybe any figures like what percent of your customers today are using your value-added services or what kind of pocket share can you get incrementally from current customers? Anything like that just helpful to understand the market? Thanks.
Don Zurbay — President and Chief Executive Officer
Yeah. I appreciate the question and definitely want to be helpful. Probably not going to give that level of data, it’s something we track. I think maybe just suffice it to say that this is a very important part of our product portfolio, it’s a high margin part of our product portfolio and a huge focus for us going forward. Again, it kind of reflected in the additional investments we’re going to make here. But yeah, probably at this point, I’m not going to give you too much of a break down. I think it’s a big addressable market for us.
Operator
Thank you. And your last question comes from the line of A.J. Rice of Credit Suisse. Please go ahead.
A.J. Rice — Credit Suisse — Analyst
Thanks. Hi, everybody. Maybe a couple of quick ones here. You mentioned a couple times the impact of the rising rate environment, I wondered, as you are looking at equipment financing and how your buyers are approaching the market, has that changed their willingness to finance equipment sales in any way? Are you seeing any changes or opportunities there?
Kevin Barry — Chief Financial Officer
Yeah, A.J. I’d say, we haven’t seen a dramatic change in how much of our sales get financed. We’ve obviously adjusted our rates to reflect the higher rate environment. But we also — we work closely with our manufacturer partners to drive smart promotions that can drive more demand and sometimes those are the financing area. And so we participate with them, some of those promotions that can help the ROI for a dentist as they look at the opportunity.
A.J. Rice — Credit Suisse — Analyst
Okay. And then maybe another market-oriented question. There’s been obviously a lot of discussion about the tightness of supply of dental hygienists and so forth and you’ve also had some similar commentary in the veterinary space. We’re seeing a little bit of easing in some other areas. Are you seeing on your underlying customer base easing in either of those areas? And is that having any impact on wait times to get appointments or is that a potential health in the next year in your consumable side?
Kevin Barry — Chief Financial Officer
Well, we’re definitely aware there are some of those dynamics out there. It really has not shown up in the ADA data and in our data. And I think I’d go back to the covenants on steady traffic. I think it’s a challenge for dental, don’t get me wrong. But for us, again from what we’re seeing right now, that’s not been a major factor.
Don Zurbay — President and Chief Executive Officer
Anyway, that’s our last question. And I thank everybody for their time today and interest in Patterson Companies and we’ll talk to you shortly after our next quarter.
Operator
[Operator Closing Remarks]