Patterson Companies, Inc.
Q3 2021 Earnings Call Transcript

Published: 3 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Patterson Company's Fiscal Year 2021 Third Quarter Earnings Call. . I would now like to hand the conference over to your speaker today, John Wright, Vice President of Investor Relations. Thank you. Please go ahead, sir.

[John Wright:]

Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Companies' Fiscal 2021 Third Quarter Earnings Conference Call. Joining me today are Patterson President and Chief Executive Officer, Mark Walchirk; and Patterson Chief Financial Officer, Don Zurbay. After a review of the fiscal 2021 third quarter by management, we will open the call to your questions.

[Mark Walchirk:]

Thank you, John, and welcome, everyone, to Patterson's Fiscal 2021 Third Quarter Earnings Conference Call. As we approach the 1-year mark of when the COVID-19 pandemic began to significantly disrupt our daily lives, I want to begin by acknowledging the tremendous resiliency of our customers and business partners and thanking our 7,000-plus Patterson employees for consistently upholding our purpose, vision and values each and every day. These core principles have motivated our team to deliver on our commitments to all of our stakeholders. I'm incredibly proud of our organization's focus during these past 12 months, and the resiliency our teams have exhibited in helping to overcome these historic challenges and continue to improve our performance.

[Donald Zurbay:]

Thank you, Mark, and good morning, everyone. Consolidated reported sales for Patterson Companies in our fiscal 2021 third quarter were $1.55 billion, an increase of 6.5% versus the third quarter a year ago. Internal sales, which are adjusted for the effects of currency translation and changes in product selling relationships, increased 6.9% compared to the same period last year. As Mark already mentioned, Patterson's consistent and disciplined approach to strong execution and operational excellence, combined with our ongoing investments to drive sales productivity, enhance our value proposition, enabled us to continue our momentum across the entire business this quarter. Our third quarter adjusted gross margin was 20.9%, which was down 50 basis points versus the third quarter of fiscal 2020. This difference compared to the previous year was primarily attributable to the impact of segment mix. Adjusted operating expenses as a percentage of net sales for the third quarter were 16.3% and favorable by 80 basis points on a year-over-year basis as we have continued to benefit from our efforts to drive operational improvements and expense discipline, along with the leveraging impact of higher sales volumes. In the fiscal third quarter, our consolidated adjusted operating margin was 4.6%, which represents a 30 basis point improvement over the same period in the prior year. As you recall, our consolidated adjusted operating margin has improved for a number of quarters, posting year-over-year improvements each of the past 8 quarters as a result of our efforts to drive operational improvements and expense discipline, along with the added impact of improved mix within our business segments and the ongoing expense leveraging with higher sales volumes. We continue to be encouraged about our year-over-year margin improvement for another quarter.

[Mark Walchirk:]

Thanks, Don. Now before we take your questions, I want to take a few minutes and touch on the positive trends at our end markets as well as our investment priorities for the future. In the dental market, there are 3 factors we believe will impact demand and create expanded sales opportunity for Patterson going forward. First, we expect the increased demand for infection control products is here to stay. That said, while the infection control supply chain has stabilized from where it was a number of months ago, we are continuing to manage through some supply chain disruption and price fluctuations for certain infection control products. We continue to work closely with our supply partners to source the highest quality products and manage the price impact on our customers. Second, we expect that dentists will continue investing in the latest technologies to build and modernize their practices. And third, we believe that continued progress around vaccine administration will improve patient demand. We also expect that when patients return to the dentist after a long time away, they may require higher acuity procedures, further driving product demand. In the companion animal market, we believe the growth of pet ownership and adoption rates that spiked during the pandemic is unlikely to continue at the current rate and will eventually stabilize. However, we expect the overall companion animal market to grow at a faster rate than prior to the pandemic. We are well positioned to take advantage of the incremental growth opportunity in this space through our comprehensive sales and support infrastructure and the value we bring to our veterinary customers every day. In the production animal space, we believe the market is poised to rebound as restaurants eventually reopen and schools return to in-person learning, which will drive demand for the protein and dairy products our customers provide. Now with that context on our end markets, let me turn to our strategic investment priorities. As we think about leveraging our position across the attractive markets we serve to drive future value creation, we're focused on 3 key areas

[Operator:]

. Your first question comes from Michael Cherny of Bank of America.

[Michael Cherny:]

Maybe to kick off a little bit. When you think about the consumables growth in the dental market and the 3% ex infection prevention, obviously, infection prevention has response - repositioned, both pre- and post-COVID as well as clearly an elevated one during COVID. But maybe on that 3% rate, can you just give a little sense on how that's shaking out? What types of products customers are most interested in? And how some of the sales force investments and other investments you've made have contributed to that number outpacing what appears to be most market growth trends that we can see?

[Mark Walchirk:]

Yes, Michael, this is Mark. Thank you for the question. And to your point, we're certainly pleased with our overall consumables results. But I think indicative of just the continued momentum and performance that our teams are driving, showing up in the increased results and the revenue gains that we're making in the non-infection control and prevention categories. And I think it's really due just to a number of factors. I think we had a strong momentum coming into the pandemic, and I think we continue to build on that momentum with just an ongoing focus on sales and service execution. Our customers are valuing the products and services that we provide. We continue to invest in our field teams and as well in tools to help them be more productive. Our continued and increased focus on the DSO segment, the relaunch of our loyalty program, I think it's really just a combination of factors and initiatives that we put in place over the past many months. And I think most importantly, just the great collective work of our team, and this decision we made to continue to invest in our field sales teams at the onset of the pandemic. I think all of these factors combined have really helped contribute to our momentum and growth, which we certainly believe is outperforming the market.

[Michael Cherny:]

And if I can stay with the Dental but maybe turning to margins a bit. You had nice year-over-year expansion although sequential decline. As you think about the contributors to the margin progression, whether it's private label, whether it's the pull-through of the incremental growth, how do you think about what should be the future runway for margins within the Dental segment? And what are some of the other drivers, levers you have that can support margins both here and higher than here over time?

[Mark Walchirk:]

Yes, Don, do you want to start with that?

[Donald Zurbay:]

Yes, sure. So I think one of the things you might want to look at, you'd mentioned the sequential margin progression. I think if you really look at the year-to-date operating margin at 10.3% for Dental, up from 8.7%, I mean, that sort of takes out a lot of the seasonality and other trends you might find quarter-to-quarter. I think that, that becomes maybe a good baseline to look at in terms of where we think margins could go in the future.

[Mark Walchirk:]

Yes. And I think a couple of additional factors that are - will help drive that, certainly, we've spoken about private label. Our private label business, continues to grow at a faster rate than our dental consumables overall. And certainly, private label makes up a large portion of the infection control and prevention products. So we view that as a good tailwind, both in terms of our revenue performance as well as our margin opportunity. Continued focus on our software and technology segment, that is certainly very accretive to our margin, the services that we provide through our tech service organization. All of these elements are accretive to overall Dental margins, and they continue to be an important focus for our Dental team to drive.

[Donald Zurbay:]

I think the only thing I'd add, too, was just the progression of our sales results and a return to growth. We really feel like on both sides of our business on the Dental side, that we have the infrastructure in place and the cost base in place to really grow revenue without meaningfully increasing our fixed costs. And so there's just some natural leveraging that we're just also going to get as we continue to grow our sales in the Dental business.

[Operator:]

Your next question comes from Erin Wright of Crédit Suisse.

[Erin Wright:]

Given the recent change in the large DSO contract, what is your DSO strategy now or how has it changed? And how would you characterize the current pricing environment? Have you won any smaller regional DSO accounts that would potentially offset the Heartland contract? And how should we think about margins as that Heartland contract rolls off here?

[Mark Walchirk:]

Yes. Erin, thanks. This is Mark. Thanks for the question. Certainly, DSOs continue to be a strong area of focus for us, both at the regional and national space in Dental. And I would just add the corporate account space in our companion animal business both represent strong growth opportunities for us. We continue to invest in our field sales and support teams to support the unique needs of our DSO and corporate account customers. And we are winning business in this category, both at the regional and national level. And so we're very focused on continuing to drive our results in this segment, and we're pleased with our performance here, again, across both our Dental and companion animal segments. I would say we're also focused on working with those groups and customers that really see the comprehensive value that Patterson brings to their operations and their supportive practices. So we remain excited about our progress here. As I said, we're winning new business in this segment, and we expect to continue to build out our team and the capabilities to support this segment. Look, as we've indicated, the margin profile is different than the private practice area, for example, but we're also making sure that we're building our cost structure that can support this segment that we're, again, being responsible about those types of customers that we work with to ensure that we can generate a fair return. So we're pleased with our continued progress in this area.

[Erin Wright:]

Okay, great. And then in Animal Health, the consumables number was pretty strong. How should we be thinking about the sustainability of that trend, particularly on the companion animal side? And how we should be thinking about the long-term underlying growth rate of these markets as they normalize on both the companion and livestock side?

[Mark Walchirk:]

Yes. Well, look, I think as we've spoken for several quarters here, just the market dynamics of increased pet adoption, greater pet ownership and pet owner attention to their pets was a result somewhat of a work-from-home environment. Look, it has continued to contribute to increased veterinary clinic traffic and pet wellness visits. Obviously, the vet market has remained very resilient throughout COVID with higher growth rates pre-COVID. And in fact, we're also seeing new clinics opening up to meet some of this increased demand. So we do believe we're outpacing the market in the companion animal space. Our teams are doing a great job executing and delivering great value to our customers. We're winning new customers. We're increasing our penetration our share of wallet, if you will, with our existing accounts. And we're also incenting our teams to drive mix improvements and seeing the benefits in some of our higher-margin equipment and private label categories, again, both of which are growing faster than our overall companion animal top line results. So we do expect, Erin, to your question, that the current growth rates are likely to stabilize. This increase in pet adoption, as we've indicated, we believe will stabilize. But I think notably, we expect the overall companion market will grow at a faster rate post pandemic than prior to the pandemic over the long term. And we feel that our growth and our focus on this area and the positioning that we've built that will benefit from those tailwinds going forward.

[Operator:]

Your next question comes from Kevin Caliendo of UBS.

[Kevin Caliendo:]

First question, I want to talk a little bit about gross margins. I see operating margins for both segments improved. I'd love to get, even just directionally, how the gross margins in both segments are trending. If you - even if we can maybe back out the PPE impact, just sort of the core business gross margin trends would be really helpful, I think.

[Donald Zurbay:]

Yes, Kevin. I mean - this is Don. We have not - as you know, we haven't reported gross margin by business unit. I would say that overall, there's been pretty good stability in both businesses. There's been, over the course of the year, some margin progression in the Dental business. And we expect that we're going to be able to hold margins where we are. Like we mentioned on the prepared remarks, the - really, the gross margin impact this quarter was just simply due to the Animal Health business growing faster than the Dental business and that algebra, if you will. But we're pleased with where we're at with both businesses on the gross margin side. I think, particularly on the Dental side, we have a lot of good levers to continue to improve on where we're at right now.

[Kevin Caliendo:]

That's helpful. And just one quick follow-up. I know we're a month into the - into your fiscal fourth quarter. I understand not guiding and that's been how the companies acted through COVID. But at what point do you think you'll be able to guide? Do you think you'll have comfort enough, come your - for fiscal '22? Do you think you'll be able to provide some kind of guidance, top line or broadly? How are you guys thinking about that?

[Donald Zurbay:]

I think right now, that's the plan. If you look at the way that actually that our - but we'll see what happens when we get to that point. I think if you look at the way that our earnings call cadence goes, we report next in mid to late June. So there's going to be a lot of things that happen between now and then that I think will dictate what we ultimately decide. And obviously, we love to - we want to have that visibility but we'll know a lot more in late June than we do right now in early March.

[Operator:]

Your next question comes from Jeff Johnson of Baird.

[Jeffrey Johnson:]

Don, I want to clarify one thing. Did I hear you say that you feel comfortable with year-over-year margin improvement in the fourth quarter? That would imply a little over 100 basis point sequential step-up. So if I heard you correctly on that, what's the driver on that? The seasonal pattern isn't totally clear. Revenue tends to fall Q2 versus - or Q4 versus Q3. So would love to hear kind of what drives that sequential improvement, if I heard you correctly on that fourth quarter guide.

[Donald Zurbay:]

No. We weren't - sorry, Jeff. I apologize if that's the way it came across. Definitely not providing any guidance on Q4 at this point. I think my comments on margin have been more over the longer term here, what we think we can do and what our trends are.

[Jeffrey Johnson:]

Okay. So you did - maybe I'll go back to the transcript. You didn't say anything about feeling comfortable with the year-over-year improvement trend continuing in the fourth quarter?

[Donald Zurbay:]

Not - I mean, again, not - I'm not really referring to that on a quarterly basis. It's more of a longer term. Yes.

[Jeffrey Johnson:]

Yes. No, just wanted to make sure. And then, Mark, as I think about last quarter to this quarter, last quarter, it was a big kind of 6 - almost more than 600 basis point growth in the North American consumables if we excluded the infection control products. Ex infection control, to your and Don's point today, was closer to 2.5 to 3 points. Is there anything to read into that kind of bigger ex growth in the second - fiscal second quarter than what we saw here in the third quarter?

[Mark Walchirk:]

Yes. Actually, I think what I would take away from that is, look, let's not forget, the dental market has stabilized at, we'll call it, 80% to 85% of pre-COVID patient demand. And in light of that, we grew our non-infection control and prevention products and consumables 3%. So I think we're really proud of the results that our team has delivered in light of the current market environment. If you go back a little bit to Q2, certainly, I think we're still in the ramp-up phase in terms of the dental market rebound. But certainly in our fiscal Q3, I think we saw that really stabilize again at this 80% to 85% level. So we're really proud of our performance across our consumables category in Q3, again, given all of the various factors going on in the environment. And certainly, as we think going forward, we do expect, as the vaccine administration continues to roll out and accelerate, that some of that pent-up demand of folks who haven't gone back to the - haven't gone to the dentist for quite some time will go back. It's very safe to go to the dentist. And clearly, the connection between dentistry and oral health and overall health has become more and more clear. So we really view that as a tailwind. And again, back to your original question, we're really pleased in light of the patient demand levels, in light of the current environment for the consumables results, both in infection control and non-infection control that the Dental team delivered this quarter.

[Operator:]

Your next question comes from Glen Santangelo of Guggenheim Securities.

[Glen Santangelo:]

Mark, I just want to unpack this consumable number a little bit. I appreciate the answer to the last question. But what I'm trying to do is we're all trying to reconcile your results to where you think the market may be growing at this time. I mean, essentially, I think maybe we all focus a little bit too much on these ADA surveys that are quoting the numbers that you were just sort of talking about. But just sort of looking through all the dental players that have reported thus far, it's hard. We're getting a very inconsistent read on maybe where the market is at this point. So could you maybe give us your best guess on where you think North American volumes are trending at this point in time? And is it fair to say that your fiscal 3Q volumes across the industry were better than 2Q?

[Mark Walchirk:]

Well, I think, Glen, first of all, as we - if you build on a number of quarters here, we do believe that we continue to build momentum. We believe we continue to outperform the market in our Dental business and our consumables and equipment categories. And we've talked about the number of factors that we believe are contributing to that in terms of the investments we've made and the strong execution. I think in terms of the market, I think there's a lot of different factors in play. I do think the patient demand data that is shared by the ADA, I think that - those numbers have stabilized again at that 80% to 85%. Again, I would say that's an average. I think you have some segments of the market that are - the productivity is beyond that and some parts of the market where it's obviously below that. We also do believe that there is some pent-up demand out in the marketplace. We also believe that some of the acuity levels that we're seeing and the procedures in the dentist's office are higher than maybe normal, again, just given the fact that folks maybe are going back to the dentist for the first time in a while. So I think there's a number of factors in play that and also in light of just the current environment with COVID that would preclude us, I think, from having a real strong pinpoint on the market growth rates going forward. I think we'll obviously continue to evaluate that. In addition, we did see some further stability in the supply chain and pricing of infection control. So again, I think there's a variety of factors taking place. I think difficult for us to predict clearly what the market growth rate will be going forward. But certainly, we believe, a, we continue to outperform the market. Our teams are executing well. We believe that there's opportunity for upside here as the patient demand levels increase, and we feel we're positioned quite well to take advantage of that going forward.

[Glen Santangelo:]

Okay. And maybe if I can just ask Don one quick follow-up. Don, I appreciate you don't want to give guidance going forward. But as we look out to fiscal '22, are there any sort of larger headwinds or tailwinds that are worth sort of calling out either on the top line or margin that we should be thinking about as we work on our models?

[Donald Zurbay:]

I think - there's nothing that we would really highlight for this call. I think that's a topic we can get into more in the June call when we give guidance, if we give guidance. So - but I don't have anything that I would draw your attention to right now in terms of headwinds or tailwinds that I think you need to incorporate in your model.

[Operator:]

Your next question comes from Elizabeth Anderson of Evercore ISI.

[Elizabeth Anderson:]

So just maybe to piggyback again on Glen's question. Are you like - just in terms of as we think of, broadly speaking, the margin ramp, obviously, you said the higher private label penetration of some of the infection control products? Should we be thinking about any other like cost re-ramps in terms of, I don't know, sales compensation or things like that? Or are there - or obviously, that also has an underlying offset with the cost cutting work that you guys have done throughout the last two years on top of that. So I just want to make sure that we're not adjusting for anything sort of out of sorts there.

[Mark Walchirk:]

No, Elizabeth. Maybe a couple of comments and Don can certainly add. I think there - the way I would think about it is remains strong opportunities for us to expand our margins over time for a number of the things that we've discussed. You mentioned private label. That's certainly a good example. The continued growth of our software and e-services business, which is very accretive to our margins. Other services that we provide, again, are accretive to our margins. I think we're also - certainly, there's quite a bit of learnings through the COVID situation that we've been in and our ability to run and operate the business and just an overall lower cost structure environment. Don indicated some of the additional leverage that we get just from continuing to drive the top line. And certainly also, one example we haven't spoken much of today is just our continued focus on working with those manufacturers in our Animal Health segment that really see the value that Patterson provides across the supply chain and our ability to work with our preferred manufacturing partners that are accretive to our overall margin category as well. So I think those are some of the key factors and some of the examples that we think give us some optimism, again, in our ability to continue to expand our margins over time.

[Elizabeth Anderson:]

That makes sense, and that's very helpful. And then also as you sort of move out past the - whole past the pandemic era, how do you think about capital deployment in terms of potentially tuck-in acquisitions or other types of investments? And have you sort of view broadly speaking, also with M&A, the idea of going further into certain product categories where you may end up competing with some of your manufacturing partners versus not?

[Mark Walchirk:]

Yes. Great question. And certainly, I think our financial performance has created improved flexibility for us from a balance sheet standpoint and really to be in a position to consider strategic investments that will help us accelerate our growth and value creation. And this is exciting for us in terms of how we can help be additive to our results. And I think we're focusing on a number of opportunities really across both of our business segments. And without specific examples, I think, areas that are going to just continue to strengthen our value proposition and just enhance and expand on the services that we currently provide, opportunities for us to build scale in our core business through potential tuck-in acquisitions, ways that we can expand our opportunity in margin-accretive product areas. And so I would say that we're - that we want to focus on those areas where we believe we have a strong right to win. And I think we'll be very strategic about where we invest for growth and value creation. And I think it will be within a purview of where we're confident in our ability to successfully execute those types of deals.

[Operator:]

Your next question comes from Jonathan Block of Stifel.

[Jonathan Block:]

Two pretty quick ones for me. But Don, I'm just curious, just think sort of a high-level view of things. Your thoughts on OpEx that maybe you initially perceived as temporary costs that have really more, call it, more into permanent savings longer term, any opportunities around the sales force, if you want to comment there. And then I just got a quick follow-up.

[Donald Zurbay:]

Yes. I think definitely, Jon, there is definite opportunity. I think that we have seen - we've learned a lot of things through the pandemic. I think that again, we talk about this a lot but I really think that we've set a new baseline in a way for our cost structure. We think we can grow our business from here and really just leverage what we have. There's certainly going to be some cost to come back but there's a lot of things. And I would highlight things like T&E, facilities costs, other types of activities that we've generally been engaged in that we don't think we need to have nearly at the level we've been in the past. And so I think there's just a lot of opportunity there. There's a new baseline. And as we - again, as we continue to ramp our revenue, this is a great opportunity and - a great opportunity for us to leverage our P&L and our op profit margin.

[Jonathan Block:]

Got it. Perfect. Helpful. And then, Mark, just curious, any dental cadence to call out between winter or the spring or summer? And I want to be clear, I'm not asking for long-term details, but just wondering if you want to opine about the bolus of patients on the sidelines. And your thoughts about them coming back in, call it, a pretty pronounced fashion in a short period of time post vaccination, maybe to tie it over to the ADA. The 80% to 85% metrics that we all sort of lean on in a way, arguably, we almost overshoot that in a short period of time in spring or summer if we continue to have good news on the vaccination front.

[Mark Walchirk:]

Yes, Jon, thanks. Obviously, difficult to predict or difficult to predict well, right, just given the ongoing uncertainty. But look, we're very encouraged and hopeful by the - what seems to be accelerating administration of the vaccine. I think that's good news for everybody and opening up our economy and I think will continue to give people comfort. And for those folks who have decided - that typically go to the dentist but have decided, for whatever reason, not to go to the dentist, say, over the past year, we do believe, as I said, there's pent-up demand there. I think the timing of that is obviously difficult to predict. I think we would expect it to be more gradual as we also see the administration of the vaccine being gradual over the coming months, and obviously, new information that we shared here yesterday in terms of the estimated timing. So we see it as a gradual return to the dental office for those patients who have not perhaps gone over the past 12 months. And we think that, that could all be positive in terms of tailwinds for the dental industry and certainly for Patterson in the months ahead. But I would say more specifically, we do see it as a gradual ramp.

[Operator:]

Your next question comes from Kevin Kedra of G. Research.

[Kevin Kedra:]

You mentioned that your equipment business, a little bit better than you guys were expecting for the quarter. We had heard from one of your competitors about potentially some dentists looking to push purchases into calendar 2021. So wondering if you can just talk about kind of the monthly cadence and, particularly in January and February, if you saw any shift in sort of buying consistent with a push to buy equipment in the 2021 year.

[Mark Walchirk:]

Yes, Kevin, thanks. As I mentioned earlier, our numbers in the quarter certainly did exceed our internal expectations. And we are also encouraged by the funnel of equipment opportunities our field teams are building and executing on in the coming months. So we're also continuing to see our dental customers, even in light of the current environment, invest in their practices. And we believe that Patterson, frankly, has a unique advantage to help our customers through the entire product life cycle, especially when new products and innovation is launched in the market. I think in terms of the potential dynamic with regard to the calendar year, not something really, I would comment on at this point. Hard to tell. Well, I think we'll learn more about that in the months ahead. But in general, we're very pleased with the continued progress our team is making in this area. We believe this is a really important part of our value proposition and our competitive advantage. And we believe that really, this complete equipment and technology life cycle that Patterson supports our customers with continues to be a strong differentiator for us. So as our dental customers and certainly, as our companion animal customers, for that matter, continue to invest in their practices, continue to purchase more equipment and technology, we think we're well positioned to take advantage of that, and we're excited that our customers see the value that we can bring in that area.

[Kevin Kedra:]

And I had a bit of a - more of a bigger picture question. A lot has made about the 80% to 85% patient traffic volumes and what happens when that comes back. If we go pre pandemic, the dental market has been growing - trailing GDP for several years, it seems the growth rate and yet here we are, volumes are 80%, 85% for patient traffic. And yet it seems like the growth rate, excluding PPEs, and that seem to be too different than where we were pre pandemic. So coming out of COVID, do you anticipate that we could see a return of the dental market growing at that sort of GDP rate or possibly above that? Has there been a fundamental shift that finally may break us out of that trend we had for several years and which Dental seem to be trailing the growth rates of the overall economy?

[Mark Walchirk:]

Yes, it's a good question and I think a real important question as we continue to emerge from the pandemic. I think obviously difficult to predict. But certainly, I think there are some indicators that would suggest the opportunity for improved growth rates in the Dental segment are there. I think one is just the ongoing and continued use of infection control and prevention products. We do think that, that will continue to be the new standard of care that will drive growth. And I would say we also believe that this idea that oral health being connected to overall health is really an idea who's become much more apparent during the past 12 months, and I think a lot of people are finding that connection. I think the health care industry is finding that connection as well. I think we believe that can also be a strong driver of demand over time. So I think long term, we're optimistic about the growth potential in the dental markets. We're very pleased with our positioning and the momentum we've gained there. And we think we can continue to take advantage of that. And I think, Kevin, time will tell in terms of exactly what that growth rate looks like in a post-COVID environment, but we think there are some indicators that would suggest it will be positive.

[Operator:]

Your next question comes from John Kreger of William Blair.

[John Kreger:]

Mark, how do you feel about your - the performance of your specialty portfolio within Dental versus more kind of general and restorative?

[Mark Walchirk:]

Well, I wouldn't say that we specifically call out a specialty category in terms of our consumables, and we don't break that out necessarily in that manner. So we're certainly very pleased with our consumables results overall. And I think we've shared the breakdown between kind of the infection control and non-infection control, which is where some of those products that you mentioned would fall in. And I would say we're - we continue to believe we're outperforming the market in those areas in our consumables area and continue to believe the great work of our team and the investments we've made to support our team are driving that. So specifically, as I said, we don't really call out the specialty category. But overall, we're very pleased with our consumables results and our continued momentum there.

[John Kreger:]

I guess I was getting at as you have a little bit more ability to deploy capital, is it reasonable to think you might have tried to push a little bit more aggressively into some of the specialty categories? Are you sort of - the portfolio as it stands now?

[Mark Walchirk:]

Okay. Well, I apologize if I misunderstood your question. I think that certainly would be an area that would - we would be looking at as a potential opportunity as we think about adjacent markets or product categories or segments that perhaps our presence is - we can have a larger presence in than we do today. That would be an example of that area. But I think to the earlier question, I think we want to make sure that we stay within the zone where we are confident in our ability to execute well and we have the right to win. And so we're going to be very strategic about where we invest. But certainly, looking at accretive product areas or product categories where we can improve our presence and our market position, that would be one of the areas that we'd be looking at.

[John Kreger:]

Great. And then as a follow-up, it doesn't get a lot of attention, but can you just talk about how your Animal Health business is performing relative to what you're seeing in the U.S.? And is - would you be interested in maybe pushing beyond the U.K. in Animal Health?

[Mark Walchirk:]

Well, thanks. We're certainly pleased with our overall Animal Health business. And in particular, our companion animal, obviously, had a very strong quarter, both in the U.S. and globally. And I think we viewed our platform in the U.K. as being just that, potentially a platform to where we could grow over time. And again, as we think about where we may place some bets and invest, given our improved balance sheet flexibility, that certainly is on our list as well. Although I would say that we think there's a lot of opportunities here in North America to continue to build out our portfolio, both in the Dental and Animal Health segments. So if there's not any further follow-up, John, I think that concludes the time that we have today. And I just want to thank all of you again for your time and your continued interest in Patterson. We look forward to updating you again on our fourth quarter and fiscal 2021 year-end earnings call. And I hope everyone is well and healthy and safe, and we'll speak with you soon. Thank you.

[Operator:]

And this concludes today's conference call. Thank you for participating. You may now disconnect.