MWI Veterinary Supply's CEO Discusses F3Q 2013 Results - Earnings Call Transcript

Jul.29.13 | About: MWI Veterinary (MWIV)

MWI Veterinary Supply, Inc. (NASDAQ:MWIV)

F3Q 2013 Earnings Call

July 29, 2013 10:00 am ET

Executives

Jim Cleary – President & Chief Executive Officer

Mary Pat Thompson – Chief Financial Officer

Analysts

John Kreger – William Blair

Kevin Ellich – Piper Jaffray

Jamie Stockton – Wells Fargo

Ross Taylor – CL King & Associates

Erin Wilson – Bank of America Merrill Lynch

Charlie Jones – Barrington

Operator

Good morning and welcome to the MWI Veterinary Supply F3Q 2013 Earnings Conference Call. Today’s call is being recorded. At this time I would like to turn the conference call over to Mary Pat Thompson, Chief Financial Officer, for introductory remarks. Ms. Thompson, please go ahead.

Mary Pat Thompson

Good morning and welcome to MWI Veterinary Supply’s F3Q 2013 Earnings Conference Call. This is Mary Pat Thompson, and joining me today is Jim Cleary, MWI’s President and CEO.

Certain statements contained in this conference call that are not descriptions of historical facts are forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to those discussed in filings made by MWI with the Securities and Exchange Commission. Many of the factors that will determine the company’s future results are beyond the ability of management to control or predict. Listeners should not place undue reliance on forward-looking statements which reflect management’s views only as of the date hereof. MWI undertakes no obligation to review or update any forward-looking statements or to make any other forward-looking statements whether as a result of new information, future events or otherwise.

Another note that I’d like to point out during the call is related to financial comparisons that are made. All financial comparisons are for F3Q compared to the same period in the prior fiscal year unless otherwise noted. Now I’d like to turn the call over to Jim to begin our remarks.

Jim Cleary

Good morning and welcome to MWI Veterinary Supply’s F3Q 2013 Earnings Conference Call. First I will walk you through an overview of the results that we presented in our earnings announcement released earlier today and provide a business update. Mary Pat will provide additional detail and explanation of the financial results, then I will briefly discuss the company’s business outlook for the fiscal year ending September 30, 2013. Lastly we will open the call to questions.

Highlights for the quarter included first, total revenues grew over 9% to $606.4 million with growth in the United States over 11%; second, gross profit as a percentage of total revenues improved to 12.8% from 12.5%; third, operating income increased 14% to $26.5 million and improved to 4.4% as a percentage of total revenues compared to 4.2%; fourth, our net income increased 16% to $16.8 million or diluted earnings per share of $1.32 compared to $1.15; fifth, we generated cash flow from operations for the nine months ended June 30, 2013, of $60.5 million compared to $5.4 million; sixth, our internet sales to independent veterinary practices and producers in the United States grew by 26%; seventh, revenues from our pharmacy programs in the United States increased 11.6% to $51.3 million; eighth, the rollout of our Diagnostics UNLIMITED Program continued to perform very well as revenues to all customers reached approximately $43 million for the quarter; and finally, in the first ten months of this fiscal year we have placed twice the number of Micro Weigh Systems compared to Micro’s previous record for an entire year.

Our results for the quarter continue to be strong. Our revenue growth in the United States was double digits. Both our gross margin and cash flow exceeded our expectations. We experienced very positive results from our value-added services and our Diagnostics rollout continued to generate great results in customer service.

Our revenue growth in the United States continued to be very strong during the June quarter. Our implied growth for the second half of F2013 from our guidance in May was a range from 7.0% to 10.7%. While our overall growth was in the middle of this range our results in the United States exceeded this.

Our organic revenues in the United Kingdom were flat as we made a decision to focus on cash flow and return on invested capital. We had a strong cash flow quarter in the UK, generating about $14 million in cash flow from operations and significantly improving return on invested capital.

In the United States we continued to benefit from very strong growth in our diagnostic lines and the additional customers and business gained through the acquisition of PCI Animal Health on December 31, 2012.

Drought conditions in the United States continued to have an impact on the production animal market. Our growth in this market was in the low- to mid-single digits. We are seeing the benefits from our technology and value-added services such as our pharmacy fulfillment programs and Micros technologies that I mentioned earlier.

We saw strong double-digit growth in our companion animal revenues again this quarter. This growth was helped by the Diagnostics rollout that I mentioned earlier as well as the acquisition of PCI Animal Health at the end of December, 2012.

Now I will turn the call over to Mary Pat who will provide additional detail of our financial results.

Mary Pat Thompson

Thank you, Jim. Revenue growth was 9% to $606.4 million for the quarter. Revenue growth in the United States was over 11%. Organic revenues in the United Kingdom were flat but decreased by 3% as a result of foreign currency translations.

Our revenue growth in the United States benefited from new diagnostic lines which comprised 2.3% of the 11.3% growth and reached approximately $43 million of revenues to all customers.

Our growth in flea, tick, and heartworm products comprised 1.2%. The additional new customers from the acquisition of PCI Animal Health comprised 0.4% and the growth from the overlap customers was 1.1%.

Revenues from our private label line Vet One increased 29% to $18.5 million. At the end of June, we had 331 field sales reps and 176 telesales reps. This is an increase of 15 field sales reps and 8 telesales reps from September. Our revenues to existing customers represented 68% of the growth of our domestic revenues.

Commissions increased 5% to $4.8 million compared to $4.6 million. This increase was due to an increase in gross billings from agency contracts. Gross profit increased by 12% to $77.5 million. Gross margin was 12.8% compared to 12.5%. Gross margin percentage increased due to an improvement in vendor rebates as a percentage of total revenues. Vendor rebates increased by $3 million due to the timing of manufacturer rebate programs and growth in revenues.

Operating income increased 14% to $26.5 million. SG&A expenses increased 10% to $48.4 million. SG&A expenses increased primarily due to an increase in compensation and benefit costs. SG&A expenses as a percentage of total revenues were 8.0% compared to 7.9%. Depreciation and amortization increased 12% to $2.5 million. This increase is a result of assets acquired from PCI Animal Health. As a reminder, we also opened our new warehouse in Shakopee, Minnesota, in December with 125,000 square feet, consolidating our operations in Clear Lake, Wisconsin, and Sioux Falls, South Dakota.

Our effective tax rate was 36.9% primarily due to a change in our estimates related to state taxes. We estimate that our expected tax rate for the fiscal year will be approximately 38%.

Net income increased 16% to $16.8 million. Diluted earnings per share were $1.32 compared to $1.15, an increase of 15%. As of June 30, 2013, we have $11.8 million outstanding on our credit facilities, a decrease of $36.3 million from September 30, which also includes the impact of $17 million related to the acquisition of substantially all of the assets of PCI Animal Health on December 31, 2012.

We generated cash from operations during the June quarter of $55 million. Cash flow from operations benefited during the quarter ended June 30, 2013, due to the timing of payments for inventory that was purchased ahead of price increases during the previous quarter ended March 31, 2013.

Now I will turn it back over to Jim.

Jim Cleary

Thank you, Mary Pat. Now I would like to turn our attention to MWI’s outlook for the fiscal year ending September 30, 2013. As we showed in our press release this morning we estimate revenues will be from $2.330 billion to $2.360 billion which represents growth of 12.3% to 13.7% compared to revenues in F2012. We estimate the diluted earnings per share will be from $4.89 to $4.94 which represents growth of 15.6% to 16.8% compared to diluted earnings per share in F2012.

Our previous guidance for the fiscal year ending September 30, 2013, was revenues from $2.320 billion to $2.360 billion and diluted earnings per share of $4.79 to $4.89. With this update and guidance, our implied growth in revenues for the September quarter of F2013 is 6.6% to 12.0%; and our implied growth in diluted earnings per share is 7.1% to 12.1%.

Key initiatives that we will continue to pursue during F2013 include first, we will continue to invest in technology and distribution-centered infrastructure as we review the needs of our distribution centers – we will continue the implementation of our warehouse management system. Second, we will continue to expand our sales force, which will help penetrate into regions and customer groups that have the most opportunity for growth.

Third, we will continue to stay committed to improving our low operating expense structure and making smart decisions with both our operating expenses and capital investments. Fourth, we will continue our focus on value-added services including our ecommerce platform, Micro’s technology systems, our pharmacy fulfillment programs for both production and companion animal products and other value-added services.

Fifth, we will continue to work with all of our diagnostic vendor partners to effectively advocate for their product lines to our customers. And finally, as our industry continues to consolidate we will evaluate the potential acquisitions that are a strategic fit for MWI and add to our shareholder value.

Now I’d like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions.) And our first question is from John Kreger of William Blair. Your line is open.

John Kreger – William Blair

Hi, thanks very much. Jim, if you’re willing can you give us any early thoughts on F2014? Just based upon where the production market is going right now would you expect sort of stable top line growth as you move into next fiscal year or perhaps some improvement?

Jim Cleary

Yeah, so looking at top line as it relates to F2014, I mean the companion animal market has performed well this year. We would expect that to continue in F2014, and with regard to the production animal market we do anticipate improvement in that market in F2014. We are kind of seeing indications that certain parts of that market could start to get better as early as September or October, although it could be also in calendar year 2014. But it does look like that market will perform better in 2014 than it has in 2013.

John Kreger – William Blair

Great, thank you. And then maybe a quick follow-up on your UK business – that business had been growing at a very quick rate, faster than we would have expected and flat this quarter. Should we expect any improvement there or do you think your Centaur business now will sort of near the broader UK market going forward?

Jim Cleary

Yeah, I would expect the next three quarters to look a little bit more like the most recent one. And since we purchased Centaur our growth rate had averaged 14% revenue growth and 19% over the last four quarters, and 17% over the last six quarters. So it has been growing at a rapid pace. We wanted to focus more on return on invested capital and cash flow and so we had very strong cash flow there this quarter – we generated $14 million in cash. That frees up cash to make future additional investments there. But as I look over the next few quarters I’d expect that to look more like the most recent one.

John Kreger – William Blair

Thank you. And then one last one, Jim: I think in the past you guys have talked about the fact that new product innovation really drives a lot of the growth, especially in companion. As you look out there are there any kind of new Trifexis type of opportunities that could propel growth in the next year or two that you can see?

Jim Cleary

Yeah, you know, we’re hearing that there could be additional innovations over the next year or so in the flea, tick, and heartworm market, and that’s been a market that’s grown nicely for us over the past few years. And so there will be some innovation there I think. I don’t know whether that’ll be incremental or products that are very new technologies, I just don’t know.

And then we’re also hearing about some potential innovation in some livestock markets, in particularly the swine market that’ll be new products coming online over the next couple of years. And so I think the innovation that we’ll see will be fairly typical. I don’t really see anything that would be a blockbuster which would create a major change, John.

John Kreger – William Blair

Great, thank you very much.

Jim Cleary

Thanks.

Operator

Thank you. Our next question in queue is from Kevin Ellich of Piper Jaffray. Your line is open.

Kevin Ellich – Piper Jaffray

Thanks for taking the questions. I guess just going back to your comment, Jim, about the production animal market, you said that you think parts could get better by September or October. Which parts are we talking about?

Jim Cleary

Yeah, and so in certain parts of the country there’s been a lot of moisture and so there’s a lot of grass, and so there’s cattle that are on grass and they’ll probably remain on grass and then come into feedlots maybe in September and October. And so where cattle came into feedlots earlier last year they’ll come in later this year because there’s more pasture, so we could start to see an improvement in that timeframe in the cattle feeding sector of the market.

Kevin Ellich – Piper Jaffray

Got it. And then I guess just relative to your expectations heading into this year, what are herd sizes looking like? Are they in line with the expectations or do you have any color on that front?

Jim Cleary

Yeah, the herd sizes are down from last year and they’re in line with our expectations we had when we did our guidance for F2013.

Kevin Ellich – Piper Jaffray

And when you say down, are we talking down 5% or…

Jim Cleary

You know, I don’t have that in front of me. I think it’s in the 3% to 5% range but I’m sorry, I don’t have that in front of me.

Kevin Ellich – Piper Jaffray

Got it, okay. And then switching over to the organic growth in the UK being flat, and I understand you guys focused on cash flow which was pretty strong this quarter. What do you think that market is growing over in the UK?

Jim Cleary

Yeah, I think it’s growing low- to mid-single digits.

Kevin Ellich – Piper Jaffray

Okay, that’s helpful. And then switching over to the diagnostics, obviously the revenues were pretty strong. How much were the diagnostic revenues last quarter? I was just wondering what type of improvement we’ve seen.

Jim Cleary

I don’t have that in front of me for last quarter, but we’ve seen continued strong growth with our existing supplier who we’ve worked with a long time and we continue to have a very strong relationship there; and with our new suppliers we’ve seen the growth rate picking up. Or I shouldn’t say that, we’ve seen the volumes picking up. And so overall, Kevin, it’s going. We had very high goals that we set for ourselves and our performance in this has been really strong, and our sales team has done a really strong job; and all of our suppliers, in particular our largest suppliers in that market have done a very good job of training our team and working with our team.

Kevin Ellich – Piper Jaffray

Got it. And then actually one quick one for Mary Pat, just wondering what sort of impact you guys saw from the return of Sentinel back to the market this quarter? Did it impact sales of Trifexis in the overall category?

Mary Pat Thompson

Well, Trifexis continues to grow very nicely. As I mentioned earlier, of the 11.3% growth in the US flea and tick was about 1.2% and that was Trifexis.

Kevin Ellich – Piper Jaffray

Okay, so very little impact then is what you’re saying.

Mary Pat Thompson

It slowed down from the previous quarter in March but it still is growing very nicely.

Kevin Ellich – Piper Jaffray

Got it. Okay, thank you.

Operator

Thank you. Our next question in queue is from Jamie Stockton of Wells Fargo.

Jamie Stockton – Wells Fargo

Hey, good morning. Thanks for taking my questions. I guess maybe first it sounds like you have a lot of traction with Micro right now. I guess we’re almost two years into that acquisition. Could you talk about what inning are we in as far as your attempt to try to leverage their technology and incremental traction from a distribution standpoint in your existing customer footprint, maybe especially on the dairy side?

Jim Cleary

Yeah, Mary Pat and I and most of us on our team have been at our company and our jobs a long time, and so we have a very long-term perspective, and so keep that in mind as I answer this question. As I look at Micro I say we’re maybe in the second inning, and please take from that that I’m very optimistic about their technologies and how they can be utilized in the production animal market; and how the market will increasingly move to technologies like the ones that Micro has over time.

And so like I said on the call, their principal system, while they have many systems their principal system at Micro Weigh System, this year, during the first ten months of the year we placed approximately twice the number that Micro had placed in its record year in the past. We’re starting to see some traction in the dairy market which has some very good potential and Micro is continuing to work on innovations. And so I think we are very, very early in the ballgame there.

Jamie Stockton – Wells Fargo

Is it dairy that is driving the incremental traction there primarily?

Jim Cleary

It’s both beef and dairy. And Micro is much larger in beef and we’re continuing to see growth in beef, but we’re also starting to see some very good traction in dairy.

Jamie Stockton – Wells Fargo

Okay. And then on the UK businesses, this is just housekeeping but the sales force there, is it still about 22 reps?

Jim Cleary

It’s a little bit less than that, actually, and the number is stable with what it has been. Actually we probably increased by one or two reps over the last year. We’re increasing our geographic coverage there. And so I’m sorry I don’t have the number for you – we can call you up with that. But the number of reps has increased slightly.

Jamie Stockton – Wells Fargo

Great. And then Mary Pat, I may have missed it but what was the CAPEX during the quarter?

Mary Pat Thompson

You know, the CAPEX for the year we’re estimating at about $10.5 million to $11.0 million total; and for the June quarter, let me grab that just a moment… It’s about $2.5 million. As we mentioned we are just in the heat of installing the warehouse management system in our Kansas City super center right now and we’re also working pretty card on upgrading our [IDS], which is our base operating system. So we’re putting a lot of money right now into technology and into infrastructure, and if you look at us on a go forward basis probably $10 million annually is going to be a more normal run rate for us.

Micro’s technology, they continue to keep ownership of the Micro Weigh Systems. Each of those machines cost about $100,000 to build so there’s certainly a part of that. And then the Manhattan warehouse management system that MWI is putting into all our facilities is also going to be a part of that capital expenditures.

Jamie Stockton – Wells Fargo

Alright. The Manhattan system, are you still at four or five DCs?

Mary Pat Thompson

Yes, we have it in Nampa, Idaho; Visalia, California; Shakopee, Minnesota where we just opened; and then like I said we’re just in the midst of launching it into our Kansas City warehouse as well. And that will be a huge benefit for us because Kansas City is the main warehouse and then we distribute out to our network from there. So that will be a big improvement for efficiency, and that’s one of the drivers of why on an annual basis I’m very confident that we can achieve the 10 basis points of SG&A improvement. That will certainly help us with quality and with operating expenses.

Jamie Stockton – Wells Fargo

Thank you.

Jim Cleary

And I have a follow-up to a question that was asked earlier about the sequential growth in diagnostics revenues from the March quarter to the June quarter. In the June quarter as we said sales to all customers were $43 million of diagnostics; in the prior quarter they had been $38 million. And so in the March quarter they were $38 million and $43 million in the June quarter, so it is ramping up nicely.

Operator

Thank you. And our next question in queue is from Ross Taylor of CL King. Your line is open.

Ross Taylor – CL King & Associates

I just had a couple of fairly simple questions. In terms of Micro Beef and the Micro Weigh Systems, can you comment how much the high number of placements of the Micro Weigh Systems over the last ten months might be impacting the size of the Micro Beef customer base?

Jim Cleary

Yeah, it’s really having a very positive impact in the size of the customer base, not only in terms of systems but also in terms of animal health sales. And so we are seeing systems placements in both the feedlots and dairy and we’re seeing a lot of new customers also for animal health products sales.

We probably need to decide what metrics on that we want to start to release and then we’ll start to put something out on that. And so I’m not going to put a specific number of customers out there now but it’s been really good performance.

Ross Taylor – CL King & Associates

Okay, that helps. And given the high number of placements, since you are I think depreciating those systems is that impacting your gross margin by a measurable amount at all, or has it over the past ten or twelve months?

Mary Pat Thompson

Yeah, most of the depreciation for MWI we had down in SG&A expenses, and remember we talked about how much it had increased during the quarter. Part of that was PCI amortization of intangibles, part of it was the depreciation of the Shakopee facility because we usually put about $1.5 million when we open those facilities up. And you’re obviously right – if you have a $100,000 investment and you amortize that over say five years that will definitely also have an impact on depreciation.

Ross Taylor – CL King & Associates

Okay, alright. And my final question, just looking back over the last one or two quarters has there been much difference in the performance of kind of the dairy segments versus beef? Not necessarily with your business but more from just a macro perspective?

Jim Cleary

Yeah, from a macro perspective, so and I’ll talk to the recent past – this year. In the beef market ranchers have been performing very well and profits have been good there, and will be very good there as there’s a lot of grass in certain parts of the country so they can keep their cattle longer to higher rates. Feedlots have been losing money in the recent past in the cattle business so it has been tough on cattle feeders. And in the dairy market I think it’s been quite good east of the Mississippi where a lot of these dairymen grow their own feed. And so it’s been very good there and it’s been tougher on dairies in the west, although the whole dairy market looks like it has been getting better. So that’s just a little macro overview.

Ross Taylor – CL King & Associates

Okay, that helps.

Mary Pat Thompson

And I might add onto that that from a bad credit risk perspective the dairies are actually in pretty darn good shape. The bad debt reserve of course we look at that very closely every month, and we feel like we’re very adequately reserved for that. And the profitability of the dairies is being reflected in better cash flow, paying their bills on time.

Ross Taylor – CL King & Associates

Okay, that’s helpful. Thanks very much.

Operator

Thank you. Our next question in queue is from Erin Wilson of Bank of America Merrill Lynch. Your line is open.

Erin Wilson – Bank of America Merrill Lynch

Hey, thanks for taking my questions. On the companion animal side how much do you think weather contributed in the quarter?

Jim Cleary

You know, it probably did though it’s hard to estimate it based on our results. We continued to have strong results in that market, and we also continued to see an overall positive impact on our top line from flea, tick, heartworm. And so I’m sure it did have some negative impact on the quarter but not significant enough to impact our overall results or even our buy-sell flea, tick, heartworm results.

Erin Wilson – Bank of America Merrill Lynch

Okay. And then on the acquisition front, is there any change in terms of your acquisition outlook, either for yourself or how you see the industry shaping up? And would future acquisitions be focused on companion animal or production animal?

Jim Cleary

So for us we’ll focus future acquisitions on both the companion animal and production animal markets. We think both markets are going to be good markets long term. We think that one of our competitive advantages is that we’re strong in both and so we’ll be looking at acquisitions in both the companion animal and the production animal market. I do think that our industry is going to continue to consolidate over the next year and so there will be opportunities. And as we have been in the past we’ll be disciplined in looking for opportunities that can really help us strategically and add to our shareholder value.

Erin Wilson – Bank of America Merrill Lynch

Okay. And on that note, I guess in light of some of the recent M&A in the UK, how much do antitrust issues come into play with potential expansion in the UK and thoughts on I guess expanding into other geographies outside of the US and UK?

Jim Cleary

Yeah, and so that’s always something that needs to be considered in markets where we have a presence, and something that really doesn’t come into play in markets where we don’t currently have a presence.

Erin Wilson – Bank of America Merrill Lynch

And do you see potential opportunities expanding into other geographies?

Jim Cleary

Yeah, we are evaluating countries where we presently operate and we’re also evaluating international expansion. I think there’s going to be opportunities in both. As I said before, I think our industry is going to continue to consolidate in the US over the next year or so and so that will take some of our resources over the next year. But I also think that international is going to be a very good long-term opportunity for us.

Erin Wilson – Bank of America Merrill Lynch

And I guess more specifically on that, I mean there’s seemingly meaningful opportunities in emerging and developed markets on the production animal side. Do you view at least implementing some of the newer technology from Micro or just your broader production animal business plans for expansion overseas?

Jim Cleary

Yeah, that is going to be over time I think a very good opportunity for us. And Micro has so many good opportunities now it’s picking and choosing the right ones but I think utilization of its technologies internationally has very good longer-term potential.

Erin Wilson – Bank of America Merrill Lynch

Okay, thanks so much.

Jim Cleary

Thanks, Erin.

Operator

Thank you. (Operator instructions.) Our next question in queue is from Charlie Jones of Barrington. Your line is now open.

Charlie Jones – Barrington

I have a follow-up on the acquisition questions – thanks for all the detail there, though. It sounds like there could be some larger acquisitions coming over the next year and I was wondering if you could maybe help us understand or investors understand whether it’s maybe more likely to come from companion or production, the larger size?

Jim Cleary

Yeah, so we are always looking at both opportunities and depending upon what opportunities are available it could come from both companion and production. As I said before both markets are very good markets for us. It’s a competitive advantage for us that we’re strong in both. We have expertise in both, and so we’ll be focused on both. I think valuations might be different whereas valuations in the companion animal market might be a little bit higher; any opportunities in the production animal market might be a little bit more value-oriented.

And so one of our strengths is that we operate in almost all the species markets in the US and that diversity has really helped our business and I think will continue to help our business. So sorry I’m not getting more specific for you there, just making the point that both are very interesting to us.

Charlie Jones – Barrington

And I guess a clarification on that – you said “and” not “or,” so does that mean that we could see decent sized acquisitions in both?

Jim Cleary

We would certainly consider it, and let me go a step further and just to say that we know all the players in our markets, we know the ones that we would like to buy; we know the ones that we don’t want to buy. And so it’s a matter of do they become available and wen do they become available? And so that’s why I couldn’t say that it would be one or the other. We are interested in certain companies in both of those areas.

Charlie Jones – Barrington

Yeah, that’s helpful, thanks. Maybe Mary Pat you could help us a little bit on price. Did price have an impact on your revenue in any meaningful way?

Mary Pat Thompson

No, price increases really happen in the March quarter.

Charlie Jones – Barrington

Okay. And I guess back to the acquisitions for a second, are you starting to get a sense that maybe some of these smaller regional players are recognizing the difficulties of you having the complete compliment of products out there? Or is that probably still a multi-year process that we go through there as they understand the impact of that on their business?

Jim Cleary

Yeah, I think it’s a multi-year process. I know a number of the regional players in our market are very good at what they do and I think it’s a multi-year process.

Charlie Jones – Barrington

And then finally, I realize you just said you were thinking through the numbers you want to give out as far as your cross selling, but could you give us maybe a rough estimate of these placements you had in the quarter, maybe how many were traditional MWI just on a rough percentage basis?

Jim Cleary

Yeah, and you’re talking about Micro here, right?

Charlie Jones – Barrington

Yeah, maybe which customers were more dairy or were more traditional MWIV customers?

Jim Cleary

So more of the placements were beef than dairy and dairy was a significant number. And we’re seeing good cross selling and let us decide what metrics we want to start throwing out there, because there are so many and so many of them are good that I just want to try to figure out which are the right ones that we want to put out there. And then we’ll start to put them out there.

Charlie Jones – Barrington

Sure, thanks for all the time.

Jim Cleary

Yeah, thank you.

Operator

Thank you. Our next question in queue is from Kevin Ellich of Piper Jaffray. Your line is open.

Kevin Ellich – Piper Jaffray

I just want to go back to a couple of things; I know this call is going kind of long. I was just wondering how PCI is performing. Is it in line or better than what you guys expected, and are you gaining any share with their legacy customers?

Jim Cleary

Yeah, so PCI is in line with our expectations, and of our 11.3% domestic growth rate during the quarter new PCI customers made up 0.4% of that. And growth from existing customers that were customers that both of us did business with made up 1.1% of the 11.3% growth during the quarter.

Kevin Ellich – Piper Jaffray

Okay, sounds good. And then just going back to the UK and international markets, so if you said the market’s growing low- to mid-single digits and the organic is flat, has the competitive landscape gotten more challenging? Or I guess what are you seeing on that front and do you think you’ll be able to gain any share or reaccelerate that growth going forward? It sounded like you said over the next few quarters you expect it to be similar to this quarter.

Jim Cleary

Yeah, and so as I said, well actually, first of all we’ve always had very good competition there and we expect we always will have very good competition there, just like we do in the United States. As I said before, growth there since we’ve owned that business has averaged 14% - that’s been the average growth rate. And recently it’s been much higher than that, but also as I said, one of the metrics that we really strongly look at is return on invested capital and we wanted to focus on return on invested capital which we did. And that resulted in tremendously good cash flow during the quarter but a much lower growth rate. And I think that’ll be the case over the next few quarters also, that that will continue over the next few quarters. But that’s freed up cash so we can make additional investments there, and we feel very good about that business long-term.

And someone had asked a question earlier about sales reps that we have in the UK. We have 12 sales reps in the field and 13 sales reps on the phone for a total of 25. And the sales reps in the field over the last year is up by 3 – it’s gone from 9 to 12. And so that’s the number of reps there, and so we feel very good about the business. We’d like to make additional investments but we think it’s going to be a lower growth over the next few quarters, Kevin.

Kevin Ellich – Piper Jaffray

Got it. Okay, thanks.

Jim Cleary

Alright, thank you.

Operator

Thank you. Our next question in queue is from Erin Wilson of Bank of America Merrill Lynch. Your line is open.

Erin Wilson – Bank of America Merrill Lynch

One quick question – how would you characterize generic dispensing rates across both the companion animal and production animal businesses? And is there a growing opportunity there or is it even meaningful for you at all?

Mary Pat Thompson

Yeah Erin, I would say that for MWI we’re member of two cooperatives – [Vetco and Agrolabs], and we have our own private label Vet One. And we do a very nice job with all three of them. Our Vet One sales as we mentioned earlier during our call were $18.5 million. It grew very nicely – it was up over 29%. So yes, we do feel that that’s a continuing opportunity for us.

As you probably intuitively know the cow market obviously is very price sensitive. It’s all about economics and cost to gain, and on the companion animal the brands have tremendous loyalty just because you’re talking about much smaller doses – and people really love their pets and it’s more of an emotional decision so they’re not out there necessarily looking for the cheapest brand. And then of course there’s no third party paid so there’s no insurance in this situation to help drive generic adoption either.

Erin Wilson – Bank of America Merrill Lynch

Okay, great. Thanks so much.

Jim Cleary

Thank you.

Operator

Thank you. And with that I’m showing no further questions in queue. I’d like to turn it back to Mr. Cleary for any further comments.

Jim Cleary

Thank you very much everyone for participating on our call and have a great day. Goodbye.

Operator

Thank you. Again, thank you, ladies and gentleman, for your participation in today’s conference. You may now disconnect, have a great day.

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