Patterson Companies Reports Fiscal 2020 First-Quarter Operating Results

  • Delivered first-quarter reported net sales of $1.3 billion.
  • Grew first-quarter adjusted operating margin by 23 bps year-over-year, as a result of margin expansion in both Animal Health and Dental segments.
  • Generated $51.6 million in adjusted free cash flow1 for the quarter; adjusted free cash flow increased 30 percent year-over-year.
  • Delivered first-quarter GAAP earnings of $0.32 per diluted share and adjusted earnings1 of $0.27 per diluted share, a 3.8 percent increase year-over-year.
  • Updates GAAP earnings guidance range to $1.13 to $1.23 per diluted share and reaffirms adjusted earnings1 guidance range.

ST. PAUL, Minn.--()--Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated net sales of approximately $1.3 billion (see attached Sales Summary for further details) in its fiscal first quarter ended July 27, 2019, a decline of 0.6 percent compared to the same period last year. Internal sales, which are adjusted for the effects of currency translation and changes in product selling relationships, increased 0.4 percent.

Reported net income attributable to Patterson Companies, Inc. for the first quarter of fiscal 2020 was $30.0 million, or $0.32 per diluted share, compared to a loss of $4.5 million, or $0.05 per diluted share, in the first quarter of fiscal 2019. The year-over-year improvement included a one-time investment gain and a lower legal reserve. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization costs, integration and business restructuring expenses, legal reserve costs and an investment gain, totaled $25.4 million for the first quarter of fiscal 2020, or $0.27 per diluted share, compared to $24.0 million in the same quarter of fiscal 2019, or $0.26 per diluted share.

Our results in the first quarter of fiscal 2020 reflect the impact of our continued actions to drive improved profitability in our core business, as we delivered the second consecutive quarter of year-over-year adjusted EPS growth” said Mark Walchirk, President and CEO of Patterson Companies. “Despite experiencing modest internal sales growth in the quarter, we drove improved profitability in both of our business segments through operational improvements, effective mix management and expense discipline. We are confident that the continued stabilization of our core business combined with the execution of our growth initiatives will enable Patterson to invest for the future and deliver enhanced value for our customers and shareholders.”

Patterson Animal Health

Reported net sales in our Animal Health segment for the first quarter of fiscal 2020, which comprised approximately 62 percent of the company’s total sales, were $817.5 million compared to $825.2 million in the first quarter of last year. Internal sales for the segment increased 0.5 percent from the fiscal 2019 first quarter.

Patterson Dental

Reported net sales in our Dental segment for the first quarter of fiscal 2020, which represented approximately 38 percent of total company sales, were $501.1 million compared to $506.1 million in the first quarter of last year. Internal sales decreased 0.8 percent compared to the fiscal 2019 first quarter.

Balance Sheet and Capital Allocation

For the first quarter of fiscal 2020 Patterson Companies used $45.2 million of cash from operating activities and collected deferred purchase price receivables of $105.7 million, netting $60.5 million in cash, compared to a total of $221.0 million in the first quarter of fiscal 2019. However, the previous year contained the initiation of the trade accounts receivable facility in the amount of $171.0 million. On an adjusted free cash flow1 basis, cash generated for the first quarter of fiscal 2020 is $11.8 million higher than the year ago period.

In the first quarter of fiscal 2020, Patterson Companies paid $25.5 million in cash dividends to shareholders.

FY2020 Guidance

Patterson Companies today updated its fiscal 2020 earnings guidance, which is provided on both a GAAP and non-GAAP adjusted1 basis:

  • GAAP earnings are now expected to be in the range of $1.13 to $1.23 per diluted share.
  • Non-GAAP adjusted earnings1 expectations were reaffirmed to be in the range of $1.33 to $1.43 per diluted share.
  • Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of:

- Deal amortization expenses of approximately $28.7 million ($0.32 per diluted share).

- Integration and business restructuring expenses of approximately $1.4 million ($0.02 per diluted share).

- Legal reserve expenses of approximately $13.3 million ($0.14 per diluted share).

- Investment gain of approximately $26.5 million ($0.28 per diluted share).

Our guidance is for current operations as well as completed or previously announced acquisitions and does not include the impact of potential future acquisitions or similar transactions, if any, or impairments and material restructurings beyond those previously publicly disclosed. Our guidance assumes North American and international market conditions similar to those experienced in fiscal 2019.

1Non-GAAP Financial Measures

The Reconciliation of GAAP to non-GAAP Measures table appearing behind the accompanying financial information is provided to adjust reported GAAP measures, namely operating income, 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 reserve costs, and an investment gain, along with the related tax effects of these items.

The term “adjusted free cash flow” used in this release is defined as net cash provided by (used in) operating activities less capital expenditures less the one-time benefit from the fiscal 2019 initiation of our trade account receivables facility plus collection of deferred purchase price receivables.

In addition, the term “internal sales” used in this release represents net sales adjusted to exclude foreign currency impact and changes in product selling relationships. Foreign currency impact represents the difference in results that is attributable to fluctuations in currency exchange rates the company uses to convert results for all foreign entities where the functional currency is not the U.S. dollar. The company calculates the impact as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period's currency exchange rates. The company believes the disclosure of net sales changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.

Management believes that these non-GAAP measures may provide a helpful representation of the company's first-quarter performance and earnings guidance, and enable comparison of financial results between periods where certain items may vary independent of business performance. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.

First-Quarter Conference Call and Replay

Patterson Companies’ fiscal 2020 first-quarter earnings conference call will start at 10 a.m. Eastern today. Investors can listen to a live webcast of the conference call at www.pattersoncompanies.com. The conference call will be archived on the Patterson Companies website. A replay of the fiscal 2020 first-quarter conference call can be heard for one week at 800-585-8367 and by providing the Conference ID 6269105 when prompted.

About Patterson Companies, Inc.

Patterson Companies, Inc. (Nasdaq: PDCO) is a value-added distributor serving the dental and animal health markets.

Dental Market

Patterson’s Dental segment provides a virtually complete range of consumable dental products, equipment and software, turnkey digital solutions and value-added services to dentists and dental laboratories throughout North America.

Animal Health Market

Patterson’s Animal Health segment is a leading distributor of products, services and technologies to both the production and companion animal health markets in North America and the U.K.

This press release contains certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are information of a non-historical nature and are subject to risks and uncertainties that are beyond Patterson's ability to control. Forward-looking statements generally can be identified by words such as "believes," "expects," "anticipates," "foresees," "forecasts," "estimates" or other words or phrases of similar import. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of Patterson or the price of Patterson stock. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Such risks and uncertainties include, without limitation, operations disruptions attributable to our enterprise resource planning system implementation; our ability to attract or retain qualified sales representatives and service technicians who relate directly with our customers; the reduction, modification, cancellation or delay of purchases of innovative, high-margin equipment; material changes in our purchasing relationships with suppliers; changes in general market and economic conditions; and the other risks and important factors contained and identified in Patterson's filings with the Securities and Exchange Commission, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, any of which could cause actual results to differ materially from the forward-looking statements. Any forward-looking statement in this press release speaks only as of the date on which it is made. Except to the extent required under the federal securities laws, Patterson does not intend to update or revise the forward-looking statements.

 

PATTERSON COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

Three Months Ended

 

July 27,
2019

 

July 28,
2018

 

 

 

 

Net sales

$

1,328,651

 

 

$

1,336,320

 

 

 

 

 

Gross profit

290,054

 

 

283,663

 

 

 

 

 

Operating expenses

273,380

 

 

279,149

 

 

 

 

 

Operating income

16,674

 

 

4,514

 

 

 

 

 

Other income (expense):

 

 

 

Other income, net

31,917

 

 

1,253

 

Interest expense

(8,690

)

 

(11,221

)

 

 

 

 

Income (loss) before taxes

39,901

 

 

(5,454

)

 

 

 

 

Income tax expense (benefit)

10,094

 

 

(945

)

 

 

 

 

Net income (loss)

29,807

 

 

(4,509

)

Net loss attributable to noncontrolling interests

(235

)

 

(53

)

Net income (loss) attributable to Patterson Companies, Inc.

$

30,042

 

 

$

(4,456

)

 

 

 

 

Earnings (loss) per share attributable to Patterson Companies, Inc.:

 

 

 

Basic

$

0.32

 

 

$

(0.05

)

Diluted

$

0.32

 

 

$

(0.05

)

 

 

 

 

Weighted average shares:

 

 

 

Basic

93,795

 

 

92,529

 

Diluted

94,623

 

 

92,529

 

 

 

 

 

Dividends declared per common share

$

0.26

 

 

$

0.26

 

 

PATTERSON COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

July 27,
2019

 

April 27,
2019

 

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

109,781

 

 

$

95,646

 

Receivables, net

502,662

 

 

582,094

 

Inventory

809,643

 

 

761,018

 

Prepaid expenses and other current assets

160,578

 

 

165,605

 

Total current assets

1,582,664

 

 

1,604,363

 

Property and equipment, net

305,443

 

 

305,790

 

Operating lease right-of-use assets

85,739

 

 

 

Goodwill and identifiable intangibles, net

1,156,525

 

 

1,167,379

 

Long-term receivables, net and other

219,251

 

 

191,737

 

Total assets

$

3,349,622

 

 

$

3,269,269

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

625,435

 

 

$

648,418

 

Other accrued liabilities

191,386

 

 

203,319

 

Operating lease liabilities

31,587

 

 

 

Current maturities of long-term debt

25,819

 

 

23,975

 

Total current liabilities

874,227

 

 

875,712

 

Long-term debt

718,145

 

 

725,341

 

Non-current operating lease liabilities

56,026

 

 

 

Other non-current liabilities

197,847

 

 

187,709

 

Total liabilities

1,846,245

 

 

1,788,762

 

Stockholders' equity

1,503,377

 

 

1,480,507

 

Total liabilities and stockholders' equity

$

3,349,622

 

 

$

3,269,269

 

 

PATTERSON COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Three Months Ended

 

July 27,
2019

 

July 28,
2018

 

 

 

 

Operating activities:

 

 

 

Net income (loss)

$

29,807

 

 

$

(4,509

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

Depreciation and amortization

20,632

 

 

20,857

 

Investment gain

(34,334

)

 

 

Non-cash employee compensation

10,234

 

 

6,357

 

Deferred consideration in securitized receivables

(105,697

)

 

(15,509

)

Change in assets and liabilities, net of acquired

34,134

 

 

198,265

 

Net cash provided by (used in) operating activities

(45,224

)

 

205,461

 

Investing activities:

 

 

 

Additions to property and equipment

(8,901

)

 

(10,184

)

Collection of deferred purchase price receivables

105,697

 

 

15,509

 

Other investing activities

 

 

2,244

 

Net cash provided by investing activities

96,796

 

 

7,569

 

Financing activities:

 

 

 

Dividends paid

(25,538

)

 

(25,289

)

Retirement of long-term debt

(5,533

)

 

(176,633

)

Draw on revolving credit

 

 

16,000

 

Other financing activities

(5,085

)

 

2,117

 

Net cash used in financing activities

(36,156

)

 

(183,805

)

Effect of exchange rate changes on cash

(1,281

)

 

(733

)

Net change in cash and cash equivalents

14,135

 

 

28,492

 

Cash and cash equivalents at beginning of period

95,646

 

 

62,984

 

Cash and cash equivalents at end of period

$

109,781

 

 

$

91,476

 

 

PATTERSON COMPANIES, INC.

SALES SUMMARY

(Dollars in thousands)

(Unaudited)

 

July 27,
2019

 

July 28,
2018

 

Total
Sales
Growth

 

Foreign
Exchange
Impact

 

Other (a)

 

Internal
Sales
Growth

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

 

 

 

 

 

 

 

 

 

 

 

Consumable

$

1,096,017

 

 

$

1,109,397

 

 

(1.2

)%

 

(0.8

)%

 

(0.3

)%

 

(0.1

)%

Equipment and software

139,237

 

 

146,898

 

 

(5.2

)

 

(0.2

)

 

 

 

(5.0

)

Value-added services and other

93,397

 

 

80,025

 

 

16.7

 

 

(0.3

)

 

 

 

17.0

 

Total

$

1,328,651

 

 

$

1,336,320

 

 

(0.6

)%

 

(0.7

)%

 

(0.3

)%

 

0.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Dental

 

 

 

 

 

 

 

 

 

 

 

Consumable

$

302,011

 

 

$

304,239

 

 

(0.7

)%

 

(0.3

)%

 

%

 

(0.4

)%

Equipment and software

125,684

 

 

134,957

 

 

(6.9

)

 

(0.3

)

 

 

 

(6.6

)

Value-added services and other

73,441

 

 

66,868

 

 

9.8

 

 

(0.1

)

 

 

 

9.9

 

Total

$

501,136

 

 

$

506,064

 

 

(1.0

)%

 

(0.2

)%

 

%

 

(0.8

)%

 

 

 

 

 

 

 

 

 

 

 

 

Animal Health

 

 

 

 

 

 

 

 

 

 

 

Consumable

$

794,006

 

 

$

805,158

 

 

(1.4

)%

 

(1.0

)%

 

(0.5

)%

 

0.1

%

Equipment and software

13,553

 

 

11,941

 

 

13.5

 

 

 

 

 

 

13.5

 

Value-added services and other

9,980

 

 

8,115

 

 

23.0

 

 

(1.9

)

 

 

 

24.9

 

Total

$

817,539

 

 

$

825,214

 

 

(0.9

)%

 

(1.0

)%

 

(0.4

)%

 

0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

Value-added services and other

$

9,976

 

 

$

5,042

 

 

97.9

%

 

%

 

%

 

97.9

%

Total

$

9,976

 

 

$

5,042

 

 

97.9

%

 

%

 

%

 

97.9

%

 

 

 

 

 

 

 

 

 

 

 

 

PATTERSON COMPANIES, INC.

OPERATING INCOME BY SEGMENT

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

July 27,
2019

 

July 28,
2018

 

 

 

 

Operating income (loss)

 

 

 

Dental

$

34,004

 

 

$

35,873

 

Animal Health

19,624

 

 

19,032

 

Corporate

(36,954

)

 

(50,391

)

Total

$

16,674

 

 

$

4,514

 

PATTERSON COMPANIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Dollars in thousands, except per share amounts)

(Unaudited)

For the three months ended July 27, 2019

 

GAAP

 

Deal
amortization

 

Integration
and business
restructuring
expenses

 

Legal
reserve
expenses

 

Investment
gain

 

Non-GAAP

Operating income

 

$

16,674

 

 

$

9,253

 

 

$

1,955

 

 

$

17,666

 

 

$

 

 

$

45,548

 

Other income (expense), net

 

23,227

 

 

 

 

 

 

 

 

(34,334

)

 

(11,107

)

Income (loss) before taxes

 

39,901

 

 

9,253

 

 

1,955

 

 

17,666

 

 

(34,334

)

 

34,441

 

Income tax expense (benefit)

 

10,094

 

 

2,201

 

 

494

 

 

4,416

 

 

(7,884

)

 

9,321

 

Net income (loss)

 

29,807

 

 

7,052

 

 

1,461

 

 

13,250

 

 

(26,450

)

 

25,120

 

Net loss attributable to noncontrolling interests

 

(235

)

 

 

 

 

 

 

 

 

 

(235

)

Net income (loss) attributable to Patterson Companies, Inc.

 

$

30,042

 

 

$

7,052

 

 

$

1,461

 

 

$

13,250

 

 

$

(26,450

)

 

$

25,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share attributable to Patterson Companies, Inc.*

 

$

0.32

 

 

$

0.07

 

 

$

0.02

 

 

$

0.14

 

 

$

(0.28

)

 

$

0.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income as a % of sales

 

1.3

%

 

 

 

 

 

 

 

 

 

3.4

%

Effective tax rate

 

25.3

%

 

 

 

 

 

 

 

 

 

27.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended July 28, 2018

 

GAAP

 

Deal
amortization

 

Integration
and business
restructuring
expenses

 

Legal
reserve
expenses

 

Investment
gain

 

Non-GAAP

Operating income

 

$

4,514

 

 

$

9,966

 

 

$

 

 

$

28,263

 

 

$

 

 

$

42,743

 

Other income (expense), net

 

(9,968

)

 

 

 

 

 

 

 

 

 

(9,968

)

Income (loss) before taxes

 

(5,454

)

 

9,966

 

 

 

 

28,263

 

 

 

 

32,775

 

Income tax expense (benefit)

 

(945

)

 

2,286

 

 

 

 

7,523

 

 

 

 

8,864

 

Net income (loss)

 

(4,509

)

 

7,680

 

 

 

 

20,740

 

 

 

 

23,911

 

Net loss attributable to noncontrolling interests

 

(53

)

 

 

 

 

 

 

 

 

 

(53

)

Net income (loss) attributable to Patterson Companies, Inc.

 

$

(4,456

)

 

$

7,680

 

 

$

 

 

$

20,740

 

 

$

 

 

$

23,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share attributable to Patterson Companies, Inc.*

 

$

(0.05

)

 

$

0.08

 

 

$

 

 

$

0.22

 

 

$

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income as a % of sales

 

0.3

%

 

 

 

 

 

 

 

 

 

3.2

%

Effective tax rate

 

17.3

%

 

 

 

 

 

 

 

 

 

27.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

* May not sum due to rounding

 

 

 

 

 

 

 

 

 

 

 

 

 

PATTERSON COMPANIES, INC.

COMPUTATION OF ADJUSTED FREE CASH FLOW

(Dollars in thousands)

(Unaudited)

 

Three Months Ended

 

July 27,
2019

July 28,
2018

   
   
Net cash provided by (used in) operating activities  

$

(45,224

)

$

205,461

 

   
Less:  
Capital expenditures  

 

(8,901

)

 

(10,184

)

Free cash flow  

$

(54,125

)

$

195,277

 

   
Plus:  
Collection of deferred purchase price receivables  

$

105,697

 

$

15,509

 

   
Less:  
Initiation of trade account receivables facility  

 

-

 

 

(171,000

)

Adjusted free cash flow  

$

51,572

 

$

39,786

 

 

Contacts

INVESTORS: John M. Wright, Investor Relations
COMPANY: Patterson Companies Inc.
TEL: 651.686.1364
EMAIL: john.wright@pattersoncompanies.com

MEDIA: Patterson Corporate Communications
COMPANY: Patterson Companies Inc.
TEL: 651.905.3349
EMAIL: corporate.communications@pattersoncompanies.com

WEB: pattersoncompanies.com

Contacts

INVESTORS: John M. Wright, Investor Relations
COMPANY: Patterson Companies Inc.
TEL: 651.686.1364
EMAIL: john.wright@pattersoncompanies.com

MEDIA: Patterson Corporate Communications
COMPANY: Patterson Companies Inc.
TEL: 651.905.3349
EMAIL: corporate.communications@pattersoncompanies.com

WEB: pattersoncompanies.com