Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Patterson Companies Reports Fiscal 2024 Second Quarter Operating Results By: Patterson Companies Inc. via Business Wire November 29, 2023 at 07:00 AM EST Second quarter reported net sales increased 1.6 percent year-over-year to $1.65 billion. Internal sales increased 1.0 percent year-over-year, driven by dental consumables growth of 2.9 percent; excluding certain infection control products, internal sales of dental consumables increased 4.7 percent year-over-year. Delivered second quarter GAAP earnings of $0.42 per diluted share and adjusted earnings of $0.50 per diluted share. Returned $85.9 million to shareholders through dividends and share repurchases. Revises fiscal 2024 GAAP earnings guidance to $2.04 to $2.14 per diluted share and adjusted earnings1 guidance of $2.35 to $2.45 per diluted share. Patterson Companies, Inc. (Nasdaq: PDCO) today reported operating results for its fiscal 2024 second quarter ended October 28, 2023. “Our team executed well against softer than anticipated demand within our end markets,” said Don Zurbay, President and CEO of Patterson Companies. “Steady patient traffic supported strong performance in our broad and resilient dental consumables portfolio that was offset by lower sales in certain high-tech dental equipment categories. Our Animal Health segment benefitted from the depth of our offering and omnichannel presence across a wide range of animal species. We delivered healthy sales growth in our production animal business while our companion animal business was impacted by moderating veterinary clinic visits. “The macro environment challenges we faced during the second quarter do not change our core objectives or continued conviction in making strategic investments in our distribution capabilities, software offerings, and value-added services. While we have adjusted our fiscal 2024 guidance to reflect our current expectations for the near term, we remain confident in the enduring strength and resiliency of the Dental and Animal Health end markets. We continue to believe that our talented team and comprehensive value proposition make Patterson well positioned to drive enhanced growth, profitability and value creation over the long term.” Second Quarter Fiscal 2024 Results Consolidated net sales were $1.65 billion (see attached Sales Summary for further details), an increase of 1.6 percent compared to the same period last year. Internal sales, which are adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap, increased 1.0 percent over the prior year period. Reported net income attributable to Patterson Companies, Inc. for the second quarter of fiscal 2024 was $40.0 million, or $0.42 per diluted share, compared to $54.1 million, or $0.55 per diluted share, in the second quarter of fiscal 2023. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization, totaled $47.3 million for the second quarter of fiscal 2024, or $0.50 per diluted share, compared to $61.2 million, or $0.63 per diluted share, in the second quarter of fiscal 2023. The year-over-year decrease in reported and adjusted net income attributable to Patterson Companies, Inc. in the second quarter of fiscal 2024 was primarily due to lower sales of dental technology equipment and increased operating expenses compared to the prior year period. Patterson Dental Reported net sales in the Dental segment for the second quarter of fiscal 2024 were $626.4 million. Internal sales decreased 0.2 percent compared to the fiscal 2023 second quarter. Internal sales of consumables increased 2.9 percent year-over-year. Excluding the deflationary impact of certain infection control products, internal sales of consumables increased 4.7 percent year-over-year. Compared to the prior year period, internal sales of equipment decreased 6.3 percent and internal sales of value-added services increased 3.1 percent. Patterson Animal Health Reported net sales in the Animal Health segment for the second quarter of fiscal 2024 were $1.02 billion. Internal sales growth of 0.2 percent year-over-year was driven by growth in the production animal business, which more than offset reduced sales in the companion animal business. Within the Animal Health segment, internal sales of consumables decreased 0.6 percent, equipment increased 0.9 percent and value-added services increased 67.9 percent. Balance Sheet and Capital Allocation During the first six months of fiscal 2024, Patterson Companies used $485.3 million of cash from operating activities and collected deferred purchase price receivables of $489.5 million, generating $4.2 million in cash, compared to using $30.5 million in the prior year period. Free cash flow1 (see definition below and attached free cash flow table) during the first six months of fiscal 2024 improved by $28.0 million compared to the first six months of fiscal 2023 due to a decreased level of working capital during the first six months of fiscal 2024. In the second quarter of fiscal 2024, Patterson declared a quarterly cash dividend of $0.26 per share and returned $24.9 million in cash dividends to shareholders. Also, under an existing share repurchase authorization, the company repurchased approximately $61.0 million of shares during the second quarter of fiscal 2024. Through the first six months of fiscal 2024, Patterson Companies returned $140.8 million to shareholders in the form of cash dividends and share repurchases. At of the end of the second quarter of fiscal 2024, Patterson had approximately $319 million of share repurchase authority remaining on its current share repurchase authorization. Year-to-Date Results Consolidated reported net sales for the first six months of fiscal 2024 totaled $3.23 billion, a 2.5 percent year-over-year increase. Internal sales for the first six months of fiscal 2024, which are adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap, increased 1.6 percent year-over-year. Through the first six months of fiscal 2024, Dental segment internal sales increased 0.9 percent, including a 3.7 percent increase in consumables, a 6.0 percent decline in equipment and a 4.4 percent increase in value-added services. Through the first six months of fiscal 2024, Animal Health segment internal sales increased 2.0 percent, including 1.4 percent growth in consumables, a 1.3 percent decline in equipment and a 70.1 percent increase in value-added services. Reported net income attributable to Patterson Companies, Inc. was $71.2 million, or $0.74 per diluted share, compared to $78.7 million, or $0.81 per diluted share in last year's period. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization, totaled $85.8 million, or $0.90 per diluted share, compared to $92.9 million, or $0.95 per diluted share, in the year-ago period. Fiscal 2024 Guidance Patterson Companies today revised its fiscal 2024 earnings guidance, which is provided on both a GAAP and non-GAAP adjusted1 basis: GAAP earnings are expected to be in the range of $2.04 to $2.14 per diluted share. Non-GAAP adjusted earnings1 are expected to be in the range of $2.35 to $2.45 per diluted share. Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of: Deal amortization expenses of approximately $29.3 million ($0.31 per diluted share). Our guidance reflects the strength of our business and competitive positioning, as well as our expectations for the North American and international end markets in which we operate, which we expect to be affected by the ongoing challenges of inflationary trends and higher interest rates as well as additional slow-down in the broader economy. Beyond macroeconomic and geopolitical uncertainty, our guidance further assumes that there are no material adverse developments associated with wide-spread public health concerns. 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 net sales, gross profit, operating expenses, operating income, other income (expense), net, income before taxes, income tax expense, net income, net loss attributable to noncontrolling interests, net income attributable to Patterson Companies, Inc., and diluted earnings per share attributable to Patterson Companies, Inc. for the impact of deal amortization and an interest rate swap along with any related tax effects of these items. Interest rate swap -- Our customer financing net sales include the impact of changes in interest rates on deferred purchase price receivables, as the average interest rate in our contract portfolio may not fluctuate at the same rate as interest rate markets, resulting in an increase or reduction of gain on contract sales. We enter into an interest rate swap to hedge a portion of the related interest rate risk. These agreements do not qualify for hedge accounting, and the gains or losses on an interest rate swap are reported in other income and expense in our condensed consolidated statements of operation and other comprehensive income. Beginning this quarter and for the first quarter of fiscal 2024, we present a non-GAAP adjustment to reclassify the mark-to-market adjustment on the interest rate swap from other income (expense) to net sales to align the swap impact with the impact on customer financing net sales. We believe adjusted net sales, adjusted gross profit and adjusted operating income, which include the gains and losses on the interest rate swap, provides additional comparability from period to period because they present the impact of interest rate fluctuations, net of the mark-to-market swap adjustment, within adjusted net sales. We note the net impact of interest rate fluctuations has a minimal impact on net income. Deal amortization along with the related tax effect of this item. We believe this adjustment provides comparability with other companies. The term “free cash flow” used in this release is defined as net cash used in operating activities less capital expenditures plus the collection of deferred purchase price receivables. In addition, the term “internal sales” used in this release represents net sales adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap. 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 excluding the impact of foreign currency, an interest rate swap and recent acquisitions provides useful supplementary information to investors in light of fluctuations in these variables that are independent of our period-over-period performance. Management believes that these non-GAAP measures may provide a helpful representation of the company’s performance 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. Second Quarter Conference Call and Replay Patterson Companies’ fiscal 2024 second quarter conference call will start at 8:30 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 2024 second quarter conference call can be heard for one week at 1-800-770-2030 and by providing the Conference ID 71954 when prompted. About Patterson Companies Inc. Patterson Companies Inc. (Nasdaq: PDCO) connects dental and animal health customers in North America and the U.K. to the latest products, technologies, services and innovative business solutions that enable operational and professional success. Our comprehensive portfolio, distribution network and supply chain is equaled only by our dedicated, knowledgeable people who deliver unrivalled expertise and unmatched customer service and support. Learn more: pattersoncompanies.com This press release contains, and our officers and representatives may from time to time make, certain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, and the objectives and expectations of management. Forward-looking statements often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could” or “may.” Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Any number of factors could affect our actual results and cause such results to differ materially from those contemplated by any forward-looking statements, including, but not limited to, the following: wide-spread public health concerns as we experienced, and may continue to experience, with the COVID-19 pandemic; our dependence on suppliers to manufacture and supply substantially all of the products we sell; potential disruption of distribution capabilities, including service issues with third-party shippers; our dependence on relationships with sales representatives and service technicians to retain customers and develop business; adverse changes in supplier rebates or other purchasing incentives; risks of selling private label products, including the risk of adversely affecting our relationships with suppliers; the risk of technological and market obsolescence for the products we sell; the risk of failing to innovate and develop new and enhanced software and e-services products; our dependence on positive perceptions of Patterson’s reputation; risks associated with illicit human use of pharmaceutical products we distribute; risks inherent in acquiring and disposing of assets or other businesses and risks inherent in integrating acquired businesses; turnover or loss of key personnel or highly skilled employees; risks associated with information systems, software products and cyber-security attacks; risks related to climate change; our ability to comply with restrictive covenants and other limits in our credit agreement; the risk that our governing documents and Minnesota law may discourage takeovers and business combinations; the effects of the highly competitive dental and animal health supply markets in which we compete; the effects of consolidation within the dental and animal health supply markets; exposure to the risks of the animal production business, including changing consumer demand, the cyclical livestock market, weather conditions, the availability of natural resources and other factors outside our control, and the risks of the companion animal business, including the possibility of disease adversely affecting the pet population; exposure to the risks of the health care industry, including changes in demand due to political, economic and regulatory influences and other factors outside our control; increases in over-the-counter sales and e-commerce options; risks from the formation or expansion of GPOs, provider networks and buying groups that may place us at a competitive disadvantage; risks of litigation and government inquiries and investigations, including the diversion of management’s attention, the cost of defending against such actions, the possibility of damage awards or settlements, fines or penalties, or equitable remedies (including but not limited to the revocation of or non-renewal of licenses) and inherent uncertainty; failure to comply with health care fraud or other laws and regulations; change and uncertainty in the health care industry; failure to comply with existing or future U.S. or foreign laws and regulations including those governing the distribution of pharmaceuticals and controlled substances; failure to comply with evolving data privacy laws and regulations; tax legislation; risks inherent in international operations, including currency fluctuations; and uncertain macro-economic conditions, including inflationary pressures. The order in which these factors appear should not be construed to indicate their relative importance or priority. We caution that these factors may not be exhaustive, accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results. You should carefully consider these and other relevant factors, including those risk factors in Part I, Item 1A, (“Risk Factors”) in our most recent Form 10-K and information which may be contained in our other filings with the U.S. Securities and Exchange Commission, or SEC, when reviewing any forward-looking statement. Investors should understand it is impossible to predict or identify all such factors or risks. As such, you should not consider the foregoing list, or the risks identified in our SEC filings, to be a complete discussion of all potential risks or uncertainties. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to release publicly any revisions to any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Net sales $ 1,652,772 $ 1,626,204 $ 3,229,517 $ 3,149,469 Gross profit 339,026 328,089 658,081 640,222 Operating expenses 282,123 267,994 562,956 545,283 Operating income 56,903 60,095 95,125 94,939 Other income (expense): Other income, net 7,096 18,203 18,997 19,983 Interest expense (10,642 ) (7,544 ) (20,154 ) (13,107 ) Income before taxes 53,357 70,754 93,968 101,815 Income tax expense 13,502 17,105 22,983 23,906 Net income 39,855 53,649 70,985 77,909 Net loss attributable to noncontrolling interests (103 ) (424 ) (207 ) (754 ) Net income attributable to Patterson Companies, Inc. $ 39,958 $ 54,073 $ 71,192 $ 78,663 Earnings per share attributable to Patterson Companies, Inc.: Basic $ 0.42 $ 0.56 $ 0.75 $ 0.81 Diluted $ 0.42 $ 0.55 $ 0.74 $ 0.81 Weighted average shares: Basic 94,710 96,913 95,127 96,771 Diluted 95,156 97,552 95,722 97,708 Dividends declared per common share $ 0.26 $ 0.26 $ 0.52 $ 0.52 PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) October 28, 2023 April 29, 2023 ASSETS Current assets: Cash and cash equivalents $ 113,886 $ 159,669 Receivables, net 490,428 477,384 Inventory 858,028 795,072 Prepaid expenses and other current assets 328,334 351,011 Total current assets 1,790,676 1,783,136 Property and equipment, net 218,977 212,283 Operating lease right-of-use assets, net 101,532 92,956 Goodwill and identifiable intangibles, net 368,351 388,293 Investments 162,531 160,022 Long-term receivables, net and other 247,623 242,456 Total assets $ 2,889,690 $ 2,879,146 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 688,687 $ 724,993 Other accrued liabilities 223,723 250,949 Operating lease liabilities 30,132 28,390 Current maturities of long-term debt 36,000 36,000 Borrowings on revolving credit 170,000 45,000 Total current liabilities 1,148,542 1,085,332 Long-term debt 449,974 451,231 Non-current operating lease liabilities 74,393 67,376 Other non-current liabilities 161,692 156,672 Total liabilities 1,834,601 1,760,611 Stockholders' equity 1,055,089 1,118,535 Total liabilities and stockholders' equity $ 2,889,690 $ 2,879,146 PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended October 28, 2023 October 29, 2022 Operating activities: Net income $ 70,985 $ 77,909 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 42,836 41,090 Non-cash employee compensation 11,650 8,393 Non-cash losses (gains) and other, net 3,166 5,085 Change in assets and liabilities: Receivables (487,186 ) (508,811 ) Inventory (67,416 ) (100,596 ) Accounts payable (30,911 ) 41,557 Accrued liabilities (24,908 ) (47,519 ) Other changes from operating activities, net (3,492 ) (37,269 ) Net cash used in operating activities (485,276 ) (520,161 ) Investing activities: Additions to property and equipment and software (33,467 ) (26,779 ) Collection of deferred purchase price receivables 489,452 489,639 Payments related to acquisitions, net of cash acquired (1,108 ) — Payments related to investments — (15,000 ) Net cash provided by investing activities 454,877 447,860 Financing activities: Dividends paid (50,331 ) (50,732 ) Repurchases of common stock (90,491 ) (15,000 ) Payments on long-term debt (1,500 ) — Draw on revolving credit 125,000 145,000 Other financing activities 4,141 (1,766 ) Net cash provided by (used in) financing activities (13,181 ) 77,502 Effect of exchange rate changes on cash (2,203 ) (6,935 ) Net change in cash and cash equivalents (45,783 ) (1,734 ) Cash and cash equivalents at beginning of period 159,669 142,014 Cash and cash equivalents at end of period $ 113,886 $ 140,280 PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) October 28, 2023 October 29, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Three Months Ended Consolidated net sales Consumable $ 1,319,363 $ 1,301,256 1.4 % 0.9 % — % 0.2 % 0.3 % Equipment 230,293 243,896 (5.6 ) (0.2 ) — — (5.4 ) Value-added services and other 103,116 81,052 27.2 0.7 (12.7 ) 6.5 32.7 Total $ 1,652,772 $ 1,626,204 1.6 % 0.7 % (0.6 )% 0.5 % 1.0 % Dental Consumable $ 346,492 $ 337,489 2.7 % (0.2 )% — % — % 2.9 % Equipment 200,127 214,006 (6.5 ) (0.2 ) — — (6.3 ) Value-added services and other 79,762 77,428 3.0 (0.1 ) — — 3.1 Total $ 626,381 $ 628,923 (0.4 )% (0.2 )% — % — % (0.2 )% Animal Health Consumable $ 972,871 $ 963,767 0.9 % 1.2 % — % 0.3 % (0.6 )% Equipment 30,166 29,890 0.9 — — — 0.9 Value-added services and other 21,585 9,339 131.1 6.5 — 56.7 67.9 Total $ 1,024,622 $ 1,002,996 2.2 % 1.2 % — % 0.8 % 0.2 % Corporate Value-added services and other $ 1,769 $ (5,715 ) (131.0 )% — % 180.0 % — % (311.0 )% Total $ 1,769 $ (5,715 ) (131.0 )% — % 180.0 % — % (311.0 )% PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) October 28, 2023 October 29, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Six Months Ended Consolidated net sales Consumable $ 2,635,088 $ 2,563,025 2.8 % 0.6 % — % 0.2 % 2.0 % Equipment 394,264 417,831 (5.6 ) (0.2 ) — — (5.4 ) Value-added services and other 200,165 168,613 18.7 0.4 (0.9 ) 6.2 13.0 Total $ 3,229,517 $ 3,149,469 2.5 % 0.4 % — % 0.5 % 1.6 % Dental Consumable $ 698,539 $ 675,329 3.4 % (0.3 )% — % — % 3.7 % Equipment 337,676 360,516 (6.3 ) (0.3 ) — — (6.0 ) Value-added services and other 157,466 150,995 4.3 (0.1 ) — — 4.4 Total $ 1,193,681 $ 1,186,840 0.6 % (0.3 )% — % — % 0.9 % Animal Health Consumable $ 1,936,549 $ 1,887,696 2.6 % 0.9 % — % 0.3 % 1.4 % Equipment 56,588 57,315 (1.3 ) — — — (1.3 ) Value-added services and other 42,475 18,355 131.4 4.6 — 56.7 70.1 Total $ 2,035,612 $ 1,963,366 3.7 % 0.9 % — % 0.8 % 2.0 % Corporate Value-added services and other $ 224 $ (737 ) (130.4 )% — % 212.3 % — % (342.7 )% Total $ 224 $ (737 ) (130.4 )% — % 212.3 % — % (342.7 )% PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) July 29, 2023 July 30, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Three Months Ended Consolidated net sales Consumable $ 1,315,725 $ 1,261,769 4.3 % 0.3 % — % 0.2 % 3.8 % Equipment 163,971 173,935 (5.7 ) (0.3 ) — — (5.4 ) Value-added services and other 97,049 87,561 10.8 0.1 10.0 5.8 (5.1 ) Total $ 1,576,745 $ 1,523,265 3.5 % 0.2 % 0.6 % 0.5 % 2.2 % Dental Consumable $ 352,047 $ 337,840 4.2 % (0.4 )% — % — % 4.6 % Equipment 137,549 146,510 (6.1 ) (0.4 ) — — (5.7 ) Value-added services and other 77,704 73,567 5.6 (0.2 ) — — 5.8 Total $ 567,300 $ 557,917 1.7 % (0.4 )% — % — % 2.1 % Animal Health Consumable $ 963,678 $ 923,929 4.3 % 0.5 % — % 0.3 % 3.5 % Equipment 26,422 27,425 (3.7 ) — — — (3.7 ) Value-added services and other 20,890 9,016 131.7 2.7 — 56.7 72.3 Total $ 1,010,990 $ 960,370 5.3 % 0.5 % — % 0.8 % 4.0 % Corporate Value-added services and other $ (1,545 ) $ 4,978 (131.0 )% — % 175.2 % — % (306.2 )% Total $ (1,545 ) $ 4,978 (131.0 )% — % 175.2 % — % (306.2 )% PATTERSON COMPANIES, INC. OPERATING INCOME BY SEGMENT (In thousands) (Unaudited) Three Months Ended Six Months Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Operating income (loss) Dental $ 55,277 $ 60,950 $ 93,947 $ 97,845 Animal Health 26,346 28,316 56,039 50,175 Corporate (24,720 ) (29,171 ) (54,861 ) (53,081 ) Total $ 56,903 $ 60,095 $ 95,125 $ 94,939 PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the three months ended October 28, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,652,772 $ — $ 2,786 $ 1,655,558 Gross profit 339,026 — 2,786 341,812 Operating expenses 282,123 (9,628 ) — 272,495 Operating income 56,903 9,628 2,786 69,317 Other income (expense), net (3,546 ) — (2,786 ) (6,332 ) Income before taxes 53,357 9,628 — 62,985 Income tax expense 13,502 2,305 — 15,807 Net income 39,855 7,323 — 47,178 Net loss attributable to noncontrolling interests (103 ) — — (103 ) Net income attributable to Patterson Companies, Inc. $ 39,958 $ 7,323 $ — $ 47,281 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.42 $ 0.08 $ — $ 0.50 Gross margin 20.5 % 20.6 % Operating margin 3.4 % 4.2 % Effective tax rate 25.3 % 25.1 % For the three months ended October 29, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,626,204 $ — $ 13,072 $ 1,639,276 Gross profit 328,089 — 13,072 341,161 Operating expenses 267,994 (9,327 ) — 258,667 Operating income 60,095 9,327 13,072 82,494 Other income (expense), net 10,659 — (13,072 ) (2,413 ) Income before taxes 70,754 9,327 — 80,081 Income tax expense 17,105 2,237 — 19,342 Net income 53,649 7,090 — 60,739 Net loss attributable to noncontrolling interests (424 ) — — (424 ) Net income attributable to Patterson Companies, Inc. $ 54,073 $ 7,090 $ — $ 61,163 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.55 $ 0.07 $ — $ 0.63 Gross margin 20.2 % 20.8 % Operating margin 3.7 % 5.0 % Effective tax rate 24.2 % 24.2 % * May not sum due to rounding PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the six months ended October 28, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 3,229,517 $ — $ 9,561 $ 3,239,078 Gross profit 658,081 — 9,561 667,642 Operating expenses 562,956 (19,254 ) — 543,702 Operating income 95,125 19,254 9,561 123,940 Other income (expense), net (1,157 ) — (9,561 ) (10,718 ) Income before taxes 93,968 19,254 — 113,222 Income tax expense 22,983 4,609 — 27,592 Net income 70,985 14,645 — 85,630 Net loss attributable to noncontrolling interests (207 ) — — (207 ) Net income attributable to Patterson Companies, Inc. $ 71,192 $ 14,645 $ — $ 85,837 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.74 $ 0.15 $ — $ 0.90 Gross margin 20.4 % 20.6 % Operating margin 2.9 % 3.8 % Effective tax rate 24.5 % 24.4 % For the six months ended October 29, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 3,149,469 $ — $ 11,124 $ 3,160,593 Gross profit 640,222 — 11,124 651,346 Operating expenses 545,283 (18,678 ) — 526,605 Operating income 94,939 18,678 11,124 124,741 Other income (expense), net 6,876 — (11,124 ) (4,248 ) Income before taxes 101,815 18,678 — 120,493 Income tax expense 23,906 4,474 — 28,380 Net income 77,909 14,204 — 92,113 Net loss attributable to noncontrolling interests (754 ) — — (754 ) Net income attributable to Patterson Companies, Inc. $ 78,663 $ 14,204 $ — $ 92,867 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.81 $ 0.15 $ — $ 0.95 Gross margin 20.3 % 20.6 % Operating margin 3.0 % 3.9 % Effective tax rate 23.5 % 23.6 % * May not sum due to rounding PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the three months ended July 29, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,576,745 $ — $ 6,775 $ 1,583,520 Gross profit 319,055 — 6,775 325,830 Operating expenses 280,833 (9,626 ) — 271,207 Operating income 38,222 9,626 6,775 54,623 Other income (expense), net 2,389 — (6,775 ) (4,386 ) Income before taxes 40,611 9,626 — 50,237 Income tax expense 9,481 2,304 — 11,785 Net income 31,130 7,322 — 38,452 Net loss attributable to noncontrolling interests (104 ) — — (104 ) Net income attributable to Patterson Companies, Inc. $ 31,234 $ 7,322 $ — $ 38,556 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.32 $ 0.08 $ — $ 0.40 Gross margin 20.2 % 20.6 % Operating margin 2.4 % 3.4 % Effective tax rate 23.3 % 23.5 % For the three months ended July 30, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,523,265 $ — $ (1,948 ) $ 1,521,317 Gross profit 312,133 — (1,948 ) 310,185 Operating expenses 277,289 (9,351 ) — 267,938 Operating income 34,844 9,351 (1,948 ) 42,247 Other income (expense), net (3,783 ) — 1,948 (1,835 ) Income before taxes 31,061 9,351 — 40,412 Income tax expense 6,801 2,237 — 9,038 Net income 24,260 7,114 — 31,374 Net loss attributable to noncontrolling interests (330 ) — — (330 ) Net income attributable to Patterson Companies, Inc. $ 24,590 $ 7,114 $ — $ 31,704 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.25 $ 0.07 $ — $ 0.32 Gross margin 20.5 % 20.4 % Operating margin 2.3 % 2.8 % Effective tax rate 21.9 % 22.4 % * May not sum due to rounding PATTERSON COMPANIES, INC. FREE CASH FLOW (In thousands) (Unaudited) Six Months Ended October 28, 2023 October 29, 2022 Net cash used in operating activities $ (485,276 ) $ (520,161 ) Additions to property and equipment and software (33,467 ) (26,779 ) Collection of deferred purchase price receivables 489,452 489,639 Free cash flow $ (29,291 ) $ (57,301 ) View source version on businesswire.com: https://www.businesswire.com/news/home/20231129971564/en/Contacts INVESTORS: John M. Wright, Investor Relations Patterson Companies Inc. 651.686.1364 investor.relations@pattersoncompanies.com MEDIA: Patterson Corporate Communications Patterson Companies Inc. 651.905.3349 corporate.communications@pattersoncompanies.com pattersoncompanies.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Patterson Companies Reports Fiscal 2024 Second Quarter Operating Results By: Patterson Companies Inc. via Business Wire November 29, 2023 at 07:00 AM EST Second quarter reported net sales increased 1.6 percent year-over-year to $1.65 billion. Internal sales increased 1.0 percent year-over-year, driven by dental consumables growth of 2.9 percent; excluding certain infection control products, internal sales of dental consumables increased 4.7 percent year-over-year. Delivered second quarter GAAP earnings of $0.42 per diluted share and adjusted earnings of $0.50 per diluted share. Returned $85.9 million to shareholders through dividends and share repurchases. Revises fiscal 2024 GAAP earnings guidance to $2.04 to $2.14 per diluted share and adjusted earnings1 guidance of $2.35 to $2.45 per diluted share. Patterson Companies, Inc. (Nasdaq: PDCO) today reported operating results for its fiscal 2024 second quarter ended October 28, 2023. “Our team executed well against softer than anticipated demand within our end markets,” said Don Zurbay, President and CEO of Patterson Companies. “Steady patient traffic supported strong performance in our broad and resilient dental consumables portfolio that was offset by lower sales in certain high-tech dental equipment categories. Our Animal Health segment benefitted from the depth of our offering and omnichannel presence across a wide range of animal species. We delivered healthy sales growth in our production animal business while our companion animal business was impacted by moderating veterinary clinic visits. “The macro environment challenges we faced during the second quarter do not change our core objectives or continued conviction in making strategic investments in our distribution capabilities, software offerings, and value-added services. While we have adjusted our fiscal 2024 guidance to reflect our current expectations for the near term, we remain confident in the enduring strength and resiliency of the Dental and Animal Health end markets. We continue to believe that our talented team and comprehensive value proposition make Patterson well positioned to drive enhanced growth, profitability and value creation over the long term.” Second Quarter Fiscal 2024 Results Consolidated net sales were $1.65 billion (see attached Sales Summary for further details), an increase of 1.6 percent compared to the same period last year. Internal sales, which are adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap, increased 1.0 percent over the prior year period. Reported net income attributable to Patterson Companies, Inc. for the second quarter of fiscal 2024 was $40.0 million, or $0.42 per diluted share, compared to $54.1 million, or $0.55 per diluted share, in the second quarter of fiscal 2023. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization, totaled $47.3 million for the second quarter of fiscal 2024, or $0.50 per diluted share, compared to $61.2 million, or $0.63 per diluted share, in the second quarter of fiscal 2023. The year-over-year decrease in reported and adjusted net income attributable to Patterson Companies, Inc. in the second quarter of fiscal 2024 was primarily due to lower sales of dental technology equipment and increased operating expenses compared to the prior year period. Patterson Dental Reported net sales in the Dental segment for the second quarter of fiscal 2024 were $626.4 million. Internal sales decreased 0.2 percent compared to the fiscal 2023 second quarter. Internal sales of consumables increased 2.9 percent year-over-year. Excluding the deflationary impact of certain infection control products, internal sales of consumables increased 4.7 percent year-over-year. Compared to the prior year period, internal sales of equipment decreased 6.3 percent and internal sales of value-added services increased 3.1 percent. Patterson Animal Health Reported net sales in the Animal Health segment for the second quarter of fiscal 2024 were $1.02 billion. Internal sales growth of 0.2 percent year-over-year was driven by growth in the production animal business, which more than offset reduced sales in the companion animal business. Within the Animal Health segment, internal sales of consumables decreased 0.6 percent, equipment increased 0.9 percent and value-added services increased 67.9 percent. Balance Sheet and Capital Allocation During the first six months of fiscal 2024, Patterson Companies used $485.3 million of cash from operating activities and collected deferred purchase price receivables of $489.5 million, generating $4.2 million in cash, compared to using $30.5 million in the prior year period. Free cash flow1 (see definition below and attached free cash flow table) during the first six months of fiscal 2024 improved by $28.0 million compared to the first six months of fiscal 2023 due to a decreased level of working capital during the first six months of fiscal 2024. In the second quarter of fiscal 2024, Patterson declared a quarterly cash dividend of $0.26 per share and returned $24.9 million in cash dividends to shareholders. Also, under an existing share repurchase authorization, the company repurchased approximately $61.0 million of shares during the second quarter of fiscal 2024. Through the first six months of fiscal 2024, Patterson Companies returned $140.8 million to shareholders in the form of cash dividends and share repurchases. At of the end of the second quarter of fiscal 2024, Patterson had approximately $319 million of share repurchase authority remaining on its current share repurchase authorization. Year-to-Date Results Consolidated reported net sales for the first six months of fiscal 2024 totaled $3.23 billion, a 2.5 percent year-over-year increase. Internal sales for the first six months of fiscal 2024, which are adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap, increased 1.6 percent year-over-year. Through the first six months of fiscal 2024, Dental segment internal sales increased 0.9 percent, including a 3.7 percent increase in consumables, a 6.0 percent decline in equipment and a 4.4 percent increase in value-added services. Through the first six months of fiscal 2024, Animal Health segment internal sales increased 2.0 percent, including 1.4 percent growth in consumables, a 1.3 percent decline in equipment and a 70.1 percent increase in value-added services. Reported net income attributable to Patterson Companies, Inc. was $71.2 million, or $0.74 per diluted share, compared to $78.7 million, or $0.81 per diluted share in last year's period. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization, totaled $85.8 million, or $0.90 per diluted share, compared to $92.9 million, or $0.95 per diluted share, in the year-ago period. Fiscal 2024 Guidance Patterson Companies today revised its fiscal 2024 earnings guidance, which is provided on both a GAAP and non-GAAP adjusted1 basis: GAAP earnings are expected to be in the range of $2.04 to $2.14 per diluted share. Non-GAAP adjusted earnings1 are expected to be in the range of $2.35 to $2.45 per diluted share. Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of: Deal amortization expenses of approximately $29.3 million ($0.31 per diluted share). Our guidance reflects the strength of our business and competitive positioning, as well as our expectations for the North American and international end markets in which we operate, which we expect to be affected by the ongoing challenges of inflationary trends and higher interest rates as well as additional slow-down in the broader economy. Beyond macroeconomic and geopolitical uncertainty, our guidance further assumes that there are no material adverse developments associated with wide-spread public health concerns. 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 net sales, gross profit, operating expenses, operating income, other income (expense), net, income before taxes, income tax expense, net income, net loss attributable to noncontrolling interests, net income attributable to Patterson Companies, Inc., and diluted earnings per share attributable to Patterson Companies, Inc. for the impact of deal amortization and an interest rate swap along with any related tax effects of these items. Interest rate swap -- Our customer financing net sales include the impact of changes in interest rates on deferred purchase price receivables, as the average interest rate in our contract portfolio may not fluctuate at the same rate as interest rate markets, resulting in an increase or reduction of gain on contract sales. We enter into an interest rate swap to hedge a portion of the related interest rate risk. These agreements do not qualify for hedge accounting, and the gains or losses on an interest rate swap are reported in other income and expense in our condensed consolidated statements of operation and other comprehensive income. Beginning this quarter and for the first quarter of fiscal 2024, we present a non-GAAP adjustment to reclassify the mark-to-market adjustment on the interest rate swap from other income (expense) to net sales to align the swap impact with the impact on customer financing net sales. We believe adjusted net sales, adjusted gross profit and adjusted operating income, which include the gains and losses on the interest rate swap, provides additional comparability from period to period because they present the impact of interest rate fluctuations, net of the mark-to-market swap adjustment, within adjusted net sales. We note the net impact of interest rate fluctuations has a minimal impact on net income. Deal amortization along with the related tax effect of this item. We believe this adjustment provides comparability with other companies. The term “free cash flow” used in this release is defined as net cash used in operating activities less capital expenditures plus the collection of deferred purchase price receivables. In addition, the term “internal sales” used in this release represents net sales adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap. 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 excluding the impact of foreign currency, an interest rate swap and recent acquisitions provides useful supplementary information to investors in light of fluctuations in these variables that are independent of our period-over-period performance. Management believes that these non-GAAP measures may provide a helpful representation of the company’s performance 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. Second Quarter Conference Call and Replay Patterson Companies’ fiscal 2024 second quarter conference call will start at 8:30 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 2024 second quarter conference call can be heard for one week at 1-800-770-2030 and by providing the Conference ID 71954 when prompted. About Patterson Companies Inc. Patterson Companies Inc. (Nasdaq: PDCO) connects dental and animal health customers in North America and the U.K. to the latest products, technologies, services and innovative business solutions that enable operational and professional success. Our comprehensive portfolio, distribution network and supply chain is equaled only by our dedicated, knowledgeable people who deliver unrivalled expertise and unmatched customer service and support. Learn more: pattersoncompanies.com This press release contains, and our officers and representatives may from time to time make, certain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, and the objectives and expectations of management. Forward-looking statements often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could” or “may.” Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Any number of factors could affect our actual results and cause such results to differ materially from those contemplated by any forward-looking statements, including, but not limited to, the following: wide-spread public health concerns as we experienced, and may continue to experience, with the COVID-19 pandemic; our dependence on suppliers to manufacture and supply substantially all of the products we sell; potential disruption of distribution capabilities, including service issues with third-party shippers; our dependence on relationships with sales representatives and service technicians to retain customers and develop business; adverse changes in supplier rebates or other purchasing incentives; risks of selling private label products, including the risk of adversely affecting our relationships with suppliers; the risk of technological and market obsolescence for the products we sell; the risk of failing to innovate and develop new and enhanced software and e-services products; our dependence on positive perceptions of Patterson’s reputation; risks associated with illicit human use of pharmaceutical products we distribute; risks inherent in acquiring and disposing of assets or other businesses and risks inherent in integrating acquired businesses; turnover or loss of key personnel or highly skilled employees; risks associated with information systems, software products and cyber-security attacks; risks related to climate change; our ability to comply with restrictive covenants and other limits in our credit agreement; the risk that our governing documents and Minnesota law may discourage takeovers and business combinations; the effects of the highly competitive dental and animal health supply markets in which we compete; the effects of consolidation within the dental and animal health supply markets; exposure to the risks of the animal production business, including changing consumer demand, the cyclical livestock market, weather conditions, the availability of natural resources and other factors outside our control, and the risks of the companion animal business, including the possibility of disease adversely affecting the pet population; exposure to the risks of the health care industry, including changes in demand due to political, economic and regulatory influences and other factors outside our control; increases in over-the-counter sales and e-commerce options; risks from the formation or expansion of GPOs, provider networks and buying groups that may place us at a competitive disadvantage; risks of litigation and government inquiries and investigations, including the diversion of management’s attention, the cost of defending against such actions, the possibility of damage awards or settlements, fines or penalties, or equitable remedies (including but not limited to the revocation of or non-renewal of licenses) and inherent uncertainty; failure to comply with health care fraud or other laws and regulations; change and uncertainty in the health care industry; failure to comply with existing or future U.S. or foreign laws and regulations including those governing the distribution of pharmaceuticals and controlled substances; failure to comply with evolving data privacy laws and regulations; tax legislation; risks inherent in international operations, including currency fluctuations; and uncertain macro-economic conditions, including inflationary pressures. The order in which these factors appear should not be construed to indicate their relative importance or priority. We caution that these factors may not be exhaustive, accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results. You should carefully consider these and other relevant factors, including those risk factors in Part I, Item 1A, (“Risk Factors”) in our most recent Form 10-K and information which may be contained in our other filings with the U.S. Securities and Exchange Commission, or SEC, when reviewing any forward-looking statement. Investors should understand it is impossible to predict or identify all such factors or risks. As such, you should not consider the foregoing list, or the risks identified in our SEC filings, to be a complete discussion of all potential risks or uncertainties. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to release publicly any revisions to any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Net sales $ 1,652,772 $ 1,626,204 $ 3,229,517 $ 3,149,469 Gross profit 339,026 328,089 658,081 640,222 Operating expenses 282,123 267,994 562,956 545,283 Operating income 56,903 60,095 95,125 94,939 Other income (expense): Other income, net 7,096 18,203 18,997 19,983 Interest expense (10,642 ) (7,544 ) (20,154 ) (13,107 ) Income before taxes 53,357 70,754 93,968 101,815 Income tax expense 13,502 17,105 22,983 23,906 Net income 39,855 53,649 70,985 77,909 Net loss attributable to noncontrolling interests (103 ) (424 ) (207 ) (754 ) Net income attributable to Patterson Companies, Inc. $ 39,958 $ 54,073 $ 71,192 $ 78,663 Earnings per share attributable to Patterson Companies, Inc.: Basic $ 0.42 $ 0.56 $ 0.75 $ 0.81 Diluted $ 0.42 $ 0.55 $ 0.74 $ 0.81 Weighted average shares: Basic 94,710 96,913 95,127 96,771 Diluted 95,156 97,552 95,722 97,708 Dividends declared per common share $ 0.26 $ 0.26 $ 0.52 $ 0.52 PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) October 28, 2023 April 29, 2023 ASSETS Current assets: Cash and cash equivalents $ 113,886 $ 159,669 Receivables, net 490,428 477,384 Inventory 858,028 795,072 Prepaid expenses and other current assets 328,334 351,011 Total current assets 1,790,676 1,783,136 Property and equipment, net 218,977 212,283 Operating lease right-of-use assets, net 101,532 92,956 Goodwill and identifiable intangibles, net 368,351 388,293 Investments 162,531 160,022 Long-term receivables, net and other 247,623 242,456 Total assets $ 2,889,690 $ 2,879,146 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 688,687 $ 724,993 Other accrued liabilities 223,723 250,949 Operating lease liabilities 30,132 28,390 Current maturities of long-term debt 36,000 36,000 Borrowings on revolving credit 170,000 45,000 Total current liabilities 1,148,542 1,085,332 Long-term debt 449,974 451,231 Non-current operating lease liabilities 74,393 67,376 Other non-current liabilities 161,692 156,672 Total liabilities 1,834,601 1,760,611 Stockholders' equity 1,055,089 1,118,535 Total liabilities and stockholders' equity $ 2,889,690 $ 2,879,146 PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended October 28, 2023 October 29, 2022 Operating activities: Net income $ 70,985 $ 77,909 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 42,836 41,090 Non-cash employee compensation 11,650 8,393 Non-cash losses (gains) and other, net 3,166 5,085 Change in assets and liabilities: Receivables (487,186 ) (508,811 ) Inventory (67,416 ) (100,596 ) Accounts payable (30,911 ) 41,557 Accrued liabilities (24,908 ) (47,519 ) Other changes from operating activities, net (3,492 ) (37,269 ) Net cash used in operating activities (485,276 ) (520,161 ) Investing activities: Additions to property and equipment and software (33,467 ) (26,779 ) Collection of deferred purchase price receivables 489,452 489,639 Payments related to acquisitions, net of cash acquired (1,108 ) — Payments related to investments — (15,000 ) Net cash provided by investing activities 454,877 447,860 Financing activities: Dividends paid (50,331 ) (50,732 ) Repurchases of common stock (90,491 ) (15,000 ) Payments on long-term debt (1,500 ) — Draw on revolving credit 125,000 145,000 Other financing activities 4,141 (1,766 ) Net cash provided by (used in) financing activities (13,181 ) 77,502 Effect of exchange rate changes on cash (2,203 ) (6,935 ) Net change in cash and cash equivalents (45,783 ) (1,734 ) Cash and cash equivalents at beginning of period 159,669 142,014 Cash and cash equivalents at end of period $ 113,886 $ 140,280 PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) October 28, 2023 October 29, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Three Months Ended Consolidated net sales Consumable $ 1,319,363 $ 1,301,256 1.4 % 0.9 % — % 0.2 % 0.3 % Equipment 230,293 243,896 (5.6 ) (0.2 ) — — (5.4 ) Value-added services and other 103,116 81,052 27.2 0.7 (12.7 ) 6.5 32.7 Total $ 1,652,772 $ 1,626,204 1.6 % 0.7 % (0.6 )% 0.5 % 1.0 % Dental Consumable $ 346,492 $ 337,489 2.7 % (0.2 )% — % — % 2.9 % Equipment 200,127 214,006 (6.5 ) (0.2 ) — — (6.3 ) Value-added services and other 79,762 77,428 3.0 (0.1 ) — — 3.1 Total $ 626,381 $ 628,923 (0.4 )% (0.2 )% — % — % (0.2 )% Animal Health Consumable $ 972,871 $ 963,767 0.9 % 1.2 % — % 0.3 % (0.6 )% Equipment 30,166 29,890 0.9 — — — 0.9 Value-added services and other 21,585 9,339 131.1 6.5 — 56.7 67.9 Total $ 1,024,622 $ 1,002,996 2.2 % 1.2 % — % 0.8 % 0.2 % Corporate Value-added services and other $ 1,769 $ (5,715 ) (131.0 )% — % 180.0 % — % (311.0 )% Total $ 1,769 $ (5,715 ) (131.0 )% — % 180.0 % — % (311.0 )% PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) October 28, 2023 October 29, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Six Months Ended Consolidated net sales Consumable $ 2,635,088 $ 2,563,025 2.8 % 0.6 % — % 0.2 % 2.0 % Equipment 394,264 417,831 (5.6 ) (0.2 ) — — (5.4 ) Value-added services and other 200,165 168,613 18.7 0.4 (0.9 ) 6.2 13.0 Total $ 3,229,517 $ 3,149,469 2.5 % 0.4 % — % 0.5 % 1.6 % Dental Consumable $ 698,539 $ 675,329 3.4 % (0.3 )% — % — % 3.7 % Equipment 337,676 360,516 (6.3 ) (0.3 ) — — (6.0 ) Value-added services and other 157,466 150,995 4.3 (0.1 ) — — 4.4 Total $ 1,193,681 $ 1,186,840 0.6 % (0.3 )% — % — % 0.9 % Animal Health Consumable $ 1,936,549 $ 1,887,696 2.6 % 0.9 % — % 0.3 % 1.4 % Equipment 56,588 57,315 (1.3 ) — — — (1.3 ) Value-added services and other 42,475 18,355 131.4 4.6 — 56.7 70.1 Total $ 2,035,612 $ 1,963,366 3.7 % 0.9 % — % 0.8 % 2.0 % Corporate Value-added services and other $ 224 $ (737 ) (130.4 )% — % 212.3 % — % (342.7 )% Total $ 224 $ (737 ) (130.4 )% — % 212.3 % — % (342.7 )% PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) July 29, 2023 July 30, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Three Months Ended Consolidated net sales Consumable $ 1,315,725 $ 1,261,769 4.3 % 0.3 % — % 0.2 % 3.8 % Equipment 163,971 173,935 (5.7 ) (0.3 ) — — (5.4 ) Value-added services and other 97,049 87,561 10.8 0.1 10.0 5.8 (5.1 ) Total $ 1,576,745 $ 1,523,265 3.5 % 0.2 % 0.6 % 0.5 % 2.2 % Dental Consumable $ 352,047 $ 337,840 4.2 % (0.4 )% — % — % 4.6 % Equipment 137,549 146,510 (6.1 ) (0.4 ) — — (5.7 ) Value-added services and other 77,704 73,567 5.6 (0.2 ) — — 5.8 Total $ 567,300 $ 557,917 1.7 % (0.4 )% — % — % 2.1 % Animal Health Consumable $ 963,678 $ 923,929 4.3 % 0.5 % — % 0.3 % 3.5 % Equipment 26,422 27,425 (3.7 ) — — — (3.7 ) Value-added services and other 20,890 9,016 131.7 2.7 — 56.7 72.3 Total $ 1,010,990 $ 960,370 5.3 % 0.5 % — % 0.8 % 4.0 % Corporate Value-added services and other $ (1,545 ) $ 4,978 (131.0 )% — % 175.2 % — % (306.2 )% Total $ (1,545 ) $ 4,978 (131.0 )% — % 175.2 % — % (306.2 )% PATTERSON COMPANIES, INC. OPERATING INCOME BY SEGMENT (In thousands) (Unaudited) Three Months Ended Six Months Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Operating income (loss) Dental $ 55,277 $ 60,950 $ 93,947 $ 97,845 Animal Health 26,346 28,316 56,039 50,175 Corporate (24,720 ) (29,171 ) (54,861 ) (53,081 ) Total $ 56,903 $ 60,095 $ 95,125 $ 94,939 PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the three months ended October 28, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,652,772 $ — $ 2,786 $ 1,655,558 Gross profit 339,026 — 2,786 341,812 Operating expenses 282,123 (9,628 ) — 272,495 Operating income 56,903 9,628 2,786 69,317 Other income (expense), net (3,546 ) — (2,786 ) (6,332 ) Income before taxes 53,357 9,628 — 62,985 Income tax expense 13,502 2,305 — 15,807 Net income 39,855 7,323 — 47,178 Net loss attributable to noncontrolling interests (103 ) — — (103 ) Net income attributable to Patterson Companies, Inc. $ 39,958 $ 7,323 $ — $ 47,281 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.42 $ 0.08 $ — $ 0.50 Gross margin 20.5 % 20.6 % Operating margin 3.4 % 4.2 % Effective tax rate 25.3 % 25.1 % For the three months ended October 29, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,626,204 $ — $ 13,072 $ 1,639,276 Gross profit 328,089 — 13,072 341,161 Operating expenses 267,994 (9,327 ) — 258,667 Operating income 60,095 9,327 13,072 82,494 Other income (expense), net 10,659 — (13,072 ) (2,413 ) Income before taxes 70,754 9,327 — 80,081 Income tax expense 17,105 2,237 — 19,342 Net income 53,649 7,090 — 60,739 Net loss attributable to noncontrolling interests (424 ) — — (424 ) Net income attributable to Patterson Companies, Inc. $ 54,073 $ 7,090 $ — $ 61,163 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.55 $ 0.07 $ — $ 0.63 Gross margin 20.2 % 20.8 % Operating margin 3.7 % 5.0 % Effective tax rate 24.2 % 24.2 % * May not sum due to rounding PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the six months ended October 28, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 3,229,517 $ — $ 9,561 $ 3,239,078 Gross profit 658,081 — 9,561 667,642 Operating expenses 562,956 (19,254 ) — 543,702 Operating income 95,125 19,254 9,561 123,940 Other income (expense), net (1,157 ) — (9,561 ) (10,718 ) Income before taxes 93,968 19,254 — 113,222 Income tax expense 22,983 4,609 — 27,592 Net income 70,985 14,645 — 85,630 Net loss attributable to noncontrolling interests (207 ) — — (207 ) Net income attributable to Patterson Companies, Inc. $ 71,192 $ 14,645 $ — $ 85,837 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.74 $ 0.15 $ — $ 0.90 Gross margin 20.4 % 20.6 % Operating margin 2.9 % 3.8 % Effective tax rate 24.5 % 24.4 % For the six months ended October 29, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 3,149,469 $ — $ 11,124 $ 3,160,593 Gross profit 640,222 — 11,124 651,346 Operating expenses 545,283 (18,678 ) — 526,605 Operating income 94,939 18,678 11,124 124,741 Other income (expense), net 6,876 — (11,124 ) (4,248 ) Income before taxes 101,815 18,678 — 120,493 Income tax expense 23,906 4,474 — 28,380 Net income 77,909 14,204 — 92,113 Net loss attributable to noncontrolling interests (754 ) — — (754 ) Net income attributable to Patterson Companies, Inc. $ 78,663 $ 14,204 $ — $ 92,867 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.81 $ 0.15 $ — $ 0.95 Gross margin 20.3 % 20.6 % Operating margin 3.0 % 3.9 % Effective tax rate 23.5 % 23.6 % * May not sum due to rounding PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the three months ended July 29, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,576,745 $ — $ 6,775 $ 1,583,520 Gross profit 319,055 — 6,775 325,830 Operating expenses 280,833 (9,626 ) — 271,207 Operating income 38,222 9,626 6,775 54,623 Other income (expense), net 2,389 — (6,775 ) (4,386 ) Income before taxes 40,611 9,626 — 50,237 Income tax expense 9,481 2,304 — 11,785 Net income 31,130 7,322 — 38,452 Net loss attributable to noncontrolling interests (104 ) — — (104 ) Net income attributable to Patterson Companies, Inc. $ 31,234 $ 7,322 $ — $ 38,556 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.32 $ 0.08 $ — $ 0.40 Gross margin 20.2 % 20.6 % Operating margin 2.4 % 3.4 % Effective tax rate 23.3 % 23.5 % For the three months ended July 30, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,523,265 $ — $ (1,948 ) $ 1,521,317 Gross profit 312,133 — (1,948 ) 310,185 Operating expenses 277,289 (9,351 ) — 267,938 Operating income 34,844 9,351 (1,948 ) 42,247 Other income (expense), net (3,783 ) — 1,948 (1,835 ) Income before taxes 31,061 9,351 — 40,412 Income tax expense 6,801 2,237 — 9,038 Net income 24,260 7,114 — 31,374 Net loss attributable to noncontrolling interests (330 ) — — (330 ) Net income attributable to Patterson Companies, Inc. $ 24,590 $ 7,114 $ — $ 31,704 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.25 $ 0.07 $ — $ 0.32 Gross margin 20.5 % 20.4 % Operating margin 2.3 % 2.8 % Effective tax rate 21.9 % 22.4 % * May not sum due to rounding PATTERSON COMPANIES, INC. FREE CASH FLOW (In thousands) (Unaudited) Six Months Ended October 28, 2023 October 29, 2022 Net cash used in operating activities $ (485,276 ) $ (520,161 ) Additions to property and equipment and software (33,467 ) (26,779 ) Collection of deferred purchase price receivables 489,452 489,639 Free cash flow $ (29,291 ) $ (57,301 ) View source version on businesswire.com: https://www.businesswire.com/news/home/20231129971564/en/Contacts INVESTORS: John M. Wright, Investor Relations Patterson Companies Inc. 651.686.1364 investor.relations@pattersoncompanies.com MEDIA: Patterson Corporate Communications Patterson Companies Inc. 651.905.3349 corporate.communications@pattersoncompanies.com pattersoncompanies.com
Second quarter reported net sales increased 1.6 percent year-over-year to $1.65 billion. Internal sales increased 1.0 percent year-over-year, driven by dental consumables growth of 2.9 percent; excluding certain infection control products, internal sales of dental consumables increased 4.7 percent year-over-year. Delivered second quarter GAAP earnings of $0.42 per diluted share and adjusted earnings of $0.50 per diluted share. Returned $85.9 million to shareholders through dividends and share repurchases. Revises fiscal 2024 GAAP earnings guidance to $2.04 to $2.14 per diluted share and adjusted earnings1 guidance of $2.35 to $2.45 per diluted share.
Patterson Companies, Inc. (Nasdaq: PDCO) today reported operating results for its fiscal 2024 second quarter ended October 28, 2023. “Our team executed well against softer than anticipated demand within our end markets,” said Don Zurbay, President and CEO of Patterson Companies. “Steady patient traffic supported strong performance in our broad and resilient dental consumables portfolio that was offset by lower sales in certain high-tech dental equipment categories. Our Animal Health segment benefitted from the depth of our offering and omnichannel presence across a wide range of animal species. We delivered healthy sales growth in our production animal business while our companion animal business was impacted by moderating veterinary clinic visits. “The macro environment challenges we faced during the second quarter do not change our core objectives or continued conviction in making strategic investments in our distribution capabilities, software offerings, and value-added services. While we have adjusted our fiscal 2024 guidance to reflect our current expectations for the near term, we remain confident in the enduring strength and resiliency of the Dental and Animal Health end markets. We continue to believe that our talented team and comprehensive value proposition make Patterson well positioned to drive enhanced growth, profitability and value creation over the long term.” Second Quarter Fiscal 2024 Results Consolidated net sales were $1.65 billion (see attached Sales Summary for further details), an increase of 1.6 percent compared to the same period last year. Internal sales, which are adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap, increased 1.0 percent over the prior year period. Reported net income attributable to Patterson Companies, Inc. for the second quarter of fiscal 2024 was $40.0 million, or $0.42 per diluted share, compared to $54.1 million, or $0.55 per diluted share, in the second quarter of fiscal 2023. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization, totaled $47.3 million for the second quarter of fiscal 2024, or $0.50 per diluted share, compared to $61.2 million, or $0.63 per diluted share, in the second quarter of fiscal 2023. The year-over-year decrease in reported and adjusted net income attributable to Patterson Companies, Inc. in the second quarter of fiscal 2024 was primarily due to lower sales of dental technology equipment and increased operating expenses compared to the prior year period. Patterson Dental Reported net sales in the Dental segment for the second quarter of fiscal 2024 were $626.4 million. Internal sales decreased 0.2 percent compared to the fiscal 2023 second quarter. Internal sales of consumables increased 2.9 percent year-over-year. Excluding the deflationary impact of certain infection control products, internal sales of consumables increased 4.7 percent year-over-year. Compared to the prior year period, internal sales of equipment decreased 6.3 percent and internal sales of value-added services increased 3.1 percent. Patterson Animal Health Reported net sales in the Animal Health segment for the second quarter of fiscal 2024 were $1.02 billion. Internal sales growth of 0.2 percent year-over-year was driven by growth in the production animal business, which more than offset reduced sales in the companion animal business. Within the Animal Health segment, internal sales of consumables decreased 0.6 percent, equipment increased 0.9 percent and value-added services increased 67.9 percent. Balance Sheet and Capital Allocation During the first six months of fiscal 2024, Patterson Companies used $485.3 million of cash from operating activities and collected deferred purchase price receivables of $489.5 million, generating $4.2 million in cash, compared to using $30.5 million in the prior year period. Free cash flow1 (see definition below and attached free cash flow table) during the first six months of fiscal 2024 improved by $28.0 million compared to the first six months of fiscal 2023 due to a decreased level of working capital during the first six months of fiscal 2024. In the second quarter of fiscal 2024, Patterson declared a quarterly cash dividend of $0.26 per share and returned $24.9 million in cash dividends to shareholders. Also, under an existing share repurchase authorization, the company repurchased approximately $61.0 million of shares during the second quarter of fiscal 2024. Through the first six months of fiscal 2024, Patterson Companies returned $140.8 million to shareholders in the form of cash dividends and share repurchases. At of the end of the second quarter of fiscal 2024, Patterson had approximately $319 million of share repurchase authority remaining on its current share repurchase authorization. Year-to-Date Results Consolidated reported net sales for the first six months of fiscal 2024 totaled $3.23 billion, a 2.5 percent year-over-year increase. Internal sales for the first six months of fiscal 2024, which are adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap, increased 1.6 percent year-over-year. Through the first six months of fiscal 2024, Dental segment internal sales increased 0.9 percent, including a 3.7 percent increase in consumables, a 6.0 percent decline in equipment and a 4.4 percent increase in value-added services. Through the first six months of fiscal 2024, Animal Health segment internal sales increased 2.0 percent, including 1.4 percent growth in consumables, a 1.3 percent decline in equipment and a 70.1 percent increase in value-added services. Reported net income attributable to Patterson Companies, Inc. was $71.2 million, or $0.74 per diluted share, compared to $78.7 million, or $0.81 per diluted share in last year's period. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization, totaled $85.8 million, or $0.90 per diluted share, compared to $92.9 million, or $0.95 per diluted share, in the year-ago period. Fiscal 2024 Guidance Patterson Companies today revised its fiscal 2024 earnings guidance, which is provided on both a GAAP and non-GAAP adjusted1 basis: GAAP earnings are expected to be in the range of $2.04 to $2.14 per diluted share. Non-GAAP adjusted earnings1 are expected to be in the range of $2.35 to $2.45 per diluted share. Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of: Deal amortization expenses of approximately $29.3 million ($0.31 per diluted share). Our guidance reflects the strength of our business and competitive positioning, as well as our expectations for the North American and international end markets in which we operate, which we expect to be affected by the ongoing challenges of inflationary trends and higher interest rates as well as additional slow-down in the broader economy. Beyond macroeconomic and geopolitical uncertainty, our guidance further assumes that there are no material adverse developments associated with wide-spread public health concerns. 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 net sales, gross profit, operating expenses, operating income, other income (expense), net, income before taxes, income tax expense, net income, net loss attributable to noncontrolling interests, net income attributable to Patterson Companies, Inc., and diluted earnings per share attributable to Patterson Companies, Inc. for the impact of deal amortization and an interest rate swap along with any related tax effects of these items. Interest rate swap -- Our customer financing net sales include the impact of changes in interest rates on deferred purchase price receivables, as the average interest rate in our contract portfolio may not fluctuate at the same rate as interest rate markets, resulting in an increase or reduction of gain on contract sales. We enter into an interest rate swap to hedge a portion of the related interest rate risk. These agreements do not qualify for hedge accounting, and the gains or losses on an interest rate swap are reported in other income and expense in our condensed consolidated statements of operation and other comprehensive income. Beginning this quarter and for the first quarter of fiscal 2024, we present a non-GAAP adjustment to reclassify the mark-to-market adjustment on the interest rate swap from other income (expense) to net sales to align the swap impact with the impact on customer financing net sales. We believe adjusted net sales, adjusted gross profit and adjusted operating income, which include the gains and losses on the interest rate swap, provides additional comparability from period to period because they present the impact of interest rate fluctuations, net of the mark-to-market swap adjustment, within adjusted net sales. We note the net impact of interest rate fluctuations has a minimal impact on net income. Deal amortization along with the related tax effect of this item. We believe this adjustment provides comparability with other companies. The term “free cash flow” used in this release is defined as net cash used in operating activities less capital expenditures plus the collection of deferred purchase price receivables. In addition, the term “internal sales” used in this release represents net sales adjusted for the effects of currency translation, contributions from recent acquisitions and the net impact of an interest rate swap. 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 excluding the impact of foreign currency, an interest rate swap and recent acquisitions provides useful supplementary information to investors in light of fluctuations in these variables that are independent of our period-over-period performance. Management believes that these non-GAAP measures may provide a helpful representation of the company’s performance 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. Second Quarter Conference Call and Replay Patterson Companies’ fiscal 2024 second quarter conference call will start at 8:30 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 2024 second quarter conference call can be heard for one week at 1-800-770-2030 and by providing the Conference ID 71954 when prompted. About Patterson Companies Inc. Patterson Companies Inc. (Nasdaq: PDCO) connects dental and animal health customers in North America and the U.K. to the latest products, technologies, services and innovative business solutions that enable operational and professional success. Our comprehensive portfolio, distribution network and supply chain is equaled only by our dedicated, knowledgeable people who deliver unrivalled expertise and unmatched customer service and support. Learn more: pattersoncompanies.com This press release contains, and our officers and representatives may from time to time make, certain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, and the objectives and expectations of management. Forward-looking statements often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could” or “may.” Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Any number of factors could affect our actual results and cause such results to differ materially from those contemplated by any forward-looking statements, including, but not limited to, the following: wide-spread public health concerns as we experienced, and may continue to experience, with the COVID-19 pandemic; our dependence on suppliers to manufacture and supply substantially all of the products we sell; potential disruption of distribution capabilities, including service issues with third-party shippers; our dependence on relationships with sales representatives and service technicians to retain customers and develop business; adverse changes in supplier rebates or other purchasing incentives; risks of selling private label products, including the risk of adversely affecting our relationships with suppliers; the risk of technological and market obsolescence for the products we sell; the risk of failing to innovate and develop new and enhanced software and e-services products; our dependence on positive perceptions of Patterson’s reputation; risks associated with illicit human use of pharmaceutical products we distribute; risks inherent in acquiring and disposing of assets or other businesses and risks inherent in integrating acquired businesses; turnover or loss of key personnel or highly skilled employees; risks associated with information systems, software products and cyber-security attacks; risks related to climate change; our ability to comply with restrictive covenants and other limits in our credit agreement; the risk that our governing documents and Minnesota law may discourage takeovers and business combinations; the effects of the highly competitive dental and animal health supply markets in which we compete; the effects of consolidation within the dental and animal health supply markets; exposure to the risks of the animal production business, including changing consumer demand, the cyclical livestock market, weather conditions, the availability of natural resources and other factors outside our control, and the risks of the companion animal business, including the possibility of disease adversely affecting the pet population; exposure to the risks of the health care industry, including changes in demand due to political, economic and regulatory influences and other factors outside our control; increases in over-the-counter sales and e-commerce options; risks from the formation or expansion of GPOs, provider networks and buying groups that may place us at a competitive disadvantage; risks of litigation and government inquiries and investigations, including the diversion of management’s attention, the cost of defending against such actions, the possibility of damage awards or settlements, fines or penalties, or equitable remedies (including but not limited to the revocation of or non-renewal of licenses) and inherent uncertainty; failure to comply with health care fraud or other laws and regulations; change and uncertainty in the health care industry; failure to comply with existing or future U.S. or foreign laws and regulations including those governing the distribution of pharmaceuticals and controlled substances; failure to comply with evolving data privacy laws and regulations; tax legislation; risks inherent in international operations, including currency fluctuations; and uncertain macro-economic conditions, including inflationary pressures. The order in which these factors appear should not be construed to indicate their relative importance or priority. We caution that these factors may not be exhaustive, accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results. You should carefully consider these and other relevant factors, including those risk factors in Part I, Item 1A, (“Risk Factors”) in our most recent Form 10-K and information which may be contained in our other filings with the U.S. Securities and Exchange Commission, or SEC, when reviewing any forward-looking statement. Investors should understand it is impossible to predict or identify all such factors or risks. As such, you should not consider the foregoing list, or the risks identified in our SEC filings, to be a complete discussion of all potential risks or uncertainties. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to release publicly any revisions to any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Net sales $ 1,652,772 $ 1,626,204 $ 3,229,517 $ 3,149,469 Gross profit 339,026 328,089 658,081 640,222 Operating expenses 282,123 267,994 562,956 545,283 Operating income 56,903 60,095 95,125 94,939 Other income (expense): Other income, net 7,096 18,203 18,997 19,983 Interest expense (10,642 ) (7,544 ) (20,154 ) (13,107 ) Income before taxes 53,357 70,754 93,968 101,815 Income tax expense 13,502 17,105 22,983 23,906 Net income 39,855 53,649 70,985 77,909 Net loss attributable to noncontrolling interests (103 ) (424 ) (207 ) (754 ) Net income attributable to Patterson Companies, Inc. $ 39,958 $ 54,073 $ 71,192 $ 78,663 Earnings per share attributable to Patterson Companies, Inc.: Basic $ 0.42 $ 0.56 $ 0.75 $ 0.81 Diluted $ 0.42 $ 0.55 $ 0.74 $ 0.81 Weighted average shares: Basic 94,710 96,913 95,127 96,771 Diluted 95,156 97,552 95,722 97,708 Dividends declared per common share $ 0.26 $ 0.26 $ 0.52 $ 0.52 PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) October 28, 2023 April 29, 2023 ASSETS Current assets: Cash and cash equivalents $ 113,886 $ 159,669 Receivables, net 490,428 477,384 Inventory 858,028 795,072 Prepaid expenses and other current assets 328,334 351,011 Total current assets 1,790,676 1,783,136 Property and equipment, net 218,977 212,283 Operating lease right-of-use assets, net 101,532 92,956 Goodwill and identifiable intangibles, net 368,351 388,293 Investments 162,531 160,022 Long-term receivables, net and other 247,623 242,456 Total assets $ 2,889,690 $ 2,879,146 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 688,687 $ 724,993 Other accrued liabilities 223,723 250,949 Operating lease liabilities 30,132 28,390 Current maturities of long-term debt 36,000 36,000 Borrowings on revolving credit 170,000 45,000 Total current liabilities 1,148,542 1,085,332 Long-term debt 449,974 451,231 Non-current operating lease liabilities 74,393 67,376 Other non-current liabilities 161,692 156,672 Total liabilities 1,834,601 1,760,611 Stockholders' equity 1,055,089 1,118,535 Total liabilities and stockholders' equity $ 2,889,690 $ 2,879,146 PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended October 28, 2023 October 29, 2022 Operating activities: Net income $ 70,985 $ 77,909 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 42,836 41,090 Non-cash employee compensation 11,650 8,393 Non-cash losses (gains) and other, net 3,166 5,085 Change in assets and liabilities: Receivables (487,186 ) (508,811 ) Inventory (67,416 ) (100,596 ) Accounts payable (30,911 ) 41,557 Accrued liabilities (24,908 ) (47,519 ) Other changes from operating activities, net (3,492 ) (37,269 ) Net cash used in operating activities (485,276 ) (520,161 ) Investing activities: Additions to property and equipment and software (33,467 ) (26,779 ) Collection of deferred purchase price receivables 489,452 489,639 Payments related to acquisitions, net of cash acquired (1,108 ) — Payments related to investments — (15,000 ) Net cash provided by investing activities 454,877 447,860 Financing activities: Dividends paid (50,331 ) (50,732 ) Repurchases of common stock (90,491 ) (15,000 ) Payments on long-term debt (1,500 ) — Draw on revolving credit 125,000 145,000 Other financing activities 4,141 (1,766 ) Net cash provided by (used in) financing activities (13,181 ) 77,502 Effect of exchange rate changes on cash (2,203 ) (6,935 ) Net change in cash and cash equivalents (45,783 ) (1,734 ) Cash and cash equivalents at beginning of period 159,669 142,014 Cash and cash equivalents at end of period $ 113,886 $ 140,280 PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) October 28, 2023 October 29, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Three Months Ended Consolidated net sales Consumable $ 1,319,363 $ 1,301,256 1.4 % 0.9 % — % 0.2 % 0.3 % Equipment 230,293 243,896 (5.6 ) (0.2 ) — — (5.4 ) Value-added services and other 103,116 81,052 27.2 0.7 (12.7 ) 6.5 32.7 Total $ 1,652,772 $ 1,626,204 1.6 % 0.7 % (0.6 )% 0.5 % 1.0 % Dental Consumable $ 346,492 $ 337,489 2.7 % (0.2 )% — % — % 2.9 % Equipment 200,127 214,006 (6.5 ) (0.2 ) — — (6.3 ) Value-added services and other 79,762 77,428 3.0 (0.1 ) — — 3.1 Total $ 626,381 $ 628,923 (0.4 )% (0.2 )% — % — % (0.2 )% Animal Health Consumable $ 972,871 $ 963,767 0.9 % 1.2 % — % 0.3 % (0.6 )% Equipment 30,166 29,890 0.9 — — — 0.9 Value-added services and other 21,585 9,339 131.1 6.5 — 56.7 67.9 Total $ 1,024,622 $ 1,002,996 2.2 % 1.2 % — % 0.8 % 0.2 % Corporate Value-added services and other $ 1,769 $ (5,715 ) (131.0 )% — % 180.0 % — % (311.0 )% Total $ 1,769 $ (5,715 ) (131.0 )% — % 180.0 % — % (311.0 )% PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) October 28, 2023 October 29, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Six Months Ended Consolidated net sales Consumable $ 2,635,088 $ 2,563,025 2.8 % 0.6 % — % 0.2 % 2.0 % Equipment 394,264 417,831 (5.6 ) (0.2 ) — — (5.4 ) Value-added services and other 200,165 168,613 18.7 0.4 (0.9 ) 6.2 13.0 Total $ 3,229,517 $ 3,149,469 2.5 % 0.4 % — % 0.5 % 1.6 % Dental Consumable $ 698,539 $ 675,329 3.4 % (0.3 )% — % — % 3.7 % Equipment 337,676 360,516 (6.3 ) (0.3 ) — — (6.0 ) Value-added services and other 157,466 150,995 4.3 (0.1 ) — — 4.4 Total $ 1,193,681 $ 1,186,840 0.6 % (0.3 )% — % — % 0.9 % Animal Health Consumable $ 1,936,549 $ 1,887,696 2.6 % 0.9 % — % 0.3 % 1.4 % Equipment 56,588 57,315 (1.3 ) — — — (1.3 ) Value-added services and other 42,475 18,355 131.4 4.6 — 56.7 70.1 Total $ 2,035,612 $ 1,963,366 3.7 % 0.9 % — % 0.8 % 2.0 % Corporate Value-added services and other $ 224 $ (737 ) (130.4 )% — % 212.3 % — % (342.7 )% Total $ 224 $ (737 ) (130.4 )% — % 212.3 % — % (342.7 )% PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited) July 29, 2023 July 30, 2022 Total Sales Growth Foreign Exchange Impact Net Interest Rate Swap Acquisition Impact Internal Sales Growth Three Months Ended Consolidated net sales Consumable $ 1,315,725 $ 1,261,769 4.3 % 0.3 % — % 0.2 % 3.8 % Equipment 163,971 173,935 (5.7 ) (0.3 ) — — (5.4 ) Value-added services and other 97,049 87,561 10.8 0.1 10.0 5.8 (5.1 ) Total $ 1,576,745 $ 1,523,265 3.5 % 0.2 % 0.6 % 0.5 % 2.2 % Dental Consumable $ 352,047 $ 337,840 4.2 % (0.4 )% — % — % 4.6 % Equipment 137,549 146,510 (6.1 ) (0.4 ) — — (5.7 ) Value-added services and other 77,704 73,567 5.6 (0.2 ) — — 5.8 Total $ 567,300 $ 557,917 1.7 % (0.4 )% — % — % 2.1 % Animal Health Consumable $ 963,678 $ 923,929 4.3 % 0.5 % — % 0.3 % 3.5 % Equipment 26,422 27,425 (3.7 ) — — — (3.7 ) Value-added services and other 20,890 9,016 131.7 2.7 — 56.7 72.3 Total $ 1,010,990 $ 960,370 5.3 % 0.5 % — % 0.8 % 4.0 % Corporate Value-added services and other $ (1,545 ) $ 4,978 (131.0 )% — % 175.2 % — % (306.2 )% Total $ (1,545 ) $ 4,978 (131.0 )% — % 175.2 % — % (306.2 )% PATTERSON COMPANIES, INC. OPERATING INCOME BY SEGMENT (In thousands) (Unaudited) Three Months Ended Six Months Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Operating income (loss) Dental $ 55,277 $ 60,950 $ 93,947 $ 97,845 Animal Health 26,346 28,316 56,039 50,175 Corporate (24,720 ) (29,171 ) (54,861 ) (53,081 ) Total $ 56,903 $ 60,095 $ 95,125 $ 94,939 PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the three months ended October 28, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,652,772 $ — $ 2,786 $ 1,655,558 Gross profit 339,026 — 2,786 341,812 Operating expenses 282,123 (9,628 ) — 272,495 Operating income 56,903 9,628 2,786 69,317 Other income (expense), net (3,546 ) — (2,786 ) (6,332 ) Income before taxes 53,357 9,628 — 62,985 Income tax expense 13,502 2,305 — 15,807 Net income 39,855 7,323 — 47,178 Net loss attributable to noncontrolling interests (103 ) — — (103 ) Net income attributable to Patterson Companies, Inc. $ 39,958 $ 7,323 $ — $ 47,281 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.42 $ 0.08 $ — $ 0.50 Gross margin 20.5 % 20.6 % Operating margin 3.4 % 4.2 % Effective tax rate 25.3 % 25.1 % For the three months ended October 29, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,626,204 $ — $ 13,072 $ 1,639,276 Gross profit 328,089 — 13,072 341,161 Operating expenses 267,994 (9,327 ) — 258,667 Operating income 60,095 9,327 13,072 82,494 Other income (expense), net 10,659 — (13,072 ) (2,413 ) Income before taxes 70,754 9,327 — 80,081 Income tax expense 17,105 2,237 — 19,342 Net income 53,649 7,090 — 60,739 Net loss attributable to noncontrolling interests (424 ) — — (424 ) Net income attributable to Patterson Companies, Inc. $ 54,073 $ 7,090 $ — $ 61,163 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.55 $ 0.07 $ — $ 0.63 Gross margin 20.2 % 20.8 % Operating margin 3.7 % 5.0 % Effective tax rate 24.2 % 24.2 % * May not sum due to rounding PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the six months ended October 28, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 3,229,517 $ — $ 9,561 $ 3,239,078 Gross profit 658,081 — 9,561 667,642 Operating expenses 562,956 (19,254 ) — 543,702 Operating income 95,125 19,254 9,561 123,940 Other income (expense), net (1,157 ) — (9,561 ) (10,718 ) Income before taxes 93,968 19,254 — 113,222 Income tax expense 22,983 4,609 — 27,592 Net income 70,985 14,645 — 85,630 Net loss attributable to noncontrolling interests (207 ) — — (207 ) Net income attributable to Patterson Companies, Inc. $ 71,192 $ 14,645 $ — $ 85,837 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.74 $ 0.15 $ — $ 0.90 Gross margin 20.4 % 20.6 % Operating margin 2.9 % 3.8 % Effective tax rate 24.5 % 24.4 % For the six months ended October 29, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 3,149,469 $ — $ 11,124 $ 3,160,593 Gross profit 640,222 — 11,124 651,346 Operating expenses 545,283 (18,678 ) — 526,605 Operating income 94,939 18,678 11,124 124,741 Other income (expense), net 6,876 — (11,124 ) (4,248 ) Income before taxes 101,815 18,678 — 120,493 Income tax expense 23,906 4,474 — 28,380 Net income 77,909 14,204 — 92,113 Net loss attributable to noncontrolling interests (754 ) — — (754 ) Net income attributable to Patterson Companies, Inc. $ 78,663 $ 14,204 $ — $ 92,867 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.81 $ 0.15 $ — $ 0.95 Gross margin 20.3 % 20.6 % Operating margin 3.0 % 3.9 % Effective tax rate 23.5 % 23.6 % * May not sum due to rounding PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited) For the three months ended July 29, 2023 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,576,745 $ — $ 6,775 $ 1,583,520 Gross profit 319,055 — 6,775 325,830 Operating expenses 280,833 (9,626 ) — 271,207 Operating income 38,222 9,626 6,775 54,623 Other income (expense), net 2,389 — (6,775 ) (4,386 ) Income before taxes 40,611 9,626 — 50,237 Income tax expense 9,481 2,304 — 11,785 Net income 31,130 7,322 — 38,452 Net loss attributable to noncontrolling interests (104 ) — — (104 ) Net income attributable to Patterson Companies, Inc. $ 31,234 $ 7,322 $ — $ 38,556 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.32 $ 0.08 $ — $ 0.40 Gross margin 20.2 % 20.6 % Operating margin 2.4 % 3.4 % Effective tax rate 23.3 % 23.5 % For the three months ended July 30, 2022 GAAP Deal amortization Interest rate swap Non-GAAP Net sales $ 1,523,265 $ — $ (1,948 ) $ 1,521,317 Gross profit 312,133 — (1,948 ) 310,185 Operating expenses 277,289 (9,351 ) — 267,938 Operating income 34,844 9,351 (1,948 ) 42,247 Other income (expense), net (3,783 ) — 1,948 (1,835 ) Income before taxes 31,061 9,351 — 40,412 Income tax expense 6,801 2,237 — 9,038 Net income 24,260 7,114 — 31,374 Net loss attributable to noncontrolling interests (330 ) — — (330 ) Net income attributable to Patterson Companies, Inc. $ 24,590 $ 7,114 $ — $ 31,704 Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.25 $ 0.07 $ — $ 0.32 Gross margin 20.5 % 20.4 % Operating margin 2.3 % 2.8 % Effective tax rate 21.9 % 22.4 % * May not sum due to rounding PATTERSON COMPANIES, INC. FREE CASH FLOW (In thousands) (Unaudited) Six Months Ended October 28, 2023 October 29, 2022 Net cash used in operating activities $ (485,276 ) $ (520,161 ) Additions to property and equipment and software (33,467 ) (26,779 ) Collection of deferred purchase price receivables 489,452 489,639 Free cash flow $ (29,291 ) $ (57,301 ) View source version on businesswire.com: https://www.businesswire.com/news/home/20231129971564/en/
INVESTORS: John M. Wright, Investor Relations Patterson Companies Inc. 651.686.1364 investor.relations@pattersoncompanies.com MEDIA: Patterson Corporate Communications Patterson Companies Inc. 651.905.3349 corporate.communications@pattersoncompanies.com pattersoncompanies.com