Patterson Companies Reports Fiscal 2016 Second Quarter Operating Results

  • Sales from continuing operations totaled a record $1.4 billion, up
    44 percent on a constant currency basis, including the impact of
    recently acquired Animal Health International, Inc.
  • Dental segment sales rose 3.1 percent on a constant currency basis.
  • Animal Health segment sales up 109 percent on a constant currency
    basis, with $414.0 million in sales, attributed to the company’s
    recent acquisition of Animal Health International, Inc.
  • Adjusted EPS from continuing operations1
    totaled $0.56, a 27 percent increase over prior year, which reflects
    an increase in health insurance claims of $3.2 million after-tax, or
    $0.03 per diluted share.
  • Company reaffirms adjusted earnings guidance for fiscal 2016 of
    $2.40 to $2.50 per share.

ST. PAUL, Minn.–(BUSINESS WIRE)–Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated
sales from continuing operations of $1.4 billion (see attached Sales
Summary for further details) in its fiscal second quarter ended October
31, 2015, up 42 percent over the same period last year. Sales in this
fiscal 2016 period include a full quarter of results from the recent
Animal Health International, Inc. acquisition.

Adjusted net income from continuing operations1, which
reflects adjustments to exclude certain non-recurring and deal
amortization costs, was $55.3 million for the second quarter of fiscal
2016, representing a 26 percent gain over $43.8 million in the same
quarter last year. Adjusted diluted earnings per share from continuing
operations1 was $0.56 in the 2016 second quarter,
representing a 27 percent year-over-year increase. The second quarter
was affected by higher-than-anticipated healthcare claims and the impact
of foreign currency. Reported net income from continuing operations was
$42.6 million, or $0.43 per diluted share, compared to $41.9 million, or
$0.42 per share, in last year’s fiscal second quarter.

“We are in the middle of a significant year for Patterson and continue
to build momentum,” said Scott Anderson, chairman and chief executive
officer. “We have transformed and repositioned our company in the
markets we serve. Our Dental and Animal Health businesses have broadened
product offerings and our employees are focused on exceptional customer
service and support. We have positioned our company to capitalize on the
compelling long-term demographic, technology and productivity trends in
our markets.”

Patterson Dental

Sales for Patterson Dental, which represent approximately 43 percent of
total sales, rose to $601.3 million, up 3.1 percent on a constant
currency basis from the same quarter last year. On that same basis,
year-over-year sales by category were as follows:

  • Consumable dental supplies improved 3.3 percent
  • Equipment sales, led by technology, rose 2.2 percent
  • Other services and products, primarily composed of technical service,
    parts and labor, software support services and office supplies,
    climbed 4.2 percent

Commented Anderson, “Again this quarter, we saw an encouraging rise in
CEREC sales, especially among new users, and steady growth in the
consumables category. Results from these two areas confirm our
confidence in what we see as stable-to-steadily improving dynamics in
the North American dental market.”

Patterson Animal Health

Sales for Patterson Animal Health, which comprises approximately 56
percent of the company’s total sales, more than doubled to $774.5
million. Sales from Animal Health International, Inc. added $414.0
million to the Animal Health segment during the quarter. Without the
contribution from Animal Health International, and accounting for
normalized changes in veterinary diagnostic manufacturer relationships,
segment sales improved 3.2 percent on a constant currency basis, with
U.S. consumables rising 4.8 percent organically.

Anderson continued, “In our Animal Health business, we continued to
integrate the Animal Health International, Inc. acquisition and we are
pleased with the business integration process and synergies we are
gaining. Moreover, our established U.S. companion animal business
performed well, growing sales over 5 percent on a constant currency
basis. We are confident in the strengthened scale and market position of
our new animal health platform.”

Discontinued Operations

On August 28, 2015, Patterson Companies completed the sale of Patterson
Medical to Madison Dearborn Partners for approximately $715 million. As
a result of the sale, results of Patterson Medical are classified and
reported as discontinued operations in all periods beginning with the
fiscal 2016 first quarter.

Share Repurchases and Dividends

Fiscal year to date, Patterson repurchased approximately 3.9 million
shares of its outstanding common stock, with a value of $175.8 million,
leaving approximately 17 million shares for repurchase under the current
authorization. The company also paid $22.2 million in cash dividends to
shareholders in the second quarter and $45.4 million in the first half
of fiscal 2016.

Year-to-Date Results1

Consolidated sales from continuing operations for the first six months
of fiscal 2016 totaled $2.5 billion, representing a 32 percent
year-over-year increase. Adjusted net income from continuing operations
was $102.2 million, or $1.03 per diluted share, compared to adjusted net
income from continuing operations of $84.0 million, or $0.84 per diluted
share, in the year-ago period, as outlined in the Second Quarter and
Six-Month Reconciliation table1. Fiscal 2016 also includes
the impact of an extra week.

Business Outlook

Anderson concluded, “We are confident in the opportunities before us and
our ability to capitalize on them. The Animal Health integration is on
track and we remain focused on our customers’ success. In Dental, we
have substantial momentum in our technology sales, stability in
consumables and new, expanded opportunities from a broader equipment
portfolio. We continue to create value for shareholders as we invest in
our business, pay dividends and repurchase shares. We reaffirm our
fiscal 2016 adjusted earnings guidance range on a continuing operations
basis of $2.40 to $2.50 per diluted share.”

The fiscal 2016 annual financial outlook and adjusted earnings guidance:

  • Assumes stable North American and international markets – conditions
    similar to fiscal 2015
  • Includes the impact of an extra week in fiscal 2016 compared to the
    previous year
  • Excludes the impact of additional share repurchases for the remainder
    of the fiscal year
  • Excludes transaction-related costs, integration expense, deal
    amortization, accelerated debt issuance costs, non-recurring IT
    initiative training costs and tax costs related to cash repatriation
    (See Second Quarter and Six-Month Reconciliation table below)
  • Excludes the discontinued operations for Medical

1 Second Quarter and Six-Month Reconciliation

The following non-GAAP table is provided to adjust reported net income
and earnings per share for the impact of tax affected one-time costs,
current and prior deal-amortization costs and tax costs related to cash
repatriation. Management believes that the adjusted net income and EPS
amounts may provide a helpful representation of the company’s current
quarter performance.

                       
(Dollars in thousands, except EPS)
Three Months Ended Six Months Ended
October 31, 2015       October 25, 2014 October 31, 2015       October 25, 2014
Net Income from Continuing Operations – Reported $ 42,563 $ 41,865 $ 62,874 $ 80,190
Transaction-Related Costs 677 9,979
Deal Amortization 6,974 1,917 11,586 3,837
Integration Expense 1,328 2,054
Accelerated Debt Issuance Costs 3,205 3,205
Non-Recurring IT Training Costs 30 175
Tax Impact of Repatriation of Cash   500     12,300  
Net Income from Continuing Operations – Adjusted $ 55,277 $ 43,782 $ 102,173 $ 84,027
 
Diluted Earnings Per Share from Continuing Operations – Reported $ 0.43 $ 0.42 $ 0.63 $ 0.80
Transaction-Related Costs 0.01 0.10
Deal Amortization 0.07 0.02 0.12 0.04
Integration Expense 0.01 0.02
Accelerated Debt Issuance Costs 0.03 0.03
Non-Recurring IT Training Costs 0.00 0.00
Tax Impact of Repatriation of Cash   0.01     0.12  
Diluted Earnings Per Share from Continuing Operations – Adjusted* $ 0.56 $ 0.44 $ 1.03 $ 0.84
 
*Fiscal 2016 year-to-date EPS does not foot due to rounding
 

Second Quarter Conference Call and Replay

Patterson’s second quarter earnings conference call will start at 10
a.m. Eastern today. Investors can listen to a live webcast of the
conference call at www.pattersoncompanies.com.
The conference call will be archived on Patterson’s website. A replay of
the second quarter conference call can be heard for one week at
888-203-1112 and by providing the Conference ID 404442, when prompted.

About Patterson Companies, Inc.

Patterson Companies, Inc. is a value-added distributor serving the
dental and animal health markets.

Dental Market

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

Animal Health Market

Patterson Animal Health, formerly Patterson Veterinary, is a leading,
full-line distributor in North America and the U.K. of animal health
products, services and technologies to both the production-animal and
companion-pet markets.

This press release contains certain forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are information of a non-historical nature
and are subject to risks and uncertainties that are beyond Patterson’s
ability to control. Forward-looking statements generally can be
identified by words such as “believes,” “expects,” “anticipates,”
“foresees,” “forecasts,” “estimates” or other words or phrases of
similar import. It is uncertain whether any of the events anticipated by
the forward-looking statements will transpire or occur, or if any of
them do, what impact they will have on the results of operations and
financial condition of Patterson or the price of Patterson stock. These
forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from those indicated in
such forward-looking statements, including but not limited to the other
risks and important factors contained and identified in Patterson’s
filings with the Securities and Exchange Commission, such as its
Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, any of
which could cause actual results to differ materially from the
forward-looking statements. Any forward-looking statement in this press
release speaks only as of the date on which it is made. Except to the
extent required under the federal securities laws, Patterson does not
intend to update or revise the forward-looking statements.

                 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended Six Months Ended
October 31, October 25, October 31, October 25,
2015 2014 2015 2014
 
Net sales $ 1,389,210 $ 978,220 $ 2,532,080 $ 1,917,176
 
Gross profit 330,899 259,287 619,143 509,904
 
Operating expenses   247,436     187,147     473,503     371,768  
 
Operating income from continuing operations 83,463 72,140 145,640 138,136
 
Other expense, net   (16,200 )   (7,767 )   (27,673 )   (15,165 )
 
Income from continuing operations before taxes 67,263 64,373 117,967 122,971
 
Income taxes   24,700     22,508     55,093     42,781  
 
Net income from continuing operations 42,563 41,865 62,874 80,190
Net income from discontinued operations   (7,142 )   11,913     2,250     23,877  
Net income $ 35,421   $ 53,778   $ 65,124   $ 104,067  
 
Basic earnings per share:
Continuing operations $ 0.43 $ 0.42 $ 0.64 $ 0.81
Discontinued operations   (0.07 )   0.12     0.02     0.24  
Net basic earnings per share $ 0.36   $ 0.54   $ 0.66   $ 1.05  
 
Diluted earnings per share:
Continuing operations $ 0.43 $ 0.42 $ 0.63 $ 0.80
Discontinued operations   (0.07 )   0.12     0.02     0.24  
Net diluted earnings per share $ 0.36   $ 0.54   $ 0.65   $ 1.04  
 
Shares:
Basic 98,525 98,802 98,981 99,066
Diluted 99,185 99,376 99,674 99,779
 
Dividends declared per common share $ 0.22 $ 0.20 $ 0.44 $ 0.40
 
Gross margin – reported 23.8 % 26.5 % 24.5 % 26.6 %
 
Operating expenses as a % of net sales – adjusted 16.8 % 18.9 % 17.3 % 19.1 %
Adjustments1   1.0     0.2     1.4     0.3  
Operating expenses as a % of net sales – reported 17.8 % 19.1 % 18.7 % 19.4 %
 
Operating income as a % of net sales – adjusted 7.0 % 7.7 % 7.1 % 7.5 %
Adjustments1   (1.0 )   (0.3 )   (1.3 )   (0.3 )
Operating income as a % of net sales – reported 6.0 % 7.4 % 5.8 % 7.2 %
 
Effective tax rate – adjusted 35.9 % 34.8 % 35.2 % 34.6 %
Adjustments1   0.8     0.2     11.5     0.2  
Effective tax rate – reported 36.7 % 35.0 % 46.7 % 34.8 %
 

1

   

Refer to the press release for the definition of adjustments to
reported results

 
                     
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
October 31, April 25,
2015 2015
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 95,451 $ 400,632
Receivables 734,461 586,263
Inventory 752,849 408,422
Prepaid expenses and other current assets 83,169 59,561
Current assets held for sale     118,347
Total current assets 1,665,930 1,573,225
Property and equipment, net 272,190 204,133
Goodwill and other intangible assets 1,354,674 424,949
Investments and other 159,044 109,605
Long-term assets held for sale     635,794
Total assets $ 3,451,838 $ 2,947,706
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 492,469 $ 323,294
Other accrued liabilities 209,896 215,075
Current maturities of long-term debt 15,991
Borrowings on revolving credit 80,000
Current liabilities held for sale     39,316
Total current liabilities 798,356 577,685
Long-term debt 1,034,884 725,000
Other non-current liabilities 255,341 81,484
Long-term liabilities held for sale     49,414
Total liabilities 2,088,581 1,433,583
Stockholders’ equity   1,363,257   1,514,123
Total liabilities and stockholders’ equity $ 3,451,838 $ 2,947,706
 
 
                 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
 
Total Foreign Animal Health
October 31, October 25, Sales Exchange International Internal
2015 2014 Growth Impact Impact Growth

Three Months Ended

 
Consolidated net sales
Consumable1 $ 1,087,489 $ 686,165 58.5 % (2.2 ) % 60.7 % %
Equipment and software 207,809 204,409 1.7 (1.7 ) 0.3 3.1
Other1   93,912   87,646 7.1   (1.4 ) (1.0 ) 9.5  
Total $ 1,389,210 $ 978,220 42.0   % (2.0 ) % 42.6   % 1.4   %
 
Dental
Consumable1 $ 332,436 $ 326,562 1.8 % (1.5 ) % % 3.3 %
Equipment and software 196,767 195,962 0.4 (1.8 ) 2.2
Other1   72,119   70,112 2.9   (1.3 )   4.2  
Total $ 601,322 $ 592,636 1.5   % (1.6 ) %   % 3.1   %
 
Animal Health
Consumable1 $ 755,053 $ 359,603 110.0 % (2.8 ) % 115.4 % (2.6 ) %
Equipment and software 11,042 8,447 30.7 (0.2 ) 30.9
Other1   8,358   8,424 (0.8 ) (3.8 ) (11.6 ) 14.6  
Total $ 774,453 $ 376,474 105.7   % (2.8 ) % 110.0   % (1.5 ) %
 
Corporate
Other1 $ 13,435 $ 9,110 47.5   %   %   % 47.5   %
Total $ 13,435 $ 9,110 47.5   %   %   % 47.5   %
 
 

Six Months Ended

 
Consolidated net sales
Consumable1 $ 1,982,796 $ 1,381,804 43.5 % (2.4 ) % 42.7 % 3.2 %
Equipment and software 361,292 360,803 0.1 (1.6 ) 0.3 1.4
Other1   187,992   174,569 7.7   (1.4 ) (0.1 ) 9.2  

Total

$ 2,532,080 $ 1,917,176 32.1   % (2.2 ) % 30.8   % 3.5   %
 
Dental
Consumable1 $ 690,488 $ 651,852 5.9 % (1.5 ) % % 7.4 %
Equipment and software 340,437 344,745 (1.2 ) (1.7 ) 0.5
Other1   145,514   138,913 4.8   (1.2 )   6.0  
Total $ 1,176,439 $ 1,135,510 3.6   % (1.5 ) %   % 5.1   %
 
Animal Health
Consumable1 $ 1,292,308 $ 729,952 77.0 % (3.3 ) % 80.3 % %
Equipment and software 20,855 16,058 29.9 (0.2 ) 30.1
Other1   18,587   16,764 10.9   (4.4 ) (3.0 ) 18.3  
Total $ 1,331,750 $ 762,774 74.6   % (3.2 ) % 76.8   % 1.0   %
 
Corporate
Other1 $ 23,891 $ 18,892 26.5   %   %   % 26.5   %
Total $ 23,891 $ 18,892 26.5   %   %   % 26.5   %
 

1

   

Certain sales were reclassified from consumable to other in
current and prior periods.

 
                       
PATTERSON COMPANIES, INC.
SUPPLEMENTARY FINANCIAL DATA
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended Six Months Ended
October 31, October 25, October 31, October 25,
2015 2014 2015 2014
Operating income (loss)
Dental $ 74,094 $ 73,427 $ 141,346 $ 135,976
Animal Health 25,177 14,336 38,149 28,323
Corporate   (15,808 )   (15,623 )   (33,855 )   (26,163 )
$ 83,463   $ 72,140   $ 145,640   $ 138,136  
 
Other (expense) income, net
Interest income $ 629 $ 749 $ 1,418 $ 1,999
Interest expense (17,154 ) (8,544 ) (29,297 ) (17,312 )
Other   325     28     206     148  
$ (16,200 ) $ (7,767 ) $ (27,673 ) $ (15,165 )
 
 
                     
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended
October 31, October 25,
2015 2014
Operating activities:
Net income $ 65,124 $ 104,067
Net income from discontinued operations   2,250     23,877  
Net income from continuing operations 62,874 80,190
Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation & amortization 38,400 21,014
Non-cash employee compensation 13,541 11,940
Change in assets and liabilities, net of acquired   (128,782 )   (36,599 )
Net cash (used in) provided by operating activities – continuing
operations
(13,967 ) 76,545
Net cash (used in) provided by operating activities – discontinued
operations
  (38,985 )   21,850  
Net cash (used in) provided by operating activities (52,952 ) 98,395
 
Investing activities:
Additions to property and equipment, net of disposals (40,978 ) (29,190 )
Acquisitions and equity investments (1,105,229 )
Proceeds from sale 48,744 40,775
Purchase of investments       (543 )
Net cash (used in) provided by investing activities – continuing
operations
(1,097,463 )

 

11,042
Net cash provided by investing activities – discontinued operations   715,430  

 

  4,598  
Net cash (used in) provided by investing activities (382,033 )

 

15,640
 
Financing activities:
Dividends paid (45,356 ) (40,174 )
Share repurchases (160,579 ) (47,539 )
Proceeds from issuance of long-term debt, net 988,400
Draw on revolver 80,000
Retirement of long-term debt (674,125 )
Other financing activities   2,894     844  
Net cash provided by (used in) financing activities 191,234 (86,869 )
 
Effect of exchange rate changes on cash   (8,058 )   (7,202 )
Net change in cash and cash equivalents $ (251,809 ) $ 19,964  
 

Contacts

Patterson Companies, Inc.
Ann B. Gugino
Executive Vice
President & CFO
651-686-1600
or
John Wright
Vice
President, Investor Relations
651-686-1364