Patterson Companies Reports Fiscal 2016 Third Quarter Operating Results

  • Sales increased to $1.4 billion, up 47.8 percent on a constant
    currency basis, including the impact of sales from recently acquired
    Animal Health International, Inc.
  • Adjusted EPS from continuing operations1
    totaled $0.68, a 38.7 percent increase over prior year.
  • Dental segment sales rose 5.9 percent on a constant currency basis.
  • Animal Health segment sales increased 123.9 percent on a constant
    currency basis, with $406.6 million in sales attributed to the
    acquisition of Animal Health International, Inc.
  • Company narrows adjusted earnings guidance for fiscal 2016 to $2.42
    to $2.48 per diluted share.

ST. PAUL, Minn.–(BUSINESS WIRE)–Patterson Companies, Inc. (Nasdaq:PDCO) today reported consolidated
sales of $1.4 billion (see attached Sales Summary for further details)
in its fiscal third quarter ended January 30, 2016, up 46 percent over
the same period last year. Sales in this fiscal 2016 period include
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 $65.1 million for the third quarter of fiscal
2016, a 35 percent gain over $48.4 million in the same quarter last
year. Adjusted earnings per diluted share from continuing operations1
was $0.68 in the 2016 third quarter, a 39 percent year-over-year
increase. Reported net income from continuing operations was $57.2
million, or $0.60 per diluted share, compared to $46.4 million, or $0.47
per diluted share, in last year’s fiscal third quarter.

“We are pleased with our execution in the third quarter from both a
sales and operations perspective. Patterson Companies generated solid
organic revenue growth and expanded operating margins in both our Dental
and Animal Health businesses. We also made significant additional
integration progress in our Animal Health segment,” said Scott Anderson,
chairman, president and chief executive officer. “Our sales and support
teams are focusing diligently on serving our customers and taking full
advantage of our leadership in technology, value-added services and
broadened product offerings.”

Patterson Dental
Sales for Patterson Dental, which represent
approximately 46 percent of total sales, improved to $637.7 million, up
5.9 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 5.1 percent
  • Equipment sales rose 6.8 percent, reflecting strength in both
    technology and core equipment
  • Other services and products, primarily composed of technical service,
    parts and labor, software support services and office supplies,
    climbed 7.7 percent

Anderson said, “A highlight for us was the solid growth in the
consumables category this quarter, which stemmed from increased patient
utilization. We continue to see stable to steadily improving dynamics in
the North American dental market and believe we are increasingly
well-positioned to capitalize on this trend – given our technology
leadership and support infrastructure – across the full spectrum of
dental customers.”

Patterson Animal Health
Sales for Patterson Animal Health,
which comprise approximately 54 percent of the company’s total sales,
more than doubled to $749.7 million. Sales from Animal Health
International, Inc. added $406.6 million to the Animal Health segment
during the quarter. Excluding the contribution from Animal Health
International, Inc. and accounting for normalized changes in veterinary
diagnostic manufacturer relationships, segment sales improved 6.2
percent on a constant currency basis, led by an 11.3 percent increase in
the U.S.

Anderson continued, “Overall, our Animal Health business posted solid
results for the quarter, driven by a particularly strong performance in
the U.S. companion animal business. We remain confident in the pace of
our integration progress with Animal Health International, Inc., the
synergies we are gaining and the competitive position of our
market-leading 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 4.4 million shares of its
outstanding common stock, with a value of $200.0 million, leaving
approximately 16 million shares for repurchase under the current
authorization. The company also paid $21.6 million in cash dividends to
shareholders in the third quarter and $67.0 million in the first nine
months of fiscal 2016.

Year-to-Date Results1
Consolidated sales
for the first nine months of fiscal 2016 totaled $3.9 billion, a 37
percent year-over-year increase. Adjusted net income from continuing
operations was $167.3 million, or $1.70 per diluted share, compared to
adjusted net income from continuing operations of $132.4 million, or
$1.33 per diluted share, in the year-ago period, as outlined in the
Third Quarter and Nine-Month Reconciliation table1. Fiscal
2016 also includes the impact of an extra week.

Business Outlook
Anderson concluded, “With three quarters of
the fiscal year completed, we are narrowing our 2016 adjusted earnings
guidance range on a continuing operations basis to $2.42 to $2.48 per
diluted share. We expect to achieve this growth by concentrating on the
strong fundamentals in both of our businesses. In Dental, we intend to
capitalize on the favorable North American market conditions. In Animal
Health, as we generate synergies from the acquisition, we are focused on
driving growth across both the companion and production animal
platforms. We continue to create value for shareholders as we balance
investing in our business, paying dividends and repurchasing shares.”

The fiscal 2016 annual financial outlook and adjusted earnings guidance:

  • Assumes stable North American and international markets
  • 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 Third Quarter and Nine-Month Reconciliation table below)
  • Excludes the discontinued operations for Medical

1Third Quarter and Nine-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 Nine Months Ended
January 30, 2016     January 24, 2015 January 30, 2016     January 24, 2015
Net Income from Continuing Operations – Reported $ 57,190 $ 46,434 $ 120,064 $ 126,624
Transaction-Related Costs 28 10,007
Deal Amortization 6,921 1,930 18,507 5,767
Integration Expense 925 2,979
Accelerated Debt Issuance Costs 3,205
Non-Recurring IT Training Costs 77 252
Tax Impact of Repatriation of Cash       12,300  
Net Income from Continuing Operations – Adjusted $ 65,141 $ 48,364 $ 167,314 $ 132,391
 
Diluted Earnings Per Share from Continuing Operations – Reported $ 0.60 $ 0.47 $ 1.22 $ 1.27
Transaction-Related Costs 0.10
Deal Amortization 0.07 0.02 0.19 0.06
Integration Expense 0.01 0.03
Accelerated Debt Issuance Costs 0.03
Non-Recurring IT Training Costs
Tax Impact of Repatriation of Cash       0.12  
Diluted Earnings Per Share from Continuing Operations – Adjusted* $ 0.68 $ 0.49 $ 1.70 $ 1.33
 
*May not foot due to rounding
 

Third Quarter Conference Call and Replay
Patterson’s third
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 third quarter conference call can be heard for one week at
888-203-1112 and by providing the Conference ID 6564113, when prompted.

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

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

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

This press release contains certain forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are information of a non-historical nature
and are subject to risks and uncertainties that are beyond Patterson’s
ability to control. Forward-looking statements generally can be
identified by words such as “believes,” “expects,” “anticipates,”
“foresees,” “forecasts,” “estimates” or other words or phrases of
similar import. It is uncertain whether any of the events anticipated by
the forward-looking statements will transpire or occur, or if any of
them do, what impact they will have on the results of operations and
financial condition of Patterson or the price of Patterson stock. These
forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from those indicated in
such forward-looking statements, 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 Nine Months Ended
January 30, January 24, January 30, January 24,
2016 2015 2016 2015
 
Net sales $ 1,400,853 $ 958,628 $ 3,932,933 $ 2,875,804
 
Gross profit 339,864 262,442 959,007 772,346
 
Operating expenses   244,135     185,065     717,638     556,833  
 
Operating income from continuing operations 95,729 77,377 241,369 215,513
 
Other expense, net   (9,804 )   (7,971 )   (37,477 )   (23,136 )
 
Income from continuing operations before taxes 85,925 69,406 203,892 192,377
 
Income taxes   28,735     22,972     83,828     65,753  
 
Net income from continuing operations 57,190 46,434 120,064 126,624
Net income (loss) from discontinued operations   (750 )   8,242     1,500     32,119  
Net income $ 56,440   $ 54,676   $ 121,564   $ 158,743  
 
Basic earnings (loss) per share:
Continuing operations $ 0.60 $ 0.47 $ 1.23 $ 1.28
Discontinued operations   (0.01 )   0.08     0.01     0.32  
Net basic earnings per share $ 0.59   $ 0.55   $ 1.24   $ 1.60  
 
Diluted earnings (loss) per share:
Continuing operations $ 0.60 $ 0.47 $ 1.22 $ 1.27
Discontinued operations   (0.01 )   0.08     0.01     0.32  
Net diluted earnings per share $ 0.59   $ 0.55   $ 1.23   $ 1.59  
 
Shares:
Basic 95,335 98,842 97,809 98,991
Diluted 95,930 99,540 98,488 99,699
 
Dividends declared per common share $ 0.22 $ 0.20 $ 0.66 $ 0.60
 
Gross margin – reported 24.3 % 27.4 % 24.4 % 26.9 %
 
Operating expenses as a % of net sales – adjusted 16.6 % 19.0 % 17.1 % 19.1 %
Adjustments1   0.9     0.3     1.2     0.3  
Operating expenses as a % of net sales – reported 17.5 % 19.3 % 18.3 % 19.4 %
 
Operating income as a % of net sales – adjusted 7.7 % 8.4 % 7.3 % 7.8 %
Adjustments1   (0.9 )   (0.3 )   (1.2 )   (0.3 )
Operating income as a % of net sales – reported 6.8 % 8.1 % 6.1 % 7.5 %
 
Effective tax rate – adjusted 33.8 % 33.0 % 34.7 % 34.0 %
Adjustments1   (0.4 )   0.1     6.4     0.2  
Effective tax rate – reported 33.4 % 33.1 % 41.1 % 34.2 %
 
1 Refer to the press release for the definition of
adjustments to reported results
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
       
January 30, April 25,
2016 2015
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 97,701 $ 400,632
Receivables 698,911 586,263
Inventory 814,413 408,422
Prepaid expenses and other current assets 99,831 59,561
Current assets held for sale     118,347
Total current assets 1,710,856 1,573,225
Property and equipment, net 278,288 204,133
Goodwill and other intangible assets 1,337,531 424,949
Long-term receivables, net and other 228,995 109,605
Long-term assets held for sale     635,794
Total assets $ 3,555,670 $ 2,947,706
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 503,523 $ 323,294
Other accrued liabilities 197,575 215,075
Current maturities of long-term debt 16,500
Borrowings on revolving credit 198,000
Current liabilities held for sale     39,316
Total current liabilities 915,598 577,685
Long-term debt 1,030,250 725,000
Other non-current liabilities 247,275 81,484
Long-term liabilities held for sale     49,414
Total liabilities 2,193,123 1,433,583
Stockholders’ equity   1,362,547   1,514,123
Total liabilities and stockholders’ equity $ 3,555,670 $ 2,947,706
 
 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
                 
Total Foreign Animal Health
January 30, January 24, Sales Exchange International

  Internal  

2016 2015

  Growth  

Impact Impact Growth

Three Months Ended

 
Consolidated net sales
Consumable1 $ 1,059,838 $ 638,541 66.0 % (1.8 ) % 63.8 % 4.0 %
Equipment and software 248,779 235,847 5.5 (1.4 ) 6.9
Other1   92,236   84,240 9.5 (1.4 ) (0.9 ) 11.8
Total $ 1,400,853 $ 958,628 46.1 % (1.7 ) % 42.4   % 5.4 %
 
Dental
Consumable1 $ 333,835 $ 322,682 3.5 % (1.6 ) % % 5.1 %
Equipment and software 232,334 220,738 5.3 (1.5 ) 6.8
Other1   71,482   67,235 6.3 (1.4 )   7.7
Total $ 637,651 $ 610,655 4.4 % (1.5 ) %   % 5.9 %
 
Animal Health
Consumable1 $ 726,003 $ 315,859 129.9 % (2.0 ) % 129.0 % 2.9 %
Equipment and software 16,445 15,109 8.8 (0.1 ) 8.9
Other1   7,265   6,847 6.1 (3.0 ) (10.8 ) 19.9
Total $ 749,713 $ 337,815 121.9 % (2.0 ) % 120.4   % 3.5 %
 
Corporate
Other1 $ 13,489 $ 10,158 32.8 %   %   % 32.8 %
Total $ 13,489 $ 10,158 32.8 %   %   % 32.8 %
 
 

Nine Months Ended

 
Consolidated net sales
Consumable1 $ 3,042,634 $ 2,020,345 50.6 % (2.2 ) % 49.2 % 3.6 %
Equipment and software 610,071 596,650 2.2 (1.5 ) 3.7
Other1   280,228   258,809 8.3 (1.4 ) (0.5 ) 10.2
Total $ 3,932,933 $ 2,875,804 36.8 % (2.0 ) % 34.5   % 4.3 %
 
Dental
Consumable1 $ 1,024,323 $ 974,534 5.1 % (1.5 ) % % 6.6 %
Equipment and software 572,771 565,483 1.3 (1.6 ) 2.9
Other1   216,996   206,148 5.3 (1.3 )   6.6
Total $ 1,814,090 $ 1,746,165 3.9 % (1.5 ) %   % 5.4 %
 
Animal Health
Consumable1 $ 2,018,311 $ 1,045,811 93.0 % (2.9 ) % 95.0 % 0.9 %
Equipment and software 37,300 31,167 19.7 (0.1 ) 19.8
Other1   25,852   23,611 9.5 (4.0 ) (5.3 ) 18.8
Total $ 2,081,463 $ 1,100,589 89.1 % (2.8 ) % 90.2   % 1.7 %
 
Corporate
Other1 $ 37,380 $ 29,050 28.7 %   %   % 28.7 %
Total $ 37,380 $ 29,050 28.7 %   %   % 28.7 %
 
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 Nine Months Ended
January 30, January 24, January 30, January 24,
2016 2015 2016 2015
 
Operating income (loss)
Dental $ 82,108 $ 78,048 $ 223,454 $ 214,024
Animal Health 25,959 11,864 64,108 40,187
Corporate   (12,338 )   (12,535 )   (46,193 )   (38,698 )
$ 95,729   $ 77,377   $ 241,369   $ 215,513  
 
Other (expense) income, net
Interest income $ 496 $ 1,057 $ 1,914 $ 3,056
Interest expense (10,634 ) (8,512 ) (39,931 ) (25,824 )
Other   334     (516 )   540     (368 )
$ (9,804 ) $ (7,971 ) $ (37,477 ) $ (23,136 )
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
       
Nine Months Ended
January 30, January 24,
2016 2015
 
Operating activities:
Net income $ 121,564 $ 158,743
Net income from discontinued operations   1,500     32,119  
Net income from continuing operations 120,064 126,624

Adjustments to reconcile net income from continuing operations to
net cash (used in) provided by operating activities:

Depreciation & amortization 58,817 31,489
Non-cash employee compensation 20,587 17,940
Change in assets and liabilities, net of acquired   (247,015 )   (56,636 )
Net cash (used in) provided by operating activities- continuing
operations
(47,547 ) 119,417
Net cash (used in) provided by operating activities- discontinued
operations
  (38,985 )   38,668  
Net cash (used in) provided by operating activities (86,532 ) 158,085
 
Investing activities:
Additions to property and equipment, net of disposals (56,280 ) (43,182 )
Acquisitions and equity investments (1,106,583 ) (8,730 )
Proceeds from sale of securities 48,744 40,775
Other investing activities       (543 )
Net cash used in investing activities- continuing operations (1,114,119 )

 

(11,680 )
Net cash provided by investing activities- discontinued operations   714,680  

 

  4,256  
Net cash used in investing activities (399,439 )

 

(7,424 )
 
Financing activities:
Dividends paid (67,010 ) (60,340 )
Share repurchases (200,000 ) (47,539 )
Proceeds from issuance of long-term debt, net 988,400
Retirement of long-term debt (678,250 )
Draw on revolver 198,000
Other financing activities   5,523     6,484  
Net cash provided by (used in) financing activities 246,663 (101,395 )
 
Effect of exchange rate changes on cash   (10,251 )   (24,452 )
Net change in cash and cash equivalents $ (249,559 ) $ 24,814  
 

Contacts

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