Patterson Companies Reports Fiscal 2019 Fourth-Quarter and Year-End Operating Results - Patterson Cos (NASDAQ:PDCO)

Delivered fourth consecutive quarter of year-over-year sales growth. Fourth-quarter reported net sales increased 2.6 percent to $1.4 billion and internal sales increased 4.1 percent.
Animal Health segment internal sales increased 4.1 percent, representing continued strong performance in both Companion Animal and Production Animal businesses.
Dental segment internal sales increased 4.2 percent, marking second consecutive quarter of year-over-year sales growth.
Returned to EPS growth with fourth-quarter GAAP earnings of $0.30 per diluted share, up 30 percent, and adjusted earnings¹ of $0.37 per diluted share, up 23 percent.
Issues fiscal 2020 GAAP earnings guidance of $0.99 to $1.09 per diluted share and adjusted earnings¹ range of $1.33 to $1.43 per diluted share.

Patterson Companies, Inc. PDCO today reported consolidated net sales of approximately $1.4 billion (see attached Sales Summary for further details) in its fiscal fourth quarter ended April 27, 2019, an increase of 2.6 percent compared to the same period last year. Internal sales, which are adjusted for the effects of currency translation and changes in product selling relationships, increased 4.1 percent.

Reported net income attributable to Patterson Companies, Inc. for the fourth quarter of fiscal year 2019 was $28.0 million, or $0.30 per diluted share, compared to $20.9 million, or $0.23 per diluted share, in last year's fiscal fourth quarter. Adjusted net income¹ attributable to Patterson Companies, Inc., which excludes deal amortization costs and discrete tax matters, totaled $35.0 million for the fourth quarter of fiscal 2019, or $0.37 per diluted share, compared to $28.2 million in the same quarter last year, or $0.30 per diluted share.

"Patterson's fourth quarter and fiscal 2019 results reflect continued top line growth and improved profitability trends throughout the year, enabling us to deliver on our earnings expectations while making continued necessary investments in our people, technology and services," said Mark Walchirk, President and CEO of Patterson Companies. "Through the execution of our strategic priorities, we have successfully stabilized our core business and returned both of our segments to growth. We continued to drive strong performance in both the companion and production animal businesses, and we achieved our second consecutive quarter of year-over-year revenue growth in Dental, fueled by strong growth across the equipment category. We are pleased with Patterson's performance during the first full year of our three-year plan, and we are positioned to build momentum behind our improved performance going forward."

Patterson Animal Health

Reported net sales in our Animal Health segment for the fourth quarter of fiscal 2019, which comprised approximately 60 percent of the company's total sales, were $866.4 million compared to $848.0 million in the same quarter last year. Internal sales for the segment increased 4.1 percent from the fiscal 2018 fourth quarter.

Patterson Dental

Reported net sales in our Dental segment for the fourth quarter of fiscal 2019, which represented approximately 40 percent of total company sales, were $563.5 million compared to $545.8 million in the same quarter last year. Internal sales increased 4.2 percent compared to the fiscal 2018 fourth quarter.

Balance Sheet and Capital Allocation

For fiscal 2019, Patterson Companies generated $48.2 million of cash from operating activities and collected deferred purchase price receivables of $402.4 million for a total of $450.6 million, compared to a total of $228.5 million in fiscal 2018. During fiscal 2019, debt was reduced by $265.5 million and cash grew by $32.7 million.

In the fourth quarter of fiscal 2019, Patterson Companies paid $24.7 million in cash dividends to shareholders. During fiscal 2019, Patterson returned $99.5 million in cash dividends to shareholders.

Fiscal 2019 Results

Consolidated net sales for fiscal 2019 totaled $5.6 billion, a 2.0 percent year-over-year increase. Reported net income attributable to Patterson Companies, Inc. was $83.6 million, or $0.89 per diluted share, compared to $201.0 million, or $2.16 per diluted share in fiscal 2018. The fiscal 2018 period included the recognition of a provisional tax benefit of $76.6 million, reflecting the revaluation of tax-deferred assets and liabilities, net of a one-time transition tax on unremitted foreign earnings as a result of the 2017 Tax Act. In July 2018, Patterson Companies booked a pre-tax reserve of $28.3 million for the settlement of certain purported class action antitrust litigation.

Adjusted net income¹ attributable to Patterson Companies, Inc. for fiscal 2019, which excludes deal amortization costs, integration and business restructuring costs, legal reserve costs and discrete tax matters, totaled $130.9 million, or $1.40 per diluted share, compared to adjusted net income of $156.8 million, or $1.68 per diluted share, in fiscal 2018.

FY2020 Guidance

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

GAAP earnings are expected to be in the range of $0.99 to $1.09 per diluted share.
Non-GAAP adjusted earnings¹ are expected to be in the range of $1.33 to $1.43 per diluted share.
Our non-GAAP adjusted earnings¹ guidance excludes the after-tax impact of:

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

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

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

¹Non-GAAP Financial Measures

The Reconciliation of GAAP to non-GAAP Measures table appearing behind the accompanying financial information is provided to adjust reported GAAP measures, namely operating income, income before taxes, income tax expense, net income, net income attributable to Patterson Companies, Inc. and diluted earnings per share attributable to Patterson Companies, Inc., for the impact of deal amortization, integration and business restructuring expenses, legal reserve costs and discrete tax matters, along with the related tax effects of these items.

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

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

Fourth-Quarter Conference Call and Replay

Patterson Companies' fiscal 2019 fourth-quarter earnings conference call will start at 10 a.m. Eastern today. Investors can listen to a live webcast of the conference call at www.pattersoncompanies.com. The conference call will be archived on the Patterson Companies website. A replay of the fiscal 2019 fourth-quarter conference call can be heard for one week at 800-585-8367 and by providing the Conference ID 8389409 when prompted.

About Patterson Companies Inc.

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

Dental Market

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

Animal Health Market

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

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


PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended				Twelve Months Ended
	April 27, 2019		April 28, 2018		April 27, 2019		April 28, 2018

Net sales	$	1,436,706	$	1,400,609	$	5,574,523	$	5,465,683

Gross profit		312,527		289,839		1,190,775		1,199,366

Operating expenses		265,904		248,588		1,053,059		979,477

Operating income		46,623		41,251		137,716		219,889

Other income (expense):
Other income (expense), net		(443)		1,349		8,178		6,117
Interest expense		(9,817)		(12,289)		(39,666)		(46,743)

Income before taxes		36,363		30,311		106,228		179,263

Income tax expense (benefit)		8,678		9,383		23,352		(21,711)

Net income		27,685		20,928		82,876		200,974
Net loss attributable to noncontrolling interests		(305)		-		(752)		-
Net income attributable to Patterson Companies, Inc.	$	27,990	$	20,928	$	83,628	$	200,974

Earnings per share attributable to Patterson Companies, Inc.:
Basic	$	0.30	$	0.23	$	0.90	$	2.17
Diluted	$	0.30	$	0.23	$	0.89	$	2.16

Weighted average shares:
Basic		92,990		91,846		92,755		92,467
Diluted		93,899		92,446		93,484		93,094

Dividends declared per common share	$	0.26	$	0.26	$	1.04	$	1.04

PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

	April 27, 2019		April 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	95,646	$	62,984
Receivables, net		582,094		826,877
Inventory		761,018		779,834
Prepaid expenses and other current assets		165,605		103,029
Total current assets		1,604,363		1,772,724
Property and equipment, net		305,790		290,590
Goodwill and identifiable intangibles, net		1,167,379		1,205,401
Long-term receivables, net and other		191,737		202,949
Total assets	$	3,269,269	$	3,471,664

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	648,418	$	610,368
Other accrued liabilities		203,319		205,415
Current maturities of long-term debt		23,975		76,598
Borrowings on revolving credit		-		16,000
Total current liabilities		875,712		908,381
Long-term debt		725,341		922,030
Other non-current liabilities		187,709		179,463
Total liabilities		1,788,762		2,009,874
Stockholders' equity		1,480,507		1,461,790
Total liabilities and stockholders' equity	$	3,269,269	$	3,471,664

PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Twelve Months Ended
	April 27, 2019		April 28, 2018

Operating activities:
Net income	$	82,876	$	200,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		82,773		83,816
Non-cash employee compensation		33,425		36,532
Deferred consideration in securitized receivables		(402,367)		(49,650)
Change in assets and liabilities, net of acquired		251,451		(92,777)
Net cash provided by operating activities		48,158		178,895
Investing activities:
Additions to property and equipment		(60,734)		(43,263)
Collection of deferred purchase price receivables		402,367		49,650
Other investing activities		(906)		10,600
Net cash provided by investing activities		340,727		16,987
Financing activities:
Dividends paid		(99,468)		(99,199)
Repurchases of common stock		-		(87,500)
Proceeds from issuance of long-term debt, net		-		150,000
Retirement of long-term debt		(249,542)		(164,754)
Payment on revolving credit		(16,000)		(43,000)
Other financing activities		9,764		14,291
Net cash used in financing activities		(355,246)		(230,162)
Effect of exchange rate changes on cash		(977)		2,305
Net change in cash and cash equivalents		32,662		(31,975)
Cash and cash equivalents at beginning of period		62,984		94,959
Cash and cash equivalents at end of period	$	95,646	$	62,984

PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)

	April 27, 2019		April 28, 2018		Total Sales Growth		Foreign Exchange Impact		Other ^(a)		Internal Sales Growth
Three Months Ended

Consolidated net sales
Consumable	$	1,154,802	$	1,145,258	0.8	%	(1.3)	%	(0.3)	%	2.4	%
Equipment and software		190,536		168,393	13.1		(1.1)		-		14.2
Other		91,368		86,958	5.1		(0.9)		-		6.0
Total	$	1,436,706	$	1,400,609	2.6	%	(1.3)	%	(0.2)	%	4.1	%

Dental
Consumable	$	312,061	$	317,951	(1.9)	%	(1.0)	%	-	%	(0.9)	%
Equipment and software		174,572		155,979	11.9		(1.2)		-		13.1
Other		76,844		71,834	7.0		(0.8)		-		7.8
Total	$	563,477	$	545,764	3.2	%	(1.0)	%	-	%	4.2	%

Animal Health
Consumable	$	842,741	$	827,307	1.9	%	(1.5)	%	(0.4)	%	3.8	%
Equipment and software		15,964		12,414	28.6		-		-		28.6
Other		7,706		8,257	(6.7)		(2.6)		-		(4.1)
Total	$	866,411	$	847,978	2.2	%	(1.5)	%	(0.4)	%	4.1	%

Corporate
Other	$	6,818	$	6,867	(0.7)	%	-	%	-	%	(0.7)	%
Total	$	6,818	$	6,867	(0.7)	%	-	%	-	%	(0.7)	%

^(a) Sales of certain products previously recognized on a gross basis were recognized on a net basis during the three and twelve months ended April 27, 2019.


PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)

	April 27, 2019		April 28, 2018		Total Sales Growth		Foreign Exchange Impact		Other ^(a)		Internal Sales Growth

Twelve Months Ended

Consolidated net sales
Consumable	$	4,482,016	$	4,415,643	1.5	%	(0.5)	%	(0.2)	%	2.2	%
Equipment and software		753,805		709,253	6.3		(0.3)		-		6.6
Other		338,702		340,787	(0.6)		(0.2)		-		(0.4)
Total	$	5,574,523	$	5,465,683	2.0	%	(0.4)	%	(0.2)	%	2.6	%

Dental
Consumable	$	1,214,814	$	1,251,642	(2.9)	%	(0.2)	%	-	%	(2.7)	%
Equipment and software		694,864		660,355	5.2		(0.3)		-		5.5
Other		282,112		284,081	(0.7)		(0.2)		-		(0.5)
Total	$	2,191,790	$	2,196,078	(0.2)	%	(0.2)	%	-	%	-	%

Animal Health
Consumable	$	3,267,202	$	3,164,001	3.3	%	(0.6)	%	(0.3)	%	4.2	%
Equipment and software		58,941		48,898	20.5		-		-		20.5
Other		28,385		29,665	(4.3)		(0.8)		-		(3.5)
Total	$	3,354,528	$	3,242,564	3.5	%	(0.6)	%	(0.3)	%	4.4	%

Corporate
Other	$	28,205	$	27,041	4.3	%	-	%	-	%	4.3	%
Total	$	28,205	$	27,041	4.3	%	-	%	-	%	4.3	%

^(a) Sales of certain products previously recognized on a gross basis were recognized on a net basis during the three and twelve months ended April 27, 2019.


PATTERSON COMPANIES, INC.
OPERATING INCOME BY SEGMENT
(In thousands)
(Unaudited)

	Three Months Ended				Twelve Months Ended
	April 27, 2019		April 28, 2018		April 27, 2019		April 28, 2018

Operating income (loss)
Dental	$	50,649	$	46,036	$	179,236	$	229,201
Animal Health		25,376		20,128		81,472		78,058
Corporate		(29,402)		(24,913)		(122,992)		(87,370)
Total	$	46,623	$	41,251	$	137,716	$	219,889

PATTERSON COMPANIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Dollars in thousands, except per share amounts)
(Unaudited)

For the three months ended April 27, 2019	GAAP		Deal amortization		Integration and business restructuring expenses		Legal reserve		Discrete tax matters		Non-GAAP
Operating income	$	46,623	$	9,238	$	-	$	-	$	-	$	55,861
Other expense, net		(10,260)		-		-		-		-		(10,260)
Income before taxes		36,363		9,238		-		-		-		45,601
Income tax expense (benefit)		8,678		2,198		-		-		-		10,876
Net income		27,685		7,040		-		-		-		34,725
Net loss attributable to noncontrolling interests		(305)		-		-		-		-		(305)
Net income attributable to Patterson Companies, Inc.	$	27,990	$	7,040	$	-	$	-	$	-	$	35,030

Diluted earnings per share attributable to Patterson Companies, Inc.*	$	0.30	$	0.07	$	-	$	-	$	-	$	0.37

Operating income as a % of sales		3.2%										3.9%
Effective tax rate		23.9%										23.9%

For the three months ended April 28, 2018	GAAP		Deal amortization		Integration and business restructuring expenses		Legal reserve		Discrete tax matters		Non-GAAP
Operating income	$	41,251	$	9,533	$	-	$	-	$	-	$	50,784
Other expense, net		(10,940)		-		-		-		-		(10,940)
Income before taxes		30,311		9,533		-		-		-		39,844
Income tax expense (benefit)		9,383		2,893		-		-		(608)		11,668
Net income		20,928		6,640		-		-		608		28,176
Net loss attributable to noncontrolling interests		-		-		-		-		-		-
Net income attributable to Patterson Companies, Inc.	$	20,928	$	6,640	$	-	$	-	$	608	$	28,176

Diluted earnings per share attributable to Patterson Companies, Inc.*	$	0.23	$	0.07	$	-	$	-	$	0.01	$	0.30

Operating income as a % of sales		2.9 %										3.6 %
Effective tax rate		31.0 %										29.3 %
*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 twelve months ended April 27, 2019	GAAP		Deal amortization		Integration and business restructuring expenses		Legal reserve		Discrete tax matters		Non-GAAP
Operating income	$	137,716	$	38,193	$	-	$	28,263	$	-	$	204,172
Other expense, net		(31,488)		-		-		-		-		(31,488)
Income before taxes		106,228		38,193		-		28,263		-		172,684
Income tax expense (benefit)		23,352		8,992		-		7,523		2,686		42,553
Net income		82,876		29,201		-		20,740		(2,686)		130,131
Net loss attributable to noncontrolling interests		(752)		-		-		-		-		(752)
Net income attributable to Patterson Companies, Inc.	$	83,628	$	29,201	$	-	$	20,740	$	(2,686)	$	130,883

Diluted earnings per share attributable to Patterson Companies, Inc.*	$	0.89	$	0.31	$	-	$	0.22	$	(0.03)	$	1.40

Operating income as a % of sales		2.5%										3.7%
Effective tax rate		22.0%										24.6%

For the twelve months ended April 28, 2018	GAAP		Deal amortization		Integration and business restructuring expenses		Legal reserve		Discrete tax matters		Non-GAAP
Operating income	$	219,889	$	38,515	$	8,594	$	-	$	-	$	266,998
Other expense, net		(40,626)		-		-		-		-		(40,626)
Income before taxes		179,263		38,515		8,594		-		-		226,372
Income tax expense (benefit)		(21,711)		11,793		2,879		-		76,648		69,609
Net income		200,974		26,722		5,715		-		(76,648)		156,763
Net loss attributable to noncontrolling interests		-		-		-		-		-		-
Net income attributable to Patterson Companies, Inc.	$	200,974	$	26,722	$	5,715	$	-	$	(76,648)	$	156,763

Diluted earnings per share attributable to Patterson Companies, Inc.*	$	2.16	$	0.29	$	0.06	$	-	$	(0.82)	$	1.68

Operating income as a % of sales		4.0 %										4.9 %
Effective tax rate		(12.1)%										30.7 %
*May not sum due to rounding

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