PDCO Patterson Companies Inc

• Fourth-quarter reported net sales totaled $1.4 billion.
• Fourth-quarter GAAP earnings from continuing operations of $0.23 per diluted share.
• Fourth-quarter adjusted earnings1 from continuing operations of $0.30 per diluted share.
• Generated $179 million of cash flow from operations during fiscal 2018.
• Company issues fiscal 2019 GAAP earnings range of $1.43 to $1.53 per diluted share and adjusted earnings1 range of $1.73 to $1.83 per diluted share.

Patterson Companies, Inc. (Nasdaq: 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 28, 2018, a decline of 3.1 percent compared to the same period last year. Internal sales, which adjust for the effects of currency translation and changes in product selling relationships, declined 3.3 percent.

Reported net income from continuing operations for the fourth quarter of fiscal year 2018 was $20.9 million, or $0.23 per diluted share, compared to $61.4 million, or $0.65 per diluted share, in last year’s fiscal fourth quarter.

Adjusted net income1 from continuing operations, which excludes deal amortization costs and discrete tax matters, totaled $28.2 million for the fourth quarter of fiscal 2018, compared to $65.6 million in the same quarter last year, driven by the anticipated decrease in sales and margins in our Dental segment and a change in estimate related to year-end inventory valuations. Adjusted earnings1 per diluted share from continuing operations totaled $0.30 in the fourth quarter, compared to $0.69 in the fiscal 2017 fourth quarter.

“Our fourth-quarter results met our revised expectations and reflected the impact of ongoing challenges that the Company has been facing,” said Mark Walchirk, president and CEO of Patterson Companies. “Looking ahead, we are executing on a number of initiatives to stabilize the core business and build a stronger platform for fiscal 2019, and expect to return to profit growth in the second half of the year. These initiatives are focused on improving our revenue, margin and cash flow performance and unlocking the strength of our value proposition. We are confident that we are taking the right steps to improve performance and deliver shareholder value going forward.”

Patterson DentalReported net sales in our Dental segment for the fourth quarter, which represented approximately 39 percent of total company sales, were $545.8 million compared to $607.3 million in the same quarter last year. Internal sales declined 10.5 percent compared to the fiscal 2017 fourth quarter. Year-over-year internal sales by category were as follows:

• Consumable dental supplies decreased 6.7 percent.
• Equipment and software declined 20.2 percent.
• Other services and products, primarily composed of technical service, parts and labor, software support services and office supplies decreased 2.5 percent.

“As expected, results in the Dental segment reflected the continued challenges throughout the year as a result of our sales force realignment, ERP implementation and the market transition in the digital equipment category,” continued Walchirk. “We are focused on improving sales productivity, strengthening product mix, leveraging our new ERP platform and expanding our sales penetration in the digital equipment market. We expect these actions will contribute toward stabilizing the Dental business and building momentum around growth and profitability in the second half of fiscal 2019.”

Patterson Animal HealthReported net sales in our Animal Health segment for the fourth quarter of fiscal 2018, which comprised approximately 61 percent of the company’s total sales, were $848.0 million compared to $827.5 in the same quarter last year. Internal sales for the segment increased 2.4 percent from the fiscal 2017 fourth quarter. Year-over-year internal sales by category were as follows:

• Production animal increased 2.8 percent.
• Companion animal rose 1.9 percent.

“Sales in our Animal Health segment grew as expected in the quarter, led by our production animal health business, which benefitted from improving fundamentals in the swine and beef categories, partially offset by pressures in the dairy category,” continued Walchirk. “In fiscal 2019, we expect to improve growth and operating performance in the Animal Health business through driving sales execution, improved product mix and effective cost management.”

Share Repurchases and DividendsIn the fourth quarter of fiscal 2018, Patterson paid $24.6 million in cash dividends to shareholders. For fiscal 2018, the company returned a total of $186.7 million to shareholders in the form of share repurchases and dividends.

Year-to-Date ResultsConsolidated sales for fiscal 2018 totaled $5.5 billion, a 2.3 percent year-over-year decrease. Internal sales declined 1.6 percent. Reported net income from continuing operations was $201.0 million, or $2.16 per diluted share, compared to $173.8 million, or $1.82 per diluted share in fiscal 2017. This comparison includes the recognition of a provisional net 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 enacted during the third quarter. Fiscal 2017 results contained a pre-tax non-cash impairment charge of approximately $36 million, or approximately $23 million after taxes, or $0.24 per diluted share, related to the distribution fee associated with the CEREC product component of the previously exclusive arrangement with Sirona Dental Systems.

Adjusted net income1 from continuing operations, which excludes transaction-related costs, deal amortization costs, intangible asset impairment, integration and business restructuring expenses, and discrete tax matters, totaled $156.8 million, or $1.68 per diluted share, compared to $223.3 million, or $2.34 per diluted share, in fiscal 2017.

FY2019 GuidancePatterson today issued fiscal 2019 earnings guidance from continuing operations, which is provided on both a GAAP and non-GAAP adjusted1 basis:

• GAAP earnings from continuing operations are expected to be in the range of $1.43 to $1.53 per diluted share.
• Non-GAAP adjusted earnings1 from continuing operations are expected to be in the range of $1.73 to $1.83 per diluted share.
• Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of deal amortization expense of approximately $27.3 million ($0.30 per diluted share).

Our guidance is for current continuing 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 2018.

1Non-GAAP Financial MeasuresThe Reconciliation of GAAP to non-GAAP Measures table appearing behind the accompanying financial information is provided to adjust reported GAAP measures, namely earnings from continuing operations, net income from continuing operations and earnings per diluted share from continuing operations, for the impact of transaction related costs, deal amortization expenses, intangible asset impairment, integration and business restructuring expenses, along with the related tax effects of these items, the impact of the 2017 Tax Act and other discrete tax matters.

Management believes that these non-GAAP measures may provide a helpful representation of the company's fourth-quarter and full-year 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 constant currency represents net sales adjusted to exclude foreign currency impacts. 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 ReplayPatterson’s 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 Patterson’s website. A replay of the fiscal 2018 fourth-quarter conference call can be heard for one week at 800-585-8367 and by providing the Conference ID 4897286 when prompted.

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

Dental MarketPatterson’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 MarketPatterson’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 28,2018

April 29,2017

April 28,2018

April 29,2017

  Net sales $ 1,400,609 $ 1,445,032 $ 5,465,683 $ 5,593,127   Gross profit 289,839 335,498 1,199,366 1,301,397   Operating expenses   248,588   239,343   979,477   1,013,469   Operating income from continuing operations 41,251 96,155 219,889 287,928   Other income (expense): Other income, net 1,349 1,033 6,117 6,013 Interest expense   (12,289)   (11,401)   (46,743)   (43,060)   Income from continuing operations before taxes 30,311 85,787 179,263 250,881   Income tax expense (benefit)   9,383   24,430   (21,711)   77,093   Net income from continuing operations 20,928 61,357 200,974 173,788 Net loss from discontinued operations   -   334   -   (2,895) Net income $ 20,928 $ 61,691 $ 200,974 $ 170,893   Basic earnings (loss) per share: Continuing operations $ 0.23 $ 0.65 $ 2.17 $ 1.83 Discontinued operations   -   0.01   -   (0.03) Net basic earnings per share $ 0.23 $ 0.66 $ 2.17 $ 1.80   Diluted earnings (loss) per share: Continuing operations $ 0.23 $ 0.65 $ 2.16 $ 1.82 Discontinued operations   -   -   -   (0.03) Net diluted earnings per share $ 0.23 $ 0.65 $ 2.16 $ 1.79   Weighted average shares: Basic 91,846 93,830 92,467 94,897 Diluted 92,446 94,503 93,094 95,567   Dividends declared per common share $ 0.26 $ 0.26 $ 1.04 $ 0.98     PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)          

April 28,2018

April 29,2017

ASSETS Current assets: Cash and cash equivalents $ 62,984 $ 94,959 Receivables 826,877 884,803 Inventory 779,834 711,903 Prepaid expenses and other current assets   103,029   111,928 Total current assets 1,772,724 1,803,593 Property and equipment, net 290,590 298,452 Goodwill and other intangible assets 1,205,401 1,238,983 Long-term receivables, net and other   202,949   166,885 Total assets $ 3,471,664 $ 3,507,913   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 610,368 $ 616,859 Other accrued liabilities 205,415 213,318 Current maturities of long-term debt 76,598 14,754 Borrowings on revolving credit   16,000   59,000 Total current liabilities 908,381 903,931 Long-term debt 922,030 998,272 Other non-current liabilities   179,463   211,277 Total liabilities 2,009,874 2,113,480 Stockholders' equity   1,461,790   1,394,433 Total liabilities and stockholders' equity $ 3,471,664 $ 3,507,913     PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)           Twelve Months Ended

April 28,2018

April 29,2017

  Operating activities: Net income $ 200,974 $ 170,893 Net loss from discontinued operations   -   (2,895) Net income from continuing operations 200,974 173,788 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 83,816 83,818 Intangible asset impairment - 36,312 Non-cash employee compensation 36,532 19,025 Change in assets and liabilities, net of acquired   (142,427)   (147,329) Net cash provided by operating activities- continuing operations 178,895 165,614 Net cash used in operating activities- discontinued operations   -   (2,895) Net cash provided by operating activities 178,895 162,719   Investing activities: Additions to property and equipment (43,263) (47,019) Collection of deferred purchase price receivables 49,650 51,402 Other investing activities   10,600   (3,190) Net cash provided by investing activities- continuing operations 16,987 1,193 Net cash provided by investing activities- discontinued operations   -   - Net cash provided by investing activities 16,987 1,193   Financing activities: Dividends paid (99,199) (95,910) Repurchases of common stock (87,500) (125,384) Proceeds from issuance of long-term debt, net 150,000 - Debt amendment costs - (1,266) Retirement of long-term debt (164,754) (26,238) Draw on (payment on) revolver (43,000) 39,000 Other financing activities   14,291   7,635 Net cash used in financing activities (230,162) (202,163) Effect of exchange rate changes on cash   2,305   (4,243) Net change in cash and cash equivalents $ (31,975) $ (42,494)     PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited)                          

April 28,2018

   

April 29,2017

   

TotalSalesGrowth

   

ForeignExchangeImpact

   

Other (a)

     

InternalSalesGrowth

Three Months Ended   Consolidated net sales Consumable $ 1,145,258 $ 1,148,337 (0.3) % 1.7 % (1.5) % (0.5) % Equipment and software 168,393 207,339 (18.8) 0.4 - (19.2) Other   86,958       89,356     (2.7)       0.8       -       (3.5)   Total $ 1,400,609     $ 1,445,032     (3.1) %     1.4 %     (1.2) %     (3.3) %   Dental Consumable $ 317,951 $ 339,398 (6.3) % 0.4 % - % (6.7) % Equipment and software 155,979 194,493 (19.8) 0.4 - (20.2) Other   71,834       73,417     (2.2)       0.3       -       (2.5)   Total $ 545,764     $ 607,308     (10.1) %     0.4 %     - %     (10.5) %   Animal Health Consumable $ 827,307 $ 808,939 2.3 % 2.2 % (2.1) % 2.2 % Equipment and software 12,414 12,846 (3.4) 0.1 - (3.5) Other   8,257       5,687     45.2       7.9       -       37.3   Total $ 847,978     $ 827,472     2.5 %     2.2 %     (2.1) %     2.4 %   Corporate Other $ 6,867     $ 10,252     (33.0) %     - %     - %     (33.0) % Total $ 6,867     $ 10,252     (33.0) %     - %     - %     (33.0) %     Twelve Months Ended   Consolidated net sales Consumable $ 4,415,643 $ 4,400,888 0.3 % 0.6 % (1.5) % 1.2 % Equipment and software 709,253 834,526 (15.0) 0.3 - (15.3) Other   340,787       357,713     (4.7)       0.3       -       (5.0)   Total $ 5,465,683     $ 5,593,127     (2.3) %     0.5 %     (1.2) %     (1.6) %   Dental Consumable $ 1,251,642 $ 1,321,764 (5.3) % 0.3 % - % (5.6) % Equipment and software 660,355 780,868 (15.4) 0.3 - (15.7) Other   284,081       287,587     (1.2)       0.2       -       (1.4)   Total $ 2,196,078     $ 2,390,219     (8.1) %     0.3 %     - %     (8.4) %   Animal Health Consumable $ 3,164,001 $ 3,079,124 2.8 % 0.7 % (2.1) % 4.2 % Equipment and software 48,898 53,658 (8.9) - - (8.9) Other   29,665       27,044     9.7       1.7       -       8.0   Total $ 3,242,564     $ 3,159,826     2.6 %     0.7 %     (2.1) %     4.0 %   Corporate Other $ 27,041     $ 43,082     (37.2) %     - %     - %     (37.2) % Total $ 27,041     $ 43,082     (37.2) %     - %     - %     (37.2) %   (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 28, 2018.     PATTERSON COMPANIES, INC. OPERATING INCOME BY SEGMENT (In thousands) (Unaudited)                   Three Months Ended     Twelve Months Ended

April 28,2018

   

April 29,2017

   

April 28,2018

   

April 29,2017

  Operating income (loss) Dental $ 46,036 $ 86,315 $ 229,201 $ 263,671 Animal Health 20,128 27,672 78,058 88,132 Corporate   (24,913)       (17,832)       (87,370)       (63,875) Total $ 41,251     $ 96,155     $ 219,889     $ 287,928     PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited)                               For the three months ended April 28, 2018 GAAP

Transaction-relatedcosts

Dealamortization

Intangibleassetimpairment

Integrationand businessrestructuringexpenses

Discretetax matters

Non-GAAP

Operating income from continuing operations $ 41,251 $ — $ 9,533 $ — $ — $ — $ 50,784 Other expense, net   (10,940)   —   —   —   —   —   (10,940) Income from continuing operations before taxes 30,311 — 9,533 — — — 39,844 Income tax expense (benefit)   9,383   —   2,893   —   —   (608)   11,668 Net income from continuing operations $ 20,928 $ — $ 6,640 $ — $ — $ 608 $ 28,176               Diluted earnings per share from continuing operations* $ 0.23 $ — $ 0.07 $ — $ — $ 0.01 $ 0.30   Operating income from continuing operations as a % of sales 2.9% 3.6% Effective tax rate 31.0% 29.3%   For the three months ended April 29, 2017 GAAP

Transaction-relatedcosts

Dealamortization

Intangibleassetimpairment

Integrationand businessrestructuringexpenses

Discretetax matters

Non-GAAP

Operating income from continuing operations $ 96,155 $ 178 $ 9,745 $ — $ 257 $ — $ 106,335 Other expense, net   (10,368)   —   —   —   —   —   (10,368) Income from continuing operations before taxes 85,787 178 9,745 — 257 — 95,967 Income tax expense (benefit)   24,430   67   3,375   —   98   2,383   30,353 Net income from continuing operations $ 61,357 $ 111 $ 6,370 $ — $ 159 $ (2,383) $ 65,614               Diluted earnings per share from continuing operations* $ 0.65 $ — $ 0.07 $ — $ — $ (0.03) $ 0.69   Operating income from continuing operations as a % of sales

6.7%

7.4%

Effective tax rate

28.5%

31.6%

  For the twelve months ended April 28, 2018

GAAP

Transaction-relatedcosts

Dealamortization

Intangibleassetimpairment

Integrationand businessrestructuringexpenses

Discretetax matters

Non-GAAP

Operating income from continuing operations $ 219,889 $ — $ 38,515 $ — $ 8,594 $ — $ 266,998 Other expense, net   (40,626)   —   —   —   —   —   (40,626) Income from continuing operations 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 from continuing operations $ 200,974 $ — $ 26,722 $ — $ 5,715 $ (76,648) $ 156,763               Diluted earnings per share from continuing operations* $ 2.16 $ — $ 0.29 $ — $ 0.06 $ (0.82) $ 1.68   Operating income from continuing operations as a % of sales 4.0% 4.9% Effective tax rate -12.1% 30.7%   For the twelve months ended April 29, 2017 GAAP

Transaction-relatedcosts

Dealamortization

Intangibleassetimpairment

Integrationand businessrestructuringexpenses

Discretetax matters

Non-GAAP

Operating income from continuing operations $ 287,928 $ 1,657 $ 39,957 $ 36,312 $ 6,561 $ — $ 372,415 Other expense, net   (37,047)   —   —   —   —   —   (37,047) Income from continuing operations before taxes 250,881 1,657 39,957 36,312 6,561 — 335,368 Income tax expense (benefit)   77,093   625   13,769   13,263   2,481   4,789   112,020 Net income from continuing operations $ 173,788 $ 1,032 $ 26,188 $ 23,049 $ 4,080 $ (4,789) $ 223,348               Diluted earnings per share from continuing operations* $ 1.82 $ 0.01 $ 0.27 $ 0.24 $ 0.04 $ (0.05) $ 2.34   Operating income from continuing operations as a % of sales

5.1%

6.7%

Effective tax rate

30.7%

33.4%

  * May not sum due to rounding  

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Patterson Companies Inc.John M. Wright, 651-686-1364Investor Relationsjohn.wright@pattersoncompanies.compattersoncompanies.com