PDCO Patterson Companies Inc

• 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.

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 DentalSales 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 HealthSales 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 OperationsOn 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 DividendsFiscal 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 Results1Consolidated 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 OutlookAnderson 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 ReconciliationThe 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 ReplayPatterson’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 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, 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    

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