[March 01, 2018]

Patterson Companies Reports Fiscal 2018 Third-Quarter Results

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 third quarter ended January 27, 2018, a decline of 1.6 percent compared to the same period last year. Adjusting for the effects of currency translation, sales declined 2.7 percent.

Reported net income from continuing operations for the third quarter of fiscal year 2018 was $109.0 million, or $1.18 per diluted share, compared to $27.8 million, or $0.29 per diluted share, in last year's fiscal third quarter. The current period includes the recognition of a provisional net tax benefit of $77.3 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 Tax Cuts and Jobs Act ("2017 Tax Act") enacted during the third quarter.

Adjusted net income¹ from continuing operations, which excludes certain non-recurring items, deal amortization costs and the provisional net tax benefit related to the 2017 Tax Act, totaled $39.6 million for the third quarter of fiscal 2018, down 28.6 percent from $55.4 million in the same quarter last year, driven by decreased sales and gross margin compression. Adjusted earnings¹ per diluted share from continuing operations totaled $0.43 in the third quarter, down 25.9 percent year-over-year.

"Our third-quarter results did not meet our expectations," said Mark Walchirk, president and CEO of Patterson Companies. "Since joining Patterson 90 days ago, I have begun a thorough review of our business and the factors impacting performance. We are moving quickly to implement an initial set of actions to improve our results, focused on enhancing the customer experience and driving better execution across the business."

Walchirk continued, "We have much more work to do to position Patterson to reach its full potential, but I am confident in the strength of our end markets, our deep customer relationships and the broad value proposition we offer. We are committed to continuing to take clear actions to improve our execution and set the foundation to drive improved performance and long-term value."

Patterson Dental
Reported net sales in our Dental segment for the third quarter, which represented approximately 42 percent of total company sales, were $577.9 million, down 7.7 percent from the same quarter last year. Sales declined 8.1 percent on a constant currency basis compared to the fiscal 2017 third quarter. On that same basis, year-over-year sales by category were as follows:

• Consumable dental supplies decreased 7.4 percent.
• Equipment sales declined 10.6 percent.
• Other services and products, primarily composed of technical service, parts and labor, software support services and office supplies decreased 3.4 percent.

"Our Dental segment results reflect the impact of a number of transitions taking place within our business, including changes in our sales force, disruptions resulting from our enterprise resource planning implementation and the expansion of our digital equipment portfolio," continued Walchirk. "As we work to improve execution and performance, we are making meaningful progress increasing unit placements of our new technology offerings, reinforcing this strategic decision."

Patterson Animal Health
Reported net sales in our Animal Health segment for the third quarter of fiscal 2018, which comprised approximately 58 percent of the company's total sales, were $794.9 million, up 4.2 percent from last year's third quarter. After normalizing for the impact of currency and changes in product selling relationships, segment sales increased 4.6 percent from the fiscal 2017 third quarter. On that same basis, year-over-year sales by category were as follows:

• Global companion animal sales rose 0.4 percent.
• Production animal sales increased 8.8 percent, reflecting particularly strong performance across swine and beef cattle species.

"In our Animal Health segment, our production animal business drove solid growth across species and channels and we continue to benefit from positive end-market fundamentals," continued Walchirk. "The lower sales growth rate in our companion animal business was primarily related to a decrease in promotional activity compared to last year."

Share Repurchases and Dividends
In the third quarter of fiscal 2018, Patterson repurchased approximately 0.4 million shares of its outstanding common stock, with a value of $13.5 million, leaving approximately 11.5 million shares for repurchase under the current authorization, which expires in March 2018. The company also paid $24.7 million in cash dividends to shareholders in the third quarter of fiscal 2018. For the first nine months of fiscal 2018, the company has returned a total of $162 million to shareholders in the form of share repurchases and dividends.

Year-to-Date Results¹
Consolidated sales for the first nine months of fiscal 2018 totaled $4.1 billion, a 2.0 percent year-over-year decrease. Reported net income from continuing operations was $180.0 million, or $1.93 per diluted share, compared to $112.4 million, or $1.17 per diluted share in last year's period. This comparison includes the recognition of a provisional net tax benefit of $77.3 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.

Adjusted net income¹ from continuing operations, which excludes certain non-recurring items, deal amortization costs and the provisional net tax benefit related to the 2017 Tax Act, totaled $128.6 million, or $1.38 per diluted share, compared to adjusted net income from continuing operations of $157.7 million, or $1.64 per diluted share, in the year-ago period.

FY2018 Guidance
Patterson today revised its fiscal 2018 earnings guidance from continuing operations, which is provided on both a GAAP and non-GAAP adjusted¹ basis:

• GAAP earnings from continuing operations are now expected to be in the range of $2.13 to $2.18 per diluted share.
• Non-GAAP adjusted earnings¹ from continuing operations for fiscal 2018 are now expected to be in the range of $1.65 to $1.70 per diluted share.
• Our non-GAAP adjusted earnings¹ guidance excludes the after-tax impact of:
  • Deal amortization expense of approximately $26.9 million ($0.29 per diluted share);
  • Integration and business restructuring expenses of approximately $5.7 million ($0.06 per diluted share);
  • Provisional net tax benefit related to the 2017 Tax Act of approximately $77.3 million ($0.83 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 the first nine months of fiscal 2018.

Patterson Announces CFO Transition
Patterson also announced that Ann Gugino, executive vice president and chief financial officer, will transition from her role as CFO, effective March 1, 2018. Patterson has appointed Dennis Goedken, current corporate controller, to serve as interim CFO in addition to his current role, while the company conducts a search for a permanent replacement. Ms. Gugino's departure is not related to the company's financial condition, financial disclosure or strategic direction, and Ms. Gugino has agreed to serve as a special advisor to the company until July 31, 2018.

Said Walchirk, "We are grateful to Ann for her many contributions to Patterson over the past 18 years with the company, and I thank her for her support during my transition. On behalf of the entire Patterson team, we wish her all the best. We are also fortunate to have someone with Dennis' experience to serve as interim CFO while we conduct a search for a finance executive to help execute our strategic priorities."

Mr. Goedken has spent more than 12 years with Patterson having served as the corporate controller since 2012, and as Patterson's assistant controller from 1991-1998. During his tenure, Mr. Goedken was integrally involved in internal audit, taking the company public and various divestitures and acquisitions. Mr. Goedken currently leads the accounting team and oversees preparation of all SEC filings. Previously, Mr. Goedken has held senior finance leadership positions with Ceridian HCM, Inc. and Lifetouch Inc.

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 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 third-quarter and full-year performance, 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 used in this release 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.

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 fiscal 2018 third-quarter conference call can be heard for one week at 800-585-8367 and by providing the Conference ID 6584419 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. 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.

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