Patterson Companies, Inc.

Good morning and welcome to the Patterson Companies Inc. first quarter fiscal 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. John Wright, Vice President of Investor Relations. You may begin your conference.

Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Company's fiscal 2024 first quarter conference call. Joining me today are Patterson President and Chief Executive Officer Don Zerbe and Patterson Chief Financial Officer Kevin Barry. After a review of our results and outlook by management, we will open the call to your questions. Before we begin, let me remind you that certain comments made during this conference call are forward-looking in nature and subject to certain risks and uncertainties. These factors, which could cause actual results to materially differ from those indicated in such forward-looking statements, are discussed in detail in our Form 10-K and our other filings with the Securities and Exchange Commission. We encourage you to review this material. In addition, comments about the markets we serve, including growth rates and market shares, are based upon the company's internal analysis and estimates. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 30th, 2023. Patterson undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Also, a financial slide presentation can be found in the investor relations section of our website at pattersoncompanies.com. Please note, that in this morning's conference call, we will reference our adjusted results for the first quarter of fiscal 24. The reconciliation table in our press release is provided to adjust reported gap measures, namely operating income, other income expense net, 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., Four, the impact of deal amortization along with the related tax effect of this item. We will also discuss free cash flow as defined in our earnings release, which is a non-GAAP measure, and use the term internal sales to represent net sales adjusted to exclude the impact of foreign currency and contributions from recent acquisitions. These non-GAAP measures are not intended to be a substitute for our GAAP results. This call is being recorded and will be available for replay starting at 10 a.m. Central Time for a period of one week. Now, I'd like to hand the call over to Don Zerbe.

Thanks, John, and good morning, everyone. Patterson had a strong start to fiscal 24, building upon our momentum across the business as we continued to deliver value for our customers and shareholders. A few highlights from our first quarter. On the top line, year-over-year internal sales increased approximately 3% with growth across both the dental and animal health segments. Our initiatives to drive margin improvement were successful, as we achieved year-over-year adjusted operating margin expansion across the company and the dental and animal health segments. We returned $55 million to shareholders in the form of cash dividends and share repurchases. And we delivered adjusted EPS growth of 25% from the same period a year ago. Given these results, we remain on track to achieve our fiscal 2024 earnings guidance. As a reminder, our guidance accounts for our commitment to deliver year-over-year internal sales growth and adjusted operating margin expansion for the total company and across both our dental and animal health segments. Our performance during our fiscal 24 first quarter illustrates the continued execution of our proven strategy, which, as I shared last quarter, is designed to achieve four core objectives. drive revenue growth above the current end market growth rates. Second, build upon the progress we've made to enhance our margin performance. Third, evolve our products, channels, and services to best serve the customers in our end markets. And fourth, improve efficiency and optimization. Our team is aligned around various strategic initiatives to advance each of these core objectives. Today, I'd like to highlight just a couple specific examples that we've been working on in early fiscal 2024 to demonstrate our progress. First, our focus on private label. During the first quarter, we benefited from continued growth in our private label portfolio, which includes a collection of owned brands with strong market equity. These include brands we've built, like the Patterson brand in dental and the Aspen and Pivotal companion vet products. as well as acquired brands like Dairy Tech and the production animal business. We have invested in this important category by adding new SKUs, and our sales team is highly engaged and motivated to drive sales growth in this margin accretive category. We continually evaluate opportunities across our businesses, but believe there is a distinct opportunity within animal health to further expand the private label portfolio to meet evolving consumer preferences. In fact, during fiscal 24, we expect to add more private label products to our animal health offering than ever before. Over the past several years, our private label sales growth has outpaced the sales growth of products manufactured by our strategic partners. The results are paying off, and in addition to generating above-market growth, our focus on private labels supports our other core objectives. Another recent example relates to our efforts to improve efficiency and optimization. As we've said before, this objective includes not only a rigorous focus on cost discipline, but also targeted investments to leverage best practices and advance operational excellence across the enterprise. We have recently been implementing a strategic modernization of our fulfillment facilities and capabilities. This includes investments in new technology, such as robots and cobots, to automate order picking. enhancements for our teams to ensure the right skills and expertise to operate the more modern facilities, and substantial expansions of our fulfillment capacity. Just this week, we are opening a brand-new fulfillment center in the UK we call the Big Shed that will double our capacity in the region. This fully automated next-generation facility is not just larger, it's more sustainable, more efficient, and further advances our channel capabilities. We also recently completed a technology overhaul to our fulfillment center in Southern California and are close to opening an expanded facility in Montreal, Canada. In addition, we have similar projects underway in several other locations. These strategic investments in our fulfillment centers can help alleviate capacity constraints and the modernization of our facilities is expected to enhance growth. These are only a couple examples of some of the many initiatives we have underway. Taken together, our strategic areas of focus build upon our strong foundation and success over the past several years to further differentiate our position in the market and drive enhanced growth, profitability, and value creation over the long term. Now I'll provide some updates on each of our segments during the fiscal first quarter. Let's start with dental. Dental segment internal sales increased 2% compared to the first quarter of fiscal 23, due to strong growth in consumable and value-added services, which includes our software offerings. We also achieved year-over-year adjusted operating margin expansion in the fiscal first quarter, due to our dental team's ongoing focus on our margin enhancement initiatives. Our value proposition continues to resonate with all types of dental customers, from individual practices to group practices. We seek to create a seamless experience by offering a comprehensive suite of products and solutions to help dental practices grow, become more efficient, and provide improved patient care. In the consumables category, dental internal sales increased approximately 5% in the fiscal first quarter compared to one year ago. Excluding the moderating deflationary impact of infection control products, internal sales for our non-infection control consumables year-over-year. Overall, we believe the demand we are seeing for consumables products speaks to the resiliency of the dental market and our ability to drive growth above the current end market. Looking at dental equipment, internal sales in the first quarter of fiscal 24 decreased 6% compared to the year-ago period. Our team delivered growth in our core equipment and CAD-CAM categories that was more than offset by a decline in digital technology. which experienced a sequential decline in sales following a strong fiscal 2023 fourth quarter. This dynamic is typical of the variability of the equipment category and further demonstrates how equipment sales can fluctuate quarter to quarter for a variety of factors. Over the last eight quarters, our average quarterly equipment internal sales growth was 4%. Dentists continue to invest in their practices and look to Patterson when they do. We anticipate that demand for equipment and technology will drive our manufacturing partners to continue introducing new innovations and technologies. Patterson is uniquely positioned to capitalize on this demand, thanks to our expertise in selling, financing, installing, training, and servicing the latest technologies and equipment. And finally, dental internal sales in our software and value-added services category increased approximately 6% over the prior year period. Value-added services represent the entire suite of offerings we provide to our customers that help make Patterson an indispensable partner to their practice, including our leading technical service offering. This category continues to grow at a rate exceeding the overall rate of the dental segment. The strong results we have been delivering in the value-added services category are testament to our customers recognizing the full lifecycle support and services that Patterson provides. And as an added benefit, these valuable offerings are mixed favorable to our P&L. Maximizing our value-added service offerings, particularly in the software category, is a key part of our strategy. It's a meaningful opportunity for growth. Looking ahead, we believe the dental market remains stable with healthy underlying fundamentals, including an aging population, practice modernization, and the direct link between a patient's oral health and overall health. which we believe will continue to serve as tailwinds and help drive performance across our dental segment over the long term. Now let's move on to our animal health segment. During the first quarter of fiscal 24, animal health internal sales increased 4% year over year, with growth in both companion animal and production animal businesses. We also achieved year over year adjusted operating margin expansion in the animal health segment, building upon our excellent track record of margin improvement over the past few years. We benefit from the depth of our offering and omni-channel presence that spans a wide range of animal species and offers comprehensive solutions for diverse customers. In companion animal, our internal sales in the first fiscal quarter increased by mid-single digits as we executed well within this healthy and growing market. As we've said before, we've been modeling mid single digit revenue growth for our companion business over the long term. On the production animal side, fiscal 2024 first quarter internal sales grew by low single digits. Despite ongoing headwinds within the cattle market, we've continued to deliver sales growth in this part of the animal health business. This is a testament to our team's performance and the diversification of our production business. Across the animal health segment, Our value-added services category achieves strong growth that can be attributed to sales of our software solutions and equipment service, as well as operational efficiencies. Expanding our investments in software and value-added services remains a priority for us and is core to our objective to position Patterson Animal Health as the leading provider of technology, software, data insights, services, and products to the animal health industry. Our team stands ready to help our customers identify the right set of solutions to streamline their workflows and run their practices efficiently, all backed by our unbeatable service and support. Now I'll turn the call over to Kevin Berry to provide more detail on our financial results.