Patterson Companies, Inc.

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Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Company's fiscal 2024 third quarter conference call. Joining me today are Patterson President and Chief Executive Officer Don Zerbe and Patterson Chief Financial Officer Kevin Berry. 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, February 28, 2024. 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 third quarter of fiscal 2024. The reconciliation tables in our press release are provided to adjust various reported gap measures for the impact of deal amortization and an interest rate swap, along with any related tax effect of these items. 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, contributions from recent acquisitions, and the net impact of an interest rate swap. 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 today at NAM Central Time for a period of one week. Now I'd like to hand the call over to Don Zerbe.

Thanks, John, and welcome, everyone, to Patterson's fiscal 2024 third quarter conference call. I will begin my remarks today with the highlights of our consolidated results and then a review of our core strategic objectives and the progress we are making toward those goals before providing details on the financial performance of each of our segments. I'll start with some key highlights. Our team executed well and successfully navigated a dynamic environment to deliver year-over-year sales growth and gross margin expansion. On the top line, year-over-year internal sales increased 0.3%, driven by continued above-market sales growth in our dental consumables and production animal businesses, demonstrating the deep differentiated value proposition we provide customers across our end markets. Our initiatives to drive margin improvement continue to prove successful as we've expanded gross margin for Patterson as a whole by 30 basis points when compared to the same period a year ago. This result reflects our continued focus on efficiency, including working strategically with manufacturers, driving improved mix, exercising expense discipline, and leveraging our cost structure. On the bottom line, our financial results reflect ongoing cost discipline measures balanced against the continued strategic investments Patterson is making across our businesses to further enhance our long-term performance and profitability. We also returned nearly $150 million to shareholders in the form of dividends and share repurchases during the quarter. Ultimately, Patterson generated an adjusted EPS of 59 cents for the third quarter. Looking forward, we are revising our fiscal 2024 earnings guidance to reflect our expectations for the fourth quarter, including continued headwinds in the dental equipment market, which I will provide more detail on shortly. For fiscal year 2024, we now expect to deliver adjusted earnings in the range of $2.30 to $2.35 per diluted share. As we move forward, we remain confident in the resilience of our end markets, the strength of our business, and Patterson's competitive positioning and value creation potential. Our confidence is underscored by our decision to repurchase approximately $125 million of shares during the third quarter and steadfast commitment to our long-term strategy. Our team remains dedicated to executing against our long-term strategy, which, as a reminder, is designed to achieve four core objectives. First, 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. Leveraging our strong balance sheet, we continue to invest across the business to drive progress on these strategic objectives during the third quarter. This included investments in our distribution capabilities and software offerings to further differentiate Patterson as a partner of choice for our customers. I'd like to highlight just a few specific examples that we've been working on to demonstrate our progress. First, the recently expanded dental distribution facility in Montreal, Canada is open and operational. This state-of-the-art facility equipped with a modern software system and advanced fulfillment infrastructure will enhance our ability to serve our Canadian customers effectively and efficiently. This modernization effort enables Patterson to further optimize our sales efforts, gain deeper insight into our customer needs, and identify potential gaps in our offerings in this market, ultimately allowing us to bring Patterson's full value proposition to bear for our customers in Canada. We're excited about the opportunity our investment in Montreal can bring, as we've seen the benefits of similar investments in other geographies. Our fully automated next-generation animal health fulfillment center in the UK, which we call the Big Shed, has already fueled accelerated revenue growth and strengthened our market position in the region. During the third quarter, Patterson also continued to invest behind our robust suite of software solutions in both our dental and animal health segments. As we've discussed previously, we believe the opportunity for growth within software is meaningful, and we're investing to enhance our existing products, drive productivity gains, and cater to evolving customer preferences. For example, during the third quarter, our dental business announced a relationship with Pearl. a leading AI solution provider for the dental business. This will enable us to integrate Earl's AI pathology detection feature set called Second Opinion into Patterson's EagleSoft practice management software. Second Opinion uses AI to help dentists detect conditions commonly diagnosed in x-rays. It's a great example of the way we're investing in our existing solutions to create enhanced value for our customers. We're also partnering with Pearl to build integrations with their Fuse cloud-based practice management software and Dolphin practice management software. Those integrations will be announced at a future date. On the animal health side, we've continued to invest in Turnkey, a market leading enterprise resource planning system for cattle producers. Majority of US cattle on automated feed systems are managed by the Turnkey platform. Our recent investments have focused on empowering cattle producers to make more data-driven decisions as a leveraged turnkey to run more efficient, profitable businesses. We have confidence in the investments we are making for the long-term growth and success of Patterson, especially as we continue to build a track record of driving returns from our strategic investments. Last year, Patterson completed acquisitions of Dairy Tech and RSVP and ECT. Today, Dairy Tech, which provides pasteurizing equipment for producers, is operating as a Patterson-owned brand and is continuing to perform ahead of our internal projections with strong margin contribution. Meanwhile, our team is continuing to expand RSVP and ACT's geographic reach to serve more veterinarians, staffing, and video-based training services and needs across additional states, as well as data extraction and conversion services. As we've said before, we remain committed to managing the organization with a keen focus on cost discipline. We continue to focus on running a rigorous process for this discipline and return on our investments that leverages best practices and advanced operational excellence across the enterprise. As we enter the final quarter of fiscal 2024 and look forward to fiscal 2025, we continue to believe that the strength of our team, the resiliency of the and animal health and markets. And our comprehensive value proposition made Patterson well positioned to drive enhanced growth, profitability, and value creation over the long term. Now I'll provide more detail on the financial performance in each of our two business segments during the fiscal third quarter. Let's start with dental. In the third quarter, dental segment internal sales increased 2.5% year over year, driven by robust performance in consumables. We believe both our consumables and equipment business performed better in the overall market during the third quarter. The Patterson team's steadfast focus and execution has enabled us to consistently deliver above-market growth in consumables over the past year. In fact, if you take a look at the four fiscal quarters prior to Q3, we delivered an average quarterly year-over-year consumables growth of just over 5%, excluding certain infection control products. We built upon this track record in the third quarter, achieving over 6% growth in the category, and when excluding certain infection control products, just over 7% growth. We attributed our continued success in consumable growth to Patterson's differentiated value proposition for dental customers. It is rooted in strong execution on the deep relationships we have built with our dental customers over time. thanks to a mature and knowledgeable sales force that acts as a true partner to dental customers of all sizes, from independent practices to DSOs and everything in between. Our team is consistently seeking to be an indispensable partner that supports dentists with everything they need to run their practices, allowing them to focus on what's important, patient care. Our consumables performance during the quarter was also supported by consistent patient traffic, reflecting the dental end market's resiliency, and ability to drive demand despite inflationary pressures. Patients continue to prioritize essential dental care, even when they might be cutting back on some of the other discretionary spending. In the dental equipment business, internal sales declined on a year-over-year basis about 2%, as improved performance in high-tech equipment was more than offset by declining core equipment sales as we lapped post-COVID supply chain delays. Our results demonstrate two key points. First, the variability of the dental equipment category and how equipment sales, whether high-tech or core, can fluctuate year-over-year and quarter-to-quarter. During the third quarter, this bore out with lower than anticipated sales performance in our core equipment category. Second, in our fiscal 2024 third quarter, equipment demand was challenged by continued macroeconomic pressures, including comparatively higher interest rates and less capital availability than the year-ago period. We expect these dynamics to continue to shape our equipment performance in the fourth quarter. We have revised our 2024 full-year adjusted EPS guidance accordingly. We have navigated economic cycles successfully in the past. We remain confident in our ability to overcome these headwinds by continuing to work strategically with our manufacturing partners and by delivering comprehensive support that enables our customers to streamline operations optimize resources, and ultimately focus on patient care. What's most important are the longer-term trends. The growing use of digital technology enables dentists to offer an improved patient experience with a higher level of oral health care. That improved experience for both dentists and patients drives demand for innovation and supports a long runway of growth over time. When new technology enters the marketplace, Patterson is best positioned to sell, finance, install, and service that technology for the complete lifecycle of those investments. Finally, dental internal sales in our value-added services category were roughly flat compared to the prior year period. Value-added services represent the entire suite of offerings we provide to our customers that enhance the customer experience, drive loyalty, and help make Patterson an indispensable partner for their practice. The dental value-added services category includes software and e-services, foundation of a modern dental practice, and remains a long-term growth opportunity for Patterson. We are confident that continuing to invest in and promote our cloud-based software helps maximize our value-added services offerings and will deepen our comprehensive value proposition to our customers. Looking ahead, we believe the dental market remains stable with healthy underlying fundamentals including an aging population, practice modernization, and the direct link between the patient's oral health and overall health. We remain confident in our team's ability to effectively navigate a dynamic environment and achieve our long-term goals. Now let's move on to our animal health segment. During the third quarter, Patterson's animal health segment internal sales decreased 1.5% year over year. as above market growth in the production animal business was more than offset by reduced sales in the companion animal business. Our animal health team achieved year-over-year adjusted operating margin improvement of 22 basis points, further building upon their track record of year-over-year operating margin expansion in six of the last eight fiscal quarters. This excellent progression is testament to the animal health team's disciplined execution the margin accretive initiatives that we have put in place. The companion animal, our internal sales in the third quarter declined by low single digits. This performance reflects our own strategic decisions and continued discipline to focus on more profitable business in the quarter in ways that modestly reduced our top line growth while supporting our margin enhancement initiatives. This includes working closely with vendors who reward us for our extensive value proposition. We remain committed to driving continued margin expansion while sustaining healthy top line performance within a stable end market. Over the long term, we expect the companion animal market to grow in the lowest single digits, building upon the substantial growth this market has experienced since the onset of the pandemic. The health of this end market is supported by strong fundamentals and positive long-term trends in pet parenting. On the production animal side, thanks to our team's outstanding execution, third quarter internal sales grew by low single digits in a dynamic market environment. We believe Patterson continues to outperform the broader production animal market due to the strength of our omnichannel presence, highly tailored distribution strategy, and comprehensive offering across species. Across the animal health segment, our value-added services category delivered robust double-digit growth during the quarter. reflecting continued demand for a suite of software solutions and e-services that resonates strongly with customers. Similar to our dental segment, our value-added services offering is a differentiator for Patterson and enables us to support the full lifecycle of equipment for our customers. We're confident that the opportunity for continued growth within software remains significant. We continue to invest in existing solutions to better leverage our strong foundation add to our capabilities, and address evolving customer preferences. As we look ahead, we believe our animal health business is positioned for continued success. Now, I'll turn the call over to Kevin Barry to provide more details on our financial aid system.