Patterson Companies, Inc.

Thank you for standing by and welcome to the Patterson Company's second quarter fiscal 2025 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. I'd now like to turn the call over to John Wright, Vice President of Investor Relations. You may begin.

Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Company's fiscal 2025 second 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 financial 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 December 5th, 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 second quarter of fiscal 2025. The reconciliation tables in our press release are provided to adjust various reported GAAP measures for the impact of deal amortization, integration and business restructuring expenses, an interest rate swap, an inventory prepayment write-off, and a gain on the sale of an investment, along with any related tax effects of these items. We will also discuss pre-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 a replay starting today 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 welcome, everyone, to Patterson's Fiscal 2025 Second Quarter Conference Conference. Before we discuss our quarter, I want to acknowledge that in our press release this morning, Patterson announced that we are evaluating potential strategic alternatives to maximize shareholder value. Such alternatives may include, but are not limited to, a sale, merger, strategic business combination, or other transaction. We cannot assure that such evaluation will result in a transaction or that any transaction, if pursued, will be successfully completed. As you can understand, Patterson does not intend to disclose further developments or answer any questions unless and until it is determined that further disclosure is appropriate. Now let's turn our focus to Patterson's second quarter results. Patterson delivered mixed fiscal second quarter results within a challenging end market environment. Our fiscal second quarter internal sales increased approximately 1% on a year-over-year basis. driven by strong performance in our animal health segment, including increased sales in our production animal business and value-added services categories. This growth was partially offset by a continued slowdown in dental equipment spending and an ongoing impact from the change healthcare cybersecurity attack that occurred during Patterson's fiscal 2024 fourth quarter. As we previewed on our last quarter call, to manage through the challenging macroeconomic environment, We took dedicated cost management actions during the quarter to preserve our ability to continue making strategic investments and position Patterson for sustainable long-term growth. During the quarter, we right-sized our team with a focus on reducing our corporate headcount while protecting nearly all customer-facing people and activities. We expect this realignment of our organization will generate annual cost savings of approximately $16 million. While we continue to maintain cost discipline across the organization, we made strategic investments in line with our long-term strategy. We announced two separate acquisition agreements for our animal health business. Infusion Concepts, a market leader in the design and supply of infusion, drainage, and critical care products in the UK, and Mountain Vet Supply, a regional distributor with a retail store presence serving customers throughout Colorado, Nebraska, Wyoming, and Montana. These transactions strengthen Patterson's position in the companion and production animal markets, respectively, and expand our portfolio with high-quality products, services, and channel capabilities for our animal health customers. We also continue to invest in our software and value-added services offerings, a very important area of long-term growth opportunity. In the second quarter, we invested in new features and capabilities within Fuse, EagleSoft, and Dolphin to help dental practice, operate more efficiently in constrained labor markets by delivering automated workflows, enhanced revenue cycle management, and improved care diagnosis and patient presentation. Ultimately, for the second quarter of fiscal 2025, we delivered adjusted EPS of 47 cents. Turning to our outlook, we revised our fiscal 2025 guidance to reflect adjusted expectations across our end markets for the remainder of the fiscal year. across the dental industry. Our revised outlook anticipates continued stable dental patient traffic, but muted equipment spending. We remain confident in the underlying fundamentals in both the dental and animal health end markets and our ability to grow market share. Furthermore, this guidance revision does not change our ongoing focus to invest in strategic growth opportunities to strengthen our business for the long term. Looking forward, we remain focused on supporting our customers and executing against our proven strategy, which, as a reminder, is designed to achieve four core strategic 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. Now I'll provide more detail on the financial performance in each of our two business segments. Let's start with dental. Our fiscal 2025 second quarter results in dental were varied across categories, reflected tighter market conditions than we had anticipated for this period. Internal sales declined approximately 2%, with positive growth in consumables more than offset by a decline in equipment and value-added services sales. We delivered approximately 1% year-over-year growth in dental consumables, a modest rebound from a quarter ago, and continue to believe we are outperforming the market and gaining share in this category. Notably, there was no material impact from deflationary pricing on certain products in our infection control product portfolio. As we previously stated, we expected the year-over-year impact of that phenomenon would be negligible after Q1 of fiscal 2025. Turning to dental equipment, internal sales decreased about 8% year-over-year. We faced continued varied headwinds across our equipment categories. In core equipment, internal sales were essentially flat year-over-year. On the digital side, we saw declines in digital equipment and CAD CAM categories, even though CAD CAM sales picked up in the last month of our fiscal second quarter. These results underscore the inherently lumpy nature of the dental equipment and the continued overall market pressures on dental equipment spending. And finally, internal sales in our dental value-added services category declined nearly 3% in the fiscal second quarter compared to the prior year period, primarily due to the ongoing impact of the changed healthcare cybersecurity attack. As a reminder, this incident created an inability for some customers to process claims for insurance reimbursement and has required our software and value-added services teams help customers transition to alternative claims processing solutions rather than focus on selling new products and services. As expected, the year-over-year impact moderated on a sequential basis, a trend we expect to continue in fiscal Q3 before becoming a comparable benefit in fiscal Q4 as we lap the impact from the prior year. To continue to see software and e-services as a very important area of long-term growth, and continue to invest in the space, as I mentioned earlier. We're also focused on finding ways to deepen the value proposition we provide to our dental customers. One example is our recently announced extension of an important strategic relationship with PDS Health, formerly known as Pacific Dental Services, which allows Patterson to continue as the premier distributor for all merchandise, services, technology, and core equipment across PDF PDS Health's network of more than 1,000 supported practices nationwide. We've also expanded our portfolio of dental equipment products for customers in both the U.S. and Canada through our new distribution agreement with DCI Edge. These developments underscore our strength as an indispensable partner to large DSO networks, smaller regional group practices, and independent practices. During the quarter, we attended marketing events with our manufacturing partners where we engaged a balanced group current users and new prospects across all technology categories and discuss ways to improve their digital workflow and continue modernizing their dental practices. We met our expectation for sales execution and order realization during the second quarter. Our presence at these types of events is an extension of what we do all year long in terms of engaging with customers to help them understand how equipment and technology can enhance the productivity of their practices reinforcing Patterson's position as the partner of choice to finance, train, support, and service their equipment and technology purchasers. Before we move on, I want to highlight the recent appointment of Kristin Diefler as the new president of our dental segment. Kristin has a track record of success in achieving strong sales growth and introducing new products and brings a fresh perspective from various leadership roles at adjacent healthcare companies. We are excited to have her on board and look forward to working with her to grow and evolve our dental business. This more challenging period for the dental business was partially offset with solid performance in Patterson's animal health segment, where we offer a similarly comprehensive portfolio of products and services to our customers in the companion and production animal end markets. Internal sales for the fiscal second quarter increased approximately 2% year over year, driven by mid-single-digit growth in our production animal During the second quarter, we also continue to focus on driving greater efficiencies throughout our P&L to deliver improved profitability. In our companion animal business, year-over-year internal sales for the second quarter of fiscal 2025 declined by low single digits, but achieved sequential improvement over the prior quarter. Overall performance in the segment continues to be challenged by moderation in veterinary clinic traffic and by our continued discipline to focus on more profitable profitable business in ways that modestly reduced our top line growth while supporting margin expansion. We remain encouraged by the underlying market fundamentals in the companion animal market and continue to focus our value proposition on the veterinarian, who pet owners place the most trust in caring for their pets. As mentioned earlier, we also continue to invest in strategic growth opportunities, leveraging the successful M&A playbook we have proven out across both of our animal health business We continue to see momentum in our production animal business, which generated mid-single-digit internal sales growth in the second quarter of fiscal 2025. We attribute this strong performance to a combination of share gains from our multi-channel approach and value-add offerings across species. Our performance was particularly strong within our largest and most established customers, which continue to grow while effectively managing through some challenging market dynamics. Her differentiated value proposition makes Patterson a uniquely attractive partner to such customers in this market. Across the animal health segment, our value-added services category delivered strong double-digit internal sales growth in the fiscal second quarter. This robust performance demonstrates the strong demand for our comprehensive suite of software solutions and equipment services, as well as initiatives to drive operational efficiencies in the process areas of freight and electronic billing. Just as in our dental segment, our value-added services are a key differentiator for Patterson, enabling us to support the full lifecycle of equipment for our customers. Now, I'd like to turn the call over to Kevin Barry to provide more detail on the financial results.