Q4 2020 Patterson Companies Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Patterson companies' fiscal 2024th quarter and yearend conference call.
This time, all participants are in listen only mode.
After the speakers presentations old injury, and especially in you'll need fresh start one on your telephone. Please see as I said. This today's conference is being recorded if you.
Any further assistance please press star zero.
I'd now like turn call over to Mr., John Rights VP of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and thank you for participating in Patterson companies' fiscal 2024th quarter earnings Conference call.
Joining me today, our Patterson, President and Chief Executive Officer, Mark Walter and Patterson, Chief Financial Officer done survey.
Yeah.
After a review of the fiscal 2024th quarter 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 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 contents of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast June 24th 2020.
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 web site at Patterson companies Dotcom.
Please note that in this morning's conference call, we will reference our adjusted results for the fourth quarter and full year of both fiscal 2019 in fiscal 2020.
A reconciliation table in our press release is provided to adjust reported GAAP measures, namely operating income income before taxes income tax expense net income or loss attributable to Patterson companies Inc. and diluted earnings per share attributed tribute double to Patterson companies Inc. for the impact of deal amortization in.
Integration and business restructuring expenses certain legal expenses accelerated debt issuance costs.
Discreet tax matters investment gain or loss and goodwill impairment along with the related tax effects of these items.
We will also discuss free cash flow defined in our earnings release, which is a non-GAAP measure any impact of foreign currency.
In particular, we used the term internal sales to represent net sales adjusted to exclude foreign currency impact and changes in product selling relationships.
The reconciliation of our reported and adjusted results can be found in this mornings press release.
This call is being recorded and will be available for replay starting today at noon central time for a period of one week.
All over to Mark Walter.
Thank you John and welcome everyone to Pattersons fiscal 2024th quarter and yearend conference call.
First and foremost.
Safe and healthy.
Say the world has changed a lot since we were supported our fiscal 2023rd quarter earnings back on February 27th is obviously an understatement.
Our employees customers and communities have certainly been disrupted by the impact of the cold in 19 pandemic and we will continue dealing with the impact over the coming months.
On today's call gone and I will provide some context around our financial results for the fourth quarter and the fiscal 2020 year, including our response to the Cobot 19 pandemic and how it has impacted our end markets and our business.
I'll also provide our perspective on current market conditions, and how we expect our markets to evolve during fiscal 2021.
And I'll conclude today's remarks with a brief comment on pattersons commitment to fostering positive change in our organization and our communities given the ongoing unrest and ratio and social injustice throughout our country and in our hometown of Minneapolis.
Throughout fiscal 2020 Patterson continued to execute on our strategy to deliver enhanced value for our customers and shareholders. As a result, we grew adjusted earnings more than 16% in the fourth quarter and nearly 11% for the fiscal year delivering EPS of 43 cents in our fiscal Q4.
Sure and $1.55 cents for the full fiscal year.
Our results were particularly strong when considering the significant impact the cold in 19 pandemic had on our end markets, particularly the dental market beginning in mid March and continuing through April.
Although challenges relating to Kogan 19 are continuing to persist into fiscal 21.
We believe the strong foundation, we've built will help us and able to manage through this disruption.
Throughout fiscal 2020, our focus on sales execution operational excellence effective mix management expense and working capital discipline and deepening our value proposition through targeted investments has considerably strengthened Patterson.
Combined with the essential role we serve for our customers and the momentum we feel we expect these actions will protect the long term health of our business and it position Patterson well to emerge even stronger from the current macro environment caused by covert 19.
Let me start by providing some additional color around the significant progress Patterson made throughout our fiscal 2020.
The strategies, we executed during fiscal 2020 produced accelerating performance through the first 11 months of the fiscal year.
Prior to the effects of Cobot 19.
As a result, we clearly exceeded our financial objectives for fiscal 2020.
First we delivered improving revenue growth rates across our dental and animal health segments through strong sales execution, improving the customer experience investing in our digital and service capabilities and broadening our customer value proposition.
Through the first 11 months of fiscal 2020.
Total company internal sales increased 2.7% compared to the same period a year ago. It.
Including growth of 4.6% in our dental business and 1.2% in our animal health business.
Second we continue to execute our margin improvement strategy and delivered year over year operating margin improvement during each quarter of fiscal 2020, including the fourth quarter.
This resulted in a full year adjusted operating margin of 4.3% an increase of 65 basis points over fiscal 19.
We achieved this performance through ongoing improvements and strategic sourcing.
Effective cost management continued expansion of our private label portfolio and increased sales of higher margin software and services products.
Third we generated improved cash flow, mainly from effective working capital management.
For the full year free cash flow was 227 million.
And lastly, as I mentioned, despite the substantial impact from cold in 19 during the last six weeks of our fiscal 2020.
Patterson achieved fiscal 20, adjusted EPS of $1.55 cents.
Exceeding our fiscal 19, adjusted EPS performance by nearly 11%.
Particularly in light of the disruption caused by Colgan 19, I'm very pleased with our financial results in fiscal 2000.
Which clearly reflect our efforts to strengthen pattersons fundamental operations and to expand our value proposition for our customers and business partners.
With that overview in context on our full fiscal year 2020.
I will now provide some detail on our fiscal fourth quarter performance, including how our business was performing before our end markets were disrupted by Kobin 19, and how we responded to the pandemic.
Our strong business momentum from the first three quarters of fiscal 20 continued during the first two months of the fiscal fourth quarter, which ended on March 21.
Through our fiscal month of February and March internal sales grew five pay period last year.
Internal sales in our dental segment increased 7.8% during the first two months of our.
The same period last year, as we delivered solid growth across consumables equipment.
Value added services.
Internal sales through fiscal February and March increased 3.7%.
Driven by high single digit.
Growth in our global companion animal business.
It's clear that are focused and disciplined approach to improve execution and strengthen our value proposition.
Deliver strong performance and improve.
Most of our fiscal fourth quarter.
Turning in mid March we started to.
Experienced the direct impact.
He's and among our employees customers and business partners.
We felt the collective disruption across our entire business, yeah that to varying degrees within each market.
As the dynamics across.
Our end markets rapidly changed we quickly moved to position our business to respond to the challenges posed by the pandemic.
We centered are focusing efforts on three core principles.
Protecting employee health and safety.
Ensuring business continuity for our customers and helping to reduce the spread of the virus in our communities.
Some of the steps we took in support of these principles include.
Implementing work from home practices, and putting strict safety procedures grew Patterson employees, who can.
Centers to serve our customers who depend on Patterson during this year.
As we communicated back on April six we also have implemented a number of cost savings measures.
Reduce expenses included.
And canceling all in person meetings a group of.
Hence restricting all travel and eliminating all non essential.
Funding.
We also imply.
Furloughs and reduced work hours.
For us.
As we undertook these actions we.
You are mindful of the important role we play in supporting our customers and their central businesses.
While taking employees.
Pattersons fulfillment centers customer service centers.
Remain fully operational.
Through our customers.
While many of our employees continue to work in our facilities as usual others worked remotely and continue to effectively serve our customers during the.
For example, our team quickly built in online Patterson resource center to assist both our.
Dental and animal health customers and Naveen.
Gating through the crisis.
We hosted many online training sessions to help customers address the challenges business as well to help got safely and effectively.
We created a cares that task.
Thing and implementing governmental financial assistance here in the us.
In Canada.
Finally for our dental customers.
Industry, leading resource titled Real.
Okay and restore.
Nice across the industry as an extremely valuable resource to help Dennis reopen their practices.
Safely and productively.
The opportunity to thank our entire.
And.
For truly living our core values during these unprecedented times.
I've been so it's.
On how our team has come together to respond under the crisis.
Well provide.
Services they depend on.
I couldn't be more proud of our entire third and values have truly shown.
Now, let me address how the disruption across our.
Our financial performance during <unk>.
Last six weeks of our fiscal year important to note that April is the last month of our fiscal fourth quarter.
Historically has been one of our strong August months from a sales standpoint, as we work to finish up the year.
Hoping 19 effected each of our businesses to a different degree the most significant impact from the pandemic occurred within our dental segment.
Down approximately 70%.
Says, we're we're required to close and were allowed to conduct only emergency.
Guidelines issued on March 16, and various other local regulations issued on a state by state basis.
Within animal health, while most of that offices remained open overall demand declined as customers delayed or limited non essential services.
Veterinarians adapted their business model to offer curbside service.
Delivery options and other online communications to their pet owner customers.
Canyon animal business were down double digits.
The market was impacted less than expected.
The performance of our production animal business. This in fiscal April was down only.
Which was roughly consistent with the first two months of the fourth quarter.
As you recall during the initial weeks of the Cobot 19 impact Dave.
Hum, causing consumers to.
If they're eating habits to eating almost in the protein supply chain responded.
By ordering additional products from us to meet that anticipated future demand.
However that trend began to reverse as we move through April when a number of packing facilities experienced outbreaks of the colder 19 virus and were forced to temporarily shut down their operations, which in turn negatively impacted our performance in this category.
Before I provide additional detail on our end.
Of the first quarter fiscal 21.
Ill now turn the call over to Don for a deeper dive into our fiscal fourth quarter and year end 2020 results.
Don.
Thank you Mark and good morning, everyone.
Sales for Patterson companies in our fiscal 2024th quarter.
The decrease of 10.5% versus the fourth quarter a year ago.
Internal sales, which are adjusted for the effects of currency translation and changes in product selling relationships decreased 10.0% compared to the same period last year.
As Mark mentioned internal sales growth for Patterson companies through the first two months of the fiscal quarter.
Were 5.1%.
Clearly demonstrating that our strong Q3 performance continued into the fiscal fourth quarter.
By Copel 19.
For the full year fiscal <unk>.
2020 consolidated reported sales declined 1.5% fiscal 2020 decrease 0.9% compared to fiscal 2019.
Our fourth quarter adjusted gross margin was 22.9%, which was up 110 basis points versus the fourth quarter fiscal 2019.
Due to improved product mix and higher vendor rebates earned at year end the reflected our strong performance during the first 11 months of fiscal 2020.
Primarily related to reduced variable expenses that were tied to the lower sales volume.
As well as additional operating expense savings directly associated with the significant negative impact of Colgate 19.
In the fourth quarter, our consolidated adjusted operating margin was 5.6%, which represents a 170 basis point improvement over the same period in the prior year.
As you recall, our consolidated adjusted operating margin had been improving all year, given our efforts to drive operational improvements and expense discipline, along with the added impact of segment mix and leveraging them higher sales volume.
This quarter for operating margin improvement was aided by our positive momentum in the first two months or the quarter. In addition to the reduction in operating expenses related to covert 19.
And then partially offset by the impact of lower sales volumes as we navigated through the cobot Nineg pandemic.
Our adjusted operating margin.
3% increase of 65 basis points.
We are encouraged by the year over year improvement in our adjusted operating margin over the last five quarters.
Our adjusted tax rate for the fourth quarter was 24.4%, which was an increase in 50 basis points compared to the fourth quarter of the prior year.
On a full year basis for fiscal 2020, our effective tax rate was 24.6%.
Essentially flat with our tax rate for fiscal 2019, so our tax rate had no impact when comparing fiscal 2020 to fiscal 2019.
Reported net loss attributable to Patterson companies anyway for the fourth quarter fiscal 2020 was 608.6 million or $6.44 per diluted share.
This compares to reported net income of 28.0 million and 30 cents per diluted share in the fourth quarter one year ago.
Also note that during the course corridor, we recorded a pretax goodwill impairment charge of 675.1 million.
Related to our animal health segment.
This charge reflects management estimates of future cash flows driven by reduced sales volumes and operating margins, including the impact of Covance 19.
Adjusted net income attributable to Patterson companies ink in the fourth quarter totaled 41.1 million or 43 cents per diluted share.
This compares to $35 million or 37 cents in the fourth quarter of 2019 and represents a six cents or 16% year over year increase.
This increase over the prior year reflects our strong sales momentum in the first two months of the fourth quarter and then the reduction of variable expenses tied to lower sales volume and some additional expense savings directly associated with the impact of cobot 19.
For the entire year of fiscal 2020, adjusted net income attributable to Patterson companies Inc. totaled 147.6 million or $1.55 per diluted share.
Compared to 130.9 million or $1.40 per diluted share in fiscal 2019.
This represents a 10.7% improvement over the prior year.
Primarily driven by the improved performance in our dental segment across consumables equipment and value added services.
Now, let's turn to our business segments in our dental segment. During the first two months of the fourth quarter, our internal sales were up 7.8%.
Reflecting the strong momentum in the business across all three categories consumables equipment and value added services.
Clearly the sales momentum we discussed on our third quarter earnings call was improving even further up until the last week of our fiscal March period.
Beginning in mid March the Coven 19 pandemic severely impacted our dental business as the American Dental Association issued guidelines on March 16.
For dentists to only perform emergency procedures.
As you would expect this had a significant negative impact on consumables and equipment sales volumes, although we did remain operational to help our customers during this difficult time.
Given the severe impact of dental practice closures fourth quarter internal sales for our dental business decreased 27.2 compared to the fourth quarter fiscal 2019.
On that same basis Patterson sales of consumable dental supplies were down 26.0% and sales of equipment in the fourth quarter decreased 36.4% versus same period a year ago.
With similar percentage declines across all equipment categories.
In addition, internal sales of software and value added services decreased 11.1% from the fourth quarter.
Adjusted operating margins in dental were 8.6% in the fourth quarter, a 90 basis point decline compared to prior year.
Even though we took actions to decrease operating expenses and benefited from variable expense savings the impact of the dramatic drop in sales due to dental practice closures affected our financial results.
Now, let's move onto the animal health business.
And the first two months of our fourth quarter internal sales for animal health business increased 3.7% compared to February March in fiscal 2019.
Our companion animal business performance was accelerating and our production animal business will slowly improving as the macro challenges in that market have begun to subside.
The effects of the covert 19 pandemic.
Also impacted our veterinarian and protein production customers to different degrees and to a far lesser extent than the financial impact I described in our dental business.
Veterinarian customers adapter their business model with curbside pickup and increased home delivery and yet pet owner visits were still down double digits.
Production business actually posted positive year.
90 impact in March and April as consumers stocked up on groceries, including protein to comply with state orders to shelter.
Tuition began to subside near the end of April as a number of packing location.
Since were closed temporarily due to our.
And that impact continued into the first part of our new fiscal year.
As we finish up the fourth quarter internal sales for our animal health business decreased only <unk>, 0.8% for the full quarter compared to the same period a year ago.
Adjusted operating margins in or animal health side, but were 4.5% in the fourth quarter and an increase of 60 basis points.
Compared to the fourth quarter of the prior year.
Our animal health business, our sales impact from covert 19 was much less severe than our dental business.
And with the reduction of operating expenses, we were able to deliver operating margin improvement for the quarter.
Now, let's look at several cash flow and balance sheet items. We've continued taking actions to improve our overall working capital to increase pattersons cash flow and strengthen our balance sheet.
And we were pleased to see the impact on our results.
During the full year of fiscal 2020, we used 243.5 million in cash from operating activities. We also collected deferred purchase price receivables and $540.9 million during the year, which is included in the investing activities section of the cash flow statement.
To fully appreciate our free cash flow. The total of these two amounts is 297.4 million.
Free cash flow, which we've explained in calculated in the table within our press release increased $8 million during fiscal 2020.
Paired to fiscal 2019.
Let me address next address the topic of liquidity during the fourth quarter as the Cobot 19 pandemic began to disrupt our markets and our business, we probably took the necessary actions to eliminate discretionary expenses.
Capital spending on hold and preserve cash across all aspects of our business.
As we previously announced we also implemented temporary salary reductions furloughs and.
And reader reduced work hours across the majority of our workforce.
In addition to these actions as previously announced we also drew on our revised.
Gosh reserves.
We certainly recognize the importance of liquidity in the need to manage our cash and working capital more tightly during this challenging time.
We remain confident we're well positioned to meet the liquidity needs of the businesses and move forward.
Turning to capital allocation, we continued to execute on our strategy to return cash to our shareholders.
In the fourth quarter fiscal 2020, we returned 24.9 million to our shareholders in the form of dividends.
And on a full year basis, we returned 100.4 million back to our shareholders as dividend payments.
As you've seen from our recent press release. Our board has also approved the July dividend payment 26 cents per share as we will return another 25 million of cash to shareholders with our dividend.
Our board continues to be or dividend as an important component of returning value to our shareholders and the current dividend yield.
Provides a meaningful baseline returned to shareholders as we continue focusing on our plan suited to drive improved performance in the business.
As I conclude and turn it back to Mark given the ongoing disruption of North American and international market conditions and the difficulty of predicting the continued effects of cope with 19 and related federal and state government actions, we're not issuing fiscal 2021 earnings guidance at this time.
Now ill turn the call back over to Mark.
Thank you Don.
As Don just mentioned, we're not providing fiscal 2021 guidance at this time.
However, I do want to provide some insight into the trends we're seeing in our end markets during the fiscal first quarter and how the end market macro trends may evolve over the course of the fiscal year.
We're pleased to see the beginnings of a dental market recovery as our customers around the country start to reopen their practices.
The pace of dental practice openings continues to evolve and we're encouraged by the weekly American Dental Association updates showing steady progress with each new survey.
In our fiscal May month, Patterson dental sales were down approximately 40% compared to the same period a year ago, an improvement from the severe decline the entire dental industry experienced in late March and April.
We continue to be encouraged by our revenue results to date, however, given the variability of phased openings on a state by state basis, and how dentist will adapt to additional infection control procedures. It remains difficult to predict the likely pace and timing of the dental industry recovery.
While we see consumable sales improving each week, we do expect equipment sales to take longer to recover.
However, our team will remain focused on helping customers understand how investments in equipment and technology can benefit their practice and help them grow and recover even faster.
We're also working with a number of our manufacturer partners to introduce and execute promotional offers and special financing programs to help our customers invest and recover as quickly as possible.
The companion animal market also continues to recover from the Kogan 19 impact.
Fiscal made companion sales in the U.S. were down less than half a percent compared to the same period one year ago.
And we expect a continuation of improved trends in fiscal June.
We're encouraged by these improving trends and see long term opportunity in the companion market. As Cobot 19 has led to increased pet adoption and ownership rates home delivery telemedicine and an overall sophistication of companion animal clinics being able to leverage new technologies.
The production animal market continues to be challenged as meat production facilities faced closures from Kobin 19, outbreaks, often resulting unlimited and limited cattle and swine movement from the feed lots to the packing facilities.
Our production animal sales were down approximately 8% during may compare to the same period, a year ago and have been slowly improving as packing facilities begin to work back to full production after dealing with temporary shutdowns.
While we are encouraged by these improving trends, we do expect market challenges to persist for the remainder of calendar 2020.
Clearly the different dynamics across our end markets will continue to evolve in the weeks and months ahead.
As we navigate the current environment and monitor how the macro environment plays out in each of our end markets. Our team is committed to taking further actions if necessary to most effectively manage our cost structure and preserve liquidity as the impact from cobot 19 continues in the coming months.
At the same time, our true colors as an organization have really shown over the last several months and it has been incredible to witness how all of our teams have stepped up and rallied together to support each other.
Customers, our business partners and our communities.
I want to reiterate that we remain confident in the long term fundamentals of our end markets essential role, we served with our customers and the operational improvements and customer focused investments. We have made to further differentiate the value proposition that we provide to the customers we serve each and everyday.
Our focused efforts to strengthen Patterson throughout fiscal 2000.
Accelerate our performance and achieved strong year over year earnings growth have positioned us well to navigate this disruption and emerging even stronger Patterson.
Better able to deliver value to our customers business partners and shareholders.
Now before we move onto the question and answer session.
Let me just conclude by sharing Pattersons commitments and perspective in light of recent events in our hometown of Minneapolis and across the country.
The all pointing a brief outrage and demands for change we are seeing as a clear reminder of the ratio in social injustice that exists in our society.
At Patterson, we stand for a quality social justice fairness and inclusion and we are dedicated to acceptance understanding listening and learning.
Over the past several weeks, we've been in frequent communication with our team providing education information and resources to make sure. Our people are supported during this time.
We know the Patterson can do more to foster positive change in our organization in in our communities and we are committed to doing so.
Our teams are actively engaged in this important dialogue and more importantly, very focused on implementing concrete and specific actions that will make a positive difference in our communities.
And now we will open up the line, so Don and I can take your questions.
Operator.
If you like to ask a question at this time. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question pressed Uptown key well pause for just a moment to cathartic una roster.
And your first question comes from Michael Cherny with Bank of America Securities. Please go ahead.
Hi, Good morning. Thank you for all the colors. So far so morning, Mark I want to dive a little bit into some of the commentary you gave a particular around the transitions from April domain, and how you're thinking about the pathway forward for dental in particular for this year as you think about that demand curve in the down 70 in April it down 40.
In may and and however, it's trending in June can you give us a little sense in particular within consumables and maybe even within equipment of what you're seeing customers growth and try to purchase the how much of what you're seeing terms and through maybe tied to weaken sell through on PE and other reopening type.
And consumables and how does that.
Transition forward as you think about what it would take to get back to a normalized run rate.
Yeah, Michael Thank you. Thanks for the question well I would say.
Number of things here first of all we're certainly encouraged by the improved trends we've seen over the past 468 weeks.
In terms of the dental industry recovery.
It is certainly a bit early to predict what's actually going to happen going forward I think just given the continued uncertainty that we see in general around the can grow to buyers situation, but again certainly very encouraged by what we've seen these past four to six weeks in particular.
We're seeing obviously the offices open back up we are seeing obviously patient volumes, improving but certainly not to pre coded levels and dental offices are experiencing a lot of changes as they reopen guidelines associated with personal protective equipment ERP.
Maintenance facing the own the health and safety of their own employees.
Our certainly all kind of contributing to the evolving trends here I would say certainly we expect that the consumables and what we've seen so far are coming back a little bit.
More quickly than the equipment.
But I think the in terms of going forward as I indicated it's still bit early to understand the exact slope of the curve, but we're certainly.
As a man as I mentioned very encouraged by what we've seen these past four to six weeks in particular and I would also say.
Just given some of the numbers that we shared with our results in particular through the first two months of our fiscal fourth quarter I'm really I'm really proud of the work to dental team has done and really the momentum.
That we had in our dental business and we certainly anticipate as the industry continues to recover that we'll be able to regain that momentum that we had going into after the pre kogut environment.
And just a one more question talking about the reaction you have from a cobot perspective, and especially some of the cost managed procedures you could plates and also the tie in that you had relative to the animal health write down can you give us a sense on how you think about the structural costs, if any that you've been able to.
Take out specific tied to Kobe, new good number of other programs in place that you've been executing on but anything else about your business that you'd be able to identify.
Potential for structural improvements I feel grow organization in a postcode world.
Yes, I mean, I'll take a quick run and maybe down at the additional context and I would say we've been.
Working on.
Improving our cost management position and just improving our overall cost position structurally over the past couple of years now and also certainly balancing those.
Changes with appropriate investments that we also felt we needed to make back into the business as part of our turnaround so.
That's not something that we just started working on we obviously took some immediate actions in light of pulled in 19.
Certainly we'll continue to identify opportunities, where we believe we can improve our cost position.
And also balanced that with the investments that are needed as we think you kind of take take the long game here in particular.
As I indicated we've taken a number of actions specifically associated with cold in 19.
And we'll certainly continue to identify future opportunities to improve prove our cost position from a structural standpoint from overall expense standpoint, and that's just an ongoing effort that we have across the company and have had to sometime.
Yeah. Michael This is Don I mean, I'd only add that I mean to your point this is really.
I will provide us an opportunity to look at what our cost structure is in and we've we've been forced to in some ways do some things that.
We weren't sure we could do quickly.
And so as we move forward, we're certainly taking those things into mind as we look at what our needs are what our costs are in kind of what some of these opportunities might be as we emerge from this.
Great. Thanks.
Next question comes from Jeff Johnson with Baird.
Thank you. Good afternoon are good morning, guys.
And our Mark I guess I wanted to start with you'll just ER.
Following up on Michael's question on PPD wondering if you could help us think about the incremental opportunity just in that category over the coming year themed us as if that market has probably been a one to 2 billion dollar market over the last number of years out we're hearing kind of the incremental than maybe 50% higher sell on pp on a per patient.
Per visit a basis at this point, though it do we really think of that market being an incremental $1 billion are so over the next 12 months relative to the past 12 month and is there any reason to think channel wise that would go I would assume it just goes through distributors, but is there anything different with PE today that some of that goes more direct or anything like that just kind of help.
Thats on the size of that category and how it might impact the distributors in the industry. Thanks.
Yes, Jeff Thanks for the question and Yeah, sorry didn't get to that component of it of Michael's question. You know look I think PE is obviously, a big topic right now I would tell you. The situation certainly continues to be a bit fluid, although definitely improving.
And our teams have literally been working around the clock to identifying approved new sources of products just given the changes in the types of products our customers are using and not to mention just the overall increase in demand for these products. So it's certainly been a challenge across the industry and our customers are certainly experiencing that.
I would just also note our standards are very high here and we simply won't purchase products that don't meet our strict quality impair the guidelines.
Our customers depend on us to ensure the products. We ultimately shipped in that meet the appropriate quality standards that being said, we certainly are seeing an increase in our PE purchases everybody, perhaps categorizes some of these products differently.
And while we certainly expect to continue to see some increased revenues as a result, I would just said I think it's modestly accretive to our topline going forward.
And it I don't think we anticipate really breaking that out in terms of as separate category. Obviously it supports our overall consumables.
Segment in terms of a from a distribution standpoint, just consistent with what we obviously feel very strongly about in terms of really providing a comprehensive value proposition to our customers. We absolutely anticipate that PB. He will continue to go through the distribution channel and in fact, I think our customers really.
This is a great example of where they look to Patterson to help manage all the different elements of the supply chain and frankly to make sure that the products that we ultimately shipped to them there our quality standards in their quality standards. So I think as result of that it's really critical that.
The PV products will continue to go through the channel that's being served by the full service distributors in dental industry.
All right. That's helpful. Thank you and Don maybe if I could ask just a two part kind of follow up on balance sheet accounts payables no tired. This quarter I think are at an all time high now 862 million a couple of years ago, you they've had some trouble with an ERP implementation issues is paying some vendors and all that just wondering any color you can provide on the increase.
Here over the past couple of quarters I'm, assuming it's not issues like that but any color you can divide there and then maybe just an update on how you believe payable that any then receivables will trend here over the next 12 months receivables, obviously about half of where they were a couple of years ago. So how much more room has there on the receivable side to keep factoring those off thank you.
[music].
Yeah, Jeff So no issues on the payables. The payables is really a function more of just the way, we're managing our working capital right now and.
As we work with our customers and vendors in terms of our timing of payments and how that plays into our.
Customer service, it's really more related to that you on the receivables and payables I think as we trend over the next 12 months.
There's some opportunity in receivables I'd say, we're managing payables, a very effectively right now the big opportunity from my perspective really remains and we continue to work on our inventory levels and optimizing goes I think theres in terms of working capital I think that's where you'd find the biggest opportunity.
Thank you.
Next question comes from Glen Santangelo with Guggenheim.
Oh, yeah. Thanks for taking my question, Hey, Mark I, just want to go back and explore the dental trends a little bit the quarter. If you look at February and March 7.8% organic was it was little bit higher than we were expecting im kind of curious could you give us says for maybe what was happening in the underlying market dynamics versus maybe what might have been incremental.
The market share you were able to take in the quarter and then kind of as a follow up to that you sort of gave us the trend in April sort of being down 40% contrary may rather down 40% that you didn't comment on June and kind of curious I mean, obviously the month isn't over yet but is it reasonable to think that June has gotten significantly better than many of them.
It seems like a lot of the office openings are happening or started happening post memorial day.
Yeah, Glenn Thanks for the question, let me cover the kind of pre Colgate and then we'll cover the postcode I think pre cobot as you indicated.
During the first two months of our fiscal Q4, we were up 70.8% or dental business and I think certainly that is just a.
Continued.
A recognition of just the momentum that our dental team had been building.
And just really just the continued.
Positive work, that's been going on in the marketplace and I think customers really responding frankly to our value proposition and I think it really early fired up team within our dental organization certainly we did see a little bit of I would say.
PE purchases.
In in advance of wants to kind of the coded situation started to unfold, but I would tell you that was not a material part of of the growth that we had during the first two months of the quarter, both in consumables as well as equipment and also in our in our software and services category. So I think just good solid execution and.
Continued momentum.
That that you saw throughout the entire fiscal 2000 period continued to show up and accelerated during the first two months of Q4, and then I think you know kind of coming out obviously you've sold here we did report.
40% in the month of May we obviously have not closed the month of you yet, but as I think I indicated we're certainly encouraged.
By the trends that we've seen in the dental industry.
Passed 46 weeks.
Obviously continue to monitor the data literally on a daily basis, and I think certainly some of the external data points that perhaps you've seen what we'd also suggests that the trends over the past four to six weeks of continued to be to be good. So we're certainly encouraged by that and.
But as I said, we have not obviously closed our June at this point.
Okay. Thanks for the comments.
Thanks.
Next question comes from Kevin Kedra with GE research.
Hi, Thanks for taking my questions.
So I know a.
And comment too much on June, but just wondering if.
You can give us a little bit more clarity on geographically, what you're seeing between say the northeast, which was kind of hit early versus.
Parts of south it seem to be seeing.
More of a surgeon.
Over the cases now.
Anything that you can say about.
Those patterns and how they been reflected in the dental business is in those geographies.
Yeah, Kevin Thanks, well certainly there have been as you know geographic differences in terms of the the pace of dental offices reopening and also the pace of patient demand going back into into those offices and certainly some parts of the country have opened up.
And ease their restrictions.
Earlier than other parts of the country.
And so obviously, we're not going to provide information in terms of our army results geographically.
But what I would would use continue to underscore.
It's certainly as you know dental offices have continued to reopen as patient demand has.
Continue to improve yes in some geographies faster than others, but overall, we're certainly encouraged by what we've seen over the past four to six weeks in particular.
In terms of the dental reopening and and patient demand.
Thanks, and then.
In terms of the outlook for a for fiscal 2021.
No there's there's still a lot the fluid but.
Is there any one particular piece of the business that you look at me you say this is where.
We have the grace degree of uncertainty going forward or is it kind of evenly spread across via.
Just a segments.
Well, it's a good question I think it's important note look there is still uncertainty and I think certainly while we're encouraged by the trends that we're seeing in particular in the dental business I mean, theres still lot of uncertainty that I think we have to acknowledge just given the continued evolution of the coven 19 situation. So obviously no one can predict exactly what's going to happen here in our.
Different end markets.
Then I would say there there is certainly uncertainty across across each of our three markets again that being said we are encouraged by the trends that we're seeing.
And but we're also I think.
Acknowledging the fact that there could continue to be some volatility and depending on how the corona virus situation plays out that can obviously you have an impact on on patient demand.
Demand for for pet treatments, and obviously, we're watching those those trends very closely.
Great. Thanks.
Next question comes from John Kreger with William Blair.
Hi, Thanks, very much Mark I know you don't want to give.
Guidance for fiscal Tony on the can you talk about maybe what your internal goals are you guys have accomplished a lot in terms of restructuring and sort of getting your house in order is that Don from your perspective or do you have some key things that you want to accomplish in the next 12 months.
Yeah, John Thank you I mean, yes, obviously, we're not going to lay out our exact internal goals, but I think we continue to.
Set high high bar for achievement within the organization.
Our work is absolutely not not done here by any means I think we've made really good progress in our turnaround here over the past couple of years and certainly.
Our results through the first 11 months of Sarkis or 20, I think would absolutely support that but we still have a lot of work to do we still have opportunities to continue to.
Invest and drive top line.
Accelerating topline performance across our businesses, we have an opportunity to continue to improve our mix.
And drive margin improvement, we have opportunities to continue to take cost out.
And just manage also opportunities as Dan indicated to continue to manage our working capital in inventory particular, so we made some good progress we have lot of work to do and our team is very focused on that right now certainly even in light of the cold to 19, a situation and we expect to continue to focus on those things.
Things that we have been focusing on and we continue to make a we expect to continue to make progress in all those areas and obviously, we have to take the the demand side into account just given the uncertainty that we see in our end markets right now, but we think we're positioned very well and again, we believe the momentum that we had through the first.
In months of our.
20 period.
It will help us emerge more quickly as at the end markets continue to improve.
In the in the current environment.
That's helpful. Thanks, do you think you're in a position to deliver margin improvement across both segments.
Sort of regardless of macro or is it really going to depend upon the a the speed of end market demand recovery.
Well I'll, let Don you know kind of chime in here, but certainly I think just that the general end market situation is going to be a really critical element too you know our.
Our margin and profitability performance in the months ahead.
[noise], Yeah, I mean, there thanks.
I think obviously, we need to get back to some sense of equilibrium to have a sustained.
Ability to positively influence our margins over the longer term, but.
But you know again to Mark's point I think the main thing is as we get there.
We feel like we still have bought a room for improvement and a lot of rooms, a lot of opportunity.
Excellent. Thanks, maybe one quick last quick one how does the corporate account activity going.
Do you have any key renewals coming up and ER.
Do you see some nice opportunity just to perhaps add new relationships in the coming here.
Yeah, I think certainly you on both really our dental business and our companion animal business. That's been an important focus for US we continue to.
To build out our teams in those areas and really pleased with the with the teams that we have focused on those areas, how we're supporting them internally and supporting our corporate account customers internally.
And I think as we've indicated.
A number of times, we're going to be certainly very strategic in terms of the finding the right corporate accounts and dsos that fit well with with our value proposition and were really both parties can print can bring value to each other so we certainly don't comment on specific you know specific customer.
There is more bids are opportunities et cetera, but we've made some great progress there over the past couple of years and we were investing in that area and we expect to continue to make progress.
Great. Thank you.
Thanks.
Next question comes from Kevin Kelly Endo with you'll be yes.
Thanks for taking my call can you talk a little bit about.
Dental practice with maybe been open for a couple of months and what you've seen in terms of their demands meaning is there is there an initial bullet than then sort of a a return to normal or slow down and what that curve kind of looks like just thinking about how each practices they sort of open up.
How they behave.
And I guess, the second part to that is.
Given the new appointments schedules and social distancing can kinda dental practice on a year over year basis, even when completely open like be flat year over year is it possible or do they need to extend hours like how would that how would that how would you think about that.
Yeah, Kevin Thanks, I mean, I think to your first question.
No I think well first of all I mean, it's really across the board right in and it's it's obviously quite fluid as you think about trying to get all the data.
Points here and in different parts of the country easing aeroskirt restrictions at different points in time, Yeah. I think you do see a little bit of pent up demand.
Yes, I was actually speaking to my local Dennis the other demand for an appointment it's tough to getting 20 minutes dentist office right now for those that are open. So I do think theres theres, some pent up demand there.
I do think that are just the evolution of some of the things that I mentioned earlier PE their own employee health safety employment schedules.
Our customers extended hours.
To meet the demands.
And so I think it's really again kind of across the board, but certainly in some some of those areas where the the offices have been open now for an extended period of time, we're really we're really encouraged by the trends that were.
It's offices and of the.
After those practices as well so obviously it continues to evolve.
By the trends, we're seeing in the data points were seeing.
And one one quick follow up so the goodwill impairment that 675 million animal health.
Losses future cash flow through the Covance animal the animal health business hasn't really been impacted as much as dental was there any contemplation of taking any kind of.
Charger goodwill charge in dental was this just a reflection of like lost business or lost customer can you sort of help reconcile that a little bit.
I mean, I think you have to look at that it's really an accounting calculation.
And I think the cobot impact is at the time when we when we do our annual impairment tests, we happen to be in the middle of coal goods. So there was probably.
You know and the outsized impact at that time.
And then the other piece of it is the share price as the share price has been lower there's there's oh, we have two segments. So there's really you have to look at the the total value of the company and then allocated to the segments and I think with the improving dense.
That's another piece of this plays into it so it was a number for factors.
But but it's really it's really as I mentioned in the you know some accounting calculation that was done then.
We took the impairment we do our test right at the end of the fiscal year.
All right that's helpful. Thanks, so much.
Yes, we just have time for a few more few more minutes. So we'll try to be quick and gets all of your questions here.
Next question comes from Jon Block with Stifel.
Thanks, guys. Good morning altered us two quick ones. The first we'll just within dental marketing imaging equipment, taking longer to return the consumables, maybe as expected but to the extensive there is.
Within dental equipment, where do you think you're going to see that demand in other words is at high tech as a basic.
You guys had a lot of good momentum pre coal.
We'll bid with some of the high Tech offerings and just curious if you think you see that return this year, but I've got a quick follow up.
For the question.
Certainly as we indicated we do expect the consumables portion to recover faster than the equipment and technology, but I would tell you couple of things on that side first of all.
Working closely with our manufacturer partners to develop creative programs to help our customers. It really help them give them the confidence to continue to invest in their practices.
I would you say the appetite for advanced technology in the dental practice is something that you know Patterson has been been focused on I think doing an outstanding job of now for many years.
These investments are really critical to helping our customers be more productive.
See more patients and just generally improved the productivity and profitability of their practices.
We also just get in light of the current situation. We expect the market to continue to see the value of single visit dentistry, which certainly makes sense now perhaps more than ever in the current environment. So we're very focused on helping our customers continue to see the value and investing in new equipment and technology and we think we have a tremendous.
Offering to help them take advantage of that to help them.
Build their build and invest in their practices and really the support that we provide throughout the complete lifecycle. So again, while while we expected to be perhaps a bit slower to recover we think theres still a tremendous opportunity for dental practices to invest in equipment and technology again to to improve productivity and profitability of that.
Practices.
Got it very helpful. In done it could you just if it over to you know I'm a couple of things I mean animal health EBIT margins.
Multi year high limits at Cobiz wondering if there's any color there congrats on that and then secondly, just looks like a good amount of the EBIT beat came from corporate or add a corporate for the second quarter in a row, maybe if you can provide some details there that would be helpful. Thanks for your target.
Yeah, I mean, the corporate piece I think the thing to know there's a lot of that in that a lot of that improvement was related to the interest rate reductions that happened during the cold crisis and the impact of that is the forward curve has a has an impact on our portfolio that we have to recognized but all of.
That impact is offset that.
Alan in the other income expense line.
With the hedges, we put in place so.
Even though you see it there and corporate top to bottom line is really a negative neutral around that neutral and then the other piece of the corporate they're out there were strong equipment financing results, we benefited from that the equipment financing.
Improvement is in the is in the corporate segment and then of course the expense actions that we took.
Were also impacted that positively.
Thanks, guys.
Right.
Well listen I, certainly want to thank everybody for.
Your time this morning. Its afternoon. We appreciate your questions and certainly look forward to the speaking with you.
In the coming months.
For Q1 fiscal Q1 21 call. Thanks, again, and we'll talk everyone soon.
This concludes today's conference call you may now disconnect.
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