Q4 2021 Patterson Companies Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to the Patterson companies fiscal year, 'twenty 'twenty, 1 and fourth quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session glass for question. During the session you will need to press star 1 on your telephone.
As a reminder, this conference is being recorded and time during the conference you need to reach and operator, Please press star zero hours and I would like to turn the call over to Mr. John Wright, Vice President and Chief Investor Relations you may begin Sir.
Thank you operator, good morning, everyone and thank you for participating and Patterson companies fiscal 2021, and fourth quarter and full year earnings conference call.
Joining me today are Patterson, President and Chief Executive Officer, Mark Walter and Patterson, Chief Financial Officer down survey.
After a review of the fiscal 2021 fourth quarter and full year 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 and such forward looking statements are discussed in detail and our form 10-K, and our other filings with the security 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 June 23.2021.
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 and the Investor Relations section of our website at Patterson companies Dot com.
Please note that in this mornings conference call, we will reference our adjusted results for the fourth quarter and full year fiscal 2021.
The reconciliation table in our press release is provided to adjust reported GAAP measures, namely operating income income before taxes income tax expense net income net income attributable to Patterson companies, Inc. And diluted the diluted earnings per share attributable to Patterson companies, Inc. For the impact of deal amortization.
Station integration and business restructuring expenses legal reserve costs accelerate accelerated debt related costs discrete 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 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 changes and product selling relationships.
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 11, a M central time for a period of 1 week.
Now I'd like to hand, the call over to Mark Walter.
Thank you John and welcome everyone to Patterson fiscal 2021 fourth quarter and full year earnings conference call.
We have a lot for discussed on today's call. So I wanted to provide an overview of what we plan to cover for.
First I will walk through the highlights of the year across our businesses and provide some commentary on the performance and each of our segments and share our perspective on the end market trends that we anticipate will drive our momentum and fiscal 2022.
Next I will turn it over to Don to give a more detailed commentary on the fourth quarter and full 2021 fiscal year financial results as well as the key assumptions and inputs that informed the fiscal 2022 guidance, we announced this morning and finally, we'll take your questions.
As outlined in our press release. This morning Patterson delivered very strong performance during our 2021 fiscal year, which ended April 20 for 2021.
First of all I want to sincerely, thank and recognize our entire Patterson team for successfully navigating the historic challenges posed by the COVID-19 pandemic I'm.
And I'm incredibly proud of how our team supported our customers our industry and our communities. During this challenging period, while at the same time executing our strategy and delivering great results.
A year ago, we faced significant declines in demand across our end markets. Many dental practices were required to close pet owners were forced to delay and non essential services and supply chains and the beef and swine markets were heavily disrupted.
Through our commitment to our purpose vision and values are Patterson team showed the strength of our differentiated value proposition, which proved critical to our success.
Throughout the year, we stayed true to our guiding principles and protecting employee health and safety delivering for our customers when they needed us most and doing our part to help reduce the spread of the virus and our communities.
We also made important and sometimes difficult decisions about managing our costs and our balance sheet as we navigated the pandemic to help ensure we would emerge an even stronger Patterson.
Beyond the commitment of our people and solid strategy execution, our performance in fiscal 2021 reflects the fundamental strength and essential nature of the dental and animal health markets.
It also reflects Patterson and enterprise wide focus over the last several years to strengthen our core business operations around sales execution and operational excellence effective mix management and expense discipline and working capital improvement.
Our ongoing improvement in these areas enable patterson to deliver strong top and bottom line growth and value to our customers and shareholders throughout the fiscal year.
In summary, we delivered full year of fiscal 2021 internal sales growth of about 8% compared to fiscal 2020 and grew our fourth quarter internal sales by 24%.
Fiscal 2021 dental segment internal sales increased approximately 10% over the prior year and fiscal 2021 animal health segment internal sales increased nearly 8% for over the prior year.
For the full fiscal 2021 year, we achieved adjusted earnings of $1.91 per diluted share and increase of 23% over fiscal 2020, reflecting the strength of our ongoing initiatives to deliver improved performance.
For our expanding team and Patterson's fiscal 2021 results and with that I'll briefly touch on the drivers of those results and each of our 2 business segments, starting with dental.
Fiscal 2021 was another strong year for our dental business, particularly given the unprecedented disruption within the market.
As the dental market transitioned from lockdown to recovery Patterson competitive value proposition was on full display.
From a comprehensive and innovative portfolio of products and services local and national customer support and sophisticated software solutions. We believe Patterson is providing a differentiated customer experience that is helping our customers recover quickly and drive success and their practices.
In addition to sourcing and reliably delivering critical infection control products, our ability to deliver patterson's broader consumables portfolio enables to enabled us to facilitate the reopening of our customers' practices and help them create a safe environment for their patients.
We believe we continue to outperform the market and consumables and we are pleased with our momentum and this category.
While a significant portion of our 15% consumables growth for fiscal 2021 was from the sale of infection control products, we delivered approximately 6% year over year sales growth and non infection control consumables products. We believe this strong mid single digit growth is due to the continued investments we've made and our field sales.
And support teams, which is driving improved execution and market share gains.
During the fiscal 2021 and fourth quarter. We also continued to see increasing demand for our expanding and highly profitable private label portfolio of products, which once again outpaced the growth of the broader consumable category.
Many of our private label products also happens to be and the infection control category, which serves as an incremental tailwind for us to continue to drive topline growth and margin improvement.
Our ability to deliver strong private label growth and consumables is a testament to our continued focus on this initiative and our investment and expanding our portfolio over the past several years and we're pleased to see the strategic initiatives continued to drive results.
And the equipment side Patterson generated nearly 8% sales growth in fiscal 2021.
As offices reopened and patient traffic increase throughout the fiscal year dentists investing and their practices and took advantage of Patterson comprehensive value proposition.
Our team collaborated with our manufacturing partners to develop creative financing strategies education initiatives and online events for dental customers. We continue to be the partner of choice for new equipment software and technology innovation.
Without the pandemic, our extensive network of local field service technicians, and our national support teams and our Patterson Technology Center worked together to deliver the unmatched expertise and service our customers expect from Patterson.
Our ability to support our customers throughout the entire lifecycle of their equipment and technology investments continues to be an important differentiator for Patterson.
As a result, we believe we continue to grow ahead of the market and both core equipment and high tech categories proof that Dennis continue to choose Patterson and investing in their practices to provide better oral health care.
As part of that effort. We have also been focused on selling are our higher margin software and services products.
Patterson currently offers 3 comprehensive and growing practice management platforms that help our customers with everything from revenue cycle management to practice analytics and insights.
And communication.
Looking forward, we are confident the dental market continues to present attractive growth opportunities for several reasons first we expect to see patient demand levels will continue to increase as progress around vaccine administration will help alleviate any remaining pent up demand and drive patient traffic back to pre pandemic levels.
Second we expect Dennis will continue investing and the latest technologies and practice management software to build and modernize their practices.
Third we expect demand for infection control products to remain above pre pandemic levels over the long term and dentists and their patients embraced this new standard of care and finally, we are encouraged by the heightened awareness that oral health has a direct link to the patients overall health.
I want to again acknowledge and thank the entire dental team for their performance and commitment to serving our customers.
Turning now to animal health as.
And as I mentioned earlier, our animal health segment achieved full year internal sales growth of about 8% year over year led by internal sales growth of nearly 17% and our companion animal business during fiscal 2021, and the fiscal 2021 and fourth quarter alone overall animal health internal sales grew about 14%.
Year over year, driven by companion animal internal sales growth of 30%.
Across both companion and production our efforts have enabled us to outpace our end markets and grow our share.
On the companion side, the rise in pet ownership and adoptions during the pandemic drove increased spending veterinary clinic traffic and pet wellness visits our field sales teams executed well on this opportunity contributing to our strong top line results.
Our deep existing relationships with veterinarians and comprehensive offering positioned us well to support their growth not only by providing a broad array of consumable products, but also services equipment and the latest technologies.
And our expanding portfolio of private label products also performed well driving improved sales mix, while deepening our relationships with our customers.
As veterinary practices welcomed and influx of new pet owners mid pandemic, our practice management software branded mobile App development services and prescription home delivery services enabled them to scale and improve their customer experience.
For example, we leveraged our E pet health technology program to send alerts to pet owners with reminders about their vaccine schedules wellness visits and other pet health and milestones that drove that current traffic increased demand for supply and health pet owners take great care of their pets.
We're proud of our deep value proposition for for veterinarians and how Patterson continues to be a trusted and indispensable partner to help them succeed.
Given the attractive dynamics and the companion animal market Patterson leveraged our strengthened balance sheet to acquire Miller debt holdings and multi regional veterinary distributor.
We completed the transaction earlier this month.
We believe Miller debt is a strong cultural fit with Patterson animal health with complementary market positions and the Midwest mid Atlantic and southeast.
And this transaction is expected to expand our core sales reach drive synergies and more broadly demonstrates patterson's focus on making strategic investments to deliver profitable growth and shareholder value. We are excited to welcome the talented Miller vet team to Patterson and to build on and legacy of providing exceptional customer service.
We believe our continued strong performance and investment and the companion animal space positions us well for the year ahead.
While new pet ownership and adoption growth rates will likely stabilize and fiscal 'twenty 2 there.
And there is now a larger population of pet owners and we expect the normalized long term growth rate of the companion animal segment to be higher and pre pandemic levels.
And the production animal side, our team executed well to drive operational improvements and deliver value to our customers. Although production animal internal sales in fiscal 2021 were down approximately 1%. We are pleased with our performance given the significant pandemic related challenges, we faced over the past year.
Our production animal team did an excellent job managing through these historic COVID-19 related challenges and provided our customers with highly specialized service and delivery models to support herd health and strength of the quality of the food supply.
Looking forward to fiscal 2022, we expect several key factors will enable us to return our production animal business performance back to historical growth levels.
First is the recovery of the swine market, which is expected to continue improving and the near term as our customers rebuild their herds and ramp up more significantly in the second half of 2022 fiscal year.
Second is the general reopening of the economy, including restaurants, and schools, which we anticipate will create increased demand for protein and dairy products.
And finally, our differentiated value proposition and strong market position give us confidence we can return our production animal business to growth in fiscal 'twenty 2.
To sum it up Patterson delivered strong fiscal 2021 results Mark.
And by outstanding execution, and the face of significant uncertainty and challenging end market dynamics and.
And I want to again commend our team for their sustained focus on executing our strategy and serving as the indispensable partner our customers depend on for their business success.
We are confident and Patterson and strategic positioning and each of our end markets and our ability to drive long term value for our customers and shareholders.
And with that I'll turn the call over to Don to talk about our fiscal 2021 full year and fourth quarter performance in detail and speak to the key assumptions and drivers of the financial guidance, We announced this morning.
Thank you Mark and good morning, everyone. My prepared remarks. This morning, I will first cover the financial results for both our fourth quarter of fiscal 2021, which ended on April 24, 2021, and our full fiscal year.
Due to the significant impact of COVID-19, and particularly in the months of March and April of our fiscal 2020, our year over year comparisons for our fourth quarter results may be difficult to interpret so I will provide some context around these comparisons.
Second I will discuss the financial guidance, we issued for fiscal 2022 and provide additional context and assumptions that may be useful to you to assist and your financial model.
So let's begin by covering the results for fiscal 2021.
Consolidated reported sales for Patterson companies, and our fiscal 2021 and fourth quarter were $1.5.6 billion and increase of 21, 4% versus the fourth quarter 1 year ago.
Internal sales, which are adjusted for the effects of currency translation and changes in product selling relationships increased 23, 5% compared to the same period last year.
And as Mark already mentioned, we believe our performance and the fourth quarter as a result of strong sales execution and above market growth and both of our business segments.
For additional context, our fiscal 2021 and fourth quarter internal sales growth was 11, 3% above our fourth quarter of 2019, our last fourth quarter. It was not impacted by the COVID-19 pandemic.
For the full fiscal year of 2021 consolidated reported sales for Patterson companies were $5.91 billion and increase of 7.7% versus the same period 1 year ago.
Internal sales increased 8.2% compared to the same period last year.
Our fourth quarter fiscal 2021, adjusted gross margin was 19, 4%.
During the period, we recorded 2 significant adjustments and our dental segment that negatively impacted our gross profit for.
First was $11 million of Covid related inventory adjustments to account for higher amounts certain infection control and inventory where prices have fallen as the impact of the pandemic has tempered in recent months.
The second was our year and LIFO adjustment, which negatively impacted our gross profit by $12 million and our dental segment.
The significant LIFO adjustment was almost entirely due to the COVID-19 related pricing dynamics and variability and our infection control products during the year.
Taken together these adjustments negatively impacted our gross margin and operating margin by nearly 150 basis points and the fourth quarter and fiscal 2021.
For the full fiscal year 2021, which included the inventory adjustments I just described our adjusted gross margin was 24%.
For adjusted operating expenses as a percentage of net sales for the fourth quarter and fiscal 2021 were 16, 4%.
As we continued to benefit from ongoing expense discipline, and leveraging our cost structure over higher sales volumes.
For the full fiscal year 2021 for adjusted operating expenses as a percentage of net sales were 16, 1% compared to 17, 6% and fiscal 2020.
And we reminder, our fiscal year 2021 operating expenses benefited by approximately <unk> 15 per share from salary reductions and furlough activities and the first quarter for fiscal year.
These specific pandemic related actions favorably impacted our adjusted operating expenses as a percentage of net sales and operating profit margin for the full year by 40 basis points.
And the fiscal fourth quarter, our consolidated adjusted operating margin was 3.1%.
As I previously mentioned, our operating margin and the fourth quarter was negatively impacted by nearly 150 basis points as a result of COVID-19 related inventory adjustments.
For the full fiscal year, our consolidated adjusted operating margin was 4.2%.
We expect to drive continued operating margin improvement through our efforts on expense discipline mixed management and ongoing expense leveraging because we continue to grow the top line.
Our adjusted tax rate for the fiscal and fiscal fourth quarter was 21.0% and for the full year was 22, 6%.
Reported net income attributable to Patterson companies, Inc. For the fourth quarter of fiscal 2021 was $28.8 million for <unk> 30 per diluted share.
This compares to a reported net loss attributable to Patterson companies, Inc of $608.6 million or $6.44 per diluted share and the fourth quarter of fiscal 2020.
As you recall and the fourth quarter and fiscal 2020, we booked a goodwill impairment charge related to our animal health segment.
Adjusted net income attributable to Patterson companies, Inc, and the fiscal fourth quarter of fiscal 2021 was <unk> 38 per diluted share.
As a reminder, adjusted net income excludes deal amortization and integration and business restructuring expenses.
Legal reserves costs accelerated debt costs discrete tax matters investment gain or loss and goodwill impairment along with the related tax effects for these items.
This compares to $41.1 million for <unk> 43 per share and the fourth quarter and fiscal 2020.
The after tax impact of the Covid related inventory adjustments for certain infection control products and LIFO was approximately $18.2 million or <unk> 19 per share diluted share and impacted both our reported net income and the adjusted net income for the fourth quarter of fiscal 2021, now, let's turn to our busy.
And the segments, starting with our dental business.
And the fourth quarter of fiscal 2021 internal sales for our dental business increased 49, 1% compared to the fourth quarter and fiscal 2020.
As you recall the dental segment sales performance for the fourth quarter and fiscal 2020 was severely impacted by the Ada recommending the dental offices shutdown and perform only emergency dental care for approximately half of that quarter.
And for some additional contracts dental internal sales for the fourth quarter of fiscal 2021 are up nearly 10% compared to the fourth quarter of fiscal 2019.
Our fourth quarter sales performance was driven by stronger than forecast growth and our consumables equipment and software and value added services categories for.
And for the full fiscal year internal sales for our dental business were up 10, 4% over fiscal 2020.
Fourth quarter internal sales of consumable dental supplies were up 53, 1% versus the fourth quarter of the prior year. This.
This included growth and infection control products and non infection control products.
For the full year internal sales of consumable dental supplies were up 14, 9% versus fiscal 2020.
Internal sales of equipment and the fiscal fourth quarter increased 63.0% versus the same period a year ago.
For the full year internal sales of equipment were up 7.6% versus fiscal 2020.
And finally internal sales of software and value added services increased 12, 5% from the fiscal fourth quarter compared to the fourth quarter of fiscal 2020.
Adjusted operating margins and dental were 5.0% and the fiscal fourth quarter for Covid related inventory adjustments that I previously outlined negatively impacted our operating margin in the dental segment by approximately 380 basis points and the quarter.
Adjusted operating margins and dental for the full fiscal year were 8.9%, a 20 basis point improvement over fiscal 2020.
Now, let's move on to our animal health segment during.
During the fiscal fourth quarter internal sales for our animal health business were up 13, 8% compared to the same period a year ago.
Increased patent options and the increased attention to pads have positively impacted the companion animal market and our companion animal team delivered outstanding sales growth from the fiscal fourth quarter of 2021 of 29, 6% compared to the same period in fiscal 2020.
For the full year internal sales growth and our animal health business was up 7.7% compared to fiscal year 2020.
And our animal health team continued to successfully drive higher sales growth with vendor partners, who reward us for our value added approach to both our companion and production animal customers.
And our team also delivered improved product mix with stronger sales of private label products equipment and software.
Adjusted operating margins and our animal health segment were 4.4% and the fiscal fourth quarter, a slight decrease of 10 basis points compared to the fourth quarter of the prior year.
Adjusted operating margins and this segment for the full year.
We're 3.5%.
Now, let me cover cash flow and balance sheet items.
During the full year of fiscal 2021, and we used $730.5 million and cash from operating activities. We also collected deferred purchase price for receivables for $834 million during the year, which is included and the investing activities section for cash flow statement for.
Fully understand our free cash flow. The total of these 2 amounts represents a generation of cash for the full fiscal year of $103.5 million.
Free cash flow, which we have explained and calculated and a table within our press release decreased $148.9 million during fiscal 2021 compared to the same period 1 year ago.
The year over year decrease was primarily due to elevated levels of accounts payable at the beginning of the fiscal year due to COVID-19, as we carefully managed our cash.
And the economy recovered our accounts receivable accounts payable and working capital returned to non pandemic levels.
During the fourth quarter of fiscal 2021, we generated $69.1 million of free cash flow.
Turning to capital allocation, we continue to execute on our strategy to return cash to our shareholders and.
And the fourth quarter of fiscal 2021, we declared a quarterly cash dividend of <unk> 26 per diluted share, which was then paid and the first quarter of fiscal 2022.
During fiscal 2021, Patterson and returned $75.2 million and cash dividend to our shareholders.
Our board.
To view, our dividend and as an important component of returning value for our shareholders and the current dividend yield.
Provides a meaningful baseline return to shareholders as we continue focusing on our plans to drive improved performance and the business.
Let me conclude with some comments on our outlook for fiscal 2022. This morning, we issued GAAP earnings guidance of $1.61 to $1.76 per diluted share and adjusted earnings guidance of $1.90 to $2 <unk> per diluted share.
This represents the first time, we've given earnings guidance since the occurrence of the pandemic due to the uncertainty surrounding its impact on our business and end markets.
While we have greater clarity on the impact for the pandemic and recovery from uncertainty still exists.
As a result, we have broadened our earnings guidance range of <unk> 15.
For modeling purposes, let me highlight some of the factors that should be considered as you interpret our guidance.
First for our 2022 adjusted EPS guidance, we're modeling mid single digit revenue growth and operating margin expansion for both business units and the total business.
Second our fiscal 2021, adjusted EPS from $1.91 benefited from approximately 15 of operating expense savings related to salary reductions and work for rose during the first quarter of the fiscal year.
Not repeat during the first quarter of fiscal 2022.
Third as we outlined earlier, we recorded a LIFO adjustment of approximately <unk> <unk> per share during the fourth quarter and our dental segment. There was almost entirely due to the COVID-19 related pricing dynamics and variability and our infection control products during the year.
We do not expect this dynamic to repeat in fiscal 2000 and turning to.
Finally, here's our perspective on how we are modeling the infection control category and fiscal 2022.
As I previously mentioned, we recorded an inventory adjustment of approximately <unk> <unk> per share related to certain infection control products.
While this negatively impacted our gross profit on these products in the fourth quarter and fiscal 2021 for the full year, we earned <unk> <unk> per share of additional profit compared to fiscal 2020 on infection control products after accounting for the fourth quarter inventory adjustment.
And as we look to fiscal 2022, we have modeled the gross profit impact from sales and infection control products to be flat on a year over year basis as moderating sales are offset by lower inventory adjustments.
The net impact of salary savings and the LIFO adjustment represents approximately <unk> <unk> per share that we do not expect to repeat in fiscal 2022.
If you remove and this 1 time <unk> <unk> per share benefit from our fiscal 2021 adjusted EPS performance.
Our fiscal 2022, adjusted EPS expectations of $1.90 to $2.5 and.
5.7% year over year growth at the midpoint and 11% year over year growth at the top of the range.
This also implies a 3 year compounded growth rate of 11% at the midpoint and 15% at the top end of the guidance range from our fiscal 2020 adjusted earnings per share of $1.55.
And now I will turn the call back over to Mark for some additional comments.
Thanks, Tom at the end of this unprecedented year, we can say with confidence that Patterson has emerged from the pandemic even stronger than we entered it and.
And are optimistic about patterson's long term position and each of our end markets and have the utmost confidence and our team our strategy and the essential role we serve for our customers and business partners.
Our results reflect our strong business momentum and the meaningful progress we've made over the past several years and moving Patterson to a position of strength.
As fiscal 2022 gets underway and business conditions and our end markets continued to recover we are focused on investing and the core areas of our business to accelerate our performance returned cash to our shareholders through and attractive dividend and leverage our strengthened balance sheet to evaluate opportunities for strategic investment and accelerate our growth.
And value creation.
While the pandemic and certainly not over we're all encouraged and hopeful that the positive trends will continue to improve and I can assure you. The Patterson team will continue living our values and maintaining our focus on creating value for our customers.
And as partners and shareholders.
That concludes our prepared remarks, and Don and I will now be glad to take your questions.
Operator, please open the line.
And Q as a reminder to ask your question and we need to press star 1 on your telephone.
Question for balance sheet.
Again, Thats star 1 for asset question.
And our first question comes from the line of micro and the journey from Basel and along its sales.
Good morning, Thanks for all the detail, especially I'm thinking about it.
<unk> trajectory.
And second diving a little bit further on that as you think about what you've learned from the past year and obviously, the moving pieces around infection prevention and some other areas.
And change to how you should think swing the pathway forward for segment margins, and particularly dental segment margin and I know push for both but just curious given what you had accomplished pre COVID-19 some of the moving pieces dynamics and revenue and cost rationalization during COVID-19, how should we think about.
Medium term trajectory for margins and our go forward basis.
Yes, Michael this is mark Thank you and I'll make a couple of comments and then turn it over to Don to add any additional color I think first of all we're certainly very encouraged by the continued recovery in the dental segment and we view the dental market.
And very attractive.
We are at or near pre pandemic growth rates and we certainly expect to be there. During this calendar year Dennis continue investing in their practices, we've talked about and infection control products, well, obviously, a lot of variability and that during fiscal 'twenty, 1 and we see the supply chain stabilizing and we expect that to be a positive for us going forward.
So all positive factors in terms of the end market demand rates and in terms of margin. We continue to focus on the areas that we've been focused on.
Our higher margin products and services and the software and technology category.
Green and bringing great value through our tech service team and and increasing the productivity productivity of that group.
Our focus on private label products, which I think as we indicated continue to grow faster than our overall consumable. So a number of elements to drive that margin improvement.
Objective that I know Dan noted in his comments and I think I would just add that with <unk>.
With the increasing sales we continue to get good expense leveraging as we grow and the top line.
So even with some other costs that are going to come back into the dental P&L.
Some of the <unk> some other things that.
Were lower and the and during the pandemic I think we still feel like we're in good position to expand the margins and the dental business.
Understood and then.
That game teams from the comments you made around your growth relative to the market. I believe you said across dental we're growing faster and consumables growing faster and equipment and as you think about the why behind that can you maybe parse out a bit how youre doing in terms of your thoughts on those share gains coming from Boston.
And then and so what youre seeing essentially on a same store growth within your existing customer base.
Well I think we believe the investments that we've been making in the business and in our dental field sales and support organizations over the past several years.
Have been paying off and continue to pay off.
We kept our full sales team in place at the onset of the pandemic, we were generating good momentum a year ago or more at this time, we continue to push hard on supporting our field sales and support teams and ultimately for that they could support their customers our dental team built a variety of program.
And services to help our our customers quickly recover from the pandemic.
Our dental customers continue to invest in their practices and I think Peter C Patterson and really as the partner of choice given our broad equipment lifecycle ecosystem and all of the various wrap around services that we provide there so.
So I think it's it's.
It's Michael a combination of a variety of factors that we've been focused on over the past several years that are helping drive that momentum and we believe the share gains and the dental segment.
Thanks, so much.
Your next question comes from the line of Erin Wright from Credit Suisse. Your line is open.
And thanks for calling.
Animal health can you give us a sense of what guidance now in the call.
The animal health sector.
And internally.
And you maintain debt exit the team and they get a higher underlying run rate, particularly in companion animal and what does that mean or what does that look like in terms of the long term growth right now for the animal health segment.
Yes.
Yes, sure and thanks.
And I don't think were going to comment specifically on the exact long term growth rate, but let me give you a little bit of color as it relates to how we're thinking about both the companion and production segment.
And all throughout the course of this fiscal year, and and we think and that quote unquote post pandemic environment.
Certainly the market growth change that we've seen and companion animal sales due to the increased pet adoption, we expect we'll moderate but still represents an overall increase and growth rates from pre pandemic levels.
And look more pets more visits and.
Higher demand for companion animal products and services and <unk>.
And we believe we're very well positioned to continue to take advantage of that increased demand and we believe our recent growth rate and this segment are a testament to debt.
And as we shifted production I think as we indicated we are seeing early signs of the recovery and the production animal segment from an end market demand standpoint, obviously as the economy continues to reopen schools opened restaurants open et cetera, we are seeing increased demand and expect increased demand for beef and swine.
Products in particular, and I think as we indicated we expect the production animal segment to get back to pre pandemic growth rates towards the back half of our fiscal year. So hopefully that provides a little bit of additional color, but we're very encouraged by the progress that we're seeing and both of those end markets and obviously also very encouraged by the <unk>.
Our teams are doing to drive value for our customers and those areas.
Okay, Great and then just 1 on dental and debt.
And kitchen, and consolidation and cost of DSW, Inc, EQT debt, having meaningful impact in 2020 Q.
And then and in your guidance from that financial and thank you Eric.
The larger DSO dynamic.
The traction you're seeing kind of a flow.
Dsos and can you give us is China, and KFC and the DSO price. Thanks.
Yes sure. Thanks Darren.
And we don't obviously comment on.
And on specific customers and in the space generally we're very pleased with the work our teams across both our dental and frankly, our animal health segments are doing in terms of the DSO and corporate account arena, both at the regional and National level. This area continues to be a focus for us we continue to invest and our teams again, both in the dental and Ann.
And we will health space and we continue to pursue the right type of customer that sees the value and the products and services that Patterson provides.
Bold at the regional and national level and.
And we're focused with again working with those groups and those customers that really see the comprehensive value proposition. We believe we are winning business and this space, it's helping contribute to our growth and we're excited about our progress here again across both dental and animal health.
Okay. Thank you.
We have a question from Jeff Johnson from Baird. Your line is open.
Thank you good morning, guys.
Don I think you mentioned, the 10% dental growth and the quarter relative to 2 years ago. The fiscal Q4.19.
We had consumables and maybe you could just cross check this for me or let me know if my math is right consumables in the dental segment, probably up about 13% versus 2 year ago levels..1 is that correct and 2 within that 10% and 13% those growth rates is there any way to give us some insight onto what the infection control products.
Added.
Versus the non infection control I think you've done that the last few quarters and maybe this would be the last quarter, where it matters year over year, but any insight there would be helpful. Thanks.
Yes, Jeff for your math is right and on the 13% I think we did give some.
Some.
Color on the on the consumables growth for F. 'twenty 1.
At <unk>.
9% for the year and 6% for the for all other consumables.
Year over year.
Yes is there any way to give that for the quarter or I can try to back out the past 3 quarters comments, I guess, but maybe being a little lazy, but if you could give it to us for the courtyards and helpful.
Yes.
Yes, I think.
If you kind of do the math on the on the quarter, you'll get to Covid.
Covid related growth and in Q4 of about 8%.
Okay. That's helpful. Thanks, and then Mark maybe I'd be interested to hear on the dental equipment side.
And just started hearing and the last week or 2 about maybe some supply constraints both on <unk> and I think even on some of the basic equipment, whether that's due to port and shipping.
Shipping container issues things like that I don't think day issues significant at this point, but kind of what are you seeing on both the supply and demand side and on net supply side does any of that factor into your guidance at this point. Thanks.
Yes, Jeff Thanks, I would say, we're seeing very modest.
Some and can train constraints excuse me from a supply chain standpoint, I would say, it's not and acute problem.
And as of yet obviously, we're monitoring it closely we are really pleased with our equipment performance during fiscal 'twenty 1.
But I believe by 8% year over year, which did exceed our expectations and we talked about the Patterson.
Equipment and technology ecosystem, which we believe is a competitive advantage for us we do have a strong.
And.
Our funnel of opportunities in the equipment category and we continue to work closely with our manufacturers and stay abreast of any potential supply issues that might exist, but at this point.
I would say those are those are certainly moderate at this point.
Got it thank you.
And our next question is from Jason Bednar with fiber Sandler Your line is open.
Hey, good morning, Thanks for taking our questions and Mark I wanted to start with book to guide.
No Theres a lot of cross current out there with the market and with your business from both dental and animal health, but.
And we think through all of those elements and wanted to just hear how you're thinking about the predictability of the topline and dental and animal health.
And then as we're all looking at kind of maybe the risk of inflationary impacts across the cost structures of companies.
And love to hear and maybe how that's factored into your guide here for the year.
Yes, Jason and thanks, I think in terms of the predictability of kind of the topline I think as Don indicated and we are building and mid single digit topline growth across both of our business segments overall.
For FY 'twenty 2.
I think I shared some of the and market.
Perspective that we have across.
Really the 3 categories dental companion and production and while there are some.
Elements within each and the dental market, we do see.
Patient demand at or near pre pandemic levels, we expect certainly debt to continue to grow back to pre pandemic levels. During this calendar year, Dennis or investing in their practices.
And both in terms of the different types of levels of acuity of that debt goes on and the practices. We're seeing good spending there as well so we're very encouraged by that.
And recovery and we expect a full recovery of the dental segment our companion.
And the increased pet adoption has driven a significant tailwind from the demand side. There as we indicated we do expect those to moderate but ultimately the long term growth rate there and the companion animal segment. We believe we will it will be higher than pre pandemic levels and finally their recovery and we're encouraged in the production animal.
Space by what we're seeing with the reopening of the economy and the recovery and the stability of the supply chain.
It was very disruptive earlier this year and so again, we're expecting and the second half of our fiscal year to return to normal pre pandemic growth rates and production as well so really encouraged by the 3 customer segments that we serve and and frankly the value that we bring to our customers that we expect to take advantage of both.
From the top line and obviously driving our bottom line results as well.
Okay, and then the risks and inflationary an extra selling day.
Maybe its factories and guidance.
Yes, so Jason we've been we've built a little bit of that into the numbers and we.
Laid out today I think that obviously this is an area we're watching carefully so more to come as the year progresses.
Okay, Alright, great and then maybe a little bit.
Bigger picture question, but on the margin side.
And by historical and competitive standards and it would seem like there is still quite a bit of a margin opportunity for for Patterson, but I think it'd just be helpful to hear Mark how are you and Donner and visiting maybe for next few years unfold and not just this year.
Yes, Jason So yes, we would agree with the general sentiment that you are outlining I think we feel like.
Margin expansion is definitely part of our story.
We feel like Theres, a lot of opportunity there.
And we wouldn't obviously.
And we've given some guidance today that we expect it to expand during the year year over year, but.
Probably wouldn't lay out anything further than that in terms of our expect expectations over the next couple of years.
Got it understood. Thanks, guys.
Thank you.
We have a question from Kevin Caliendo with UBS. Your line is open.
Hi, Thanks for taking my call.
A couple of modeling clean up questions.
First is there any any reason to think that cadence for earnings.
And would not look like they might have pre pandemic at this point or how are you thinking about the progression for the fiscal year.
And anything first half weighted second half weighted any any sort of color around cadence would be really helpful.
Yeah.
Sorry go ahead no go.
Go ahead.
Yes, I think if you if you look back to.
Fiscal 2020 and.
And I looked at the first half second half split that would probably be a good way of thinking about.
Fiscal 'twenty twos.
Cadence during the during the year.
Okay, that's really helpful.
And also in terms of.
In terms of your margin expectations and the growth up margins are we looking at that on a year over year basis meeting.
And maybe not every quarter and it's going to grow obviously, the fourth from a margin for a lot of different so and <unk>.
And you talk about margin expansion there is it sort of okay. At the end of fiscal 'twenty, 2 we're going to see margin expansion over the end of fiscal 'twenty, 1 and both segments or how should we think about that trajectory I know you and have been asked this question, but any more color on that would be really helpful.
No I think youre thinking about it right, it's going to be a year over year story.
There could be some variability and the in the quarters and particularly this for some of the comps, but on a year over year basis, we expect there to be margin expansion and both businesses.
Alright and what.
And 1 last 1 really quick and if I can can you talk about your.
And strategy around specialty dental whether its implants are aligner is there anything like that.
Any exploration into those markets or expanding your capabilities and those markets.
Yes, Kevin it's Mark I mean, as we've indicated over the last couple of quarters certainly are financial.
Performance.
And as created improved flexibility for us to think about those types of strategic investments that can help accelerate our growth and value creation I think we talked about some other categories that and the types of areas that we would focus and whether thats.
Building scale, and our core business, expanding our presence and more margin accretive categories and certainly.
Enhancing or expanding the products and services that we provide looking at adjacencies that we're not in today, where there may be good growth opportunities specialty would be a good example of that so we're looking at a broad array of different types of opportunities from a business development standpoint.
And we're obviously in a position now where we can.
Some some investments to again and accelerate that growth and value creation and those other kinds of things that we're looking at pursuing.
Thanks, so much.
Your next question from Nathan <unk> from Goldman Sachs. Your line is open.
Good morning, Thanks for the questions.
I wanted to ask around the.
Pricing trends that youre seeing in the PPE and infection control products and do you feel like we're getting closer to a point of stabilization and pricing.
And then specifically related to the Covid inventory adjustment and the quarter do you see that more as onetime in nature or is there still uncertainty and the market just given how pricing is trending.
And Nathan I'll take the first part non can take the second I think to your question. We are seeing pricing much more stable certainly than it was a couple of quarters ago I wouldn't say the supply chain is completely stable are back to pre pandemic levels of stability around infection control products, but.
Certainly stabilizing and we expect that continue obviously, assuming the current trends around the pandemic can continue and in the positive direction as well. So we do expect pricing to continue to stabilize the <unk>.
Supply chain and product availability to continue to stabilize and obviously that our customers really determining what their go forward approach is with regard to infection control and their practices, but certainly as we indicated we do expect that to be a positive part of that growth opportunity going forward and.
We continue to ensure that we have the highest quality of infection control products for our customers as well.
And so this has been a challenging period and that area, but certainly we're seeing and much more stable and expect that to continue.
Yes.
Thank you.
Adding on to marks comments.
Stability and pricing and the market really has put us in a position where I do believe debt.
The inventory adjustments, we recorded in the fourth quarter really onetime in nature, and we're not going to be.
And I'll repeat and Matt as we go forward.
Okay, Great and then just a quick follow up Don on the cadence for the dental revenue that we should expect and fiscal 'twenty 2 and thank you said mid single digit revenue growth for the full year. This slow and easy comparison, and <unk> kind of comparing to the pandemic last year, I guess and mid single digit.
And that revenue guidance would imply flat to maybe a low single digit growth over the second to fourth quarters and next year, obviously, there's a lot of moving pieces, because the PPE and such and control business is also factored into that and we'll just any more details on how youre thinking about sales and the dental segment over the course of fiscal 'twenty 2.
Yes.
The guidance really it was mid single digits for the.
And the entire company.
And and Youre right Theres, a theres a theres a bit of a bolus here in Q1 in terms of growth rate, but.
And we'd expect it to be relatively consistent throughout the rest of the year and.
In terms of growth rates.
For the company as a whole.
That's helpful. Thank you.
Your next step and this from Vance and Unparallel from Guggenheim. Your line is open.
Yes, Thanks for taking my questions, Hey, Dan and just will follow up on some of the.
The guidance you gave some of the details around the guidance for thank you tunnel suggests that we will prepare for Marshall Robalo long detailed 2 will fall was about 7% to 11% growth for what you're considering to be sort of a base for fiscal 'twenty, 1 number and so I'm just trying to reconcile kind of what you reported on it.
Adjusted basis for the year to call GAAP base lumber, which seems like it's somewhere between above 75, and our bulk candy and all other will fall to.
For quality expense savings vault.
Got a repeat loans.
For infection control that wasn't going to repeat and so anything else kind of reconciling those total adjusted earnings per share back towards sort of base fiscal total number that you for the good jump off point for fiscal 'twenty 2.
Yes.
And Glenn you haven't right and so we finished at $1.91 of adjusted EPS and then the net of the 2 items you mentioned as a <unk>.
Headwind.
This year, so that really would translate to a jumping off point, if you will of $1.85, and my comments were that.
The guidance implies 7% growth at the midpoint and 11% growth at the top and from the $1.85, and then I think and important data point that I outlined at the end was just.
That guidance also implies 11% CAGR at the midpoint and 15% CAGR at the top and from the F. 'twenty.
EPS of $1.55.
Right. Okay. That's super helpful. Sorry, sorry, I did hear that correctly.
And so we're sort of model and fiscal 2002, I mean, not to put words in your mouth, but it kind of sales like we should see.
<unk> continued organic growth and boat segments.
Perhaps decelerating to more normalized levels.
Bad debt for the year and sort of <unk>.
Steady sort of margin expansion in both segments year over year throughout the 4 quarters of fiscal 2002.
Yes, that's true I have all of those pieces correct.
No and Thats, a fair characterization of how we look at it.
Okay. Thanks, very much I appreciate it.
And your next question is from John Mark.
Your line is open.
Thanks, guys. Good morning, a couple of quick ones.
And the model related but the animal health growth in the quarter was really strong and was up 14% and I. Thank you for companion animal was up 30%. So the higher margin division is arguably growing 2 ex and then mark that you called out positive.
And in some other line items, but the <unk> flat to down exiting Theyre down 10 bps can you just sort of lay out for us why youre seeing some very slight but still margin compression.
Mid teens internal number.
And and you are talking and the animal health space.
Question, Yes, it was all specific to animal health.
Yeah.
Yes, I think if you look.
And just over the course of the year margins were relatively consistent I think the year over year piece is a little hard to.
Calibrate just given the Q4 and Q4 dynamics, but we believe that.
And just some of the pandemic related impacts.
Impacts that happened.
During fiscal 'twenty and then throughout part of fiscal 'twenty, 1 I think the important point on the animal health space is that we think going forward, particularly with this kind of growth that we haven't good opportunity to continue leveraging that op profit into fiscal 'twenty 2.
Okay got it and then just sort of follows up and a couple of recent questions, but and mid single digit growth in both and market, 7% at the midpoint and sort of got to go with the midpoint. So I'm not sure of the tax rate. It seems to apply very slight op margin expansion, maybe a couple of questions is the formula to get.
They're.
Ongoing gross margin compressions, and then some of the Opex leverage that we've seen that you guys have done a very good job with them.
If that's the case I mean, maybe the follow up would be the 5% and 7% Rev versus EPS at the midpoint why not a little bit more leverage Todd I thought previously you talked about your ability to add a lot of the additional revenue without onboard and incremental investments post pandemic. Thanks Scott.
Yes, and Thats true I think debt.
What we want to start the year and a position where like I said, we're viewing this at a 7% midpoint growth of 11% at the top and I think.
<unk> you want to probably focus your eyes on that and just the the.
Mid mid single digit sales growth with good margin expansion and I think the formula.
We don't believe there is a lot of growth margin compression, we think some other things that we've outlined.
Really show up and the gross margin and so as we move forward.
It's really a combination of stable to improving gross margin and.
And continued opex leverage as we expand the sales.
Perfect. Thanks for your time guys.
And your other outside.
1 more question, yes. Thank you.
And last question is from John Kreger William Blair. Your line is open.
I have started to return to growth as a fiscal 'twenty 2 plays out and that makes and John yeah.
For the site are up we missed the first part of your question. So for the interruption can you repeat it. Please yes, just on can you expand a little bit about what you see as kind of a longer term normalized growth outlook for your livestock business I get that it should.
Recover as we move through fiscal 'twenty, 2 but once we're sort of fully beyond that curious what you think that business can do longer term.
Yes, John I think we believe back to pre pandemic levels, that's a low single digit growth business going forward and that's where we view. It at this point certainly continued good strong demand global protein, but again I would say low single digits.
Great. Thanks, and then 1 last 1 you talked I think about.
And Dennis sort of investing in their practice and obtain 1 other things that you expect will drive 22 can you just elaborate on that where are they investing and what sort of equipment demand are you seeing to be particularly good.
Yes, I think the.
We were certainly pleasantly surprised I think a year ago at this time, we do not expect our equipment.
Business to do as well as it did frankly, and we do not expect Dennis to make the type of investments during the pandemic that they did and I think that just speaks to really the strength of the end market and our customers really believing and the continued opportunity for them to drive great patient care and for them to drive success and their practices. So we're.
And the investments really across all across the board and the core equipment categories Digital software E services and again I think really just speaks to the strength that we see from the dental market and the industry overall and in investing for long term success and and we feel like we're very well.
<unk> to take advantage of that.
Well I think sorry, operator for this is this is mark. Thank you again, everyone for your time today. Your continued interest and we look forward to speaking with you again soon thank you.
This concludes today's conference call. Thank you for joining you may now disconnect.
Okay.