Patterson panies(PDCO) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended January 28, 2023, encompassing balance sheets, statements of operations, equity changes, and cash flows Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | January 28, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Total Assets | $2,941,991 | $2,741,630 | | Total current assets | $1,844,714 | $1,679,022 | | Inventory | $939,098 | $785,604 | | Goodwill, net | $156,317 | $140,630 | | Total Liabilities | $1,839,570 | $1,698,995 | | Total current liabilities | $1,173,706 | $1,015,669 | | Borrowings on revolving credit | $175,000 | $29,000 | | Long-term debt | $451,910 | $488,554 | | Total Stockholders' Equity | $1,102,421 | $1,042,635 | Condensed Consolidated Statements of Operations and Other Comprehensive Income Three Months Ended Performance (in thousands, except per share data) | Metric | Jan 28, 2023 | Jan 29, 2022 | Change | | :--- | :--- | :--- | :--- | | Net sales | $1,600,850 | $1,596,596 | +0.3% | | Gross profit | $342,962 | $336,611 | +1.9% | | Operating income | $75,922 | $60,833 | +24.8% | | Net income attributable to Patterson | $53,929 | $57,006 | -5.4% | | Diluted EPS | $0.55 | $0.58 | -5.2% | Nine Months Ended Performance (in thousands, except per share data) | Metric | Jan 28, 2023 | Jan 29, 2022 | Change | | :--- | :--- | :--- | :--- | | Net sales | $4,750,319 | $4,860,633 | -2.3% | | Gross profit | $983,184 | $940,848 | +4.5% | | Operating income | $170,861 | $84,164 | +103.0% | | Net income attributable to Patterson | $132,592 | $139,332 | -4.8% | | Diluted EPS | $1.35 | $1.42 | -4.9% | Condensed Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity increased from $1.04 billion at April 30, 2022, to $1.10 billion at January 28, 2023, driven by $131.8 million in net income, partially offset by $76.4 million in dividends and $15.0 million in common stock repurchases[15] Condensed Consolidated Statements of Cash Flows Nine Months Ended Cash Flow Summary (in thousands) | Cash Flow Activity | Jan 28, 2023 | Jan 29, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(728,197) | $(834,139) | | Net cash provided by investing activities | $667,302 | $946,419 | | Net cash provided by (used in) financing activities | $67,912 | $(90,466) | | Net change in cash and cash equivalents | $5,276 | $21,800 | Notes to Condensed Consolidated Financial Statements - During Q3 FY2023, the company completed acquisitions for a total purchase price of $37.6 million, adding $17.3 million in identifiable intangibles and $16.0 million in goodwill to the Animal Health segment[32][33] - The company's receivables securitization program, with a maximum availability of $200 million, was fully utilized as of January 28, 2023, incurring $7.9 million in losses for the nine months ended January 28, 2023, compared to $2.3 million in the prior-year period[35][38] Segment Operating Income (in thousands) | Segment | Nine Months Ended Jan 28, 2023 | Nine Months Ended Jan 29, 2022 | | :--- | :--- | :--- | | Dental | $158,147 | $118,609 | | Animal Health | $80,372 | $73,360 | | Corporate | $(67,658) | $(107,805) | | Total | $170,861 | $84,164 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's Q3 and nine-month fiscal 2023 financial performance, detailing consolidated and segment results, liquidity, and capital resources, noting sales growth and operating income improvements Factors Affecting Our Results - Prior year (FY2022) results were significantly impacted by non-recurring items, including an $87.8 million pre-tax gain on the Vetsource investment, a $36.0 million net expense for a legal reserve, and a $49.2 million charge for PPE inventory donations, which largely explains the FY2023 operating income variance[92][94][96] Results of Operations - Quarter Ended January 28, 2023 - Consolidated net sales for Q3 FY2023 increased 0.3% to $1.6 billion, driven by a 2.6% increase in Animal Health sales, which offset a 4.4% decrease in Dental sales due to lower CAD/CAM and digital imaging equipment sales[98][99][100] - Q3 operating income rose 24.8% to $75.9 million, with the operating margin improving to 4.7% from 3.8% year-over-year, attributed to operating expense efficiencies and improved gross margins in the Animal Health segment[102][103] Results of Operations - Nine Months Ended January 28, 2023 - For the first nine months of FY2023, consolidated net sales decreased 2.3% to $4.75 billion, negatively impacted by an extra week in the prior year period and unfavorable foreign exchange rates[110] - Operating income for the nine-month period more than doubled to $170.9 million from $84.2 million in the prior year, primarily due to the absence of the prior year's $49.2 million Inventory Donation Charges and the Fiscal 2022 Legal Reserve[115] Liquidity and Capital Resources - In Q2 FY2023, the company amended its credit agreement, securing a $700 million revolving credit facility and a $300 million term loan facility, both maturing in October 2027[126] - As of January 28, 2023, the company had $175.0 million outstanding under its revolving credit facility and $299.3 million outstanding under its term loan[128] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk exposure since the disclosures in its 2022 Annual Report on Form 10-K - There have been no material changes in the company's exposure to market risk since the 2022 Annual Report on Form 10-K filed on June 29, 2022[131] Item 4. Controls and Procedures Management, including the CEO and CFO, affirmed the effectiveness of disclosure controls and procedures, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of January 28, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[132] - No changes occurred during the quarter ended January 28, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[133] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company discloses involvement in ordinary course legal matters, accruing liabilities when probable and estimable, acknowledging inherent uncertainties - The company is involved in various lawsuits and government proceedings in the ordinary course of business and accrues for these matters when a liability is probable and the amount can be reasonably estimated[135] Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - There have been no material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K[136] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase program, noting no repurchases in Q3 FY2023 and $450 million remaining available - The company has a $500 million share repurchase program authorized through March 16, 2024, with $450 million remaining available as of January 28, 2023[137] - No shares were repurchased under the stock repurchase program during the third quarter of fiscal 2023[137] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including employment agreements and CEO/CFO certifications required by Sarbanes-Oxley Act - The report lists all exhibits filed, including CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and financial statements formatted in Inline XBRL[140] Signatures