Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Patterson Companies Inc (PDCO, Financial) reaffirmed its fiscal 2025 earnings guidance, indicating confidence in meeting its financial targets despite a challenging first quarter.
- The company is implementing cost and expense discipline measures across the organization to improve profitability.
- Patterson's production animal business continued its strong momentum, generating low single-digit internal sales growth.
- The animal health segment's value-added services category delivered strong high single-digit internal sales growth, driven by the success of the Turnkey platform.
- Patterson is investing in innovation, such as integrating Pearl's AI pathology detection feature into Eaglesoft software and enhancing dental practice management solutions with Weave.
Negative Points
- First-quarter results declined year-over-year due to persistent inflation, elevated interest rates, and general uncertainty in the macro environment.
- The companion animal business underperformed, partly due to strategic decisions to focus on more profitable business, impacting rebate incentives and margins.
- The Change Healthcare cybersecurity attack significantly disrupted the dental segment, affecting the ability to submit insurance claims and resulting in lost revenue.
- Unexpected increases in medical claims as a self-insured entity further impacted first-quarter results.
- Internal sales in the dental segment declined, with dental consumables and equipment sales both decreasing year-over-year.
Q & A Highlights
Q: Can you provide more details on the end markets for July and August, particularly for dental?
A: We saw steady dental traffic patterns throughout the quarter. July consumables were a bit worse, but this was more due to timing and transient dynamics rather than patient traffic. The underlying market remains strong, and we are optimistic about our position and future performance.
Q: What is the outlook for dental consumables growth for the rest of the year?
A: Despite the soft performance in Q1, we expect dental consumables to grow for the year. The issues faced in Q1 were largely timing-related, and we have confidence in the underlying market and our ability to capture share.
Q: Can you discuss the impact of the Change Healthcare cyber attack on your dental segment?
A: The cyber attack significantly disrupted our dental software customers' ability to submit insurance claims, impacting our revenue from value-added services. While we have transitioned many customers to a new platform, the revenue per customer is slightly less, and the transition has taken longer than expected.
Q: What actions are you taking to manage costs and improve financial performance?
A: We are implementing cost and expense discipline measures across the organization, including travel restrictions, open requisition reviews, and potential headcount adjustments. We aim to balance these actions with continued investments in our long-term growth initiatives.
Q: How are you addressing the challenges in the companion animal segment?
A: We are focusing on more profitable business opportunities and have initiatives underway to reinvigorate top-line growth. This includes aligning our value proposition with evolving customer needs and executing on innovative new products.
Q: Can you provide more details on the financial impact of the Change Healthcare issue?
A: The Change Healthcare issue had a significant impact on our Q1 results, contributing to a negative impact of approximately $0.06 per diluted share. We expect this impact to lessen as we move through the year and fully transition customers to the new platform.
Q: What is the outlook for the animal health segment for the rest of the year?
A: We expect the animal health segment to improve as we move through the year. The production animal business continues to perform well, and we anticipate new product launches and strategic initiatives to drive growth in the companion animal division.
Q: How are you managing the impact of higher medical claims on your financials?
A: We experienced an unusually high spike in medical claims in Q1, but we expect these costs to normalize over the remainder of the year. We are also taking additional cost management actions to mitigate this impact.
Q: Can you discuss the status of your contract negotiations with Dentsply Sirona?
A: We do not comment publicly on ongoing vendor negotiations. However, we remain confident in our value proposition and our ability to support our customers with innovative solutions and comprehensive services.
Q: What is your outlook for operating margins for the rest of the year?
A: We expect operating margins to be flat to slightly improved for the full year. We are taking targeted actions to manage costs while continuing to invest in strategic growth initiatives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
