Patterson Companies Stock

Patterson Companies, Inc. (Patterson) operates as a value-added specialty distributor serving the U.S. and Canadian dental supply markets, and the U.S., Canadian and the U.K. animal health supply markets.

Segments

The company operates through three segments: Dental, Animal Health, and Corporate.

Dental

Patterson Dental, one of the two largest distributors of dental products in North America, has operations in the U.S. and Canada. As a full-service, value-added supplier to over 100,000 dental practices, dental laboratories, educational institutions, and community health centers, Patterson Dental provides consumable products (including infection control, restorative materials, and instruments); basic and advanced technology and dental equipment; and innovative practice optimization solutions, including practice management software, e-commerce, revenue cycle management, patient engagement solutions, and clinical and patient education. Patterson Dental sells approximately 100,000 stock keeping units (SKUs), of which approximately 3,500 are private-label products sold under the Patterson brand. Patterson Dental also offers customers a range of related services, including software and design services, maintenance and repair, and equipment financing.

Animal Health

Patterson Animal Health operates as a distributor of animal health products in the U.S., Canada and the U.K. The company sells approximately 100,000 SKUs, of which approximately 2,000 are private-label. Products are sourced from over 2,000 manufacturers to over 50,000 customers in the highly fragmented animal health supply market. Products the company distributes include pharmaceuticals, vaccines, parasiticides, diagnostics, prescription and non-prescription diets, nutritionals, consumable supplies and equipment.

The company offers a private label portfolio of products to veterinarians, producers, and retailers through its Aspen, First Companion and Patterson Veterinary brands. The company also provides a range of value-added services to its customers. Within its companion animal supply market, the company’s principal customers are companion-pet and equine veterinarians, veterinary clinics, public and private institutions, and shelters. In its production animal supply market, the company’s principal customers are large animal veterinarians, production animal operators and animal health product retailers. The company provides digital home delivery solutions to allow it to evolve with the market. This segment obtains products from over 2,000 vendors globally.

Corporate

This segment offers customer financing and other miscellaneous sales.

Specialty Distribution Markets

The company provides manufacturers with logistics and high-caliber sales professionals to access a geographically diverse customer base, which is critical to the supply chain for the markets it serves. The company provides its customers with an array of value-added services, a dedicated and highly skilled sales team, and a broad selection of products through a single channel, thereby helping them efficiently manage their ordering process.

Dental Supply Market

The dental supply market the company serves consists of geographically dispersed and highly fragmented dental practices. Customers range in size from sole practitioners to large group practices, often called Dental Service Organizations (DSO's).

The company supports dental professionals through the many stock keeping units (SKUs) that it offers, as well as through important value-added services, including equipment and technology installation and service, practice management software, electronic claims processing, financial services, and continuing education, all designed to help make a dental practice more efficient.

Animal Health Supply Market

The company’s production animal customers include large animal veterinarians, beef producers (cow/calf, stocker and feedlots), dairy producers, poultry producers, swine producers and retail customers. Its companion animal customers are primarily small animal and equine veterinary clinics, including independently owned, corporates and groups.

The company supports its animal health customers through the distribution of biologicals, pharmaceuticals, parasiticides, supplies, including its own private label brands, and equipment. The company also supplies a full portfolio of technologies, software, services and solutions to all segments and channels of its broad customer base. The company actively engages in the development, sale and distribution of inventory, accounting and health management systems to enhance customer operating efficiencies and assist its customers in managing risk.

Properties

Patterson Logistics Services

The majority of assets the company uses to distribute product are owned and operated by Patterson Logistics Services, Inc. (PLSI), a wholly-owned subsidiary, which operates the distribution function for the benefit of its dental and animal health segments in the U.S. PLSI also advises on the operations of the company’s fulfillment centers outside of the U.S.

As of April 29, 2023, PLSI operated the following 13 fulfillment centers (seven primary centers) totaling 1.0 million square feet:

Two dental fulfillment centers (Hawaii and Texas);

Four animal health fulfillment centers (Alabama, Colorado and Texas (two)); and

Seven fulfillment centers that distribute dental and animal health products (California, Florida, Indiana, Iowa, Pennsylvania, South Carolina and Washington).

Approximately 90% of the PLSI fulfillment center space is owned.

Dental

The Dental segment maintains sales and administrative offices at approximately 55 locations across 39 states in the U.S. and 10 locations in Canada, the majority of which are leased. Operations in Canada are supported by fulfillment centers located in Quebec and Alberta. As of April 29, 2023, the company sold a 100,000 square-foot facility and entered into a lease for a portion of the building to reflect its need for less physical space.

Animal Health

In addition to the locations operated by Patterson Logistics Services, Inc. (PLSI), Patterson Animal Health has approximately 100 properties located in the U.S., Canada and the U.K., the majority of which are leased. In the U.S., these properties are in 82 locations across 28 states, and comprise fulfillment centers, storage locations, sales and administrative offices, retail stores and call centers. In Canada, operations are supported by two fulfillment centers located in Alberta and Ontario. The segment’s operations in the U.K. are supported by a primary distribution facility in Stoke-on-Trent and an additional 10 depots used as secondary distribution points and 3 laboratory sites throughout the U.K.

Strategy

The key elements of the company’s strategy include emphasizing its differentiated, value-added, full-service capabilities; using technology to enhance customer service; and growing through internal expansion and acquisitions.

Sales, Marketing and Distribution

As of April 30, 2022, the company sold products or services to over 100,000 customers who made one or more purchases during the year. The company’s customers include dentists, laboratories, institutions, other healthcare professionals, veterinarians, other animal health professionals, production animal operators and animal health product retailers.

The company’s sales representatives play an indispensable and critical role in managing a practice’s supply chain and in introducing new products and technologies. In the U.S. and Canada, customer service representatives in call centers work in tandem with the company’s sales representatives, providing a dual coverage approach for individual customers. In addition to processing orders, customer service representatives are responsible for assisting customers with ordering, informing customers of monthly promotions, and responding to general inquiries. In the U.K., the company’s customer service team is primarily responsible for handling customer inquiries and resolving issues.

To assist its customers with their purchasing decisions, the company provides a multi-touchpoint shopping experience. From print to digital, this seamless experience is inclusive of products and services information. The company offers online and in-print showcases of its expansive merchandise and equipment offerings, including digital imaging and computer-aided design and computer-aided manufacturing (CAD/CAM) technologies, hand-held and similar instruments, sundries, office design, e-services, repair and support assistance, as well as financial services. The company also promotes select products and services through publications, including On Target and Advantage in the U.S. and Patterson Post in Canada in its Dental segment, and Insight in the U.S. and The Cube in the U.K. in its Animal Health segment. Additional direct marketing tools that the company utilizes include customer loyalty programs, social media, and participation in trade shows.

The company ships consumable supplies from its strategically located fulfillment centers in the U.S. and Canada. In the U.K., orders are accepted in a centralized fulfillment center and shipped nationwide to one of the company’s depots located throughout the country at which pre-packed orders are sorted by route for delivery to customers. Orders for consumable supplies can be placed through the company’s sales representatives, customer service representatives or electronically 24 hours a day, seven days a week. Rapid and accurate order fulfillment is another principal component of its value-added approach.

Seasonality

The company’s business in general is not seasonal; however, there are some products that typically sell more often during the winter or summer season. In addition, the company experiences fluctuations in quarterly earnings.

Governmental Regulation

Among the U.S. federal laws applicable to the company are the Controlled Substances Act, the Federal Food, Drug and Cosmetic Act, as amended (the FDC Act), Section 361 of the Public Health Service Act, as well as laws regulating the billing of and reimbursement from government programs, such as Medicare and Medicaid, and from commercial payers.

Under the Controlled Substances Act, as a distributor of controlled substances, the company is required to obtain and renew annually registrations for its facilities from the DEA permitting it to handle controlled substances. The company is also subject to other statutory and regulatory requirements relating to the storage, sale, marketing, handling and distribution of such drugs, in accordance with the Controlled Substances Act and its implementing regulations, and these requirements have been subject to heightened enforcement activity in recent times.

Certain of the company’s businesses are required to register for permits and/or licenses with, and comply with operating and security standards of, the U.S. Food and Drug Administration (FDA), the U.S. Department of Agriculture (USDA), the Environmental Protection Agency (EPA), the Food Safety Inspection Service (FSIS), the U.S. Drug Enforcement Administration (DEA), the Federal Trade Commission (FTC), and various state boards of pharmacy, state health departments and/or comparable state agencies, as well as comparable foreign agencies, and certain accrediting bodies depending on the type of operations and location of product distribution, manufacturing or sale.

The continued uncertain status of the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (as amended, the ACA) affects the company’s ability to plan.

The company is directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and regulations that protect the privacy and security of such information, such as the privacy and security provisions of the federal Health Insurance Portability and Accountability Act of 1996, as amended, and implementing regulations (HIPAA), the Controlling the Assault of Non-Solicited Pornography and Marketing Act, the Telephone Consumer Protection Act of 1991, Section 5 of the Federal Trade Commission Act, the California Privacy Act (CCPA), and the California Privacy Rights Act (CPRA) that became effective on January 1, 2023.

The company also sells products and services that health care providers, such as dentists, use to store and manage patient dental records. These customers, and the company, are subject to laws, regulations and industry standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of the privacy and security of those records, and the company’s products may also be used as part of these customers’ comprehensive data security programs, including in connection with their efforts to comply with applicable privacy and security laws.

The company is subject to certain U.S. and foreign laws and regulations concerning the conduct of its foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery laws and laws pertaining to the accuracy of its internal books and records, as well as other types of foreign requirements similar to those imposed in the U.S.

Competition

In the U.S. and Canadian dental supply market, the company competes against Henry Schein, Inc.; Benco Dental Supply Company; Burkhart Dental Supply and hundreds of distributors that operate on a regional or local level, or online. With regard to its dental practice management software, the company competes against numerous offerings, including those from Henry Schein, Inc. and Carestream Dental.

In the U.S. and Canadian animal health supply market, the company’s primary competitors are AmerisourceBergen/MWI Animal Health and Covetrus, Inc. In the animal health practice management market, the company’s primary competitors are IDEXX Laboratories, Inc. and Covetrus, Inc. The company faces significant competition in the animal health supply market in the U.K., where it competes on the basis of price and customer service with several large competitors, including Covetrus, Inc. and AmerisourceBergen.

History

Patterson Companies, Inc., a Minnesota corporation, was founded in 1877. The company was formerly known as Patterson Dental Company and changed its name to Patterson Companies, Inc. in 2004.