Patterson's stock slides 14.9% after earnings fall short of estimates, as company blames cyberattack

By Ciara Linnane

Change Healthcare hack earlier this year created disruption across the healthcare sector

Patterson Cos.' stock tumbled 14.9% on Wednesday after the maker of dental- and animal-health supplies posted weaker-than-expected fiscal first-quarter earnings, which it blamed squarely on a cyberattack.

"Our first-quarter results fell short of our expectations, primarily due to the greater-than-anticipated impact of the Change Healthcare cybersecurity attack on the value-added services category in our dental segment, along with lower sales in our companion animal business and the timing of certain corporate expenses," Don Zurbay, chief executive and president of St. Paul, Minn.-based Patterson (PDCO), said in prepared remarks.

"In light of these factors and against the backdrop of a challenging macroeconomic environment, we are taking dedicated cost and management actions across Patterson to deliver on our financial plan for fiscal 2025, and maintaining a strategic focus on supporting our customers with the deep and differentiated value proposition they expect from us."

The executive was referring to the attack earlier this year on UnitedHealth Group Inc.'s (UNH) Change Healthcare business, which is believed to have compromised the personal data of many Americans.

The hack of the health-payment processor forced the closure of healthcare facilities across the U.S. The company's CEO acknowledged in testimony to Congress that it had paid a ransom of $22 million in bitcoin, as the Associated Press reported.

The attack is widely considered to be the biggest cybersecurity disruption to healthcare in U.S. history.

On a call with analysts, Zurbay said the hack prevented dental customers from being able to submit insurance claims for processing, causing disruption and a lack of reimbursement by providers.

"During the time of the outage, Patterson was unable to charge the fees it normally does to these customers for this service," he said. "While we quickly identified an alternative solution for our dental-software customers that were impacted from the cyberattack, the transition time to this new solution is taking longer than expected."

But other factors, such as the dynamic macroeconomic environment, the impact of inflation and high interest rates, and general uncertainty also weighed.

"The timing of certain corporate expenses, including an unexpected increase in medical claims, further impacted Patterson's first-quarter results as a self-insured entity," he said, according to a FactSet transcript.

Patterson had net income of $13.7 million, or 15 cents a share, for the quarter to July 27, down from $31.2 million, or 32 cents a share, in the year-earlier period. Adjusted for one-time items, earnings per share came to 24 cents, below the FactSet consensus of 32 cents.

Sales fell to $1.54 billion from $1.58 billion a year ago and were also below the $1.59 billion FactSet consensus.

The company backed its guidance, however, and said it still expects earnings per share to range from $2.00 to $2.10 a share and adjusted EPS of $2.33 to $2.43. The FactSet consensus is for EPS of $2.37.

By segment, internal dental sales, or sales that have been adjusted for the effects of currency translation, recent acquisitions and other factors, fell 3%, while internal sales of consumables fell 2.1%.

Internal sales of equipment fell 2.4%, while value-added services dropped 6.7%.

In the animal-health segment, internal sales fell 2.8%, while sales of consumables were down 3%, equipment was down 3.8% and value-added services rose 8.3%.

The stock has fallen 9.7% in the year to date, while the S&P 500 SPX has gained 18%.

-Ciara Linnane

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08-28-24 1202ET

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