Henry Schein, Inc.

Good morning, ladies and gentlemen, and welcome to Henry Schein's first quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please press the star key followed by one on your touch tone phone if you would like to ask a question at that time. If anyone should require operator assistance during the conference, please press the star key followed by zero on your touch tone phone. As a reminder, this call is being recorded. And now I would like to introduce you to your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Officer. Thank you, Graham. Please go ahead.

Thank you, Operator. And my thanks to each of you for joining us to discuss Henry Schein's financial results for the first quarter of 2023. With me on the call today are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Ron South, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to state that certain comments made during this call will include information that's forward-looking. As you know, risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements. As a result, the company's performance may materially differ from those expressed in or indicated by such statements. These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission and included in the risk factor section of those filings. In addition, all comments about the markets we serve, including end market growth rates and market share, are based upon the company's internal analyses and estimates. Cesare's remarks will include both GAAP and non-GAAP financial results. We believe that non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the Financials and Filings section of our Investor Relations website under the Supplemental Information heading. For additional financial information, please refer to our quarterly earnings presentation also posted on our investor relations website. The content of this conference call contains time-sensitive information that's accurate only as of the date of the live broadcast, May 9, 2023. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Lastly, during today's Q&A session, please limit yourself to a single question and a follow-up. And with that, I'd like to turn the call over to Stanley Burton.

Thank you, Graham. Good morning, everyone. Thank you for joining us this morning. We are most pleased to report very good financial results for the first quarter of 2023 that are in line with expectations we provided at the beginning of the year and reflect the good earnings momentum in our underlying core businesses. Market trends stayed consistent with those we discussed during the previous quarter's conference call. Compared to the fourth quarter of last year, where we saw a high number of flu cases, patient traffic to dental offices around the world has recovered and is at or nearing pre-pandemic levels. Patient traffic through the physician practices has also normalized. As we anticipated, our results continued to be impacted by decreasing sales of PPE products and COVID test kits. Within the PPE category, the pricing was lower, again, as we discussed, but pricing at this stage has stabilized on a sequential basis. COVID-19 test kits volume was lower, Excluding these product categories, we achieved strong internal growth company-wide of 6.3% in local currencies. Our financial results were also adversely impacted by acquisition-related expenses as well as foreign exchange. With respect to acquisitions, our pipeline remains robust. In early April, we closed our acquisition of a majority stake in Biotech Dental, a business with a market-leading portfolio of dental implants and clear aligners. And we also recently announced our plans to enter the large Brazilian implant market with the acquisition of Syn Implant System, one of Brazil's leading manufacturers of dental implants, and a complement to our successful Brazilian general dental consumables and equipment business. And we also announced the acquisition of regional healthcare group entering the medical market in Australia and New Zealand and leveraging our dental infrastructure in the region. Very successful business we have today in the region. I'll discuss these and more details in a moment. Today we are updating our non-GAAP diluted EPS guidance, financial guidance for 2023 to include the impact of biotech adenal, the acquisition of biotech adenal. The outlook for the underlying business is consistent with prior estimates, including expectations for operating income growth in the high single to low double-digit percentage range when excluding the contribution from PPE products and COVID test kits and acquisition-related expenses. Let me now turn to review the highlights from each of our business units. So let's begin with dental, the dental distribution business. Overall, the underlying fundamentals of our dental in markets remain solid fueled by an aging global population, low unemployment levels, and a growing global awareness of healthcare benefits of preventative care and oral hygiene. First quarter dental sales growth excluding PPE products reflect stable patient flow. Dental merchandise sales when excluding PPE products was very good, partially driven by lower prior year merchandise sales comparison that was impacted by the high level of flu cases and some COVID, Omicron COVID-19. Our dental equipment sales were solid. Traditional equipment sales grew very well, while digital equipment sales comprising of 2D, 3D digital imaging, mills, intraoral scanners, continued to be lower than the previous year. In North America, the traditional equipment growth included some price increases introduced in the second half of last year, as well as good growth in our parts and service business. We've been focusing on this area for a while. This growth was offset by a decrease in sales of digital equipment. The market for intraoral scanners is healthy, as demonstrated by increased unit sales in the quarter. However, as we commented last quarter, our sales decrease reflects declining average selling price for intraoral scanners. Plus, we also had a significant sale in the previous quarter, in the previous year of scanners to a DSO. Unit sales in other digital categories are lower, and we believe are now normalized compared to the last year. We also posted good sales growth in general equipment in Europe. International equipment price inflation has not been significant, and the growth was supported by the equipment backlog, which is reverting to a more normalized level in Europe and also our parts and service business is doing quite well. The biennial IDS show in Cologne in March was once again a good event for Henry Schein, and from a sales perspective, the overall impact was consistent with previous IDS meetings. Our global equipment order book, which is mainly comprised of traditional equipment, remains robust and is up year over year. Let's take a look in a bit more detail on our global dental specialties business. Our global dental specialty products sales growth increased from the fourth quarter. We continue to expect modest year-over-year growth to the first half of the year, given the strong first half of 2022. Implant sales growth was driven by meaningful growth in our premium Camelot product line in Germany, Austria, and Switzerland, where we have our biggest, strongest market share in the category. And we continue to achieve double-digit growth in our Medentus value price line. In North America, we are seeing an increase in dental specialty practices being acquired by larger DSOs. Importantly, we have excellent relationships with a growing number of DSO accounts and are committed to driving specialty product conversion at practices within those networks. We also continue to see growing adoption of specialty dental procedures amongst general dental practitioners as demonstrated by enrollment in Henry Schein's continuing education courses in these categories. As mentioned earlier, Recent highlights in our global dental specialty business was the acquisition of a majority stake in Biotech Dental and the announcement of our entry into the Brazilian implant market with SYN Implant System through the acquisition of the SYN Implant System business. Biotech Dental provides Henry Schein with a comprehensive, integrated suite of planning and diagnostic software, as well as a fast-growing portfolio of dental implants and clear aligners. Together, these products resulted in revenue of approximately $100 million in 2022. We are particularly excited about bringing the Biotech Dental software products to our customers, along with our existing portfolio of practice management software, and clinical software, we will offer a seamless digital workflow solution to a growing number of customers worldwide. Very, very exciting. Last week, we announced a definitive agreement to acquire Synth Implant System, which is one of Brazil's leading manufacturers of dental implants, with revenues of approximately $60 million in 2022. This agreement marks our planned entry into the large Brazilian implant market. Brazil has been a very good growth market for Henry Schein, where we have brought good value to Brazilian dentists and dental laboratories over the last five or six years since we became active in that market. Shin recently expanded distribution of their value price dental implants to include the United States and other geographies. We expect this transaction to close later this year, subject to, of course, regulatory approval. Both the SYN implant system and the biotech dental transactions represent progress we are making to advance our Bold Plus One strategy, which calls for us to focus internal growth and, of course, business development activities on the high growth, high margin opportunities, and particularly with innovative products and services. This quarter, our endodontic business continued to grow nicely, primarily through our Brussels and Edge brands in North America. Our orthodontic business is quite small, but we're pleased with the continued positive development of our clear aligner business, particularly with DSOs. So now let me turn to our technology and value-added services business, where the largest component is Henry Sharon One, which had an excellent quarter. Investing in growing these businesses is a key pillar of our Global Plus One strategic plan, and we believe our customers are recognizing the advantages in technological innovation that we bring to the marketplace. Growth in North America continues to be driven by Dentrix, and Dentrix Ascend cloud-based solutions, and customers upgraded from our Easy Dental product, with the Easy Dental lifecycle ending later this year. International growth was supported by Dentali cloud-based solutions for customers outside the United States, particularly in Australia and New Zealand, where it was recently launched. The number of customers on Dentrix Ascend and Dentali, these are our cloud-based solutions, has increased approximately 30% over the last year. We are very, very pleased and excited with our customers moving to our cloud-based solutions. We also saw growth with our revenue cycle management insurance claims product, with growth driven by the number of e-claims we processed, and enhanced functionality by electronic invoicing and reimbursement solutions. Sales of this product are a strong indicator of the underlying market, as evidenced by the higher number of e-claims we process. In short, our practice management solutions provide a competitive advantage to our dental business. Our highly integrated software is at the core of the operatory and supports clinical workflow clinical workflow while improving practice efficiency. Our practice management software also provides opportunities for us to sell products and solutions into the practice, including digital devices, demand generation and analytical software, as well as our growing AI enhanced product portfolio. Towards the end of the first quarter, we announced the full integration of Detect AI, powered by Video Health and Bola AI into Dentrix Ascend. This software automatically analyzes digital images to identify and localize caries, allowing for a faster evaluation of x-rays and effective treatment recommendations. This AI product offering has been well received. Additionally, our new voice technology feature improves speed and efficiency for dentists and hygienists when completing periodontal exams and clinical notes. While it is still early in the launch, we have already seen good adoption of this new AI-driven solution, and we are excited to extend our reach in supporting dentists in providing the best possible patient care. So in our medical business, the distribution business, during the first quarter, our medical business achieved growth of 4% excluding PPE products and COVID-19 test kits. As I mentioned last quarter, we expect the internal sales growth in our underlying medical business to continue to grow quite nicely, but at a somewhat slower pace this year than last year, given the prior year comparison resulting from significant growth we achieved last year. We remain highly bullish also on our medical business. Unit sales for COVID tests were down significantly, and within the PPE category, grub pricing has stabilized, albeit at a lower price than last year. Looking at specific product categories, once again, pharmaceutical and equipment sales were strong, while sales of point-of-care diagnostic products decreased to some extent because of the high flu diagnosis last year. year, this quarter. We're also pleased to announce our acquisition of Regional Healthcare Group in Australia and New Zealand, both growing markets that have contributed to the growth of our dental business. Through this acquisition, we'll be able to further leverage our Australian and New Zealand infrastructure and expand our global medical products footprint. In summary, the underlying fundamentals of our core business remains solid. and we are executing well, as anticipated, with our Bold Plus One strategic plan. So we're very comfortable with where we are. We're bullish about the business and excited as we advance our Bold Plus One strategy. With that in mind, I will turn the call over to Ron to discuss our first quarter financial results and our full year guidance. Thank you very much, everyone.