Henry Schein, Inc.

Good morning, ladies and gentlemen, and welcome to Henry Schein's fourth 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 touchtone phone if you would like to ask a question at the end of the call. If anyone should require operator assistance during the call, please press the star key followed by zero on your touchtone phone. As a reminder, this call is being recorded. And I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Officer. Thank you. Please go ahead, Graham.

Thank you, Operator, and my thanks to each of you for joining us to discuss Henry Schein's financial results for the fourth quarter and the full year of 2023. With me on today's call is 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. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and 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 factors 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. Today's remarks will include both GAAP and non-GAAP financial results. We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business. enable the comparisons 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 filing section of our investor relations website under the supplemental information heading. For additional 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 is accurate only as of the date of the live broadcast, February 27th, 2024. 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 Bergman.

Thank you, Graham. Good morning, everyone, and thank you for joining us. We are rather pleased with our performance in the fourth quarter and for the full year of 2023. which was in line with our expectations and reflects a solid recovery from last year's cybersecurity incident. Our fourth quarter financial results included strong growth in our technology and value-added services businesses and in global sales of implants and biomaterials, largely driven by acquisitions and were negatively impacted by higher-than-usual acquisition-related expenses and adjustments. As we discussed last quarter, the cyber incident primarily affected our dental and medical distribution businesses in North America and Europe. These distribution businesses recovered well in the second half of the quarter. The revenue impact from the incident was at the low end of our expectations, and the earnings impact was at the high end, largely due to the success of our promotion activity, which drove sales and customer retention. Overall, we feel good about the pace of our recovery, driven by our durable customer loyalty and strong relationships our field sales consultants, our telesales representatives, and service technicians have with our customers around the world. And of course, coupled with our most effective direct marketing and customer care capabilities, which includes a very strong e-commerce presence, particularly on social media. Today, our North American and international distribution businesses are experiencing merchandise sales that are running below the pre-cyber security incident levels, and we estimate that the incident is currently having a low single-digit percentage headwind to our merchandise sales growth, with some episodic customers not fully returned yet. We are doing a lot of work in this area, and we expect the residual impact to be short-term and diminish over the first half of the year through our sales and marketing programs, and as I noted, including our digital marketing. The 2024 guidance we are introducing today reflects our continued confidence in the stability of the underlying markets we serve, our recovery efforts from the cybersecurity incident, and the execution of our strategic plan. For 2024, while we expect to have some short-term residual impact from the cybersecurity incident, we believe we will continue to strengthen our leading market positions. The markets we serve are expected to grow towards the lower end of the ranges we set out at our investor day last year, and we also expect some remaining impact from lower year-over-year PPE pricing, primarily impacting sales growth in the first quarter or the first third of the year. We are also introducing adjusted EBITDA guidance as we believe this provides investors with an additional metric that reflects the performance of the business as we pivot to higher growth, higher margin products and services. We believe we are well positioned to grow the business in line with our financial goals of high single digit to low double digit operating income and earnings per share by continuing to execute on our BOLD Plus One strategic plan. So let me now turn to a review of our quarterly highlights from each of our business units beginning with the dental distribution business. In North America, we believe patient traffic to dental office picked up in November and December. Although in January, illness and weather impacted cancellations, but this has improved in February. We've seen in our medical business that point of care diagnostic sales are also strong, indicating that flu visits to medical doctors are elevated as a result of this year's late flu season, and which adversely impacted dental patient traffic. We expect the effect on patient traffic from the flu season to normalize by the end of March. International markets remain steady and consistent with third quarter. Regarding North America and international dental equipment, there was a decline in sales both in traditional and digital equipment. Equipment sales is very important. reflect a redeployment of our field sales consultants as well as our equipment sales specialists during the cybersecurity incident to focus on addressing immediate customer needs rather than initiating and processing new equipment orders, resulting in moving sales into the first quarter of 2024. Digital equipment sales also reflected year-over-year lower prices of intraoral scanners, but we expect to see good demand for intraoral scanners to continue and the impact of these price declines to be less significant going forward. We've had a lot of questions on this, but we expect equipment sales to be supported by the investment plans of many of our DSO customers who have these plans in place and have continued to expand their operations. And this not only applies to the national DSOs, but to many of the regional DSOs too, who are investing in their practices, both from an equipment point of view and a software point of view. The impact of lower global equipment sales was partially offset by overall good growth in our global equipment technical services. Our technical services capability is a strategic advantage for us, as we believe we provide excellent response times and high quality service for our customers. We are known for this globally. Now, let's turn to the global dental specialty businesses or products. Turning to the global dental specialty products, we believe we continue to increase our global market share in implants and biomaterials this quarter as we believe for the full year of 2023. We believe the implant markets we serve in the aggregate were generally flat in the fourth quarter against the 22 sales. Against that backdrop, and I'm referring to the market in general, by the way, against that backdrop, our global implant and biomaterial sales grew by quite a bit more than 30%. mainly due from acquisitions, but also some internal growth. We posted significant growth in the European, Latin American, and Asian markets, mainly from the biotech acquisition in France and the SYN acquisition in Brazil, along with above market share growth in our leading BioRisens Camelot brand in Europe, primarily in Germany, while we had low single-digit growth in our U.S. implant sales. As a result of the cyber incident, our endodontic sales growth slowed somewhat last quarter. Our orthodontic sales were also impacted by the cyber incident and by the expiration of the motion product patents earlier this year. To address this, we launched a replacement product this quarter which is being well received in the marketplace. We remain highly optimistic about the growth in our dental specialty products in 2024, as we have a robust pipeline of product innovations planned across various geographies in the first half of the year, and we expect sales growth to continue to outpace the market growth. Let's turn now to our technology and value-added services business. Excellent sales growth was driven by Henry Schein 1, with most core products posting double-digit gains including our practice management software, revenue cycle management, analytics, and our AI solutions. As we have seen all year, Henry Schein 1 growth was driven by Dentrix Ascend and entirely cloud-based solutions. The customer base of cloud solutions continued to grow well and increased by about 36% compared with the start of the year. We launched a number of digital clinical workflow solutions for our customers, including AI technologies, to provide our customers with highly effective diagnostic solutions. During the fourth quarter, we worked with one of the largest DSOs to introduce their AI solution. We are pleased to now have over 1,000 users subscribing to these solutions. Product enhancements introduced last quarter, including Remote scheduling and payments are also contributing to growth. Claims eligibility and patient relationship management features will be areas of significant focus during 2024. We continue to see strong interest and good growth in Dentrix Ascend from our DSO customers, and we recently announced two new large multi-site Dentrix Ascend accounts. Turning to our medical business, growth during the fourth quarter was also impacted by the cybersecurity incident. In addition, the late flu season also negatively impacted point of care diagnostic sales and patient visits, which were down versus the prior year. However, the late flu season is driving higher quarter one sales. Our new $300 million plus home care platform grew sales in high single digits during the quarter, with this market segment continue to grow faster than the overall health care market. Finally, in late December, we announced that we signed an agreement to acquire a majority interest in TriMed, which marks our entry into the upper and lower extremity segment of the growing orthopedic market, this being a complement to our Brasler saws and blades business, which is also doing quite well. This transaction, the TriMed investment, fills a need, particularly for our ambulatory surgical center and orthopedic specialist customers who expect to leverage our customer relationships and our contractual expertise to grow the business. We expect to close this transaction later this quarter. Concurrently, we entered into a strategic relationship with Extremity Medical a medical device company focused on developing complementary products for bone infusion, fixation, and motion prevention treatments. So, in summary, we are executing well against our BOLD Plus One strategic plan, and we made significant progress, very pleased with us, on our strategic priorities during 2023. We did complete a number of strategic acquisitions, investing almost a billion dollars supportive of our 2022 to 2024 strategic plan. These acquisitions are growing well in the high single digits to low double digit percentages. And we are on track to achieve our goal of generating 40% of our operating income from sales of our high growth, high margin products and services. And we estimate that we would only have to be slightly below that threshold and that we would We only would have been slightly below that threshold in the fourth quarter and for the full year of 2023 if the cyber incident had not occurred. As we look to 2024, our priorities include continuing to focus on customer experience. This is critical for us in all our businesses. And, of course, the recovery of sales post the cyber security incident. We also will focus on and prioritize further enhancing technology and product development, including our integrated digital workflow, and continue to grow sales and specialty products by integrating recent acquisitions and through new product launches. And we believe we have a good pipeline of product launches in both our dental specialties products area and our value-added services, including Henry Schein I. With that, I'll turn the call over to Ron to discuss our quarterly financial results and our 2024 guidance. Ron, please.