Henry Schein, Inc.

Good morning, ladies and gentlemen, and welcome to Henry Schein's first quarter 2024 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 assistance during the call, please press the star key followed by zero on your touchtone phone. And as a reminder, this call is being recorded. 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. My thanks to each of you for joining us to discuss Henry Schein's financial results for the first quarter of 2024. With me on today's call 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. 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 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. and also in 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, May 7th, 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. Our first quarter financial results reflect solid earnings driven by gross margin expansion and strong recovery from last quarter's cyber incident. We estimate that the incident lowered merchandise sales growth by low to mid single digit percentages during the quarter. On PPE products, sales continue to decrease primarily due to lower glove prices from the last year. We estimate a reduced impact on sales growth from PPE as the year progresses. We're very pleased with the progress we're making on executing our BOLD Plus One strategic plan. And we are pleased with the contribution of our recent acquisitions. These acquisitions contributed to the profitability we achieved in the first quarter. We are affirming our expectations for 2024 non-gap diluted EPS and 2024 adjusted EBITDA growth and tightening our expectations for 2024 total sales growth. Our projected sales growth reflects continued recovery from last year's cyber incident and a strong pipeline of new specialty products and software innovation. So let me turn to the review of our business units and start with dental on the distribution side. In North America, patient traffic to dental offices in January and February was impacted by weather events and by seasonal viruses, including the flu. But improved beginning in March, overall we see steady dental merchandise sales improvement throughout the quarter reflecting this trend, which has continued into April. In the U.S., our Thrive Signature Program is contributing to sales growth and membership continues to increase with about 2,000 new members added in the first quarter, bringing the total number of Thrive Signature members to approximately 5,000. For monthly subscriptions, this program provides a package of services to customers such as free shipping, discount on product and services, and thrive reward points, which of course in the aggregate drive customer loyalty. International merchandise also experienced steady sales improvement in most markets as the quarter progressed. Sales growth was negatively impacted by two less selling days in most of the international markets. Global dental equipment sales were consistent for the prior year, and were favorably affected by a shift in sales in the United States from late 2023 into the first quarter. Equipment sales grew in North America, but decreased slightly internationally. So now a few comments on our dental specialties, the global dental specialties business. We had a strong growth across oral surgical products, endodontics, and orthodontics, largely driven by acquisitions. And we believe we also gain market share organically in the global dental specialties market. North American implant sales were largely consistent with last year. And international sales under our leading BuyHorizons Camelot brand were very good. And this was especially good in Germany. In the first quarter, international sales benefited from the introduction of EZ 2.0, our value implant system in Germany, which is also designed for ease of use. We expect the launch of a new BioRisers implant system in the US in the second half of the year and early next year in Canada. This launch will be for a new bone level implant with a deep conical connection and is based upon our proven Camlock technology. We expect this will expand our addressable market significantly in the United States, thus increasing implant sales growth in the second half of the year. So, along with the introduction of SYNVALUE implants, this launch will position the company well in all market segments in North America. We achieved good endodontic growth sales during the first quarter as we launched our Edge branded products through the Henry Schein U.S. distribution business. Although endodontic product sales are a relatively small part of our specialty product sales, the launch of our MotionPro bracket system is performing Well, specifically addressing the exploration of last year's motion product practice.