Henry Schein, Inc.

Good morning, ladies and gentlemen, and welcome to Henry Schein's third 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 the 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, and thanks to each of you for joining us to discuss Henry Schein's financial results for the third 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 regard 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. and in our quarterly earnings presentation also posted on our investor relations website. The content of this conference call contains climate-sensitive information that is accurate only as of the date of the live broadcast, November 5th, 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'll turn the call over to Stanley Bergen.

Thank you, Graham. Good morning, everyone. Thank you for joining us. Our businesses performed well during the third quarter, driven by the successful implementation of our BOLD Plus One strategic plan that is resulting in growth and efficiency throughout Henry Schein and a strong contribution from high-growth, high-margin products and services. We believe we continue to steadily gain market share in our dental and medical distribution businesses following last year's cyber incident. Our dental equipment business is showing ongoing stability in North America and increased investment by customers across Europe, Australia and New Zealand. Implant and endodontic products had good growth in Europe and Brazil as well as in North America following the successful launch of the BioHorizon's tapered pro-clinical implant in the United States. We're reporting another quarter exceeding our target of 40% of operating income generated by our high-growth, high-margin businesses, and we expect to exceed the target, this particular target of the 40% target, for fiscal 2024. Acquisitions made during 2022 to 2024 during that strategic planning cycle along with product launches are delivering strong financial results and our restructuring plan is on target. We also continue to return capital to shareholders through our share repurchase program. We exceeded our financial expectations for the quarter So today we are increasing our non-GAAP EPS guidance range to $474 to $482. We also launched our global e-commerce platform in the UK and Ireland, that's the GAAP program, and expect to launch next year in the United States. So far we've received rather positive feedback from our customers that have moved onto the new system. Now, let me turn to a review of our business units and start with the dental distribution business. Overall, third-core results for our dental distribution businesses generally reflect continued stable patient traffic globally. We believe the North American market for dental merchandise sales was consistent for the last year with unit sales increasing low single digits. offset by PPE price declines and a shift in sales to lower-cost brands and owned brand products. We also believe that our North American dental merchandise market share grew sequentially last quarter compared to the second quarter, reflecting a similar trend from the beginning of the year as we continue to recover from last year's cyber incidents. Our third quarter sales increased internationally in the dental merchandise arena and reflects solid growth in Germany, Austria, France, Brazil, Australia, and New Zealand. So now let's turn to the equipment side. North American dental equipment sales were consistent for the prior year, and we believe we continue to outperform the overall market. Sales of traditional equipment grew slightly, while digital equipment sales decreased. Parts and services sales continued to grow strongly. We believe our North American digital equipment sales were impacted in part by the timing of DS World. It was a successful show for us because it took place in the last week of September. Sales from the show will mostly be recognized In the fourth quarter this year, on the international equipment side, sales growth was quite good in parts of Europe, Australia, and New Zealand, and that was across all categories. Let's turn to the dental specialties. Our dental implant and biomaterial sales, as well as our endodontic sales, grew mid-single digits for the quarter. with continued above-market growth in the United States and Europe. U.S. sales were fueled by the launch of BuyHorizon's tapered pro-clinical implant, driving mid-single-digit sales growth in the third quarter, against the backdrop of a North American market that is trending flat to slightly negative. Additionally, in the U.S., we launched the SmartShape Healers Abutment, product line at the end of the quarter in our implant business, which we expect to further attract new customers and drive implant sales. The product is being well received specifically by non-Biorizons customers who feel we've got something that is of great interest to them. We are confident practitioners will value the product's benefits, including less chair time, enhance patient comfort, and improve clinical efficiency. Turning to our orthodontic business, we are in the midst of restructuring this business as well as transitioning to the Smilers brand clear aligner in the United States and in the European markets. This resulted in lower orthodontic sales for the quarter compared to the prior year. So now let's turn to the technology and value-added services part of the business. During the quarter, sales of our practice management software and revenue cycle management products posted mid-single-digit growth. This was driven by growth in the customer base of our Dentrix Ascend and Dentali cloud-based solutions, which was up more than 20% year-over-year. with now approximately 8,600 installations worldwide at the quarter end. Now, it's important to understand our results are impacted by customers moving from on-prem to SaaS-based solutions. Revenue is recognized in a different way in a SaaS-based model versus an on-prem sales model. In addition, we recently introduced Reserve with Google, Eligibility Essentials, and Eligibility Pro, each of which helps our customers grow their businesses and are well received. The number of claims processed by our revenue cycle management e-claims business also increased by mid-single-digit percentages compared to last year. In conclusion... Our dental business is an important priority for our Bold Plus One growth strategy and it's in this area that the L in the B-O-L-D is important for leveraging our strong customer relationships across our product portfolio. We are providing integrated solutions that strengthen customer relations, driving software, driving distribution, and driving specialty sales, especially with our large customer segment. For example, we had a number of dental distribution DSOs customers switch their implants to BioRisons and their technology to Dentrix Ascend and Jarvis Analytics. We have also had multiple successes with customers that have switched to Henry Schein for their merchandise and equipment purchases as a result of our differentiated offering and the excellent value-added services provided by BuyHorizons and Henry Schein One. Each of these successes has resulted in the coordination in our go-to-market strategy and accordingly incremental sales. Let me conclude my remarks with a review of our medical group. During the third quarter, we believe we continue to increase market share sequentially compared to the second quarter, again reflecting a similar trend from the beginning of the year as we continue to recover from last year's cyber incident. Our sales reflected less demand for respiratory diagnostic products and flu and COVID vaccines this quarter, and therefore along with related medical products. Sales were also impacted by the ongoing migration to generic alternatives for certain branded injectable pharmaceuticals. We continue to have good growth in our home solutions business. So let me now turn the call over to Ron to review our quarter three financial results, and our 24 guidance. Ron, please.

Thank you, Stanley, and good morning, everyone. Turning to our third quarter sales results, I will provide details on total sales growth as well as LCI sales growth, which is internally generated sales in local currencies compared with the prior year and excludes acquisitions. Global sales were $3.2 billion with sales growth of 0.4% compared with the third quarter of 2023. This reflects 3.2% growth from acquisitions and a 0.2% decrease from foreign currency exchange rates. LCI sales for the quarter decreased 2.6% for the quarter, which includes a 0.4% decrease from lower PPE sales. As Stan noted, our underlying sales for the quarter reflect continued improving sales trends in our distribution businesses. Our gap operating margin for the third quarter of 2024 was 4.94%, a 140 basis point decline compared with the prior year gap operating margin. On a non-gap basis, operating margin for the third quarter was 7.64%, a 45 basis point decline compared with the prior year non-GAAP operating margin. We had good operating income growth in our dental specialties and technology and value-added services businesses offset by a decrease in our distribution businesses resulting from lower sales following last year's cyber incident. Third quarter 2024 GAAP net income was $99 million or 78 cents per diluted share. This compares with prior year GAAP net income of $137 million or $1.05 per diluted share. Our third quarter 2024 non-GAAP net income was $155 million or $1.22 per diluted share. This compares with prior year non-GAAP net income of $173 million or $1.32 per diluted share. Our third quarter gap and non-gap results include a remeasurement gain resulting from the purchase of a controlling interest of a previously held non-controlling equity investment. This business has performed well since we made our initial investment. And as a result of our decision to take majority ownership, we recognize a remeasurement gain of $19 million pre-tax or 11 cents per diluted share in the quarter. This is similar to a remeasurement gain of $18 million pre-tax or 10 cents per diluted share that we recorded in the second quarter of 2023. We regularly make non-controlling investments in companies with high growth potential as part of our strategic plan. Leveraging our expertise, we have helped these businesses grow and become more profitable. The foreign currency exchange impact on our third quarter diluted EPS was unfavorable by approximately one cent versus the prior year. Adjusted EBITDA for the third quarter of 2024 was $268 million compared to the third quarter 2023 adjusted EBITDA of $278 million. Turning to our third quarter sales results, Global dental sales were $1.9 billion, with sales decreasing 1.6%. LCI sales decreased 1.6% or 1.0% when excluding PPE sales. Global dental merchandise LCI sales decreased 2.5% versus the prior year, with an LCI decline in North America of 4.9%, and international LCI sales growth of 0.9%. Note that when excluding PPE products, global dental merchandise LCI sales decreased 1.9%, North America merchandise LCI sales decreased 4.0%, and international merchandise LCI sales growth was 1.0%. We believe the overall dental market continues to be generally flat with a shift in sales to lower cost products and lower PPE pricing. We also believe we had a sequential improvement in market share in the third quarter compared to the second quarter. Our global dental equipment LCI sales increased 1.8% with flat sales in North America and 5.6% growth internationally. We expect modest overall equipment sales growth for the year in both North America and internationally. Dental specialty product sales were approximately $258 million and grew slightly compared to the prior year. As Stan mentioned earlier, this was driven by solid dental implant, biomaterials, and endodontic sales globally, offset by sales weakness in our orthodontic business, resulting from restructuring of the business and the transitioning of our clear aligner business from Reveal to Smilers, a product developed by Biotech Dental, which we acquired last year. Note that our dental specialty acquisitions that we completed last year have now all annualized as of this quarter. So our total sales growth is equal to internal sales growth. Global technology and value-added services sales during the third quarter were $221 million, with total sales growth of 5.1%. The LCI sales decline of 1.1% included a 3.1% decline in North America and and 13.4% growth internationally. Our value-added services revenue was bolstered by the LPS acquisition. This is a leading transaction advisory services business that we purchased in August of 2023. The timing of revenues recorded by LPS distorted internal sales growth numbers during the quarter, and we believe that total sales growth of 5.1% for the technology and value-added services segment is most reflective of the growth of the business. For the third quarter, specialty products, technology, and value-added services businesses contributed over 40% of total non-GAAP operating income. Global medical sales during the third quarter were $1.1 billion, with sales growth of 2.9%, and a decrease in LCI sales of 4.8%. Excluding sales of PPE products, LCI sales decreased 4.6%. As Stan noted, our sales reflected less demand for respiratory diagnostic products and flu and COVID vaccines, along with related products. Sales were also impacted by the ongoing migration to generic alternatives for certain branded pharmaceuticals. Our home solutions business had strong growth, which was driven by our strategic acquisitions. Restructuring expenses in the third quarter were $48 million, or 26 cents per diluted share. This includes $12 million incurred as part of the plan announced in the third quarter of 2022, which was completed on July 31st, 2024, and $36 million incurred as part of the 2024-2025 restructuring initiative announced last quarter. These expenses mainly relate to severance benefits and costs related to exiting certain facilities. Actions approved in the third quarter under the new initiative are estimated to provide over $50 million in annual run rate savings, and we believe this indicates strong progress towards our goal of $75 to $100 million in annual run rate savings by the end of 2025. Our third quarter GAAP results include $10 million in pre-tax proceeds as part of our cyber insurance claim, which is excluded from our non-GAAP results. At the end of the quarter, we had already collected $20 million and anticipate collecting most of our $60 million claim by the end of this year. Regarding share repurchases, we repurchased approximately 2 million shares of common stock in the open market during the third quarter. at an average price of $69.09 per share for a total of $135 million. We had $455 million authorized and available for future stock repurchases at the end of the quarter. We expect to continue to repurchase shares in the fourth quarter. Turning to our cash flow, we had good operating cash flow of $151 million for the third quarter. which compares with operating cash flow of $231 million last year. Year to date, operating cash flow was $644 million, which is $112 million more than last year. Turning to our updated 2024 financial guidance. At this time, we are not able to provide, without unreasonable effort, an estimate of restructuring costs associated with the new restructuring plan for 2024. although we expect this to primarily include severance pay and facility-related costs. Therefore, we are not providing GAAP guidance. Our 2024 guidance is for current continuing operations as well as acquisitions that have closed. It does not include the impact of potential future acquisitions or future share repurchases. Guidance also assumes that foreign currency exchange rates are generally consistent with current levels and that end markets remain consistent with current market conditions. Our 2024 total sales growth is now expected to be 4% to 5% over 2023 compared to prior guidance of 4% to 6% growth. For 2024, we are increasing non-GAAP diluted EPS attributable to Henry Schein Inc. to be in the range of $4.74 to $4.82 compared with prior guidance of $4.70 to $4.82 and reflects growth of 5% to 7% compared with 2023 non-GAAP diluted EPS of $4.50 as a result of better than expected results in the third quarter. This guidance reflects an estimated non-GAAP effective tax rate of 25%. Consistent with prior guidance, we continue to expect our 2024 adjusted EBITDA to grow in the low double-digit percentages versus 2023 adjusted EBITDA of $984 million. We expect adjusted EBITDA to grow faster than non-GAAP diluted EPS because of higher interest expense, a higher effective tax rate, and higher depreciation as a result of the strategic investments we have made to execute on our strategic plan. I will conclude my remarks with some comments on 2025. We plan to issue 2025 guidance as usual on our Q4 earnings call this coming February. As you have heard today, we expect modest improvement in the dental and medical markets next year, and we expect to continue to grow faster than the markets, supported by some of our recent investments, new product launches, and focused execution and continued cyber recovery. We are on target to achieve our restructuring goal, and this should help offset headwinds from higher depreciation expense resulting from our global e-commerce platform and additional investments in technology. We expect this e-commerce platform to accelerate growth once fully launched in the United States. With that, I'll now turn the call back to Stanley.

Thank you, Ron. Operator, we're ready to answer any questions that investors may have.

Thank you, Stanley. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove a question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And the first question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks so much for the question. I have this maybe a two-part question. One, can you sort of comment on the overall health of the dental and medical trends as we kind of get through October and into November? And then two, it seems like you have a bunch of one-time items. I think you talked about sort of the generic impact and some other things in medical and the respiratory season. And then in dental, you talked about like DS World pushing some sales into the fourth quarter and some other things. I guess in terms of how we think about the third quarter results versus the guidance, if we have some sort of push outs into the fourth quarter, how do we think of that vis-a-vis the full year guidance on the revenue side coming down a little bit? Is that just conservatism? Are there other trends that we should think about as we think about the fourth quarter? Any comments there would be very helpful. Thank you.

Elizabeth, I'll give you a few thoughts on the current market. And Ronald talked about the guidance. He's been working on that with the team. So the market is pretty stable, we think. There is a shift on the consumable side, at least in the United States, towards... lower-priced alternative brands and our own brands. This doesn't really impact our profitability, but it may impact and does impact sales. We also think the units have gone up in low single digits. So with lower single digits and movement of merchandise units to lower-priced alternative brands, including national brands and own brands, you see a stable to slightly reduction in dollar sales in the dental market in the United States. Our October, having said that, our October merchandise sales trends in our distribution businesses were generally consistent with September of 24. So it's pretty stable. Having said that, October sales growth in implants and biomaterials are strong. Driven by SIN, Biotech Dental, and in Europe, of course, our Camlog business. And we are seeing continuing good adoption of the BioRisons tapered proconical implant in the U.S., So this is all taken into account by Ron as he works with the team on the guidance. And Ron can give you specifics. But I think we can report a pretty stable market. And from our point of view, we are gaining back market share that we lost during the cyber incident, albeit at a slowish rate. But the rate continues in a positive direction. really since the beginning of 24, and it's consecutively improving. Of course, you've got to take into account, for us, glove sales, where there has been a significant reduction in the price of units of gloves, and we think we may be seeing the bottom right now, but we will call that out separately because that's, a business where we don't really control the selling price at all. It's a commodity. So, Ron, maybe you want to give some input on how you've worked on the guidance.

Certainly, Stanley. You know, Elizabeth, we took into consideration a lot of the trends that, you know, that Stanley just articulated in terms of how did we see Q3 ending, how did we see October, you know, Markets are relatively stable. There is a market dynamic out there, perhaps a little bit of a shift to some lower-cost products. With reference to equipment, we did, as we mentioned in the prepared remarks, we do expect perhaps a little bit of a benefit from the timing of DS World in terms of how that will benefit Q4. Having said that, equipment tends to be, you know, Q4 tends to be the most important quarter for equipment. So all those things were taken into consideration, and then ongoing growth that we experienced on the implant side as well for the fourth quarter. So those are all specific factors. On the medical side, we're really closely monitoring what's happening with the timing of the flu season as we did see some softness in the sales of diagnostic kits in the third quarter. And so we've been monitoring some of the information that comes from the CDC and taking that into consideration in our guidance. So those are all things that could impact the fourth quarter as we go forward.

Got it. Thank you.

And the next question comes from the line of Jeff Johnson with Baird. Please proceed with your question.

Thank you. Good morning. Ron, maybe just one clarifying question on what you said about 2025 and then one question on EPS this quarter. But on 2025, you know, you talk about maybe some modest margin of market improvement and expect to gain a bit of share. things like that, the street's sitting at just over four, almost four and a half percent revenue growth next year and 11% EPS growth or nearly 11%. Relative to your comments, those both sound a little bit high. And you don't usually comment, I know, on the third quarter call about 2025, but you did kind of bring it up and open the door a little bit. It just feels like to me maybe were your comments specifically kind of asking us to sharpen our pencils and maybe bring those two sets of numbers down a little bit for next year? Thanks.

Certainly, Jeff. Well, as you stated, we haven't provided 2025 guidance yet. We are looking at both what's happening in terms of market trends as well as on our own recovery and gains in market share. And so those are factors that will be taken into consideration when we provide that guidance in February of next year. Beyond that, a lot of this is just what kind of momentum can we take from Q3 into Q4 and sustain from Q4 into 2025. So we just need to kind of see how the balance of the year plays out and all that will be taken into consideration in the 2025 guide.

All right. And then just on third quarter ETS itself, you had the 11-cent remeasurement gain in there. Obviously, you had kind of a 10-cent remeasurement gain in 2Q last year. I think the net in 2Q last year was closer to a 5 cent benefit because you also had some of the SIN and biotech kind of higher than normal acquisition costs you called out in that second quarter last year for kind of a netting that to a 5 cent benefit. But if I adjust for both those factors, both the remeasurement this quarter, the net of those factors in 2Q last year, You know, your first half EPS this year was down about 5%, and with your core consumables in both medical and dental down 4% to 5%, I think that makes sense. This quarter, if I take the 11 cent out, and there wasn't really anything in 3Q last year, I don't believe your EPS would have been down closer to mid-teens year over year. So where was that extra 10 points, if you will, of adjusted basis fall off in earnings growth this quarter versus the first half of the year? That's the one hole I can't plug. Thanks. Thanks.

I think it's the ongoing recovery of market share in our distribution businesses more than anything else, Jeff. We're pleased with the – there's some pockets of very positive news in terms of what we're seeing on equipment, what we're seeing in implants, but I think the ongoing recovery and distribution would be the primary contributor to that gap that you've identified.

And the next question comes from the line of Kevin Caliendo with UBS. Please proceed with your question.

Thanks. Thanks. I appreciate you getting me in. Ron, this is sort of a math question here, but how do we think about the restructure savings, the $75 to $100 million by the end of 2025, relative in size and scope to the higher depreciation costs? Does one offset the other? And I guess my point is, if we think about those two factors, other than mix, with revenues growing sort of above market next year, is there any reason beyond the restructuring costs versus the depreciation that margins shouldn't improve next year?

Well, we would expect margins to improve. I mean, obviously, the increase in depreciation expense would put some pressure on that. But I do believe... the benefits that we gain in lower OPEX from the restructuring actions we are taking, that we've already taken in the third quarter, that we're taking now in the fourth quarter, and that we'll continue to take throughout 25, will more than offset the increase in depreciation expense. So we should see some benefit, you know, to operating margin as a result of that. Key to that, obviously, is growth in revenues. especially in the distribution business, given the fixed cost nature of that operating base. So if we can achieve ongoing market recovery and distribution, be successful in executing on our restructuring initiatives, we should be able to see some operating margin expansion in 2025. But we need to see what kind of momentum we have we can complete this year before we can commit to that.

And just a quick follow-up. So thinking about the share that was recaptured in 3Q, the magnitude of that, and how it's progressing in 4Q, is it fair to assume that based on where you are now that you still expect to have a tailwind in consumables or share from lapping lower share in the first half of next year? Like, are you at that point where you feel comfortable that at least for the first half, knowing where you are now, that there will be a benefit? Or is that still relatively insignificant?

Well, you know, yes, by definition, you know, like we've said, we believe that sequentially this year we have picked up some market share as we recover from the cyber incident from Q1 into Q2 into Q3. And so we do expect that our existing market share when we go into 2025 will on the distribution side will be higher than when we went into 2024. Now, as we have stated in previous calls, that pace of recovery has been lighter than we originally expected. So we're still working on what we believe that incremental market share will be as we think through the 25 results. But yes, by definition, one would expect that market share to be slightly higher.

And the next question comes from the line of John Block with People. Please proceed with your question.

John Block Thanks, guys, and good morning. Stanley, everyone, maybe I'll just start, you know, pretty big picture. I think in the comments you said next year you expect the dental and medical markets to get a bit better, and then, you know, you think you'll take share off that improvement. You know, the improvement in the end markets, I'd say, has proven to be somewhat elusive over the past handful of quarters. Maybe you guys can just talk to your conviction there. What are the drivers? Is it a lower interest rate environment that leads to the improvement, notably on equipment? Is it consumer confidence? Is it lower financing on higher ASP procedures? What's really driving your improvement outlook, if you would, and do you expect it to be more acute in either dental and or medical? Thanks.

Yeah, John, that's an extremely good question. So let's deal with the easier parts. And the easier parts are dental equipment sales in the United States. I think there is a deep interest in practitioners investing in their practices. They're quite busy. In fact, Ron was telling me he's having a problem getting an appointment with his dentist locally. The dentists are busy. and they're feeling good about their practices, and they do know that if they invest in digital technology, they will do better. So the whole area of the clinical workflow, digital devices, tying that into the software, electronic medical record, all of that is moving in a very good direction. Obviously, it's lumpy. This quarter, we had the situation of one of our biggest suppliers of scanners having a show slightly different time to last year. So this is a good market, yes. If interest rates come down 100 basis points or more, I think that could move the needle. 200 basis points, even better. But there's a conviction to invest. In the units, it seems like on the consumable side, units are positive. But there is this movement towards shopping for lower-priced branded products. And if you can get the same product or similar product, you'll move to a lower-priced product. It does impact our margins a little bit, but that's balanced by a movement towards our own brand products, which sell at a higher price. I think the implant market has stabilized, at least from our point of view. The higher end is still challenged, but I think from the market that we participate in, which is the value implant side, I think the market is reasonably stable to leaning positively. The outlook in Europe is a little bit better now than it was even a year or so ago, maybe two years ago with the instability with Ukraine, etc. I think that's sort of calmed down a little bit or at least bottomed out. So Europe is leaning towards a positive outlook. The rest of the world, Australia, New Zealand, for us, Brazil, it went down quite a bit, but it's also relatively positive compared to the bottom. So I think, you know, it's hard to tell exactly, particularly where the election ends up and how people feel. But I think we've bottomed out to slightly positive on both the consumable side and and on the equipment side with a leaning towards positive on the equipment side. And from our point of view, I think we will continue to do okay with implants, endodontics, and a very small orthodontic business that will start, I think, providing positive growth once we've moved our Smiler brand globally. And so... Just a small aside, on the medical side, at the margin, we're doing okay. But it's very much dependent on two factors. One is flu seasons, when they, you know, do they move from one way one year, one way another year. And, of course, generics in the area are particularly injectables. And then you've got to take into account the price of gloves either way, but factor that out. And I think this will give you more or less a good view of our view of the market. Practitioners are investing in software. We are doing okay on the software side, pretty good, but we've moved from on-prem sale to SaaS subscription, and that has to be taken into account. So that's sort of an overview of the various markets that we participate in. Home care is doing well from our point of view. I think in general it's doing well. And the orthopedic business for us, the new one, is also leading quite nicely because there is a reasonable amount of movement to ambulatory surgical centers, which is where we're doing well.

Okay, great. That was very helpful, Stanley. Thanks for that. And then maybe just a quicker follow-up. You know, implants, impressive North American performance, pretty clear you're taking share. But it's hard to believe that that would all be from the tapered pro conical alone, you know, recent introduction. So any more details on the contribution from that offering? And maybe more importantly, is it the conical having, you know, call it sort of a halo effect on the overall implant portfolio? Thanks, guys.

Yes, I think it's also a good question. I think our salespeople are feeling confident that the work they've done over the last two, three years Talking to customers about our exciting offering now turns into a reality. And we are seeing customers that are interested in our product, which is a reasonably priced product, high quality, supported by very good KOLs, and now an expanded market opportunity for us. All of that adds up well. And we're talking about the United States. As it relates to Europe, we continue to do very well, particularly in our big market, Germany. likewise in Brazil and France. Then you can have a couple of hundred basis point movement one way or another due to export sales. But generally, the fundamental state of our business in the United States is very, very solid when it comes to buy horizons and is gaining momentum as a result of the work that the team has done over the last couple of years. And I would think that the appreciation of our product line by DSOs has also helped very nicely. And Europe, Germany in particular, where we have the big market share, we tend to continue to pick up a little bit of market share each quarter. And then the rest of the world, as I said, it's very much – it's not that material, but it could move market share one quarter or another depending on – and depending on how we do in markets like Japan, we do not participate much in Germany, although we have some sales with a very low-end price-wise, high-quality product, and then, of course, Brazil and France.

And the next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Hey, good morning. Thanks for taking the questions. Maybe I want to unpack a bit more from some of the prior questions, just some follow-ups here. Maybe if you wouldn't mind first bifurcating some of the assumptions around the growth performance expectations for 2025. If the market next year is showing modest growth, is it right to think this is mostly volume and pricing is flat? Or would you characterize the pricing environment as slightly positive or negative as you're seeing manufacturer schedules roll out here for 2025. And then if you also wouldn't mind just commenting on how you see specialty and non-specialty parts of the market fitting into your overarching comments on the dental market, that'd be great.

So Jason, as a distributor, if we move more towards manufacturers that want to compete a little bit more aggressively, and that tends to be the second-tier manufacturers, and there's a movement towards own brand, it could impact sales a little bit, all things being equal, but our profits are solid. So we can't tell exactly on the consumable side, but I would imagine that, particularly with some of the larger accounts, our suppliers will want to be competitive. As it relates to equipment, specifically in Europe, there is a movement towards high quality, lower priced equipment units. And that has resulted in good sales for us. Margins are not bad. And I think the manufacturers will, all of them really in the end, will understand that there has been consumer resistance as a result of the increase in pricing in the post-COVID period. So I think From our point of view, the profitability point of view, I think we're okay. Obviously, on the distribution side, regaining customers as a result of the cyber incident is going to continue to be important, and we have repositioned our sales force accordingly. Our sales team was very much engaged until a few months ago in making sure that the customers that were impacted by the cyber incident are okay and safely embedded within Reshine. Now, these smaller periodic customers, we did not spend a lot of time with those customers. Our salespeople are focused on that. Our telesales team has been reorganized to focus on that. More resource put into these smaller accounts that we seem to have had challenges, we did have challenges with. in the post-cyber incident, and that's a focus. And then our website, which was down, had some challenges in regaining customers. I think we've got a lot of very good e-commerce activity going on there, social media type stuff, and we are recovering. So I think those items are very much going to impact us, and we see more or less a continued stable market with us driving growth. our sales in the areas that I've mentioned, and of course, focused on high growth, high margin businesses that now account for just over 40% of our operating income and another 10 or so percent from our corporate brand, private brand product offering. So it's about half the business that we have to make sure that we continue to grow.

Okay. Thanks, Ben. And then just as a follow-up, Ron, um, You mentioned in the prepared remarks press release having already influenced cost savings of $50 million. Can you give maybe a bit more detail on just where you're seeing these cost savings, maybe outside of the orthodontic business you referenced during your prepared remarks, some of the consolidation or cost efforts on, I think, the endodontic business that you fully acquired? Are there other revenue impacts or disruptions we need to think about as we look ahead to 2025 beyond just orthodontics?

No, I would say that we obviously proceed carefully such that the reductions we make minimize or have very little effect, if any, on revenues. We have, given the decline in distribution revenues, some of the restructuring initiatives have been in the distribution businesses. We have not had quite the revenue growth as originally expected in some of the technology areas. We did do some cost reductions there, but I do think that we are able to continue to invest in new products, and we're bullish on 25, that we can go into 25 lean and with an opportunity to reinvest in those businesses as necessary. So that would be part of that. I think in terms of other things we're looking at for 25, As we said back on our investor day, we expect dental markets to be growing on normal, say, in a 2% to 4% range. That 2% next year is probably a closer barometer than 4%. But there's a lot of things that can influence this. Stanley mentioned earlier that lower interest rates could encourage more investment. We could see more de novos. An expansion of the supply of dentistry would be very beneficial for us. So if we can see some some increased investment in the build-out of practices, we think that would be something that would influence the number more than anything else in 25.

And the next question comes from the line of John Stanzel with JPMorgan Chase. Please proceed with your question.

Great. Thanks for taking my question. Just want to get a sense of intra-quarter trends within medical and Beyond that, how you're seeing your different end markets, you know, the ASDs, doctor's offices, IDNs, you know, how they're behaving both from customer and competitor perspective, what you're seeing just generally in the competitive balance for medical right now.

Yeah. So if you look at the medical market for Henry Schein, you put aside the ups and downs of the flu season, whether it's... Vaccines, COVID and general flu vaccine, those may shift up or down slightly and from one quarter to another. And you X out the impact of respiratory challenges. Are people worried about that? Are they going to the doctor more or less? You take that out. The business is pretty stable. We are recovering from the cyber incident. We did lose some customers. specifically lost some to drug wholesalers. And I think the customers in our sector understand that we provide a very different service and they're coming back. So that's the core distribution business, which I think will, if you X out these respiratory and flu challenges and you take out the glove ups and downs, it's a pretty stable business with us growing more market share as a result of the recovery. Then you add to that, not material in terms of sales, the progress we're making on the orthopedic side, which is pretty good. That business is doing well, both the recent acquisition of the extremities product offering and our saws and blades business. Not so much in sales, but in profits, it's very good. The home care business is doing well. You're not seeing local currency growth yet. I think that analyzes, Ron? In the middle of the fourth quarter, yes. Middle of the fourth quarter. So that's pretty good. And the movement to ASCs is pretty good. There was some encouraging news. We just got that reimbursement for foot and ankle procedures undertaken in the ASC is going to be going up. And I think... The medical business is a very efficient business, a great sales organization, extremely well-managed. And I think you can expect continued momentum and decent margin improvements. Can't give you the exact quarter where all this is going to happen, but the trend is very good and the business is quite stable. We still have to get back some of that pharmaceutical distribution that went to the drug wholesalers, but I think our team will get that back because our service is very unique.

Great. And then just one quick one. On the technology business, or, well, I guess value-added services in particular here, called out that the difference between LCI and reported revenue is more, I want to say, cosmetic in a way, that it's better to look at the reported revenue side Can you just kind of walk through the dynamic that is playing out there and why the headwind from, I think, value-added services is causing a problem here?

Yeah, I'll try to give you as concise of an explanation on that as I can. The transaction we did last year of LPS was completed effectively the July 31st to August 1st. So we had one month of acquisition time. activity or acquisition growth from LPS versus two months of internal growth from LPS. And they had a very good July. So the revenues in that month are a factor in our acquisition growth as opposed to our internal growth. So had we spread those revenues out over the course of the quarter, we think that the total sales growth would be more reflective of what we expect of that segment going forward. But the nature of that business is it can be very lumpy. It's not a recurring customer base. It's a series of transactions, and the timing of those transactions can make for some unusual math. But now that that transaction has annualized, it will be part of our internal sales growth going forward.

And, Ron, thank you. And you need to also ensure that you've taken into account the movement from on-prem sales to the SAAS model, where it's a monthly subscription. But the units are doing quite well in our cloud-based system, both in the United States, which is our big market, and our international business. So the business is quite good, and it's growing.

And the next question comes from the line of Brandon Vasquez with William Blair. Please proceed with your question.

Hey, everyone. Thanks for taking the question. Since we're bumping at the end here, I'll throw two up together. The first one is, Ben, you had made some comments about some dental manufacturers wanting to – I think the phrase you were using is compete a little bit more, maybe that trend impacting you guys going into 25. Just curious if you could elaborate on that. I'm not sure – Is that new or is that something that you guys have always dealt with? So just any comments around that. And the second follow-up question is just any color you can give us on specifically what's happening within the restructuring in that clear aligner business. That would be helpful too.

Thanks. We've been mentioning in our calls now, I can't remember, three or four quarters now, that consumers are of dental products, and I guess consumers in general, are looking at quality of the product versus price, the value, and if they can see a better value in something else rather than necessarily a national brand, they're going to go in that direction. That has been, of course, a driver in our own brands. Now, not every large manufacturer is ignoring this trend. Many are dealing with it. But there are some that took their prices up quite high, and there's been price resistance. We've said this for a while. And not only in the consumables, but on the equipment side, specifically on the equipment side in Europe. So I think this is going to adjust itself. We certainly have mentioned this to our manufacturing partners. They understand this. And remember, we are committed to national brands, but we need to ensure that the national brands we represent are competitive in the eyes of our customers. I think this will adjust. I don't think this trend will go on for a long time, but it certainly magnified this quarter and actually the last couple of quarters. Ron, on restructuring?

Yeah, certainly. With reference to the orthodontics question, yeah, so we are transitioning our clear line of products in the U.S. and the European markets from Reveal to to Smilers, and we're doing that over a period of time. We also saw it as an opportunity to, as opposed to our orthodontics business, quite frankly, we just weren't getting to a scale with that business that justified the infrastructure we had there. And so we're able to leverage our existing distribution infrastructure more so and reduce some operating costs within that business as we transition. At the end of the day, when you bump up and reveal to Smilers, we saw Smilers as a better product. Given the size of the business, it likely didn't make sense for us to have the two brands. We are transitioning to Smilers as a result.

It could take a couple of quarters to smooth this out. The Reveal product is a very good product, but the Smilers brand has additional software with Anemotex backing it up, and wherever we've tested it, it seems to have gone quite well. It has gone well. So, Operator, I think we're near the end. I want to thank everybody again. We do have one more. Oh, we have one more question? Sorry, sorry, sorry.

No problem. We have time for one last question coming from the line of Mike Petusky with Barrington Research. Please proceed with your question.

Hey, good morning. Thanks for squeezing me in. Understanding this is not a hall where you're talking about 25 a lot, but I'm just curious if 25 in terms of capital allocation will, you know, in terms of what you think now, I mean, is that going to look more like 24 in terms of M&A, share repurchase, internal investment, sort of the relative ways you guys sort of made decisions around those, or could that look more like the 22-23 timeframe where external investment was a little bit heavier? Thanks.

Yeah, Mike, my expectation is it'll be more in line with the historical run rate that you saw kind of going into that 22-23 period, which is Typically, share repurchases have been in that $300 million to $400 million range. M&A was in that $300 million to $400 million range. There also could be some opportunity, as we've been very pleased with the positive cash flow, that we may be able to pay down debt a little faster, depending on where we think we get really the best accretion for that capital outlay. But I would expect it to be more in line with those historical trends. Having said that, As you know, we remain with an opportunistic approach on M&A, and if the right type of transaction becomes available to us that we think is fundamental to our strategy and to growth of the business, it was something that we would not exclude the notion of doing that transaction.

Okay, great. And a quick follow-up, just in terms of potential M&A, whether it's in 25 or beyond, you guys have made some positive comments about home solutions and Obviously, you've built that business up, but I know you want to scale it further. Can you just talk about where assets in the home solutions space would sort of rank in terms of M&A priorities? Thanks.

Yes, that is an area that we expect to continue investing in. I don't think we need to make huge investments, but we need to make investments that expand our offering nationally in the United States, give us access to contracts But I don't think this is a need to spend a huge amount of money. It's rather an opportunity to add to our platform and fill it out in areas where we don't necessarily have the delivery capabilities, although we are going to leverage the Henry Schein infrastructure for delivery in certain parts of the country, but also accessing certain insurance contracts that may enable us to position a faster growth rate. We've put in place an outstanding team in this area through the acquisitions and through recruiting that we've undertaken the last couple of years. And this business, both the demographics and the fundamentals, the operations of the business are very, very sound and we're very excited about. So we thank you for calling. We're five minutes over. Sorry about that. As you can tell, we feel very good about the business. We're performing quite well throughout the business. We believe that we will continue to steadily gain back our market share in the distribution businesses, the ones that were challenged by the cyber incident. We believe that our high-growth, high-margin products and services businesses are all going in the right direction. Of course, there's the small pedantic businesses We're restructuring, but if you take that out, the implants and the bone regeneration, endodontic businesses are positive. The ingredients in our value-added service businesses are all working in a nice direction and should result in stickiness with our core customers. And we are... sunsetting our 2022 to 2024 strategic plan. If you X out the cyber incident, I think we've done pretty good on delivering on our plans, ideas, tactics. And we will discuss on the next call our 2025 to 2027 strategic plan. We don't expect to change anything in a significant way, but to emphasize certain areas that we think are an opportunity, and we'll articulate that to you. And capital deployment is, as Ron said, expected to be very similar to this year. We never know. There may be an opportunity. And the cash flow we'll use to invest, as in the historical past, in some acquisitions, buying back, buying some minority interest in our current... portfolio of investments, and, of course, buying back stock. We have over $300 million still to spend in that area. So with that in mind, I wish everybody a good and safe holiday season, and we'll be back early next year and remain quite optimistic. The team is working extremely well. The restructuring has been fantastic. understood by the team very well, and nothing that we haven't done in the past. We treat our people very well, and that's appreciated. So thank you all for your interest, and that's it. Ray and Ron, Susan, thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.