Q1 2020 Earnings Call

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Ladies and gentlemen, this is the operator today's conference call is scheduled to begin momentarily until that time your lines will again be placed dummies a cold. Thank you for your patience.

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Okay.

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Good morning, ladies and gentlemen, and welcome to the Henry Schein first quarter 2020 conference call.

At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the call. Please press the star Keith.

[laughter] follow.

By the zero can you touched on fell again stars year olds, operator assistance as a reminder, this call is being recorded I'd now like to introduce your host for today's conference Carolynne borders Henry Scheins, Vice President of Investor Relations. Please go ahead Carolyn.

Thank you very much Holly and my thanks to each of you for joining us to discuss Henry Scheins results for the first quarter Twentytwenty with me on the call today, our Stanley Bergman Chairman of the Board and Chief Executive Officer of Henry Schein, and Steven Paladino, Executive Vice President and Chief Financial Officer.

Before we begin I would like to state that certain comments made during this call will include information that is 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 forward looking statements.

These forward looking statements are qualified in their entirety by the cautionary statements contained in Henry Scheins filings with the Securities and Exchange Commission, including in the risk factor section of such 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 analysis and estimates.

Conference call 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 and able to 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.

These reconciliations can be found in the supplemental information section of our Investor Relations website and in exhibit B of today's press release, which is available in the Investor Relations section of our web site.

The content of this conference call contains time sensitive information that is accurate only as of the date of the like broadcast May Fiveth Twentytwenty, Henry Schein undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this call.

Please limit yourself to a single question and a follow up during Q and eight to allow as many Pos and excuse me as many listeners as possible to ask a question.

That said I would like to turn the call over to Stanley Bergman.

Good morning, Thank you Terry.

Thank you everyone for joining us as we gather on the screen today.

To discuss Henry Scheins.

First quarter 2020 results Weve faced an unprecedented public so.

An economic crisis from the Cobot 19 pandemic.

It was only a few months ago wouldn't be less spoke with investments during the yen.

Cool and of course at the Chicago Dental Society Midwinter meeting.

Yes, so much has changed during that time.

Over the last several weeks our leadership team.

Bob Board of directors.

Has had to make some very difficult decisions.

Companies has been to focus on three key priorities.

The fixing that health and welfare about team Schein members.

And the well being of the team Sean.

Please.

[laughter] <unk> business continuity customers and all suppliers.

And suits that any financial health of the business in the midst of this uncertain.

Macro economic landscape and of course positioning the company.

The future.

Beginning in mid March most of Henry Scheins dental customers worldwide began to suspend operations.

Except for emergency procedures.

Dental sales would approximately 65% of Henry Scheins total so last year the a 2019.

Well these closures head and of course continue to have a meaningful impact on our business.

Oh medical business, which sells physician office.

Your kids senses ambulatory care sites.

Midgets Zee medical pigs <unk>.

Dialysis centers.

Large enterprises, such as group practices and ideas integrated delivery networks amongst other providers represents.

Approximately 30% about total sales in 2019.

As a public virus spread many physician offices limit the patient flow due to social distancing guidelines.

And today, we moved into the second quota.

As we moved into the second quarter individuals decreasing we saw pretty good in hospital settings or interacted with physicians online.

Through Tele Medicine for example, and ambulatory care centers many of them were converted into cobot 19 treatment units.

In the United States for it can dental associations guidance recommending that U.S. dental practitioners dispensing patients for elective procedures and that was of course issued on March 16, 2020, we've guided by the federal Emergency Management agency FEMA to direct critical.

Personnel products, <unk>, Jude medical health care professionals and institutions and specifically to the hot spots.

And our medical business P. P. Throughout the quota was of course in high demand.

As coated rapidly gaining momentum we worked with our suppliers to expand availability.

And to prioritize the delivery of critical P.B. and also brought to market rapid test solutions.

For health care professionals.

[laughter] Henry Schein, one dental software business lower sales associated with reduced trends actual services.

And fuel patient visits.

Were partially offset by dental practices, leveraging our software communications tools to stay connected with their patients.

Oh medical and technology value added services businesses, both performed better than our dental business in the first quarter.

In the face of revenue headwinds.

We have taken swift and decisive actions to preserve cash.

Cash is really important for us now, but more important positioning ourselves for the future.

Including reducing our cost structure.

The best position Henry Schein through this crisis.

And of course beyond.

To ensure that we remain well positioned to face any ongoing business challenge.

And of course for the future.

The difficult decisions, we have had to make make.

To reduce costs have impacted all team schein members across the company well 90000.

We of course have not made these decisions lightly.

Team Schein is our company's number one assets.

And a critical constituent you know they have success the constituents that make up Henry Schein mosaic of success.

Close team Schein as number one on that list.

Along with our customers suppliers vistas and society.

Keep in mind that we continue to assist our cost reduction plans.

In a depth as required we will do this in a very agile away.

In an effort to preserve cash we reduced or eliminated all nonessential capital expenditure and in early March we temporarily suspended our acquisition activity and share repurchase program.

Well, we have provided intense focus on managing the impact of Cobot night, you know not business.

We simultaneously view the critical responsibility we had.

To help guide our customers through this extremely challenging time and our customers are really facing bridge that into challenges.

As most about dental and medical practices began to suspend operation we focused on helping our customers build a roadmap.

To navigate through this.

Disruptions to their practices.

We are close working closely with our customers to system isn't constant business continuity planning what today the keys to keep our customers economically afloat, so that when patients go back to the practices they already.

And it's sort of in anticipation of all of this.

Ensuring that our patient <unk> parents are customers practices are ready.

When patients start returning.

Let me take this opportunity to often my sincere thanks to ATSI.

For the valley work and support Judy it's extremely difficult time and offer my deep gratitude for the second feis as a team are making.

Most of working from home and the systems are working and there's a huge number working in our Dcs in a distribution centers.

And these distribution centers are functioning as normal many many orders.

Very frequently small orders for P. P E that frequently reordered because of availability and the stuff comes in and goes out.

At this time I like to hand, the call over to Stephen to discuss our financial performance and then I'll provide some additional commentary on our view about kind of business conditions Stephen Please.

Okay. Thank you Stanley and good morning to oil.

As we begin I'd like to point out that I will be discussing our results from continuing operations as reported on a GAAP basis and also on a non-GAAP basis.

Our Q1, 2020, and Q1 2019 non-GAAP results exclude certain items that are detailed in exhibit B today's press release and in the summer supplemental information section of our Investor Relations website.

Please note that we have again included a corporate sales category for Q1 that refuse themselves to called baskets under the terms a transitional services agreements.

That's family mentioned, our 2021st quarter results were negatively impacted by Cobot 19.

Well, it's difficult to quantify the precise impact we saw a negative effects of the vivus beginning in March, particularly as global dental practices began to suspend operations.

In response to the Cobot 19 pandemic, we have implemented a broad based cost reduction initiatives, including having implemented a payroll cost reduction plan centered around furloughs reduced work hours voluntary unpaid time, all suspension of I'll call, one k. match and certain job.

Options.

As we proceed throughout the year, we will be closely monitoring the health of our business, we're prepared to take additional cost saving measures as wants it.

Before I walk through our financial performance for Q1, I would like to note that we recorded a noncash asset impairment charge of approximately $6.1 million pretax related to certain pre paid us it's an intangible assets.

We do not expect begin Pamela have any future impact on our business operations or liquidity for cash flow from operating activities or any compliance with that cousins.

So turning now to our financial results net sales for the quarter ended March 28, 2020, $2.4 billion, reflecting a 2.9% increase compared with the first quarter were 29 team.

Internally generated sales growth in local currencies of 2.1%.

Corporate 19 negatively impacted our worldwide sales growth as many dental and medical practices have closed or seeing a limited number of patients.

Dental office closures occurred on somewhat of a rolling basis, beginning in the mid mid quarter first in China, then in Europe, and then the U.S.

The details about sales Brooklyn contains an exhibit a <unk> earnings press release that was issued this morning.

On a GAAP basis operating margin for the first quarter of 20, 27.3% represents a decrease of 15 basis points compared with the first quarter will 20 might see.

On a non-GAAP basis, our operating margin of 7.4% also contract by 15 basis points on a year over year basis.

A reconciliation of GAAP operating margin to non-GAAP operating margin can be found in the supplemental information page on the investor relation pays about website.

This margin contraction in the quarter was primarily.

Due to a reduction in global dental sales that began in march or due to the impact of cold at my team as well as the $6.1 million pretax noncash impairment charge.

We look at our taxes I reported GAAP effective tax rate for the first quarter of 20 point was 22.4%. This compares with 24.6% GAAP effective tax rate for the first quarter of 29 team.

On a non-GAAP basis, our effective tax rate was 22.5%. This compares with the prior year non-GAAP effective tax rate of 25, Werent walk and so again you can see the supplemental information page on our Investor Relations website for a reconciliation of GAAP to non-GAAP taxes.

Our GAAP net income from continuing operations attributable to Henry Schein Inc. for the first quarter of 2020 was $130.5 million or 91 cents per diluted share and this compares with probably a GAAP net income from continuing operations of $118.4 million or 78 cents per diluted.

Yeah.

Non-GAAP net income from continuing operations for the first quarter were 2020 was $134.1 million or 94 cents per diluted share. This compares with non-GAAP net income from continuing operations, a $120.6 million or 80 cents per diluted share for the first quarter of 29.

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This represents growth of 11.3% and 17.5% respectively.

Providing some detail on our results.

Due to the current economic environments with cold at 19, we recorded an incremental bad debt reserve Apollo global dental business of approximately $10 million pretax for the quarter or about 20% of the existing reserve balance.

This $10 million is an estimate based on how quickly dental offices reopened and how quickly patients return to those practices is therefore subject to ongoing analysis and adjustments.

We also recorded a net credit in the quarter two out of stock based compensation of $17.5 million pretax, reflecting our current expectation that none of our performance. They show as well that's due to the impact of cold at 19 on our earnings results.

As referenced earlier net income was also impacted by 6.1 million bowels of noncash impairment charges.

On a continuing operations basis amortization from acquired intangible assets from Q1, 2020 was $26.8 million pretax or 14 cents per diluted share.

This compares with $21.8 million pretax or 11 cents per diluted share in the same period last year.

I will also note in Q1 to 2020 foreign currency exchange negatively impacted our diluted EPS by approximately one cents per share.

I'll now provide some detail on ourselves results for the first quarter.

Dental sales of $1.5 billion declined 4.6% compared with the prior year.

With a decline in internal sales in local currencies a 3.7%.

North American dental sales were relatively in line with our expect our expectations in both January and February. However in March this growth was negatively impacted by significant practice closures in U.S. and virtually all the markets we serve worldwide.

North American internal sales in local currencies, the quite declined 3.9%.

Including a decline of 4.2% in sales of dental consumable merchandise.

Climb up 2.7% in dental equipment.

In Q1, North American internal sales in local currencies for high Tech equipment increased approximately 4.7%, including growth in CAD Cam equipment of approximately 14.5% and strong laser sales.

This was offset by a decline in traditional equipment of 5.8% and a decrease in digital imaging sales of 7.6%, which includes high tech samples.

Panoramic X rays and Threed imaging.

International dental.

Internal sales in local currencies declined 3.4% and included a 4% decline and south of dental consumable merchandise and a 1.2% decline in dental equipment.

Sales in Germany, and to a lesser extent, Australia, and Brazil will not have significantly affected by covert 19, compared with Oh, the international geographies that we serve.

In fact, these currencies experienced positive total dental internal sales growth in local currencies specific to Germany, a largest dental market in Europe consumable merchandise internal sales in local currency, it's experienced a 2.1% sales decline however, dental equipment sales increased by 13.8%.

Turning to dental specialty products in Q1 internal sales of global dental specialty products decreased 6.4% in local currencies.

Dental specialty sales was significantly impacted in the last month of the quarter as dental practices began to close.

Dental specialty sales are still a relatively small portion of our total double sales, but they have higher margins. We do believe this category had solid growth potential over the longer term.

Looking at our medical sales they were $800.7 million for the first quarter, an increase of 17.1% with internally generated sales in local currencies growing 13.4%.

The 13.4% internal growth in local currencies included 13.6% growth in North America, and 9% growth internationally.

Medical sales results were driven by solid all granite organic growth earlier in the quarter.

Our medical sales will also in line with our expectations in January and February and followed by a significant increase in oil orders in March for P. P E.

Economic conditions have had less of an impact on our medical book versus Dane dental mainly due to consider continued strong sales of PPD.

While certain SK use of P.P.E. remained tight supply such as masks gallons and facials, we're working with us supplies to source these products to satisfy demand plus replenish our inventory as quickly as possible.

Turning to two technology and value added services sales.

Those sales from continuing operations were $132.0 million and the first quarter, an increase of 14.2% with internally generated sales both in local currencies of 6.4%.

This growth was negatively impacted by cobot 19 later in the quarter.

In North America technology and value added services sales.

Internal sales growth in local currencies was 6.3%.

Sales with solid through mid March mid March when we started to see declines related to patient traffic.

Our North American financial services business in Q1 was relatively flat versus the prior year, mainly due to lower dental equipment sales and the financing thereof towards towards the end of the core.

We expect certain Henry Schein, one products to see a more significant adverse impact to our technology and value added services from Cobot 19 in Q2, best specifically related to transit transactional portion of the business within Henry Schein one.

Internationally technology and value added services internal sales increased by 6.8% local currencies during the quarter.

These sales were driven by positive trends in recurring revenue associated with our practice management patient engagement and patient demand creation software solutions as well as strong financial services revenue led by practice practice brokerage transactions in the UK.

In early March we temporarily suspended our share repurchase program program as a means.

Means to preserve cash in response to the impact of Kogas 19 on our business operations. Prior to this we repurchased 1.2 million shares of our common stock during the first quarter at an average price of $61 important nine cents per share or a total of approximately $73.8 million.

The impact of the repurchase of shares on the first quarter 2020 diluted EPS was not material.

As of today, Henry Schein has $201 million authorized for future repurchases of common stock again that Stanley noted we have also temporarily suspended our acquisition activity in early March again to preserve cash.

Let me point out that then Henry Schein has a very strong balance sheet with low debt leverage at the end of the for first quarter, our debt to EBITDA leverage ratio was approximately 1.2 times.

Additionally in April we enhance our liquidity with a new committed credit facility of approximately $700 million, which provides $500 million incremental funding as we let expire certain uncommitted credit facilities.

We now have access to approximately $1.7 billion in liquidity, providing flexibility in this challenging environment.

Our operating cash flow from continuing operations for the quarter was $90.8 million compared with $133.3 million for the first quarter of last year.

Year over year decline was primarily related to a reduction in distribution from equity affiliates over the prior year.

As part of our previously disclosed restructuring initiative, we recorded a pretax charge in Q1, 20, Twond 2020 of $4.8 million or three cents per diluted share. This restructuring charge, primarily included severance pay and facility closing costs.

And we flex opportunities to reduce expenses and drive operating efficiencies.

I will conclude my remarks on the topic of financial guidance you may recall that on February earnings call. You, specifically stated our guidance. The 2020 non-GAAP diluted EPS from continuing ops operations assume no six significant supply chains disruption on the business related to cope.

19.

At the virus proliferated into a worldwide pandemic, we withdrew our guidance for 2020 and as of now we're not providing financial guidance at this time.

So with that let me turn the call back to standpoint.

Thank you.

Steven.

[noise], So let's review our business performance from the first quota.

And recent weeks starting with the dental.

As we discussed North American dental consumable merchandise sales were relatively inline with expectations.

In January and February inside the business was quite good.

But were significantly impacted by U.S. dental office closures during the American dental driven by the American.

Dental associations guidance issued in the middle of much.

Similarly in Canada, most provinces recommended that dental practices suspend operations, except for emergency procedures of course significantly in big affecting sales in the last couple of weeks of March.

Similarly international dental consumable merchandise and equipment internal sales growth was relatively inline with expectations during.

January and February.

However, these sales were significantly impacted in March and a little bit earlier than in the U.S.

Our social distancing with practices close and limiting hours across virtually all of the dental markets Henry Schein serves.

Including China and Europe.

As previously mentioned the exception the exception in Germany.

With practices would not broadly mandated to close for general Dentistry of course, social distancing was important.

But.

Practices will allow to operate.

Using very careful.

Infection control guidelines.

Also sales in Australia, and Brazil experience this severe decline versus other countries since the cobot 19 impact again later than in other regions and government restrictions on practice was would not implemented until late March.

Today, we had begun to see dental clinics.

Today, we have begun to see dental clinics, we opened in China.

However, the rate of practices reopening has been at a gradual pace.

But most of China is back in one way or another but it's a much much lower pace.

The number of patients that practitioners can see is being limited.

The number of people out in the practice limited.

But in other parts of the World, we expect that as stays at home Otis other less.

Dental practices will also begin to resume operations of course, we cannot.

Did the exact timing in each country on each state.

In the United States or province for that matter in Canada.

Overall due to the ongoing impact of cobot 19, while it cannot be calculated with the certainty.

We estimate that the run rate for global dental sales is down somewhere between 70% to 80% year over year.

We only have April to.

Gauge little bit of March and June extrapolate from that is very very difficult, but the range of 70 to 80 potentially on the low end.

Is where we think we are running at this time.

We are working with customers now on programs to this.

Designed to help our customers. During this downturn of course financial options safety is a big big issue emergency services that we provide.

Full service in equipment.

It's some installation going on.

As well as now a focus on reopening services and support for those practices.

Hi that operating on an emergency basis today, we're planning to open.

And the chief.

The cost in that context to ensure that appropriate products are available and the equipment and our customers practices is actually working.

Needs to be checked before.

While patients while emergency patients are being seen and in anticipation of opening a practices.

In particular with our and we.

Well our recovery planner.

Helping customers identified practice management opportunities.

So practices can plan for scheduling adjustments.

Daily procedural improvements and customized solutions to increase production.

He's all things we're doing as practice has resumed clinical operations.

As we look to the future Henry Schein, along with our dental customers and our suppliers.

Phase two unknowns.

He is obvious the first is when will practices fully reopened.

And secondly is when we'll patients for you return.

We can't of course predict either.

But we can help our customers to prepare for both and that is exactly what we're doing.

Were leveraging a number of our long established service offerings as well as some of our new offerings involving third party financing sources in an effort to help practice to sustain the health of their business during the downturn.

On the finance side, the keys to keep these practitioners that is challenged because.

Revenue drying up keep them afloat.

Without Henry Schein, one software solutions, we are hoping conditions stay engaged with the patients.

And implement plans to prospect new patients as practices resume operations.

In the interim well then so seeing patients for emergency.

And also in line with you protocols once practices reopened.

A patient engagement solutions will create virtual waiting rooms for patients to complete forms online text the practice when they arrive for the appointment.

And wait until the dentist is ready to summons the patient.

And to the practice. This is quite an interesting software development that has emerged from Henry Schein one in recent days.

Now, let's move on to our medical business in which a fairly typical January and February.

Unfolded.

Although there were some elements of positive sales as a result for the flu season.

That was funded by the impact night or the impact of covet 19.

We didn't leading to surge in orders in March.

As those customers that will open.

For emergencies on the medical side.

Purchased more P.P.E. and other products.

As well as a servicing some institutions.

As requested by FEMA that we really don't normally service.

The influenza season. This past winter was it's relatively severe.

Which favorably impacted sales of consumable merchandise and seasonal rapid tests.

Whereas typically influenza sales wind down near the end of the calendar year, we saw influenza related product demand continued to be strong.

Into the.

First quarter January and February.

To that.

At this time, we estimate that the run rate for our medical sales is down somewhat between 20 and 30%.

On a year on here.

Basis.

The run rate.

And hard to predict exactly we estimate.

Due to the ongoing impact of course of close at 19.

And yes, we cannot calculates that with certainty.

I agree shine is committed to bringing essential products to the health care professionals.

We're fighting the pandemic our primary focus is those on the front line and the office space practitioner is right on the front line in many instances not only physicians, but dentist who are now.

Right there to help patients and really.

Reducing the number of patients heading into the hospital emergency room.

He is amazing what the office space practitioners dentist and physicians.

Energy centers are doing.

Heroes early in this crisis, we knew that health care professionals needed P. P. E. You spoke about that on our last conference call a year in report when we addressed the issue in March.

And we addressed the notion that they would be a shortage and that we were working on the shortage.

And we knew that healthcare professionals would need the P. P for the safety as well as for the safety of those that treated.

We also have been focused on rapid diagnostic tests more about that later, but we've always been a key player in.

Delivering rapid diagnostic tests to office space.

And related health care practitioners.

We began to will quickly with our suppliers around the will to make these essential products available.

The best of our ability.

Being mindful of two very important elements quality does a lot of products available that doesn't meet the quality test and regulatory compliance a very very complex area regulations throughout the will change rapidly and we want to make sure that were in compliance.

Of course, the priority is.

The quality.

Even if it is we satisfy regulatory standards. It may not be good enough for us from the quality point of view.

So let's talk about ERP.

As part of this work Henry Schein, it's a participant in the White house covered 19 supply chain taskforce.

We have worked with the strategic national stockpile to deliver TP each of the cobot testing sites. The first ones that will open.

We're also working with FEMA to deliver critical supplies to healthcare professionals.

And to institutions.

Often institutions that we do not normally surface the acute care thought.

Henry Schein co founded the pandemic supply chain niche lift in 2015 together with the will help organizations will economic Forum will bank, the U.S. CDC and others to improve the efficiency of worldwide TV supply supplies and to work on the supply chain since its inception.

Five years ago, Henry Schein as soon as the private sector lead for then pandemic supply chain network.

The supply chain for P is under considerable stress.

Which is schools the scarcity of products globally.

Complicating the type global supply chain.

And this is very important for investors to understand is the rapidly changing government restrictions in certain countries and its multiple countries not one multiple countries.

On both the exploded P P.

Any country distribution of P.P. as well as the need to ensure that P. P is pretty good.

From suppliers.

With the regulatory requirement. So there's a lot of shortage of close that's an issue, but there's a lot of regular there's a lot of export restriction.

Issues that emerge and disappeared and the come back and different forms.

Andrew requirements to move product to certain.

Sure restrictions within countries all the while while we are securing product from new supply as we want to ensure the quality is right.

And.

Full compliance with regulatory.

Mandates that very rapidly.

Keep our country.

Needless to say outsourcing team is working on the round the clock.

Round the world around the clock efficiency to kill high quality products for our customers.

We are hopeful that there will be additional supply of pp in the market beginning in late may.

Hope because restrictions on exports could impact that an increasing steadily thereafter, assuming no impact from government restrictions.

<unk> for the second quarter, we expect continued tight supplies to suit de products.

If we are hopeful that we will ease that this will ease in the third quarters quota as our manufacturing supplies continue to be opened.

And accelerate capacity now on tests.

The United States and most nations across the globe face our greatest public health chance in essentially.

For the spirit of Cobot, 19, saving lives and disrupting livelihoods and economies.

In the face of this unimaginable spirit, we must find the most effective strategies to combat the spread of this virus protect human life.

And yes ensured the resilience of economies.

We believe that testing this critical we've always believed that it had been in the testing business for 40 years, providing different forms attests to office space practitioners.

Not only identify illness.

Yes towards prevention, informing treatment and recovery.

Henry Schein as I noted for decades as being a most successful provider of laboratory tests both equipment.

And related agents and yes, a key area being for us point of care rapid diagnostic test for use in physician offices and other healthcare provider sites.

We provide a wide offering of tester customers by partnering with the world's leading diagnostic manufacturers.

Both for the equipment.

For the reagents and yes with the snap tests.

In the United States any any shine recently introduced to rapid points of kids test kits that can detect antibodies associated the cobot 19 in as little as 15 minutes and without the need for machine equipment.

These tests are important because they deliver results quickly at a low cost and can easily be deployed in large quantities widow needed.

Currently the cobot, 19th antibody test offered by Henry Schein are being marketed under an F.D.A. emergency enforcement policy.

They have not be independently reviewed by the FDA.

Under that policy policy, the test may be administered by labs, and health care professionals at locations that CLIA certified as.

Positions as authorized to perform I complexity tests.

So there are limits its sites that can use these test at this moment.

We are in the process of seeking you aim for these products.

And I'm hopeful that we will see that soon and that will expand the number of sites that can use these products.

Health care professionals can utilize these test results.

And this is important.

These tests are not like a pregnancy test they don't say, yes, or no. They don't read yes or no.

They need to be used by health care professionals, along clinical judgment assessment of symptoms.

Previous test to make informed decisions.

Henry Schein believes that public health officials can also use these tests as product part a broader testing to better understand the press the spread of the disease.

The company is working to bring additional tests as well as more fleet TB some market, but it's NPP.

Well, we're also working to address test related shortages in how the capacity.

Such as nasal swaps to test for the kind of at 19.

Since this is the most common means of specimen collection at this moment is a shortage of swabs.

As a result, a surgical that's one of our subsidiaries is currently working with one of our dental suppliers to produce threed printed nasal slobs in volume.

Using how sterilization and packaging services to support current fiber swab shortages in order to meet virus testing needs.

He is our though that our customers in dental practices employees are ready willing position to treat patients when the practices are once again able to opened their doors.

Their office requirements in place for just the.

Protocols.

There are multiple ways of addressing these protocols, it's not going to be easy we will not have unlimited amounts to supplies.

We are working to ensure that our customers have product available when they.

In the duals.

Yes in limited quantities and but at the same time quality products.

In compliance with regulatory.

Means.

Let's move to our technology value added services businesses.

Much like our dental and medical businesses months of January and February with consistent with positive quarterly patents.

In our technology and value added services businesses, particularly for Henry Schein, one practice management patient engagement patient demand creation dental stuff with solutions well three of those.

Yes, when the offices began to close in the United States in mid March.

The impact of covered 19 began to materially impact sales in these categories as well as new system installations.

Our dental plans dot com business.

And financial services businesses, all started feeling the impact in March.

As I mentioned when discussing our dental operations, we are actively working with practices.

Promote tools for patient engagement at this critical time as Texas has recognized the commuting communicating patients has never been more important.

And we spend a lot of time encouraging Dennis to remain in communication with the patients dental practices are using our patient communication and engagement solutions to inform patients when the practices are getting to be open advises the safety measures implemented to protect patients and could you schedule appointments are practice.

And more quickly returned to normal operations.

Examples of these tools into patient in mind as two way texting patient portals rescheduling virtual waiting rooms for emergency check in marketing email campaigns and online.

We believe that no. Other company is the breadth of suffer services offerings that Henry Schein lives under one umbrella.

We estimate that the run rate for out technology and value added services sales is down again hard to tell the exact number approximately 30% to 40% year over year on a global basis.

In addition to managing our supply chain for the products that are still needed at this time during practice downtime October 19 education centers opening symposiums web sites, we have an AWS and women, who asked the advice customers on managing business operation staffing approximately.

Areas related to staffing and preparing for future bookings developing financial resource plan for practices and much much more.

So before we take questions I'd like to reiterate that team schein members across our businesses are committed to supporting our customers as they navigate through this crisis.

And really already to help our customers.

At a moment's notice we opened the doors when it is appropriate and ensuring that the supplies needed of it.

Again, I like to express my deep gratitude to our team Collins seem shine, we have so quickly and confidently risen.

To the challenge many team Schein members have had the compensation reduced infat practically everyone. In the company has had compensation impacted in one way or another if the commitment across our whole because the station is palpable it's quite amazing.

The work that is being done each day is unbelievable gives me a huge confidence in the future.

I mean, all we now see the work that our colleagues around the globe are working on.

And how they executing their responsibility to support our mission working with our suppliers and customers.

So those comments operator.

Good.

Hi.

Absolutely, ladies and gentlemen, if he would like to ask a question. Please press Star then one on your telephone keypad against Star one for questions. How many do ask that Youve limit yourself to one question and one follow up question.

Our first question, it's going to come from the line up Jon Block Stifel.

Great. Thanks, guys good morning.

Still leave it down 70% to 80% comment for dental I believe it was a global metric and I know this is a bit detail, but is there a we've you know how that look toward the end of April versus the beginning of the month.

And then sort of part to that same same question is just for China is there an estimate of where that market is relative to normal.

As we sit here in April because people are looking to that as caught a leading indicator for future markets not just got a follow up.

Yeah, maybe Stephen has that data I don't have it Uh huh.

Lets me right now.

Steven Yeah.

Yeah, John be the variance between the end of April and beginning of Bay May was not really that significant on a global dental basis. It was all within that range, specifically, what China since the outbreak.

You know started in China, we are seeing gradual improvement there. We are seeing many dental offices that were closed a little while ago and now reopening. So we do we do see that that occurring in that's optimistic for what could occur in the rest of the world.

Okay and the second question family for you just would love your thoughts on the long term ramifications of Covidien in other words, what does it need for P.B. I dental practices and other practices and is that a long term positive for you does it accelerate the pace of dental consolidation because some practices. Unfortunately wont make it.

Adam This is that a long term negative for you I just love to get your thoughts call. It on these longer term structural changes in the industry. Thanks, guys very good question, obviously, it's pretty soon into the covert history, but I think Dennis she will recover.

I think a question is more win.

I think 2021 will be.

I wouldn't say back to where it was a nine 2019, but getting closer to that.

I do think that.

On the specialty side.

There will be the good solid demand for products, but maybe pricing will have to come down a bit.

At the densest level and therefore, there may be some pressure on pricing I don't know for sure, but I think the demand will remain solid.

Question is really the bridge between now and then between now and say the middle of 2021.

And I can only reflect on what happened in the eighties.

With respect to the HIV AIDS situation when dental and remember this is the time behind them to score mass and clubs.

And so going into that crisis that were not wearing gloves, a mess and then the public became aware of the concern.

Of the infection and Dennis understood that and they understood the concern.

And they needed to protect themselves it took about a year or two to bridge that and then patients should turn to practices.

It was a result, the other way from a business point of view that.

And area product category gloves in mass, which was very small for dental distributed distributors at that time became a significant category. So I think that's.

Business will reach I'm not sure how close to normal, but we'll get back pretty close to where it was some time in 2021.

And at the same time the demand for pp. He will grow having said that I also think that the is a bit of a reduction in regulatory compliance standards to date to allow product in and those standards are going to be up so it's going to require significant quality control and regular.

Sorry compliance on the P.P. side, and then there's going to be a call to action I think for products to be made in countries with a used I'm not ready to talk about the United States, but countries around the world event I want to have certain capacity internally for P. P E.

This will increase the price of this product.

And so it's going to be an added burden to dentist I would imagine that in certain countries, where it is government support for the industry. The reimbursement will go up insurance carriers in other parts of the we'll we'll have to increase the price the reimbursement.

Yeah.

I remain very very.

Susie Astec about the future of Dentistry, I think we have to bridge through the balance of this year and probably into the middle of next year.

The practitioners recover as it relates to consolidation.

I think there is going to be some consolidation on the one hand some of the.

Dsos do have stretched balance sheets on the other hand mid size practices some of them in the United States have gotten P. P. P funding will be in a position to expand and consolidate so I think the shift.

From so low to mid size will continue and from mid size to large practices will continue but not all midsize practices and not all large practices actually in a good have the right kind of balance sheets today.

So that's just some random thinking.

Obviously, I know more no more than what you do but this is little public information and a lot of it is <unk> <unk>.

Sort of figuring out where the market is aware the.

The psyche is that a public.

But I do think people will be going back to the Dennis.

[laughter]. Thanks.

Thank you. Our next question will come from the lineup John Kreger.

[laughter] with William Blair.

Hi, Thanks, very much sense just to follow up on some of that's very helpful. Stats you gave us towards the end of the call for a typical U.S. dental customer is it reasonable to assume that emergency care would be in on the order of 20% of what you would normally be doing for that customer or would you would you give a different stat.

I'm not sure that it's very hard to tell there's no available information.

But there are some practices that are doing more and there's some practices that are doing very liberal. The exact mix is very difficult John to tell at this time.

But they are a lot of practices.

Undertaking emergency services today, but not all.

And probably a lot of practices of doing virtually nothing so it's very hard to get that mix right.

I think the basic statistic that we gave in the call on all three of our businesses on a expectations, although very difficult to tell exactly a witness is heading but I think a the basic guidelines, we gave on dental 70% to 80% down.

Run rate.

Medical 20 to 30 technology 30 to 40.

I'll, probably reasonable having said that the.

Then all side, maybe closer to the 17, then the 80 at this moment.

Of course states are opening up.

And maybe it's going to be good maybe it's been a no. We don't nothing is going to be a second belts.

But if there's not then we're actually ahead of these numbers.

But we have to be very very careful because we don't know it stayed opens up was this a second round to go on the CB 90.

Hi, Thank you that's helpful. One quick clarification on your technology businesses, if I am a typical dentrix kind of client server a customer am I able to use some of the virtual tools that you now offer under Henry Schein, why do I have to convert to Ah Ah that the cloud service.

I'm pretty.

Steven.

Yeah, I'm pretty sure also that it is available bulk cloud and non cloud systems.

Great. Thank you.

Thank you. Our next question will come from the line of Jeff Johnson Baird.

Thank you good morning, guys Stanley I, just want to say thanks for all you guys do at the company in response to covert but also after all these earthquakes and hurricanes and that you're always putting a you know emergency services out there as well appreciated that we don't talk about it enough on this call. So thank you.

Steve I wondered if I could push you a little bit on John blocks question about China I. You know you didn't get a percentage we've heard a percentage from others that China is back to 20% or 40% or 60% could you put a number on that and maybe something similar in Germany as well my gut is that the German market would be a better credit.

For the U.S. market, just given small practices versus hospital care in China. So any numbers you could put out in Germany as well would be helpful. Thank you.

Yes. Thank you Jeff Thanks for that comment earlier, yeah, I'm not sure.

It makes sense to be very specific on the percentages.

Because I'm not sure that you know they will they will translate into other countries or not and you know it's still it's though you know rather fluid so I'd, rather not give specifics.

You know, Germany, I think was impacted less from the beginning.

For whatever reason they have less cases of covert 19, and that's why they the market in dental held up much rather than in other areas like Italy in other places.

But but I'd, rather not give specific numbers at this point because it is very fluid and it does change.

Quite.

Quite a.

Quickly.

Yes, sure understood fair enough.

Cost cutting side seaborne or Stanley I mean, obviously you guys have been very aggressive can you talk about maybe what the flow through then from some of these revenue decline I you know should be a it decremental margin wise or however, you got culture for at the end.

Another part of that question just your largest competitor on the dental side any like doesn't seem to be making nearly be aggressive cuts that you guys are you know they have a couple years ago gone through some of that but how does this position you competitively coming out of a downturn any concerns there or is the industry just changing that some of these maybe choice.

Ranges on the Salesforce, I think you're making a probably would have been necessary overtime anyway. Thank you.

Steven.

Yeah I'm on the cost cutting you know we've done a lot and the main reason is that no one really knows how long.

The impact will be what the duration of the impact will be in the dental side.

And we've done it in a way where we you know two things like Carlos where we can extended if need be or cut those expense cuts or to a shorter term if need be so it does allow us flexibility.

On.

You know the expense cuts because no one really knows how long it will last now some of those are just you know some of the cuts really are things that oh or an outcome on like a supplier rebates I think people realize that we do get a certain amount of supplier rebates one of them.

Reasons, why our gross margin was down a bit in Q1 was because the performance based supplier rebates.

At this point, we're not expecting much to be able to ER to be our unless we renegotiate those performance criteria.

So we took I would say now the conservative but realistic view that very little will be yarns, you could see on our cash flow the adjustment on stock based compensation with 17, and a half million dollars.

For the quarter. So again, you know we have the flexibility and I believe we are the best positioned in the industry with the strongest balance sheet.

The most access to liquidity and the things that we've been doing and cost cutting to really emerge smarter and strong from whenever this a pandemic ends.

Thank you.

Thank you. Our next question is going to come from the line of seem [noise].

Steven Valiquette Barclays.

Mr ballots <unk> your line is open.

[noise] highly let's move to the next [laughter]. Our next question will come from the line of Glen Santangelo Guggenheim.

Oh, yeah. Thanks for taking my questions I, just want to follow up on two areas. If I could you know per quarter. So you know stand with respect to the comment that have been made with respect to China in Germany. It sounds like we're seeing some sort of measured recovery and while it seems intuitive that consumables will come back first could you maybe comment a little bit more specifically on.

What you've seen about the return of equipment sales you know given the economic hit being absorbed by some of these practices.

Sure.

And I I also another lot of good questions yesterday.

I do think that equipment.

We'll come back in that.

Big part about equipment growth has been coming from digital from the digital side and I do believe that that will continue.

As practices will try to position themselves well positioned themselves as being competitive.

Compared to other practices using best of class.

Products and procedures.

And of course.

Digital dentistry is best of class.

And the best.

Equipment for procedures, so I think they will be.

I need so that I also think that.

It will be greater pressure on ensuring that every practice has a digital imaging. So I think these categories will grow.

There was also an they're also new products out there relating to.

It treatment in the practice.

I'm not going to a much if we actually going to classify them as large equipment to mid size and therefore, not consumable categories, but they will be a demand for these kinds of products and meltem separate as et cetera. So how to give you specific numbers sitting here in the early part of May when practices.

As a closed.

For example, in Germany, we were seeing quite a bit of interest in our equipment.

And by the way our intent business in Germany is not doing terribly.

So I don't if these are early sort of exit polls.

But.

It's in I would say I'm more encouraged today than I was two or three weeks ago, but there's a very volatile situation.

I appreciate that maybe just following for Steve Steve. Thanks, you know for discussing the cash flow in the first quarter, but I think what a lot of us. We're trying to understand is the impact on the cash flow. For example in April at these sort of lower revenue run rates like how should we think about you know the cash situation any expenses.

Relative to the 1.7 billion of liquidity that you referenced in the press release.

Sure Glenn Let me just tag onto the the first question to Stanley You know I think it's clear that.

Consumables.

The new way of doing business with consumable should accelerate the overall market people will now be using more PPD equipment.

In products, then apply to co that people will use more cleaning agents in disinfectants and things like that so when consumables does come back it should come back you know my opinion.

At a higher rate because of the new use of these products equipment on the other handle we learned in the recession of 2008 and nine its equipment does take a little bit longer to come back because people can I cant delayed equipment purchases a with respect to cash flow.

It's very fluid, we're not gonna give cash flow guidance for Q2, but we do expect that cash flow will be negatively impacted versus Q1 after the quarter given the sales declines even with the mitigation of expenses and and also reducing capital expenditures and things like that.

Cash flow will be negatively impacted but again, we feel like we've done the right things to preserve cash and mitigate sales downturn and again, we have really be ability to to use our credit lines in our cash on hand.

You know to mitigate a any cash flow impact, but again, it's too early really to give specifics on that not giving any guidance on the piano I don't think it makes sense to give guidance on the cash flow other than to say, we feel like we're well prepared and it will be negative compared to Q1.

Okay. Thank you.

And our next question is going to come from the line of feed the child Wolfe research.

Hi, Thanks for the for the time here and a I'd Echo the comments are taking your guys for everything you're doing a two to help everyone who's who's really need today.

First I wanted to ask about P.D. I appreciate the comment about p. supply ramping up.

To be hopefully at a better level at a later in may but I wonder if you could take that and play a little bit further out and say how long does it take to get the level of P.P. that you need.

Supply you your medical customers in dental customers at the level that they're they're really looking for and how close do you think the first quarter growth rate in medical is to being a reasonable barometer for growth in medical if we had that level of supply.

So the second part of question I'll as Stephen to respond to.

The first part.

Product is growing in output output is growing in P.B. product, having said that.

There are complexities with moving products around the world.

Governments, not one but multiple governments.

For Keating exports put restrictions in place.

Oh put additional hurdles.

On paper work.

Customers.

Well, it et cetera, and getting out product.

Uh huh.

Production is coming up so it's actually grown significantly a multiple of what it was before.

The target.

And the issue is the actual logistics.

Being impacted by as I noted.

Restrictions, but also.

Logistics.

Planes out of China Oh.

Much more expensive multiples of what they were a few six weeks ago.

And they are being used not only for P.E., but for other products as well.

At the same time, they will be expansion of product capacity in the United States on certain products.

Having said that.

That product is really isn't.

To.

[noise] U.S. government.

Primarily I think for replenishment of stockpiles.

We don't know for sure what they're going to do with the product.

But also for.

Are you.

You Spice specific states.

So exactly how this is going to flow who's going to get the product.

There is a certain amount of sympathy I think was in the U.S. government and in other parts of the world for the importance of ultimate care sites.

Whether its dentist offices that are really playing a valiant job in keeping patients out of the E. R.

Or for that matter physician offices, and ultimate case sites in general.

So all of this has to play out and this will all impact I think the second and third and maybe the fourth quarter as well in terms of allocation availability I.

I think as we go into next year is going to be much more capacity and availability, having said that.

Please remember one thing.

That restaurants.

And other places with the public.

Is now going on now going to be visiting once these social distancing.

Is removed will be huge bias of clubs of masks and of course of gloves too.

So these will not necessarily be of the type of clubs that we use and masks, particularly that we use having said that.

They're going to be competing.

For supply of product. So all of these factors need to go into this calculation bottom line from a pure Henry Schein sales point of view, there's likely to be more opportunity as there was in the eighties.

Expand the category.

<unk>, having said that there will be competition for products, especially products of the standards. We're looking for.

And we want to also make sure that these companies are diligently complying with the regulations that are in force today and unlikely to get more complicated in the future restrictions will be narrowed and they'll be more definition provided by regulatory authorities. So this is I've spent a lot there.

But these are all the various puts and takes that we're dealing with overall from a pure sales point of view I do expect the category to continue to grow.

Yeah on the second part of your question with respect to medical cells.

We estimate of 20% to 30% down year over year in medical sales is not that it does include some benefit for P.P. products, Although we're being conservative on that benefit since availability of products. You know, it's not certain on the timing of the availability, but it's all in that 20% to 30%.

HM Okay. Thank you very much for that clarification and then just one quick follow up I Wonder if you could tell us a little bit about your.

Your your ambitions as it relates to testing, so you're very well positioned logistically to be a supplier in two offices of all sorts with a rapid tests.

I'm going to set aside serological testing here for a moment and focus really on on actual I'd tests I think of shine as a provider of rapid antigen test for flu for example, but I wonder how are you thinking about expanding your line up of of product.

To to service the market as there will be increasing demands for rapid not just rapid antigen testing, but for rapid molecular testing in an office settings, both dental and medical thanks much.

Yeah. So good question I noted in my call early on that Henry Schein has been focused on.

Laboratory testing, both traditional and I'm talking about in office.

Testing as well as places like energy centers.

Community type health care clinics.

We've been involved in that for years, but the equipment.

The reagents.

And disposable snap tests.

I think we one of the biggest provided these products in the will they'll continue to focus on that we have a great.

And knowledgeable group.

Of people that focus on.

Identifying products.

Selling them.

People, both in the field and on the telephone and of course, a capable of putting up very good marketing material. So we examined all these sources that are presented to us some of that traditional sources.

Manufactures of equipment right now on a back order with us because a lot of the product that they are producing a lot of equipment and the.

Fluids the reagents.

And the like I'm going to the government and by the way. This business is primarily a U.S. business for us a small part in Europe.

Primarily going to the government or directed by the government to go to certain sites.

Primarily acute care sites so.

We have not had a lot of availability, but we expect that availability to increase and we offer as I said a wide variety of these products and will add to the offering as time goes by.

Thank you think you're going to we have.

Thank you we have time for one final question that question will come from the line of Elizabeth Anderson Evercore.

Hi, Good morning, guys. Thanks for taking my question I'm.

Ordering patterns when you've seen in their practices that they were sort of shutting down or is there would be opening are you, saying anything in terms of fluctuations in terms of maybe some pre buying a P.P. any before they sort of order in like slowly as they come back on other placing big orders can do is there any kind of commentary you can.

Reflect on that and then can do out there in line, that's what percent of sales, yes, the dental and medical business pick Coca Cola plus current depending on how you have it.

Yeah.

The man has of course.

Being significant.

From about.

The middle of March in United States for example earlier in other parts of the World.

But we've been on an allocation method.

Basically around the number of practitioners in a practice.

And really based on the.

Size of the practice.

It's not a precise signs.

But the allocation has been in place so it's really.

Not a matter of any particular practice spiking.

Close there.

Allocation has been based on historical purchases.

And so I would not say there's been a loading up these practices not as Henry Schein.

I think there have been other parts of the market with people about significant amount, but it's not being the case. So that's that's been an allocation retina rationing system.

That you've had in place since part of it picked up well since the spirit of the pivot vivus. So.

I I wouldn't say, there's been a particular loading.

In anticipation of.

Practices are turning either.

We are.

Selling at a continues pace all along.

Close up.

The volume is much greater than it was last year.

But not a huge amount more.

A lot more but not a huge amount mall we expect.

That dental volume will go up as.

We have availability, which cost discussed already and as dental practice the start opening up in.

In the various states over the next month or so.

Stephen I don't think we provide information on any product categories other than consumables and equipment does bode categories right.

Yeah, that's right and pp, it's also difficult to answer because the definition of what is MPPD.

No. It's also different.

You know something like an examination glow.

We've always sold a lot of examination blogs, it's always been one of our top skews, but.

But things like gallons, we don't sell as much because we're not in the acute care setting, but we do sell some on the medical side. So again Definitionally Watson PPV, everyone has a slightly different best meeting agreement.

Okay. That's all of a and then have you heard that change and that sort of practitioners I know you said about that $10 million of bad debt expense right. There on but have you cannot change and people asking for payment terms or.

Discounting or anything that we should take into consideration.

Stephen.

Yep people are paying a slower it depends on the practice some are paying on time, we have we have certain third party financing I didnt.

Options for people to get practice loans to be able to pay off or are there a dead, whether it's the us sort of other people customers are also eligible for the government PPP program, which can help but but we are seeing generally slower payments from customs.

Okay. That's helpful. Thanks, very much okay.

He said you just so I think where we've gone over a little bit this time, because we figured that there'll be a lot more questions.

So thank you for listening to the coal.

I I like to leave you with falling salt and not as that.

This is obviously trying moment for business in general and particularly for health care providers.

Uh huh.

You can see in the press in the media social media.

We remain committed to continuing to provide outstanding customer service.

Driving operational efficiencies in our business.

We have to.

Provide better service.

Unusual service shall we say because practices operating differently.

So the way that we're operating in the past.

You have to be mindful of our need to preserve cash.

So operating more efficiently than ever before we have to conserve cash. This is a replay from this point of view of 2008.

Well I think for those investors that were around at the time I think we did at the job at preserving cash so when he got out of that crisis, we were well positioned.

We have maintained as Steven mentioned strong balance sheet.

We have ready access to test a capital for a while long term.

And we believe we're positioned to whether this economic uncertainty.

And yes.

They will be opportunities that image from covet 19.

For Henry Schein to service the health care needs of the public.

Through our practitioners.

Our resiliency has been tested many times in the past.

And I'm confident that the team will rise to the occasion again, we had an outstanding management team an extremely committed team.

In General 19000 team Schein members.

I believe our customers Trust us.

And extremely committed and I must tell you an experienced board that had experienced all sorts of challenges along the way.

And have a good feel.

Healthcare in general.

And so as we into school I remain extremely confidence in the future of Henry Schein.

Although with end to have to go through some stormy waters, but the ship.

I believe is.

A solid shift.

Manned by great crude.

So thank you for you or your participation and to those investors that are with us. Thank you for your confidence.

Thank you operator.

[noise]. Thank you that well conclude today's Henry Schein Conference call Me appreciate your participation.

And you may now disconnect.

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Good morning, ladies and gentlemen, and welcome to the Henry Schein first quarter 2020 conference call. At this time, all participants are in listen only mode.

Later, we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the call. Please press the star key.

[laughter] follow.

By the zero can you touched on fellow again started here, okay. Operator [laughter] as a reminder, this call is being recorded I'd now like to introduce your host for today's conference Carolynne borders Henry Schein, Vice President of Investor Relations. Please go ahead Carolyn.

Thank you very much Holly and my thanks to each of you for joining us to discuss Henry Scheins results for the first quarter Twentytwenty with me on the call today, our Stanley Bergman Chairman of the Board and Chief Executive Officer of Henry Schein, and Steven Paladino, Executive 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 is 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 <unk>.

Indicated by such forward looking statements.

These forward looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein filings with the Securities and Exchange Commission, including in the risk factor section of such 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 analysis and estimates.

I'll Conference call 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 and able to comparison of financial results between periods, where certain items may vary independently of business performed.

Yes, 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. These reconciliations can be found in the supplemental information section of our Investor Relations website and in exhibit B of today's press release, which is available in the investor really.

Sure section of our website.

The content of this conference call contains time sensitive information that is accurate only as of the date of the like broadcast May Fiveth Twentytwenty, Henry Schein undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this call.

Please limit yourself to a single question and a follow up during Q1 day to allow as many paths and excuse me as may listeners as possible to ask a question.

With that said I would like to turn the call over to Stanley Bergman.

Good morning, Thank you Karen.

Thank you everyone for joining us as we gather on this call today.

To discuss Henry Scheins.

First quarter 2020 results, we face an unprecedented public health.

An economic crisis from the Cobot 19 pandemic.

It was only a few months ago, when we last spoke with investors during a yen.

Cool and of course at the Chicago Dental Society Midwinter meeting.

Yeah. So much has changed during that time.

Over the last several weeks our leadership team supported by our board of directors.

Has had to make some very difficult decisions.

Company has maintained focus on three key priorities.

Protecting the health and welfare of our team Schein members.

And D well being of the team Schein.

Families.

Assisting with business continuity for our customers and suppliers.

And third sustaining financial health of the business in the midst of this uncertain macro economic landscape and of course positioning the company for the future.

Beginning in mid March most of Henry Scheins dental customers worldwide began to suspend operations except for emergency procedures.

Rental sales with approximately 65% of Henry Scheins total sales last year.

2019.

That's what these closures head and of course continue to have a meaningful impact on our business.

Medical business, which serves physician offices urgent care centers ambulatory care sites.

Migent see medical text, you empties dialysis centers.

Large enterprises, such as group practices and ideas the integrated delivery networks amongst other providers represented approximately 30% about total sales in 2019.

As a covered virus spread many physician offices limits the patient flow due to social distancing guidelines.

In turn we moved into the second quota.

As we moved into the second quota individuals increasingly sort critical care in hospital settings or into acted with it physicians online.

Through telemedicine for example, and ambulatory care centers many of them were converted into cobot 19 treatment units.

In the United States follow it can dental associations guidance recommending that U.S. dental practitioners dispensing patients for elective procedures and that was of course issued on March 16, 2020, we've guided by the federal Emergency Management agency FEMA to direct critical.

So now products P. P E two medical health care professionals and institutions and specifically to the hot spots.

And our medical business P. P. Throughout the quota was of course in high demand.

As cobot rapidly gaining momentum we worked with our suppliers to expand availability.

And to prioritize the delivery of critical P. P E and also brought to market rapid test solutions.

For health care professionals.

Relative to our Henry Schein, one dental softly business lower sales associated with reduced transactional services and few of patient visits were partially offset by dental practices, leveraging our software communications tools to stay connected with their patients.

Our medical and technology and value added services businesses, both performed better than our dental business in the first quarter.

In the face of revenue headwinds.

We've taken swift and decisive actions to preserve cash.

Cash is really important for us now, but more important positioning ourselves for the future.

Including reducing our cost structure.

To best position Henry Schein through this crisis.

And of course beyond.

To ensure that we remain well positioned to face any ongoing business challenge.

And of course for the future.

The difficult decisions, we have had to make make.

To reduce costs have impacted all team schein members across the company all 19000.

We of course have not made these decisions likely.

Team Schein is our company's number one assets.

And a critical constituent you know mosaic of success the constituents that make up the Henry Schein mosaic of success.

Of course team Schein as number one on that list.

Along with our customers suppliers investors and society.

Keep in mind that we continue to assist our cost reduction plans.

And a depth as a quiet we will do this in a very agile away.

In an effort to preserve cash we reduced or eliminated all non essential capital expenditure and in early March we temporarily suspended our acquisition activity and share repurchase program.

Well, we have provided an intense focus on managing the impact of cobot 19 on our business.

We simultaneously view the critical responsibility we have.

To help guide our customers through this extremely challenging time and our customers are really facing on precedent to challenges.

As most about dental and medical practices began to suspend operation we focused on helping our customers build a roadmap.

To navigate through this.

Disruptions to their practices.

We are close working closely with our customers to assist with isn't constant business continuity planning what today. The key is to keep our customers economically a float so that when patients go back to the practices they already.

And if so in anticipation of all of this.

Ensuring that patients not practice, our customers practices are ready.

When patients start returning.

Let me take this opportunity to often my sincere thanks to our team for the Valiant work and support Judy it's extremely difficult time and offer my deep gratitude for the second fastest team and making.

Most of working from home and the systems are working and there's a huge number working in our Dcs in a distribution centers and these distribution centers are functioning as normal many many orders.

Very frequently small orders for P. P E that took frequently reordered because of availability and the stuff comes in and goes out.

At this time I like to hand, the call over to Stephen to discuss our financial performance and then I'll provide some additional commentary on our view about kind of business conditions Stephen Please.

Okay. Thank you Stanley and good morning to oil.

As we begin I'd like to point out that I will be discussing our results from continuing operations as reported on a GAAP basis and also on a non-GAAP basis, our Q1 2020, and Q warm 29 team non-GAAP results exclude certain items that are detailed in exhibit B today's press.

Ladies and in the simple supplemental information section of our Investor Relations Web site.

Please note that we have again included a corporate sales categoric for Q1 got refuse themselves to come back this under the terms a transitional services agreements.

Stanley mentioned, our 2021st quarter results were negatively impacted by Cobot 19.

Well, it's difficult to quantify the precise impact we saw a negative effects of the virus beginning in March, particularly as global dental practices began to suspend operations.

In response to the Cobot 19 pandemic, we have implemented a broad based cost reduction initiative.

Including having implemented a payroll cost reduction plan centered around furloughs reduced work hours voluntary and paid time off suspension of our fall one k. match and certain job reductions.

As we proceed throughout the year, we will be closely monitoring the health of our business. We are prepared to take additional cost saving measures as wants it.

Before I walk through our financial performance for Q1, I would like to note that we recorded a noncash asset impairment charge of approximately $6.1 million pretax related to certain prepaid assets and intangible assets. We do not expect begin Pamela have any future impact on our business operations.

Oh liquidity or cash flow from operating activities I'm already compliance with debt covenants.

So turning now to our financial results net sales for the quarter ended March 28, 2020, $2.4 billion, reflecting a 2.9% increase compared with the first quarter were 29 team.

Internally generated sales growth in local currencies of 2.1%.

Cobot 19 negatively impacted our worldwide sales growth as many dental and medical practices have closed or watching a limited number of patients.

Dental office closures occurred on somewhat of a rolling basis, beginning in the mid mid quarter first in China, then in Europe, and then the U.S.

The details about sales Brooklyn contains an exhibit a <unk> earnings press release that was issued this morning.

On a GAAP basis operating margin for the first quarter of 20, 27.2% represents a decrease of 15 basis points compared with the first quarter of 29 team.

On a non-GAAP basis, our operating margin of 7.4% also contract by 15 basis points on a year over year basis.

A reconciliation of GAAP operating margin to non-GAAP operating margin can be found in the supplemental information page on the Investor Relations page of our web site.

This margin contraction in the quarter was primarily.

Due to a reduction in global dental sales that began in march or due to the impact of code at 19, as well as the $6.1 million pretax noncash impairment charge.

We look at our taxes I reported GAAP effective tax rate for the first quarter of 20 point was 22.4%. This compares with 24.6% GAAP effective tax rate for the first quarter of 29 team.

On a non-GAAP basis, our effective tax rate was 22.5%. This compares with the prior year non-GAAP effective tax rate of 25.4% again, you can see the supplemental information page on our Investor Relations Web site for a reconciliation of GAAP to non-GAAP taxes.

Our GAAP net income from continuing operations attributable to Henry Schein Inc. for the first quarter of 2020 was $130.5 million or 91 cents per diluted share and this compares with prior year GAAP net income from continuing operations of $118.4 million or 78 cents per diluted.

Yeah.

Non-GAAP net income from continuing operations for the first quarter of 2020 was $134.1 million or 94 cents per diluted share. This compares with non-GAAP net income from continuing operations of $120.6 million or 80 cents per diluted share for the first quarter of 29 team.

This represents growth of 11.3% and 17.5% respectively.

Our providing some detail on our results due to the current economic environments. The cold at night team, we recorded an incremental bad debt reserve Apollo global dental business of approximately $10 million pretax for the quarter or about 20% of the existing reserve balance.

This $10 million is an estimate based on how quickly dental offices reopened and how quickly patience return to those practices, whose therefore subject to ongoing analysis and adjustments.

We also recorded a net credit in the quarter two out of stock based compensation of $17.5 million pretax, reflecting our current expectation that none of outperformance space shares will best due to the impact of called at 19 on earnings results.

As referenced earlier net income was also impacted by [noise] $6.1 million noncash impairment charges.

On a continuing operations basis amortization from acquired intangible assets for Q1, 2020 was $26.8 million pretax or 14 cents per diluted share.

This compares with $21.8 million pretax or 11 cents per diluted share in the same period last year.

I will also note in Q1 of 2020 foreign currency exchange negatively impacted our diluted EPS by approximately one cents per share.

I'll now provide some detail on ourselves results for the first quarter.

Dental sales of $1.5 billion declined 4.6% compared with the prior year.

With a decline in internal sales in local currencies up 3.7%.

North American dental sales were relatively in line with our expect our expectations in both January and February. However in March this growth was negatively impacted by significant practice closures in U.S. and virtually all the markets we serve worldwide.

North American internal sales in local currencies, the quite declined 3.9%.

Including a decline of 4.2% in sales of dental consumable merchandise and a decline of 2.7% in dental equipment.

In Q1, North American internal sales in local currencies for high Tech equipment increased approximately 4.7%.

Crude in growth in CAD Cam equipment of approximately 14.5% and strong laser sales.

This was offset by a decline in traditional equipment of 5.8% and a decrease in digital imaging sales of 7.6%, which includes high tech samples.

Panoramic X rays and Threed imaging.

International dental.

Internal sales in local currencies declined 3.4% and included a 4% decline in south of dental consumable merchandise and a 1.2% decline in dental equipment.

South in Germany, and to a lesser extent, Australia, and Brazil will not have significantly affected by Kogut 19, compared with Oh, but internationally geography is that we serve.

In fact, these currencies experienced positive total dental internal self spoken local currencies specific to Germany, a largest dental market in Europe consumable merchandise internal sales in local currency, it's experienced the 2.1% sales decline however, dental equipment sales increased by 13.8%.

Turning to dental specialty products in Q1 internal sales of global dental specialty products decreased 6.4% in local currencies.

Dental specialty sales was significantly impacted in the last month in the quarter as dental practices began to close.

Specialty styles are still a relatively small portion of our total done we'll sell but they have higher margins. When we do believe this category had solid growth potential over the longer term.

Looking at a medical sales they were $800.7 million for the first quarter, an increase of 17.1% with internally generated sales in local currencies growing 13.4%.

Oh, the 13.4% internal growth in local currencies included 13.6% growth in North America, and 9% growth internationally.

Medical sales results were driven by solid organic organic growth earlier in the quarter.

Our medical sales will also in line with our expectations in January and February followed by a significant increase in or orders in March for P. P E.

Economic conditions have have less of an impact on our medical book versus Dane basic dental mainly due to can sit continued strong sales of P.P.E.

Well, certainly SK use a P.P.E. remain in tight supply such as masks gowns and facials, we're working with our suppliers to source these products to satisfy demand plush replenish our inventory as quickly as possible.

Turning to two technology and value added services sales both sales from continuing operations were $132.0 million in the first quarter, an increase of 14.2% with internally generated sales both in local currencies of 6.4%.

This spoke with negatively impacted by pulled at 19 later in the quarter.

In North America technology and value added services sales.

Internal sales growth in local currencies was 6.3%.

I was with solid through mid March mid March when we started to see declines related to patient traffic.

Our North American financial services business in Q1 was relatively flat versus prior year, mainly due to lower dental equipment sales and the financing there are well towards the end of the core.

We expect certain Henry Schein, one plavix to see a more significant adverse impacts to our technology and value added services from Cobot 19 in Q2, best specifically related to transit transactional portion of the business within Henry Schein one.

Internationally technology and value added services internal sales increased by 6.8% local currencies during the quarter.

The sales were driven by positive trends in recurring revenue associated with our practice management patient engagement and patient demand creation software solutions as well as strong financial services revenue led by product practice brokerage transactions in the UK.

In early March we temporarily suspended our share repurchase program program as a mean means to preserve cash in response to the impact of Kogan 19 on our business operations.

To this we repurchased 1.2 million shares of our common stock during the first quarter at an average price of $61.49 per share or a total of approximately $73.8 million.

The impact of the repurchase of shares on the first quarter 2020 diluted EPS was not material.

As of today, Henry Schein has $201 million authorized for future repurchases of common stock.

Again that Stanley noted, we have also temporarily suspended our acquisition activity in early March against it because our our cash.

Let me point out that began Henry Schein has a very strong balance sheet with low debt leverage at the end of the for first quarter, our debt to EBITDA leverage ratio was approximately 1.2 times.

Additionally in April we enhance our liquidity with a new committed credit facility of approximately $700 million, which provides 500 million bowels of incremental funding as we let expire certain uncommitted credit facilities.

We now have access to approximately $1.7 billion in liquidity, providing flexibility in this challenging environment.

Our operating cash flow from continuing operations for the quarter was $90.8 million compared with $133.3 million for the first quarter of last year.

The year over year decline was primarily related to a reduction in distribution from equity affiliates over the prior year.

That's part of our previously disclosed restructuring initiative, we recorded a pretax charge in Q1 20 to 2020 of $4.8 million or three cents per diluted share. This restructuring charge primarily include severance pay and facility closing costs.

And be flex opportunities to reduce expenses and drive operating efficiencies.

I will conclude my remarks on the topic of financial guidance you may recall going on on February earnings call. You, specifically stated our guidance. The 2020 non-GAAP diluted EPS from continuing ops operations assume no such significant supply chains disruption on the business related to cold.

19.

That's the virus proliferate into a worldwide pandemic, we withdrew our guidance for 2020 and as of now we're not providing financial guidance at this time.

So with that let me turn the call back to standpoint.

Thank you Uh huh.

Steven.

So let's review our business performance from the first quarter.

And recent weeks starting with the dental.

As we discussed North American dental consumable merchandise sales were relatively inline with expectations.

In January and February inside the business was quite good.

But were significantly impacted by U.S. dental office closures during the American dental <unk> driven by the American.

Dental associations guidance issued in the middle of much.

Similarly in Canada, most provinces recommends that dental practices suspend operations, except for emergency procedures of cost significantly if they have affected sales in the last couple of weeks of March.

Similarly international dental consumable merchandize snick equipment internal sales growth was relatively inline with expectations during.

January and February.

However, these sales was significantly impacted in much a little bit earlier than in the U.S.

Our social distancing with practices close and limiting hours across virtually all of the dental markets Henry Schein serves.

Including China and Europe.

As previously mentioned the exception the exception in Germany.

With practices would not broadly mandated to close for general Dentistry of course, social assistance it was important.

But.

Practices were allowed to operate.

Using very careful.

Infection control guidelines.

Oh, so sales in Australia, and Brazil experience this severe decline versus other countries. Since the covet 19 impact began later than in other regions and governments restrictions on practices would not implemented until late March.

Today, we have begun to see dental clinic.

Today, we have begun to see dental clinics reopen in China.

However, the rate of practices reopening has been at a gradual pace.

But most of China is back in one way or another but at a much much lower pace.

The number of patients that practitioners can see is being limited.

The number of people out into the practice limited.

But in other parts of the World, we expect that S stays at home Otis other less.

Dental practices will also begin to resume operations of course, we cannot.

Predicted the exact timing in each country on each state.

In the United States of province for that matter in Canada.

Overall due to the ongoing impact of cobot 19, while it cannot be calculated with a certainty.

We estimate that the run rate for global dental sales is down somewhere between 70% to 80% year over year.

We only have April to.

Gauge little bit of March and June extrapolate from that is very very difficult, but the range of 70 to 80 potentially on the low end is where we think we are running at this time.

We are working with customers now on programs to the food designed to help our customers. During this downturn of course financial options safety is a big big issue emergency services that we provide.

For servicing equipment.

Just some installation going on.

As well as now a focus on reopening services and support for those practices.

Hi that operating on an emergency basis today, we're planning to open.

And she.

Of course in that context to assure that appropriate products are available and the equipment and the customers practices is actually working.

Needs to be checked before.

While the patience, while emergency patients are being seen and in anticipation of opening a practices.

In particular with power and we had called <unk> recovery planner.

Helping customers identify practice management opportunities.

So practices can plan for scheduling adjustments.

Daily procedural improvements and customized solutions to increase production.

He is all things, we're doing as practices resumed clinical operations.

As we look to the future.

Henry Schein, along without dental customers and our suppliers.

Faced two unknowns.

He is obvious the first is when will practices fully reopened.

And the second is when we'll patients will you return.

We can't have cost predict either.

But we can help our customers to prepare for both.

And that is exactly what we're doing.

Were leveraging a number of our long established service offerings as well if some of our new offerings involving third party financing sources and it if it to help practice to sustain the health of their business during the downturn.

On the finance side. The key is to keep these practitioners that is challenged because.

Revenue drying up keep them afloat.

Without Henry Schein, one software solutions, we're helping conditions stay engaged with the patients.

And implement plans to prospect new patients as practices resumed operations.

In the interim well then to see patients for emergency.

And also in line, but you protocols once practices reopened.

Patient engagement solutions with great virtual waiting rooms for patients to complete forms online.

Text the practice when they arrive for the appointment.

And wait until the dentist is ready to summons the patient.

And to the practice this is quite an interesting software development.

That has emerged from Henry Schein, one in recent days.

Now, let's move on to our medical business in which a fairly typical January and February.

Unfolded.

Well, though there was some elements of positive sales as a result for the flu season.

That was followed by the impact night or the impact of covet 19.

We didn't leading to a surge in orders in March.

As those customers that open.

For emergencies on the medical side.

Purchased more P P E and other products.

As well as a servicing some institutions.

As requested by FEMA that we really don't normally service.

The influenza season. This past winter was it's relatively severe.

Which favorably impacted sales of consumable merchandise and seasonal rapid tests.

Whereas typically influenza sales wind down near the end of the calendar here, we saw influenza related product demand continued to be strong.

Into the.

First quota January and February particular.

At this time, we estimate that the run rate for our medical sales is down somewhat between 20 and 30%.

On a year on year.

Basis.

The run rate.

Hard to predict exactly we estimate.

Due to the ongoing impact of course of Cobot 19.

And yes, we cannot calculates that with certainty.

I understand is committed to bringing essential products to the health care professionals.

We're fighting the pandemic our primary focus is those on the front line and the office space practitioner is right on the front line in many instances not only physicians, but dentist who all.

Right day to help patients and really.

Reducing the number of patients heading into the hospital emergency room.

It is amazing what the office space practitioners dentist and physicians.

Energy centers are doing.

Heroes early in this crisis, we knew that health care professionals needed pp eat you spoke about that on our last conference call a year in report when we addressed the issue in March.

And weve addressed the notion that they wouldn't be a shortage and that we were working on the shortage.

And we knew that health care professionals would need the P. P for the safety as well as for the safety of those that treated.

We also have be focused on rapid diagnostic tests more about that later, but we've always been a key player in delivering rapid diagnostic tests to office space.

And related health care practitioners.

We began to would quickly with our suppliers around the will to make these essential products available.

The best of the ability.

Being mindful of two very important elements quality does a lot of product available that doesn't meet the quality test and regulatory compliance a very very complex area regulations throughout the will change rapidly and we want to make sure that were in compliance.

Of course, the priority is.

The quality.

Even if there's a week satisfy regulatory standards. It may not be good enough for us from a quality point of view.

So let's talk about P. P E.

As part of this work Henry Schein, it's a participant in the White house.

Over 19 supply chain task force.

We have worked with the strategic national stockpile to deliver P. P E through the covert testing sites the first ones that will open.

We're also working with FEMA to deliver critical supplies to health care professionals.

And to institutions.

Often institutions that we did not normally surface the acute care Paul.

Henry Schein co founded the pandemic supply chain it with in 2015 together with the will help organizations will economic Forum will bank.

The U.S. CDC and others to improve the efficiency of worldwide <unk> supply supplies and to work on the supply chain.

Since its inception five years ago, Henry Schein as soon as the private sector lead for then pandemic supply chain network.

The supply chain for P. P is under considerable stress.

Which is schools the scarcity of products globally.

Complicating the type global supply chain.

And this is very important for investors to understand is the rapidly changing governments restrictions in certain countries and its multiple countries not one multiple countries on both the exploded P P and any country distribution of <unk>.

As well as the need to ensure that P. P is pretty good.

From suppliers.

With the regulatory requirement. So there's a lot of shortage of close that's an issue, but there's a lot of regular there's a lot of its both restriction.

Issues that emerge and disappeared and they come back and different forms.

And it requirements to move product certain.

The restrictions within countries all the while while the us purity product from new supply as we want to ensure the quality is right.

And.

Full compliance with regulatory.

Mandates that very rapidly.

Our country.

Needless to say out sourcing teams with the round the clock.

Round the world around the clock efficiency, but to a high quality products for our customers.

We are hopeful that there will be additional supply of pp in the market beginning in late may.

Hope because restrictions on exports could impact that and increasing steadily thereafter, assuming no impact from government restrictions.

Therefore for the second quota, we expect continued tight supplies will soon be products.

Yes, we are hopeful that we will ease that this will ease in the third quarters quota as our manufacturing supplies continue to be open.

And accelerate capacity now on tests.

United States and most nations across the globe face outrageous public health challenge in essentially.

The spirit of Cobot, 19, saving lives and disrupting livelihoods and economies.

In the face of this unimaginable threat, who must find the most effective strategies to combat the spread of the smartest protect human life.

And yes ensure the resilience of economies.

We believe that testing is critical we've always believed that and have been in the testing business.

40 years, providing different forms of test to office space practitioners.

That not only identifying illness.

But towards prevention, informing treatment and recovery.

Henry Schein as I noted for decades as being a most successful provida of laboratory test both equipment.

And related agents and yes, it key area being for us points of kit rapid diagnostic test for use in physician offices.