Q3 2020 Henry Schein Inc Earnings Call

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All participants are in a 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 keep followed by zero on your Touchtone phone as a reminder, this call is being recorded I would now like to introduce your host for today's call Carolynne borders.

Henry Schein, Vice President of Investor Relations. Please go ahead Carolyn.

Thank you Regina and my thanks to each of you for joining us to discuss Henry Scheins results for the third quarter of Twentytwenty with me on the call today are 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 or indicated by such forward looking state.

Men.

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 factors section of those filings.

In addition, all comments about the markets, we serve including end market growth rates and market share are based upon the company's internal analysis and estimates.

Our 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 enable the comparison of financial results between periods, where certain items may vary independently of business performance.

And allow for greater transparency with respect to key metrics used by management in operating our business. These.

These non-GAAP financial measures are presented solely for informational and comparative purposes, and should not be regarded as a replacement for corresponding GAAP measures reconciliations between GAAP and non-GAAP measures can be found in the supplemental information section of our Investor Relations Web site and an exhibit b of today's press.

Release, which is available in the Investor Relations section of our website as well.

The content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast November 2nd 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 Monday to allow as many listeners as possible to ask a question within the one hour that we have a lot of for this call and with that said I would like to turn the call over to Stanley Bergman.

Good morning, everyone.

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And thank you everyone for calling in today.

Cool.

Maybe 2020 has been an extraordinarily challenging and unpredictable.

Theme.

The move and of course suppliers I commend the world constructed flush would seem Sean to support business continuity for our customers.

The pandemic quotes disruptions to supply chain supply has reacted to increase demand for P. P E, particularly on other products as well.

And shortages of raw materials.

Oh, what experience throughout the marketplace.

Both domestically and international meaningful much of the for many of the product shall we say that we offer as.

As a result of the hard work and dedication of the team throughout the COVID-19 crisis.

We are ready to assist our dental and medical customers deal with emergency.

While many of whom were subject to restrictions.

Faced severe challenges.

As they then returned to their offices to provide safe quality critical Kid.

Clearly the COVID-19 pandemic continues to present challenges and uncertainties for the global economy and of course the move.

Remain confident that we have a solid long term strategy in place.

Supported by a strong balance sheet and significant access to liquidity.

These strong rebound in sales that began late in the second quarter continued into the third quarter with growth over the prior year driven by sales.

P B COVID-19 related products.

Gross coupled with the various actions we took earlier in the year to reduce operating expenses resulted in diluted EPS. The <unk>, 8.8% on a GAAP basis, and 14.4% on a non-GAAP basis.

As noted in our.

As noted our.

Q3, EPS growth also reflected the various actions we took earlier in the year to reduce operating expenses most.

Most of these temporary expense reduction initiatives should know ended.

We remain committed to the well being of team Schein and our disciplined strategy that is focused on the successful darkest was.

Helping practitioners efficiently manage practices, while providing quality good as the drive long term profitable growth for the company.

Given the challenging macro environment that started with the onset of the pandemic early this year, we post our long standing program of strategic acquisitions.

Yes, as global business conditions have improved we have resumed these activities. We now believe we have significant opportunities to allocate capital in support of our strategic plan.

Well the goal of maintaining a strong balance sheet continues to increase operating cash flows overtime.

As we prepare to exit a 2020, we will redefine.

Our strategic plan with a goal of having.

Well, we financial I mean, we will refine our strategic plan with a goal of having how did you find a place for 2022 through 2024.

Continue to focus on a number of key initiatives, which include.

Increasing customer penetration organically and through acquisition do.

Geographic expansion, including into the developing world advancing technology solutions centered on software, including patient communications, leading the digitalization of medical dental offices, including intra operative ability to devices that prosthetics.

And expanding our specialty segment and solutions offering.

All while advancing our dental business globally, and our medical business globally as well.

Our team including.

Telesales customer service and our distribution centers.

Remained open fully operational during this period and have done an extraordinary job throughout the scope of 19 crisis processing ongoing high volume of orders received and ensuring they ship quickly to our customers.

Those shouldn't Miss can use a P.B. are still relatively tight.

<unk> supply was.

ER and our commanding somewhat off a higher price, we believe the general P. market has stabilized and.

And we will strive to maintain as we had throughout the crisis.

Pricing for our customers.

At this time I'll hand, the call over to Steven to discuss our recent financial performance and then I'll provide some additional commentary on our view of the current business conditions are.

In the markets, we serve so Steven please.

Okay. Thank you Sam and good morning to all as we begin I'd like to point out that I will be discussing our results from continuing operations.

On an as reported GAAP basis, and also on a non-GAAP basis, our Q3 2020, and Q3 2019 non-GAAP results exclude certain items that are detailed in exhibit b of today's press release and in the supplemental information section of our Investor Relations website.

Please note that we have again included a corporate sales category for Q3 that represents sales the co batched risk under the transitional services agreement.

As we stated our intention on our last earnings call that essentially all remaining T.S. items [noise].

We have returned from furlough and from reduced work hours, we will continue to closely monitor the health of our business and remain prepared to take additional cost saving measures if necessary.

Turning to our financial results net sales for the quarter ended September 26, 2020, with $2.8 billion, reflecting an increase of 13.2% compared to the prior year with internally generated sales growth of 13.0% in local currencies.

P E and cope with 19 related products sales accounted for nearly all of the growth in our sales this quarter.

Although we expect P. P E and COVID-19 related product sales to positively impact dental and medical consumable merchandise sales in the future.

We also expect overall sales growth moderate from the third quarter.

Details about sales performance are contained in exhibit a of <unk> earnings press release that was issued earlier today.

On a GAAP basis, our operating margin for the third quarter of 2000, 26.6%, representing a decrease of 85 basis points compared to the prior year.

On a non-GAAP basis, our operating margin of 6.9% contracted by 58 basis points on a year over year basis, a reconciliation to GAAP operating margins and non-GAAP operating operating margin can also be found in the supplemental information page on our Investor Relations website.

Operating margin was primarily negatively impacted by signet significant inventory adjustments associated with P. P E and COVID-19 related products.

This was offset by reduced expenses driven by our previously mentioned cost reduction initiatives that were put in place earlier in the year in response to the coal the pandemic. These temporary cost reduction initiatives will not have a significant impact on Q4 results as most of these mezz measures such as fellows reduced work.

Our hours and salary reductions are no longer in place.

Turning to taxes, our reported GAAP effective tax rate for the third quarter of 2020 with 16.4%. This compares with a 23.5% GAAP effective tax rate for the third quarter of 2019.

On a non-GAAP basis, our effective tax rate was 16.7% and this compares with the prior year non-GAAP effective tax rate of 23.5%.

The lower tax rate in the third quarter was favorably impacted by U.S. Federal income tax settlement, which lower income tax expense by approximately $15.6 million or 11 cents per diluted share.

Excluding this impact the rate would have been in the 25% range on both a GAAP and a non-GAAP basis.

Moving on GAAP net income from continuing operations attributable to Henry Schein for the third quarter of 2020 was $141.7 million or 99 cents per diluted share and this compares with prior year GAAP net income from continuing operations.

134.9 million or 91 cents per diluted share.

The non-GAAP net income from continuing operations for the third quarter of 2020 was $147.0 million or one dollar three cents per diluted share and this compares with a non-GAAP net income from continuing operations of $134.3 million or 90 cents per diluted share for the quarter.

On a continuing operation basis amortization of acquired intangible assets for Q3, 2020 was $25.2 million or 13 cents per diluted share that compares to 29.5 million pre tax or 15 cents per diluted share in the same period last year for the firm.

First nine months of the year amortization from acquired intangible assets was $79 million.

Or 41 cents per diluted share and that compares to 79.6 million pretax or 40 cents per diluted share for the same period last year.

Foreign currency exchange did not have any material impact on our Q3 diluted EPS for the quarter.

Let me now provide some details on our sales results for the quarter identical sales of $1.6 billion grew 6.7% compared to the same period last year within Sir with internal sales growth of 6.5% in local currencies.

Our north American internal dental sales growth in local currencies was 6.3%.

And that included growth of 8.1% in dental consumable merchandise and 0.2% growth in dental equipment.

Internationally, our dental internal sales growth in local currencies was 6.9%.

The growth of 11.1% in consumable dental merchandise and a 6.9% decline in equipment sales.

Again the schools.

Again this quarter in North America, and international Dental merchandise growth was driven by strong ppt and COVID-19 related product sales last quarter, we provided year over year PTC sales growth as well as PPD contribution to global dental sales for Q3, we have expanded that category to increase.

Other COVID-19 related products as well.

So this category now also includes cold the test solutions as well as he thermometers.

On that basis, dental PPD and COVID-19 related product sales in Q3 increased by 130% compared to the prior year and for comparison purposes year over year growth was nearly 35% in Q2.

Turning to dental specialty products in Q3 internal sales growth of global dental specialty products increased by 6.5% in local currencies very strong growth in North America at 14.8% we.

We believe this higher margin product category had solid growth potential over the long term.

Our medical sales of $1.1 billion grew 27.8% to 27.8% compared to the same period last year with 27.7% in local currencies that 27.7% included.

27.8% growth in North America and internationally, 20.7%.

Our medical sales results were driven also by continued strong demand for P. P E and posted 19 related products medical in COVID-19 related product sales increased by approximately 600% compared to the prior year.

For comparison purposes, the year over year growth for Q2 was 200%.

Turning now to our technology and value added services segment, those sales were $138.4 million in the third quarter, an increase of 0.7% compared to the prior year, which we left a decline of internally generated sales in local currencies of 1.3%.

North American technology and value added services internal sales declined by 8.2% in local currencies and internationally.

Acknowledging and value added services declined by 9.5% in local currencies compared to the same period last year.

The slight decline in technology and value added services sales.

In local currencies was impacted by lower than historical patient flow, which resulted in lower Henry Schein warm transactional revenue.

Additionally, our financial services revenue was negatively impacted by lower equipment sales volume.

As we first discussed on our Q1 earnings call in early May we temporarily suspended our share repurchase program as a means to provide to preserve cash and response to the impact of Covance on our business operations and also due to certain restrictions related to financial covenants as of today.

Henry Schein has $201.2 million authorized for future repurchases of common stock.

Currently we also have access to significant liquidity, providing flexibility and financial stability in this challenging environment.

Our operating cash flow from continuing operations for the third quarter was $261.3 million and that compares to $226.4 million for the third quarter of the prior year.

Year over year increase was primarily due to both higher net income and improvements in working capital.

As part of our previously disclosed restructuring initiative, we recorded a pre tax charge in Q3, 2000 $27 million or four cents per diluted share.

This restructuring charge, primarily includes severance pay facility closing costs and reflects opportunities to reduce expenses drive operating efficiencies and mitigate stranded costs, we continue to.

We expect our restructuring initiative to continue through the end of the year.

I'll conclude my remarks on the topic of financial guidance again due to the continued uncertainty surrounding COVID-19 pandemic and its impact to our business operations, we are not providing financial guidance at this time.

As a reminder, most about temporary expense reduction initiatives have now ended and although we expect ERP and other COVID-19 related product sales to positively impact dental and medical consumable merchandise sales in the future. We also expect overall sales growth to moderate from the third quarter, so with that I'd like to turn the call back over to Stan.

Thank you Steven.

Now, let's review our business performance from the third quarter.

In recent weeks in October starting with dental.

In the third quarter, we saw growth in the us, Canada and throughout Europe, and consumable merchandise with particular strength in France and Italy.

Do you play with exception with the continued impact on COVID-19 has led to slower patient traffic.

The end markets, China, Australia, New Zealand and Brazil also.

Also recovered quite nicely from the bend to make the pre pandemic from actually from the pandemic levels, returning home almost to actually to the pandemic.

To the.

Pre pandemic levels.

During the third quarter, our internal sales for consumable merchandise in local currencies in both North America and international markets was strong.

At the 8.1 and 11.1 growth respectively.

The gross the growth was driven by sales of pp, he and COVID-19 related products.

P P E and cobot related product sales as a percentage of global dental sales were in the mid single digits percentages.

Range prior to.

COVID-19.

Which grew to approximately 11% in the second quarter and in the third quarter. This contribution in dental was approximately 10%.

We continue to expect that PPD will constitute a meaningful portion of our dental sales going forward.

Yes, as safety protocols are made a necessity for both patients and dental offices and actually.

Feel that dentists in general in the United States and abroad are handling infection control ships is controlled extremely well.

And that there was an adequate amount of PPD available for these practitioners to continue to provide.

Safe safe environments with a very good infection control.

In these offices.

On our dental specialty businesses, which is comprised of implants endodontics and orthodontics sales.

And during the third quarter in this segment.

We actually performed quite well led by Endodontic product sales.

Also our implant sales were particularly strong in North America, we internal sales growth in local currencies increased by approximately 18%.

Dental equipment sales in the third quarter continued to recover.

In North America, both traditional and high technology equipment internal sales growth in local currencies was essentially flat.

With in those categories, we experienced strong sales and laser products, albeit a small base and double digit growth in CAD Cam equipment. This is the third quarter last year.

As a two d. in Threed imaging sales declines in the quarter.

International equipment sales experienced a mid single digit percentage decline sales in Europe declined for both traditional and high technology during the equipment during the third quarter as some practices the food investment decisions.

As I mentioned last quarter, we are seeing heightened interest from customers in the air purification category, we will have the exclusive relationships specific with the Radek Ace and the surgically clean air and we also offer solutions from other manufacturing partners, including denim and I, just liked and dry shield.

It's clear that practices are getting more efficient in seeing patients as they adjust to new protocols. The degree of increased efficiency is hard to determine at this time, but clearly the addition of safety protocols in the practice.

And driving efficiency are both at play.

In particular, we believe there will be continued interest in equipment solutions that enhance productivity.

Which is particularly important as practices look to see more patients in of course, a safe environments.

Sure. So in summary substantially all of the dental markets, we serve strengthened relative to the second quarter as we progressed through the third quarter.

With a month to month improvements in consumable merchandise sales.

Oh.

Mostly driven by demand ppm cobot related products.

So where are we at this point.

Dental practices in North America, Europe, Australia, and New Zealand.

Open again for the most part as well I might add as Brazil and patients are returning for key chain.

China is isnt.

Essentially back to pre pandemic levels.

Despite rising.

Rising COVID-19 diagnosed patients in North America, and the growing number of European countries, including Germany, France, UK, Belgium, the Netherlands, Italy, Spain, Austria, Switzerland, and Czech Republic and Poland.

And also.

In Brazil.

Patients continue to visit the dentist. This is very encouraging completely different to what it was in April these factors outside open and.

Patients are visiting the dental practice, very clearly very very different to April and the demand for products.

Both consumables and equipment remains.

The latest survey data published by the American Dental Association for the U.S. shows that dental practices, approximately 77% of pre COVID-19 patient volume.

This was down approximately 2% versus the prior IDH survey, but.

But not showing any material degradation in patient volume.

I think we have to be careful reading anything into the swing of a couple of percentage points.

Henry Scheins. He claims data also showed that patients continue to return for a broad set of oral care procedures. It is clear that in the United States. The public views dentistry as important and although we do not have as finite a detailed information in Europe, we can see that in your.

Dennis.

Oh being viewed as important health care providers of course, the UK is the exception.

With regulations have been such that.

Yes, Vince to Dennis had been restricted but the rest of Europe is essentially open for dentistry actually all the markets we are in.

So overall, we would characterize the current dental end markets as improving in.

In some areas and continuing to stabilize as in others.

At this moment this is exactly what we see.

Of course, we continue to watch all geographies.

As covered 90 cases rise, particularly whether this impacts patient utilization and witness a V shaped recovery becomes more of a W. But at this stage, we do not see any reason why.

We should go into a doubling the recovery seems quite stable as dental practices are open.

Before we move on to the performance of our medical business. Let me comment on the recent announcement that dental let the dental supply company or T.D.S.C.

Which was originally launched by the California Dental Association to offer members of organized industry.

A low price online only option for obtaining dental supplies has joined Henry Schein.

Tedious she will maintain its.

Its core focus on providing consistent online only competitive pricing to dental Association members.

Tds, she customers will benefit from the expanded product portfolio enhance shipping.

Improved order fulfillment and of course fast, but the liberty backed by Henry Schein Henry.

Henry Scheins full service distribution model.

Coupled with Tds see strategy.

Office Space Dental Association members the options they seek when choosing to purchase dental supplies and small equipment for their practices.

These two marketing channels are complementary.

And our aimed at delivering a record level of service for varying customer segments.

Henry Schein will of course maintain and build on our full service distribution model offering customers a wide range of competitively priced consumable merchandise equipment and technology products and services, including software coupled with our highly experienced.

Field.

And tell the sales teams Tds. She has set sales in 2019 of approximately $20 million.

So a high touch.

Model is very much the model that we subscribe to the Henry Schein, but we're offering an alternative other pure online service to those customers that wish.

To take advantage of such an offering.

Now, let's move to our medical business the medical sales growth during the third quarter was also driven by strong demand for BP and COVID-19 related products. This marked the first quarter in which our medical team achieved a billion dollars in sales and we have extremely pleased with the medical teams track record in building this business.

We are beginning to see improved access to covert tish solutions that were first being allocated to the government for initial distribution.

As we move into 2021, we expect testing solution availability for practitioners to continue to improve as more tests and approved and as for the allocation to the private sector markets of close to in line with manufacturing capacity increases we.

We are as noted receiving greater allocation of test for office based practitioners, who very much viewed as important to conduct specifically the rapid.

Cobot tests.

In their offices point in other words, the point of care tests.

P and covered 90 related product sales as a percentage of the global medical sales increased.

From mid single digit percentage pre 19 over 92, approximately 17% in the second quarter and approximately 24% in the third quarter, we expect expect that PB and covert related product sales, including test will continue to be a meaningful portion.

Of our medical sales as practice will seek to create a safe environment for both patients and staff and undertake more testing in the office space setting environment.

Regarding the potential to distribute COVID-19 vaccines I'd like to point out that Henry Schein has had a long history of leadership and supply chain readiness in response to strategic partnerships. We have developed over many years provide us with the specialized insight.

H outbreaks from supply chain challenges.

[laughter].

We also have excuse me we also have excellent.

Relationships with a number of manufacturers working on vaccines.

And I'll stay in close contact with these manufacturers.

We believe that when these products enter the commercial distribution channel.

[laughter] that we.

Well begin with our credibility and a history of effectively working with pharmaceutical manufacturers as well as our public private partnerships will be recognized.

[laughter] as well as.

The office space.

Practitioner will also be recognized.

As a place to administer these vaccines.

So.

Let's move on to our technology and value added services business.

As dental practices continue to reopen throughout the third quarter Henry Scheins one.

Sure Yeah transaction software revenue, including E claims of credit card processing was down and is slightly is going up slightly.

Really following the the trends of visits to dental practices.

This was offset by solid growth and I was comparing it to the previous year to 2019.

This was offset by solid growth in sales up.

Our dental plans for Dentrix ascend cloud based software solutions.

[laughter] remote access provided through cloud based solutions, such as Dentrix ascend.

Especially attractive to practices that desire will have a requirement to conduct remote work, including managing the business and clinical aspects of their practice.

During the third quarter, we launched a number of product enhancements for our Henry Schein one solutions.

Including.

A number of new Dsos centric capabilities imaging enhancements.

New sophisticated accounting capabilities, an E prescribing solutions and payment processing features in the Dentrix ascend product.

New insurance management and payment processing Hansmann can dentrix and key enhancements to our very successful online bill payment solution.

We continue.

We continue to invest in our platform of dental software solutions to deliver integrated technologies that automates more tas and simplifies the digital workflow to.

<unk> increased product practice productivity.

In summary, looking at our current business, while it's still early in the fourth quarter, we are continuing to see dental and medical sales growth over the prior year at this time driven by people he and other cobot related products that said this is not necessarily indicative of what food.

Quarter performance may be but having said that we are very encouraged with the performance in October.

Actually across the board, but.

But of course must be a little cautious in that this is a very unpredictable.

And predictive unpredictable time.

So before we move to your questions I would like to note. How pleased we were in September to be named to the Fortune magazine's change the World list, which is an annual ranking of companies that have had a positive social impact through activities at a part of the core business strategy.

In the Shine was recognized for our role in helping to create the Pandemics chain its pandemic supply chain network at the World Economic Forum in 2015.

A public private partnership aimed at saving lives are strengthening the resilience of global health care supply chain in general in response to epidemics and Pandemics.

We are most pleased to serve as the P. S C and private sector lead on these very important initiatives.

We were also pleased to be named among the top NASDAQ listed companies, including the next generation 100 index designed to measure performance of the largest 100 nonfinancial NASDAQ companies that are focused on growth and innovation, which are ranked after those companies in the NASDAQ 100.

Index by capital market capitalization.

This week is a special weekend, Henry Schein with respect to NASDAQ.

As we celebrate 25 years as a public company on exchange over.

Over the over those years, we have successfully navigated through many changing market dynamics and grown our business.

Delivering value to our shareholders in.

In fact since the time of our IPO. We are pleased to have delivered compounded annual growth from continuing operations of 13% in sales and 14% in non-GAAP EPS through the end of 2019 so.

So with those comments in mind.

We'd be very pleased Stephen and I [laughter].

Answer any questions that investors may have thank you.

This time, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Our first question will come from the line of Nathan Rich with Goldman Sachs. Please go ahead.

Good morning, and thanks for the questions maybe.

Maybe starting with your comments on the outlook, Stan and Steve could you give us any detail on how October performed relative to the third quarter and when we think about your expectation for growth to moderate relative to the third quarter is that solely due to what you're seeing with respect to PB uncovered related products or are you also.

Expecting a moderation in sort of the underlying growth rates for the dental and medical segments as well.

Sure. Thank you for the question October has continued with the trend.

As of September in fact, even maybe a little higher.

The concern we have is the potential impact of the rising number of diagnosed a covert patients.

Having said that at the moment it seems like dental practices or seeing patients again, a very different to April.

Both domestically and in most markets abroad. Some markets Inc. At a much greater increased rate than even before covance and others down. So we just want to be cautious in the context of the.

The latest data on diagnosed patients, having said that the business seems to be pretty good.

Place right now with Dennis a across the board seeing patients.

And the same from medical practitioners Steven.

Yeah, I think that summarizes <unk>, yeah, I would add maybe a couple of additional points.

We think during Q3, a there was a bit continued bit of.

UBS.

Backlog of patient demand that got caught up during Q3 that may not continue going forward are.

We also think related to PPG and Kobin related sales that there was a lot of initial order taking to startup practices and to restart practices that may not continue at the same rate.

So so those reasons really also contribute to us being a little bit more cautious on outlook going forward.

No. That's helpful and just two quick clarifications with respect to the rising KOVA case counts that you cited have you seen an impact in your volumes in recent weeks or is that just kind of adding to the uncertainty in the outlook and then secondly on Steve could you maybe talk through your expectations on P.

The pricing going forward is just as we think about the magnitude of the topline and margin impact we should expect in the fourth quarter and beyond.

Yeah, we don't see a significant change in volume at this moment.

Petitioners seem to be seeing patients consistent with.

What we saw in September.

Having said that anecdotally. The 88 data is down a couple of percent I'm not sure whether that is meaningful or not having.

Having said that our portion relates to the increase in diagnosed patients both in the United States and in Europe.

But at the same time.

We don't see a significant reduction in visits to practitioners.

Steven.

Yeah, and on a p. and related products I think we would assume that pricing will continue to moderate in the back in Q2 and early Q3.

The pricing for for certain products, primarily face masks and was significantly.

Significantly elevated as there was a shortage of supply and that was really on our cost was really significantly.

Higher than what typical costs was as you know.

As supply continues to improve that pricing is beginning to moderate.

On on most of those products. There is one product category, though that is now in short supply so be hard to tell how this is impacted but nitrile examination gloves on now in very short supply.

No globally. So we may see a spike in and our cost for those products, which are.

What were they in turn have us increase somewhat our pricing to end users, but I would say for the most part I would think that pricing will moderate on on products. The pp in coping related.

That's helpful. Thanks for the question.

Your next question will come from the line of Steven Valiquette with Barclays. Please go ahead.

Great. Thanks, Good morning, guys. Thanks.

Sure I think the question so.

Oh I rescued a few questions here on gross margin it was fairly flat sequentially, but down year over year likely just given the mix I guess I'm curious if there's any color on how much the gross margin threeq with impacted just simply by greater mix of lower margin medical sales versus higher margin.

And Steve.

Yes sure Steve.

The main driver was not mix the main driver as we outlined in our press.

Press release was related to PPD.

And related product, where you know because early on in in buying that product. We saw significant increases in our cost I remember it was a difficult time to even access products back then most suppliers were not selling unless you prepaid for the product and there was absolutely no way to negotiate.

Jason.

At that time, we made a decision that it's important to have access to products for our customers because it's such a critical product category.

And because of that we did buy some product that high prices that required inventory adjustments during the quarter.

So that was one that was the biggest impact on margins for the quarter. There were also some other impacts some of the people selling prices were also at lower margin that was a smaller contributor and also supplier rebates.

I'm also a smaller contributor were less in the quarter because of volume that they're rebated to I I'm I'm hopeful that we'll see a lot of that go away, although it's really difficult to predict on inventory adjustments because the pricing is still very volatile on both the purchase.

As well as the market sell side. So it's just kind of have to wait and see for that.

Okay, all right appreciate the color.

Your next question will come from the line of John Block with Stifel. Please go ahead.

Great. Thanks, Good morning, guys.

Sales and maybe just to start with you. If you can compare and contrast, some of the dental consumable figure that you gave I think ex.

X.P.P.E. coli bid.

Dental consumables were flat at called like the basic consumables, but I thought you mentioned very strong dental specialty lumber that was up 14% in North America I think even in plants up 18%. So maybe you can just talk to that dichotomy between the two within consumable sales that I've just got a follow up.

Yes, it's a very good question. So if you take out the P.P.E.

[noise] related sales were actually the province related sales because.

Within that category, it's P. P E and testing, but if you take that all out and you look at.

Both dental and medical are.

Our sales for core products consumables is about flat.

So.

That's where we've been for the third quarter and it looked like it looks like that's where we are in a turnover as well.

So.

That's the basic.

Situation.

Patients clearly are visiting Dennis.

Same with physicians, so we're quite comfortable that it will remain busy.

But of course, there is no understood there's no clarity as to what could happen in November and December.

Given the increase in diagnosed tests.

Having said that clay.

Clearly practitioners are open to see patients.

Everywhere other than really in the UK, which is an anomaly.

Very very different to the situation in April.

Oh and the early part of May.

Did you have another question.

John.

Oh, well I'll just pick up I do have another one. Thank you I don't know pivot Stephen to you on the gross margin. It follows up on Steve's question, you know 26 shouldn't change down about 300, or so basis points and you had been running steadily.

Pretty steadily 30% to 31% throughout 2018 and 19, so I guess sort of a two part question is no gross margin to put on that P. P E and Kobe bucket and one more if not just looking forward. Most importantly, do we think about gross margins improving off this call. It you know trough 26.

Started six but maybe not recapturing the 30% to 31% longer term because you always have to a certain extent that lower margin P. E sales somewhat permanent in nature and the consumable sales. Thanks guys.

Yeah, John Let me just touch on the earlier question. One stand we commented that excluding p. in coated products consumable merchandise sales were relatively flat that includes the positive benefit of specialty sales John So it's all netted in that because that's included in guidance.

Yes, I'm struggling to meet your current question you know, it's still there's still a lot of volatility in margins related to PPV and co. The delayed and as I said you know Nigel gloves is the next one that will probably show a significant increase in costs for us and there is a limit on what we could pass.

That's true I'm, sorry, I'm not ready to give guidance on gross margin just yet because there's too much volatility on the buy side and on the sell side.

And it's all related PPD and coated products as positives in that it really drive sales growth. It really drives people buying additional products. If you don't have the pilots you may lose the entire sale, but it also has a huge volatility in margins. So you got to take you know the positive with the not so positive.

Understood. Thanks, John just to add a little bit more light on the specialty side. So.

The specialty business is of course, a high margin business, but in terms of sales compared to the total approximately $10 billion business, it's not a material but in terms of profits. It is very important.

And that those businesses have done quite well.

Certainly in the quota and going into the fourth quarter. So in terms of materiality in terms of the overall sales it's not material in terms of profit it's a decent contributor.

Perfect. Thanks for the color.

Your next question comes from the line of Jeff Johnson with Baird. Please go ahead.

Thank you good afternoon or good morning, guys, maybe just following up on both Johns questions. If I could so Steve if its specialty was slightly pod or was positive in the quarter.

As you mentioned nicely positive in the quarter that looks like general consumables on the dental side, maybe down low to mid single digits or so yes. We know the 80, a survey that down twentyish percent, that's kind of consistent with what our surveys have been showing as well is that when you talk about kind of a little fall off from here is that we get a little bit in normal is.

Nation from here between kind of where you have been at maybe that down 5% for general consumable going somewhere between there and kind of where some of those volumes surveys are showing.

Well, let me I'm, Jeff Let me just clarify on the Aviate survey that talking about patient traffic.

Back, 80% plus or minus is estimated patient traffic you know so we think actual sales volume is a bit better than that.

Because it Doesnt really factor in you know the additional sales of PE products. It also seems that based on a procedure basis for some reason procedures I'm a little bit higher volume that are currently being done than historically so the.

He is you know in sales volume is higher than 80% and.

Oh, sorry, the 80% patient traffic is higher in sales volume.

And so hopefully that clarifies and I just want to make sure you had a second question that Jeff if you could just repeat it.

No. It was just like.

Washing up I understand the volume side and like I said, that's I know a lot of surveys are showing that down 20 odd we are getting a higher intensity of dentistry and things like that to drive revenue was higher than that but as you talk about kind of a little bit of a fall off in the dental performance going forward is it because revenues start to normalize at least a little bit.

Towards volumes, you know overtime I wouldn't take next can be such a positive contributor of 15 or or so points as it's been here in the last quarter.

Yeah, I think that's correct. It's also again a few other things that you know a moderating pricing on PE products that should continue if some of this pent up demand that may fall off a little bit it's a little bit of increases and positive test results for coal bed. So.

I don't think it's one particular item. It's just a few things that are impacting our our thoughts on that.

Fair enough and then last question just on the margin side.

Yes, John asked if we were at Trop marks on the gross margin side.

You did talk about some of these temporary cost savings going away and I think that's more on the opex side, but in the past I think you've also talked about sourcing for the P.P. from local markets for local markets. So.

As we think about those two levers you don't do we see margins staying.

Staying down at these levels can they tick back up in the near term just over the next call. It 12 to 18 months is there.

Trend up or down from these levels on the margin side.

Yeah, I think there's too many too much volatility for us to really give specific guidance on this.

No.

Again, we don't know exactly what's going to happen with nitrile clubs, but we do know that there is a worldwide shortage and what that means to pricing and margin I'm still ahead of us. So I don't want to you know just speculate on that.

I'm, sorry, I I think we just really can't give specific guidance along those lines at this time so hopefully.

Hopefully and couponing will have better insight.

Understood. Thank you okay.

Okay.

Your next question comes from the line of Steve Beuchaw with Wolfe Research. Please go ahead.

Hi, Thanks for the time here. So there's been a lot of questions asked about a lot of very important parts of the progression and the model, but when I think we might benefit from is even even if it's philosophical but as you think about getting into planning for 21 and beyond.

When you try to piece together all the parts, even if we just isolate into hey, let's just talk about the top line when you've got a base business, excluding cobot related items that that's flat in the middle of a pandemic and then you have probably in our daily P. A tailwind for some.

What would it take to get you know 21 revenues to be lower than 2019.

Is there a way we can sort of.

Got a floor here.

We remain quite optimistic in the return of the business specifically in dentistry.

Given the fact that.

The strings.

In visits to dentists, starting in June we were quite surprised with how.

Faster recovery occurred and remain optimistic that that will continue to increase people.

People want to see Dennis and is a huge trust that dental offices are safe.

So we can't say for sure how many quarters.

The Cobot Hi test.

Data.

We'll continue.

It has the data comes down I think you can expect.

For dentist's offices to fill up.

To a rate of.

29 team I think Dennis are dealing with the inefficiency in the office because other sectors control getting much better at that.

But as we get into say the middle of 2021.

I think we can expect to go back to normalcy.

It was in 2019, all depends of course on when the vaccine will be available and how effective it will be but.

But it seems like the.

75 to 7% to 80% number is a number that looks good.

Good for this time.

And from there I think we will build up based on.

The effectiveness of the vaccine sales.

And actually more testing availability.

We have seen that in markets, where there is comfort.

And return.

Two.

Normal rates such as China.

Australia New Zealand.

People are very comfortable going to ventas and our specialty businesses. For example in those markets is doing extremely well. So we are enthusiastic that we will return to more normal rates.

Sometime in the middle of next year.

Assuming that the vaccine kicks in and it's relatively efficient, but it seems likely that more or less a floor.

But again, it's very hard to give you a precise timing on all of that.

Okay, that's fair.

Two very quick follow ups, one first and one for Steve.

Secondly, I wonder if you could spend just a minute on the Tds C transaction I realize it's not a huge business that you're acquiring here, but it might be a pretty significant segment of the market that you can go after a little bit more acutely could you just talk about.

The definition of that customer segment of the market that you're going after all that more perhaps more effectively with TSC as part of the.

The portfolio here and then Steve I Wonder if you could spend a minute on.

What I've been calling cost savings discovery, the cobot has given us a window into you know where we might have been spending money here and there.

We've obviously had to stop spending money on certain things like travel how is that progression going how close are you to maybe you know putting a dollar amount or basis points on a what might be permanent cost savings from that discovery effort. Thank you.

So a very good question again on the Tds see.

We.

See that there's always been a markets.

So let's put it this way non food.

Full service non high touch that was the market Henry Schein was in a couple of decades ago, and the percentage of business being transacted true.

What was originally made a lot of the winter tele sales amount in ink or no.

As defined as E commerce.

It has been relatively constant up to.

The end of 2019.

During the cobot period, it increased just like all E commerce increased.

Both the E commerce only businesses the online only businesses and our own website.

Well the volumes of business that would transact to digitally increased.

We've always had a strong relationship with organized dentistry.

And there is a part of the market that would like to transact business digitally only online only and.

And so we made an investment alongside the California Dental Association.

To.

Into the online only marketplace, we are through other investments.

In the United States, and particularly abroad invested in ultimate channels.

And although these channels have not exhibited significantly grow faster growth rates.

And the food service part.

Until the end of 2019, we think that it is important for us to service this part of the market and to provide.

Both options to Dennis in the United States as by the way, we do in Europe and elsewhere. So we will keep the two models side by side.

The service from both from the same distribution that.

So on our cost saving items, Steve. So there's two primary areas that were still evaluating and focusing on and we think we will be able to say expenses on the first is travel, but its really broader than just.

Travel. It also includes things like conventions, even investor meetings not sure.

I think everyone knows on this call that there's no virtual investor meetings and conferences.

Similarly, with conventions as more virtual items. So we certainly believe there is opportunity there for travel to significantly reduce travel things like video conferencing, certainly work I think the people who are little bit skeptical on previous to this I think realize that while it's not as good as in person it's really good.

Good and in many cases can supply. So that's one area that we're still evaluating and the second area is we do believe that there is a fair amount of that team Schein members, who can work from home either permanently or.

Well on a hybrid basis, and we're doing a a person by person detailed review to determine what that opportunity is but certainly we do think that that opportunity over the longer term will be.

A benefit for us, but just recognize on on that you know the real estate footprint, it will take a little bit longer.

To reduce to real estate footprint for whatever that those are lower needs will be but both of those are still under evaluation. We don't have final answers on either one but we certainly believe that they will they will drive some costs. Some permanent cost savings going forward, we have not yet quantified the specific amount.

Okay. Thank you for all the help.

Yeah.

Our final question will come from the line of Glenn San Angelo with Guggenheim. Please go ahead.

Hi, Thanks for taking my question I stand I just wanted to follow up from something we talked about last quarter around the vaccine opportunity I think 90 days ago, you thought it was a little bit too early to speculate on if there would be a potential role for Henry Schein and what that could maybe look like have you given any more thought to that is closer to hopefully the.

The launch of a a successful vaccine here and maybe what what role Henry Schein could play given where you sit in the supply channel.

Yes, Glenn I think that.

There will be a role for Henry Schein once the vaccine is outside of government distribution.

Since is expected at least it's our view that vaccines will.

At some point be administered in physician offices.

And in the workplace, we have a very nice workplace.

Health care business and so once we are through the initial.

Government period of distribution of these vaccines.

Using a third party logistics provider and when these vaccines return will become available through normal Commission operations, we expect that Henry Schein will have a role to play as we have in administering.

Vaccines in general and we've had that role for decades, Likewise with testing, we think that as the government.

Takes less of a test and allows the private sector to manage testing to a greater extent that Henry Schein will conceive a greater allocation of tests as well.

Thank you John.

Maybe if I could just follow up one more stepping back from all the near term questions around trying to utilize.

I was just kind of curious if the performance of Dsos in the current environment is may be very different than independent practices.

And you know in this environment any longer term impact the customer mix going forward any discernible trends you're seeing between the two different classes.

I think basically we're on the same trajectory.

The large dsos growing to the extent they can secure.

Dental.

Dennis the mid sized acquisition is perhaps growing to a greater extent.

But there still is a very.

Solid base of private practitioners I doubt the one or two practice will survive long, a three or four or five practitioners going to maybe 10 in the practice.

As in my view quite a lot of runway. So I don't think there's any marked difference in weight dental Dennis you'll be practiced.

But the trend that we've seen over the years is likely to continue.

And then as it has moderately.

And the movement upstream will continue in a moderate way to grow in a moderate way. So I'm I just don't see any significant dislocation of where the industry will take place although the trend will continue upstream.

Okay. Thank you.

I'll now turn the conference back over for any closing comments.

Thank you very much operator.

We do feel very comfortable everyone with our strategy.

We are comfortable that we will continue to.

Some of the.

Dental needs across.

Across the globe.

And we are comfortable through Oh, hi.

Hybrid.

Full service model and in certain markets digital only model that this will be a.

Very good strategy going forward.

As we provide more value added services to our customers, helping them operate more efficient practice.

So that they can provide better clinical care.

We believe that infection control is important.

In both the dental offices and medical offices and that.

We can provide the necessary PPD that is needed.

And the testing will become more important enough physician offices going forward.

We also believe that our equipment businesses in dental.

On solid footing.

Maybe slight.

That doing back perhaps in the U.S. dental market as the.

Yes, we'll <unk>.

Numbers compared to the previous year.

As we had a very strong.

Fourth quarter for DS will last year.

Overall, we're comfortable that our dental equipment business in the United States.

And in Europe is on a solid footing.

It was decent backlogs.

So.

So as well just to comment we didn't get any questions on this but we leave believe Henry Schein one.

Is providing great value moving towards more of cloud based software.

And I'm very comfortable and excited with that business opportunity. So let me end today, where I started on once again extend thanks to team Schein members across the globe sales.

Well the unrelenting efforts on behalf of our customers the.

The team's passion.

Its commitment to Henry Schein has been nothing short of remarkable.

As it relates to our business and we believe we are well position as I noted due to our breadth of products services and support.

Solid momentum to build shareholder value as we emerge from the total 19 pandemic.

Again, it is clear that there is a demand for dentistry and for the physician based practice.

As procedures move from the acute care setting to more of the ultimate care setting.

And we remain quite optimistic about the future of Henry Schein. So thank you for joining us today and look forward to speak to you on our next call. Thank you.

Ladies and gentlemen that will conclude your call for today. Thank you all for participating and you may now disconnect.

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Good morning, ladies and gentlemen, and welcome to the Henry Schein third quarter 2020 conference call. At this time all participants are in a 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. We price the Starkey followed by zero on your Touchtone phone.

As a reminder, this call is being recorded I would now like to introduce your host for today's call Carolynne borders Henry Scheins, Vice President of Investor Relations. Please go ahead Carolyn.

Thank you Regina and my thanks to each of you for joining us to discuss Henry Scheins results for the third quarter of Twentytwenty.

With me on the call today are 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.

And he is 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 those filings and.

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.

Our 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 enable the comparison of financial results between periods, where certain items may vary independently of business performance.

And allow for greater transparency with respect to key metrics used by management in operating our business. These.

These non-GAAP financial measures are presented solely for informational and comparative purposes, and should not be regarded as a replacement for corresponding GAAP measures reconciliations between GAAP and non-GAAP measures can be found in the supplemental information section of our Investor Relations website, and an exhibit b of today's press.

Release, which is available in the Investor Relations section of our website as well.

The content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast November 2nd 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 today to allow as many listeners as possible to ask a question within the one hour that we have a lot of for this call and with that said I would like to turn the call over to Stanley Bergman.

Oh good morning, everyone.

And thank you everyone for calling in today is cool.

Maybe say 2020 has been an extraordinarily challenging and unpredictable you have brought team.

The most and of course suppliers I commend the work and sacrifice would seem Sean to support business continuity for our customers.

The pandemic quotes disruptions to supply chain supplies were exits increased demand for BP in particular on other products as well.

And shortages of raw materials, what experience throughout the marketplace.

Both domestically and international maybe for much of the for many of the product shall we say that we offer as.

As a result of the hard work dedication of the team throughout the COVID-19 crisis.

We are ready to assist our dental and medical customers deal with emergency.

While many of whom were subject to restrictions.

Faced severe challenges.

As they then return to their offices to provide safe quality clinical care.

Clearly the COVID-19 pandemic.

Two news to present challenges and uncertainties for the global economy and our customers.

We remain confident that we have a solid long term strategy in place to support.

Supported by a strong balance sheet and significant access to liquidity.

These strong rebound in sales that began late in the second quarter continued into the third quarter with growth over the prior year driven by sales of P.B. co, but 19 related products.

Growth coupled with the various actions we took earlier in the year to reduce operating expenses resulted in diluted EPS grew 8.8% on a GAAP basis, and 14.4% on a non-GAAP basis.

As noted in our.

As noted our.

Q3, EPS growth also reflected the various actions we took earlier in the year to reduce operating expenses most.

Most of these temporary expense reduction initiatives and no ended.

We remain committed to the well being of team Schein and our disciplined strategy that is focused on the success of our customers.

Helping practitioners efficiently manage practices, while providing quality kit as the drive long term profitable growth for the company.

Given the challenging macro environment that started with the onset of the pandemic early this year, we post our long standing program of strategic acquisitions.

Yes, as global business conditions have improved we've resumed these activities. We now believe we have significant opportunities to allocate capital in support of our strategic plan.

With a goal of maintaining a strong balance sheet.

News to increase operating cash flow overtime.

As we prepare to exit 2020, we will redefine our strategic plan with a goal of having.

Well, we financial outcome, and we will be fine now strategic plan with a goal of having how strategic plan in place.

2022 through 2024.

Continue to focus on a number of key initiatives, which include.

Increasing customer penetration organically and through acquisition do.

Geographic expansion, including into the developing world advancing technology solutions centered on software, including patient communications.

Eating the digitalization of medical dental offices, including intra operative ability to devices that prosthetic.

And expanding our specialty segment and solutions offerings.

All while advancing our.

Rental business globally, and our medical business globally as well.

Our team including.

Tele sales customer service and our distribution centers.

Remained open fully operational during this period and have done an extraordinary job throughout the scope of 19 crisis processing ongoing volume of orders received and ensuring they ship quickly to our customers.

So certainly its good use of PPR still relatively tight.

Supply was.

And our commanding somewhat off a higher price.

I believe the general pp market has stabilized.

And we will strive to maintain as we have throughout the crisis.

Pricing for our customers.

At this time I'll hand, the call over to Steven to discuss our recent financial performance and then I'll provide some additional commentary on our view of the current business conditions.

In the markets, we serve so Steven please.

Okay. Thank you Stanley and good morning to all as we begin I'd like to point out that I will be discussing our results from continuing operations.

On an as reported GAAP basis, and also on a non-GAAP basis.

Our Q3, 2020, and Q3 2019 non-GAAP results exclude certain items that are detailed in exhibit b of today's press release and in the supplemental information section of our Investor Relations website.

Please note that we have again included a corporate sales category for Q rate that represent sales to call back onto the transitional services agreement.

As we stated our intention on our last earnings call that essentially all remaining TSMC [noise] Sean.

John you got to have returned from furlough and from reduced work hours. We will continue to closely monitor the health of our business and remain prepared to take additional cost saving measures if necessary.

Turning to our financial results net sales for the quarter ended September 26, 2014, with $2.8 billion, reflecting an increase of 13.2% compared to the prior year with internally generated sales growth, 13.0% in local currencies.

P E and cope with 19 related products sales accounted for nearly all of the growth in our sales this quarter.

Although we expect P. P E and COVID-19 related product sales to possibly impact dental and medical consumable merchandise sales in the future.

We also expect overall sales growth moderate from the third quarter.

Details about sales performance was contained in exhibit a of our earnings press release that was issued earlier today.

On a GAAP basis, our operating margin for the third quarter of 2000, 26.6%, representing a decrease of 85 basis points compared to the prior year.

On a non-GAAP basis, our operating margin of 6.9% contracted by 58 basis points on a year over year basis, a reconciliation of GAAP operating margin for non-GAAP operating operating margin can also be found in the supplemental information page on our Investor Relations website.

Operating margin was primarily negatively impacted by signet significant inventory adjustments associated with PDP and cold at 19 related products.

This was offset by reduced expenses driven by our previously mentioned cost reduction initiatives that were put in place earlier in the year in response to the Cogan pandemic. These temporary cost reduction initiatives will not have a significant impact on Q4 results as most of these mezz measures such as follows reduced work.

Our hourly and salary reductions are no longer in place.

Turning to taxes, our reported GAAP effective tax rate for the third quarter of 2020, what 16.4%. This compares with a 23.5% GAAP effective tax rate for the third quarter of 2019.

On a non-GAAP basis, our effective tax rate was 16.7% and this compares with the prior year non-GAAP effective tax rate of 23.5%.

The lower tax rate in the third quarter was favorably impacted by us federal income tax settlement, which slow with income tax expense by approximately $15.6 million or 11 cents per diluted share.

Excluding this impact the rate would have been in the 25% range on both a GAAP and a non-GAAP basis.

Moving on GAAP net income from continuing operations attributable to Henry Schein for the third quarter of 2020 was $141.7 million or 99 cents per diluted share and this compares with prior year GAAP net income from continuing operations.

134.9 million or 91 cents per diluted share.

The non-GAAP net income from continuing operations for the third quarter of 2020 was $147.0 million or one dollar three cents per diluted share and this compares with a non-GAAP net income from continuing operations of $134.3 million or 90 cents per diluted share for the quarter.

On a continuing operation basis amortization of acquired intangible assets for Q3, 2020 was $25.2 million or 13 cents per diluted share and that compares to 29.5 million pre tax or 15 cents per diluted share in the same period last year.

First nine months of the year amortization from acquired intangible assets was $79 million.

Or 41 cents per diluted share and that compares to 79.6 million pretax or 40 cents per diluted share for the same period last year.

Foreign currency exchange did not have any material impact on our Q3 diluted EPS for the quarter.

Let me now provide some details on our sales results for the quarter identical sales of $1.6 billion grew 6.7% compared to the same period last year within Sir with internal sales growth of 6.5% in local currencies.

Our north American internal dental sales growth in local currencies was 6.3%.

And that included growth of 8.1% in dental consumable merchandise and 0.2% growth in dental equipment.

Internationally, our dental internal sales growth in local currencies was 6.9%.

Growth of 11.1% in consumable dental merchandise and a 6.9% decline in equipment sales.

Again the schools.

Again this quarter in North America, and international Dental merchandise growth was driven by strong ppt and COVID-19 related product sales last quarter, we provided year over year PGT sales growth as well as PPD contribution to global dental sales.

Sales for Q3, we have expanded that category to include other COVID-19 related products as well. So this category. Now also includes cold the test solutions as well as keep the mamas.

On that basis, dental PPD and cold at 19 related product sales in Q3 increased by 130% compared to the prior year.

For comparison purposes year over year growth was nearly 35% in Q2.

Turning to dental specialty products continue to be internal sales growth of global dental specialty products increased by 6.5% in local currencies very strong growth in North America at 14.8% we.

We believe this higher margin product category had solid growth potential over the long term.

Our medical sales of one $1 billion grew 27.8% to 27.8% compared to the same period last year was 27.7% in local currencies that 27.7% included.

27.8% growth in North America and internationally, 20.7%.

Our medical sales results were driven also by continued strong demand for PPD and posted 19 related products medical uncoated 19 related product sales increased by approximately 600% compared to the prior year.

Comparison purposes, the year over year growth for Q2 was 200%.

Okay.

Turning now to our technology and value added services segment.

Sales were $138.4 million in the third quarter, an increase of 0.7% compared to the prior year, which led to a decline of internally generated sales in local currencies of 1.3%.

North American technology and value added services internal sales declined by 8.2% in local currencies and internationally technology and value added services declined by 9.5% in local currencies compared to the same period last year.

The slight decline in technology and value added services sales.

In local currencies was impacted by lower than historical patient flow, which resulted in lower Henry Schein, one transactional revenue.

Additionally, our financial services revenue was negatively impacted by lower equipment sales volume.

As we first discussed on our Q1 earnings call in early May we temporarily suspended our share repurchase program as a means to provide to preserve cash and response to the impact of Covance on our business operations and also due to certain restrictions we made if the financial covenants as of today.

Henry Schein has $201.2 million authorized for future repurchases of common stock.

Currently we also have access to significant liquidity, providing flexibility and financial stability in this challenging environment.

Our operating cash flow from continuing operations for the third quarter was $261.3 million and that compares to $226.4 million for the third quarter of the prior year.

Year over year increase was primarily due to both higher net income and improvements in working capital.

As part of our previously disclosed restructuring initiative, we recorded a pre tax charge in Q3, 2000 $27 million or four cents per diluted share.

This restructuring charge primarily.

Clued severance pay facility closing costs and reflects opportunities to reduce expenses drive operating efficiencies and mitigate stranded costs, we continue to.

We expect our restructuring initiative to continue through the end of the year.

I'll conclude my remarks on the topic of financial guidance again due to the continued uncertainty surrounding COVID-19 pandemic and its impact to our business operations, we are not providing financial guidance at this time.

As a reminder, most about temporary expense reduction initiatives have now ended and although we expect pp. Another cold at 19 related product sales to positively impact dental and medical consumable merchandise sales in the future. We also expect overall sales growth to moderate from the third quarter, so with that I'd like to turn the call back over to Stan.

Thank you Steven.

This review business performance from the third quarter.

In recent weeks in October starting with dental.

In the third quarter, we saw growth in the us, Canada and throughout Europe, and consumable merchandise with particular strength in France and Italy.

Do you play with exception with the continued impact on COVID-19 has led to slow a patient traffic.

The end markets, China, Australia, New Zealand and Brazil also.

Also recovered quite nicely from the bend to make the pre pandemic or from actually from the pandemic levels, returning home almost to actually to the pandemic.

To the.

Pre pandemic levels.

During the third quarter, our internal sales for consumable merchandise in local currencies in both North America and international markets was strong.

At the 8.1 and 11.1 growth respectively.

The growth the growth was driven by sales of pp, he and COVID-19 related products.

P P E and cobot related product sales as a percentage of global dental sales were in the mid single digits percentages.

Range prior to.

COVID-19.

Which grew to approximately 11% in the second quarter and in the third quarter. This contribution in dental was approximately 10%.

We continue to expect that pp he will constitute a meaningful portion of our dental sales going forward.

Yes, as safety protocols are made a necessity for both patients and dental offices and actually.

Feel that dentists in general in the United States and abroad are handling infection control ships is controlled extremely well.

That there was an adequate amount of PBB available for these practitioners to continue to provide.

Safe safe environment with a very good infection control.

In these offices.

On our dental specialty businesses, which is comprised of implants endodontics and orthodontic sales.

During the third quarter in this segment.

We actually performed quite well led by Endodontic product sales.

Also implant sales were particularly strong in North America, we internal sales growth in local currencies increased by approximately 18%.

Dental equipment sales in the third quarter continued to recover.

In North America, both traditional and high technology equipment internal sales growth in local currencies was essentially flat.

With in those categories, we experienced strong sales and laser products, albeit a small base and double digit growth in CAD cam equipment versus the third quarter last year.

As a two d. and three D imaging sales declines in the quota.

International equipment sales experienced a mid single digit percentage decline sales in Europe declined for both traditional and high technology during the pokemon during the third quarter as some practices the food investment decisions.

As I mentioned last quarter, we are seeing heightened interest from customers in the air purification candidly, we will have the exclusive relationships specific with the Radek ace and the surgically clean air and we also offer solutions from other manufacturing partners, including Dataman Ocelot and dry shales.

It's clear that practices are getting more efficient and seeing patients as they adjust to new protocols. The degree of increased efficiency is hard to determine at this time, but clearly the addition of safety protocols in the practice.

And driving efficiency are both at play in.

In particular, we believe there will be continued interest in equipment solutions that enhance productivity.

Which is particularly important aspect to sales to see more patients and of course, a safe environments.

Sure. So in summary substantially all of the dental markets, we serve strengthened relative to the second quarter.

As we progressed through the third quarter.

With a month to month improvements in consumable merchandise sales.

Uh huh.

Obviously, driven by demand pp in Covance related products.

So where are we at this point.

Dental practices in North America, Europe, Australia, and New Zealand open again for the most part as well I might add as Brazil and patients are returning okay.

China is isnt.

Essentially back to pre pandemic levels.

Bye.

Rising COVID-19 diagnosed patients in North America, and the growing number of European countries, including Germany, France, The UK, Belgium, the Netherlands, Italy, Spain, Austria, Switzerland, and Czech Republic and Poland.

And also.

In Brazil.

Patients continue to visit the dentist. This is very encouraging completely different to what it was in April these factors outside open it and pain.

Patients are visiting the dental practice very clearly very very different to April and the demand for products both.

Both consumables and equipment remains.

The latest survey data published by the American Dental Association for the U.S. shows that dental practices, approximately 77% of pre COVID-19 patient volume.

Down approximately 2% versus the prior IDH survey, but.

But not showing any material degradation in patient volume.

I think we have to be careful reading anything into the swing of a couple of percentage points.

Henry Scheins. He claims data also showed that patients continue to return for a broad set of oral care procedures. It is clear that in the United States. The public views dentistry as important and although we do not have as finite a detailed information in Europe, we can see that in your.

Dennis.

Oh being viewed as important health care providers of course, the UK is the exception.

With regulations have been such that.

ER visits to dentists have been restricted but the rest of Europe is essentially open for dentistry actually all the markets. We're in.

So overall, we would characterize the current dental end markets as improving in.

In some areas and continue into stabilizes in others.

At this moment this is exactly what we see.

Of course, we continue to watch all geographies.

As covered 90 cases rise, particularly whether this impacts patient utilization and witness a V shaped recovery becomes more of a W. But at this stage, we do not see any reason why we.

We should go into a W recovery seems quite stable as dental practices are open.

Before we move on to the performance of our medical business. Let me comment on the recent announcement that dental that the dentist supplied company or T.D.S.C.

Which was originally launched by the California Dental Association to offer members of organized industry.

Low price online only option for obtaining dental supplies has joined Henry Schein.

Tedious she will maintain.

It's called focus on providing consistent online only competitive pricing Dental Association members.

Tds, she customers will benefit from the expanded product portfolio and hence shipping.

Improved order fulfillment and of course fast, but the liberty backed by Henry Schein Henry.

Henry Scheins full service distribution model.

Coupled with Tds she strategy.

Office Space Dental Association members the options they seek when choosing to purchase dental supplies and small equipment for their practices.

These two marketing channels are complementary.

And aimed at delivering the reclusive level of service for various customer segments.

Henry Schein will of course maintain and build on our full service distribution model offering customers a wide range of competitively priced consumable merchandise equipment and technology products and services, including software coupled with our highly experienced.

Field.

Until the sales teams Tds. She has said that sales in 2019 of approximately $20 million.

So a high touch.

Model is very much the model that we subscribe to the Henry Schein, but we're offering an alternative of a pure online service to those customers that wish.

To take advantage of such an offering.

Now, let's move to our medical business the medical sales growth during the third quarter was also driven by strong demand for BP and COVID-19 related products. This marked the first quarter in which our medical team achieved a billion dollars in sales and we have extremely pleased with the medical teams track record in building this business.

We are beginning to see improved access to covert tish solutions that were first being allocated to the government for initial distribution.

As we move into 2021, we expect testing solution availability for practitioners to continue to improve as more tests and approved and as for the allocation to the private sector markets of CLSA.

In line with manufacturing capacity increases we.

We are as noted receiving greater allocation of tests for office space petition is very much viewed as important to conduct specifically the rapid.

Cobot tests.

In their offices point in other words, the point of care Tish.

P P and covered 90 and related product sales as a percentage of the global medical sales increased.

From mid single digit percentage pre 19, COVID-19 to approximately 17% in the second quarter and approximately 24% in the third quarter.

Should we expect that PB and covert related product sales in Q.

Reading tests will continue to be a meaningful portion of our medical sales as practice will seek to create a safe environment for both patients and staff and undertake more testing in the office space setting environment.

Regarding the potential to distribute COVID-19 vaccines I'd like to point out that Henry Schein has had a long history of leadership and supply chain readiness in response to strategic partnerships. We have developed over many years provide us with the specialized inside.

It's outbreaks and supply chain challenges.

[laughter].

We also have excuse me we also have excellent.

Relationships with a number of manufacturers working on vaccines.

And I'll stay in close contact with these manufacturers.

We believe that when these products enter the commercial distribution channel.

[laughter] that we.

Well be getting without credibility and a history of effectively working with pharmaceutical manufacturers as well as a public private partnerships will be recognized.

[laughter] as well as.

The office space.

Practitioner will also be recognized.

As a place to administer these vaccines.

It's up.

Let's move on to our technology and value added services business.

As dental practices continue to reopen throughout the third quarter Henry Scheins one.

Uh Huh transaction software revenue, including eat claims and credit card processing was down and is slightly is going up slightly.

Really following the the trends of visits to dental practices.

This was offset by solid growth and I was comparing it to the previous year to 2019. This.

This was offset by solid growth in sales up.

Our dental plans and Dentrix ascend cloud based software solutions.

[laughter] remote access provided through cloud based solutions, such as Dentrix ascend.

Especially attractive to practices that desire will have a requirement to conduct remote work, including managing the business and clinical aspects of their practice.

During the third quarter, we launched a number of product enhancements for our Henry Schein one solutions.

Including.

A number of new Dsos centric capabilities imaging enhancements.

New sophisticated accounting capabilities and E prescribing solutions and payment processing features in the Dentrix ascend product.

New insurance management and payment processing enhancements in Dentrix and key enhancements to our very successful online bill payment solution.

We continue.

We continue to invest in our platform up dental software solutions to deliver integrated technologies.

Automates more tests and simplifies the digital workflow.

Increased product.

Just productivity.

In summary, looking at our current business, while it's still early in the fourth quarter, we are continuing to see dental and medical sales growth over the prior year at this time driven.

Driven by P E and other cobot related products that said this is not necessarily indicative of what full.

Quarter performance may be but having said that we're very encouraged with the performance in October.

Actually across the board.

But of course must be a little cautious in that this is a very unpredictable.

And predictive predictable fine.

So before we move to your questions I would like to note. How pleased we were in September to be named to the Fortune magazine's change the World list, which is an annual ranking of companies that have had a positive social impact through activities that a part of the core business strategy.

And you Shine was recognized for our role in helping to create the pandemic chain pandemic.

Pandemic supply chain network at the World Economic Forum in 2015.

A public private partnership aimed at saving lives by strengthening the resilience of global health care supply chain in general in response to epidemics and MX. We are most pleased to serve as the P. S C and private sector lead on these very important initiatives.

We were also pleased to be named among the top NASDAQ listed companies included in the next generation 100 index designed to measure performance.

The largest 100 nonfinancial NASDAQ companies that are focused on growth and innovation, which are ranked after those companies and then that SEC 100 index by capital market capitalization.

This week is a special we could Henry Schein with respect to NASDAQ.

As we celebrate 25 years as a public company on the exchange over.

Over the over those years, we have successfully navigated through many changing market dynamics and grown our business.

Delivering value to our shareholders in sales.

Since the time of our IPO. We are pleased to have delivered compounded annual growth from continuing operations of 13% in sales and 14% in non-GAAP EPS through the end of 2019.

So with those comments in mind.

We'd be very pleased Stephen and I.

Any questions that investors may have thank you.

Tom This time, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Our first question will come from the line of Nathan Rich with Goldman Sachs. Please go ahead.

Good morning, and thanks for the questions maybe.

Maybe starting with your comments on the outlook, Stan and Steve can you give us any detail on how October performed relative to the third quarter and when we think about your expectation for growth to moderate relative to the third quarter is that solely due to what you're seeing with respect to PB uncovered related products or are you also.

Expecting a moderation in sort of the underlying growth rates for the dental and medical segments as well.

So thank you for the question October has continued with a trend.

Of September in fact, even maybe a little higher.

The concern we have is the potential impact of the rising number of diagnosed covert patients having said that at the moment it seems like dental practices or seeing patients again, a very different to April both.

Both domestically and in most markets abroad. Some markets Inc. At a much greater increased rate than even before ovitz and others down. So we just want to be cautious in the context of <unk>.

The latest data on diagnosed patients, having said that the business seems to be pretty good.

Place right now with Dennis a across the board seeing patients.

And the same from medical technician is Steven.

Yes, I think that summarizes <unk>, yeah, I would add maybe a couple of additional points.

We think during Q3, a there was a bit continued bit of.

Backlog of patient demand that got caught up during Q3 that may not continue going forward are.

We also think related to PPG and cold and related sales that there was a lot of initial order taking to startup practices and to restart practices that may not continue at the same rate.

So so those reasons really also contribute to us being a little bit more cautious on the outlook going forward.

That's helpful and just two quick clarifications with respect to the rising KOVA case counts that you cited have you seen an impact in your volumes in recent weeks or is that just kind of adding to the uncertainty in the outlook and then secondly on Steve could you maybe talk through your expectations on P.

The pricing going forward is just as we think about the magnitude of the topline and margin impact we should expect in the fourth quarter and beyond.

Yeah, we don't see a significant change in volume at this moment.

Petitioners seem to be seeing patients consistent with what we saw in September.

Having said that anecdotally. The 88 data is down a couple of percent I'm not sure whether that is meaningful or not having.

Having said that our portion relates to the increase in diagnose patients both in the United States and in Europe.

But at the same time.

We don't see a significant reduction in visits to practitioners.

Steven.

Yeah, and on a p. and related products I think we would assume that pricing will continue to moderate back in Q2 and early Q3.

The pricing for certain products, primarily face masks.

He was a significantly elevated as there was a shortage of supply and that was really our cost was really significantly.

Higher than what typical costs was as.

As supply continues to improve that pricing is beginning to moderate.

On on most of those products. There is one product category, though that is now in short supply so be hard to tell how this has impacted but nitrile examination gloves on now in very short supply.

Globally.

So we may see a spike in and our cost for those products, which would in turn have us increase somewhat our pricing to end users but.

But I would say for the most part I would think that pricing will moderate on on products for PPG and coping related.

That's helpful. Thanks for the question.

Your next question will come from the line of Steven Valiquette with Barclays. Please go ahead.

Great. Thanks, good morning.

Thanks for taking the question.

So rescuing a few questions here on gross margin it was fairly flat sequentially, but down year over year likely just due to mix I guess I'm curious if there's any color on how much the growth margin threeq with impacted just simply by greater mix of lower margin medical sales versus higher margin.

[laughter].

Yes sure Steve.

The main driver was not mix the main driver as we outlined in our.

Press release was related to PPD.

And related product, where you know because early on than in in buying that product. We saw significant increases in our cost I remember it was a difficult time to even access products back then most suppliers were not selling unless you pre paid for the product and there was absolutely no way to negotiate.

<unk>.

At that time, we made a decision that it's important to have access to products for our customers because it's such a critical product category.

And because of that we did buy some product at high prices that required inventory adjustments during the quarter.

So that was one that was the biggest impact on margins for the quarter. There were also some other impacts some of the people selling prices were also at lower margin that was a smaller contributor and also supplier rebates.

I'm also a smaller contributor were less in the quarter because of volume on that they're rebated to I I'm I'm hopeful that we'll see a lot of that go away, although it's really difficult to predict on inventory adjustments because the pricing is still very volatile on both the purchase.

As well as the market sales side. So, we'll just kind of have to wait and see for that.

Okay, all right appreciate the color. Thanks.

Your next question will come from the line of John Block with Stifel. Please go ahead.

Great. Thanks, Good morning, guys.

Selling maybe just to start with you. If you can compare and contrast, some of the dental consumable figure that you gave I think ex.

X.P.P.E. encoded.

Dental consumables were flatter called like the basic consumables, but I thought you mentioned very strong dental specialty lumber that was up 14% in North America I think even in plants up 18%. So maybe you can just talk to that dichotomy between the two within consumable sales that I've just got a follow up.

Yes, it's a very good question. So if you take out the p.

<unk>.

Related sales well actually the province related sales because within that.

That category PPV and testing, but if you take that all out.

When you look at both dental and medical outside.

Our sales for coal products consumables was about flat.

So.

That's where we've been for the third quarter and it looked like it looks like that's where we are in a turnover as well.

So.

That's the basic.

Situation.

Patients clearly are visiting Dennis.

Same with physicians, so we're quite comfortable that that will remain busy.

But of course, there is no understood there's no clarity as to what could happen in November and December.

Given the increase in diagnosis.

Having said that.

Clearly practitioners are open to see patients.

Everywhere other than really in the UK, which is a an anomaly.

Very very different to the situation in April.

And the early part of May.

Did you have another question.

Oh, well I'll just pick up I do have another one thank you I don't know pivot.

Stephen to you on the gross margin it follows up on Steve's question.

26 shouldn't change down about 300, or so basis points and you had been running steadily pretty steadily 30% to 31% throughout 2018 and 19, So I guess sort of a two prong part question is no gross margin to put on that P. P E and Kobe bucket and if not just.

Looking forward. Most importantly, do we think about gross margins improving off this call. It you know trough 26, Dod six but maybe not recapturing the 30% to 31% longer term because you'll always have to a certain extent that lower margin pp sales somewhat permanent in nature of the consumable sales. Thanks guys.

Yeah, John Let me just touch on the earlier question.

Once family commented that excluding pp in coated products consumable merchandise sales were relatively flat that includes the positive benefit of specialty sales John So it's all net other than that because that's included in consumables.

Got you to your current question, it's still there's still a lot of volatility.

In margins related to pp and co the delayed and as I said you know Nigel gloves is the next one that will probably show a significant increase in cost for us and there is a limit on what we could pass through I'm sorry.

So I'm not ready to give guidance on gross margin just yet because there's too much volatility on the buy side and on the sell side.

And it's all related pp and coated products as positives in that it really drive sales growth. It really drives people buying additional products. If you don't have the pilots you may lose the entire sale, but it also has a huge volatility in margins. So you got to take you know the positive with the not so positive.

Understood. Thanks for the color John just to add a little bit more light on the specialty side the.

The specialty businesses of close to high margin business, but in terms of sales compared to the total approximately $10 billion business, it's not a material but in terms of profits. It is very important.

And that those businesses have done quite well.

Certainly in the quota and going into the fourth quarter. So in terms of materiality in terms of the overall sales it's not material in terms of profit.

Decent contributor.

Perfect. Thanks for the color.

Your next question comes from the line of Jeff Johnson with Baird. Please go ahead.

Thank you good afternoon or good morning, guys, maybe just following up on both Johns questions. If I could so Steven its specialty was slightly pod or was positive in the quarter.

As you mentioned nicely positive in the quarter that looks like general consumables on the dental side, maybe down low to mid single digits or so yes. We know the 80, a survey that down twentyish percent, that's kind of consistent with what our surveys have been showing as well is that when you talk about kind of a little fall off from here is that we get a little bit in normal is.

Nation from here between kind of where you have been at maybe that down 5% for general consumable going somewhere between there and kind of where some of those volumes surveys are showing.

Well, let me Jack let me just clarify on the a survey that talking about patient traffic.

That 80% plus or minus is estimated patient traffic you know so we think actual sales volume is a bit better than that.

Because it doesnt really factor in no the additional.

Sales of PE products.

It also seems that based on a procedure basis for some reason procedures.

Or a little bit higher volume that are currently being done than historically.

So the 80 is in sales volume is higher than 80% and Oh, sorry, the 80% patient traffic is higher in sales volume.

And so hopefully that clarifies and I just want to make sure you had a second question that Jeff if you could just repeat it.

No my question of I understand the volume side and like I said, that's I know a lot of surveys are showing that down 20 odd we are getting a higher intensity of dentistry and things like that to drive revenue was higher than that but as you talk about kind of a little bit of a fall off in the dental performance going forward is it because revenue will start to normalize.

At least a little bit back towards volumes overtime I wouldn't think next can be such a positive contributor of 15 or or sell point as it's been here in the last quarter.

Yeah, I think that's correct. It's also again a few other things its you know.

Moderating pricing on PE products that should continue.

If some of this pent up demand that may fall off a little bit it's a little bit of increases and positive test results for coal bed. So I don't think it's one particular item. It's just a few things that are impacting our our thoughts on that.

Fair enough and then last question just on the margin side I. John asked if we were at trop margin on the gross margin side.

You did talk about some of these temporary cost savings going away and I think thats more on the capex side, but in the past I think you've also talked about sourcing for the P.P.E. from local markets for local market. So as.

As we think about those two levers do we see margins.

Staying down at these levels can they tick back up in the near term just over the next call. It 12 to 18 months is there.

Trend up or down from these levels on the margin side.

Yeah, I think there's two men it too much volatility for us to really give specific guidance on this.

No.

Again, we don't know exactly what's going to happen with mitral clubs, but we do know that there is a worldwide shortage and what that means to pricing and margin is still ahead of us. So I don't want to speculate on that.

So I I think we just really can't give specific guidance along those lines at this time, so hopefully I'm not going to we'll have.

The insight.

Understood. Thank you okay.

Okay.

Your next question comes from the line of Steve Beuchaw with Wolfe Research. Please go ahead.

Hi, Thanks for the time here.

A lot of questions asked about a lot of very important parts of the progression and the model, but when I think we might benefit from is even even if it's philosophical but as you think about getting into planning for 21 and beyond.

When you try to piece together all the parts, even if we just isolate into hey, let's just talk about the topline when you've got a base business, excluding cobot related items that that's flat in the middle of a pandemic and then you have probably an elevated P. A tailwind for some.

What would it take to get you know 21 revenues to be lower than 2019 is there a way we can sort of.

Set a floor here.

We remain quite optimistic in the return of the business.

Specifically in dentistry.

Given the fact that.

The strengths.

In business to Dennis starting in June we were quite surprised with how.

Faster recovery occurred and remain optimistic that that will continue to increase people.

People want to see Dennis and is a huge trust that dental offices are safe.

So we can't say for sure how many quarters.

Covert hi test.

Data.

We'll continue.

But as the data comes down I think you can expect.

For dentist's offices to fill up.

To a rate of.

2019, I think Dennis all dealing with the inefficiency in the office because of the shift just control getting much better at that.

But as we get into say the middle of 2021.

I think we can expect to go back to normal see.

It was in 2019, all depends of course on when the vaccine will be available and how effective it will be but.

But it seems like the.

75 to 7% to 80% number is a number that looks good.

Good for this time.

And from there I think we will build up based on.

The effectiveness of the vaccine sales.

And actually more testing availability.

We have seen that in markets, where there is comfort.

And with the Sun.

Two.

Normal rates such as China.

Australia New Zealand.

People are very comfortable going to ventas and our specialty businesses. For example in those markets is doing extremely well. So we are enthusiastic that we will return to more normal rates.

Sometime in the middle of next year.

Assuming that the vaccine kicks in and is relatively efficient, but it seems like we've hit more or less a floor.

But again, it's very hard to give you a precise timing on all of that.

Okay, that's fair.

Two very quick follow ups, 1% one for Steve.

Secondly, I wonder if you could spend just a minute on the Tds C transaction I realize it's not a huge business that you're acquiring here, but it might be a pretty significant segment of the market that you can go after a little bit more acutely could you just talk about.

The definition of that customer segment of the market that you're going after all that more perhaps more effectively with TSC as part of the.

The portfolio here and then Steve I Wonder if you could spend a minute on.

What I've been calling cost savings discovery <unk> cobot has given us a window into you know where we might have been spending money here and there.

And Weve, obviously had to stop spending money on certain things like travel how is that progression going how close are you to maybe you know putting a dollar amount or basis points on a what might be permanent cost savings from that discovery effort. Thank you.

So a very good question again on the Tds C.

We.

See that there's always been a markets.

So let's put it this way non full.

Full service non high touch that was the market Henry Schein was in a couple of decades ago, and the percentage of business being transacted true.

What was originally made a lot of the winter tele sales amount in ink now and.

As defined as E commerce.

It has been relatively constant up to.

The end of 2019.

During the current period it increased just like all E commerce increased.

Both the E commerce, only businesses online only businesses and our own website.

With the volumes of business that would transact to digitally increased.

We've always had a strong relationship with organized dentistry.

And there is a part of the market that would like to transact business digitally only online only and.

And so we've made investment alongside the California Dental Association.

To.

Into the online only marketplace, we are through other investments in.

In the United States, and particularly abroad invested in ultimate channels.

And although these channels have not exhibit to significantly grow a faster growth rates.

And the food service part.

Until the end of 2019, we think that it is important for us to service. This part of the market and to provide both.

Both options to Dennis in the United States as by the way, we do in Europe and elsewhere. So we.

We will keep the two models side by side and the service from both from the same distribution network.

So on a cost saving items, Steve. So there's two primary areas that were still evaluating and focusing on we think we will be able to say.

[music].

<unk>.

Expenses on the first is travel, but its really broader than just travel. It also includes things like conventions, even investor meetings not sure.

I think everyone knows on this call that there's no virtual investor meetings and conferences.

Similarly, with conventions as more virtual items. So we certainly believe there is opportunity there for travel to significantly reduce travel things like video conferencing, certainly work I think the people who are little bit skeptical.

Yes, so that's I think realize that while it's not as good as in person, it's really good and in many cases can suffice. So that's one area that was still evaluating and the second area is we do believe that there is a fair amount of that team Schein members, who can work from home either permanently well on a.

Hybrid basis, and we're doing a a person by person detailed review to determine what that opportunity is but certainly we do think that.

That opportunity over.

Over the longer term will be a benefit for us, but just recognize on on that you know the real estate footprint, it will take a little bit longer.

To reduce to real estate footprint for whatever that those are lower needs will be but both of those are still under evaluation. We don't have final answers on either one but we certainly believe that they will they will drive some costs some permanent cost savings going forward.

We have not yet quantified the specific amount.

Okay. Thank you for all the help.

Yeah.

Our final question will come from the line of Glenn San Angelo with Guggenheim. Please go ahead.

Hi, Thanks for taking my question Stan I just wanted to follow up on something we talked about last quarter around the vaccine opportunity I think 90 days ago, you thought it was a little bit too early to speculate on if there would be a potential role for Henry Schein and what that can maybe look like have you given any more thought to that as you get closer to hopefully the.

The launch of a a successful vaccine here and maybe what what role Henry Schein could play given where you sit in the supply channel.

Yes, Glenn I think that.

They will be a role so Henry schein once the vaccine is outside of government distribution.

Since is expected at least our view that vaccines will.

At some point be administered in physician offices.

And in the workplace, we have a very nice workplace.

Health care business and so once we are through the initial.

Government period of distribution of these vaccines.

Using a third party logistics provider and when these vaccines return will become available through normal Commission operations, we expect that Henry Schein will have a role to play as we have in administering.

Vaccines in general and we've had that rolls for decades, Likewise with testing, we think that as the government.

Takes less of the test and allows the private sector to manage testing to a greater extent that Henry Schein will conceive a greater allocation of tissue as well.

Thank you John.

Maybe if I can just follow up one more stepping back from all the near term questions around utilization.

I was just kind of curious if performance.

Yes, those and the current environment is may be very different than independent practices.

And you know in this environment any longer term impacts the customer mix going forward any discernible trends you're seeing between the two different classes.

I think basically we're on the same trajectory.

A large dsos growing to the extent they can secure.

Dental.

Dennis the mid sized acquisition is perhaps growing to a greater extent.

But there still is a very.

Solid base of private practitioners I doubt the one or two practice will survive long, a three or four or five practitioners going to maybe 10 in the practice.

As in my view quite a lot of runway. So I don't think there's any marked difference in where dental Dennis you'll be practiced.

But the trend that we've seen over the years is likely to continue.

And as it has moderately.

And the movement upstream will continue in a moderate way to grow into moderate way. So I'm I, just don't see any significant dislocation of where the industry will take place although the trend will continue upstream.

Okay. Thank you.

I will now turn the conference back over for any closing comments.

Thank you very much operator.

We do feel very comfortable everyone with our strategy.

We are comfortable that we will continue to.

Some of the.

Dental needs across.

Across the globe.

And we are comfortable through Oh, hi.

Hybrid.

Full service model and certain markets digital only model that this will be a.

Very good strategy going forward.

As we provide more value added services to our customers, helping them operate more efficient practice.

So that they can provide better clinical care.

We believe that infection control is important.

In both the dental offices and medical offices and that.

We can provide the Mississippi PPD that is needed.

And the testing will become more important enough physician offices going forward.

We also believe that our equipment businesses in dental.

On solid footing.

Maybe slight.

So back going back perhaps in the U.S. dental market as the.

Yes, we'll numbers.

Numbers compared to the previous year.

As we had a very strong.

Fourth quota for DS will last year.

But overall, we're comfortable that our dental equipment business in the United States.

And in Europe is on a solid footing.

It was decent backlogs.

Throughout.

So as well just to comment we didn't get any questions on this but we leave believe Henry Schein one.

Is providing great value moving towards more of cloud based software and.

Very comfortable and excited with that business opportunity. So let me end today, where I started on once again extend thanks to team Schein members across the globe sales.

Unrelenting efforts on behalf of our customers.

Team's passion.

Commitments to Henry Schein has been nothing short of remarkable.

As it relates to our businesses. We believe we are well position as I noted due to our breadth of products services and support.

With solid momentum to build shareholder value as we emerge from the total 19 pandemic.

Again, it is clear that there is a demand for dentistry and for the physician based practice.

As procedures move from the acute care setting to more of the ultimate care setting.

And we remain quite optimistic about the future of Henry Schein. So thank you for joining us today and look forward to speak to you on our next call. Thank you.

Ladies and gentlemen that will conclude your call for today. Thank you all for participating and you may now disconnect.