Q3 2021 Henry Schein Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Henry Schein third quarter 2021 earnings 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. Please press the star key followed.
Hi.
E Mail on you touched on phone as a reminder, this call is being recorded I would now like to introduce your host for today's call Graham Stanley Henry Schein, Vice President of Investor Relations and strategic Financial Project Officer. Please go ahead Graham.
Thank you operator, and my thanks to each of you for joining us today.
Any signs of results for 2021 for the quarter.
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 thank you guys.
This call will include information that is forward looking.
As you know risks and uncertainties in bulk and the company's business may affect the Massachusetts and forward looking statements.
As a result, the company's performance may materially differ from those expressed or.
Okay.
Such forward looking statements.
These forward looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein problems with it.
Thanks, so much.
And in the risk factor section of those filings.
In addition, all comments about the markets, we serve including end market growth rates and market share.
Based upon the company's internal analysis.
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.
To enable the comparison of financial results between periods.
Maybe they are independent business for Goldman.
To allow for greater transparency with respect to key metrics used by management in operating our business.
These non-GAAP financial measures are presented.
Promotional 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 equity.
This release, which is available in the Investor Relations section of our website.
Lastly, the contents of this conference call.
Time sensitive information that is accurate.
Only as of the date of July broadcast November seven 2021.
And we signed undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the base of this call.
Limit yourself to a single question and a follow up during Q&A without money.
Both the ask a question within the one hour.
That's cool.
With that said I would like to turn the call over to Tom.
You bet.
Thank you very much.
And.
Naturally <unk> on your appointment as.
Head of Investor Relations and of course, Thank you for all you've done for the company over the last dozen plus years.
So good morning to everyone and thank you for joining us.
Really really happy today to report record third quarter financial results.
Driven by a keen focus on execution by the team and the team has done.
Marketable job since.
The virus.
Pandemic started back in March of 2020.
And of course.
It was a steady patient traffic pattern during this quarter, which also contributed to the very good actually the excellent results.
And we have excellent momentum across the entire company.
So if we compare the <unk>.
<unk> sales.
A year ago.
Henry Schein.
Worldwide internal sales in local currencies.
Increased.
Robust seven 2%.
But what's really important if you exclude the sales of PP&E.
And COVID-19 related products.
The results.
Six 3%.
That's the internal sales growth in local currencies.
We believe that patient traffic was generally similar to the previous quarter for our dental customers.
In the United States and globally.
Small adjustments in different parts of the world, but not material.
And definitely the patent is improving for our medical customers. We mentioned in previous calls that visits to physician offices had gone down compared to 19 and definitely in ambulatory surgical centers as well, we see this traffic as increasing again.
Uh huh.
In mid September we announced important changes to our senior distribution business.
Leadership structure.
And let me comment on these changes before I review the third quarter performance.
Each of our business groups actually Stephen will do that first and then I'll provide additional comments later.
We have been pursuing an umbrella strategy.
Which we internally refer to as one distribution.
As part of the continuous operational improvement of Henry Schein as a company.
More tightly in the strategy of one distribution more tightly integrated management of our distribution businesses globally.
Our newly announced structure, which we've been working on for about 18 months seeks to harness the benefits of consolidating the management of Henry Schein dental and.
And medical distribution businesses in two regions to geographies North America.
And the rest of the world.
International.
One distribution.
We will better position, our management team to leverage functions talent processes.
And yes systems across Henry Schein global distribution businesses.
These changes are designed and expect it to accelerate improve efficiency and of course, that's been a goal of Henry schein for decades to improve efficiency, but we're really focused on it now.
More than ever and actually doing pretty good job at that but I believe that this new management structure will advance.
Our efficiency as an organization globally.
But also and quite importantly, the new structure will allow us to enhance the customer experience by.
While operating in a more efficient manner is just no question that COVID-19.
This period this COVID-19 period as increased customers' expectations.
The cash to make spirit, and we are committed to fulfilling those expectations and in fact exceeding them.
Furthermore, these changes recognize the fact that medicine and dentistry are both part of the care continuum.
And we've been talking about this for years as well.
It's really coming much closer together.
The notion that medicine and dentistry.
Aligned in prevention and wellness.
And today, we have a small, but nevertheless, increasing amount of overlap between the two customer say, we're starting to see.
Practices emerge.
Servicing both sides dentistry and medicine, we're starting to see our electronics, our electronic medical records and dental schools, but dentistry.
And.
This is starting to connect and interoperable way with medical records. So this whole notion of the integration of <unk>.
And medicine is advancing and we are aligned.
And this whole area of wellness and prevention, which is so important to providing better quality of care.
Yes.
A more competitive price.
Lower price shelf.
So called value stocks.
Shane.
Now.
Our software specialty products and practice services businesses.
So.
Reflective of Henry Schein long standing commitment to help customers operate more efficient practices.
And support clinical care.
We saw continuing to sharpen our focus on these faster growing and higher margin markets through organic growth and as Youll hear later already through some very interesting strategic acquisitions, which you may just this year and we will add to that the whole notion that software.
LT products and practice.
Activities those three business areas aligned.
Without one distribution strategy different management teams different focus.
The whole idea is to provide better customer service, while at the same time driving up.
Margins operating margins as well.
Our customers increasingly rely upon Henry Schein.
Prehensile offering of innovative solutions and services.
Along with our distribution network for their continued success and what is clearly a much more digital world than we went into in March of 2020.
We believe we have our most accomplished.
Leadership team in place and our businesses.
The world both on the distribution side and the software specialty products and practice services business aside they are ready to satisfy the needs of our customers.
Improve.
Spirits drive down cost.
And at the same time, therefore provide an increased operating income and create shareholder values value with these opening comments I'd like to hand, the call over to Steven discuss our quarterly financial performance and guidance, which we are now providing for the remainder of 2021 and yes for two.
1022, as well then I'll provide some additional commentary on the current business conditions and our markets Steven Please.
Okay. Thank you Stanley and good morning to everyone. As we begin I'd like to point out that I will be discussing our results from continuing operations as reported on a GAAP basis and also on a non-GAAP basis, our third quarter non-GAAP results for 2021, and 2020 excludes certain items that are detailed in the exhibit.
Today's press release as well as 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 the prior year sales to <unk> under the transition services agreement, which concluded in the fourth quarter of 2020, while the agreement has ended the sales are still reflected in the prior year comparative results.
Turning now to our financial results total net sales for the quarter ended September 25, 2021, with $3 2 billion, reflecting growth of 11, 9% compared with the prior year period.
Internally generated sales were up seven 2% in local currencies and you can again see the details of our sales performance in exhibit a of the earnings press release that was issued earlier this morning.
On a GAAP basis, our operating loss for the third quarter of 2021 was $6 six 3% and Thats relatively flat, but represents an increase of two basis points compared with the prior year.
On a non-GAAP basis operating margin.
663% for the third quarter of 2021.
<unk> represents a decrease of 22 basis points compared with the prior year again, a reconciliation of GAAP operating margin to non-GAAP operating margin can be found in the supplemental information page on our website.
The year over year decline is due to higher expenses this quarter compared with Q3, 2020, which reflected temporary expense reduction initiatives. We put in place last year in response to the COVID-19 pandemic. This was partially offset by gross margin expansion compared with Q3 2020, mainly as a result of lower inventory addressed.
<unk> in the current quarter.
Turning to our taxes.
Our reported GAAP effective tax rate for the third quarter of 2021 was 23, 9%. This compares with a 16, 4% GAAP effective tax rate for the third quarter of 2020.
On a non-GAAP basis, our effective tax rate for the third quarter of 2021 was also 20.
23, 9% and that compared with 16, 7% in the third quarter of last year.
Remember our prior year tax rate was favorably impacted by U S. Federal income tax settlement, which lowered income tax expenses by.
Approximately $15 6 million or 11 cents per diluted share again. This is the prior year taxes exclude.
Excluding this impact the effective tax rate last year, what had been in the 25% range for both on a GAAP and non-GAAP basis.
You can also see the reconciliation of GAAP effective tax rate for non-GAAP effect.
The tax rate.
On the Investor relation page on our website.
We expect our effective tax rate to continue to be in the 25% base range on both the GAAP and non-GAAP basis in the fourth quarter and of course that assumes no changes in tax legislation.
Moving on GAAP net income from continuing operations attributable to Henry Schein for the third quarter of 2021 was $162 $3 million or $1 15 per diluted share.
And included a gain on sale of an equity investment of <unk> <unk> per diluted share.
This compares with the prior year GAAP net income continue.
GAAP net income from continuing operations of $141 7 million or <unk> 99 per share on a non-GAAP basis net income from continuing operations for the current year was $154 8 million or $1 10 per diluted share and that compares to net income from continuing operations of <unk>.
$147 million or $1 <unk> per diluted share for the third quarter of 2020.
Yeah.
Amortization from acquired intangible assets for Q3, 2021 was $30 $5 million pre tax or <unk> 13 per diluted share. This compares with $25 $2 million pre tax or <unk> 11 per diluted share.
For the third quarter of last year.
For the nine months, our amortization of acquired intangible assets was <unk> 90 million.
Pre tax or <unk> 40 per diluted share and this compares with $76 $8 million pretax or <unk> 34 per diluted share for the same period last year. I'll also note that foreign currency exchange positively impact our Q3 2021 diluted EPS by approximately <unk> <unk> per share.
Let me now provide some additional detail on our sales results for the third quarter, our global dental sales of $1 8 billion increased 10, 5% compared with the same period last year with internal sales growth of five 2% in local currencies.
Global dental merchandise internal sales increased by two 9% in local currencies for the third quarter of 2021.
As the same period last year.
And if we were to exclude PPE and COVID-19 related products internal sales growth in local currencies increased by four 8%.
Our north American dental internal sales growth in local currencies was four 7% compared with Q3, 2020, which is attributable primarily to stable merchandise growth and solid equipment growth.
Our north American dental consumable merchandise internal sales in local currencies was three 9% with Q3.
2020, or five 7% when excluding sales of PPE and Covid related products.
If we look at our North American dental equipment internal sales growth in local currencies was seven 8% versus Q3 2020.
Growth, reflecting strong sales of high technology equipment, and modest growth of traditional equipment sales, which remain impacted by equipment manufacturing and office construction delays.
Sales of high Tech equipment was helped by DS World. This year as this year's event was more impactful than the virtual events held in 2020.
U S manufacturers of traditional equipment.
In North America expect too.
Continue to see delays until the second half of 2022.
The pipeline for equipment orders remained strong and.
And we regard this delayed equipment installations into next year as a timing issue rather than any decrease in demand.
<unk> also has contributed to our strong backlog of orders going into the fourth quarter.
Just as a reminder, we recognized sales for equipment and capital equipment orders at the time the equipment is installed rather than when the order. This place our international dental internal sales growth in local currencies was five 9% five 9% versus Q3 of 2020.
Our international dental consumable merchandise sales in local currencies increased one 3% versus Q3, 2020, or three 5% growth, excluding PPE and COVID-19 related products.
We also reported strong equipment sales growth of 28, 1% in our international markets, which are not experiencing any supply chain issues of any significance at this time and local currencies internal sales increased 23, 9%.
Compared with Q3 2020.
Our sales of dental specialty products was approximately $225 million in the third quarter with internal growth of 10, 3% in local currencies versus the prior year in North America internal sales growth in local currencies grew eight 5%.
Over Q3, 2020, and I'll note that Q3 'twenty. One 'twenty was also a strong quarter and internationally internal sales of dental specialty products grew at 15, 3% in local currencies growth was strong in each of our dental specialty categories, namely oral surgery implants bone regeneration and.
<unk> orthodontics with all of these business business is doing well in both North America and internationally.
Our global medical sales during Q3.
Was $1 2 billion and increased 15, 5% compared with the same period last year internal sales growth was 13, 1% in local currencies.
Our internal sales growth increased 13, 6%.
In North America versus the prior year, while international sales of our medical business.
Declined seven 5%.
Year over year.
North American medical sales experienced particularly strong growth across the board.
Third quarter of last year, including growth in COVID-19 test kits equipment laboratory product sales and pharmaceuticals.
If you want to exclude PB, PPE and Covid related products global medical internal sales growth in local currencies increased eight 3%.
Versus Q3 2020.
I'll also note we sold approximately $206 million in COVID-19 test kits in the third quarter of 2021 that includes about $28 million in multis.
Assay flu and COVID-19 combination tests. This compares with $75 million and test kits in the second quarter of this year and $180 million in the first quarter of 2020.
2021 the.
The increase in test kits was the result of the surge in demand related to the Delta Varian and we expect sales of test kits to moderate from these levels in the upcoming quarters.
Technology and value added services sales during Q3 were $168 6 million, an increase of $21 $9 million compared with the prior year and that includes internal growth of six 3% in local currencies.
In North America Tech and value added services internal sales growth was 5% in local currencies and this growth was primarily driven by Henry Schein one's centric ascend subscriptions as well as centric technical support revenue.
Our practice services value added businesses.
Internationally technology and value added services internal sales increased by 15, 3% in local currencies compared with the prior year driven primarily by Henry Schein, one with particular strength in software excellence business.
Driven by the reopening in the UK.
We continued to repurchase common stock in the open market during the third quarter buying approximately 650000 shares at an average price of $76 77 per share for a total.
Expenditure of approximately $50 million the impact of these repurchases of shares in the third quarter.
Was it material to diluted EPS I'll also note at the end of the quarter, Henry Schein had approximately $350 million authorized and available for future stock repurchases.
If you take a look at our balance sheet as well as cash flow, we have access to significant liquidity, providing flexibility and financial stability operating cash flow from continuing operations for the third quarter of 2021 was $211 2 million and that compared to $261 $3 million.
For the third quarter of last year.
I will now also.
Part of our previously disclosed restructuring initiative, we have a small pre tax credit in Q3 2021 of $175000.
That did not have a material impact on our diluted EPS.
Conclude my remarks by updating our 2021 non-GAAP diluted EPS guidance.
As well as introducing 2022 guidance at this time, we are not providing 2021 GAAP diluted EPS guidance as we are unable to provide without unreasonable effort and estimate of costs related to the ongoing restructuring initiatives, including the corresponding tax effect.
On a non-GAAP basis, we expect EPS from continuing operations to be $4 27 to $4 35.
<unk>, 44% to 46% growth for 'twenty 'twenty non-GAAP guidance.
Diluted EPS from continuing operations turning to next year, we are introducing preliminary guidance for 2022 non-GAAP diluted EPS from continuing operations also at this time, we're not providing guidance for 2022 GAAP diluted EPS.
For the same reason.
We are unable to provide without unreasonable estimate and estimate of restructuring costs.
The 2021, and 2022 as well as the corresponding tax impacts.
Impact, we expect growth in 2022, non-GAAP diluted EPS from continuing operations to be in the mid to high single digits over 2021, non-GAAP diluted EPS from continuing operations.
Our guidance for both 2021 and 2022 non-GAAP diluted EPS is for current continuing operations as well as any completed or previously announced acquisitions, but does not include the impact of future share repurchases potential future acquisitions, if any or restructuring expenses guy.
This also assumes that foreign currency exchange rates are generally consistent with current levels at the end markets remain stable.
And are consistent with current market conditions, and there are no material adverse market changes associated with COVID-19.
With that summary, let me turn the call back over to Stanley.
Thank you very much Steven.
So let's provide some thoughts on each of our businesses.
Third quarter dental revenue growth was solid as you heard.
Overall gains in consumable merchandise and equipment sales in North America and international markets reflect.
The continuing recovery.
And as noted this was coupled with keen focus on execution by the team Schein.
North American dental consumable merchandise internal growth in local currencies with and without <unk>.
And COVID-19 related products.
Also was quite solid in the third quarter.
Consumable merchandise sales continue to improve.
Which we believe was bolstered bolstered by a steady flow of patient traffic.
Yes in the U S. The most recent American Dental Association data shows patient traffic is currently at about 90% of pre pandemic levels.
And Henry Schein, one billings associated with dental claims processing.
Once a day and about 100%.
Pre pandemic levels.
Little over these statistics are similar to those reported in the second quarter and we lead the market to be sequentially stable.
Tilting slightly to improvement.
And then similar kinds of data around the world. Some countries are a little ahead, some a little behind.
But on balance.
Pretty stable on the dental side.
Uh huh.
You may recall that many of the international markets, we serve posted a quick recovery.
In sales and consumable merchandise in the third quarter of last year, when we reported.
At that time record sales.
This comparison resulted in slightly lower sales growth than we have seen in prior quarters.
Most markets are back to normal as I noted with some modest weakness in the UK, although it is better.
And in Australia, and New Zealand for a very short period of time.
The main cities.
Unlocked down but.
The market.
The lockdown has been largely lifted.
And Australia and New Zealand.
Back to normal right now, but we had a dip in the.
Third quarter.
Last call last quarter, we discussed.
Some of the delivery and installation delays facing the U S traditional dental equipment business.
Overall.
Our equipment business is performing very well and.
In equipment demand is strong.
As demonstrated by the third quarter sales, we are reporting today.
We expect the impact of those delays to be pronounced in the fourth quarter.
With manufacturing leap manufacture lead times, returning to normal towards the second half of next year.
As such the traditional equipment manufacturers' delays along with delays in office construction.
Creating some timing differences in our reported sales between quarters.
Getting these manufacturing delays.
<unk> impacting delivery and installation of traditional equipment in North America, namely the U S, Canada, but stable.
Manufacturers seem to be able to provide us with adequate.
Although we do have longer installation times, even in Canada, but not as bad as in the U S.
That <expletive> dentists continue to invest in technology solutions.
That promote more accurate diagnosis and treatment planning as well as workflow efficiency.
This is really important Dennis are focusing on.
Digital digitization of their practices.
We remain extremely bullish about the future of dental digital dentistry, and the long term prospects and trends, we believe will float from advancements in the digitization of dentistry.
Yes.
Among the dental equipment highlights each year is the dense supply DS world.
Which took place at the end of September in Las Vegas.
Right at the end of the quarter. This event was virtual in 2020. So it was exciting for Henry Schein to be onsite.
In meeting in person once again with current and prospective customers.
We are very pleased with the results from the show.
Which did have somewhat of a modest.
Positive impact on our sales in the third quarter.
But we expect.
Much more of an impact in the fourth quarter.
It is important to note that we.
We'll features high technology equipment, and we believe the supply chain challenges I discussed did not really impact the delivery and installation of these products here in the United States.
So.
We expect the.
The good results.
The equipment side specific T digital and other dense byproducts to flow through in the fourth quarter with a challenge remaining on the traditional chairs units and lights, which are manufactured largely in the United States by other manufacturers who.
So the slack from one.
One of our large manufacturers exiting the markets last year.
No.
We've received lots of questions on.
The comments, you made about pricing for dental merchandise and equipment.
So we expect that prices may increase for certain items in the near term.
Some manufacturers work through scarcity of raw materials.
As well as higher transportation and labor costs.
Unfortunately, this can result in higher pricing for our customers as.
As we typically pass on these increases.
However, what is very important we're communicating this to our customers Henry Schein is committed to working with our suppliers to improve supply chain efficiencies and to limit. These price increases as best we can and to alerting our customers to upcoming price changes we are doing all we can.
To mitigate the inflationary impact.
<unk> from raw material shortages shortages higher transportation issues mitigate that for our customers.
So now turning to the dental specialties sales in our dental specialty products performed extremely well during this quarter.
With double digit internal sales growth in local currencies versus the prior year.
Remember the prior year, we did have good sales in the.
Specialty category as well so this is pretty good compounding.
Approximately two thirds of our dental specialties revenue.
Our revenues are from oral surgery.
In plant based.
Tooth replacement products business that includes the implants and bone regeneration products.
Our success, she has driven largely by a premium value by arises and Ken block implants, and bone regeneration for lines.
Also saw strong growth versus the prior year.
Our leadership position in the oral surgery, that's both in implants bone regeneration market.
As well as in Endodontics and Orthodontics includes both proven solutions and our commitment to delivering new solutions as we further penetrate key dental specialty markets at any given time, we have a number of product launches underway, which typically takes US 12 to 18 months for a full rollout.
The pipeline.
It was rich and remains rich and we continue to bring exciting new products to market in all three categories.
During the third quarter, we launched a progressive colog implants.
With multi unit prosthetics.
Fedex addressing the full arch market in North America, and during the fourth quarter, we expect to launch a fusion implant solution.
Hence our offering of the value price segment.
Mark.
Our priority in orthodontics is a reveal clearer lineup with.
With global reach now.
More than two dozen countries.
In the U S. We are in the process of launching.
Updates to our software studio pro full points.
Which features advanced treatment planning and visualization tools, we expect to launch the software and certain international markets next year.
So overall, we're very pleased with the performance of our dental business globally.
Dental specialty businesses.
And we'll talk now about our medical distribution.
Business.
Turning now to our medical.
Business internal sales growth in local currencies for the third quarter was once again very strong.
What's important to.
So recognize the strength was in terms of growth.
<unk>.
It was strong both measured with and without sales of PP&E and COVID-19 related products.
Trends in the physician office.
Ambulatory surgery Center.
Alternate care markets as <unk>.
Notice in my opening remarks are all quite positive.
We believe traffic in the U S physician offices and ambulatory surgery centers is generally improving.
As we approach more normalized practice operations for elective procedures that were deferred.
Over the past 18 months, although we're still not back to normal but the trend is good.
We also have increased the number of accounts we serve.
I think the medical group has done a very good job in expanding accounts.
And also penetrating existing accounts.
Sales of COVID-19 related products should be lumpy as you know all year with strength in the first quarter falling off.
With strength in the first quarter falling off in the second quarter.
And picking up again in the third quarter.
Pretty lumpy as noted.
In addition pricing for Covid tests is also declined quite a bit these.
These volatile sales trends reflect the unpredictable spread of the Delta Varian.
With uptick in cases, and testing services being seen between quarters.
And within various geographies.
We continue to expect price volatility for COVID-19 tests to continue.
This year's third quarter also included the sale of flu diagnostic products.
Whereas a year ago, we sold very few of these tests.
We are selling the combination flute, COVID-19 tests to a physician.
<unk> office space customers to.
To help differentiate these two viruses that result in somewhat.
Overlapping such the symptoms.
Yes.
Important in that.
In the office based practitioner environment in the office, although as noted.
<unk> of the particular price per units.
Can be quite sharp.
We are optimistic I would say extremely optimistic about the future of our medical group.
As medical procedures continued to move to alternate care settings.
With our belief that we are well positioned to continue to grow our market share.
Also.
As noted electric procedures that patients have put off for 18 months are now being scheduled.
But putting that even aside.
Thank you.
The <unk>.
Structural.
Market shift from the acute care setting to the physician office and the ultimate Kate.
Setting, particularly the ambulatory surgical center.
Uh huh.
Is something that is.
Moving in our direction and.
And we are well positioned.
To process this new business that is emerging.
So one closing remark regarding our distribution businesses.
As we have previously discussed we believe we have entered a new normal.
For the use of personal protection predictive equipment products excuse me by both dental and medical practitioners.
We envisage demand for PP&E products continued continued at an elevated level for the foreseeable future driven.
Driven by new healthcare protocols.
We did not expect that the demand the unit demand for PPE.
Revert to pre pandemic usage levels.
Sure.
We expect price volatility for PPE and <unk> products to continue.
Excuse me.
So now looking at the performance of our technology and value added services businesses.
During the quarter.
Yes.
Henry Schein one.
The largest contributor to the sales in this segment once again reported record high quarterly revenue.
As Stephen noted, we saw a solid north American sales growth in that fixed technical support.
The support we provide to our existing customers.
And really exciting our dental ascend cloud solutions business is growing.
Remember historically the systems to be sold.
We would book a sale.
For the product.
And the total value of software, we sold would be recognized as a sale now the.
<unk> cloud solution.
It's a subscription based software which means it's <unk>.
Continuous.
Reoccurring revenue and this is doing very well.
<unk> is doing well the small customers midsize customers and growing Lee now with some of the larger dsos.
SaaS software excellent business excellence business in the UK.
I had a good quarter.
The software business in the UK had challenges, while the UK Dennis locked down largely on lockdown.
We continue to focus on the migration to the cloud and our cloud based solutions to create flexible.
Scalable services to drive practice efficiency.
And patient engagement and a more stable recurring revenue stream as I noted for these services.
Short term.
<unk> sales and that we.
We do not book the full sale of the.
The software upfront, but the recurring revenue is really very good business and growing the percentage of our business and the reoccurring revenue.
Field.
The total Henry Schein one.
Sales is growing.
So overall sales growth was accelerated also by acquisitions, we made over the past year and software analytics in particular.
And in particular, the services offered by Jarvis.
Well are being well received by customers.
Great business that takes data a lot of it from.
<unk> systems and provides analytics to customers small and large.
Customers lastly.
Practice services businesses.
Key components of the value added we provide our customers.
And we were especially pleased with the strong growth this quarter.
Also driven by incremental investment that practices are making in the businesses.
We are expanding the range of practice solutions.
Part of the strategic thinking we've shared with our investors.
In this connection we acquired ish dental solutions late in the second quarter.
And I'm really happy to report that this virtual dental outsourced billing business is performing well.
It's been well received by customers and close the vote is to reduce the administrative effort required of our customers for their collections.
I'd like to spend.
Closing part of my remarks.
On ESG.
Xyrem mental social and governance arena.
As we've discussed during past quarterly calls environmental social and governance or ESG is an area.
Of important focus for Henry Schein.
And an important topic to all of us as we find new and innovative ways to create shared value for society.
As well as for our company, our businesses and for our investors.
I think it is quite clear as we emerge from Covid and hopefully would've stunning the emerging part now Sidney and.
The developed world.
But it's clear that the business with business is no longer only business and.
And the private sector has an important role to play in addressing the critical issues that face. The world. This was expected up business now more than ever.
But let me stress, although we didn't call it the ESG ESG.
ESG has been.
Part of the Henry Schein DNA.
For decades, as we balanced the needs of our customers suppliers investors and society at large and the wellbeing of our team members.
To that end, we continue to engage a more than 21000 team schein members.
As ESG champions to advance the ESG efforts as we find new and innovative ways to create shared value for society as well as for our company.
Henry Schein is committed to.
Already I think.
Our shareholders should be aware of this to reporting in accordance with <unk> and.
The standard next year in 2022.
We are also committed to issuing our initial task force on climate related financial disclosures report next year, and we will set science based targets.
With specific respect now to the environmental side, we aim to operate more efficiently and reduce our carbon footprint as well as working towards our goal to achieve net zero global emissions by 2050 of course, this will be gradual towards that date gradual and cumulatively.
We participate in the World Economic Forum Alliance of CEO climate leaders and assigned the business ambition.
One five centigrade.
And the race to zero campaign, one five C and the race to zero campaign.
Which seeks to catalyze leadership and tangible action from the private sector for a healthy resilient zero carbon recovery and we will continue to do our part for a healthier planet.
Again these are areas that Henry Schein has been committed to for a long time.
But we are now.
Disclosing and visualizing what we're doing.
Regarding our work on the social or team Schein members of team Schein members.
Of course greatest asset.
We are committed to creating a culture of wellness, including very important mental health, which has become a big issue during COVID-19.
Providing our team with resources education, and hosting opened dialogues, which allow for a meaningful connection unrelated topics.
We have what we referred to internally as a holistic approach to diversity and inclusion DNI.
Recognizing that D is important but he is.
Very important maybe more importantly, inclusive booked.
And that encompasses talent culture marketplace and society, increasing the representation of underrepresented groups, including women in leadership roles and pay equity or a particular area of focus for us as is providing access to help the health care services.
Historically underrepresented populations.
Again committed to this for a long time.
We have a long standing commitment to pandemic and disaster preparedness and response.
And helping to build a stronger more resilient healthcare supply chain.
And this was manifested in our being a founding member.
And private sector lead for the pandemic supply chain network happy if any investor has questions on that to provide more information to CN.
Network I think played an important role during COVID-19 and it's ready to continue to.
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With the pandemic preparedness.
Our commitment to ethical corporate government stopped governance starts with our largely independent and diverse board of directors.
And our nominating and governance committee, who provide oversight over our ESG programs. In addition team Schein members in partnership with our customers suppliers and NGL partners drew.
Drive a culture of ethics and compliance team schein values.
Worldwide business standards and global supplier code of conduct.
So that's a lot, but I think it's important to understand that we are committed to ESG has been committed to alignment with the needs of society doing well by doing good as Benjamin Franklin referred to it over 200 years ago, we'd be committed to that for decades.
We believe that this is one of the reasons why we as a company had provided.
Increase shareholder value each year for decades, so with that in mind.
Steven and I are ready to answer any particular questions that investors may have.
At this time I would like to remind everyone that if he would like to ask a question you May press star and the number one on your telephone keypad now again Thats star one for any questions. Your first question will come from John Kreger with William Blair. Please go ahead hi.
Thanks, very much Stan and Steve.
Can you just elaborate a little more on the one distribution plan does that mean youre going to move to sort of a shared footprint across year distribution networks and is that going to be global and I'll. Just ask my follow up now and get off. The second question. Steve is for you I think the guidance implies a little bit of a sequential step down in earnings.
Should we think about that is just because of it.
Basic equipment being lower or is there something else going on in Q4. Thank you.
Yes.
Thank you John.
Steven will address the second part the second question.
So we have.
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Power distribution systems.
Telus sales customer service for example.
Inventory management has been a shared service.
But there are many other parts of our business, particularly the front end for example management of customer contracts.
Equipment.
Service.
Financial services.
Order processing the front end of order processing some of it is already.
Corporate wide and others.
Parts of it are specific related to medical and dental.
These areas I think.
Operating under common management.
Drive out cost.
Better.
The services the big area that we are preparing for is on new.
Digital front end.
Bill.
Our e-commerce platform that will launch.
In the middle of next year in the U K, and then will be rolled out throughout the company carefully.
We need common management, because that system is geared towards digital interface with our customers dental and medical.
So to cut a long story short.
Our very large customers and our mid sized customers are going through a lot of experiences that our medical team already undertook.
And went through a decade plus ago, so theres a lot of learning and.
And there is learnings that our dental team can provide a medical team. So we brought it broken up our business into two.
American business.
Led by Brad connects US run our medical business for decades, and Andrea Albertini internationally.
Who's been with US also for about a decade and has significant experience in manufacturing as well and distribution and they are all working very closely with David Krausz, Who's responsible together with Rene Willie for our specialty businesses. So.
Internally it works very very well to advance our strategic plan that will be unfolding.
For 2022 to 2024.
Okay, I'll I'll tackle the second part of your question John.
So Q4 guidance first I will note that our guidance is up for the year quite significantly remember, we gave a floor of $3 85.
For the full year and now we're at 427% to 135, but specific to Q4.
We wanted to consider a few things that aren't numerate.
One is north American equipment and availability of product.
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For product being delayed into 2022, but there is still a little bit of volatility and uncertainty as to exactly how much product we'll get in Q4.
North America and this is really the traditional equipment, so we're being conservative path.
We also have seen a fair amount of volatility onto a product items that we're trying to be a little bit conservative on.
One is COVID-19 test kits you can see it's been jumping around we had a very strong Q3, but we do expect COVID-19 test kits to moderate sales to moderate a bit in Q4.
As well as our PPE pricing, we do expect PPE pricing to also moderate a bit in Q4. So there's just some conservatism built into the Q4 numbers I'll also note that.
If you compare the EPS to the EPS of last year remember last year, we had that tax settlement.
That was <unk> 11 per share and that obviously was a nonrecurring.
And finally, I'll say because there's been some.
Notes and thought on inflationary obviously any price inflationary items are fully considered both in our 2021 and 2022.
Guidance.
Very helpful. Thank you.
The next question is from Jeff Johnson with Baird. Please go ahead.
Thank you good morning, guys, Steve maybe following up on your last point there I mean, you talked about these price increases in dental.
And maybe hold those in check but can you talk about your ability to pass those price increases from the manufacturers through year end users I know you've alluded to it a couple of times.
We hear.