Q4 2021 Henry Schein Inc Earnings Call

February 15, 2022

Yes.

Good morning, ladies and gentlemen, and welcome to the Henry Schein fourth 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 star followed by zero on your Touchtone keypad as a reminder, this call is being recorded.

I'd now like to introduce your host for today's call Graham's Kenley, Henry Schein, Vice President of Investor Relations and strategic Financial Project Officer. Please go ahead Sir.

Thank you operator.

Thanks to each of you for joining us to discuss an insurance results for the 2021 fourth quarter and full year.

With me on the call today are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.

Steven Paladino, Executive Vice President and Chief Financial Officer.

<unk> sales, Vice President corporate finance, and Chief Accounting Officer, and who will be assuming these responsibilities as chief financial officer at the end of April .

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

As you know risks and uncertainties involved in the company's business may affect the masses 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 Schein 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 West said items may vary independently of business performance and allow for greater transparency.

Respect to key metrics used by management in operating our business.

These non-GAAP financial measures are presented solely for informational and comparative purposes, and should not be regarded as a replacement for corresponding GAAP measures.

Reconciliations between GAAP and non-GAAP measures can be found in the supplemental information section of our Investor Relations website and in exhibit B of.

Today's press release, which is also available in the Investor Relations section of our website.

Lastly, the contents of this conference call contains time sensitive information that is accurate only as of the date of the life broadcast February <unk> 2022.

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&A to allow as many listeners as possible to answer a question within the one hour we have a budget for this call.

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

Thank you Brian Good morning, everyone and of course, thank you for joining us.

Let me take this opportunity to thank team schein for the team's extraordinary effort over the past two years.

Despite the impacts of the global COVID-19 pandemic. We are pleased to report excellent full year 2021 financial results.

<unk>, an outstanding fourth quarter that exceeded our expectations.

Fourth quarter results were driven by strong internal sales growth in local currencies of six 3% when excluding sales.

Personal protection equipment, or PPE, and COVID-19 related products.

As well as prior year sales took a interest under the transition agreement.

And acquisition growth of four 3%, while also reporting operating margin expansion.

30 basis points.

So we're pleased with our sales results and we're pleased with our operating margin expansion.

We have updated our 2022 financial guidance based on this latest view of our businesses.

Steven will provide additional details on that topic.

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We have also completed a strategic review recently.

Mrs.

And were excited to recently present, an update updated 2022 2020 full strategic plan to our board we update our strategic plan generally every three years.

The 2022 to 2020 full strategic plan was very well received by our board.

The updated guidance reflects execution of key strategic priorities contained in the strategic plan.

Yes.

<unk> operational improvement in our distribution businesses, leading to exceptional customer experience and profit.

Improvement.

This was complemented by increasing the overall contribution of our technology and value added services businesses, and our dental specialty products, which had.

It gives me higher sales growth and higher operating margins.

So specifically.

Our technology and value added services businesses, and our dental specialties products businesses.

Together for the full year of 2021 achieved internal local currency sales growth.

Over 21% combined with operating margin of 20%.

Together these products and services represent represented in 2021.

13% of our global revenue.

About 36% of our full year operating income.

With the combined sales with a combined sales run rates.

Of over $1 7 billion.

And growing at low double digits.

Before I return.

The call over to Steve before I turn over the call actually to Stephen I would like to commend comment on an announcement that we made.

Early last month.

For the past 35 years. It has been my privilege to work alongside Steve Valentino.

Steve joined the Henry Schein Finance Department in 1987.

When the business was approximately $125 million in revenue.

And has served as our CFO for the past two.

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Steve has been a remarkable leader during the pre IPO period.

The period, leading to the IPO, the IPO and in the 27 years since.

Steve led in a consistent and most credible way.

Balancing the needs of our constituents.

<unk>, resulting in 13% compound annual growth and stock price since the Ipos.

Post spin off <unk>.

In early January we announced Steve planned retirement from Henry Schein.

Which will be effective as of April 29.

Of course, it's bittersweet to bid farewell to a colleague who has worked right down the hole for three five decades.

However, Steve will remain a member of our board of directors and will come an advisor to Henry Schein.

All of Us at Henry Schein wish Steve all the best in his well deserved retirement.

Are you still going to be part of the company.

We have deep.

Deep bench strength and our management team across the company.

And as Brian mentioned on the finance side, Ron will be assuming Steve's responsibility as our new CFO .

Ron has been our vice president of corporate finance since 2008.

Chief Accounting officer since 2013.

Ron will be supported by Olga Tim in Shanghai.

Who will be assuming the role of Chief accounting officer.

All good joined Henry Schein in September from <unk>, where she was a partner in accounting advisory services and has a deep technical accounting knowledge.

We actually work with AGA.

Before when she was at EUR.

Ron and AGA are complemented by Graham.

Who has been with the company for.

Almost two decades, having rotated through most of our businesses.

The business Chief Financial Officer.

And.

Of course, the risks of our outstanding Finance team.

We'll continue to provide outstanding services.

We are confident there'll be a smooth transition from Steve to run.

Ron is joining us on today's call.

With that I'll turn the call over to Steve to review, our financial results and discuss our 2022 financial guidance. Please Steven and thank you again for all you've done for the company for all of our team and for our shareholders. Thank you.

Okay. Thank you very much Stanley. Thank you for those kind words and good morning to everyone.

Before I review, our financial results. This will be my last more than more than 100 quarterly conference calls as CFO .

I'd like to acknowledge the relationships I have built with so many of you in the investment community.

Our investors and analysts.

I would also like to express my deep appreciation to the finance team here at Henry Schein and other colleagues with whom I have worked closely with over the years, while im looking forward to life's next chapter.

Those relationships that I will remember most thank you for those memories and for your friendships.

Now turning to a review of our financial results 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 fourth quarter non-GAAP results for 2021, and 2020 excludes certain items that are detailed in exhibit b.

<unk> of todays press release as well as in the supplemental information section of our Investor Relations website.

Turning to our financial results total net sales for the quarter ended December 25, 2021, with $3 8 billion, reflecting growth of five 2% compared with supply.

Internally generated sales were up one 4% in local currencies acquisition growth was four 3% and foreign exchange impacted sales growth by minus <unk>, 5% excluding.

Excluding sales of personal protective equipment, or PPE, and COVID-19 related products as well as prior year sales to call back to us under the transitional services agreement our internal growth in local currencies was six 8%.

As you may recall in 2020 prices, but PPE products and specifically gloves increased due to some <unk>.

Increased due to some supply chain disruptions that we experienced however prices of those products along with COVID-19 test kits have since declined and this pricing volatility is driving the negative year over year sales growth and PPE and COVID-19 related products.

Look at the details of our sales performance contained in exhibit a of our press release that was issued earlier today.

On a GAAP basis operating margin for the fourth quarter of 2021 was 6.2% representing an increase of 30 basis points compared with the prior year.

On a non-GAAP basis operating margin of 616% for the fourth quarter of 2021 also expanded 30 basis points compared with the prior year.

Operating margin expansion was driven by increased profitability in our dental specialty products and technology businesses as well as lower inventory adjustments and improved customer supplier rebates are improved supplier rebates.

Turning to taxes, our reported GAAP effective tax rate for the fourth quarter of 2021 was 22, 5%. This compares with 17, 3% GAAP effective tax rate for the fourth quarter of 2020.

On a non-GAAP basis, our effective tax rate for the fourth quarter of 2020.

Was 22, 5% compared with 17, 5% for the quarter last year, the lower effective tax rate for the fourth quarter last year. In 2020 was favorably impacted by income tax resolutions both in the U S and internationally.

Moving on GAAP net income from continuing operations attributable to Henry Schein for the fourth quarter of 2021 was <unk> $147 $2 million or $1 <unk> per diluted share.

This compares with the prior year GAAP net income from continuing operations of $1 $41 $9 million or <unk> 99 cents per diluted share.

On a non-GAAP basis net income from continuing operations for the fourth quarter of 2021 was $157 million or $1 seven.

Diluted share and this compares with non-GAAP net income from continuing operations of $143 6 million or $1 per diluted share for the fourth quarter of 2020.

Our amortization from acquired intangible assets for Q4, 'twenty. One Q4, 2021 was $32 $6 million pre tax or <unk> 15 per diluted share. This compares with $25 $3 million pre tax or <unk> 11 per diluted share for the same period last year.

That excluded the noncash impact intangible asset impairment.

Charge that was $18 1 million for.

For the full year 2021 amortization from acquired intangible assets was $122 9 million pretax or <unk> 54 per diluted share and this compares with.

The prior year that was $102.1 million pre tax or <unk> 46 per diluted share.

That also excluded a combined noncash asset impairment charges in Q1, and Q4 of the prior year of $23 million.

I'll note that foreign currency exchange positively impacted our Q4, 2021 diluted EPS by approximately <unk>, 5%.

Let's now look at some of the details of our sales results for the fourth quarter, starting with global dental out, which had sales of $2 billion and increased nine 4% compared with the same period last year with internal sales growth of six 4% in local currencies.

Global dental consumable merchandise.

Internal sales increased six 6%.

In local currencies in the fourth quarter of 2021.

<unk> with the prior year.

Excluding sales of PPE and COVID-19 related products in total sales growth in local currencies increased seven 4%.

Our north American dental internal sales growth in local currencies was nine 3% compared with Q4 of last year and was driven by solid growth both in our consumable merchandise as well as our equipment product categories.

Our north American dental consumable merchandise internal sales in local currencies increased 10, 3% compared with Q4 of 2020 or 10, 1% again, when excluding sales of PPD and COVID-19 related products.

North American dental equipment internal sales growth in local currencies was six 6% compared with Q4 of 2020, we had strong growth in our high tech product offering.

Specifically <unk> in the U S, which received a boost from the DS World event, which we saw modest growth in traditional equipment.

I'm also which remains impacted the traditional equipment remains impacted by manufacturing and office construction delays.

National dental internal sales growth in local currencies was two 5% compared with Q4 2020.

And we had really strong sales growth in the prior period with sales growth of 14, 2% in Q4 2020 in local currencies.

International dental consumable merchandise internal sales in local currencies increased one 9% compared with Q4 of 2024, 4% excluding sales of PPE and Covid related topics again as a reminder, Q4 2020, the prior year international dental consumable.

Merchandise sales growth was quite strong at 16, 7% in local currencies.

International dental equipment internal sales growth in local currencies was four 2% and that is also against a bit of a difficult comp in the prior year when the growth was six 8%.

If we look at our dental specialty product sales of dental specialty products were approximately $244 $8 million in the fourth quarter with internal growth of 15, 1% in local currency as compared with the prior year.

Growth was strong in each of our dental special specialty categories.

Including all surgery, which consists of implants and bone Gen products.

As well as endodontics and orthodontic products with all three categories performing well globally.

For the full year 2021, our dental specialty products were $928 6 million with growth of 27, 2% in local currencies over the prior year and contributed $186 $3 million to our operating income.

Turning to global medical our global medical sales during Q4 of $1 1 billion.

The decline of three 2% compared with the same period in 2020.

An internal sales growth in local currencies declined seven 1%.

Internal sales growth.

Growth declined in North America six 6%.

And international sales declined also at 24% year over year.

Medical sales decline was driven.

Merrily by lower sales of PPE and Covid related products, mainly Covid test kits. If we exclude the sales of the PPE Covid test kits, our global medical internal sales growth in local currencies increased three 6%.

Compared with Q4 of 2020.

I'll also note we sold approximately $185 million.

A COVID-19 test kits in the fourth quarter of 2021.

That includes about $40 million in multi assay flu and COVID-19 combination test kits and this compares with approximately $270 million and test kits that was sold in Q4 of 2020.

We expect continued volatility in sales of test kits in the upcoming quarters.

Now turning to technology and value added services sales.

During Q4 were $177 2 million.

An increase of 27, 8% compared with the prior year and that includes internal growth.

In local currencies of 13, 4%.

North American technology and value added services internal sales growth was 12, 6% that growth was primarily driven by our revenue cycle and claims management.

Revenue products.

Internationally, the tech and value added service.

Internal sales increased 17, 8% compared with the prior year.

And this growth was driven primarily by strong sales in EMEA, including sales growth in the UK, which benefited from a favorable comparison.

Due to last year's prior year.

<unk> locked down.

For the full year 2021 technology and value added services sales were $649 million an increase of.

An increase of 24, 6% compared with the prior year.

And included internal growth of 13% in local currencies and had operating income of $125 6 million.

We continued to repurchase common stock in the open market during the fourth quarter buying approximately approximately 2 million shares at an average price of $75 50 per share for a total of $150 million the impact of this repurchase on our fourth quarter.

Diluted EPS was immaterial for the full year, we spent $400 million to repurchase five 5 million shares of our stock and.

And I'll note at at the year end, Henry Schein had approximately $200 million available for future stock repurchases.

Turning to our balance sheet and cash flow, we continue to have access to significant liquidity, providing flexibility and financial stability.

Our operating cash flow from continuing operations for the fourth quarter was 2021 was $276 6 million that compared to $345 1 million for the fourth quarter of last year.

Decrease in operating cash flow was attributable primarily to increased inventory.

Including Covid test kits yearend investment inventory and reserve stock due to delayed.

Lead times for manufacturers for the full year, our operating cash flow from continuing operations was $709 $6 million.

That compares to $593 $5 million in 2021 and 2020 sorry.

I will conclude my remarks by noting that we are updating our 2022 EPS guidance. The guidance is for GAAP EPS only.

We are not providing non-GAAP EPS guidance for 2022, as we do not currently anticipating using non-GAAP financial measures for the year. Although this decision could change in the future.

For 2022, we expect EPS.

Attributable to Henry Schein will be in a range of $4 75 to $4 91, reflecting growth of 7% to 10% compared with our 2021 GAAP diluted EPS of $4 45.

And growth of 5% to 9% when compared with our 2021 non-GAAP diluted EPS of $4 52.

Our guidance for 2022 has a number of key assumptions I'll review some of those.

2022 assumes that our total sales growth will be somewhere in the range of approximately 6% to 8% over 2021.

And that includes sales of Covid tests declining.

Approximately 10% from 2021 levels that were approximately $650 million I'll also note that 2022 includes one extra selling week compared with 2021. This was up 53 week year and that occurs in the fourth quarter of 2022.

For 2022, we are also expecting to.

To achieve operating margin expansion.

Our guidance assumes a range of 20 to 25 basis points over the 2021 non-GAAP operating margin of seven 6%.

And operating margin expansion.

39% to 44 basis points.

For the 2021 GAAP operating margin of 687% last.

Lastly, we expect the effective tax rate to stay in the 24% range and of course that assumes no significant changes in tax legislation.

Our guidance for 2022 diluted EPS for continuing operations as well as completed or previously announced acquisitions, but does not include the impact of future share repurchases.

Future acquisitions or restructuring expenses if any.

Our guidance also assumes that foreign currency exchange rates are generally consistent with current levels that end markets remain stable and are consistent with current market conditions. So there's really no material adverse market changes associated with COVID-19.

Yes.

Last I'd like to note that we anticipate our first quarter EPS first quarter of 2022 will be slightly lower to flat compared with the first quarter of 2021, non-GAAP EPS and this is due to really a very strong prior year and a difficult prior year comparison that we're seeing in Q1 with that I'll turn the.

Call over to Ron Sal.

Thank you Steve.

Great to be speaking with all of you this morning.

Honored and excited to be stepping into the role and Henry Schein CFO .

I have worked closely with Steve for more than a dozen years and I'm looking forward to working with all go grab in the entire Henry Schein Global Finance team.

To underscore what Stanley said, I expect a smooth transition to my new position.

Steve has been a tremendous steward of Henry Schein finances during several decades of impressive growth and expansion I'll look forward to continuing his legacy and transparency coupled with fiscal responsibility.

Youll be hearing more from me when we report our Q1 financial results in early May the <unk>.

<unk>, it's great to be joining the team on today's call now.

Now I'd like to turn the call back with bandwidth.

Thank you Ron.

Congratulations on your well deserved promotion.

Truly respected by our entire management team at Henry Schein and Thank you for your service of course, I think Graham as well.

For his new role and for his service and in fact in China Finance team.

In September of 2021, we announced a new leadership structure associated with what we internally refer to as one distribution.

I wanted distribution strategy.

Contemplate in North American dental and medical distribution.

Leadership.

Under the.

Leadership of bread connect a 25 year veteran of Henry Schein.

Our international distribution businesses are being led.

Responding Lipa, Andrei Albertini and exceptional healthcare executive who joined our team nine years ago.

As noted earlier, one distribution as part of Henry Schein commitment to continuous operational improvement in our distribution businesses, leading to exceptional customer experience building an exceptional customer experience.

And of course profit improvement.

Turning now to our most recent accomplishments and our distribution businesses, let me start with dental.

Fourth quarter dental revenue growth was solid.

In North America, we are especially pleased with the growth in dental consumable merchandise sales with strong internal growth in local currencies.

With and without sales of PPE and COVID-19 related products. The growth reflects the impact of some modest price increases as well as the contribution from <unk>.

Two large DSO contracts awarded in 2021.

We expect additional price increases from suppliers, we made by the end of the first quarter.

Which unfortunately, having to pass on to customers.

And then may be more.

Throughout the year.

Patient traffic held quite well in December .

However, we believe there was a decline in January .

<unk> from higher patient appointment cancellations and dental staff shortages due to absenteeism.

We consider our <unk> insurance claims data as a good proxy for U S patient traffic and in January we saw a modest decline.

<unk> 2021.

This is consistent with our January average sales volumes.

Our view is that while there may be some postponed office visits as a result of the Omnicom variant, we expect the market to be stable.

The impact is likely to be temporary in our view and that most canceled appointments will be rescheduled.

The effect that these movements into our financial guidance.

And the first couple of weeks of February have.

And that is resiliency in the dental market.

United States.

Of course, the international market Theres, a little bit varied, but generally quite consistent with the trends we've experienced in North America.

We have experienced some supply chain disruption to our merchandise business like everyone and while we may not always have every brand and every size of oil products. We generally have.

Substitutes available.

We have increased our safety stock for some items and we are leveraging our global supply chain partners to mitigate delays and expedites shipments where possible.

We have very good logistics partners as well I might add.

During the fourth quarter, we continued to experience some liberty and installation delays in the U S. Traditional dental equipment business as we had expected.

And these closed.

Caused by a combination of component shortages and construction delays component manifests shortages with our suppliers and construction delays, which we expect to continue through the second half of this year.

We also experienced for the first time, some modest delays in the delivery of digital imaging units, which we expect to last a quarter or so.

Sales of intra oral scanning equipment was particularly strong again this quarter.

In the fourth quarter, we had a bit of tailwind from the <unk> positive.

Support from that meeting as we discussed during our last call. We remain bullish on the equipment market, especially about the future of digital dentistry as we believe the market remains underpenetrated.

We expect to continue to see good growth in the digital category, including digital imaging.

Oral scanners and digital three D printing.

In part by what we believe may be lower asp's for the new products some new products.

In our international dental business in the fourth quarter, we had very good strong.

Very strong sales growth in the U K driven by a recovery from last year and in Brazil, where we have seen some accelerated consolidation within the dental distribution industry as well as good growth in Italy, Spain, Eastern Europe and Australia.

Our global equipment business businesses are performing very well.

Overall.

Yes.

We believe dental offices continue to invest in their businesses.

And we have expanded our Brazilian equipment business as well.

At this time, we have a strong underlying global equipment order.

Order book and that is throughout our business domestically and globally.

Now turning to our medical business, we've continued to gain new customers, while achieving deeper penetration among existing accounts.

Internal sales in local currencies for the quarter declined against a tough prior year comparison that exist extremely strong because of PP&E and COVID-19 related products, yet as Steven mentioned when normalizing for sales of these products growth was a solid three 6%.

Patient traffic to physician offices and alternate sites.

During the fourth quarter, while early in the quarter patient traffic was generally improving and trending towards more normalized levels later in the fourth quarter, we saw patients deferring deferring some elective procedures, which we believe will be temporary.

We expect demand for COVID-19 related testing products.

Continued to be choppy as the omicron variant runs its course.

Currently seen a surge in demand for COVID-19 testing.

They're all set production challenges and some suppliers.

With some suppliers leading to some rationing.

Demand is good and we have product.

In addition, we expect pricing for COVID-19 tests as Steven noted to remain volatile.

We are optimistic about the future in fact, I would say highly optimistic about the future of our medical group as procedures continued to migrate to the alternate care settings and as the Covid.

The current Covid wave continues to decline.

We believe the use of PPE products for both dental and medical practitioners will remain at elevated levels for the foreseeable future.

With breast price with cloud pricing to continue to decline modestly. These factors all reflected in our financial guidance now.

Now turning to our dental specialties and technology and value added services and product offerings. We are really excited about.

About these various businesses and product offerings.

As mentioned earlier sales of our dental specialties products performed extremely well during 2021.

Under the seasoned leadership of Rene Willie Chief Executive Officer of our global Reconstruction group.

Which includes oral surgery products and David Brown, <unk>, Chief Executive Officer of our strategic business groups. David is also by the way a partner to Andreas <unk> and our international distribution businesses and.

David businesses include.

Endodontics, orthodontics and other specialty products and services.

David had previously led our M&A function as well as a number of businesses both domestically and internationally.

Our solid position in the oral surgery market, consisting of implants, and bone regeneration products as well as endodontics orthodontics products is built on strong on strong customer offering and our specialties. We believe it's a deep offering.

And our commitment continued commitment to invest in research and development.

Our growth is fueled by new product launches and the strengthening of the market for stores that dental solutions.

Turning to our dental.

Technology and value added services business.

Henry Schein, one the largest contributor to sales in this segment once again posted record high quarterly revenue.

Growth within Henry Schein one.

<unk> continues to be driven primarily by a recovery in patient traffic to dental offices, which generates demand for our revenue cycle management solutions plus.

New products.

And.

We have also been adding new talent to the Henry Schein, one team, including Mike bid as the CEO of this business has joined us about a year and half ago to lead our Henry Schein one.

And Mike has a deep background in technology.

Continue to focus on the migration to the cloud and on cloud based solutions to create flexible scalable services to drive practice efficiency and patient engagement and moving to a SaaS model as we've discussed in the past, resulting in more stable recurring revenue.

The streams are of course welcome.

We are seeing good growth in <unk>.

Both the ascend and the tally.

Cloud based practice management system, which now had more than 4000 customers globally and we believe we have the largest installed base of cloud based systems, which should continue to expect to grow in the dental arena.

We are also executing well for our large customers and most recently, we're pleased that our partnership with light US led to the installation of <unk> into Brooke Army Medical Center, one of the U S. Army's Premier Medical centers. This is part of our.

Our global program with the U S military to install.

Dental software <unk> software systems.

Henry Schein is also working with several customers to collaborate on building next generation innovative digital and clinical solutions.

First of several <unk> applications to uniquely embedded computer vision AI technology into Henry Schein flagship practice management software <unk> has been filed with the FDA. These applications will create valuable and powerful workflows combining practice management.

<unk> software imaging and AI insights to assist dental professionals and diagnosing dental treatment and automating the construction.

The appropriate treatment plans this is very very exciting.

<unk>.

The final topic I'd like to draw the attention of our investments. This was too is a continuous commitment to M&A strategy led by Marc <unk>, who has been leading strategy and M&A for Henry Schein for.

Seven plus years.

<unk> is our executive Vice President of.

Vice President and Chief Strategic Officer.

And <unk> and is supported by Scott Saunders.

Global M&A and business development.

Also a long time, Henry Schein veteran veteran and M&A remains an important part of our growth and capital allocation strategy. During 2021, we completed several acquisitions across our business units, representing annualized sales of over $560 million and capital deployment of 550 <unk>.

<unk> million dollars. These acquisitions were primarily focused on broadening our technology and value added solutions service into ambulatory surgery market.

Spending our presence in the home health market and supporting our brand owned brand strategy of course, we.

We will.

Continue to seek additional.

Investment opportunities in the specialty products specialty and services areas.

With these comments and a review of our fourth quarter and full year financial results, we'd like to open the call to your questions operator. Please.

Thank you so much and the floor is now open for questions I would like to inform everyone. In order to ask a question you May press star one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Matt makes it from credit Suisse. Your line is open.

Hi, Thanks, so much for taking the questions congrats on a really strong finish.

<unk> to 'twenty one.

Just a couple of questions if I could on.

The first the guidance if you could talk a little bit about.

The impact how to quantify perhaps the accounting impact of the extra week in Q4.

As we sort of baked that into the cadence of growth for the year.

And then.

Your comments around Q1 in January it sounds like.

If you could maybe just run through the sequential.

Commentary that you made one more time to be clear. It sounded like you were you were seeing some pressure in January with with resilience in February but then it also seems like some of that sequential move movement.

<unk> was relatively consistent with your historical experience from Q4 to Q1, so maybe just clarification on those two points. Thanks, So much sure and I'll ask thank you for the question on Steven to respond to those before I do that I somehow glossed over I don't know if I missed this in the script, but Brad Connett.

25 year veteran of Henry Schein.

Our north American distribution businesses, that's dental and medical <unk> August 2021 reorganization I have no idea, where I missed it but did people checking on I'll say so Steven please.

Hello.

Okay.

Steven.

Yes, sorry, I was on mute.

China.

So.

First on the extra week.

The extra week is probably one of our slowest weeks of the year because it's the last week of the year. So it is the holiday week.

We generally see a lot of practices and customers, even slow that week or clothes that week. So it's not a normal week, it's a very slow week for us.

All of that though is incorporated.

<unk>.

Sure.

The guidance range of 6% to 8%.

Sales growth in 2022, well into 2021 and remember that sales growth is all in so it includes acquisitions that occurred in 2021 that you now have the full year impact, though but it does not include any acquisitions.

New acquisitions that we may do in the year, so it's baked into that 6% to 8% number and again, it's a slow week.

On January sales performance.

So what we've said and what we believe is that yes. We did see first in Q4, we did see some modest impact of the omicron variant impacting our customers.

That continued and probably accelerated slightly into January .

We saw a more patient appointment cancellations and.

And rescheduling.

Ill patients really because even staff of dental practices.

Well.

We're impacted by the Omicron and we'll close some absenteeism.

As Stanley said as we exited January we started to see a pick up.

Upsells just modestly again, so we do believe that those sales the sales impact was temporary cause.

Cancellations of payments, but they will be rescheduled.

And we're not expecting that to be a long term negative impact.

Similarly in medical we did see.

Some elective procedures canceled.

And some of our customers in January .

But again, we do believe that to be a temporary it's primarily impacting ambulatory surgery centers.

It didn't have a significant impact on our business.

But we also believe that.

That will be accelerate and as a temporary impact.

We're trying to be less best thing on sales, we're trying to be a little bit conservative.

On PPE and test kits as we said on the prepared remarks, we're assuming.

Approximately 10% lower sales of test kits for the year.

And we also have assumptions on.

On PPE with lower average selling prices.

Built in there so hopefully that helps you on some of the sales numbers Matt.

Okay.

Great. Thank you.

Your next question comes from the line of Jeff Johnson from Baird. Your line is open.

Thank you good morning Al and.

Steve just wanted to say thanks for all the guidance and insight.

I think it's been almost 20 years, you and I have known each other so that will be less than congrats on the retirement.

Let me ask a two part question I guess on gross margin the first part just.

Whats the algorithm for the 20% to 25 basis points of operating margin expansion. This year is it hold gross margin and leverage operating expense.

In 2022 and going forward can we expect any kind of gross margin improvement off these levels just thinking more on the gross line rather than operating margin any any update there you can provide.

Sure and thanks for.

The kind words, Jeff I have enjoyed.

Building relationship with you and.

And all of those difficult questions that you typically yes.

So we do expect in our guidance that.

We might see a little bit some modest gross margin expansion.

2021.

Again, that's driven primarily by shift to higher margin products.

But we don't expect a major change in gross margin, but either flat to slightly.

Modest increase.

And we really do expect that the margin expansion will come from leveraging expenses.

Primarily as well as again shifting towards higher margin products and impacting it on the operating margin side. So that's the way we built our budget for 2022.

Alright, that's helpful. And then maybe one follow up just on that margin comment.

It can specialty in technology and value added can that hold kind of the 20% operating margin leverage going forward and when I think about double digit growth for those two businesses. It seems like each year that should throw out kind of 10 to 20 basis points of operating margin improvement right. There so as the algorithm than kind of hold <unk>.

Margin in the rest of the business and get the margin benefit of that mix shift that was higher margin.

Products is that kind of the other way to think about the algorithm and just again, Ken nodes businesses hold that 20% margin. Thanks.

Yes, I would say, we haven't given that level of specifics, but remember we also want to invest in those businesses. So there may be some additional investment, but I would say generally speaking that the margins should.

Generally hole and.

In both the technology.

And the dental specialties, obviously, if we did acquisitions in either of those areas that could change the mix.

But.

I think it's generally should hold and again, that's that's helping overall margin that those those businesses grow faster than the core business.

Thank you.

Okay. Thanks Chuck.

Your next question comes from the line of Nathan Rich from Goldman Sachs. Your line is open.

Hi, good morning, Thanks for the questions maybe just following up on the margin guidance.

You talked about the restructuring that you went through last year is there a way to quantify the savings that you're expecting.

To show this year and then how should we think about the impact of price increases and inflation, both top line and margins this year.

Sure.

The last part of your question first since it's a little bit easier.

The inflation really should not have any significant impact on margins because really what we're trying to do is maintain margins with the price increases that.

We've seen and we will expect to continue to see so theres really not a margin per se opportunity. Although there was a gross profit dollar slight opportunity because if the margin.

<unk> margin on slightly higher selling prices will add to that.

So I think that thats.

Not really driving it slightly.

Firing dollars, but not margin.

And what was the second part of your question Nathan.

Just the savings from the restructuring.

The restructuring that we completed.

In 2021 really wasn't all that significant.

For us the number.

For the year.

$7 $9 million tip.

Typically our restructuring has a 12 to 18 month payback so the impact.

Less than that $7 $9 million.

But remember some of the reasons for doing the restructuring is for US to also free up dollars to continue to invest for future growth.

Okay makes sense and then if I could just ask a follow up on.

The two DSO contracts that you referenced obviously it seems like you saw a nice contribution in the fourth quarter I'd imagine there is some incremental benefit before those annualize, but could you maybe just talk about sort of the scope of those and are there any other rfps more potential contracts that are up for renewal.

Over the upcoming year that we should have in mind. Thank you.

Sure Yes.

Yes so.

The two larger DSO contracts that were awarded during 2021, we now have.

Onboarding those customers or those are flowing through our sales numbers in Q4.

We still should have an annualized impact.

In 2022, but much more modest because.

We've been seeing a lot of those sales already in 2021.

With respect to DSO contracts.

Probably always have one or two every year that is coming up.

For renewal.

We don't have them all bunched up in one particular year like we did many years ago.

We feel very good with our relationships with DSO customers, we feel like we serve them really well our pricing is very sharp.

So we feel good about the renewals.

But there's always one or two every year.

Okay.

Thank you.

Okay.

Your next question comes from the line of John Kreger from William Blair. Your line is open hi.

Alright, thanks, very much see what I'd really like to ask you as for your sort of favorite shine anecdote, but that's probably not appropriate for this call.

Okay.

Maybe instead I wanted to ask about the technology and value added services. It seems like the growth you reported in the quarter is a lot higher than normal can you just talk about what drove that and whats the sort of sustainable level of growth you guys are shooting for from that segment.

Yes.

Again technology, especially with services that are based on patient traffic.

It was impacted and.

It was slower to return to.

Pre COVID-19 levels, so we're seeing a nice impact from that.

We haven't really given specific guidance, but certainly we would like to see that segment.

B double digit topline growth and hopefully slightly greater than that because of.

Margin opportunity.

So we feel good about that business now the only thing is I would.

Caution that that double digit sales assumes no major shift.

To a SaaS model where.

I think everyone knows that in the SaaS model you record revenue every month. So it's an annuity which is good for the company but.

If you compare it to.

Non SaaS model, where you have the sales all upfront it does impact.

<unk> sales growth should that become material I'm sure we could call that out for investors, but right now it's not that material.

Great. Thank you and then let me just add a little bit north of that.

First of all my favorite story is when we went on the road.

William Blair Salesperson, you said, Stan you talked too much listen to Stephen Smith.

So just wanted to point out that for the specialty products and technology products.

<unk> heavily in R&D in these areas and have good results, whether it's in the endo, the orthodontic dental surgery or.

In fact, the whole Henry Schein, one area. Many many if I'm looking at.

That Henry Schein, one of seven or eight significant new product launches.

And the last.

So quota so.

These businesses are.

Turning to drive even higher margin in the future, we can't say exactly when because there's still a lot of investment going on but they are driving.

Operating income.

But we expect for that to grow over time as this new development R&D projects materialize.

Thanks, Dan one quick follow up we hear broadly that Dennis and doctors' practices are really struggling with staffing themselves.

From your perspective do you guys have an offering maybe within the technology business to sort of help lessen that strain that your customers are facing right now.

Observation by the way is correct I think it's particularly acute in the DSO will.

I can see light at the end of the tunnel we have to.

Areas of support for our customers one is Henry.

Henry Schein one.

It does help with identifying office managers and helping to train the office managers et cetera, et cetera, and we do have a staffing business, it's relatively small but we are.

Now services value added services business.

We are investing heavily in that area to advance.

Your next question comes from the line of Jason Bednar from Piper Sandler Your line is open.

Yeah.

Hey, good morning, Congrats on a nice finish to the year and Steve All the best to you I Hope you enjoy your retirement to its fullest here.

You talked about price increases that have already been contemplated those that are still come in this quarter and maybe others that you have insight into later this year.

So I guess I'd be curious if these are manufacturers pushing through multiple price increases in the year or if these are just different manufacturers that have some very timing for implementing the price increases and then just what's been the response from the dental community or are your customers pushing back at all in any way.

How are those conversations is being handled in are you seeing any substitution or trade down in response to the price increases.

Yes, maybe I'll kick off.

So.

I think that the bulk of the price increases that we were expecting have come through already.

There may be.

There's a few manufacturers who have done more than one price increase.

But the bulk of it.

Come to vote.

But if inflation.

<unk> continues at this rate I guess, it's possible that more could come through.

Going forward.

From a customer perspective look theres always whenever prices go up theres always a little bit of pushback, but I think customers understand.

But we're in a highly inflationary environment, it's not just us started raising prices, it's really across the board and I think that that helps that people can have awareness of inflation going on but there's always a little pushback, but its certainly very manageable and we think that will be successful in passing through.

Those price increases, even though it's unfortunate we prefer not to but we're getting price increases. So we could just kind of have to pass it through to the end user.

Thank you, Steve and Theres also a little bit of deflation occurring in some of the commodities obviously in the PP&E area quite substantial.

Some of the other commodities.

Sure.

Is.

An opportunity to consolidate purchasing power on behalf of our customers. So we're getting support in that area.

And also I would say on that in the digital dentistry area three D imaging.

Has come down and pricing and to.

It's making it more affordable to the general dentist.

And the whole scanner wells coming down in pricing.

Which ultimately I think will lead to standard of use where not a lot of practices don't have it but I think theres going to be more units going out to general dentist.

<unk>.

And we have many many options, including some of our major suppliers today.

Advising that theyre going to come out with more competitive offerings in future. So I think.

It's not as bad as you read in the newspapers, but we are in a inflationary period for sure.

On our payroll as well.

And we have to balance all of this to ensure that we and do the right thing for all the constituents, including Henry Schein and non business.

I believe our management team is doing a great job in this area.

Alright very helpful. And then just as a quick follow up on capital allocation and really maybe more a question for Ron.

Ron and our conversations I've gotten the sense that your views are very much aligned with what we've seen from how Henry Schein has operated historically and how Steve's manage the financials. During his tenure, but theres a lot of capacity on the balance sheet. So I guess it would just be helpful to hear your philosophy regarding leverage and how you see the balance of M&A and share repo moving forward. Thanks.

Sure.

Gotta every cfo's challenge to try to find that optimal.

Capital allocation.

But I do think that Steve is allowing me to inherit a very strong balance sheet and it does give us some flexibility to be opportunistic on M&A going forward. It just has to be the right opportunity.

And so in the meantime, we will continue to kind of quality.

We've done historically with some share buybacks some reinvestment in the business.

But as.

As we see the opportunistic M&A.

Come up we want to be able to move on it.

We have a balance sheet that gives us a lot of flexibility there.

Great. Thank you.

We have time for one last question coming from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Hi, guys. Thanks, so much and Steve It's obviously had been great. So congratulations on your retirement.

Maybe from a question perspective, one thing.

Caught my attention was sort of when you were talking about the lower average.

Sales numbers.

Sales pricing in terms of the equipment side could you go into a little bit more detail about what's driving that is it sort of a new product suite is it people switching from complete chair side solution to Jeff scanners.

Additional details that would be super helpful. Thanks.

Yes.

So I think on the equipment side.

The demand for digital Dentistry has created a lot of interesting.

Our new products being introduced.

An examination by some of the supply of existing suppliers are saying.

Markets that were not penetrating and advancing ideas and.

The more affordable.

<unk>.

At the same time those that have had two D.

Imaging machines can now upgrade to <unk> at a relatively low price that sale as a unit. So you take all of this the drive towards.

Digital dentistry.

Some extent not fully is similar to what you may have experienced in the calculator on the PC will greater demand more efficiency.

And movement towards standard of care when it comes to <unk>.

<unk> imaging.

But I might add right away and please take into account the whole area of.

<unk> printing is now emerging and is also becoming much more affordable. So we expect all of this stuff to balance and result in greater demand and greater sales and profits.

For the.

The digitalization of dentistry and for Henry Schein that ties in an interoperable way with Henry Schein. One. So this is all a very exciting period for us.

Lot of movement, a lot of excitement and dentists are awakening to the importance of digitization in dentistry.

To follow its a key component of our strategic plan, but we just don't have time to talk all about that all of that today. So.

That makes sense and maybe just as a quick follow up on the implant side.

The meter implant manufacturers have announced new products or sort of revamped or future revamped that are coming to their product portfolio. I was just wondering if you could comment on sort of demand in that environment and the relative.

Competitive levels there.

And sort of pricing as well as that sort of providing a unique opportunity for you. Yes on the implants in particular and of course, we also have a very nice business in bone regeneration.

Products on implants, we have a premier airlines, a couple of premier lines, namely <unk> and by Horizon. We also have.

Uh huh.

Interest in the.

Discount area.

And Oh, I wouldn't say discount, but lower priced our products tend to be more again on the premium side, but relatively low priced and Kellogg has had significant new product offerings over the years last year I mean, so the catalog.

<unk> Progressive line.

Has done quite well the type of pro another area has done well the fusion line and on the Nova matrix on the biomaterials side lots of new developments, we actually believe we have a pretty comprehensive a competitive offering in the.

Implant oral surgery line Likewise, I think on the Endodontics Orthodontics side happy next time, we have a call or should you want specific details.

Happy for you to reach out to our Investor Relations I. Unfortunately don't have more time now, but we are very excited about our specialty products and now.

Henry Schein, one and other value added services.

Thanks that was helpful.

So Graham.

I know I can talk for hours Steven.

Hours minutes lots of information to share.

At the end right Graham.

Yes that was our last question. So we can conclude now okay.

Again Steven.

All the best efficiently, but we know you'll.

The guiding us for years to come and be involved with our team Ron views you as a mentor and so do our all our senior executives.

Value add relationship and so we will continue the relationship in your advice to Henry Schein Board and management team. So thank you for everything Thank you to all our investors sorry, we went over a little.

But today.

If anybody has any questions. Please reach out to Graham Investor Relations, who can put you in touch with Steven around shelf.

So thank you all for calling in and we look forward to seeing you to speak to you in early May meeting the call and.

And we will be participating in a few investor conferences coming up.

As a.

Perhaps you can understand from the tone of it.

Just call it very very excited about the company and we're very excited about 'twenty two 'twenty three strategic plan and the execution of that so thank you all for calling.

And stay safe.

This concludes today's conference call. Thank you all for joining you may now disconnect.

[music].

Okay.

[music].

Good morning, ladies and gentlemen, and welcome to the Henry Schein fourth 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 star followed by zero on your touch don't keep that as a reminder, this call is being recorded.

I'd now like to introduce your host for today's call Graham's Kelly Henry Schein, Vice President of Investor Relations and strategic Financial Project Officer. Please go ahead Sir.

Thank you operator, and my thanks to each of you for joining us to discuss Henry Schein results for the 2021 fourth quarter and full year.

On the call today are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.

Steven Paladino Executive Vice President and Chief Financial Officer, and Ron <unk>, Vice President Corporate Finance, and Chief Accounting Officer, and who will be assuming these responsibilities as chief financial officer at the end of April .

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

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.

Key metrics used by management in operating our business.

These non-GAAP financial measures are presented solely for informational and comparative purposes, and should not be regarded as a replacement for corresponding GAAP measures.

Reconciliations between GAAP and non-GAAP measures can be found in the supplemental information section of our Investor Relations website and in exhibit B of today's press release, which is also available in the Investor Relations section of our website.

Lastly, the contents of this conference call contains time sensitive information that is accurate only as of the date of the lifeboat Spectre the 15th 2022.

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&A to allow as many listeners as possible to answer a question within the one hour allotted for this call.

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

Thank you Brian good morning, everyone.

And of course, thank you for joining us.

Let me take this opportunity to thank team schein for the teams extra ordinary effort over the past two years despite.

Despite the impacts of the global COVID-19 pandemic. We are pleased to report excellent full year 2021 financial results, including.

Including an outstanding fourth quarter that exceeded our expectations.

Our fourth quarter results were driven by strong internal sales growth in <unk>.

So currencies up six 3% when excluding sales of personal protection equipment, or PPE and COVID-19 related products as.

As well as prior year sales to <unk> under the transition agreement.

And acquisition growth of four 3%, while also reporting operating margin expansion.

30 basis points.

So we are pleased with our sales results and we're pleased with our operating margin expansion.

We have updated our 2022 financial guidance based on this latest view of our businesses.

Steven will provide additional details on that topic.

<unk>.

We have also completed a strategic review recently all of our businesses.

And were excited to recently presented an update updated 2022 to 2024 strategic plan to our board we update our strategic plan generally every three years.

The 2022 to 2024 strategic plan was very well received by our board.

The updated guidance reflects the execution of two key strategic priorities contained in the strategic plan.

Continuous operational improvement in our distribution businesses, leading to exceptional customer experience and profit.

Improvement.

This was complemented by increasing the overall contribution of our technology and value added services businesses and our dental specialty products.

Which had.

Gives me higher sales growth and higher operating margins.

So specifically.

Our technology and value added services businesses, and our dental specialties products businesses.

Together for the full year of 2021 achieved internal local currency sales growth.

Over 21% combined with operating margin of 20%.

Together these products and services represent represented in 2021.

13% of our global revenue.

And about 36% of our full year operating income.

With combined sales with a combined sales run rate.

Of over $1 7 billion and growing at low double digits.

Before I return.

The call over to Steven before I turn over the call actually to Stephen I would like to commend comment on an announcement that we made.

Early last month.

For the past 35 years. It has been my privilege to work alongside Steve Valentino.

Steve joined the Henry Schein Finance Department and $19 87.

When the business was approximately $125 million in revenue.

And has served as our CFO for the past.

<unk>.

Steve has been a remarkable leader during the pre IPO period.

Leading to the IPO, the IPO and in the 27 years since.

Steve led in a consistent and most credible way.

Balancing the needs of our constituents.

And resulting in a 13% compound annual growth and stock price.

The ipos.

Post spinoff of <unk>.

In early January we announced Steve planned retirement from Henry Schein.

Which will be effective as of April 29.

Of course, it's bitter sweet to bid farewell to a colleague who has worked right down the hole for three five decades.

However, Steve will remain a member of our board of directors, and we will come and advisor to Henry Schein.

All of Us at Henry Schein, which Steve the best in his well deserved retirement.

Are you still going to be part of the company.

We have deep.

Deep bench strength and our management team across the company.

And as Brian mentioned on the finance side, Ron will be assuming Steve's responsibility as our new CFO .

Ron has been our vice president of corporate finance since 2008.

Our chief Accounting officer since 2013.

Ron will be supported by Tim.

Tim in Shanghai.

<unk> will be assuming the role of Chief accounting officer.

All good joined Henry Schein in September from <unk>, where she was a partner in accounting advisory services and has a deep technical accounting knowledge.

We actually work with AGA before when she was at EUR.

Ron AGA are complemented by Graham.

Who has been with the company for.

Almost two decades, having rotated through most of our businesses.

As the business Chief Financial Officer.

And.

Of course, the risks of our outstanding Finance team.

We'll continue to provide outstanding services.

We are confident there'll be a smooth transition from Steve to run.

Ron is joining us on today's call.

Okay. Thank you very much Stanley. Thank you for those kind words and good morning to everyone.

Before I review, our financial results. This will be my last more than more than 100 quarterly conference calls as CFO .

I'd like to acknowledge the relationships I have built with so many of you in the investment community.

Our investors and analysts.

I would also like to express my deep appreciation to the finance team here at Henry Schein and other colleagues with whom I have worked closely with over the years, while I'm looking forward to life's next chapter.

Relationships that I will remember most I. Thank you for those memories and for your friendships.

<unk> of todays press release as well as in the supplemental information section of our Investor Relations website.

Turning to our financial results total net sales for the quarter ended December 25, 2021, with $3 3 billion, reflecting growth of five 2% compared with supply.

Internally generated sales were up one 4% in local currencies acquisition growth was four 3% and foreign exchange impacted sales growth by minus <unk>, 5% excluding.

Excluding sales of personal protective equipment, or PPE, and COVID-19 related products as well as prior year sales to <unk> under the transitional services agreement, our internal growth in local currencies was six 8%.

As you may recall in 2020 prices for PPE products, and specifically gloves increased due to some <unk>.

Increased due to some supply chain disruptions that we experienced however prices up those products along with COVID-19 test kits have since declined and this pricing volatility is driving the negative year over year sales growth in PPE and COVID-19 related products.

Look at the details of our sales performance contained in exhibit a of our press release that was issued earlier today.

On a GAAP basis operating margin for the fourth quarter of 2021 was six 2%.

Representing an increase of 30 basis points compared with the prior year.

On a non-GAAP basis operating margin of 616% for the fourth quarter of 2021 also expanded 30 basis points compared with the prior year.

Operating margin expansion was driven by increased profitability in our dental specialty products and technology businesses as well as lower inventory adjustments and improve customer supplier rebates are improved supplier rebates.

Turning to taxes, our reported GAAP effective tax rate for the fourth quarter of 2021 was 22, 5%, which compares with 17, 3% GAAP effective tax rate for the fourth quarter of 2020.

On a non-GAAP basis, our effective tax rate for the fourth quarter of 2020.

Moving on GAAP net income from continuing operations attributable to Henry Schein for the fourth quarter of 2021 was one $147 $2 million or $1 <unk> per diluted share.

This compares with the prior year GAAP net income from continuing operations of $1 $41 $9 million or <unk> 99 cents per diluted share.

On a non-GAAP basis net income from continuing operations for the fourth quarter of 2021 was $157 million or $1 seven.

Diluted share and this compares with non-GAAP net income from continuing operations of $143 6 million or $1 per diluted share for the fourth quarter of 2020.

That excluded the noncash impact intangible asset impairment.

Charge that was $18 1 million for.

For the full year 2021 amortization from acquired intangible assets was $122 9 million pretax or <unk> 54 per diluted share and this compares with.

The prior year that was $102 one.

$1 million pre tax or <unk> 46 per diluted share.

That also excluded the combined noncash asset impairment charges in Q1, and Q4 of the prior year of $23 million.

I'll note that foreign currency exchange positively impacted our Q4, 2021 diluted EPS by approximately a half percent.

Global dental consumable merchandize.

Internal sales increased six 6%.

In local currencies in the fourth quarter of 2021 compared with the prior year.

Excluding sales of PPE, and COVID-19 related products internal sales growth in local currencies increased seven 4%.

Our north American dental consumable merchandise internal sales in local currencies increased 10, 3% compared with Q4 2020, what 10, 1% again, when excluding sales of PPE and Covid related products.

North American dental equipment internal sales growth in local currencies was six 6% compared with Q4 of 2020, we had strong growth in our high tech product offerings, specifically <unk> in the U S, which received a boost from the DS World event, which we saw modest growth in traditional equipment.

I'm also which remains impacted the traditional equipment remains impacted by manufacturing and office construction delays.

International dental internal sales growth in local currencies was two 5% compared with Q4 2020 and.

And we had really strong sales growth in the prior period with sales growth of 14, 2% in Q4 2020 in local currencies.

International dental consumable merchandise internal sales in local currencies increased one 9% compared with Q4 of 2020 or 4% excluding sales of PPE and Covid related topics again as a reminder, Q4 2020, the prior year international Central consumed.

Mobile merchandize sales growth was quite strong at 16, 7% in local currencies.

International dental equipment internal sales growth in local currencies was four 2% and that is also against a bit of a difficult comp in the prior year when the growth was six 8%.

Growth was strong in each of our dental special specialty categories.

Including all surgery, which consists of implants and bone the gen products as well.

As well as endodontics and orthodontic products with all three categories performing well globally.

For the full year 2021, our dental specialty products were $928 6 million golfers with growth of 27, 2% in local currencies over the prior year and contributed $186 $3 million to our operating income.

Turning to global medical our global medical sales during Q4 of $1 $1 billion.

The decline of three 2% compared with the same period in 2020.

An internal sales growth in local currencies declined seven 1%.

Internal sales growth.

Growth declines in North America six 6%.

And international sales declined also at 24% year over year.

Medical sales decline was driven.

Merrily by lower sales of PPE and Covid related products, mainly Covid test kits. If we exclude the sales of the PPE and Covid test kits, our global medical internal sales growth in local currencies increased three 6%.

Compared with Q4 of 2020.

I'll also note we sold approximately $185 million.

A COVID-19 test kits in the fourth quarter of 2021.

That includes about $40 million in multi assay flu and COVID-19 combination test kits and this compares with approximately $270 million and test kits that was sold in Q4 of 2020.

We expect continued volatility in sales of test kits in the upcoming quarters.

Now turning to technology and value added services sales.

During Q4 were $177 2 million.

An increase of 27, 8% compared with the prior year and that includes internal growth.

In local currencies of 13, 4%.

North American technology and value added services internal sales growth was 12, 6% backlog was primarily driven by our revenue cycle and claims management.

Revenue products.

Internationally, the tech and value added service.

Internal sales increased 17, 8% compared with the prior year.

And this growth was driven primarily by strong sales in EMEA, including sales growth in the UK, which benefited from a favorable comparison due to last year's prior year.

Lockdown.

For the full year 2021 technology and value added services sales were $649 million an increase of.

An increase of 24, 6% compared with the prior year.

And included internal growth of 13% in local currencies and had operating income of $125 6 million.

Diluted EPS was immaterial for the full year, we spent $400 million to repurchase five 5 million.

Shares of our stock and I will note that at the year end, Henry Schein had approximately $200 million available for future stock repurchases.

Turning to our balance sheet and cash flow, we continue to have access to significant liquidity, providing flexibility and financial stability.

Our operating cash flow from continuing operations for the fourth quarter of 2021 was $276 6 million that compared to $345 1 million for the fourth quarter of last year and.

This decrease in operating cash flow was attributable primarily to increased inventory.

Including Covid test kits year end investment inventory and reserve stock due to delayed.

Lead times from manufacturers for the full year, our operating cash flow from continuing operations was $709 $6 million.

That compares to $593 $5 million in 2021 and 2020 sorry.

I will conclude my remarks by noting that we are updating our 2022 EPS guidance. The guidance is for GAAP EPS only.

We are not providing non-GAAP EPS guidance for 2022, as we do not currently anticipating using non-GAAP financial measures for the year. Although this decision could change in the future.

For 2022, we expect EPS.

Attributable to Henry Schein will be in a range of $4 75 to $4 91, reflecting growth of 7% to 10% compared with our 2021 GAAP diluted EPS of $4 45.

And growth of 5% to 9% when compared with our 2021 non-GAAP diluted EPS of $4 52.

Our guidance for 2022 has a number of key assumptions I'll review some of those.

122 assumes that our total sales growth will be somewhere in the range of approximately 6% to 8% over 2021.

That includes sales of Covid tests declining.

Approximately 10%.

From 2021 levels that were approximately $650 million I'll also note that 2022 includes one extra selling week compared with 2021. This was up 53 week year and that occurs in the fourth quarter of 2022.

For 2022, we are also expecting to achieve operating margin expansion.

Our guidance assumes a range of 20 to 25 basis points over the 2021 non-GAAP operating margin of seven point over 6%.

And operating margin expansion.

39% to 44 basis points over the 2021 and GAAP operating margin of 687% Lastly, we expect the effective tax rate to stay in the 24% range and of course that assumes no significant changes in tax legislation.

Guidance for 2022 diluted EPS for continuing operations as well as completed or previously announced acquisitions, but does not include the impact of future share repurchases.

Future acquisitions or restructuring expenses if any.

Our guidance also assumes that foreign currency exchange rates are generally consistent with current levels that end markets remain stable and are consistent with current market conditions, and there's really no material adverse market changes associated with COVID-19.

I will turn the call over to Ron South.

Thank you, Steve and it's great to be speaking with all of you. This morning.

Honored and excited to be stepping into the role and Henry Schein CFO .

I have worked closely with Steve more than a dozen years and I'm looking forward to working with all got Graham and the entire Henry Schein Global Finance team.

To underscore what Stanley said, I expect a smooth transition into my new position.

Steve has been a tremendous store and of Henry Schein finances. During several decades of impressive growth and expansion I'll look forward to continuing his legacy and transparency coupled with fiscal responsibility.

You'll be hearing more from me when we report our Q1 financial results in early May the <unk>.

<unk>, it's great to be joining the team on today's call now.

Now I'd like to turn the call back to Sam.

Thank you Ron.

Congratulations on your well deserved promotion.

Truly respected by our entire management team at Henry Schein and Thank you for your service of course, I think Graham as well well his.

<unk> and for his service and in fact in China Finance team.

In September of 2021, we announced a new leadership structure associated with what we internally refer to as one distribution.

I wanted distribution strategy.

Contemplates, a north American dental and medical distribution.

<unk> shipped.

Under the.

Leadership of bread connect a 25 year veteran of Henry Schein.

Our international distribution businesses are being led.

Responding Lipa, Andrei Albertini and exceptional health care executive who joined our team nine years ago.

And of course profit improvement.

Turning now to our most recent accomplishments and our distribution businesses, let me start with dental.

Fourth quarter dental revenue growth was solid.

In North America, we are especially pleased with the growth in dental consumable merchandise sales with strong internal growth in local currencies.

With and without sales of PPE and knee and COVID-19 related products. The growth reflects the impact of some modest price increases as well as the contribution from <unk>.

Two large DSO contracts awarded in 2021.

We expect additional price increases from suppliers, we made by the end of the first quarter.

Which unfortunately, having to pass on to customers.

And then may be more.

Throughout the year.

Patient traffic held quite well in December .

However, we believe there was a decline in January .

<unk> from Hyatt patient appointment cancellations and dental staff shortages due to absenteeism.

We consider our <unk> insurance claims data as a good proxy for U S patient traffic and in January we saw a modest decline.

<unk> 2021.

This is consistent with our January average sales volumes.

Our view is that while there may be some postponed office visits as a result of the Omnicom variant, we expect the market to be stable.

Any impact is likely to be temporary in our view and that most canceled appointments will be rescheduled.

The effect that these movements into our financial guidance.

And the first couple of weeks of February have <unk>.

<unk> that is resiliency in the dental market.

The United States.

Of course, the international market, there's a little bit varied, but generally quite consistent with the trends we've experienced in North America.

We have experienced some supply chain disruption to our merchandise business like everyone and while we may not always have every brand and every size of oil products. We generally have.

Substitutes available.

We have increased our safety stock for some items and we are leveraging our global supply chain partners to mitigate delays and expedites shipments with possible.

We have very good logistics partners as well I might add.

During the fourth quarter, we continued to experience some liberty and installation delays in the U S. Traditional dental equipment business as we had expected.

And East Coast.

Caused by a combination of component shortages and construction delays component shortages with our suppliers and construction delays, which we expect to continue through the second half of this year.

We also experienced for the first time, some modest delays in the delivery of digital imaging units, which we expect to last a quarter or so.

Sales of intra oral scanning equipment was particularly strong again this quarter.

In the fourth quarter, we had a bit of tailwind from the <unk> positive.

We expect to continue to see good growth in the digital category, including digital imaging.

Oral scanners and digital three D printing.

In part by what we believe may be lower asps for the new products with some new products.

In our international dental business in the fourth quarter, we had very good strong.

Our global equipment business.

<unk> is performing very well.

Overall.

Yes.

We believe dental offices continue to invest in their businesses.

And we have expanded our Brazilian equipment business as well.

At this time, we have a strong underlying global equipment order.

Order book and that is throughout our business domestically and globally.

Now turning to our medical business, we have continued to gain new customers, while achieving deeper penetration among existing accounts.

Patient traffic to physician offices and alternate care sites will positive during the fourth quarter, while early in the quarter patient traffic is generally improving and trending towards more normalized levels later in the fourth quarter, we saw patients deferring deferring some elective procedures, which we believe will be temporary.

We expect demand for COVID-19 related testing products.

<unk> to be choppy as the omicron there it runs its course.

<unk> seen a surge in demand for COVID-19 testing.

They're all set production challenges and some suppliers.

Some suppliers leading to some rationing. However demand is good and we have product.

In addition, we expect pricing for COVID-19 tests.

Stephen noted to remain volatile.

We are optimistic about the future in fact, I would say highly optimistic about the future of our medical group as procedures continue to migrate to the ultimate care settings and as the Covid.

The current Covid wave continues to decline.

We believe the use of PPE products for both dental and medical practitioners will remain at elevated levels for the foreseeable future.

With brass price with glass pricing to continue to decline modestly. These factors all reflected in our financial guidance.

Now turning to our dental specialties and technology and value added services and product offerings. We are really excited about.

About these various businesses and product offerings.

As mentioned earlier sales of our dental specialties products performed extremely well during 2021.

Under the seasoned leadership of Rene Willie Chief Executive Officer of our global Reconstruction group.

Which includes oral surgery products and David Brown, <unk>, Chief Executive Officer of our strategic business groups. David is all set by the way a partner to Andreas <unk> and our international distribution businesses and.

David businesses include.

And the endodontics orthodontics and other specialty products and services.

David had previously led our M&A function as well as a number of businesses both domestically and internationally.

And our commitment to continued commitment to invest in research and development.

Our growth is fueled by new product launches and the strengthening of the market for the stores that dental solutions.

Turning to our dental.

Technology and value added services business.

Henry Schein, one the largest contributor to sales in this segment once again posted record high quarterly revenue.

Growth within Henry Schein continue one continues to be driven primarily by recovery in patient traffic to dental offices, which generates demand for our revenue cycle management solutions plus.

New products.

And.

We have also been adding new talent to the Henry Schein, one team, including Mike bid as the CEO of this business has joined us about a year and a half ago to lead our.

Henry Schein, one and.

And Mike has a deep background in technology.

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 moving to a SaaS model as we've discussed in the past, resulting in more stable recurring revenue.

Those streams are of course welcome.

We are seeing good growth in <unk>.

The ascend and the tally.

Based practice management system, which now have more than 4000 customers globally, and we believe we have the largest installed base of cloud based systems, which should continue to expect to grow in the dental arena.

Global program with the U S military to install.

Dental software <unk> software systems. Henry Schein is also working with several customers to collaborate on building next generation innovative digital and clinical solutions.

The first of several <unk> applications to uniquely embedded computer vision AI technology into Henry Schein flagship practice management software <unk> and <unk> has been filed with the FDA. These applications will create valuable and powerful workflows combining practice manage.

<unk> software imaging and AI insights to assist dental professionals and diagnosing dental treatment and automating the construction.

<unk>.

Propylene treatment plan.

This is very very exciting.

The final topic I'd like to draw the attention of our investments vis vis two is our continuous commitment to M&A strategy led by Marc <unk>, who has been leading strategy and M&A for Henry Schein.

27 plus years.

Mark is our executive Vice President of.

West President and Chief Strategic Officer.

And <unk> and is supported by Scott Sounders, VP global M&A and business development.

Also a longtime Henry Schein veteran veteran and M&A remains an important part of our growth and capital allocation strategy. During 2021, we completed several acquisitions.

Our business units, representing annualized sales of over $560 million and capital deployment of $550 million to $70 million.

These acquisitions were primarily focused on broadening our technology and value added solutions servicing the ambulatory surgery markets expanding our presence in the home health market and supporting out.

Brand owned brand strategy of course.

Bill.

You need to seek additional <unk>.

Investment opportunities in the specialty products specialty and services areas.

These comments and a review of our fourth quarter and full year financial results, we'd like to open the call to you.

Questions operator please.

Your first question comes from the line of Matt makes it from credit Suisse. Your line is open.

Hi, Thanks, so much for taking the questions congrats on a really strong finish.

<unk> to 'twenty one.

Just a couple of questions if I could on.

The first the guidance if you could talk a little bit about.

The impact how to quantify perhaps seeing kind of the impact of the extra week in Q4.

As we sort of baked that into the cadence of growth for the year.

And then your comments around Q1 in January it sounds like if.

If you could maybe just run through the sequential.

Any commentary that you made one more time to be clear. It sounded like you were you were seeing some pressure in January with with resilience in February but then it also seems like some of that sequential movement.

<unk> was relatively consistent with your historical experience from Q4 to Q1, so maybe just clarification on those two points. Thanks, So much sure and I'll ask thank you for the question I'll ask Steven to respond to those before I do that.

Some are glossed over I don't know if I missed this in the script, but Brad Connett.

25 year veteran of Henry Schein.

Our north American distribution businesses, Thats dental and medical <unk> August 2021 reorganization I have no idea, where I missed it but did people checking on I'll say so Steven please.

Hello.

Okay.

Steven.

Yes, sorry, I was on mute.

China.

I'm back so far.

Touched on the extra week.

The extra week is probably one of our slowest weeks of the year because it's the last week of the year. So it is the holiday week.

We generally see a lot of practices and customers.

Slow that we got close that week. So it's not a normal week, it's a very slow week for us all of that though is incorporated.

<unk>.

Sure.

Our guidance range of 6% to 8%.

Sales growth in 2022 over 2021, and remember that sales growth is all in so it includes acquisitions that occurred in 2021 that you now have the full year impact, though but it does not include any acquisitions.

New acquisitions that we may do in the year, so it's baked into that 6% to 8% number and again, it's a slow week.

On January sales performance.

So what we've said and what we believe is that yes. We did see first in Q4, we did see some modest impact of the omicron variant impacting our customers.

That continued and probably accelerated slightly into January .

We saw a more patient appointment cancellations and.

And rescheduling.

Hum.

Ill patients really because even staff of dental practices.

Well.

We're impacted by the Amazon and we'll close some absenteeism.

As Stanley said as we exited January we started to see a pick up.

Upsells just modestly again, so we do believe that those sales the sales impact was temporary caused.

Cancellations of payments, but they will be rescheduled.

And we're not expecting that to be a long term negative impact.

Similarly in <unk>.

Medical we did see.

Some elective procedures canceled.

And some of our customers in January .

But again, we do believe that to be a temporary it's primarily impacting ambulatory surgery centers.

It didn't have a significant impact on our business.

But we also believe that.

That will be accelerate and has a temporary impact.

We're trying to be less best thing on sales, we're trying to be a little bit conservative.

On PPE and test kits as we said on the prepared remarks, we're assuming.

Approximately 10% lower sales of test kits for the year.

And we also have assumptions on.

On PPE with lower average selling prices.

Built in there so hopefully that helps you on some of the sales numbers Matt.

Okay.

Great. Thank you.

Your next question comes from the line of Jeff Johnson from Baird. Your line is open.

Thank you good morning, Al and Steve I, just want to say, thanks for all the guidance and insight.

It's been almost 20 years, you and I have known each other so that will be less than <unk>. Congrats on the retirement.

Let me ask a two part question I guess on gross margin in the first part test.

What's the algorithm for the 20% to 25 basis points of operating margin expansion. This year is it hold gross margin and leverage operating expense.

In 2022 and going forward can we expect any kind of gross margin improvement off these levels just thinking more on the gross line rather than operating margin any any update you can provide.

Sure and thanks for the call.

<unk> words, Jeff I have enjoyed built.

Building relationship with you and.

And all of those difficult questions that can typically yes.

So we do expect in our guidance that.

We might see a little bit some modest gross margin expansion.

Over 2021.

Again, thats, driven primarily by shift to higher margin products.

But we don't expect a major change in gross margin, but either flat to slightly.

The modest increase.

And we really do expect that the margin expansion will come from leveraging expenses.

Primarily as well as again.

Shifting towards higher margin products and impacting it on the operating margin side. So that's the way we built our budget for 2022.

Alright, that's helpful. And then maybe one follow up just on that margin comment.

It can specialty in technology and value add can that hold kind of the 20% operating margin leverage going forward and when I think about double digit growth for those two businesses. It seems like each year that should throw out kind of 10 to 20 basis points of operating margin improvement right. There so as the algorithm than kind of hold.

Margin in the rest of the business and get the margin benefit of that mix shift that was higher margin.

<unk> products is that kind of the other way to think about the algorithm and just again, Ken notes business is hold that 20% margin. Thanks.

Yeah, I would say, we haven't given that level of specifics, but remember we also want to invest in those businesses. So there may be some additional investment, but I would say generally speaking that the margin should.

Generally hole.

In both the technology.

And the dental specialties, obviously, if we did acquisitions in either of those areas that could change the mix.

But.

I think it's generally should hold and again, that's that's helping our overall margin as those businesses grow faster than the core business.

Thank you.

Okay. Thanks, Jeff.

Your next question comes from the line of Nathan Rich from Goldman Sachs. Your line is open.

Hi, good morning, Thanks for the questions maybe just following up on the margin guidance.

You talked about the restructuring that you went through last year is there a way to quantify the savings that you're expecting.

To show up this year and then how should we think about the impact of price increases and inflation, both topline and margins this year.

Sure I'll take the last part of your question first since it's a little bit easier.

The inflation really should not have any significant impact on margins because really what we're trying to do is maintain margins with.

With the price increases that.

We've seen and we expect to continue to see so theres really not a margin per se opportunity. Although there was a gross profit dollar slight opportunity because if the margin Saint.

<unk> margin on slightly higher selling prices will add to that.

So I think that thats.

Not really driving it it's driving dollars, but not margin.

And what was the second part of your question Nathan.

Just the savings from the restructuring.

They've never been restructuring that we completed in.

In 2021 really wasn't all that significant.

For us the number for.

For the year.

$7 9 million.

Typically our restructuring has a 12 to 18 month payback. So the impact is something less than that $7 $9 million.

But remember some of the reasons for doing the restructuring is for US to also free up dollars to continue to invest for future growth.

Okay. It makes sense and then if I could just ask a follow up on.

Over the upcoming year that we should have in mind. Thank you.

Sure Yes.

Yes so.

The two larger DSO contracts that were awarded during 2021, we now have.

Onboarding those customers or those are flowing through our sales numbers in Q4.

We still should have an annualized impact.

In 2022, but much more modest because we've.

We've seen a lot of those sales already in 2021.

With respect to DSO contracts, we probably always have one or two every year that is coming up.

For renewal.

We don't have them all bunched up in one particular year like we did many years ago.

We feel very good with our relationships with DSO customers, we feel like we serve them really well our pricing is very sharp.

So we feel good about the renewals.

But theres always wanted to every year.

Okay.

Thank you.

Okay.

Your next question comes from the line of John Kreger from William Blair. Your line is open hi.

Alright, thanks, very much Steve what I'd really like to ask us for your sort of favorite shine anecdote, but that's probably not appropriate for this call.

Okay.

Maybe instead I wanted to ask about the technology and value added services. It seems like the growth you reported in the quarter is a lot higher than normal can you just talk about what drove that and what's the sort of sustainable level of growth you guys are shooting for from that segment.

Yes.

You know again technology, especially with services that are based on patient traffic.

It was impacted and.

It was slower to return to.

Pre COVID-19 levels, so we're seeing a nice impact from that.

We haven't really given specific guidance, but certainly we would like to see that segment.

B double digit top line grower and hopefully slightly greater than that because of.

Margin opportunity.

So we feel good about that business now the only thing is I would.

Caution that that double digit sales assumes no major shift.

To a SaaS model where.

I think everyone knows that in the SaaS model you record revenue every month. So it's an annuity which is good for the company but.

If you compare it to.

Non SaaS model, where you have the sales all upfront it does impact.

Overall sales growth should that become material I'm sure we could call that out for investors, but right now it's not that material.

Great. Thank you and then let me just add a little bit more to that.

First of all my favorite story is when we went on the road.

William Blair Salesperson, who said Stan you talked too much listen to Stephen Smith.

So I just wanted to point out that for the specialty products and technology products.

<unk> heavily in R&D in these areas and have good results, whether it's in the endo, the orthodontic dental surgery or.

In fact, the whole Henry Schein, one area. Many many if I'm looking.

At Henry Schein, one of seven or eight significant new product launches.

And the last.

Two was so quota so these.

These businesses are.

Going to drive even higher margin in the future, we can't say exactly when because there's still a lot of investment going on but they are driving.

Operating income.

But we expect for that to grow over time as this new development R&D projects materialize.

Thanks, Dan one quick follow up we hear broadly that Dennis and doctors' practices are really struggling with staffing themselves.

From your perspective do you guys have an offering maybe within the technology business to sort of help lessen that strain that your customers are facing right now.

Observation by the way is correct I think it's particularly acute in the DSO will.

I can see light at the end of the tunnel we have to.

Areas of support for our customers one is.

Henry Schein one.

It does help with identifying office managers and helping to train the office managers et cetera, et cetera, and we do have a staffing business. It's relatively small, but we are you know services value added services business and we are investing heavily in that area to advance.

Yeah.

Your next question comes from the line of Jason Bednar from Piper Sandler Your line is open.

Yeah.

Hey, good morning, Congrats on a nice finish to the year and Steve All the best to you Hope you enjoy your retirement to its fullest here.

You talked about price increases that have already been contemplated are those that are still come in this quarter and maybe even others that you have insight into later this year.

I guess I'd be curious if these are manufacturers pushing through multiple price increases in the year or if these are just different manufacturers that have some very timing for implementing the price increases and then just what's been the response from the dental community or are your customers pushing back at all in any way how are those conversations being handled and are you seeing any substitution or trade down in response to the price.

Increases.

Yes, maybe I'll kick off.

So.

I think that the bulk of the price increases that we were expecting have come through already.

There may be there.

A few manufacturers who have done more than one price increase.

But the bulk of it.

Come to vote.

But if inflation continues at this rate I guess, it's possible that more could come through.

Going forward from.

From a customer perspective look theres always whenever prices go up theres always a little bit of pushback, but I think customers understand.

That will in a highly inflationary environment, it's not just us started raising prices, it's really across the board and I think that that helps that people can have awareness of inflation going on but there's always a little pushback, but its certainly very manageable and we think that.

We'll be successful in passing through.

Those price increases, even though it's unfortunate we prefer not to but we're getting price increases. So it just kind of have to pass it through to the to the end user.

Thank you, Steve and Theres also a little bit of deflation occurring in some of the commodities obviously in the <unk> area quite substantial.

Some of the other commodities.

Sure.

Is.

An opportunity to consolidate purchasing power on behalf of our customers. So we're getting support in that area.

And also I would say on that in the digital dentistry area.

<unk> imaging.

Has come down and pricing and are.

Making it more affordable to the general dentist.

And the whole scanner World is also coming down in pricing.

Which ultimately I think will lead to standard of use I went up a lot of practices don't have it but I think theres going to be more units going out to general dentist scanner will.

And we have many many options, including some of our major suppliers today.

Advising that theyre going to come out with more competitive offerings in future. So I think.

Yes.

It's not as bad as you read in the newspapers, but we are in a inflationary period for sure.

On our payroll as well.

We have to balance all of this to ensure that we and do the right thing for all the constituents, including Henry Schein and non basins.

I believe our management team is doing a great job in this area.

Alright very helpful. And then just as a quick follow up on capital allocation and really maybe more a question for Ron.

There's a lot of capacity on the balance sheet. So I guess it'd just be helpful to hear your philosophy regarding leverage and how you see the balance of M&A and share repo moving forward. Thanks.

Sure.

Gotta every CFO challenge to try to find that optimal.

Capital allocation.

But I do think that Steve is allowing me to inherit a very strong balance sheet.

It does give us some flexibility to be opportunistic on M&A going forward. It just has to be the right opportunity.

So in the meantime, we will continue to kind of follow what we've done historically with some share buybacks some reinvestment in the business.

But.

As we see the opportunistic M&A come up we want to be able to move on it.

Our balance sheet, but it gives us a lot of flexibility there.

Okay.

Great. Thank you.

We have time for one last question coming from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Hi, guys. Thanks, so much and Steve It's obviously had been great. So congratulations on your retirement.

Maybe it's another question perspective, one thing to that.

Obviously caught my attention was sort of when you were talking about the lower average.

Sales numbers into AD sales pricing in terms of the equipment side could you go into a little bit more detail about what's driving that is it sort of a new product suite is it people switching from complete chair side solutions to Jeff scanners on any of this.

No details that would be super helpful. Thanks.

Yes.

So I think on the equipment side.

The demand for digital Dentistry has created a lot of interesting and new.

New products being introduced.

An examination by some of the supply of existing suppliers are saying.

There are markets that were not penetrating and advancing ideas and more affordable a.

Our scanners.

At the same time those that have had two D.

Imaging machines can now upgrade to <unk> at a relatively low price that sale as a unit. So you take all of this the drive towards.

Digital dentistry to some extent not fully is similar to what you may have experienced in the calculator or in the PC world.

Greater demand.

Our efficiency.

And movement towards standard of care when it comes to.

Three D imaging.

Scanners, but I might add right away and please take into account the whole area of.

<unk> printing is now emerging and is also becoming much more affordable. So we expect all of this stuff to balance and result in greater demand and greater sales and profits for.

The digitalization of dentistry and for Henry Schein that ties in an interoperable way with Henry Schein. One. So this is all a very exciting period for us.

A lot of movement a lot of excitement.

Dennis.

Weakening to the importance of Digitization in dentistry more to follow its a key component of our strategic plan, but we just don't have time to talk all about that all of that today. So.

That makes sense and maybe just as a quick follow up on the implant side, a number of the meter and plant manufacturers have announced new products or sort of revamped or future revamped that are coming to their product portfolio. I was just wondering if you could comment on sort of demand in that environment and the relative.

Competitive levels there.

And sort of pricing as well as that sort of providing a unique opportunity for you. Yes on the implants in particular and of course, we also have a very nice business in bone regeneration.

Products on implants, we have a premier airlines, a couple of premier lines, namely <unk> and <unk>. We also have.

<unk> and the.

Discount area, and Oh, I wouldn't say discount, but lower priced our products tend to be more again on the premium side, but relatively low priced and Kellogg has had significant new product offerings over the years.

Last year I mean, so the catalog.

Colog Progressive line.

<unk> has done quite well the type of pro another area has done well the fusion line.

On the Nova matrix on the biomaterials side lots of new developments, we actually believe we have a pretty comprehensive are competitive.

Offering and the <unk>.

Implant oral surgery line Likewise, I think on the Endodontics and Orthodontics side Happy next time, we have a call or should you want specific details.

Happy for you to reach out to our Investor Relations I. Unfortunately don't have more time now, but we are very excited about our specialty products and now.

Henry Schein, one and other value added services.

Thanks that was helpful.

So Graham.

I know I can talk for hours.

Not thousand minutes lots of information to share.

At the end right Graham.

Yes that was our last question. So we can conclude now okay. So again Steven.

All the best efficiently, but we know you'll.

The guiding us for years to come and be involved with our team Ron views you as a mentor and so do our all our senior executives.

Value added relationship and so we will continue the relationship in your advice to Henry Schein Board and management team. So thank you for everything Thank you to hold an investor sorry, we went over a little.

But today.

If anybody has any questions. Please reach out to Graham Investor Relations and can put you in touch with Steven around shelf.

So thank you all for calling in and we look forward to seeing you to speak to you in early May meeting Nicole and.

And we will be participating in a few investor conferences coming up.

As.

Perhaps you can understand from the tone of the.

Just call it very very excited about the company and we're very excited about 'twenty two 'twenty three strategic plan and the execution of that so thank you all for calling.

And stay safe.

This concludes today's conference call. Thank you all for joining you may now disconnect.

Q4 2021 Henry Schein Inc Earnings Call

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