Q1 2022 Henry Schein Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Henry Schein first quarter 2022 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 with downtime.
If anyone should require assistance during the call. Please press star followed by zero on your Touchtone phone.
As a reminder, this call is being recorded.
I would now like to introduce your host for todays call Glenn Stanley Henry Schein, Vice President of Investor Relations and strategic Financial Project Officer. Please go ahead Graham.
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Thank you.
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Gives me Graham can you speak a bit louder you sound far from the phone.
Our conference call remarks will include both GAAP and non-GAAP financial results. We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business enable the comparison of financial results between periods, where certain items may vary independently.
Business performance and allow for greater transparency with respect.
The key metrics used by management in operating our business.
These non-GAAP financial measures presented probably for information for comparative purposes and should not recur.
The desert replacement for corresponding GAAP measures.
Reconciliations between GAAP and non-GAAP measures can be found in the supplemental.
Thanks, and good luck.
And in exhibit B of today's press release, which is 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 to provide growth.
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 as possible to ask the question within the one now we have a bucket for this call.
The format of today's call with dummy covering the business performance followed by Ron to review of our financial results. We hope you find this format beneficial and with that I'd like to turn the call over to Tommy.
Thank you.
Very much Graham.
Good morning, everyone.
Thank you for joining us.
Before we get into the details of today's call.
I would like to take a moment to express my appreciation to once a day to Steven Paladino.
Who retired last week after 35 years of outstanding service to Henry Schein.
For the excellent execution of Stephen succession plan.
And the smooth transition of his responsibility to run itself.
I am certain.
That investors will appreciate working with Ron and Graham.
And we continue as we continue to build our Investor Relations Communications.
Communications, Ron is joining us on today's call and will discuss details of our first quarter financial performance and.
And full year guidance.
So Ron will discuss that in a moment.
At the start of the call I would like to highlight that 2022.
He is off to a strong start.
With record first quarter financial results as we successfully execute on our 2022 to 2020.
24 strategic strategic plan.
That sets up a winning proposition.
Our winning proposition is that customers rely on us.
An exceptional experience deliver.
Delivering differentiated solutions that make their practices more successful and improve patient outcomes.
And our bolt plus one priorities, which we have discussed with investors in the past.
Is as follows.
The <unk> stands for building complementary software specialty and services businesses.
For high growth.
Operationalized.
Distribution to deliver exceptional customer experience increase.
Increased efficiency and sales growth.
Ill stansell, one schein to broaden and deepen relationships with our customers that is with our entire product offering service offering.
And the D. The drive.
Thanks for driving digital transformation.
For our customers and for Henry Schein.
So bold priorities will be executed in the context of the plus one.
Aligning our key stakeholders, which of course, our suppliers customers.
Shareholders.
Investors and team Schein members in society.
Today, we are affirming our full year 2022.
GAAP diluted EPS guidance of $4 75 to $4 91.
Reflecting the solid growth and stability of our business to emphasize we are very very excited about our 2022 to 2024 strategic plan.
Which started.
The beginning of this year and we believe we're on a very very good.
Victory in that regard.
So let me comment on two topics that are on the minds of many investors.
Okay.
<unk> inflation.
And also global supply chain.
We are continually monitoring the potential impact on inflation of inflation on our business.
The impact generally varies by product category for both merchandise and equipment.
And to an extent it also varies by geography.
We estimate that on balance.
Price inflation on our product offering.
So far this year has been about 3%.
Some of our manufacturing partners are currently implementing additional price increases, which obviously will in.
In all probability impact at 3%, but so far it's been about 3%.
While we have generally been able to pass along these increases to our customers, we do seek to reduce supply increases wherever possible.
Of course, we are aligned with our customers in that regard.
We had customers wished to explore alternatives.
Tenets of social some products.
Because of these pricing pressures.
We are typically able to offer various less expensive alternatives, given our broad product assortment of national brands as well as a wide selection of Henry Schein corporate brands and owned brand products.
Our extensive offering.
To our customers.
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Many options.
As an important differentiator for Henry Schein in the marketplace given the extensive options that we uniquely offer we believe to our customers.
The impact of inflation on our equipment business.
We significantly differed.
Due to the lead times between confirmation of an equipment order by manufacturers.
And delivery.
Equipment.
So.
Generally we book orders in advance with our manufacturers with Liberty delivering at a future date.
And that's generally at a confirmed price.
So not much inflation in the first quarter some of course, but not much on the equipment side.
In addition.
Inflation largely impacts the traditional equipment products.
Average selling prices for digital equipment.
Continues to decline although somewhat modestly.
Now turning to the supply chain pressure on our business.
The situation is relatively stable pretty similar to the fourth quarter.
Of course, we continue to experience extended lead times for certain products.
Which are primarily impacting equipment on the consumable side merchandise side, we generally had products may not be every single product <unk>.
<unk> in a particular category, but we have basically the products.
And the lead time problems are in fact impacting our equipment.
Deliveries.
The recent Lockdowns in China, we've received a lot of questions on that.
I'll start off so far not having significant supply chain trying to impact on us.
As most of our manufacturing partners are located outside the affected regions.
And thoughts are largely operational from our point of view with of course. Some delays now this may be slightly different with specific suppliers of ours of finished goods.
Our team is actively managing these inflationary and supply chain matters.
You saw reflected in our financial guidance.
Yeah.
Turning now to the Ukraine.
Okay.
Henry Schein has relatively low dental sales to customers and really no direct presence in either Ukraine.
Russia. So the conflict itself is not directly impacting our business per se.
Of course, it could impact our suppliers.
Our long standing commitment to humanitarian work and disaster relief.
Our team continues to support refugees and displaced persons in and from Ukraine. As we've done for example, with refugees from Syria.
Other parts of the Middle East.
And of course elsewhere.
I will support us through the delivery of healthcare product donations in partnership with several of our suppliers.
And with international Ngos that we've worked with for a long time.
Yes in this case.
Through our local teams on the ground in Poland.
And there are other on the ground teams working with us to provide these.
Relief support these relief programs these humanitarian relief programs.
So we are actively supporting refugees.
Managing of the nations products clothing.
In some instances money.
We also are responding to those affected by natural disasters around the world such as floods in Australia last year in Germany, and continuing to work and advancing health equity advancing health equity has been a key components of Henry Schein success for many many years ago.
Advance access to oral care.
And.
In many respects two primary care as well.
Turning now to the business review of recent accomplishments.
Charting with our dental distribution business.
So the first quarter growth in our dental business was driven by strong global equipment sales as.
As dentists continue to invest in their practices.
And consumable merchandise sales recovered well during the second half of the quarter in line with the decline of COVID-19 infection rates.
So let me Peel, the onion, a little bit more for you.
In North America, we believe.
Consumable merchandise sales were impacted by lower patient traffic in January .
As a result of COVID-19.
We're progressing really stronger in February and March.
Sales were also impacted by lower sales of.
Personal protective equipment I'll refer to that Ron referred to that as PPE products for the rest of the call.
This decline in patient traffic was primarily a result.
Appointment cancellations.
Staffing shortages and some office closures given the spread of Covid.
Although we believe patient traffic has now returned to the levels of early December 2021.
We are seeing similar trends globally, but obviously.
Excuse me is the operator, I apologize, but there will be a slight delay in today's conference. Please hold and the conference will resume shortly.
Your line of both lines disconnected the mainline and the backup I don't think so.
Function of off conference.
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Please proceed.
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The EBITDA.
Line disconnected, but let me continue.
Okay.
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Andrew.
Okay.
So.
A decline in patient traffic.
Primarily as.
As a result of appointment cancellations.
Staffing shortages and some office closures given the spread of Covid, Although we believe the traffic has now returned.
But 'twenty one level, so I think I covered that already and I think it went through.
The global trends.
Somewhat vary depending on the rig.
Region of the World.
So those fill the PPE products in the quarter, primarily as a result of lower lab sales.
The glove market has been quite volatile forget about it yet.
Not much long at 15 months.
With cloud pricing will be increasing will be an increasing headwind for a few quarters pricing peak in the second quarter of last year.
That's 21.
Nevertheless, if you exclude PPE products.
North American consumable merchandise internal sales growth in local currencies was quite solid.
Despite the softer start to the quarter.
We gained momentum as the quarter progressed.
This was supported by good growth in sales to new DSO accounts.
Our north American dental equipment business has a very had very good quarter.
With strong sales in both traditional and digital categories.
Particularly in digital restarts of restoration equipment.
Shipment order book in North America.
<unk> strong.
At the quarter end.
With the.
Eclogue at the beginning of the quarter.
New orders continue to come in.
A very nice rate.
As commented earlier in the call who did not see a significant impact from inflation on this quarter's equipment sales due to long lead times.
Equipment as we had largely locked in supplier prices for orders shipped during the quarter.
Our equipment results benefited from sales with some about large dsos as we believe that anticipation of further price increases also we believe that anticipation of further price increases is modestly providing some of the elevated demand.
See today.
It's not a huge impact.
Some orders coming in.
Customers, who expect.
Pricing did go up and we'd like to get in.
Before the prices go up not a huge impact, but nevertheless quite cut off.
We continued to experience supply chain issues for traditional equipment.
Arising from component part shortage delays and office build outs.
And reservations as well as longer lead times with digital imaging technology.
Sure.
Not that the product is not available it just taking a little longer.
On the digital side to deliver.
Our orders, having said that if a practitioner needs any urgency of course, we'll make sure that we supply both traditional equipment and.
Digital imaging.
We now expect these equipment delays will continue to be factors for the second half of the year and we'll provide further support for good.
And we will provide further support for good equipment sales over the next few quarters.
Correct.
Bottom line is we remain bullish on the equipment market.
Especially the digital dental equipment.
Operating.
And we expect to continue demonstrating good growth in the digital category, including intra oral scanners.
And now the last.
The impact with digital three D printing.
We're starting to see that flow through as well that demand to be of interest.
Uh huh.
Well continue to look for innovative ways to add value to our customers.
Last month, we hosted five live in Las Vegas.
This isn't a three day dental educational conference that it replaces with successful.
This business of Dentistry conference, we have held and Youre right.
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We designed this inaugural event to offer a learning curve for every member of the dental office.
From the front office.
After the hygienist and the dentist.
Cause dentist themselves.
So everyone from the staff at Janus.
All the way to Dennis.
Participating participated in this conference and the program is designed for the various players in the office.
We were able to select from over 50 CE credits of courses led by more than 40, leading commissions.
With a strong educational focus on digital technology.
Practice management solutions.
That Henry Schein has.
A bit of competency.
And advising our customers.
The customer feedback we received has been most positive and a lot of benchmark thrive at least from our point of view position us to connect with our customers in a deeper way empathy.
And positions our team to help drive greater productivity and provide better clinical care.
So.
Educational top events like this.
Great sales opportunities as well.
Turning now to the international to international.
International.
Equipment sales were also quite strong for the quarter.
Our international consumable sales were impacted by similar trends as in North America, including lower PP&E.
19 related product sales and by a decline in patient visits.
Particularly during the first half of the quarter.
That said compared to North America, the impact of COVID-19 was more pronounced internationally, especially in Europe.
So.
Yes.
But more in Europe .
Patient traffic picked up at various paces as the core.
Order progression.
COVID-19 restrictions were relaxed.
Certain parts of Europe , and we expect these markets continued to recover.
We also expect the Australian market start to recover having reached the peak COVID-19 infection rate.
Towards the end of the quarter.
This should help.
Got it.
Great.
Okay.
Our Chilean business showed strong throughout the first quarter.
Balance in China.
Okay now.
Our growing Chinese business is still relatively slow.
A relatively small part of our global dental business.
These lockdowns also intensified during our fiscal second quarter.
That had little impact in the first quarter I'll remind you, though we have a nice growing business in China.
But it's not material.
The concept of the relative size of Henry Schein.
That's helpful.
Relative to.
Our global consolidated sales.
So turning to dental specialties and technology and value added services.
Sales of our dental specialty products.
With solid during the first quarter.
Separately Arnold surgery, which consists of dental implants, and bone regeneration products and.
Particular scale supplier horizons.
Implants grew by double digits this quarter.
Executing well in North America with this business is primarily focused and where the markets for restorations continues to be quite strong.
Cam blog.
Dentists Grand in Europe , primarily in Germany also go ahead.
Good.
Alright.
Quarter.
First quarter.
Will the implants.
The new generation products in Europe .
We have ultra head.
Selling a bone regeneration products into the large DSO market.
And this is.
Another very good example of the L and a bold strategy.
Leveraging one side strategic properties.
Now within that endodontics products offering and Endo business is also quite solid.
We recently launched our edge <unk> laser.
Which is actually quite a successful launch having been well received at last week's <unk> meeting here in the United States.
We do believe that edge co laser offers outstanding cleaning.
The broadband and disinfection, coupled with greater value compared with.
Competing products.
Meanwhile, our priority in the orthodontic business was a real clear aligner product line and.
In March we completed the U S domestic launch of the <unk> pro product.
That's the software.
And we are now rolling out the software uptake globally.
That's good.
Software features advanced treatment planning and optimization tools.
Obviously I think.
This is a way that <unk> sales were not great.
In the first quarter.
Because of.
Yes.
Practices.
Not being at full capacity.
As a result of Covid.
So.
Overall, our solid position in dental specialty products is strong.
Strong customer offering.
And our commitment to meaningful ongoing investments in R&D.
Questions on that.
To provide further color during the call.
Turning to technology that value added service sales also increased by double digits. During the first quarter in both North America International.
We believe Henry Schein, one office, one of the broadest product offerings.
Our dental practice management and related software and services and is the largest contributor of sales and the sector.
Technology and value added services.
Growth within Henry Schein, one continues to be driven primarily by a recovery in patient traffic to dental offices.
Generates demand for revenue cycle management solutions, and all step back.
By cloud based solutions, our cloud based solutions.
Great flexibility scalable services to drive practice efficiency and yes.
Engagement too.
As another example of our commitment to expanding our technology product offering.
Got and making our job is endless.
Software product available to private to dental practices.
Previously the job of software was available primarily to Dsos.
Also within our value added services business is es.
Business, which provides revenue cycle management solutions for insurance reimbursement.
Pleased with the integration and performance of this business, which we acquired last year.
So now turning to our medical business.
We're the global medical sales were excellent as we achieve further penetration into existing customer accounts.
Internal sales growth in local currency, if you exclude pp and COVID-19 related got it.
Also continued to be strong.
In the U S patient traffic to the physician offices and ultimate care sites and that in particular are not taken.
<unk> surgical centers was up consistently throughout quarter, one versus the prior year.
Sales of medical laboratory equipment.
Double digits, while demand for non Covid point of care diagnostic.
Domestic test was also quite strong.
With PPE products declined by double digits compared to the strong first quarter last year.
As I've mentioned earlier, we expect further pricing declines for gloves throughout the rest of the year prices.
Prices to remain above pre pandemic levels.
Sales of COVID-19 tests were extremely strong during January very strong and decline sharply towards the end of the quarter.
The future of these products is difficult to predict as we faced somewhat.
Offsetting forces of new variants spreading rapidly.
The man.
Along with increased availability of <unk> on the other side and many of which are being paid for by the government.
So that's a broad overview now Ron will give you more specifics.
On the financial results for the first quarter.
Yeah, you bet. Thank you welcome to your first.
Cool.
Very good thank you Stanley and good morning, everyone.
So turning now to our record first quarter financial results total net sales for the quarter ended March 26, 2022 were $3 2 billion.
Ah reflecting growth of eight 7% compared to the prior year period.
Internally generated sales were up seven 7% in local currencies and when excluding sales of PPE and COVID-19 related products internal growth in local currency was eight 9%.
As Stanley mentioned prices for PPE products, and specifically gloves increased last year due to market volatility and supply chain disruptions more recently prices of these products along with COVID-19 test kits have declined.
Pricing volatility combined with a strong Q1 prior year sales comparison.
Driving our year over year decline in sales of PPE and COVID-19 related clients.
Detailed comp sales performance are contained in exhibit a in our earnings press release issued earlier today.
Operating margin for the first quarter of 2022% to seven 7%, representing a decrease of 17 basis points compared with the prior year GAAP operating margin when compared with prior year non-GAAP results operating margin decreased 71 basis points.
Operating margin contraction was due to higher operating expenses, primarily as a result of increases in payroll commissions and travel and entertainment.
Most of our operations have returned to normal this year.
Year over year contraction was also due to the unusually high operating margin in the first quarter of last year.
Turning to taxes.
Our effective tax rate for the first quarter of 2022 with an even 24%.
This compares with an effective tax rate of 25, 1% for the first quarter of 2021 on both a GAAP and a non-GAAP basis.
GAAP net income attributable to Henry Schein for the first quarter of 2022 was $181 million or $1 30 per diluted share.
This compares with prior year GAAP net income of $166 million or $1 16 per diluted share in prior year, non-GAAP net income of $178 million or $1 24 per diluted share.
Amortization from acquired intangible assets for Q1, 2022 was $32 $2 million pre tax or <unk> 14 per diluted share. This.
Compares with $29 $7 million pre tax or <unk> 13 per diluted share in the same period last year.
And foreign currency exchange negatively impacted Q1, 2022 diluted EPS by approximately <unk>.
I'll now provide some detail on our sales results for the first quarter.
Global dental sales of $1 8 billion increased two 2% compared to the same period last year with internal sales growth of three 5% in local currencies.
Global dental consumable merchandise internal sales increased one 3% in local currencies and excluding sales of PPE and COVID-19 related products internal sales in local currency increased four 7%.
Global dental equipment internal sales growth in local currency was 11, 9%.
North America dental internal sales growth in local currencies was four 8%, which was driven by especially strong performance in equipment, which internally grew 13, 2% compared with the prior year period with strong performance in both traditional and digital categories.
This growth also comes off a difficult comp as Q1 2021 internal equipment sales growth in local currencies was 17, 4%.
North American dental consumable merchandise internal sales in local currency increased two 6% compared with Q1 2021.
Or seven 3% when excluding sales of PPE and COVID-19 related products.
<unk> dental internal sales growth in local currencies was one 8% compared with the first quarter of 2021, when we had an exceptionally strong sales quarter with internal sales growth of 17, 9% in local currencies.
International dental consumable merchandise internal sales in local currencies decreased 0.5% compared with the first quarter of 2021 and.
And increased one 3% when excluding sales of PPE and COVID-19 related products sales.
Sales were impacted by an increase in COVID-19 infections, especially in January and February.
This sales growth is also against a difficult comp as the internal sales growth in the prior year with 19, 2% in local currencies.
International dental equipment internal sales growth in local currencies was 10, 1% and this is also against a difficult first quarter of 2021 comp and such growth was 12, 9% in local currencies.
Sales of dental specialty products were approximately $236 million in the first quarter with internal growth of seven 2% in local currencies compared with Q1 2021, when we had an exceptionally strong sales quarter with internal sales growth of 18, 3% in local currencies this quarter growth was.
Drawn and our oral surgery surgery category, which consists of implants and bone regeneration products.
Check.
You added services sales during Q4 $179 million, an increase of 23, 4% compared to the prior year, including internal growth of 11, 1% in local currencies.
In North America technology and value added services internal sales growth of 10, 3% in local currency.
This growth was driven by our practice management business with strong growth from Patrick and ascend.
Our revenue cycle management business also exhibited solid revenue growth.
Internationally technology and value added services internal sales increased 15, 7% in local currencies compared to the prior year. This growth was driven by a strong performance in the U K, which benefited from a favorable comparison to the prior year when the Lockdown was just beginning to ease.
During Q1, our technology and value added services businesses together with our dental specialty products achieved total sales growth of 13, 1% and internal sales growth in local currencies of eight 7% and this total sales growth is in line with our double digit growth goal for the full.
Yes.
Global medical sales during Q1, $1 2 billion grew 18, 3% compared to the same period in 2021 with internal sales growth of 14, 7% in local currency led by growth in Covid test kits and other point of care diagnostics.
We sold approximately $250 million and COVID-19 test kits in the first quarter of 2022, including multi USA flu and COVID-19 combination test case.
This compares with approximately $180 million and test again in Q1 of 2021, we expect continued volatility in sales of test kits for the remainder of the year.
Excluding sales of PPE and COVID-19 related products global medical internal sales in local currency increased 14, 5% compared with Q1 of 2021.
Regarding share repurchases, we did not repurchase any shares of Henry Schein stock during the first quarter because.
Because we had a <unk> one plan that did not result in any shares being repurchased during the quarter.
We intend to put in place an additional plant that is effective as of Tomorrow may four.
As of the end of the first quarter, Henry Schein had $200 million authorized and available for future share repurchases. This program remains a core pillar of our balanced capital allocation strategy, which also includes ongoing disciplined investments to support organic growth and strategic acquisitions.
Turning to our balance sheet and cash flow.
We continue to benefit from significant liquidity, providing our businesses flexibility and financial stability operating cash flow for the first quarter of 2000 $20 million to $93 million compared with $63 million for the first quarter of last year.
Turning to 2022 financial guidance.
I will conclude my remarks by noting that we are affirming our 2022 full year GAAP diluted EPS guidance range of $4 75 to $4 91.
Reflecting growth of 7% to 10% compared to our 21 or 2021, GAAP diluted EPS of $4 45.
And growth of 5% to 9% compared with our 2021 non-GAAP diluted EPS of $4 52.
We expect 2022 full year sales growth of approximately 5% to 8% over 2021 versus our previously communicated expected sales growth of 6% to 8%.
This change primarily reflects the latest foreign exchange rates and a decrease in sales of COVID-19 test kits.
As Stanley mentioned earlier, the future demand for tests getting difficult to predict however, given recent trends we have now.
Now estimate sales of COVID-19 test kits to be 15% to 25% lower than 2021 as opposed to the 10% decline we had previously communicated.
We continue to expect full year 2022 operating margin expansion of 20 to 25 basis points over the 2021 non-GAAP operating margin expansion of 39 to 44 basis points over the 2021 GAAP operating margin.
Our guidance is for client as well as completed or previously announced acquisitions and does not include the impact of future share repurchases potential future acquisitions or restructuring expenses, if any guide.
Guidance also assumes that foreign currency exchange rates will remain generally consistent with current levels.
The end markets will remain stable and consistent with current market conditions and if there are no material adverse market changes associated with COVID-19.
With that I'll now turn the call back to Stan.
Thank you very much Ron.
Fortunately the beginning part of our.
Call with Graham made his introductory remarks.
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We're not free broadcast two hour.
Participants there was a problem.
Operator.
Intervention cologuard disconnect. Good I think my remarks.
Ron So it's really picked up.
Brian you may want to repeat some of your remarks.
Please go ahead. Thank you.
Sure. Thank you Scott.
I'd just like to scrape 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 math is refractory and 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 as filings with Securities and Exchange Commission included in the risk factor section of those filings and additional comments about the markets, we serve including end market growth rates and market share are based upon the company's internal analysis and estimates.
So with that I'll hand, the call back to stomach as I think everybody heard the rest of the statements at the beginning thank you Sandy.
Thank you very much Greg.
Operator please.
For further questions open the line for questions. Thank you.
Youre welcome and as a reminder to ask a question you will need to press star one.
One and you touched on telephony can we draw your great question, you May press, the pound or hash key please standby, while we compile the Q&A.
Sure.
We have our first question comes from the line of Jeff Johnson from Bank. Your line is open. Please go ahead.
Thank you guys just two quick ones, maybe and then I'll get back in queue, but just Stanley could you give us any update maybe just on April trends that youre seeing in the specialty dental area General dental area and.
Nichol.
And then Ron just for you from a guidance standpoint on the 5% to 8% revenue growth.
I think a lot of us just look at organic growth for schein it tends to be a very consistent metric in your business.
Could you just give us kind of how we should be thinking about maybe organic growth given that you do a lot of acquisitions and currency, obviously has a big impact this year. Thanks guys.
Thank you John .
Chip Amit Thank you Sir.
Equipment sales remained strong in April with internal sales growth.
Okay.
Double digit numbers.
As we indicated we expect at least at this moment equipment sales remained strong for the balance of the year.
No.
In North America, with particularly encouraged by the month CPE sales.
In April .
However, <unk> sales.
Were lower than prior year due to the lower price.
Gloves.
The pricing of clubs has had quite a bit of an effect.
Therefore, while the underlying growth.
As good ex PPE.
General PPE, excluding clubs is pretty good.
Overall, therefore merchandise internal sales growth in local currencies. So.
So if you take out the PP&E is okay, it's pretty good.
I'll now international.
So that was about North America, if you look at our international component.
Again.
He is having quite a bit of an impact for particular plans.
But.
We're quite encouraged because some.
The European point of view most of the markets now back in full.
Swing.
Major markets that we're in.
Also let's say Australia reached the peak.
Towards the end of the quarter last quarter.
They are back in business again.
<unk> continued the nice growth, we experienced in Australia for awhile.
For whatever reason and Brazil continues to be very good doesn't seem to have been impacted at all in the first.
This quarter it continues to be strong in April .
No.
Uh huh.
We have seen quite a bit of disruption as we could go from newspapers of course.
Particularly in Shanghai.
But I think now.
Parts of the country.
With us it gives a total lockdown.
So our China sales.
Impacted in April having said that please remember China is relatively immaterial in the context.
12, and a half.
So it's a billion dollar business.
Medical.
Very similar results primary care in North America.
Medical business.
<unk> continued to have very very good growth.
No.
No.
Latest products, excluding diagnostics and.
PP&E.
Ron.
Ryan.
Certain for the color on the.
It took into account and coming up with you.
So Jeff if you recall our original.
Sales guidance was 68% and the components of that included about a point or acquisition and a point for the 50 <unk> week.
Yes.
That left us with about 4% to 6%.
Yes.
Whether it be price increase for raw.
Volume.
I think.
We're taking down the sales growth.
The 8%.
Extra point were taking off a floor there is really a combination.
What we're seeing in trends on the Covid task that we've set.
We're expecting those sales to be 15% to 25% lower than last year versus our original guidance.
10% lower and also the FX headwinds.
So you can kind of do that math.
Internal number now be something thats closer to say.
$3 five to five five or 6% in terms of the total number that were sold this.
Hopefully that makes sense.
It does thank you.
Okay.
Our next question comes from the line of Jason Bednar from Piper Sandler. Your line is open. Please go ahead.
Hey, good morning for taking the questions a couple for months just actually wanted to first come back on the on the topline guide there.
They're so just just to confirm.
The bottom end of that guide.
Come in 100 basis points lower so now five to eight reported for the year. It looks like 50 basis points of that is Covid test kit. So just to confirm that the balance of that is just FX or I guess are there any other good guys are bad guys kind of within that revenue guidance that we should be considering whether it's glove pricing or anything else that's playing out.
Here, just as we as we think through some of those mechanics.
No I'll just say your estimate on.
Does it get it to the FX, a pretty reasonable and thats.
Really those are really the components theres not theres not.
Offsetting items.
One.
Okay, Alright, perfect and then just thinking about thinking through how the first quarter played out I mean, our earnings came in significantly better than how you were communicating it back back in February I think the original guide was for earnings to be slightly lower on a year over year basis can you talk about where the outperformance came versus expectations.
Was it a quicker recovery in the top line and like in core trends in dental and medical better expense control.
Yes.
You beat the street by over a dime, so I guess, where does that outperformance come from in your eyes.
Well I think a couple of areas right.
<unk> covered the $250 million in the quarter.
And while we're taking down the full year on Cobra, Jeff gets I don't think we.
We didn't expect to do quite well in the first quarter.
With the test kit sales I think also we're really happy with.
Our gross margins in the dental business I think that in spite of some of the pressure we're feeling on gloves, we still get.
Fairly good on the margins there.
And then of course equipment equipment came in much better than what we had originally expected.
And as we said on the call we remain bullish on equipment. So I think all those things when combined guide us to.
A good place on the quarter Theres other things.
Ali.
Well on an effective tax rate, we did well.
And a few other areas, but I think that we are.
Between the.
Good margins that we experienced in dental.
Not just in gloves, but a non PPE sales as well.
Youre really kind of helped us out for the first quarter.
Alright very helpful. Thanks, Ron.
Yes.
Our next question comes from the line of Justin <unk> from William Blair. Your line is open. Please go ahead.
Hi, Good morning, Thank you for taking my questions.
First of all just can you talk about your dental market spending growth outlook for 2022 and beyond.
Do you think the elevated spending per visit levels from 2020, one can persist or are you seeing a decline right.
I think.
Generally.
Yes.
From a visit to dentist point of view taking into account.
Koby.
Impacted locations.
<unk> generally.
We're in positive territory from visits to dentists.
From what we can tell.
The high end procedures.
Remained quite strong.
Some specialty products.
Hi, Ann.
Quite strong.
But at the moment.
Sure.
More or less back to where we were in December .
<unk> one.
Of course.
You never know where this is going to.
They have an impact but right now.
Although we did have.
Pretty bad in January .
A business point of view.
<unk>.
March started getting better April okay. Okay.
I think at.
Two.
Stable leaning positive.
Got it thank you.
The line was a big surprise last week.
I was just wondering any visibility on your end regarding sort of the declining consumer sentiment.
Some of these companies are are seeing.
Maybe especially around your I know, it's a small part so that your <unk>.
Reveal clear aligner business.
Yes.
Sure.
Reveal a line of business is relatively small.
Growth is impacted by new accounts.
Particularly some dsos that have now taken on the via line. So I don't think our sales on much of an indication although obviously in the first part of the first quarter.
Visits.
Elective procedures were down.
It came back again.
But I'm not sure we have the right party to give you an indication of the market in general.
Suffice to say, we remain quite bullish to our reveal line, having said that it's a very small business relatively small business compared to the market.
Okay. That's fair thank you very much.
Our next question comes from the line of Elizabeth Anderson from Evercore ISI. Your line is open. Please go ahead.
Hi, guys. Thanks. So much further question I was wondering if you could provide some additional detail on the north American.
Medical account penetration what would that just sort of broadly expanding your range of products into certain clients with that tariff share gain wins versus peers or any additional details. There you could provide would be super helpful.
Yeah.
Yeah.
Oh.
Medical business.
<unk> focuses on the ultimate pit area, mostly physician offices.
The independent.
Part of the group.
No impact.
A large part of it.
It is with the <unk>.
Medical practices.
Got it.
We also have businesses that focus on the government.
And we have businesses that focus on <unk>.
A smaller ambulatory surgical centers.
And we have businesses when folks.
Got it.
Provide us such as renal treatment centers and cancer centers.
We do not serve as the long term.
Considering the way.
The acute care area, and obviously not the drugstore.
That's really our business and in that area.
<unk> been gaining market share.
Well.
Great.
Very good execution I would say that.
Sure.
All of this.
Yes.
<unk> continues to point to gaining market share obviously the PP&E.
And Chris.
Spot numbers, sometimes magnify sometimes.
Reduce online.
But it's essentially within that particular path that I've described we continue to gain market share we do add some new products.
Which contribute I would say, including by the way we entered the homecare space. Some small way would expand that but I'm not sure that contribute at all to the internal growth acquisition growth.
So the business is just gaining market share.
Got it that's very helpful and Rod maybe one for you as we think about the cadence of Opex spend on me.
Going forward for the rest of the year could you help us think through the puts and takes us.
The increase in wages.
Is it labor type cost that you called out versus some of the ongoing impacts of the cost cutting plans that you guys have put into place.
Yes.
We're dealing with wage inflation like everybody is right.
And our our normal cadence.
Of salary increases that the company goes into effect April one so we will see an increase in payroll costs going forward.
That is taken into consideration when we talk about.
Operating expenses at our planned operating expense.
Mansion at the margin expansion.
Unfortunately, we had to put into place a <unk> surcharge we've done this in the past.
To deal with.
Increased costs.
Utilities.
But generally our customers.
Accepted that.
The requirement.
Got it okay. Thanks.
Our next question comes from the line of Nathan Rich from Goldman Sachs. Your line is open. Please go ahead.
Hi, good morning, Thanks for the questions.
Awesome both upfront.
I guess, maybe on the dental equipment business. It seems like Youre seeing longer lead times and you expect those kind of delays to continue through the second half of the year, but you had a strong first quarter from a revenue standpoint, and it doesn't sound like the outlook for dental equipment at least on the revenue side is has changed.
This year. So can you maybe just talk about how you've been able to work through the supply issues.
And also why you are still seeing.
Just in terms of demand for Capex from practices and then just a quick follow up for Ron.
It looks like the seasonality of earnings this year is a little bit different than what you've seen historically and so I guess should we think about kind of earnings towards the back half of the year is closer to what the go forward run rate of the business will be.
One is kind of PPE normalizes some of these equipment supply issues resolved.
It would just be helpful to get your color on on kind of what the back half of the year means for the longer term go forward. Thank you.
Yes.
Two very good questions.
First of all the demand for dental equipment both traditional.
And digital has been quite strong actually.
Uh huh.
The early part of.
At the time.
Practices with Covid.
So I guess from the second quarter.
Third quarter post third quarter of 2020.
It's been pretty well the demand is there.
There's one particular.
Challenge and that is.
<unk> units and lines.
That's part of the traditional business.
Had a big supplier exit the market.
And the other two major suppliers plus three or four other smaller ones have had a challenge keeping up with our demand.
Because we've got a big customer.
Our business closed out on the chairs.
Side of the business.
The catastrophe has increased.
We certainly can provide equipment traditional equipment any customer urgency Lisa.
Having said that.
The demand continues to grow.
Apply increases, but there is still a bit of an imbalance.
And.
We don't see.
At the moment the time line.
Demand for traditional equipment will significantly reduce that is the view as of this very moment.
On the digital side.
Demand continues to grow digital dentistry is growing rapidly.
We have.
The number of suppliers, providing us with product.
They all to one extent or another head.
Uh huh.
Some challenges and providing.
Satisfying that demand.
Some.
While this challenge and others and the demand is growing.
And we continue to.
Cellular.
Uh-huh snack buildup in the backlog in that regard it's related to the <unk>.
Supply is having.
Plus.
Chuck challenges.
So the market is stable.
There is a problem in satisfying all about <unk> disorder.
And okay.
The demand.
It's good so.
Dennis or investing in their practices I might add the same as on the medical side.
So practitioners are generally investing in the practices, we have a good selection again good manufacturer support.
The equivalent business both.
Dental medical domestic and globally is quite strong.
And regarding your question on seasonality.
It's a very good question and it's a very difficult question to answer.
Youre right historically are.
There were some seasonal trends that were somewhat nuanced, but there were some seasonal trends to our business.
I think.
As we.
We went into the pandemic and are coming out of the pandemic.
Lot of that debt.
That dynamic has changed.
Thank you.
There are so many different factors, whether they be COVID-19 test kit.
Pricing of PPE demand for PPE.
The.
The days of kind of predicting increased sales in the fourth quarter for equipment.
Tax incentive equipment purchasing our.
Difficult.
So I think.
Admittedly R R.
Our earnings are probably going to be a little choppy or than they have been historically.
And Thats really just driven by the dynamics of the market.
Right now.
Thanks very much.
Yeah.
We have time for one last question coming from the line of Mike Music from Credit Suisse. Your line is open. Please go ahead.
Yes.
Hello. This is Justin Wang stepping in for Matt. Thank you so much for the question.
We were wondering if you could provide any color on implant trends in the U S as well as our U S and how you've seen these carry into April as well as your expectations for Q2. Thank you very much.
This implant trends continue to be quite strong.
I noticed the higher end.
The industry seems to be doing quite well.
Our strength of course is in the.
North America and in Europe of course, we have a presence in Asia.
Not as large in those markets.
On a global basis, the Asian markets.
Some of the developing world markets are growing at a faster rate.
Okay.
European with particularly strong in Germany.
In the U S market.
And the markets we're in.
I think we.
I believe we are gaining market share at.
But from a global point of view that about other markets.
Faster.
Not really.
Imagine that.
Other markets, we've had a setback because.
Sales in China.
Russia.
So overall I think from our point of view the market continues to be quite good and we continue to gain market share.
A number.
Introductions products.
Okay.
Specialty areas implants.
But in general.
And of.
Of course, it will be up.
Yes.
Thank you.
Thank you Unfortunately.
Sure.
We have to end the call I'm, a few minutes over but we had this interruption.
It was beyond our control.
Thank you everyone for the interest.
We changed the format you have feedback a little bit on the format on the.
Okay.
The press release, hopefully, it's more concise satisfied.
Investor needs, but.
I'm not sure would appreciate any input from our investors.
As you can tell we remain.
About the business.
Quite happy with.
<unk> thousand 22 to 2024 strategic plan.
We're making very good progress.
Of an outstanding management team behind the plan.
Sure.
Generally think of both plus one strategy.
Increased shareholder value must.
Consistent way as we've done.
For the past 100 cross quarters, so as a public company. So thank you for your interest in <unk>.
Feel free to reach out to Brian or.
<unk> two.
Ron.
And.
The processing people.
Speaking to people.
Next month.
And have a great. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect have a great day.
Okay.
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Okay.
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<unk>.
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Sure.
Yeah.
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