Q4 2022 Henry Schein Inc Earnings Call

February 16, 2023

Good morning, ladies and gentlemen, and welcome to Henry Schein fourth 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. Please press the star key followed by one on your Touchtone phone. If you would like to ask a question at that time.

If anyone should require assistance during the call. Please press the star key followed by zero on your Touchtone phone.

And as a reminder, this call is being recorded.

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

Thank you operator, and my thanks to each of you for joining us to discuss Henry Schein financial results for the fourth quarter of 2022.

With me on the call today are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Ron <unk>, Senior Vice President and Chief Financial Officer.

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

As you know risks and uncertainties involved in the company's business may affect the message referred to in forward looking statements. As a result, the company's performance may materially differ from those expressed in or indicated by such statements.

These forward looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein as filings with the Securities and Exchange Commission and included in the risk factor section of those filings.

In addition, all comments about the markets, we serve including end market growth rates and market share are based upon the company's internal analyses 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 on the financial performance of our business.

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

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

These non-GAAP financial measures representatives solely for informational 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 the website.

The contents of this conference call contains time sensitive information that is accurate only as of the dates of the live broadcast February 16th 2023.

Henry Schein undertakes no obligation to revise or update any forward looking statements or reflect events or circumstances. After the date of this call.

We have prepared slides summarizing our fourth quarter financial results and these can also be found on the Investor Relations section of our website.

During today's Q&A session. Please limit yourself to a single question on the follow up with that I'd like to turn the call over to Stanley Bergman.

Good morning, and thank you Brad.

And thank you all for calling in today.

We closed out 2022.

With a very good fourth quarter in which we continued to execute effectively on our 2000.

22 to 2024 strategic plan goals, achieving strong growth in earnings for the fourth quarter close for the full year of 2022.

Despite the macroeconomic concerns and of course, the foreign exchange headwinds.

We overcame significant headwinds from lower sales of PPE products, and COVID-19 test kits.

Our sales were affected by a decline in sales of PPE products from COVID-19 test kits.

<unk> sales of PPE products, and COVID-19 test kits and taking out the <unk> sales week.

For 2022, we achieved very good internal growth.

That's 5% in local currencies that's internal.

There was a negative impact on desktop visits for seasonal flu and COVID-19 last quarter.

And this is both in North America and internationally.

So dental visits were down because of the impact of flu. Both these seasonal and the COVID-19 on the other hand. This was offset by a positive impact at least from a product sales point of view of visits to our physician customers.

We experienced growth in each of our business.

Across the board and overall.

We generated solid financial results for the quarter.

Reflective I think of a stable market.

Oh in the markets that we serve.

So we made excellent progress in advancing our 2022 to 2020 for both plus one strategic plan.

So firstly on the plan was 22.

We advanced our <unk> distribution strategy to enhance the customer experience.

And improve.

Operational efficiency.

Input, but creating our north American distribution group led by Brad <unk> and our international distribution group led by Australia Albertini.

We had good results across the board both in North American distribution and international distribution group.

We strengthened our dental position with national Dsos.

New accounts and had excellent success with our technology solutions and specialty products within our within the National Dsos segment.

And.

On the medical side, we did expand our position with idms in large group practices.

On the digital side.

The bold plan calls for a significant effort in this area.

<unk> global digital team, including the appointment of experienced veterans in this area.

Talk is cheap global customer experience officer, Sarah Sutton as Chief data Officer.

Working closely with Lee bandwidth, Chief Global Digital transformation officer, and Mark Hillenbrand.

Hillenbrand, Chief Digital revenue officer.

We made excellent progress designing and building a global E Commerce platform and this is in advance.

The advancement of all.

Platform.

Should we expect.

To start rolling out in the later part of this year and that's with <unk>.

Got to rollout the upgrades to the current platform.

At the same time, we had some exciting news on the AI side.

We launched our detect.

And AI enabled extra analysis to powered by <unk> health.

And last week, we were advised that video health has received 501.

K FDA clearance for its periodontics solution, which we expect will further advance the use of AI as a tool in dentistry.

We were active on the M&A front, we acquired midway dental in the U S and condo to influence, Switzerland, They bought life span.

Expanding our reach into underpenetrated areas of the market with.

We acquired a majority stake in units and announced plans to acquire or May just a majority stake in biotech dental.

Most of these investments well will address in a moment.

We have begun implementing a restructuring plan to reduce our global real estate footprint to reflect TSM thats team schein members preference for flexibility and work locations.

In this connection we have closed one of our two buildings and all Melbourne headquarters on long Island.

We intend to invest in our remaining real estate footprint around the world to provide modern and flexible office space and we will also continue to invest in technology to ensure that we maintain and build on our strong competitive position.

From a technology point of view in other words the tools.

We provide a team.

To operate and of course, the tools, we offer to our customers to insert faced with us.

This past quarter, we disposed of an unprofitable business. So we can redirect our resources to operations at all priorities in two.

2022 to 2024 strategic plan.

Costs associated with this exit are included in our restructuring costs for the quarter.

So if you look ahead a bit we are introducing guidance for 2023, which Ron will discuss in a moment.

We expect operating income growth in the high single digits to low double digit percentage rate range.

When excluding the contributions from PPE products and COVID-19 test kits.

We anticipate the impact of lower selling prices of PPE products and reduced demand for COVID-19 test kits.

What will largely be offset by earnings momentum in our underlying core businesses.

And the good momentum we have as we enter 2023. This gives us confidence in the 'twenty two 'twenty three guidance and specifically the <unk>.

Growth in our operating income when you exclude PPE products and COVID-19 tests, so little bit of specifics around our dental distribution business.

Merchandise sales in North America at least slightly when excluding sales of PPE and taking out sales from the 50 <unk> week.

North America, we have a relatively stable market and our market share we believe remains.

Uh huh.

Stable to slightly positive.

We believe global dental consumable merchandise growth as noted earlier was impacted by the high incidence of flu and COVID-19 cases.

Which caused increased rates of patient appointment cancellations and accentuated the staffing shortages.

Now what's important is the rates of patient flow pitch that returned to more normal levels in January .

January of 2023.

Three.

Impact from manufacture merchandise price increases we believe lesson.

Last years increase to get to centralize the depth and breadth of the Henry Schein product portfolio of course allows us to put up to support our customers' needs.

We have customers that are concerned with pricing.

We have offerings of alternative national and corporate brand products.

It's our own brands as well as alternative national brands, where we experience.

As resistance to price increases, but having said that price increases we believe.

That is sticking in the marketplace are relatively stable now and not anywhere near what they were at the beginning of last year.

Demand for dental equipment in North America remains healthy and our North American equipment order book is stable.

We saw good sales from our traditional equipment.

And steady sales for digital imaging equipment, which.

We had challenges in the past.

Because of pricing issues, but this seems to be stabilized now.

And there was a decline in sales of digital restoration equipment.

Paid to corresponding.

Corresponding period in the fourth quarter.

And of course, we had good sales in the fourth quarter.

But the challenge has been.

Customer demand is.

Shifting from chase those quite expensive to three D printing much less expensive.

And a mix shift to lower price intra oral scanners.

There was also a supply chain issue with one of our important intra oral scanner suppliers that introduced a new scanner.

This.

In the last few months so all in all.

Demand for digital restoration that market is pretty tough, but there are these mixed challenges that I've just described and we can go to integrated teach out if anyone has questions.

The value of our North American order book for equipment is stable we could see.

<unk> continued to see construction delays to some extent.

And a slight reduction in the number of planned new office.

<unk> amongst specifically some of our larger dsos.

On the international dental merchandise outside.

The same impact as in the United States and North America.

Patient flow challenges experienced also.

Well as the Lockdowns in China that will offset that.

On the international side.

But that was largely offset by good growth in the UK Eastern Europe and Brazil.

Towards the end of the quarter Dental office staff absenteeism and patient appointment cancellations.

Well.

Began to ease likewise in our international business.

Demand for equipment internationally held up quite well with sales moving to lower priced intra oral scanner units as well and the overall equipment sales essentially were in line with last year.

The fourth quarter of equipment sales.

And our outlook was slightly impacted by purchase delays in anticipation of this is on the international side of things what the biennial Ids show in Cologne.

Wait.

Customers expect new promotions to introduce new products and that show takes place at the end of the first quarter.

The fundamentals are not that at all.

End markets remain solid.

Of course, the aging population.

And the growing global awareness of the health care benefits of defensive.

Oh Hell all.

All play into our strategic benefits.

Henry Schein.

Short medium and long term.

So.

Demand for dental services also generally correlated we believe with unemployment rates.

And in the developed world needs remain.

Relatively.

So consistent.

Historically low if you will.

So we think the underlying basis, okay supported our okay and.

Let me now turn a little bit to the dental specialty products business.

Where we were impacted particularly in our largest sector implants.

Bone regeneration products with significant prior year.

Growth prior year comparisons.

By rises Chemlawn premium value implant segment continues to grow in North America and Europe we.

We have some offsets yeah.

With the decline in China, Although I'll point out that our China business is not material, but it does impact the gross line to some extent.

Sales for DSL customers in United States.

So.

The buyer is coming offline remained solid and our value brand in the dentist, primarily in Germany, but also to some extent in China.

<unk> double digit sales growth.

This was mainly coming as I sit from.

Europe and.

A little bit from Asia.

Okay.

So it's Asia, specifically talking to Japan, we are implants.

Auto surgery products are doing quite well in.

In December we announced plan subject to regulatory approval to acquire a majority ownership stake in the French dental solutions provider biotech.

We look forward to bring biotech dentals high quality software. So it's very important it's the the whole digital flow that is so important.

Then what will contribute to Henry Schein, but also the general products and services.

Dennis for dental labs.

But are important.

For new geographies with respect to biotech specifically in France, where we believe we will be close if not the leader in implants at some point in the near future.

So having a lot of product that is willing to see in that market.

So.

Dental products.

Yes.

Implants, biomaterials, all our high growth high margin product.

Yes.

And by upset.

What will contribute to that as well.

Providing support additional support for our leading digital workflow solution.

In dentistry close on the end of it on the Endodontics side sales growth remains strong driven by new products introduced early in the year.

Recent data suggests that the percentage of general practice practitioners.

In the U S performed root canal procedures is increasing.

I was writing fast sweet spot as well.

We believe that this trend combined with an aging population that tends to obtaining that deep.

But it bodes quite well.

Sean and Atlantic business.

Now turning to our technology and value added business.

The largest segment of closest Henry Schein, one a subway business.

Growth was strongest in the international business due to the.

The strength of all entirely cloud based solution.

Which is doing very well outside of the United States.

Growth in North America was driven by sales of our practice management software.

Also the spa.

Specifically the cloud based software that we offer.

That takes a thin.

And we see it.

Customers upgrading to districts.

<unk> fix for Syn <unk>.

Life cycle about easy dental product and so we're very pleased with the progress of progressing from easy dental to our den tricks and that takes a scent products.

What is very important as we now see close to 6000 customers.

Our cloud based products centric so said we.

We have noted in the past these cloud based systems to drive demand for other Henry Schein one products.

We also had nice customer wins during the fourth quarter without Jarvis analytics.

Business.

Yeah assisted well as well this is.

The.

Business that helps with.

Revenue cycle management.

Ah.

It's just.

It made a significant investment in units is a P. P O solutions provider.

And generally puts us in a very very good position.

To help practitioners operate a more efficient practice.

What of course, they provide good clinical kit.

We've enjoyed a relationship with unit trusts 2014, and now the license to be able to integrate these value added services into our product offering at Henry Schein one.

So.

You'll see that the dental specialty products technology and value added services business.

Did well record year this year up against some tough comps.

Towards the end of the.

And this is where we are placing a lot of emphasis.

Right.

Oh.

Part of that 'twenty, two 'twenty full.

<unk> plus one strategic plan, which we'll talk about in greater detail.

Investor Day.

The medical distribution business continued to see excellent growth.

The split reflect higher patient traffic to ultimate case right.

Partially driven by the incidence of flu.

And COVID-19, but generally the trend generally the trends are they moving from the acute care setting to the open the case.

We had good sales of course as you would expect in point of care diagnostics and other products associated with flu win.

When excluding sales with PPE products.

The COVID-19 test kits, we experienced double digit growth in local currencies.

Adjusting for the extra week.

And.

Really absent any public health outbreaks new ones.

Medical sales should turn to a more normal mid to high range single digits.

We are pleased with the continued growth of new accounts across the independent large group practices.

As well as ambulatory surgical centers urgent care facilities.

Pharmaceutical sales were driven by pneumonia treatments and equipment sales also continued to do.

Do quite well as practitioners investing in their practice and as the offering.

Office based practitioner equipment.

<unk> expense in terms of availability.

Treat diagnose more treatments more diseases and other elements in the office based practitioner environment.

Over the last several years, Henry Schein has been able to shift priorities and.

Provide solutions needed to help our medical and dental customers.

And the public of course during the COVID-19 crisis and last year's flu season.

And even with us.

Judy that's sort of the crisis and of course last year's flu season.

And even with this change.

The impact of COVID-19 and flu.

Yeah.

You're quite huge support from our team to deal with these.

Currently significant inflows of orders.

You know it's important to realize that we delivered a compounded average sales growth even with these.

Inflows unusually close the P. P covetous of about six point just over 6%.

When you take out the PPE and Covid so.

And it shines.

Internal growth.

Growth in general, excluding PPA and Covid is quite solid.

And so.

We also believe that the PP&E COVID-19.

If it's that we undertook.

It helped us generate more customers helps our customers understand therefore.

Healthcare products is better to go to a reliable source and so I want to thank the team.

Doing a remarkable job.

Yes.

Billions of dollars of unusual one time.

Covid tests and P B E.

Product, which helped generate customer loyalty.

So with that I'll turn over the call to Ron for a review of the fourth quarter results and our 2023 guidance.

Great Great. Thank you Stanley and good morning, everyone. As we begin I'd like to point out that I'll be discussing our results as reported on a GAAP basis and on a non-GAAP basis, our fourth quarter non-GAAP financial results for 2022, and 2021 exclude restructuring and integration costs as well as acquired intangible asset impairment charges.

As detailed in exhibit B of today's press release and in our supplemental information section of our Investor Relations website.

As Stanley mentioned, the fourth quarter of 2022 included one additional selling week compared with the fourth quarter of 2021, which was the holiday week between Christmas and New year's day.

We report on a 50 253 week fiscal year ending on the last Saturday in December . The next time. Our results will include an extra selling week will be in 2028.

With respect to sales growth I will focus on LCI sales growth, which is internally generated sales in local currencies and excluding acquisitions to facilitate more meaningful comparisons. The estimated extra week of sales will also be excluded from LCI sales growth figures.

Detailed breakout of the components of our sales growth, including OCI growth is included in exhibit a of today's press release.

Fourth quarter Global LCI sales decreased by one 8% versus the prior year. However, when excluding sales of PPE products and COVID-19 test kits are LCI sales grew 5.0%.

We sold approximately $161 million in PPE products, and approximately $93 million in COVID-19 test kits, including multi USA flu and COVID-19 combination kits.

In the fourth quarter this.

This compares with approximately $261 million in PPE products, and approximately $187 million and sales of these tests in the fourth quarter of 2021.

Our GAAP operating margin for the fourth quarter of 2022 was $2 one 5% at 387 basis point decline compared with the prior year GAAP operating margin. This was primarily a result of restructuring and integration expenses and the impairment of certain intangible assets incurred in the quarter.

Our non-GAAP operating margin for Q4 was 674% of.

56 basis point improvement compared with the prior year non-GAAP operating margin. This improvement was driven by gross margin expansion, mainly as a result of sales mix favoring higher margin products, along with lower operating expenses as a percent of sales.

Regarding income taxes, our reported GAAP effective tax rate for the fourth quarter of 2022 was 23, 6%. This compares with a 22, 5% GAAP effective tax rate for the fourth quarter of 2021 on a non-GAAP basis, our effective tax rate for the quarter was 22, 2% and this <unk>.

Pairs with a prior year non-GAAP effective rate of 22, 5%.

Fourth quarter 2020 to GAAP net income was $47 million or <unk> 34 cents per diluted share. This compares with prior year GAAP net income of $147 million or $1.05 per diluted share.

Our fourth quarter 2022, non-GAAP net income was $165 million or $1.21 per diluted share. This compares with prior year non-GAAP net income of $151 million or $1 seven per diluted share.

Amortization expense of acquired intangible assets for the fourth quarter of 2022 was $30 7 million or <unk> 14 per diluted share. This compares with $32 $6 million or <unk> 14 per diluted share for the same period last year and this expense is included in the 2022 and 2021 non-GAAP .

Net income results I just mentioned.

A key goal to our 2022 to 2024 strategic plan is to invest in higher growth businesses that have a larger intangible asset component and going forward. We believe earnings excluding amortization expense of acquired intangible assets better represents the underlying business results.

Beginning with the first quarter of 2023, we will be modifying our non-GAAP reporting to exclude amortization expense of acquired intangible assets.

Using this method our full year 2022, non-GAAP net income was $741 million or $5.38 per diluted share.

We will include a reconciliation of our non-GAAP financial results with the new methodology in our quarterly presentation available on our Investor Relations website.

And finally foreign currency exchange negatively impacted our fourth quarter diluted EPS by approximately <unk> <unk> versus the fourth quarter of last year.

I'll now provide some detail on our fourth quarter sales results.

Global Dental sales were 2.0 billion at LCI sales decreased by two 6%.

Excluding sales of PPE products, our global dental LCI sales growth was <unk>, 9%.

Global dental consumable merchandise LCI sales decreased by three 7%, but increased by 1.0% when excluding PPE products.

Global dental equipment LCI growth was 0.7%.

North American dental LCI sales decreased three 4% compared with the prior year, primarily due to a five 1% decrease in consumable merchandize sales. However, when excluding sales of PPE products North America dental consumable merchandize LCI sales grew one 3% North America dental.

Equipment LCI sales also increased one 3%.

International Dental LCI sales decreased by one 4% and consumable merchandise LCI sales decreased by one 7%.

When excluding sales of PPE products International consumable merchandise LCI sales increased 0.7% international equipment LCI sales decreased by 0.4%.

Sales of dental specialty products were approximately $247 million in the fourth quarter with OCI growth of 0.3% compared with the prior year.

Global technology and value added services sales during the fourth quarter were $187 million, but OCI growth of three 4% compared with the fourth quarter of 2021.

Sales were negatively impacted by the expiration of a government contract, which we mentioned during our Q3 2022 conference call.

Adjusting for this contract the underlying sales growth was nine 1%.

During the fourth quarter, our technology and value added services businesses together with our dental specialty products achieved LCI sales growth of one 6% or three 9% after adjusting for the exploration of the government contract.

Global medical sales during the fourth quarter were $1 $2 billion and LCI sales decreased one 3% due to lower sales of PPE products and COVID-19 test kits.

In North America, excluding sales of PPE products, and COVID-19 test kits.

LCI sales grew 14, 9% led by strong point of care diagnostics medical equipment in pharmaceutical sales.

Regarding share repurchases, we repurchased approximately three 6 million shares of common stock in the open market during the fourth quarter buying at an average price of $79 55 per share for a total of $285 million the.

Or the repurchase of shares on our fourth quarter diluted EPS was immaterial.

For the full year, we spent $485 million to repurchase $6 1 million shares at.

At fiscal year end, we had approximately $115 million authorized and available for future share repurchases and additional $400 million was approved by the company's board of directors on February eight 2023.

Turning to our balance sheet and cash flow.

We continue to benefit from significant liquidity, providing our businesses with the flexibility and financial stability to execute aren't organic growth initiatives and strategic acquisitions, while continuing to return capital to our shareholders.

Operating cash flow for the fourth quarter was $254 million compared with $277 million last year with the decrease primarily due to an increase in working capital that was driven by the timing of accounts payable.

For the full year operating cash flow was $602 million compared with $710 million in 2021.

Regarding our restructuring program as part of our previously disclosed integration and restructuring initiative, we recorded a pre tax charge in the fourth quarter of $121 million or <unk> 70 per diluted share.

These expenses, mainly relate to vacating one of the buildings that are mobile headquarters and the impairment of intangible assets associated with the disposal of an unprofitable business.

There were also restructuring expenses associated with severance and costs related to the exit of some other facilities.

Due to the disposal of certain assets and the lengthy remaining period of certain leases. We exited expense savings from this plan are expected to be realized over a longer period of time.

We expect to continue to record integration and restructuring charges. In 2023, However, an estimate of the amount of these charges is not yet been determined any restructuring and integration charges are expected primarily to include severance pay.

Facility related costs.

We also recorded an impairment expense for intangible assets of $34 million pre tax or <unk> 17 per diluted share related to certain continuing operations.

Let me conclude my remarks, with our 2023 financial guidance.

At this time, we are not able to provide estimates for costs associated with integration and restructuring for 2023. Therefore, we are not providing GAAP guidance as I mentioned, beginning with our Q1 2023 financial results, we will modify our non-GAAP treatment to exclude amortization expense of acquired intangible assets. This is in addition to the other adjustments we made in <unk>.

22 to our GAAP financial results all guidance today reflects this change.

2023, non-GAAP diluted EPS excludes amortization expense of prior acquisitions of 56 cents a share in 2023, and this was 57 and 2022.

For 2023, we expect non-GAAP diluted EPS attributable to Henry Schein, Inc to be in the range of $5 25 to $5 42 per share.

Reflecting growth of negative 2% to positive, 1% compared with our 2022 non-GAAP diluted EPS of $5 38.

Our guidance for 2023 assumes total sales growth of approximately 1% to 3% over 2022 with sales of COVID-19 test kits declining approximately 35% to 40% from sales in 2022. Additionally, PPE product sales are expected to decline about 20% to 25%.

In the aggregate revenues of these product groups are expected to decrease approximately 30% to 35% from 2022.

The impact on 2023, non-GAAP diluted EPS from the lower contribution to earnings from sales of PPE products and COVID-19 test kits is approximately 35 to <unk> 40 per share.

This impact will be much more pronounced over the first half of 2023 and especially in the first quarter as we had sales of almost $500 million of PPE and COVID-19 tests gets combined in the first quarter of 2022.

These headwinds are largely offset by earnings momentum in our underlying core businesses and we expect non-GAAP operating income will grow in the high single digit to low double digit range when excluding the contribution from PPE products and COVID-19 test kit sales.

Please note that 2023 will include one less selling week compared to 2022, which will occur in the fourth quarter.

For 2023, we expect non-GAAP operating margin to be 10 to 15 basis points below our 2022 non-GAAP operating margin of 820%.

And this was largely a result of lower PPE products, and COVID-19 test kit sales and profits.

Our guidance reflects non-GAAP operating margin expansion.

Excluding income from PPE products, and COVID-19 test kit sales.

Our 2023 guidance includes higher interest expense than in 2022, as a result of higher interest rates and higher minority interest from our higher growth businesses, mainly Henry Schein one.

We also expect an effective tax rate in the 23% range, assuming no changes in tax legislation.

Our guidance for 2023 diluted EPS is for current continuing operations as well as completed acquisitions and does not include the impact of future share repurchases the acquisition of biotech dental.

Other potential future acquisitions or integration and restructuring expenses if any.

Guidance assumes that foreign currency exchange rates are generally consistent with current levels. The end markets remain consistent with current market conditions and that there are no material adverse market changes associated with COVID-19 with that I'll now turn the call back to Stanley.

Thank you Ron.

We have about 20 minutes he'll over 20 minutes too.

And some questions.

I'm sorry, the call was that long, but there's lots going on.

We're highly confident in the business.

And the.

Business ex PPE and <unk>.

<unk> is doing quite well, even though there are challenges.

<unk> point of view.

I think we've got great momentum in the business and look forward to answering any questions.

Operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.

Up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up thank you.

One moment, please while we pull for questions.

And our first question comes from the line of Jeff Johnson with Baird. Please proceed with your question.

Thank you good morning, guys.

Ron maybe you wanted to start just on the Covid testing kit in PPE guidance.

When I look at kind of the EPS impact this year. It seems like it's dropping through at a decremental margin in the mid <unk>, if that upper teens level.

I think over the last couple of years and those have been contributing positively kind of those have been flowing through or at least kind of you guys had signaled that those were dropping through kind of a corporate wide margin rates.

So why is it.

It makes some sense I guess when you are losing some of that inflated topline growth, there's a deleveraging impact there, but dropping through at that mid to upper teens decremental margin seems a lot bigger than I would've expected, so any update or any comments you can make there.

Yes, certainly I think that.

We could see a little bit of pressure on gross margins on both PPE and Covid test kits versus the prior year, but I think the.

The bigger issue there Jeff is.

The gross profit dollars I mean, the compounded effect of the ongoing decrease in the revenues from these product categories in both 2022, and then continuing into 'twenty three.

<unk> and fewer gross profit dollars and I think that kind of dilutive effect begins to.

Begins to hurt the operating margins a little more so than it.

It makes it more difficult for us to cover it like we did in 'twenty two.

Yes, understood and then historically you guys have provided organic growth guidance revenue guidance, you did last year anyway, I guess prior to that not necessarily.

A lot of moving parts this year with the selling week, one less selling week. The PPE updates obviously some acquisition contribution if I look at that one to three were kind of counting that it may be a 3% to 6% organic guidance ex all of that noise and I assume medical and tech VA, a little above that.

Gentlemen, kind of that low to mid single digits or those kind of all at least ballpark, we should be thinking about as we're setting up our models for 2023.

Yes.

Mid range, there I think that I think we have a headwind from PPE and Covid test kits, combined probably 300 or 400 basis points right.

You also have a headwind from the 50 <unk> week, that's going to be somewhere between a point to point to happen there.

We will get a little bit of benefit from acquisitions that kind of leaves you with a number that could be three to six four to seven in terms of non PPE Covid test kit growth that we would expect in 'twenty three versus 22.

Dental a little below in medical what Bob does that is that the way to kind of think about that thanks.

Yes, that's probably that's probably a fair a fair statement yes.

And the next question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks, so much for the question. This morning, I had a question around sort of your utilization embedded assumptions could you help us parse that apart a little bit more for 2023, I'm thinking specifically on maybe like medical the medical the debt and then sort of the overall dental visits.

Yes.

Good questions.

We did take a dip.

ER visits in <unk>.

Dentistry.

And it was both in the United States and Europe , and the rest of the world. It wasn't so bad of course, China was in the fourth quarter.

And it's it is down a bit.

And there has been a recovery in January quite nice recovery. It is down a bit from 2019 in the United States hard to get data outside of the United States.

But.

We are not 100% back to where we were but the spear.

Experienced in the fourth quarter.

Hum.

Mostly if not all recovered.

Recovered and.

At least from what we can tell from the first 40 days or so of the year.

And probably hearing from our customers.

We're back to where we were in about the third quarter.

Correspondingly on the medical side, there was an increase in visits.

People had.

Flu and they wanted to confirm that it wasn't COVID-19.

Though we experienced some growth in that respect in terms of flu tests and you can see that information from the flu test manufacturers a lot of them are providing that information, but again, we expect.

January .

February that the visits were relatively back to where they were.

Before in the third quarter say before.

These are the flu.

So the businesses are relatively stable now.

And we had a temporary dip in dental visits and I think a bubble or a little bit and medical but on average the average them out.

If you look at our internal growth in local currencies, but 5% internal growth for the company. So.

And.

I think.

All things being equal, perhaps will be a little bit better in the first quarter.

Hard to tell but it's looking quite positive for the first 40 days of the year got.

Got it and sorry, just to clarify it quite fine questions. One your comments about sort of the dip and then a little bit of a recovery in January and early February that also applies to gear up and then secondarily you are.

Assuming figure of 2023 guidance at these current kind of January conditions continue ongoing.

As it relates to international.

Europe in particular, because we had international churn.

China.

Other countries kind of cancel out although there's a bit of.

A positive impact in Brazil, where we have a big market share but.

Big market share in a big business so to say.

Decent market share.

I would say the trends.

We are very very similar of course, our medical but it's not material in Europe . So I wouldn't exclude that might've been shifts we can give you data on that because it's so diffuse, but our dental business.

Had similar.

Trends to.

The United States.

To North America.

What's your second question, sorry, and then does that is that January stood at a rate of bad debt.

What sort of what you are using to underpin your 'twenty two 'twenty three guidance I, just I'll have Ron answer the guidance question I'm not sure when.

First 40 days really.

Okay carried through for the full year.

Yes.

It's a little early at this point I think that.

Our guidance is supported by our budgeting process, we do obviously monitor.

What's happening so far in 2023, but I think that.

The assumptions.

The dental market last year suffered a little bit in January from from AMA crime.

So there's some assumptions in there on Q1, but at the same time.

The last year with like I said in the prepared remarks, we did about $500 million in revenues and PPE and Covid test kits in Q1 that won't get it wont be nearly that much. This year right. So Q1 is going to have and can still going to have a little bit of noise in it.

Got it thank you and when you flow through everything.

Uh huh.

I think we're pretty comfortable with our budget for this year.

Which contemplates at the end of the day high single digit to low double digit operating income growth when excluding PPA covenant. So I think if you can see through the PPE in Covid.

You see the business is pretty solid.

Uh huh.

The better performance that we've had in the past.

Yes.

I still think that the whole.

Management.

These PPE COVID-19 tests.

But the accelerated down generated over $2 billion or so.

And sales.

Pretty good profits.

Has paid off because our customers are understanding that they can rely on shine.

During challenging times and that the products, we sell are generally.

Our compliance with regulations and very often.

We're buying products during the ppm. During this COVID-19 period that had regulatory issues and so and quality issues. So I think our strategy has played out well.

Focus on PPE and test and at the same time.

Garnered quite a bit I think our core business.

As reflected in our expectations for 'twenty three in terms of growth.

Operating income.

Got it thank you very much.

And the next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Hey, good morning, Thanks for taking the question.

Maybe I'll start with you and a lot going on here as you said.

But maybe with the outlook you got 1% to 3% of the topline and have Jeff with digging in there the organic growth.

Core EBIT growing upper single to low double digits.

Some pretty nice core margin expansion and that would seem to fit with the historical trend line of the business, but maybe double clicking on Jeff's question. There you know wondering if you could comment a bit further and how you see the core dental consumables and equipment lines performing in 2023, and North American International and.

Are the drivers of the core margin explain expansion implied in your guide are those more gross or operating that you're willing to comment there.

Yeah, Let me deal over the first part and I think it's best for us to respond to the guidance for my mathematics point of view.

As noted.

In the prepared remarks, we believe the dental market in the developed World certainly is quite stable. We believe that generally we're growing some market share there.

Puts and takes yet, namely.

The.

A seasonal adjustment because of <unk>.

Flu in the fourth quarter, and a little bit of a rebound.

And Oh back to normal in the first quarter, but generally I think the market is stable.

Specialty products are stable.

Not necessarily read anything into our specialty sales per se, because we had an exceptional fourth quarter for implants and bone regeneration products in 'twenty, one, but generally I would say the consumable markets in the developed world are relatively stable.

A few markets.

But down in a few markets, where it's been up a generally stable on the equipment side and traditional equipment is okay.

We haven't quite run off the backlog units pretty stable.

The area that.

Past I was more concerned about is the imaging I think it is relatively stable now.

Mrs are not coming down as they did and the units demand is pretty good the area, where there'll be lots of ups and downs is in the.

Digital area is enormous interest in digital dentistry.

Not seen the interest is high.

When it comes to the scanners.

I think we will beyond the <unk>.

First run innovative type bias and into standard abuse bias.

There are many new entrants into this market.

They're all.

Lower priced product for sure.

And that's where the market is heading but the demand for units is very strong.

I would say that.

We were challenged a bit and I think it's going to be that way for a few quarters.

When a new product from our leading provider of scanners.

But it does it will lose those orders.

On the other side the non market is really almost come to a halt.

We're still selling those.

But.

Dennis is that we're looking at most are now looking at three D printing, we got a bit of a boost there in the United States. The Ada has now provided billing code and so Dennis they may not buy the three D. The <unk> printer right away, but they are certainly looking at it and I think that that market is going to do.

Well.

Technical.

Use maybe for the front using it later for the <unk> is not perfect yet, but this is a great opportunity for us and we're doing well and we expect to do even better although it's not covering the reduction in mill demand and now dealing with the dentist on the lab side, the mills are doing quite well.

And.

So generally.

That's what's happening in the equipment business I think.

It's quite a Ah.

Good markets on the.

Traditional.

On the three D printing.

Mills are a challenge and there's a slight issue in Europe because of the ideas that occurs at the end of March and so I think people are waiting to see what developments are good but I don't.

I think thats going to impact the whole year sales, so that just might be.

Right.

But generally I would say generally stable on the medical side, we continued to see the migration from the acute care setting.

Self I'm having.

Partial knee replacement and I've talked about the often the same day that was not the issue not the situation perhaps.

A year and a half ago. So there is a migration and we're benefiting from that.

And Jason with reference to your question on operating margin, Yes, I do think that.

You know like we said we believe operating income is growing in the high single digits low double digits, when excluding the drag from PPE and Covid test kit and <unk>.

Yes that should imply it.

Kind of a pro forma operating margin expansion.

As you would for I think it's.

It really shows that the benefits of having the kind of broad product portfolio. We have of not just being a distributor, but also having the specialty products also having being in the medical business also being in the technology business that we can we can continue to kind of offset some of these.

Some of these market conditions that have adversely affected us a little bit with whether it be in PPE or COVID-19 test kits with the balance of the business.

Got it Brian just as a quick follow up there.

Suggesting operating margin expansion until they get that gross margin driven or opex driven.

It makes them the comprehensive answer I'll hop back in queue after that.

But given that the product mix aspect of it would be primarily gross margin driven.

Thank you.

And the next question comes from the line of Jon Block with Stifel. Please proceed with your question.

Thanks, guys. Good morning, Ron maybe just going to have a similar path to the high single digit to low double digit 2023.

non-GAAP EBIT growth for the core business can you talk to.

How much that benefits from the restructuring in the back part of.

2022, I know you guys, usually do restructuring just seems a little bit bigger than normal.

And when we think about going forward more importantly is the high single digit to low double digit you know a good representation of the business' longer term once the P. P. Colgate headwinds abate and then maybe in the interest of time I'll just ask both abroad Assembly on the implant side with the dental specialties.

I know you guys had a very difficult comp, but I think just.

Moving to back quoted 23 implants might be flattish call. It in two weeks, a 22 year over year to throw a dart just would love your thoughts on how that compares to market growth and if you feel like you guys are still taking share there.

Yes, John I think in terms of of the.

And if I paraphrase your question and tell me if I have it wrong, it's really kind of the sustainability of continued growth in the high single to low double digits.

In the balance of the business.

We do have some confidence there that we can continue with that I think that yeah.

May be aware that we have an investor day coming up on February 27th and will provide more kind of some kind of mid term assumptions at that point in time in terms of what we are expecting.

Beyond 'twenty three but.

Yes.

This is.

Again kind of partially driven by the.

The mix of the business and the fact that we're growing some aspects of the business faster than others, whether it be in specialties or in technology.

Does that answer your question.

Oh, the questioner has dropped off the next question comes from the line of Nathan Rich respond.

Respond quickly.

These specialty products.

The implants.

Uh huh.

Bone regeneration products are doing.

Very well.

Pleased with our internal growth in that area.

I think the biotech acquisition will help.

So that business continues to be strong, particularly in our core markets, which is United States.

And Germany, coupled with dramatic countries and Japan.

On the <unk> products were doing well continue also they like in implants bone regeneration to believe we.

On gaining market share.

The line is so small, but I think we will get a boost with the biotech acquisition, we will have certain synergies.

And I think will help drive.

More sales.

Very small business.

And our next question comes from the line of Nathan Rich with Goldman Sachs. Please proceed with your question.

Great. Thanks for the questions I'll ask both upfront as well and both are related to the intra oral scanner market Assembly, where would you say we are in the shift to lower priced products and can you just go into a little bit more detail on kind of what you're expecting from that market. In 2023, do we start to maybe see some signs of stabilization.

<unk> just.

In terms of Asps and mix and then could you go into a little bit more details on the supply issues. You mentioned from that one supplier just in terms of when if you have any visibility into kind of when that would potentially resolve or just what youre looking for there and what's assumed in the outlook. Thank you.

On the iOS side on the scanners.

I don't think we've seen the bottom yet.

In terms of mix change I think the pricing relative to particular manufacturers may have stabilized.

There are entrants into this market.

That a very good products in the past we didn't even sell much up in the past that we're not carrying in selling so it's more of a mix to lower priced products rather than deflation of a particular manufacturers.

Listing product.

Although there could be some of that as it relates to and by the way I think.

We estimate about 20% to 25% op Dennis in the developed World had one of these devices and we think thats going to be standard of care within the next couple of years. So we're very optimistic about units in that area and also.

These newer entrants that we're working with are doing quite well with us.

As it relates to the manufacturer of that.

Our supply chain issue.

It's not a public company I can't talk about it.

But they.

They have a new product, it's actually on the upper end that has done quite well.

And that just goes to a little bit of a contradiction to what I said early on for <unk>.

Manufacturers that have unique tech.

Technology is a demand for paying more but that's not generally for the whole market the whole market.

75% of people, who don't have a device that are interested more in.

Lower price.

Product that has enough features.

For them, but the one that's on back order is on the higher end of features and we don't expect that to resolve three for three quarters.

And we have time for one last question coming from the line of Kevin Kelly Endo with UBS. Please proceed with your question.

Thanks, and thanks for taking my question.

Can you quantify in any way the impact of the three D printing that you called out in the release and on the call like.

In terms of numbers and in market share and the like because I know you've talked about it in the past, but I think this is the first time really called it out in our press releases impacting the business.

And just as a follow up to all of Us and I appreciate all the color on the inventories and the equipment and iOS and the law.

But your backlog grew in three and three Q U I believe you said it grew sequentially through the quarter.

Is the expectation.

Equipment sales and where does your backlog sit now.

Relative to where you were at the end of <unk>.

Let me deal with the backlog first.

It is in North America similar to what it was at the end.

Third quarter.

So I don't think matches changed.

Can't give you the exact timing.

A lot of that is the result of traditional equipment.

We seek to be topping up whatever we ship and so that market seems to be quite strong in Europe .

Slightly but we think that's to some extent.

Because of the idea is because people are holding back or would you look at the margin. Yes. So it's not material bottom line as the backlogs are good.

North America, and internationally and equipment is strong.

As it relates to.

No I would say the middle market has significantly come down and I'm, referring to is I'm not sure shot mills.

It's just not doing well I'm not referring to landfills.

The largest provider of products.

Dental laboratories, and that market seems to be relatively strong.

The switch to the.

<unk> printing is not occurring wanted to one yet what's happening is there's a lot of Dennis.

Saying I need to find out more about this and I expect that over the next couple of quarters.

Our team will be out there educating Dennis.

On the.

The opportunity for <unk>.

Printing.

I suspect it will result, a little bit.

No its going up again, because right now it's a situation of Denis wanted to understand more about what's going on and three D. Printing is going to be important but not substitute completely changed the market is just I think.

The little bit of an educational stumble, but I think the mills will come back again, but not to where they were and three D. Printing is at a relatively early stage, but I think we're doing very well in terms of growing our global market share sales that are out there three D printing will improve as various materials.

To market and as they're setting.

Fedex improve.

I think.

Messages that.

Digital restorations.

Dennis interested in investing our job is to make sure that we educate the Dennis on the appropriate devices for their practice and then closed on sales.

Thanks, and if I can ask Bryan a really quick follow up I just wasn't sure. If I heard the guidance include or exclude dental biotech and what was the impact of that the guidance does not include that.

Biotech I think that.

When we put the release out on that the biotech we said it would be slightly dilutive to 2023, when excluding amortization expense.

Okay, great. Thank you yes.

Okay everyone.

Thank you very much for calling in.

The message I think we want to communicate I know, we want to communicate is that our core business.

Good shape.

We expect decent.

Internal growth rates.

Local currency of course.

In 2023 will cover this in more detail at our Investor day.

We expect.

Internal growth.

Operating income to continue to grow quite nicely.

High single digits low double digits.

And.

Bottom line is the business is in good shape and markets that are doing well.

There are nuances that needs to be understood. We're happy to deal with that in further detail at the Investor day.

Anyone wants to reach out.

Ram.

On investor relation side I'd be happy to provide further clarity on our remarks. So thank you very much and hopefully we'll see.

Everyone on the call and our Investor Day in New York City.

Following week, thank you very much.

This.

Todays teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

[music].

Good morning, ladies and gentlemen, and welcome to Henry Schein fourth 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. Please press the star key followed by one on your Touchtone phone if he would like to ask a question at that time.

If anyone should require assistance during the call. Please press the star key followed by zero on your Touchtone phone.

And as a reminder, this call is being recorded.

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

Thank you operator, and my thanks to each of you for joining us to discuss Henry Schein financial results for the fourth quarter of 2022.

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

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

As you know risks and uncertainties involved in the company's business may affect the message referred to in forward looking statements and as a result, the company's performance may materially differ from those expressed in or indicated by such statements.

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

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

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

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

The content of this conference call contains time sensitive information that is accurate only as of the dates of the live broadcast February the 16th 2023.

Henry Schein undertakes no obligation to revise or update any forward looking statements or reflect events or circumstances. After the date of this call.

We have prepared slides summarizing our fourth quarter financial results and these can also be found on the Investor Relations section of our website.

During today's Q&A session. Please limit yourself to a single question on the follow up with that I'd like to turn the call over to Stanley Bergman.

Good morning, and thank you Brad.

And thank you all for calling in today.

We closed out 2022.

With a very good fourth quarter in which we continued to execute effectively on our 2000.

22 to 2024 strategic plan goals achieve.

Achieving strong growth in earnings for the fourth quarter and of course for the full year of 2022.

Despite the macroeconomic concerns and of course, the foreign exchange headwinds.

We overcame significant headwinds from lower sales of PPE products, and COVID-19 test kits.

Our sales were affected by a decline in sales of PPE products from COVID-19 test kits.

Excluding sales of PPE products and COVID-19.

Test kits and taking out the <unk> sales week.

For 2022, we achieved very good internal growth.

The 5% in local currencies that's internal.

There was a negative impact on desktop visits for seasonal flu and COVID-19 last quarter.

And this is both in North America and internationally.

We experienced growth in each of our business.

Cross the board and overall.

We generated solid financial results for the quarter.

Reflective I think of a stable market.

And in the markets that we serve.

So we made excellent progress in advancing our 2022 to 2024, plus one strategic plan.

So firstly on the plan was 22.

We advanced our one distribution strategy to enhance the customer experience.

And improve.

Operational efficiency.

Important, but creating our north American distribution group led by Brad Tonight.

Our international distribution group led by Andrea <unk>.

We had good results across the board both in North American distribution and international distribution group.

We strengthened our dental position with national Dsos.

Our new accounts and had excellent success with our technology solutions and specialty products within our within the National DSO segment.

And.

On the medical side, we did expand our position with idms in large group practices.

On the digital side.

The bold plan calls for a significant effort in this area.

<unk> global digital team, including the appointment of experienced veterans in this area.

Talk is cheap global customer experience officer, Cheryl <unk> as Chief data officer, working closely with Lee <unk>, Chief Global Digital transformation officer, and Mark Hillenbrand.

Marshall or Brent Chief Digital revenue officer.

We made excellent progress designing and building a global E Commerce platform and this is in advance.

Advancement of our current platform, which we expect.

To start rolling out in the later latter part of this year and Thats, we start to rollout.

Upgrades to the current platform.

At the same time, we had some exciting news on the AI side, when we launched our detect AI and AI enabled extra analysis <unk> powered by <unk> health.

And last week, we were advised that <unk> health has received 501.

Okay FDA clearance for its periodontics solution, which we expect will further advance the use of AI as a tool in dentistry.

We were active on the M&A front, we acquired midway dental in the U S and condo to influence Switzerland.

Expanding our reach into Underpenetrated areas of the market, we acquired a majority stake in units and announced plans to acquire or May just a majority stake in biotech dental.

Both of these investments will will address in a moment.

We have begun implementing a restructuring plan to reduce our global real estate footprint.

To reflect TSM thats team schein members preference for flexibility and work locations.

In this connection we have closed one of our two buildings in.

Melbourne headquarters on long Island.

From a technology point of view in other words the tools.

We provide our team.

To operate and of course, the tools, we offer to our customers to insert faced with us.

This past quarter, we disposed of an unprofitable business. So we can redirect our resources to operations at all our priorities in two.

2022 to 2021 strategic plan.

Cost associated with this exit are included in our restructuring costs for the quarter.

So if you look ahead a bit we are introducing guidance for 2023, which Ron will discuss in a moment.

We expect operating income growth in the high single digits to low double digit percentage rate range.

When excluding the contributions from PPE products and COVID-19 test kits.

We anticipate the impact of lower selling prices and PPE products and reduced demand from COVID-19 test kits.

Well largely be offset by earnings momentum in our underlying core businesses.

And the good momentum we have as we enter 2023. This gives us confidence in the 2023 guidance and specifically the <unk>.

Growth in our operating income when you exclude PPE products and COVID-19 tests, so little bit of specifics on dental distribution business.

Merchandise sales in North America at least slightly when excluding sales of PPE and taking up sales from the 50 <unk> week.

North America, we have a relatively stable markets and our market share we believe remains.

Stable to slightly positive.

We believe global dental consumable merchandise growth as noted earlier was impacted by the high incidence of flu and COVID-19 cases.

Which caused increased rates of patient appointment cancellations and accentuated the staffing shortages.

Now what's important is the rates of patient flow the pitch that returned to more normal levels. In January this past January of 2023.

The impact from manufacturer mentioned that price increases, we believe lessens as last year's increases began to annualize the depth and breadth of the Henry Schein product portfolio of course allows us to put up to support our customers' needs.

We have customers that are concerned with pricing.

As we have offerings of alternative national and corporate brand products.

That's our own brands as well as alternative national brands, where we experience.

Customers resistance to price increases, but having said that price increases we believe.

That is sticking in the marketplace are relatively stable now and not anywhere near what they were at the beginning of last year.

Demand for dental equipment in North America remains healthy and our North American equipment order book is stable.

Although we saw good sales from traditional.

Traditional equipment.

And steady sales for digital imaging equipment, which.

We had challenges in the past because of pricing issues, but there seems to be stabilized now.

And there was a decline in sales of digital restoration equipment.

<unk> to corresponding.

Corresponding period in the fourth quarter.

And of course, we had good sales in the fourth quarter.

But the challenge has been.

Customer demand is shifting from chase mills quite expensive to three D printing much less expensive.

And a mix shift to lower price intra oral scanners.

There was also a supply chain issue with one of our important intra oral scanner suppliers.

Produced a new scanner.

In the last few months so all in all the demand for digital restoration that market is pretty hot but there are these mixed challenges that I've just described and we can go into in greater detail if anyone has questions.

The value of our North American order book for equipment is stable.

Continued to see construction delays to some extent and a slight reduction in the number of planned new office openings amongst specifically some of our large and dsos.

On the international dental merchandise sales side.

The same impact as in the United States North America covered patient flow challenges experienced also.

As well as the Lockdowns in China that will offset that.

National side.

But that's largely offset by good growth in the UK Eastern Europe and Brazil.

Towards the end of the quarter Dental office staff, and absenteeism and patient appointment cancellations.

Well again.

Again to east Likewise in our international business.

Demand for equipment internationally held up quite well with sales moving to lower priced intra oral scanner units as well and the overall equipment sales essentially were in line with last year.

The fourth quarter equipment sales.

And our outlook was slightly impacted by purchase delays in anticipation of this is on the international side. It was.

Was the biennial Ids show in Cologne.

Okay.

Customers expect new promotions to introduce new products.

Show takes place at the end of the first quarter.

The fundamentals are not dental.

End markets remain solid.

Of course, the aging population.

And the growing global awareness of the health care benefits of defensive.

Oh Hello.

All play into our strategic benefits for.

Henry Schein.

Short medium and long term.

So.

Demand for dental services also generally correlated we believe with unemployment rates.

And in the developed world Eastern Maine.

Relatively.

Okay.

Consistent.

Historically low if you will.

So we think the underlying basis uptake supported our okay.

Sure.

Let me now turn a little bit to the dental specialty products business.

We were impacted particularly in our largest segment sector implants.

Bone regeneration products with significant prior year.

Growth prior year comparisons.

The buy rises chemlawn premium value implant segment continues to grow in North America, and Europe , and we have some.

Offsets yeah.

The decline in China, Although I'll point out that our China business is not material, but it did impact gross line to some extent.

Sales for DSO customers in United States.

No.

The capital of viruses catalog line remained solid and our value brand by dentist, primarily in Germany, but also to some extent in China achieved double digit sales growth.

This was mainly coming as I said from.

Europe and.

And a little bit from Asia.

Okay.

I refer to Asia specific to Japan.

Our implants.

Surgery products are doing quite well.

In December we announced planned subject to regulatory approval to acquire majority ownership stake in the French dental solutions provider biotech.

We look forward to bring biotech dentals high quality software so important.

The whole digital flows that is so important.

Then what will contribute to Henry Schein, but also the general products and services.

Dennis Dental labs.

But.

Are important.

For new geographies with respect to biotech specifically in France, where we believe we will be close if not the leader.

Implants at some point in the near future.

These.

So having a lot of product that is willing to see in that market.

So.

Dental products honors.

Implants, biomaterials or a high growth high margin product products and.

<unk>.

What will contribute to that as well.

Providing support additional support for our leading digital workflow solution.

In Dentistry course on the and on the Endodontics side sales growth remains strong driven by new products introduced early in the year.

Recent data suggests that the percentage of general practice practitioners.

In the U S performed root canal procedures is increasing.

Right into our sweet spot as well.

We believe that this trend combined with an aging population intent on retaining the teeth.

But it bodes quite well.

And the content business.

Now turning to our technology and value added business.

The largest segment of closest Henry Schein, one our software business.

Both were strongest in the international business due to the.

The strength of our entirely cloud based solution.

Which is doing very well outside of the United States.

Growth in North America was driven by sales of our practice management software.

Also the.

Specifically the cloud based software that we offer that.

That takes us in.

And we see.

Customers upgrading to <unk>.

6% as design lifecycle about easy dental product and so we're very pleased with the progress of progressing from easy dental to our debt tricks and <unk> products.

What is very important as we now see close to 6000 customers.

Our cloud based products centric, so said entirely.

We have noted in the past these cloud based systems to drive demand for other Henry Schein one products.

We also had nice customer wins during the fourth quarter without jobs analytics.

Business.

Assisted well as well.

Uh huh.

The business that helps with <unk>.

Revenue cycle management.

Uh huh.

Yes.

Made a significant investment in units is a PPO solutions provider.

And generally puts us in a very very good position to help practitioners operate a more efficient practice.

What of course, they provide good clinical care.

We've enjoyed a relationship with unit trusts since 2014 and delighted to be able to integrate these value added services into our product offering at Henry Schein one.

So.

Youll see that the dental specialty products technology and value added services business.

Did well record year this year.

Some tough comps.

The end of the year.

And this is where we are placing a lot of emphasis.

Yeah.

An important part of our 'twenty to 'twenty, four BOE plus one strategic plan, which we'll talk about in greater detail.

At our Investor day.

The medical distribution business continued to see excellent growth.

The split reflect higher patient traffic to ultimate case.

Partially driven by the incidence of flu.

COVID-19, but generally the trend generally the trends are they moving from the acute care setting to the open the case.

We had good sales of course as you would expect in point of care diagnostics and other products associated with flu.

Excluding sales of PPE products.

COVID-19 test certificates, we experienced double digit growth in local currencies.

Adjusting for that extra week.

And.

Really absent any public health outbreaks new ones.

Medical sales should turn to a more normal mid to high range single digits.

We are pleased with the continued growth of new accounts across the independent large group practices.

As well as ambulatory surgical centers urgent care facilities.

Strong pharmaceutical sales were driven by pneumonia treatments and equipment sales also continued.

Do quite well as practitioners investing in their practice.

As the offering.

Office based practitioner equipment.

<unk> expense in terms of availability to treat and diagnose more treatments and more.

<unk> diseases and other elements in the office based practitioner environment.

Over the last several years, Henry Schein has been able to shift priorities and provide solutions needed to help our medical and dental customers.

The public of course during the COVID-19 crisis and last year's flu season.

And even with us.

During this during the crisis and of course last year's flu season.

And even with this change.

The impact of COVID-19 in flu.

<unk>.

Youre quite huge support from our team to deal with these.

Currently significant inflows of orders.

It's important to realize that we delivered.

Average sales growth even with these.

Inflows unusual inflows PPE covetous of about six point just over 6%.

Hum.

You take out the PPE.

So.

Shines.

Internal growth.

Growth in general, excluding PPA and Covid is quite solid.

And so we.

We also believe that the PP&E covance efforts that we undertook.

It helped us generate more customers.

Our customers understand that for sure.

Healthcare products is better to go to a reliable source.

So I want to thank the team for doing a remarkable job getting us.

Billions of dollars of.

Unusual onetime fixed.

<unk> cobot tests and PPE.

Product, which helped generate customer loyalty.

With that I'll turn over the call to run for a review of the fourth quarter results and our 2023 guidance okay.

This is detailed in exhibit B of today's press release and in our supplemental information section of our Investor Relations website.

As Stanley mentioned, the fourth quarter of 2022 included one additional selling week compared with the fourth quarter of 2021, which was the holiday week between Christmas and New year's day. We report on a 50 253 week fiscal year ending on the last Saturday in December . The next time. Our results will include an extra selling week will be in 2028.

With respect to sales growth our focus on LCI sales growth, which is internally generated sales in local currencies and excluding acquisitions.

To facilitate more meaningful comparisons the estimated extra week of sales will also be excluded from <unk> sales growth figures.

A detailed breakout of the components of our sales growth, including LCI growth is included in exhibit a of today's press release.

Fourth quarter Global LCI sales decreased by one 8% versus the prior year. However, when excluding sales of PPE products and COVID-19 test kits are LCI sales grew 5.0%.

We sold approximately $161 million in PPE products, and approximately $93 million in COVID-19 test kits, including multi USA flu and COVID-19 combination kits.

In the fourth quarter <unk>.

This compares with approximately $261 million in PPE products, and approximately $187 million and sales of these tests in the fourth quarter of 2021.

Our GAAP operating margin for the fourth quarter of 2022 was to one 5% at 387 basis point decline compared with the prior year GAAP operating margin. This was primarily a result of restructuring and integration expenses and the impairment of certain intangible assets incurred in the quarter.

Our non-GAAP operating margin for Q4 was 674% or 56 basis point improvement compared with the prior year non-GAAP operating margin.

This improvement was driven by gross margin expansion, mainly as a result of sales mix favoring higher margin products, along with lower operating expenses as a percent of sales.

The prior year non-GAAP effective rate of 22, 5%.

Fourth quarter 2020 to GAAP net income was $47 million or <unk> 34 per diluted share.

This compares with prior year GAAP net income of $147 million.

Or a $1.05 per diluted share.

Our fourth quarter 2022, non-GAAP net income was $165 million or $1 21 per diluted share.

This compares with prior year, non-GAAP net income of $151 million or $1 seven per diluted share.

Amortization expense of acquired intangible assets for the fourth quarter of 2022 was $30 7 million or <unk> 14 per diluted share. This compares with $32 6 million or <unk> 14 per diluted share for the same period last year and this expense is included in the 2022 and 2021 non-GAAP .

Net income results I just mentioned.

Beginning with the first quarter of 2023, we will be modifying our non-GAAP reporting to exclude amortization expense of acquired intangible assets.

Using this method.

Our full year 2022, non-GAAP net income was $741 million or $5 38 per diluted share.

We will include a reconciliation of our non-GAAP financial results with the new methodology in our quarterly presentation available on our Investor Relations website and.

And finally foreign currency exchange negatively impacted our fourth quarter diluted EPS by approximately <unk> <unk> versus the fourth quarter of last year.

I'll now provide some detail on our fourth quarter sales results.

Global Dental sales were 2.0 billion at LCI sales decreased by two 6%.

Excluding sales of PPE products, our global dental LCI sales growth was <unk>, 9%.

Global dental consumable merchandise LCI sales decreased by three 7%, but increased by 1.0% when excluding PPE products.

Global dental equipment LCI growth was 0.7%.

Equipment LCI sales also increased one 3%.

International Dental LCI sales decreased by one 4% and consumable merchandise LCI sales decreased by one 7%.

Excluding sales of PPE products International consumable merchandise LCI sales increased 0.7% international equipment LCI sales decreased by <unk>, 4%.

Sales of dental specialty products were approximately $247 million in the fourth quarter with OCI growth of 0.3% compared with the prior year.

Global technology and value added services sales during the fourth quarter were $187 million, but LCI growth of three 4% compared with the fourth quarter of 2021.

Sales were negatively impacted by the expiration of a government contract, which we mentioned during our Q3 2022 conference call.

Adjusting for this contract the underlying sales growth was nine 1%.

Global medical sales during the fourth quarter were $1 2 billion and LCI sales decreased one 3% due to lower sales of PPE products and COVID-19 test kits.

In North America, excluding sales of PPE products, and COVID-19 test kits.

LCI sales grew 14, 9% led by strong point of care diagnostics medical equipment in pharmaceutical sales.

For the full year, we spent $485 million to repurchase six 1 million shares at.

Turning to our balance sheet and cash flow.

We continue to benefit from significant liquidity, providing our businesses with the flexibility and financial stability to execute our organic growth initiatives and strategic acquisitions, while continuing to return capital to our shareholders.

Operating cash flow for the fourth quarter was $254 million <unk>.

Compared with $277 million last year with the decrease primarily due to an increase in working capital that was driven by the timing of accounts payable.

For the full year operating cash flow was $602 million compared with $710 million in 2021.

These expenses, mainly relate to vacating one of the buildings that are mobile headquarters and the impairment of intangible assets associated with the disposal of an unprofitable business.

There were also restructuring expenses associated with severance and costs related to the exit of some other facilities.

Due to the disposal of certain assets and the lengthy remaining period of certain leases. We exited expense savings from this plan are expected to be realized over a longer period of time.

We expect to continue to record integration and restructuring charges in 2023. However, our estimate of the amount of these charges is not yet been determined any restructuring and integration charges are expected primarily to include severance pay and facility.

Facility related costs.

We also recorded an impairment expense for intangible assets of $34 million pre tax or <unk> 17 per diluted share related to certain continuing operations.

Yes.

Let me conclude my remarks, with our 2023 financial guidance.

22% to our GAAP financial results all guidance today reflects this change.

2023, non-GAAP diluted EPS excludes amortization expense of prior acquisitions of <unk> 56, a share in 2023, and this was 57 and 2022 for.

For 2023, we expect non-GAAP diluted EPS attributable to Henry Schein, Inc to be in the range of $5 25 to $5 42 per share.

Reflecting reflecting growth of negative 2% to positive 1% compared with our 2022 non-GAAP diluted EPS of $5 38.

In the aggregate revenues of these product groups are expected to decrease approximately 30% to 35% from 2022.

The impact on 2023, non-GAAP diluted EPS from the lower contribution to earnings from sales of PPE products and COVID-19 test kits is approximately 35 to <unk> 40 per share.

These headwinds are largely offset by earnings momentum that our underlying core businesses and we expect non-GAAP operating income will grow in the high single digit to low double digit range when excluding the contribution from PPE products and COVID-19 test kit sales.

Please note that 2023 will include one less selling week compared to 2022, which will occur in the fourth quarter.

For 2023, we expect non-GAAP operating margin to be 10 to 15 basis points below our 2022 non-GAAP operating margin of 820%.

And this was largely a result of lower PPE products, and COVID-19 test kit sales and profits.

Our guidance reflects non-GAAP operating margin expansion when excluding income from PPE products and COVID-19 test kit sales.

Our 2023 guidance includes higher interest expense than in 2022, as a result of higher interest rates and higher minority interest from our higher growth businesses, mainly Henry Schein one.

We also expect an effective tax rate in the 23% range, assuming no changes in tax legislation.

Our guidance for 2023 diluted EPS is for current continuing operations as well as completed acquisitions and does not include the impact of future share repurchases the acquisition of biotech dental.

Other potential future acquisitions or integration and restructuring expenses if any.

Thank you Ron.

We have about 20 minutes all over 20 minutes too.

And some questions.

Sorry, the call was that long, but there's lots going on.

We are highly confident in the business.

And.

<unk>.

<unk> etch PPE.

And Covid test is doing quite well, even though there are challenges from a macro point of view.

<unk> said that I think we've got great momentum in the business.

And look forward to answering any questions.

Operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up. Thank you one moment, please where we pull for questions.

And our first question comes from the line of Jeff Johnson with Baird. Please proceed with your question.

Thank you good morning, guys.

Ron maybe you wanted to start just on the Covid testing kits and PPE guidance.

When I look at kind of the EPS impact this year. It seems like it's dropping through any decremental margin in the mid <unk>, if that upper teens level.

I think over the last couple of years as those have been contributing positively kind of those have been flowing through or at least kind of you guys have signaled that those were dropping through kind of a corporate wide margin rates.

Why.

It makes some sense I guess when you are losing some of that.

Inflated topline growth, but there is a deleveraging impact there, but dropping through at that mid to upper teens decremental margin seems a lot bigger than I would've expected. So any any any comment you can make there yes.

Yes, certainly I think that.

We could see a little bit of pressure on gross margins on both PPE and Covid test kits versus the prior year, but I think.

The bigger issue there Jeff is.

The gross profit dollars I mean, the compounded effect of the ongoing decrease in the revenues from these product categories in both 2022, and then continuing into 'twenty three.

<unk> and fewer gross profit dollars and I think the debt.

And a dilutive effect begins to.

Begins to hurt the operating margins a little more so than then.

Makes it more difficult for us to cover it like we did in 2002.

Yeah understood and then historically you guys had provided organic growth guidance revenue guidance, you did last year anyway, I guess prior to that not necessarily.

A lot of moving parts this year with the selling week, one less selling week. The PPE updates obviously some acquisition contribution if I look at that one to three where kind of <unk> that it maybe a 3% to 6% organic guidance ex all that noise and I assume medical and tech VA, a little above that.

Dental and kind of that low to mid single digits or those kind of all at least ballpark, we should be thinking about as we're setting up our models for 2023.

Zero range, there I think that I think we have a headwind from PPE and Covid test kits, combined probably 300 or 400 basis points right.

You also have a headwind from the 50 <unk> week, that's going to be somewhere between one point and a point to have in there.

We will get a little bit of benefit from acquisitions. So that kind of leaves you with a number that could be three to six four to seven in terms of non PPE Covid test kit growth that we would expect in 'twenty three versus 22.

Dental a little below in medical what Bob does that is that the way to kind of think about that thanks.

Yes, that's probably that's probably a fair a fair statement yes.

And the next question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks, so much for the question this morning.

Your question around sort of your utilization and visited assumptions could you help us parse that apart a little bit more for 2023, I'm thinking specifically on maybe like medical medical visit and then sort of the overall dental visits.

Yes.

Good questions.

We did take a dip.

John .

Visits.

Dentistry.

And it was both in the United States and Europe , and the rest of the world. It wasn't so bad of course, China. It was in the fourth quarter.

And it is down a bit.

And there has been a recovery in January quite nice recovery. It is down a bit from 2019 in the United States hard to get data outside of the United States.

But.

We are not 100% back to where we were but the dip that we experienced in the fourth quarter.

Mostly if not all.

Recovered and.

At least from what we can tell from the first 40 days or so of the year.

And troubling hearing from our customers.

We're back to where we were in about the third quarter.

Correspondingly on the medical side, there was an increase in visits.

People had.

Flu and then I wanted to confirm that it wasn't COVID-19.

We experienced some growth in that respect in terms of flu tests and you can see that information from the flu tests manufacturers a lot of them are providing that information, but again, we expect.

In January .

February that.

The visits were relatively back to where they were.

Before in the third quarter say before.

The flu.

So the businesses are relatively stable now.

We had a temporary dip.

In dental visits and I think a bump a little bit and medical but on average.

The amount if you look at our internal growth in local currency is about 5% internal growth for the company. So.

And I think.

All things being equal, perhaps will be a little bit better in the first quarter.

Hard to tell but it's looking quite positive for the first 40 days of the year.

Got it and sorry, just to clarify it's quite fine questions. One your comments about sort of the data and then a little bit of a recovery in January and early February that also applies to Europe and then secondarily.

Assuming figure of 2023 guidance at these current kind of January conditions continue ongoing thanks.

As it relates to international.

Europe in particular because of the other international.

China.

Other countries kind of cancel out although there's a bit of a positive.

Positive.

Impact in Brazil, where we have a big market share.

Not big market share the big businesses.

Decent market share.

Yeah.

I would say the trends.

We are very very similar of course, our medical business not material in Europe , So I wouldn't exclude that.

Manav, it's shifts we can give you data on that because it's so diffuse, but our dental business.

Had similar <unk>.

Friends too.

The United States.

In North America.

What's your second question and then does that is that January store does right.

<unk> was sort of what you are using to underpin your 2023 guidance I just I'll have Ron answer the guidance question I am not sure.

40 days really.

Okay carried through for the full year.

Yes.

It's a little early at this point I think that.

Our guidance is supported by our budgeting process, we obviously monitor.

What's happening so far in 2023, but I think that.

The assumptions.

Yes.

The dental market last year suffered a little bit in January from from <unk>.

So there are some assumptions in there on Q1, but at the same time.

Last year, we like I said in the prepared remarks, we did about $500 million in revenues and PPE and Covid test kits in Q1 that won't get it wont be nearly that much this year right.

Q1 is going to have and can still going to have a little bit of noise in it.

Got it thank you.

If you flow through everything.

Yes.

Thank you.

We're pretty comfortable with our budget for this year.

Which contemplates at the end of the day high single digit to low double digit operating income growth when excluding PPA covenant. So I think if you can see through the PPE in carpet.

You can see the business is pretty solid.

Yes.

Actually better performance that we've had in the past.

And.

I still think that the whole.

Management of these PPE Covid test, where we put the.

Right down generated over $2 billion so okay.

And sales.

Pretty good profits.

Has paid off because our customers are understanding that they can rely on shine.

During challenging times and that the products, we sell are generally.

Our compliance with regulations and very often.

And we're buying products change ppm. During this COVID-19 period that had a regulatory issues and so and policy issues. So I think <unk>.

Strategy has paid off well.

Focus on PPE and test and at the same time.

Garnered quite a bit I think our core business.

As reflected in our expectations for 'twenty three in terms of growth.

Operating income.

Got it thank you very much.

And the next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Hey, good morning, Thanks for taking the question.

Maybe I'm going to start with you and a lot going on here as you said.

But maybe with the outlook you got 1% to 3% of the topline I know Jeff was digging in there the organic growth.

Core EBIT growing upper single to low double digits.

Some pretty nice core margin expansion and that would seem to fit with the historical trend line of the business, but maybe double clicking on Jeff's question. There wondering if you can comment a bit further and how you see the core dental consumables and equipment lines performing in 2023 and North American International.

And then are the drivers of the core margin explain expansion implied in your guide are those more gross or operating that you're willing to comment there.

Let me deal over the first part and I think especially for Ron to respond to the guidance from a mathematics point of view.

As noted.

In the prepared remarks, we believe.

The dental market in the developed World certainly is quite stable, we believe that generally growing some market share.

Puts and takes namely.

The.

Seasonal adjustment because of <unk>.

<unk> in the fourth quarter.

A little bit of a rebound.

Back to normal in the first quarter, but generally I think the market is stable.

I think specialty products are stable you should not necessarily read anything into our specialty sales per se, because we had an exceptional quarter for implants and bone regeneration products in 'twenty, one, but generally I would say the consumable markets in the developed world.

Relatively stable there are a few markets.

But down in a few markets, where it has been up but generally it's stable on the equipment side traditional equipment.

Okay.

We haven't quite run off the backlog units pretty stable.

The area that in the past I always look at more concerned about is the imaging I think it is relatively stable now the prices are not going down.

And the units demand is pretty good.

Area, where there have been lots of ups and downs is in the.

Digital area is enormous interest in digital dentistry.

<unk> seen the interest is high I think when it comes to the scanners.

We will beyond the.

First run innovative type buyers and into standard abuse buyers.

There are many new entrants into this market.

There are.

Lower price product for sure.

And that's where the market is heading but the demand for units is very strong.

I would say that.

We were challenged a bit and I think that's going to be that way for a few quarters.

On a new product from our leading provider of scanners.

But it does it will lose those orders.

On the other side the non market is really almost come to a halt.

We're still selling those but.

Tenants that were looking at mills are now looking at three D printing.

We got a bit of a boost there in the United States. The Ada has now provided billing code and so Dennis they may not buy the <unk> the <unk> printer right away.

Certainly looking at it and I think that that market is going to do well.

Technical.

Use the front using it later for the <unk> is not perfect yet, but this is a great opportunity for us and we're doing well and we expect to do even better although it's not covering the production in mill demand and now dealing with the dentist on the lab side of the mills are doing quite well.

And.

So generally.

<unk>, what's happening in the equipment business I think.

It's quite a.

Our good markets on the.

Traditional on the three D printing.

Mills are a challenge.

There's a slight issue in Europe because of the ideas that occurs at the end of March and so I think people are waiting to see what developments occur, but I don't think thats going to impact the whole year sales. So that just might be a slight dip in up tick, but generally I would say generally stable on the medical side.

We continue to see the migration from the acute care setting.

Yourself and having.

Partial knee replacement and I have talked about the often the same day that was not the issue not the situation perhaps.

A year and a half ago. So there is a migration and we're benefiting from that.

And Jason with reference to your question on operating margin, Yes, I do think that.

Like we said we believe operating income is growing in the high single digits low double digits, excluding the drag from PPE and Covid test kits and.

Yes that should imply.

Pro forma operating margin expansion.

As you inferred I think it's it's.

Hey.

Some of these market conditions that have adversely affected us a little bit with whether it be in PPE or COVID-19 test kits with the balance of the business.

Got it just Ron just as a quick follow up there.

Suggesting operating margin expansion totally get that the gross margin driven or opex driven.

Thanks for the comprehensive answer I'll hop back in queue after that.

Given that the product mix aspect of it would be primarily gross margin driven.

Thank you.

And the next question comes from the line of Jon Block with Stifel. Please proceed with your question.

Good morning, Ron maybe just going to have a similar path to the high single digit to low double digit 2023.

non-GAAP EBIT growth for the core business can you talk to.

How much that benefits from the restructuring in the back part of two.

2022, I know you guys, usually do restructuring just seems a little bit bigger than normal.

And we think about going forward more importantly is the high single digit to low double digit good representation of the business.

Longer term once the PPE COVID-19 headwinds abate and then maybe in the interest of time I'll just ask both abroad.

Certainly on the implant side with the dental specialties I know you guys had a very difficult comp, but I think just maybe in the back ported 23 implants might be flattish call. It <unk> 22 year over year to throw a dart just would love your thoughts on how that compares to market growth and if you feel like you guys are still taking share there.

Tom.

Yes, John I think in terms of the.

And if I paraphrase your question and tell me if I have it wrong, it's really kind of the sustainability of continued growth in the high single to low double digits.

In the balance of the business.

We do have some confidence there that we can continue with that I think that you may be aware that we have an investor day coming up on February 27, and we will provide more kind of some kind of mid term assumptions at that point in time in terms of what we are expecting.

Beyond 'twenty three but.

Yes.

This is.

Again kind of partially driven by the.

The mix of the business and the fact that we're growing some aspects of the business faster than others, whether it be in specialties or in technology.

Does that answer your question.

Oh, the questioner has dropped off the next question comes from the line of Nathan Rich respond quickly.

The specialty products.

The implants.

Uh huh.

Bone regeneration products are doing.

Very well.

Pleased with our internal growth in that area.

I think the biotech acquisition will help.

So that business continues to be strong, particularly in our core markets, which is United States.

And Germany couple of the Germanic countries and Japan.

On the <unk> products were doing well continue also like in implants bone regeneration to believe.

We are gaining market share.

Your line is so small, but I think we will get a boost with the biotech acquisition, we will have synergies.

That I think will help drive.

More sales, but it's a very small business.

And our next question comes from the line of Nathan Rich with Goldman Sachs. Please proceed with your question.

Great. Thanks for the questions I'll ask both upfront as well and both are related to the intra oral scanner market suddenly where would you say we are in the shift to lower priced products and can you just go into a little bit more detail on kind of what you're expecting from that market. In 2023, do we start to maybe see some signs of stabilization.

<unk> just.

On the iOS side on the scanners.

I don't think we've seen the bottom yet.

In terms of mix change I think the pricing relative to particular manufacturers may have stabilized.

But there are entrants into this market.

That have very good products in the past, we didn't even sell much up in the past.

Now carrying on selling so it's more of a mix to lower priced products rather than deflation.

Particular manufacturers existing products.

Although there could be some of that as it relates to and by the way I think.

These newer entrants that we're working with are doing quite well with us.

As it relates to the manufacturer that has.

Supply chain issue.

It's not a public company I can't talk about it.

But.

They have a new product.

And that has done quite well.

And that just goes to a little bit of a contradiction to what I said early on.

Manufacturers that have unique.

Technology is a demand for paying more but thats not generally for the whole market the whole market.

The 75% of people, who don't have a device that are interested more in.

Lower price.

Product that has enough features.

For them, but the one that's on back order is on the higher end. The features and we don't expect that to resolve three or three quarters.

And we have time for one last question coming from the line of Kevin Kelly Endo with UBS. Please proceed with your question.

Thanks, and thanks for taking my question.

Can you quantify in any way the impact of the three D printing that you called out in the release and on the call.

In terms of numbers in market share and the like because I know you've talked about it in the past, but I think this is the first time really called it out in our press releases impacting the business.

And just as a follow up to all of this and I appreciate all the color on the inventories.

And the equipment and iOS and the like.

But your backlog grew in <unk> and <unk>.

I believe you said it grew sequentially through the quarter what is the expectation.

For equipment sales and where does your backlog sit now.

Relative to where you were at the end of <unk>.

Okay.

Let me deal with the backlog first.

Just in North America similar.

To what it was at the end.

Okay.

Third quarter.

So I don't think much has changed.

Can't give you the exact timing.

A lot of that is the result of traditional equipment or we seek to be topping up whatever we ship and southern market seems to be quite strong in Europe .

Slightly, but we think thats to some extent.

Because of the Ibs.

People are holding back or would you look at.

At the margin, yes, so it's not material bottom line as the backlogs are good in both North America, and internationally and equipment as strong as it relates to.

No I would say the middle market has significantly come down and I'm, referring to is on a chair side Mills, that's just not doing well I'm not referring to landfills, we are the largest provider of products.

Dental laboratories, and that market seems to be relatively strong.

The switch to.

The <unk>.

<unk> printing is not occurring wanted to one yet what's happening is there's a lot of Dennis.

I need to find out more about this and I expect that over the next couple of quarters.

The team will be out there educating dentists on.

The opportunity for <unk>.

Printing.

Suspect it will result in a little bit and most going up again, because right now it's.

Saturation of Denis wanted to understand more about what's going on and three D. Printing is going to be important but not substitute completely full chair side milling. The market is just I think.

Come to a little bit of an educational stumble, but I think the mills will come back again, but not to where they were and three D. Printing is at a relatively early stage, but I think we're doing very well in terms of growing our global market share sales that are out there three D printing will improve as various material.

<unk> come to market and as things improve but.

I think the.

Messages that.

Digital restorations.

Dennis interest in investing our job is to make sure that we educate the Dennis on the appropriate device for their practice and then closed on sales.

Thanks, and if I can ask Ron a really quick follow up I just wasn't sure. If I heard the guidance include or exclude dental biotech and what was the impact of that the guidance does not include desktop biotech I think that when.

When we put the release out on that the biotech we said it would be slightly dilutive to 2023, when excluding amortization expense.

Okay, great. Thank you yes.

Okay everyone.

Thank you very much for calling in.

The message I think we want to communicate I know, we want to communicate is that our core business.

Good shape.

<unk> expect decent.

Internal growth rates.

Local currency of course.

In 2023 will cover this in more detail at our Investor day.

We expect.

Internal growth.

Our operating income to continue to grow quite nicely high single digits low double digits.

And.

Bottom line is this.

This is in good shape and markets that are doing well.

There are no answers that need to be understood.

Happy to deal with that in further detail at the Investor day.

Anyone wants to reach out.

Graham.

On the Investor relation side I'd be happy to provide further clarity on our remarks. So thank you very much and hopefully we will see.

Everyone on the call and our Investor Day in New York City.

Following week, thank you very much.

This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Q4 2022 Henry Schein Inc Earnings Call

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