Q2 2023 Henry Schein Inc Earnings Call

August 7, 2023

Good morning, ladies and gentlemen, and welcome to Henry Schein second quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

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 operator assistance during the call. Please press the star key followed by zero on your Touchtone phone as a reminder, this call is being recorded.

And 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. Thank you. Please go ahead Graham.

Thank you operator, and my thanks to each of you for joining us to discuss Henry Schein. This financial results for the second quarter of 2023.

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

South Senior Vice President and Chief Financial Officer.

Before we begin I'd like to state that certain comments made during this call will contain 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.

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 market we serve.

End market growth rates and market share are based upon the company's internal analyses and estimates.

Today's remarks will include both GAAP and non-GAAP financial results, we believe that non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business enable the comparison of financial results between periods, where certain items may vary independently of business performance and allow for greater transparency.

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

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

Reconciliations between GAAP and non-GAAP measures are included in exhibit B of today's press release and can be found in the financial and so on.

Filings section of our Investor Relations website under the supplemental information heading.

For additional financial information please refer to our quarterly earnings presentation also posted on our Investor Relations website.

The content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast August 7th 2023.

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

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

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

We are today reporting solid results for the second quarter, driven by our North American dental businesses with strong equipment and steady general merchandise sales.

And with continuing strength in sales about technology and value added services.

Biomaterials and indeed ontic products.

The underlying fundamentals in the U S dental market remains strong and demand for dental services customer confidence confidence continues to improve.

As of course evidenced.

By the ongoing investments our customers are making in their practices.

In addition, we are seeing growing demand for our implant systems and ended up being products as well as our integrated software and services solutions, which are generating strong growth by delivering greater efficiency and a better experience to our customers.

In the alternate care markets, that's the medical market elective procedures are close to normal.

Last second quarter visits to primary care physicians were down year over year, reflecting last year's higher visits to physician offices.

Urgent care centers as a result of the extended flu season last year.

As expected sales of PPE and Covid test kits continue to decline. However, we are now seeing sales level sales level.

Well sequentially.

Seashells leveled off sequentially and we expect the year on year impact to be much lower in the second half of 2023.

When excluding these product categories local currency internal sales growth for the company was three 3%.

In general our North American dental business performed better than we expected at the start of the year offset by some incremental COVID-19 related headwinds facing our medical business and as discussed earlier on.

Outlook reflects overall confidence in our business and in the markets, we serve and accordingly, we are affirming our non-GAAP diluted EPS financial guidance for 2023.

Our financial results and guidance demonstrates the strength of the business as discussed earlier and continued advancement of our 2022 2020 full boat plus one strategic plan.

We are successfully executing key initiatives.

The key initiatives actually in the plan.

Including expanding our specialty products and value added services portfolio.

Optimizing our distribution businesses, leveraging key customer relationships and driving digital transformation.

Year to date, we have committed over $1 billion to acquisitions that accelerate the implementation of our strategic plan and in high growth high margin products and services to our offering.

With this clear focus we believe we are well positioned to further enhance Henry schein its leadership in the market simply said and to deliver long term sustainable shareholder value.

Among the larger transactions are our strategic partnership with biotech dental which was closed in April .

Acquisition of ESI, and implant systems, which we closed in July and the recently announced acquisitions of Shield health care.

And large pad to sales, which we expect to close in the third quarter.

With these transactions, we have significantly expanded our implants bone regeneration and clearer lineup of product portfolio digital workflow capabilities.

Presence in distributing products directly to the patient and the health care arena and value added services.

Continuing our strategy of following the patient to provide health care services. We're just being delivered we expect our recently announced agreement to acquire shield will create an offering with more than $300 million in annual revenue.

Distributes medical supplies.

The United States directly to patients in their home.

On completion of this acquisition this business will be led by Adam <unk>, who joined Henry Schein is Vice President General manager of home medical products.

<unk> has significant experience in this area.

We are excited about the fundamentals of this market, which supports a growing aging demographic experiencing more chronic disease beyond added convenience to the patient the trend of moving care to their own is expected to provide efficiency in the overall health care system.

And most important many of our customers have asked us to provide the service.

Providing it in a moderate way up to now but now we are committed to advancing our position in this market to support our customers who have requested us to move into the home care Arena.

Our continuum of care.

Hum came medical product offering will now include internal Ostomy and continence wound care in diabetes products, and we plan to leverage our physician relationships.

Eliana product distribution expertise and corporate brand assortment to further grow this area.

Also for many years, we have had a successful practice transitions group dedicated to existing smaller and mid sized dental practices.

These are most enthusiastic about the acquisition of large practice sales, leading transfusion advisory services business, which expands our capability to advise dental practices.

Larger practice transitions.

Of course being of service to our DSO.

DSO customers as well.

We're also advancing the integration of our digital.

Of our dental digital workflow software with our practice management software to create a unique digital solutions for dental practitioners.

In this connection we have asked Andrea Albertini CEO of our international distribution group to lead the Cross company, one schein solution and accelerates out what we have internally called out three click integrated software solution for our customers.

This simplified open architecture process begins with the capture of any image from an intra oral scanner or <unk> digital imaging unit through our practice management software.

Following by the application of embedded artificial intelligence solutions to help in diagnosis cash acceptance planning and design and ending with the rig with a direct connection to fabricate the prosthetic through either share side no.

<unk> printer for the transmission digitally of the file to the dental lab.

Let me now turn to a review of the quarterly highlights from each business.

Unit, beginning with the dental distribution.

In North America dental offices would generally busy.

And this helped our second quarter dental merchandise growth.

Of course, excluding sales of PPE products.

A driver and equipment sales was a broad equipment was of course, a broad equipment offering which enables our customers needing solutions to increase productivity to meet demand.

And of course drive up the efficiency of the practice and of course better clinical care.

North American dental equipment sales are up double digits sales of traditional equipment continued to be strong and we are pleased that sales of digital equipment returned to growth.

This quarter.

Internationally equipment sales were relatively flat to the prior year.

The equipment backlog in North America has held steady and.

Internationally equipment backlog is returning to pre pandemic levels.

Now turning to our dental specialties.

Sales of dental implants of biomaterials with key drivers in the second quarter complemented by Endodontics and clear line of businesses.

We are seeing implant demand increasing in North America with sales of our bio horizons Gameloft premium implant delivering mid single digit growth.

The sequential improvement versus the first quarter.

Internationally demand for implant systems remains very good.

Yeah.

Generally demand for implants continues to favor value priced products.

Believe that out.

Kevin.

But by rises chemlawn product offering is well positioned but also.

The.

Moving off.

Demand for value priced products is reflected in our double digit growth achieved by I'm a dentist.

Provider of dental implants, and bone regeneration products.

Looking at recent deals our transaction with biotech dental brings a market leading portfolio of dental implants, and clear rely on us to Henry Schein.

And digital workflow software.

On the other hand, that's an implant systems provides us an entre into the large Brazilian implant market and complements our successful Brazilian general dental consumables and equipment business.

Both biotech and S and Cheyenne.

Our high quality implants at an attractive price and we have exciting opportunities of expanding this cost competitive products to other geographies.

Including the.

The United States.

Providing of course, a more comprehensive offering and enabling us to be even more competitive in the.

And in Virginia.

Bone regeneration space.

This quarter growth in our <unk> business continues to be driven by our rustler in edge brands in both North America and internationally.

I also don't think business is making steady progress with our lineup business although.

Although this is still a relatively small component of our global revenues.

We are seeing growing demand for specialty products from Dsos.

And that is from specifically from our DSO customers.

Coal we have.

Pretty decent market share in the DSO.

Markets.

And we see continued adoption of specialty procedures among dental practitioners.

We have grown our global implant.

Bone regeneration and related products and services.

Over $800 million.

In revenue.

And our specialty products to approaching $1 2 billion in revenue in the aggregate.

On an annualized basis, we now offer a broad range of premium.

And value alternatives to North American and international practitioners.

We expect.

Dental specialty growth to accelerate in the second half of the year.

Due to these acquisitions, but also due to year over year comparisons easing.

No.

Let's turn to the techs.

Technology and value added services business with the largest component of course is Henry Schein one.

Global growth and Henry Schein, one is being driven by ongoing migration to our cloud based practice management software solutions.

<unk> ascent and then Tony.

And by growth in our revenue cycle management business, resulting from increased patient traffic driving a higher volume of claims.

<unk> and then <unk> grew at a product to approximately 7000 customers and today represents.

Approximately 40% year over year growth.

Customers and prospective customers of pasta, particularly enthusiastic about incorporating artificial intelligence solution.

Into their practice management software product, we believe our embedded solution is certainly best in class.

We have grown our technology and value added services businesses into an almost $900 million revenue portfolio on an annualized basis.

In addition to Henry Schein one.

<unk> technology solutions, we now offer a broad range of value added services.

Through our businesses, such as <unk>, which provides revenue cycle management and uniqueness, providing advice on PPO agreements with insurance providers, along with other services, including financial services practice transitions staffing services education and remote patient monitoring for.

Office based dental and medical practitioners.

We expect the technology and value added services sales growth will accelerate during the second half of the year.

Turning now to the medical business.

During the second quarter, our medical business achieved low single.

<unk> growth, excluding PPE products and of course, COVID-19 test kits.

This compares with mid double digit growth last year, it's really important to understand that when results benefited from some late season sales of point of care flu diagnostic test. This.

Sure.

Excuse me it was a more typical flu season and as a result, we had much lower sales of flu.

With 19 in my test assay diagnostic and related products.

Sales growth was also affected by the conversion of certain pharmaceuticals and other products.

<unk> generics in corporate brands.

Of course with a higher gross profit margin. This is a trend that.

It has taken place throughout health care.

Sales of medical equipment were relatively soft in the market.

The market took a temporary pause to assess likely future demands. However, we have subsequently seen investment interest will turn in July so in summary.

The fundamentals of our core business remains solid.

Okay.

Very good.

And the team is executing well on our 2022 to 2020 full boat plus one strategic plan.

With that.

I'll turn the call over to Ron.

To discuss specifics relative to our quarterly financial results.

And provide full year guidance.

Ron Please.

Thank you Stanley and good morning, everyone.

I'll be discussing our results as reported on a GAAP basis and also on a non-GAAP basis.

Our second quarter non-GAAP financial results for 2023, and 2020 to exclude integration and restructuring costs and amortization expense of acquired intangible assets. This is detailed in exhibit b of today's press release.

With respect to sales growth our focus on LCI sales growth, which is internally generated sales in local currencies compared to the prior year and excludes acquisitions.

Second quarter global sales were $3 $1 billion or LCI sales decrease of 0.2%. However.

However, when excluding sales of PPE products and COVID-19 test kits are LCI sales grew three 3%.

We sold $138 million and PPE products in the second quarter of this year, a decrease of approximately 28% year over year.

Sold $26 million in COVID-19 test kits, a decrease of approximately 62% year over year.

Our GAAP operating margin for the second quarter of 2023 was six 5% and 81 basis point decline compared with the prior year GAAP operating margin on a non.

non-GAAP basis operating margin for the second quarter was eight 2%, a 14 basis point decline compared with the prior year non-GAAP operating margin.

Excluding the impact from lower PPE and COVID-19 test kit sales, we estimate that non-GAAP operating margin expanded 27 basis points.

Second quarter 2023, GAAP net income was $140 million or $1 <unk> per diluted share. This.

This compares with prior year GAAP net income of $160 million or $1 16 per diluted share.

Our second quarter 2023, non-GAAP net income was $173 million or $1 31 per diluted share. This compares with prior year non-GAAP net income of $179 million or $1 30 per diluted share.

These results were impacted by a decreased contribution from lower PPE and COVID-19 test kit sales estimated to be eight cents per diluted share relative to the prior year period.

The foreign currency exchange impact on our second quarter EPS was immaterial.

As Stanley mentioned, we have committed over $1 billion and the acquisitions, we've announced so far this year with $250 million invested in equity investments in business acquisitions in the second quarter of this year and we have subsequently signed agreements committing another $800 million.

The increased capital deployment for acquisitions has impacted quarterly financial results more than in previous years.

The second quarter, 2023, GAAP and non-GAAP financial results included high acquisition activity.

That resulted in acquisition expenses of $6 million or <unk> <unk> per diluted share, which were offset by net acquisition related fair value adjustments of $16 million or <unk> <unk> per diluted share, including a related remeasurement gain resulting from the purchase of a controlling interest of our previously held <unk>.

The investment.

This resulted in a net favorable impact of $10 million or <unk> <unk> per diluted share for the quarter as illustrated in exhibit C to our press release.

On a year to date basis, the favorable net impact of these acquisition expenses and acquisition related fair value adjustments, including the related remeasurement gain resulting from the purchase of a controlling interest of our previously held equity investment was only one cent per diluted share.

We are confident that these strategic investments will drive enhanced growth and value creation over the long term as we accelerate the implementation of our 2022 2024 full plus one strategic plan.

Turning to our second quarter sales results global dental sales were 2.0 billion LCI sales increased by 2.0%.

Excluding sales of PPE products LCI sales growth was three 7%.

Global dental merchandise LCI sales increased by 0.7%, but increased by two 8% when excluding PPE products.

North American dental merchandise sales were flat compared to the prior year and grew two 6% when excluding sales of PPE products with good underlying growth offset by lower growth in our dental lab business as a result of digitalization and in our traditional orthodontics business.

International Dental merchandise LCI sales increased by one 9% and by three 2% when excluding sales of PPE products.

Global dental equipment LCI growth was six 4%.

Our north American dental equipment LCI sales increased nine 8% as we continued to see strong sales growth for traditional equipment and sales of digital equipment in North America returned to growth.

International equipment LCI sales increased by one 6%.

Dental specialty products include implants bone regeneration materials, orthodontic products and endodontics products.

Sales of these products were approximately $270 million in the second quarter with growth of 15, 7% driven by acquisitions and good implant sales in both North America, and internationally, particularly in Austria, Switzerland, and in Germany, where we have a leading market position.

Global technology and value added services sales during the second quarter were $193 million with LCI growth of five 5%.

Sales were again negatively impacted by a government contract, which expired early in the third quarter of 2022 LCI sales growth was six 9% when adjusting for this contract.

In North America sales growth was driven primarily by our detrick ascend practice management and revenue cycle management businesses.

Growth internationally was driven by our den Tolly cloud based solution.

Global medical sales during the second quarter were $950 million and LCI sales decreased five 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.

<unk> sales grew 2.0% and were impacted by lower flu cases versus the prior year, which resulted in lower point of care diagnostic tests and related product sales.

Keep in mind this was against a very difficult comparison as LCI growth, excluding PPE products and COVID-19 test kits grew 14, 3% in the second quarter of 2022.

Regarding stock repurchases, we repurchased approximately 638000 shares of common stock in the open market during the second quarter buying at an average price of $78 36 per share for a total of $50 million.

At quarter end, we had approximately $365 million authorized and available for future stock repurchases.

Turning to our balance sheet and cash flow, we continue to benefit from significant liquidity, providing our businesses with the financial flexibility and stability to execute on organic growth initiatives and strategic acquisition, while continuing to return capital to our stockholders.

We further strengthened our balance sheet by recently extending the maturity date of our $1 billion revolving credit facility to July of 2028, and also closed on a new $750 million credit facility.

Operating cash flow for the second quarter was $274 million compared with $157 million last year, primarily as a result of lowering inventory levels.

Restructuring expenses in the second quarter were $18 million or <unk> 10 per diluted share and were incurred as part of our previously disclosed restructuring initiative. These expenses, mainly relate to severance benefits and costs related to exiting facilities. We now expect restructuring activities to extend through 2024.

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

At this time, we are still unable to provide estimates for costs associated with integration and restructuring for 2023. Therefore, we are not providing GAAP guidance we.

We are affirming our guidance for 2023, non-GAAP diluted EPS attributable to Henry Schein, Inc of $5 18 per share to $5 35 per share, which was down 1% to 4% compared with our 2022 non-GAAP diluted EPS of $5 38.

It includes the previously announced five to 10 cents dilution from 2023 acquisitions, which is consistent with our prior guidance and has been updated to include second quarter results and the impact of all acquisitions that have been announced so far.

The net impact of acquisition expenses and acquisition related fair value adjustments, including the related remeasurement gain resulting from the purchase of a controlling interest of our previously held equity investment is expected to be insignificant for 2023 and has been included in guidance.

We expect these acquisitions to contribute to earnings growth beginning of 2024.

It is important to recognize that we expect year over year growth and diluted EPS to be higher in the fourth quarter than in the third quarter of this year.

Our guidance for 2023 assumes total sales growth of approximately 1% to 3% over 2022 as a reminder, our guidance reflects one less selling week in 2023 and 2022.

Our sales growth reflects a larger decline in sales of COVID-19 test kits, which we now expect to decrease by approximately 70% to 80% from 2022 versus our previous guidance of a 65% to 70% decrease.

Additionally, PPE product sales are expected to decrease about 25% to 30% versus our previous guidance of a decrease of $20 to 25%.

Despite the expected lower PPE and COVID-19 test kit sales the impact on 2023, non-GAAP diluted EPS from PPE products and COVID-19 test kits is still estimated to be 35 to <unk> 40 per share due to higher than anticipated gross margins on PPE sales relative to our <unk>.

General guidance.

We are driving strong earnings momentum in our underlying core businesses and we still 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.

We continue to expect non-GAAP operating margin contraction of 10 to 15 basis points from the 2022 non-GAAP operating margin of eight 2% 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, and as a result of higher interest rates and borrowing levels.

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

Our guidance is for current continuing operations as well as acquisitions that have been announced and does not include the impact of future share repurchases and potential future acquisitions Guy.

Guidance also assumes that foreign currency exchange rates are generally consistent with current levels and that end markets remain consistent with current market conditions.

With that I'll now turn the call back to Stanley.

Thank you Ron.

We are here to answer any questions, which.

Investors may have so operator.

Thank you we will now be conducting a question and answer session. If you will.

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 to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

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

Hi, guys. Thanks, so much for that question.

I have maybe one shorter term question and one question.

On a shorter term question.

C B.

A fair value adjustment was new this quarter and I just wanted to sort of make sure I understood was this something that you knew sort of last quarter. When you updated your guidance or you were just trying to I am just trying to understand whether there are like core guidance move down ex that.

My longer term question.

Is that would be very interesting with you, adding all these new capabilities and geographies and how do we think about like for example for SaaS like how long that might take or what your plans are in terms of bringing those implants into the United States and then similarly in terms of the medical the ability to sort of push those sort of more broadly across the <unk>.

Products across your portfolio. Thank you so much.

Certainly Elizabeth I'll take the first question and Stanley will respond to your second question. So the Remeasurement gain was something we contemplated in our guidance, we didn't have a definite amount for it.

Just like we weren't sure how much are our acquisition costs, we're going to be either so.

Ultimately those as we've kind of demonstrated in that exhibit to the press release those amounts once we realized the higher expenses and we also realized the net remeasurement gain have largely offset on a year to date basis. So yes, our guidance does contemplate.

The effective.

<unk> items and ill Stanley if you want to take the second thank you.

Sure.

The ESI in implants, not the whole line, but.

The important part about portfolio already approved in the U S.

Our selling to some extent.

<unk> are being well received by our particularly DSO customers, where we in fact bucko incident last week.

<unk>.

We were able to land a pretty decent DSO that is interested in.

The <unk> implant system puts us SRN.

Transactions transactions puts us in a very competitive position now because to some extent in the U S and maybe some other markets.

Although camera by Horizons Kellogg is.

Premium product selling at a slightly lower price than some of the major brands if not all of them, we still were missing.

A piece of our portfolio on the.

Economic side of implants, and I believe we're well positioned.

With ESI in and I believe in.

Next year or so we will be able to also launch.

The biotech line in the United States.

Different market segments, but I think we are definitely in a very competitive position now.

And actually starting to see some sales.

It's very helpful and then for shield as well that sort of the similar timeline and you can see the pushed out across your broader portfolio. Later this year or is that more but we should think about that as more of a 'twenty four type bucket correct.

Thank you.

<unk>.

We acquired prism about a year or so ago.

Two years ago, which was mostly an east coast business.

With a relatively limited portfolio.

Shields puts us into the west coast with a broader portfolio.

And she was missing the wound care offering prism head.

So we believe we will create synergies relatively quickly.

There are costs of course are the integration, which is taken into account in our guidance.

Mostly one time cost, but I think in 'twenty four.

Should be able to start adding accretion in a nice way. This has really been an area that our customers.

Big IDM customers have wanted us to perform.

And we didn't undertake these kinds of <unk>.

Services, we have one DS.

And in the New York area that we service in the home care area, but we didn't really have the full capabilities between these two acquisitions and another small one which we hope to announce soon.

We'll have a pretty good offering and products for the home and will be a great extension to our physician and LG Chem business.

And the next question comes from the line of Brandon Vazquez with William Blair. Please proceed with your question.

Hi, everyone. Thanks for taking the question maybe first one on one high level question just on the macro backdrop.

Can you guys talk about where youre seeing some strengths and weaknesses in the environment today, I think maybe equipment looked pretty strong in the U S, but maybe a little weaker international and then consumables globally look what kind of stable low single digit so curious how all.

All of these segments on the dental side are playing out from the macro side.

Yes.

Thanks for that question.

On the macro side in North America I believe there is stability on the dental side, that's what our team believes in general.

<unk> people patients are returning to the dental office.

If your data is not perfect, but if you look at the latest <unk> survey.

And some recent analyst reports and studies.

Gesture with patient traffic picked up throughout the second quarter.

After the steady volumes in the first quarter of 'twenty three.

And so we.

Of course.

We had some volatility in the first quarter of 'twenty two.

And so it appears that patient flow is good.

July from my point of view.

It was a good month.

It claims data also suggest that what I've just described.

Is backed up again by he claims data from Henry Schein one.

If you Peel the onion, a little bit further.

At least from our point of view implant sales continued to grow well in North America.

Same for endodontics.

Small and line of business showed similar trends.

If you look at.

International.

It's slightly more tepid in international.

Hard to tell because we are now in the summer months.

The summer months when Europe is largely closed having said that we did suffer in the second quarter because of the strikes in France, I would say, Germany is okay.

We had pretty strong.

The numbers in two.

2022 from a comp point of view, because we hadn't traded in the second quarter of 2022.

Paced play.

Patient traffic in Germany, which is our biggest market outside of the U S.

It seems to be steady.

Is <unk>.

Somewhat of a staff shortage, but again, it's really hard to tell this is the vacation months.

Now in July .

And it's really hard to tell exactly what is happening in Europe , Germany, but from our checks it's pretty.

Steady.

Don't see much there.

Duration at all in fact, it could be on the positive side. So.

Generally dental and medical.

Sure.

Okay on.

On the medical side, a little bit more.

We did have high comps last year.

15% almost growth.

So.

The medical is not going to as we did caution at the time.

That kind of growth going forward.

Some trading to more generic products, specifically on the pharmaceutical side it doesn't impact that.

Absolute dollar profits.

But I think medical is.

<unk>.

With the.

ASC business.

Back to where it was before Covid and I think if you take out the.

Unusual.

Visit that we experienced in the first half of last year because of flu I think medical is pretty.

Oh.

Stable as well.

And I believe our market share is growing.

On the specialty product side again.

I think we can.

Cover the Sunoco and at least from our point of view, we don't see any major impact from a units point of view is trading to lower priced products, specifically from our DSO customers that in general.

Our markets are stable and.

I think we are quite comfortable at this moment.

Backlog on equipment.

Year on year in North America.

<unk>.

Similar to where it was at the end of last quarter.

On the international side is building up again to pre COVID-19 levels. So.

I would say stability all round.

That would be our view at this moment.

Thank you perfect.

Thank you very much one one and maybe one other quick one for Ron.

Okay.

We're trying to can you clarify and you may have given this already on the call, but just to be clear can you kind of talk about what EPS growth is in 'twenty, three and baked in that guidance ex could PP&E COVID-19 and part of why I'm asking is just to make sure we understand what underlying dynamics ours, we're kind of looking at our 2024 bottles.

Maybe PP&E and Covid sales can kind of stabilize and we can return to more normalized growth rates. Thank you.

Yes.

Our full year guidance is still $5 18 to $5 35.

And that includes an expected 35% to 40 headwind versus the prior year of <unk> impact on EPS from contributions from PPE sales in COVID-19 test kit sales.

So that remains unchanged.

From a guidance standpoint, while we haven't we've adjusted the sum of our revenue assumptions on those products because of the.

Better than expected margins on the PPE sales, we haven't had to adjust the 35 to 40 <unk>.

Expected headwind that was built into our original our original guidance.

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

Thank you good morning, guys.

Maybe I would like to dig a little deeper on your North American comments.

Consumables you describe that market is fairly stable I think that fits with a lot of our survey data as well.

The consumables number though did come down to two 5% on an organic basis ex TCE this quarter last quarter. It was six 5%.

We think thats just the comps from the omicron stuff in the first quarter last year that really helped US fleet that first quarter number was there any change in the pricing dynamics any other factors kind of bridging from the six 5% first quarter to the two 5% consumables growth this quarter.

Very good question, Jeff Thanks for asking.

I think you need to take that.

Fourth quarter of 2022.

In the first quarter of 'twenty, three in more or less average out because of the cutoffs.

It leans a little bit higher in the first quarter, but.

It certainly was a six 5% growth.

Apples to apples.

Covered deaths in the <unk>.

Test.

<unk>.

I would also.

Suggest that.

Inflation in the consumable will in the.

Dental arena has muted.

Maybe some products individually of certain brands Ghana.

No not necessarily.

From the manufacture pass through.

The manufacturers are not necessarily able to hold all of these consumer book price increases.

At the same time, there is a movement towards corporate brand slash generics.

And.

Some of the smaller brands are doing well with some of those manufacturers are prepared to keep prices or even reduce prices. So its very hard on a.

One quarter basis to give you the perfect measurement of mix.

I would take into account.

422 for the fourth quarter.

And I would take into account. The fact that generally has been some deflation.

In.

Merchandise prices.

And I would say this is particularly coming from the <unk>.

Larger dsos in the midsized dsos.

Today, a lot more educated consumers been in the past.

This is not really impacting our margin per se.

The general mix of our margin to Dsos.

So there's a lot of nuance in what I've just said.

So, let's see what happens in the third and fourth quarter.

My sense is the trend that I've just described is not going to change much.

Alright that was guaranteed by <unk>.

Follow up Stanley. So is there more deflation to come or it was kind of taken that step down and you think we can hold steady from there and then Ron just a follow up on your.

The nonrecurring below the line I think it was above the line actually this quarter on the the onetime gain.

The 5% to 10% I'm sorry of dilution here is unchanged that is on a gross amount youre talking about a net debt impact from acquisition activity being close to flat. This year. If you had provided that guidance last quarter would that have also been flat so essentially you're not changing your.

Gross or your net acquisition guidance for the quarter for the year just wanted to understand that thank you.

Ah.

Jeff it's hard to tell.

Maybe I wasn't clear exactly what the impact is going to be.

Deflation, whether its price reduction on specific branded products will switch to generic.

Sure.

Manufacturers for specific kinds of products.

Yes, I doubt we are in more than a 100 150 basis point swing, maybe 200, but I'm not sure it's much different to that so.

I don't think inflation is going to be significant in the.

Dental consumable business.

I think it may go down slightly.

To deflation, but we're in that range units are holding more or less steady.

Of course from our point of view.

We're growing our specialty business although.

That business, maybe growing that doesn't have an impact really in a material way.

A little.

Sales of.

Dental consumables because not material in.

In the context of the whole.

<unk>.

Offering having said that spur.

Specialty products are impacting our margin in a positive way and so our corporate brands and some of the smaller manufacturers.

And just to answer the second part of your question. The five to 10 that we referred to.

After the first quarter when we when we amended guidance was with specific reference to the expected dilutive effect during the year from <unk>.

Biotech.

The Uber holding that five to 10, but it now.

For all the acquisitions that we've announced so far this year.

Apart from that we have higher than expected acquisition expenses, which are largely offset by the re measurement gain.

With that we recorded in the.

In the second quarter as well so we've kind of have set those aside and that was the purpose of exhibit C to the press release, so people could see the components of that and we're holding to the five to 10 cents of dilution, but now it captures all of all of the acquisitions that we've announced today.

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 my questions actually follow up there on kind of the track that Jeff was going down.

But maybe it's Ron.

Maybe first starting on gross margins I mean, those are still hanging around multiyear highs.

Despite what I think or maybe some inventory step up costs from the biotech dermal transaction.

So can you could you quantify how much inventory step up may have hit in the quarter in terms of getting that gross margin and earnings and then with absorbing the dilutive that cyan transaction in your reaffirmed guidance today can you give us some detail on how to think about what the dilution is from that deal that youre absorbing even rough numbers is it a few pennies.

A nickel or dime anything there would be helpful.

I'll start with a quantifiable one first the step up charge that we have and it will be disclosed in the 10-Q as well.

In the second quarter for biotech was $2 million.

So not a real significant effect on gross margin.

In terms of SaaS.

It is absorbed within that five to 10.

Theres also going to be a step up on our site, but they don't turn their inventory as quickly. So we don't expect it to.

A quarter half as dramatic of an effect so.

Without disclosing the.

The modeled dilution all that I can tell you that it is absorbed within that five to 10 cents.

Yes.

Okay, and then on the $2 million I guess, just as a quick follow up there to that 2 million steady as we go forward for the next quarter or two for <unk> and <unk> or does that need to move higher just as we think about how to model gross margins.

Back half of the year.

Sorry by biotech just to answer your quickly biotech churns, our inventory about twice a year. So we have about another quarter of that inventory step up left so it'll be another $2 million in Q3, and then we'll be able to move on from that.

Got it perfect and then as we think about the composition of the equipment backlog you mentioned, it's holding steady, but it sounds like maybe thats starting to shift back towards high Tech equipment.

Could you drill down into one area of the pie Tech Youre seeing that recovery, leading I would assume it's mostly an iOS, but just wondering if youre starting to see any better results on a digital imaging or anything on the milling are pretty printing side, that's maybe influencing some of your comments today.

Yes.

Very pleased with the equipment growth, we had in North America equipment growth on an <unk> basis of nine 8%, especially in this environment on some of the.

On some of the high tech equipment.

Traditional remains very high.

Our LCI in North America on traditional equipment was growth of 14, 6% and that was with.

Virtually no movement in the backlog, it's almost identical from the beginning of the quarter to the end of the quarter. So it's very indicative of.

The ongoing strong demand for traditional equipment.

On the high Tech side, we still have some headwinds.

On on scanners, but its price related we're getting good volumes on scanners, but the revenues are down.

Some on the scanners.

We do have.

I think theyre down 12, 1%.

I am sorry, digital restoration sales were down 12, 1%, but the scanner revenue is still down 40% for us year over year, and that's really a pricing.

Matter, having said that on high Tech equipment, we did achieve.

You know very a little bit of growth, it's single digit low single digit growth, but we did get.

So hi tech growth, which for which we're pleased with and that's coming from some growth really kind of across the board you mentioned a lot of the categories. Some growth in mills some growth in three D printing.

Those are all coming off relatively low basis, but nevertheless, they are providing us with some growth and that is helping the category.

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

Great. Thanks, guys. Good morning, maybe.

Maybe just a first question on dental specialties I think the reported was up $15 seven I don't know if I missed it but do you have a precise internal number for that division.

And then just to go a little bit further down the road, how implant growth shook out within whatever that internal number was was it above overall internal below and just maybe your thoughts on ongoing share gains our implant share gains pardon me.

You've got some of those investments into more robust implant portfolio to work with going forward and then I'll ask a shorter follow up thanks.

Certainly I think with reference to our specialty growth I mean, we've kind of elected to stick to total sales growth in order to be consistent with the message we had around specialties.

At our Investor day, So we're really we're focusing on total sales growth as opposed to LCI sales growth. We think it's more reflective of our strategy.

For that portfolio of products.

We remain very bullish on an implant sales.

I think that we've gotten.

We had growth in North America, as well as internationally on an implant systems and <unk> sales in the specialty side.

<unk> remained very strong for us both.

Inside and outside the U S. Stanley anything you wanted to.

Add on the specialty side.

Yeah, John that was thank.

Thank you for that question.

If you look at just North America sales of our buy Horizons Camelot premium implants remember that it is a premium implant at a slightly lower priced in Pep saw editors premium area delivered mid single digit growth.

And that's a sequential improvement versus the first quarter.

Internationally implant demand remains good.

Remember, we have a very small business in China.

Generally demand for dental implants, again favored the low price but.

Although I must say for <unk>, we did very well in our biggest market, which is Germany.

Also in Switzerland.

But my dentist did very well also in Germany, which is on the low end so overall.

We're quite.

Comfortable actually very excited about.

Growth in the implant business hard to tell you, how we're doing compared to others. The data from the association that reports.

Implant sales is not yet available for the second quarter, but my sense is we have gained market share both in terms of units and in terms of.

Euros dollars.

So.

As it relates to the competitiveness of our product line Elizabeth asked the question earlier on we were missing.

Peace and the low end of the <unk>.

Mitch.

In North America.

I believe <unk>.

It enabled us to be highly competitive areas, specifically with <unk>.

Dsos large wounds and mid sized wounds.

Just wanted to go back to the.

Uh huh.

The sensor Ti question earlier on.

I think we reported.

This time last year that our sales that <unk> include a large sale of Ti.

Equipment to substantial DSO.

And so if you take that out.

Units.

The units are more or less returning to where they were and there still is some.

Deflation, but not a significant amount.

And on the Dr side, it's not really deflation relative to a particular brand, but they are lower priced brands that were selling more off relative to the larger brands.

That.

That's helpful. Thank you and maybe I'll try to ask a second.

Question just for medical PPE.

PP&E PPE Covid it was up 2% and I know flu was a year over year headwind, but just the past couple of quarters has come up a little shy versus our expectations. I know you talked about the long term thoughts at the analyst day, but in the more intermediate term is there a way that we should think about that division, maybe just over the balance of 'twenty three.

You're still staring down a couple of comps, maybe but maybe just talk to us how you see that unfolding for the balance of 'twenty three again ex PPE Covid, yes.

It's very hard to give you specifics I think we're doing well in terms of units with our existing customers we are gaining customers.

The whole area of visits.

Unrelated to steady visits relative to.

Urgent centers, a normal type medical visits.

It's hard to gauge because of the impact of the seasonality of flu and we saw quite a bit of flu related products be it the tests or the related products that go with the test.

At the moment it seems pretty steady.

Each.

I wouldn't want to say this really I wouldn't want you to view this the wrong way, but COVID-19.

Covid is growing a little bit so people are going more to the.

The physician offices to check things out.

So <unk>.

July was a lot better but.

Can't draw.

Solutions.

There was a lull in equipment sales, we had a lot of good inquiries in July but it's hard to give you a specific number the impact of generic pharmaceuticals is quite a bit on the injectable side not the vaccine side.

We don't sell many tablets and capsules not our business.

So overall, it's a good business and whether it's 3% or 5% to 6% I don't think that impacts the overall profitability in a meaningful way.

So many puts and takes in our medical business, but we feel very good about our medical business and continue to believe that.

On a units basis with growing market share.

We have time for one last question coming from the line of a J Rice with credit Suisse. Please proceed with your question.

Hello, a J your line is live.

Okay.

Our final question will come from the line of Nathan Rich with Goldman Sachs. Please proceed with your question.

Great. Thanks, and thanks for fitting me in at the end I'll ask both upfront.

Firstly I wanted to go back to the commentary around.

Traditional equipment in the equipment backlog in North America, stabilizing obviously been coming down I think as we cycled through some of the supply constraints.

Curious on the outlook for demand, though how youre thinking about that over the balance of the year.

And what Youre seeing with respect to kind of practice formation and Remodels just in the current environment that we're in.

And then.

Ron maybe a clarification on the margins.

Any commentary on the margin outlook between <unk> and <unk>.

Yes, especially as it relates to potential timing of acquisition expenses between those two quarters. Thank you.

So listen on the equipment.

I believe that demand is quite good and steady.

Some of the larger Dsos continue to invest.

It may have been a bit of a pause a few months ago when some of these dsos.

Pets, perhaps highly leveraged.

We're looking to determine whether they really should invest or not but there is a demand for dental care.

And.

I believe that our dsos are growing.

One of the two of them had some operational issues, which I think largely behind them.

But I believe that they are investing.

The largest size in the mid size are growing as well the smaller practitioners not so much.

But overall I would say the demand for traditional equipment is there.

The others.

Digital side.

The D R.

Scanners are growing in terms of units.

Units.

Yes.

To some extent movement to the lower price units, but not discounting.

Any particular units in a material way, it's just the switch as more people look at this area.

Very important to realize.

The high comp we had in one area the <unk> area last year, we disclosed on our call.

And.

The mills I would say a steadying, there's a demand.

It's not as hot as it was.

Sort of trade up to develop but.

And.

<unk> printing is quite hot.

Just to go back a little bit if you look at our numbers in general.

We're a big player on the dental lab side, there is a movement away from consumables into digitalization.

So that movement is also impacting to some extent.

Sales of consumables and resulting in an increase in equipment, but overall I think our equipment backlog in the United States.

Which is pretty similar to what it was at the end of last quarter. I think is indicative of the designer of dentist invest in their practices.

Practices are more efficient.

But a digital outcomes.

A nice way to even look at that as another way is to look at the investment in AI.

We have <unk>.

It's primarily too.

Our Henry Schein one software.

We have I believe.

The most integrated solution embedded AI in our software and the units of those or.

Growing.

It's all tied to the design.

Practitioners to invest in their practice.

So I think the market is.

As is stable to growing.

International is quite complex.

Issues in different countries, but in the countries, where there is large government support like Germany from our point of view, it's stable. Although there is a shortage of dentists.

Hopefully, France will sort itself out after labor day.

The rest of the markets are stable with some ups in Australia because of a little bit.

Incentives.

For this quarter.

Brazil is pretty stable.

And overall, Canada stable, so I would say.

The dental market saw pretty stable solid overall.

And Nathan just one thing to add on the backlog.

Like I mentioned before our backlog in North America has stayed pretty constant over the course of the quarter. When we still had very good sales.

Sales growth.

I would quite frankly, I would like for that backlog to come down not just for the revenue lift that would give us, but it's just better for our customers to reduce the timing of that backlogs, where they get their equipment more quickly and it increases capacity in the end market quite frankly.

In those situations, where that backlog is for equipment that is that is new to the business as opposed to replacement. So wed like for that backlog to come down but right now we still in North America, we're experiencing a fairly consistent backlog.

In terms of your question on Q3, Q4 margins I do think that.

Especially at a gross margin level, we can continue.

At the levels, we're at I think that it's indicative of of the <unk>.

Growing <unk>.

Portance of the dental specialty products in our overall portfolio as well as the growth in our technology business and I think we can continue with that as we get into the back half of the year of course Theres always.

It's a broad portfolio there are things that can impact that for example, Q4 tends to be a heavier quarter for equipment sales.

And then other quarters and those sales tend to be at slightly lower margins than what our overall margin is right now so that can bring down margins a little bit but in exchange for the for the additional sales, but will clearly take that so I don't know.

I think that that's.

My General expectation is we'll be able to.

To continue with the margins that we've seen in the first half of the year into the second half of the year.

Okay.

So.

Thank you I know, we've gone over eight minutes over the a lot of time. Thank you everyone for calling in.

Again, we are very.

Pleased with the progress we're making in the business, both the core business and our specialty businesses our software businesses.

The markets are steady.

Lots of ins and outs subtle points, but generally we're comfortable with where we are today, we've reaffirmed guidance sorry about the complexity on PPE and test and the acquisitions.

Expenses.

Related cost.

Income generated in that area.

But this will I think we will try to make it clear to our investors make it as simple as possible for the remainder of the year, but I think next year should be a relatively clean year and hopefully you will see that we are.

Our confidence in the business is justified so thank you all for calling in of course Graham Enron available.

To speak with investors over the next days and thank you for calling in.

Our confidence in the team. Thank you to the team for the tremendous work.

It has been undertaken as we.

Come out of the other side of Covid and implement our strategic plan. So thank you all and have a great remainder of summer. Thank you very much.

Ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

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Hum.

Uh huh.

[music].

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Yes.

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[music].

Good morning, ladies and gentlemen, and welcome to Henry Schein second quarter 2023 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 operator assistance during the call. Please press the star key followed by zero on your Touchtone phone.

As a reminder, this call is being recorded.

Thank you operator, and my thanks to each of you for joining us to discuss Henry Schein its financial results for the second quarter of 2023.

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

Rumsfeld Senior Vice President and Chief Financial Officer.

In addition, all comments about the market we serve.

Cleaning and market growth rates and market share are based upon the company's internal analyses and estimates.

Today's remarks will include both GAAP and non-GAAP financial results, we believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business.

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

Reconciliations between GAAP and non-GAAP measures are included in exhibit B of today's press release and can be found in the financial.

Filings section of our Investor Relations website under the supplemental information heading.

For additional financial information please refer to our quarterly earnings presentation also posted on our Investor Relations website.

The content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast August seven 2023.

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

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

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

We are today reporting solid results for the second quarter, driven by our North American dental businesses with strong equipment and steady general merchandise sales.

And we're continuing strength in sales of our technology and value added services.

Intense biomaterials and endodontics products.

The underlying fundamentals in the U S dental market remains strong and demand for dental services and customer confidence confidence continues to improve.

As of course, evidenced by our <unk>.

The ongoing admission and our customers are making in their practices.

Additionally, we are seeing growing demand for our implant systems and endodontics products as well as our integrated software and services solutions, which are generating strong growth by delivering greater efficiency and a better experience to our customers.

And the alternate care markets, that's the medical market elective procedures are close to normal levels, while second quarter visits to primary care physicians were down year over year, reflecting last year's higher visits to physician offices.

<unk> care centers as a result of the extended flu season last year.

As expected sales of PPE and Covid test kits continue to decline. However, we are now seeing sales or level of sales level.

Sequentially.

We're now seeing sales level of sequentially and we expect the year on year impact to be much lower in the second half of 2023.

When excluding these product categories local currency internal sales growth for the company was three 3%.

In general our North American dental business performed better than we expected at the start of the year.

Sure Boston incremental COVID-19 related headwinds facing our medical business as discussed earlier on.

Outlook reflects overall confidence in our business and in the markets, we serve and accordingly, we are affirming our non-GAAP diluted EPS financial guidance for 2023.

Our financial results and guidance demonstrates the strength of the business as discussed earlier and continued advancement of our 2022 2020 full boat plus one strategic plan.

We are successfully executing key initiatives.

The key initiatives actually in the plan.

Including expanding our specialty products and value added services portfolio.

Optimizing our distribution businesses, leveraging key customer relationships and driving digital transformation.

Year to date, we have committed over $1 billion to acquisitions that accelerate the implementation of our strategic plan, adding high growth high margin products and services to our offering.

With this clear focus we believe we are well positioned to further enhance Henry Schein leadership in the markets that we serve and to deliver long term sustainable shareholder value.

Among the larger transactions are our strategic partnership with biotech dental, which we closed in April the acquisition of ESI and implant systems, which we closed in July and the recently announced acquisitions of Shiel healthcare.

And large practice sales, which we expect to close in the third quarter.

With these transactions, we have significantly expanded our implants bone regeneration and clearer lineup product portfolio digital workflow capabilities.

Presence in distributing products directly to the patient in the home care arena and value added services.

Continuing our strategy of following the patient to provide health care services, where that's being delivered we expect our recently announced agreement to acquire shield will create an offering with more than $300 million in annual revenue.

Distributes medical supplies across the United States directly to patients in their home.

On completion of this acquisition this business will be led by Adam <unk>, who joined Henry Schein is Vice President General manager of home care medical products and <unk>.

Has significant experience in this area.

Most important many of our customers have asked us to provide the service we've been providing it in a moderate way up to now but now we are committed to advancing our position in this market to support our customers who have requested us to move into the home care arena as a continuum of care.

Our homecare medical product offering will now include internal Ostomy and continence wound care in diabetes products and we plan to leverage our physician relationships as noted earlier.

Distribution expertise and corporate brand assortment to further grow this area.

Wholesale for many years, we have had a successful practice transitions group dedicated to existing smaller and mid sized dental practices.

<unk>.

Most enthusiastic about the acquisition of large practices and leading transfusion advisory services business.

Which expands our capability to advise dental practices.

Larger practice transitions.

Of course being of service to our DSO customers as well.

We are also advancing the integration about digital.

Of our dental digital workflow software with our practice management software to create a unique digital solutions for dental practitioners.

In this connection we have asked Andrea Albertini CEO of our international distribution group to lead the Cross company, one schein solution and accelerate out what we have internally called out three click integrated software solution for our customers.

This simplified open architecture process begins with the capture of any image from an intra oral scanner or <unk> digital imaging unit through our practice management software.

Followed by the application of embedded artificial intelligence solutions to help in diagnosis cash acceptance planning and design and ending with the rig with a direct connection to fabricate the prosthetic through either Chairside mill at.

That's really all.

While the transmission digitally of the file to the dental lab.

Let me now turn to a review of the quarterly highlights from each business.

Unit, beginning with the dental distribution.

In North America dental offices would generally busy.

And this helped our second quarter dental merchandise growth.

Of course, excluding sales of PPE products at.

That driver in equipment sales was a broad equipment was of course, a broad equipment offering.

Which enables our customers leading solutions to increase productivity to meet demand.

And of course drive up the efficiency of the practice and of course better clinical care.

North American dental equipment sales were up double digits sales of traditional equipment continued to be strong and we are pleased that sales of digital equipment returned to growth this quarter.

Internationally equipment sales were relatively flat to the prior year.

The equipment backlog in North America has held steady and our international equipment backlog is returning to pre pandemic levels.

Now turning to our dental specialties.

Sales of dental implants of biomaterials with key drivers in the second quarter complemented by Endodontics and clear line of businesses.

We are seeing implant demand increasing in North America with sales of our buyer ryzen Camelot premium implant delivering mid single digit growth.

The sequential improvement versus the first quarter.

Internationally demand for implant systems remains very good.

Generally demand for implant continues to favor value priced products.

We believe that out Ken.

Kevin.

Our <unk> catalog product offering is well positioned but also.

The.

Moving on.

Demand for value priced products is reflected in our double digit growth achieved by the dentist.

Provider of dental implants, and bone regeneration products.

Looking at recent deals our transaction with biotech dental brings a market leading portfolio of dental implants, and clear alignment to Henry Schein.

And digital workflow software.

On the other hand, that's an implant systems provides us an entre into the large Brazilian implant market and complements our substantial Brazilian general dental consumables and equipment business.

Both biotech and S and Cheyenne.

Our high quality implants at an attractive price and we have exciting opportunities of expanding these cost competitive products to other geographies and.

Including.

The United States.

Providing of course, a more comprehensive offering and enabling us to be even more competitive in the <unk>.

And bohn generic bone.

<unk> space.

This quarter growth in our <unk> business continues to be driven by our rustler in edge brands in both North America and internationally, our orthodontic business is making steady progress with our lineup business although.

Although this is still a relatively small component of our global revenues.

We are seeing growing demand for our specialty products from Dsos.

And thats from specifically from our DSO customers.

In coal, we have a pretty decent market share in the DSO.

Markets.

We see continued adoption of specialty procedures among dental practitioners.

We have grown our global implants.

The bone regeneration and related products and services.

Over $800 million.

In revenue.

And our specialty products to approaching $1 2 billion in revenue in the aggregate.

On an annualized basis.

Now offer a broad range of premium.

And value alternatives to North American and international practitioners.

We expect.

Dental specialty growth to accelerate in the second half of the year.

Due to these acquisitions, but also due to year over year comparisons easing.

Now.

Let's turn to the.

Technology and value added services business with the largest component of course is Henry Schein one.

Global growth and Henry Schein, one is being driven by ongoing migration to our cloud based practice management software solutions.

<unk> ascent and then Tony.

And by growth in our revenue cycle management business, resulting from increased patient traffic driving a higher volume of E claims.

<unk> and then tally grew at a product to approximately 7000 customers and today represents.

Approximately 40% year over year growth.

Customers and prospective customers are past, particularly enthusiastic about incorporating artificial intelligence solution.

Into their practice management software product, we believe our embedded solution is certainly best in class.

We have grown our technology and value added services businesses into an almost $900 million revenue portfolio on an annualized basis.

In addition to Henry Schein could not.

<unk> technology solutions, we now offer a broad range of value added services.

Office based dental and medical practitioners.

We expect the technology and value added services sales growth will accelerate during the second half of the year.

Turning now to the medical business.

During the second quarter, our medical business achieved low single.

<unk> growth, excluding PPE products and of course, COVID-19 test kits.

This compares with mid double digit growth last year, it's really important to understand that when results benefited from some late season sales of point of care flu diagnostic test.

This year.

Yes.

Excuse me it was a more typical flu season and as a result, we had much lower sales of flu.

Perfect.

19, and multi <unk> assay diagnostic and related products.

Sales growth was also affected by the conversion of certain pharmaceuticals, and other products with lower priced generics in corporate brands of.

Of course with a higher gross profit margin. This is a trend that is taking place throughout health care.

Sales of medical equipment to a relatively soft in the market.

The market to contemporary pause to assess likely future demand. However, we have subsequently seen investment interest returned in July so in summary.

The fundamentals of our core business remains solid.

Very good.

And the team is executing well on our 2022 to 2020 full boat plus one strategic plan.

I will turn the call over to Ron.

To discuss specifics relative to our quarterly financial results.

And provide full year guidance. Thank you Ron please.

Thank you Stanley and good morning, everyone I'll be discussing our results as reported on a GAAP basis and also on a non-GAAP basis.

With respect to sales growth our focus on LCI sales growth, which is internally generated sales in local currencies compared to the prior year and excludes acquisitions.

Second quarter global sales were $3 $1 billion or LCI sales decrease of 0.2%. However.

However, when excluding sales of PPE products and COVID-19 test kits are LCI sales grew three 3%.

We sold $138 million and PPE products in the second quarter of this year, a decrease of approximately 28% year over year, and we sold $26 million in COVID-19 test kits, a decrease of approximately 62% year over year.

Our GAAP operating margin for the second quarter of 2023 was six 5% and 81 basis point decline compared with the prior year GAAP operating margin on a non-GAAP basis operating margin for the second quarter was eight 2% a 14 basis point decline compared with the prior year non-GAAP operating margin.

<unk> <unk>.

Excluding the impact from lower PPE and COVID-19 test kit sales, we estimate that non-GAAP operating margin expanded 27 basis points.

Second quarter 2023, GAAP net income was $140 million or $1 <unk> per diluted share. This.

This compares with prior year GAAP net income of $160 million or $1 16 per diluted share.

Our second quarter 2023, non-GAAP net income was $173 million or $1 31 per diluted share. This compares with prior year non-GAAP net income of $179 million or $1 30 per diluted share.

These results were impacted by a decreased contribution from lower PPE and COVID-19 test kit sales estimated to be <unk> <unk> per diluted share relative to the prior year period.

The foreign currency exchange impact on our second quarter EPS was immaterial.

The increased capital deployment for acquisitions has impacted quarterly financial results more than in previous years.

The second quarter 2023, GAAP and non-GAAP financial results included high acquisition activity that resulted in acquisition expenses of $6 million or <unk> <unk> per diluted share, which were offset by net acquisition related fair value adjustments of $16 million or <unk> <unk> per diluted.

<unk> share, including a related remeasurement gain resulting from the purchase of a controlling interest of our previously held equity investment.

This resulted in a net favorable impact of $10 million or <unk> <unk> per diluted share for the quarter as illustrated in exhibit C to our press release.

We are confident that these strategic investments will drive enhanced growth and value creation over the long term as we accelerate the implementation of our 2022 2024 full plus one strategic plan.

Turning to our second quarter sales results global dental sales were 2.0 billion LCI sales increased by 2.0%.

Excluding sales of PPE products LCI sales growth was three 7%.

Global dental merchandise LCI sales increased by 0.7%, but increased by two 8% when excluding PPE products.

International Dental merchandise LCI sales increased by one 9% and by three 2% when excluding sales of PPE products.

Global dental equipment LCI growth was six 4%.

International equipment LCI sales increased by one 6%.

Dental specialty products include implants bone regeneration materials, orthodontic products and endodontics products.

Global technology and value added services sales during the second quarter were $193 million with LCI growth of five 5%.

Sales were again negatively impacted by a government contract, which expired early in the third quarter of 2022 LCI sales growth was six 9% when adjusting for this contract.

In North America sales growth was driven primarily by our detrick ascend practice management and revenue cycle management businesses.

Growth internationally was driven by our <unk> cloud based solution.

Global medical sales during the second quarter were $950 million and LCI sales decreased five 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.

<unk> sales grew 2.0% and were impacted by lower flu cases versus the prior year, which resulted in lower point of care diagnostic tests and related product sales.

Keep in mind this was against a very difficult comparison as LCI growth, excluding PPE products and COVID-19 test kits grew 14, 3% in the second quarter of 2022.

At quarter end, we had approximately $365 million authorized and available for future stock repurchases.

Turning to our balance sheet and cash flow, we continue to benefit from significant liquidity, providing our businesses with the financial flexibility and stability to execute on organic growth initiatives and strategic acquisitions, while continuing to return capital to our stockholders.

We further strengthened our balance sheet by recently extending the maturity date of our $1 billion revolving credit facility to July of 2028, and also closed on a new $750 million credit facility.

Operating cash flow for the second quarter was $274 million compared with $157 million last year, primarily as a result of lowering inventory levels.

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

At this time, we are still unable to provide estimates for costs associated with integration and restructuring for 2023. Therefore, we are not providing GAAP guidance we.

We expect these acquisitions to contribute to earnings growth beginning in 2024.

It is important to recognize that we expect year over year growth and diluted EPS to be higher in the fourth quarter than in the third quarter of this year.

Our guidance for 2023 assumes total sales growth of approximately 1% to 3% over 2022 as a reminder, our guidance reflects one less selling week in 2023 and 2022.

Our sales growth reflects a larger decline in sales of COVID-19 test kits, which we now expect to decrease by approximately 70% to 80% from 2022 versus our previous guidance of a 65% to 70% decrease.

Additionally, PPE product sales are expected to decrease about 25% to 30% versus our previous guidance of a decrease of $20 to 25%.

Despite the expected lower PPE and COVID-19 test kit sales the impact on 2023, non-GAAP diluted EPS from PPE products and COVID-19 test kits is still estimated to be 35 to <unk> 40 per share.

Due to higher than anticipated gross margins on PPE sales relative to our original guidance.

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, and as a result of higher interest rates and borrowing levels.

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

Our guidance is for current continuing operations as well as acquisitions that have been announced and does not include the impact of future share repurchases and potential future acquisitions guide.

Our guidance also assumes that foreign currency exchange rates are generally consistent with current levels and that end markets remain consistent with current market conditions.

With that I'll now turn the call back to Stanley.

Thank you Ron.

We are here to answer any questions, which.

Investors may have so 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 to pick up your handset before.

Pressing the star keys.

One moment, please while we pull for questions.

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

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

I had one shorter term question and one question.

A shorter term question.

Yes.

A fair value adjustment was new this quarter.

I wanted to sort of make sure I understood was this something that you would use sort of last quarter. When you updated your guidance or we're just trying to I am just trying to understand whether the like core guidance moved down ex that.

My longer term question.

Products across your portfolio. Thank you so much.

Just like we weren't sure how much are our acquisition costs, we're going to be either so.

Ultimately those as we've kind of demonstrated in that exhibit to the press release those amounts once we realized higher expenses and we also realized the net remeasurement gain have largely offset on a year to date basis. So yes, our guidance does contemplate.

The effective.

Those items and I'll Stanley if you want to take the second thank you.

The ESI in implants, not the whole line, but no.

Perfect.

The important part about portfolio already approved in the U S.

Our selling to some extent.

And are being well received by our particularly DSO customers, where we in fact bucko incident last week.

Sure.

We were able to land a pretty decent DSO that is interested in.

The <unk> implant system puts us.

Transactions transactions puts us in a very competitive position now because to some extent in the U S and maybe some other markets.

Although camelot buyer Horizons Kellogg is.

Our premium product selling at a slightly lower price than some of the major brands if not all of them, we still have a missing.

Piece in our portfolio on the economic side of implants, and I believe we're well positioned.

And I believe in.

Next year or so we will be able to also launch.

The biotech line in the United States.

Different market segments, but I think we are definitely in a very competitive position now.

Actually started to see some sales.

Very helpful and then for shield as well Thats sort of the similar timeline and you can see the pushed out across your broader portfolio. Later this year or is that more but we should think about that as more of a 'twenty four type of occurrence.

I think.

We acquired prism about a year or so ago.

Two years ago, which was mostly an east coast business.

With a relatively limited portfolio.

Shields puts us into the west coast with a broader portfolio.

And she was missing the wound care offering the prism head. So we believe we will create synergies relatively quickly.

There are costs of course to the integration, which is taken into account in our guidance.

Mostly one time cost, but I think in 2004, we should be able to start adding accretion in a nice way. This has really been an area that our customers.

Big IDM customers have wanted us to before.

And we didn't undertake these kinds of services, we have one DS IGN in the New York area that we service in the home care area, but we didn't really have the full capabilities between these two acquisitions and another small one which we hope to announce soon.

We will have a pretty good offering and products for the home and will be a great extension to our physician and energy business.

And the next question comes from the line of Brandon Vazquez with William Blair. Please proceed with your question.

Hi, everyone. Thanks for taking the question maybe first one on one high level question just on the macro backdrop.

Can you guys talk about where youre seeing some strengths and weaknesses in the environment today, I think maybe equipment looked pretty strong in the U S, but maybe a little weaker international.

Consumables globally.

Stable low single digit so curious though.

All of these segments on the dental side are playing out from the macro side.

Yes.

Thanks for that question.

On the macro side in North America, I believe there is stability.

<unk> on the dental side, that's what our team believes in general.

<unk> people patients are returning to the dental office.

This data is not perfect, but if you look at the latest <unk> survey.

And some recent analyst reports and studies.

Suggestion with patient traffic picked up throughout the second quarter.

After the steady volumes in the first quarter of 'twenty three.

And so we <unk>.

Of course.

We had some volatility in the first quarter of 'twenty two.

And so it appears that patient flow is good.

July from that point of view.

It was a good month.

It claims data also suggest that what I've just described.

Is backed up again by claims data from Henry Schein one.

If you Peel the onion, a little bit further.

At least from our point of view implant sales continued to grow well in North America.

Same for endodontics.

Small and line of business showed similar types of trends.

If you look at.

International.

It's slightly more tepid in international.

To tell because we're now in the summer months.

The summer months when Europe is largely closed having said that we did suffer in the second quarter because of the strikes in France, I would say, Germany is okay.

We had pretty strong.

<unk> numbers in.

<unk>.

22 from a comp point of view, because we had the share of trade in in the second quarter of 2022.

Paced play.

Patient traffic in Germany, which is our biggest market outside of the U S.

It seems to be steady.

Is <unk>.

Somewhat of a staff shortage, but again, it's really hard to tell this was the vacation months.

Now in July .

And it's really hard to tell exactly what is happening in Europe , Germany, but from our checks it's pretty.

Steady.

Not see much of a deterioration at all in fact, it could be on the positive side. So.

Generally dental and medical.

Okay.

On the medical side, a little bit more.

We did have high comps last year.

15% almost growth.

So.

The medical is not going to as we did caution at the time.

That kind of growth going forward.

Some trading to more generic products, specifically on the pharmaceutical side it doesn't impact the.

Absolute dollar profits, but I think medical is.

East.

With the.

ASC business.

Back to where it was before COVID-19.

If you take out the <unk>.

Unusual visits that we experienced in the first half of last year because of the flu.

I think medical is pretty.

Hello.

Stable as well.

Other hand, I believe our market share is growing.

On the specialty product side again.

I think we can.

Covered the scirocco and introduced from our point of view, we don't see any major impact from a units point of view is trading to lower priced products, specifically from our DSO customers that in general.

Markets are stable and.

I think we are quite comfortable at this moment.

Backlog on equipment.

One year in North America.

Yeah.

Similar to where it was at the end of last quarter.

On the international side is building up again to pre COVID-19 levels. So okay.

I would say stability all round.

That would be our view at this moment.

Thank you perfect.

Thank you very much and maybe one other quick one for Ron.

Great.

We're trying to can you clarify and you may have given this already on the call, but just to be clear can you kind of talk about what EPS growth is in 'twenty, three and baked in that guidance ex the PP&E Covid and part of why I'm asking is just to make sure we understand what underlying dynamics ours, we're kind of looking at our 2024 models.

Maybe PP&E COVID-19 sales can kind of stabilize and we can return to more normalized growth rates. Thank you.

Yes.

Our full year guidance is still $5 18 to $5 35.

That includes an expected 35% to 40 headwind versus the prior year of impact on EPS from contributions from PPE sales in COVID-19 test kit sales.

So that remains unchanged.

From a guidance standpoint, while we haven't we've adjusted the sum of our revenue assumptions on those products because of the.

Better than expected margins on the PPE sales, we haven't had to adjust the 35 to 40 <unk> expected headwind that was built into our original our original guidance.

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

Thank you good morning, guys Stanley maybe.

I'd like to dig a little deeper on your North American comments.

Consumables E.

That market is fairly stable I think that fits with a lot of our survey data as well.

Consumables number though did come down to two 5% on an organic basis ex PPE this quarter last quarter. It was six 5%.

That's just the comps from the overcrowded stuff in the first quarter last year that really helped US fleet that first quarter number was there any change in the pricing dynamics any other factors kind of bridging from the second half percent first quarter, but the two 5% consumables growth this quarter. Thanks.

Very good question, Jeff Thanks for asking.

I think you need to take the fourth quarter of 2022.

In the first quarter of 'twenty, three in more or less average out because of the cutoffs.

It leaves a little bit higher in the first quarter, but.

It said it was six 5% growth.

Apples to apples.

Covered depths in the past.

<unk>.

I would also.

Suggest that.

Inflation in the consumable will in the.

Dental arena has muted.

Maybe some products individually of certain brands of Ghana.

And not necessarily 60.

From the manufacture pass through.

The manufacturers are not necessarily able to hold all of these consumer book price increases.

At the same time, there is a movement towards corporate brand slash generics.

And.

Some of the smaller brands are doing well with some of those manufacturers are prepared to keep prices or even reduce prices. So its very hard on a.

One quota basis to give you the perfect measurement of mix.

I would take into account the cut.

422 for the fourth quarter.

And I would take into account. The fact that generally has been some deflation.

Yes.

Merchandise prices.

And I would say this is particularly coming from the <unk>.

Larger dsos in the midsized dsos.

Today, a lot more educated consumers been in the past.

This is not really impacting our margin per se.

The general mix of our margin to Dsos.

So there's a lot of nuance in what I've just said.

Sure.

So, let's see what happens in the third and fourth quarter, but my sense is the trend that I've. Just described is not going to change much.

Alright, let me my follow ups Stanley. So is there more deflation to come are able to kind of taken that step down and you think we can hold steady from there and then Ron just a follow up on here.

On the nonrecurring below the line I think it was above the line actually this quarter on the one time gain.

The 5% to 10% I'm sorry of dilution here is unchanged that is on a gross amount youre talking about a net debt impact from acquisition activity being close to flat. This year. You had provided that guidance last quarter would that have also been flat so essentially you're not changing your.

Gross or your net acquisition guidance for the quarter for the year just wanted to understand that thank you.

Ah.

Jeff it's hard to tell.

Maybe I wasn't clear exactly what the impact is going to be.

Deflation, whether its price reduction on specific branded products will switch to generic.

The manufacturers for specific kinds of products.

Yes, I doubt we are in more than a 100 150 basis point swing, maybe 200, but I'm not sure it's much different to that so.

I don't think inflation is going to be significant in the.

Dental consumable business.

I think it may go down slightly.

To deflation, but we're in that range units are holding more or less steady.

Of course from our point of view.

We're growing our specialty business, although the.

That business, maybe growing that doesn't have an impact really in a material way on our total.

Sales of <unk>.

Dental consumables because not material.

In the context of the whole consumable.

Offering having said that.

Specialty products.

Impacting our margin in a positive way.

So our corporate brands and some of the smaller manufacturers.

And just to answer the second part of your question. The five to 10 cents that we referred to.

After the first quarter when we when we amended guidance was with specific reference to the expected dilutive effect during the year from <unk>.

<unk>.

The we were holding that five to 10, but it now.

As for all the acquisitions that we've announced so far this year.

Apart from that we have higher than expected acquisition expenses, which are largely offset by the re measurement gain.

We recorded in the.

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 questions I'll actually follow up there on kind of the track that Jeff was going down.

But maybe it's Ron.

Maybe first starting on gross margins I mean, those are still hanging around multiyear highs.

Despite what I think or maybe some inventory step up costs from the biotech dental transaction.

So can you could you quantify how much inventory step up may have hit in the quarter in terms of isn't that gross margin.

And earnings and then with absorbing the dilutive that cyan transaction in your reaffirmed guidance today can you give us some detail on how to think about what the dilution is from that deal that you're absorbing even rough numbers is it a few pennies a nickel or dime anything there would be helpful.

I'll start with a quantifiable one first the step up charge that we have and it will be disclosed in the 10-Q as well.

In the second quarter for biotech was $2 million.

So not a real significant effect on gross margin.

In terms of SaaS.

It is absorbed within that five to 10.

Theres also going to be a step up ISI am but they don't turn their inventory as quickly. So we don't expect it to.

Quarter have as dramatic of an effect so.

And without disclosing the.

The modeled dilution all of that I can tell you that it is absorbed within that five to 10 cents.

Okay, and then on the $2 million I guess, just as a quick follow up there to about 2 million steady as we go forward for the next quarter or two for <unk> and <unk> or does that need to move higher just as we think about how to model gross margins.

Back half of the year and I am sorry by biotech just answer you quickly biotech churns, our inventory about twice a year. So that we have about another quarter of that inventory step up left so it'll be another $2 million in Q3, and then we'll be able to move on from that.

Got it perfect and then as we think about the composition of the equipment backlog.

Mentioned, it's holding steady, but it sounds like maybe thats starting to shift back towards high Tech equipment.

Could you drill down into one area of the pie Tech Youre seeing that recovery, leading I would assume it's mostly an iOS, but just wondering if youre starting to see any better results on a digital imaging or anything on the <unk> three D printing side, that's maybe influence some of your comments today.

Yes.

Pleased with the equipment growth, we had in North America equipment growth on an <unk> basis of nine 8%, especially in this environment on some of the.

On some of the high tech equipment.

Traditional remains very high.

Our LCI in North America on traditional equipment was growth of 14, 6% and that was with.

Virtually no movement in the backlog, it's almost identical from the beginning of the quarter to the end of the quarter. So it's very indicative of.

Ongoing strong demand for traditional equipment.

On the high Tech side, we still have some headwinds.

One on scanners, but its price related we're getting good volumes on scanners, but the revenues are down.

Some on the scanners.

We do have.

I think they are down 12, 1%.

Well Im sorry, digital restoration sales were down 12, 1%, but the scanner revenue is still down 40% for us year over year, and that's really a pricing.

Matter, having said that on the high Tech equipment, we did achieve.

Very a little bit of growth, it's single digit low single digit growth, but we did get.

Those are all coming off relatively low basis, but nevertheless, they are providing us with some growth and thats, helping the category.

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

Great. Thanks, guys. Good morning, maybe.

Maybe just a first question on dental specialties I think the reported was up $15 seven I don't know if I missed it but do you have a precise internal number for that division.

And then just to go a little bit further down the road.

<unk> growth shook out within whatever that internal number was was it above overall internal below and just maybe your thoughts on the ongoing share gains our implant share gains pardon me now that you've got some of those investments into more robust implant portfolio to work with going forward and then I'll ask a shorter follow up thanks.

Certainly I think with reference to our specialty growth I mean, we've kind of elected to stick to total sales growth in order to be consistent with the message we had around specialties.

At our Investor day, So we're really we're focusing on total sales growth as opposed to LCI sales growth. We think it's more reflective of our strategy for.

For that portfolio of products.

We remain very bullish on an implant sales.

Think that we've gotten.

We had growth in North America, as well as internationally on an implant systems and <unk> sales in the specialty side.

Remained very strong for us both.

Inside and outside the U S Stanley.

Stanley anything you wanted to.

Add on the specialty side.

John that was.

Thank you for that question.

If you look at just North America sales are up by Horizons, Camelot premium implants remember that its a premium implant at a slightly lower priced in peso editors premium area delivered mid single digit growth.

And that's a sequential improvement versus the first quarter.

Internationally implant demand remains good and remember we have a very small business in China.

Generally demand for dental implants, again favored the low price but.

Although I must say for <unk>, we did very well in our biggest market, which is Germany.

Also in Switzerland.

But my dentist did very well also in Germany, which is on the low end.

Overall.

We quite.

Comfortable actually very excited about.

Growth in the implant business hard to tell you, how we're doing compared to others. The data from the association that reports.

Premium implant sales is not yet available for the second quarter, but my sense is we have gained market share both in terms of units and in terms of.

Euros dollars.

So <unk>.

As it relates to the competitiveness of our product line Elizabeth asked a question earlier on we were missing.

Peace and the low end of the <unk>.

Mitch.

In North America.

I believe <unk>.

Enable us to be highly competitive areas, specifically with <unk>.

Dsos large wounds and mid sized wounds.

Just wanted to go back to the.

Uh huh.

The sensor Ti question of earlier on.

I think we reported.

This time last year that our sales that includes a large sale of Ti.

Equipment to substantial DSO.

And so if you take that out.

Units.

The units are more or less returning to where they were and still has some.

Deflation, but not a significant amount.

And on the Dr side, it's not really deflation relative to a particular brand, but they are lower priced brands that were selling more off relative to the larger brands.

That was helpful. Thank you and maybe I'll try to ask a second.

Question, just for medical and <unk>.

Ex PPE Covid was up 2% and I know flu was a year over year headwind, but just the past couple of quarters has come up a little shy versus our expectations. I know you talked about the long term thoughts at the analyst day, but in the more intermediate term is there a way that we should think about that division, maybe just over the balance of 'twenty three.

You're still starting out a couple of comps, maybe but maybe just talk to us on how you see that unfolding for the balance of 'twenty three again ex PPE Covid, yes.

It's very hard to give you specifics I think we're doing well in terms of units with our existing customers, we are gaining customers, but the whole area of visits.

Unrelated to steady visits relative to <unk>.

<unk> centers are normal type medical visits.

It's hard to gauge because of the impact of the seasonality of flu and we sell quite a bit of flu related products.

Yes.

The related products that go with the test.

At the moment it seems pretty steady.

Each.

I wouldn't want to say this really I wouldn't want you to view this in the wrong way, but.

Covid is growing a little bit so people are going more to the.

The physician offices to check things out.

So <unk>.

July was a lot better but.

You can't draw conclusions.

There was a lull in equipment sales, we had a lot of good inquiries in July .

But it's hard to give you a specific number the impact of generic pharmaceuticals is quite a bit on the injectable side not the vaccine side.

We don't sell many tablets and capsules not our business.

So overall, it's a good business and whether it's 3% or 5% to 6% I don't think that impacts the overall profitability in a meaningful way. There's so many puts and takes in our medical business, but we feel very good about our medical business and continue to believe that on a.

Units basis, we're growing market share.

We have time for one last question coming from the line of a J Rice with credit Suisse. Please proceed with your question.

Hello, a J your line is live.

Okay.

Okay. Our final question will come from the line of Nathan Rich with Goldman Sachs. Please proceed with your question.

Great. Thanks for fitting me in at the end I'll ask both upfront.

Firstly I wanted to go back to the commentary around traditional.

Traditional equipment in the equipment backlog in North America, stabilizing obviously been coming down I think as we cycled through some of the supply constraints.

Curious on the outlook for demand, though how youre thinking about that over the balance of the year.

And what Youre seeing with respect to kind of practice formation and Remodels just in the current environment that we're in.

And then.

Ron maybe a clarification on the margins.

Any commentary on the margin outlook between <unk> and <unk>.

Especially as it relates to potential timing of acquisition expenses between those two quarters. Thank you.

So listen on the equipment.

I believe that the demand is quite good and steady.

Some of the larger Dsos continue to invest.

It may have been a bit of a pause a few months ago when some of these dsos.

Pets, perhaps highly leveraged.

We're looking to determine whether they really should invest or not but there is a demand for dental care.

And.

I believe that our bigger dsos are growing.

One of the two of them had some operational issues, which I think largely behind them.

But I believe that they are investing on some of the largest size in the mid size are growing as well the smaller practitioners not so much.

But overall I would say the demand for traditional equipment is there.

Understood.

Digital side.

The D R.

Scanners are growing in terms of units.

Units.

Yes.

To some extent movement to the lower price units, but not discounting of any particular units in a material way. It's just the switch as more people looked at this area.

Very important to realize.

The high comp we had in one area. The <unk> area last year, we disclosed that on our call.

And.

The mills I would say a steadying there is a demand.

It's not as hot as it was.

Sort of trade up that helped a bit.

And <unk>.

<unk> printing is quite hot.

Just to go back a little bit if you look at our numbers in general.

We're a big player on the dental lab side, there is a movement away from consumables into digitalization.

So that movement is also impacting to some extent.

Sales of consumables and resulting in an increase in equipment, but overall I think our equipment backlog in the United States.

Which is pretty similar to what it was at the end of last quarter. I think is indicative of the designer of dentist invest in their practices.

I think the practices more efficient.

Slide <unk> digital outcomes.

A nice way to even look at that as another way is to look at the investment in AI.

We have.

It's primarily too.

Our Henry Schein one software.

We have I believe.

The most integrated solution embedded AI in our software and the units are those.

Growing.

It is all tied to the desire of.

Practitioners to invest in their practice.

I think the market is.

As stable to growing.

International is quite complex and different issues in different countries, but in the countries, where there is large government support that Germany from our point of view, it's stable. Although there is a shortage of dentists.

Hopefully transfer heat.

So up after labor day.

The rest of the markets are stable to some ups in Australia because of a little bit.

Incentives.

For this quarter.

Brazil is pretty stable.

And overall, Canada stable, so I would say.

The dental market saw pretty stable solid overall.

And Nathan just one thing to add on the backlog.

Like I mentioned before our backlog in North America has stayed pretty constant over the course of the quarter. When we saw it very good.

Sales growth.

I would quite frankly, I would like for that backlog to come down not just for the revenue lift it would give us, but it's just better for our customers to reduce the timing of that backlog. So they get their equipment more quickly and it increases capacity in the end market quite frankly.

In those situations, where that backlog is for equipment that is that is new to the business as opposed to replacement. So we'd like for that backlog to come down but right now we still in North America, we're experiencing a fairly consistent backlog.

In terms of your question around Q3, Q4 margins I do think that.

Especially at a gross margin level, we can continue.

At the levels, we're at I think that it is indicative of of the <unk>.

Growing.

<unk> of the.

Dental specialty products in our overall portfolio as well as the growth in our technology business and I think we can continue with that as we get into the back half of the year of course, there is always.

It's a broad portfolio there are things that can impact that for example, Q4 tends to be a heavier quarter for equipment sales.

I think that Thats.

My General expectation is we'll be able to.

To continue with the margins that we've seen in the first half of the year into the second half of the year.

Okay.

So.

Thank you I know we've gone over eight minutes over a lot of time. Thank you everyone for calling in.

Again, we are very pleased with the progress we're making in the business both.

The core business and our specialty businesses our software businesses.

The markets are steady.

Lots of ins and outs subtle points, but generally we're comfortable where we are today, we've reaffirmed guidance sorry about the complexity on PPE.

<unk> and the acquisitions.

Spencers.

And related cost.

Okay.

Income generated in that area.

Our confidence in the business is justified so thank you all for calling in of course, Graham and Ron are available.

To speak with investors over the next days.

Thank you for calling in.

Remained confidence in loss team. Thank you to the team for the tremendous work.

It has been undertaken has.

Come out of the other side of Covid and implement our strategic plan. So thank you all and have a great remainders summer. Thank you very much.

Ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Q2 2023 Henry Schein Inc Earnings Call

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