Q2 2024 Henry Schein Inc Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to Henry Schein's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Good morning, ladies and gentlemen, and welcome to Henry Schein's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

Operator: 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 the end of the call. If anyone should require assistance during the call, please press the star key followed by zero on your touchtone phone.

Speaker Change: Please press the star key followed by one on your touchtone phone if you would like to ask a question at the end of the call.

Speaker Change: If anyone should require assistance during the call, please press the star key followed by zero on your touch-tone phone.

Operator: As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Office. Please go ahead, Graham.

Graham Stanley: As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Officer.

Graham Stanley: Thank you, operator. And my thanks to each of you for joining us to discuss Henry Schein's financial results for the second quarter of 2024. With me on today's call are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Ron South, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to state that certain comments made during this call will include information that is forward-looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and 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's filings with the Securities and Exchange Commission and included in the risk factors section of those filings.

Speaker Change: Please go ahead, Graham.

Graham Stanley: Thank you, Operator, and my thanks to each of you for joining us to discuss Henry Schein's financial results for the second quarter of 2024.

Graham Stanley: In addition, all comments about the markets we serve, including end market growth rates and market share, are based on 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 the business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and 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.

Speaker Change: With me on today's call are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Ron South, Senior Vice President and Chief Financial Officer.

Graham Stanley: Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the financials and filings section of our Investor Relations website under the Supplement Information heading and in 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 the live broadcast, August 6, 2024. 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.

Speaker Change: Before we begin, I'd like to state that certain comments made during this call include information that is forward-looking.

Speaker Change: Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and the company's performance may materially differ from those expressed in or indicated by such statements.

Speaker Change: These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission and included in the risk factors section of those filings.

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

Speaker Change: Today's remarks will include both GAAP and non-GAAP financial results.

Speaker Change: We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of the business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.

Speaker Change: 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.

Speaker Change: Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the Financials and Filings section of our Investor Relations website under the Subtlest Information heading and in our quarterly earnings presentation also posted on our Investor Relations website.

Henry Shine: The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 6, 2024. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Stanley Bergman: Good morning and thank you, Graham. Thank you all for joining us today. We delivered solid second-quarter financial results, including strong operating cash flow, that reflected stable end markets. Gross margin has continued to increase, driven by our strategies to expand our high growth, high-margin products and services and by the successful performance of our recent acquisition. We are experiencing improving sales trends in our distribution businesses. However, the pace of recovery since the cyber incident last year has been slower than anticipated.

Speaker Change: 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.

Stanley Bergman: Good morning and thank you, Graham.

Stanley Bergman: Thank you all for joining us today.

Stanley Bergman: We delivered solid second quarter financial results, including strong operating cash flow that reflected stable end markets.

Stanley Bergman: The gross margin has continued to increase.

Stanley Bergman: driven by our strategies to expand our high-growth, high-margin products and services.

Stanley Bergman: and by the successful performance of our recent acquisitions.

Stanley Bergman: We are experiencing improving sales trends in our distribution businesses. However, the pace of recovery since the cyber incident last year has been slower than anticipated.

Stanley Bergman: Now given the challenging economic environment we'll talk about a little bit later in certain markets

Stanley Bergman: Now, given the challenging economic environment we'll talk about a little bit later, in certain markets, as well as Mr. Lane's cyber incident recovery, we are updating our 24 full-year financial guidance. We remain committed to our long-term financial goals through our advancement of the Bold Plus One strategic plan, which has served us well.

Stanley Bergman: Supported by a strong balance sheet and new restructuring plan. As we continue to generate synergies by connecting our distribution businesses, Specialty Products and Technology, and Value Added Services, we continue to see Great Symbiotic Relationships Between Our Various Prisoners. We're also announcing a restructuring plan to integrate recent acquisitions and Wright Size Operations and further increase efficiency, targeting somewhere between $75 million to $100 million annual savings.

Stanley Bergman: Specialty Products and Technology and Value Added Services

Stanley Bergman: We are also announcing a restructuring plan to integrate recent acquisitions and right-size operations and further increase efficiencies.

Stanley Bergman: We are comfortable that we will continue after this restructuring plan is put in place with an Improved Operating Margin. And we are increasing, at the same time, our repurchase authorization by an additional $500 million as we expect to leverage the strong cash flow we have. So let me turn to the various business units. Dental Distribution, to start with. In North America, patient traffic was generally flat compared to the prior quarter.

Stanley Bergman: Following recent board approval, an additional $500 million as we expect to leverage the strong cash flow we have.

Stanley Bergman: With unemployment rates and dental insurance coverage generally remaining consistent with prior periods, we are experiencing improving sales trends in our dental distribution business, and we believe we gained market share in the quarter, as we strengthened our focus on getting back episodic customers following the cyber incident late last year. However, the pace of recovery since the cyber incident late last year has been slower than anticipated.

Stanley Bergman: With unemployment rates and dental insurance coverage generally remaining consistent with prior periods.

Stanley Bergman: And we believe we gained market share in the quarter as we strengthened focus on gaining back episodic customers following the cyber incident.

Stanley Bergman: We reported a year-over-year decline in merchandise sales, which reflects the pace of recovery, and of course, lower sales of PPE products, which are primarily the result of lower glove prices. However, membership in the Thrive Signature Program continued to increase with nearly 1,500 new members added in the second quarter, bringing the total membership to approximately 6,000 U.S. dental practices. This subscription-based program drives customer loyalty and has been very good. Stickiness to our various businesses, whether it's distribution, specialty products, or, for that matter, specialty services.

Speaker Change: and of course lower sales of PPE products, which are primarily the result of lower glove prices.

Speaker Change: Again, in driving.

Stanley Bergman: We were pleased with our North American dental equipment sales growth. This reflected positive trends across the board, traditional equipment, digital imaging, CAD CAM, and parts and services. We achieved modest growth in international dental merchandise sales driven by good growth in the Dutch countries and in Brazil. However, international dental equipment sales were impacted by a decrease in sales in France as a result of changes in the DSO legislation, a generally slow economic and generally slow equipment market in Italy, and the expiration of tax incentives last year in Australia, with other markets generally in line with last year.

Speaker Change: This reflected positive trends across the board, traditional equipment, digital imaging, CAD CAM, and parts and services.

Speaker Change: We achieve modest growth in international dental merchandise sales, driven by good growth in the Dutch countries and in Brazil.

Speaker Change: International dental equipment sales were impacted by a decrease in sales in France as a result of changes in the DSO legislation.

Speaker Change: Generally Slow Equipment Market in Italy

Speaker Change: and the expiration of tax incentives last year in Australia.

Stanley Bergman: Given demographic trends, we expect patient demand to outpace the supply of dental services. We've seen this for a while, and for this to drive further efficiency needs in dental practices, which we expect to be a positive driver in the growth of our dental businesses, all fitting in the goal for the bold plus one strategic plan. Now, let's take a look at dental specials.

Speaker Change: with other markets generally in line with last year.

Stanley Bergman: Moving to our specialties business, sales growth in the quarter was generally consistent with the pace of growth in the first quarter, as acquisitions and organic growth in Europe were offset by lower sales in North America. In Europe, sales of dental implant products posted solid growth as we continue to gain market share with our broad and highly competitive offering. Within North America, we received FDA approval to launch the bone-level tapered proconical implant in mid-June.

Speaker Change: Now, let's take a look at dental specialties.

Speaker Change: Shifting to our dental specialties business, sales growth in the quarter was generally consistent with the pace of growth in the first quarter, as acquisitions and organic growth in Europe were offset by lower sales in North America.

Speaker Change: In Europe , sales of dental implant products posted solid growth as we continue to gain market share with our broad and highly competitive offering.

Stanley Bergman: This was a bit later than we expected, and we believe this timing impacted the quarter's sales growth as some customers held back on purchases further in anticipation of the launch of this important new product. We expect dental implant sales growth in North America to resume in the third quarter, aided by this new product line. As a reminder, the Tapered Probe Clinical positions us to provide an innovative, highly competitive offering for the half of the U.S. dental implant market we weren't previously addressing.

Speaker Change: In anticipation of the launch of this important new product, we expect dental implant sales growth in North America to resume in the third quarter, aided by this new product line.

Stanley Bergman: The initial feedback we are receiving from customers is quite positive, and we look forward to reporting on our progress in future calls. Our endodontic business continued to grow, aided by a small acquisition we made in Latin America. The focus for orthodontics last quarter was the launch of the Biotech Smiler Clear Aligner into the U.S. market.

Speaker Change: And we look forward to reporting on our progress in future calls.

Speaker Change: Our Indodontic business continued to grow, aided by small acquisitions.

Speaker Change: We made in Latin America.

Stanley Bergman: Again, our orthodontic business is very, very small relative to the entire specialty business. Now, it's important for our investors to understand we continue to align our dental sales team, successfully deepening our penetration of the DSO segment last quarter across our entire distribution network. It's the distribution side working in concert with the specialty businesses and the value-added services that are creating great value for our customers and, in turn, for the profitability of Henry Schein.

Speaker Change: Relative to the entire specialty business.

Speaker Change: Successfully deepening our penetration of the DSO segment last quarter across our specialties.

Stanley Bergman: So now let's turn to Technology and Value Added Services and Henry Schein 1, which is our dental software business. The customer base for our Dentrix, Ascent, and Dynalink cloud-based solutions continued to grow during the second quarter and was up more than 25% year over year, with now worldwide installations exceeding 8,000. What I think is important to understand is that in the past, when we sold software, we recognized SAIL on-premise software right away. We are now switching rapidly to cloud-based solutions, which are highly profitable in the long run. And the attention rate is great.

Speaker Change: The customer base for our Dentrix, Ascent, and Entale cloud-based solutions continues to grow during the second quarter and was up more than 25% year-over-year with now worldwide installations exceeding 8,000.

Speaker Change: What I think is important to understand is when we, in the past, when we sold software,

Speaker Change: We recognized SAIL on-prem software right away. We are switching rapidly to cloud-based solutions, which are highly profitable in the long run, and the retention rate is great.

Stanley Bergman: But you don't recognize the full sale at the time, the full revenue at the time of the sale. These cloud-based practice management software products are both the cornerstone of Henry Schein 1, and at the same time, a powerful enabler of additional product sales and equipment. Merchandise at the Henry Schein level, as well as driving specialty products through the NEMOTEC software that is now being advanced in sales. Additionally, the number of claims processed by our revenue cycle management e-claims business increased by single-digit percentages versus the prior year.

Speaker Change: But you don't recognize the full revenue at the time of the sale. These cloud-based practice management software products are both the cornerstone of Henry Schein 1.

Speaker Change: and at the same time a powerful enabler of additional product sales and equipment.

Speaker Change: Merchandise at the Henry Schein level.

Speaker Change: as well as

Speaker Change: The number of claims processed by our revenue cycle management e-claims business increased by single-digit percentages versus the prior year. Now this is despite the changed healthcare cyber incident.

Stanley Bergman: Now, this is the spike that changed health care cyber. And under normal circumstances, we would have expected a greater growth. But the Change Healthcare Cyber Incident has slowed us down. We are servicing our customers. There's no interruption from that point of view, but there is some impact on the cash collection of our customers because Change the process, the actual payment.

Speaker Change: And the normal circumstances, we would have expected a greater growth.

Speaker Change: But the Change Healthcare Cyber Incident has slowed us down.

Speaker Change: We are servicing our customers. There's no interruption from that point of view, but there is some impact on the cash collection of our customers because change did process the actual

Stanley Bergman: We process through change Claims Processing; we found an alternative source, but the actual check or electronic transfer to the customer of the funds is still going through change. Some dental practices are therefore facing cash flow challenges due to reimbursement delays, and we believe this will continue to temporarily impact demand for certain software products, and we think a little bit also on the equipment side. We believe it is a temporary cash flow issue that will get resolved. It didn't really impact our collections of our receivables, but it is a bit of a challenge to some practices that are not getting their checks as frequently as they were. The claims are being processed now.

Speaker Change: Payment. We processed through change the claims processing. We found an alternative source, but the actual check or electronic transfer to the customer of the funds is still going through change.

Speaker Change: Some dental practices are therefore facing cash flow challenges due to reimbursement delays, and we believe this continued.

Speaker Change: to temporarily impact demand for certain software products. And we think a little bit also on the equipment side. This is.

Speaker Change: We believe a temporary cash flow issue which will get resolved. It didn't really impact our collections of our receivables, but it is a bit of a challenge to some practices that are not getting their checks as frequently as they were. The claims are being processed.

Stanley Bergman: The collaboration between Henry Schein and one and our distribution of specialty products, businesses, and support, which helps drive growth, as I mentioned early on, and this is especially the case for the DSO segment. Although, as we move towards our 2025 strategic plan, we will drive the synergy down into the smaller accounts. Many of our high-quality leads for Dentrix products and services are generated by U.S. dental field sales representatives. And, by the way, this is the case not only in the U.S. but in Canada and in all the markets abroad where Henry Schein 1 operates. Here are a few further examples of integration.

Speaker Change: The collaboration between Henry Schein and one...

Speaker Change: And our distribution of specialty products businesses supports highly integrated solutions, enables deeper customer relationships and multiple touch points between Henry Schein and our dental customers.

Speaker Change: which helps drive growth, as I mentioned earlier, and this is especially the case with the DSO segment. Although, as we move towards our 2025 strategic plan, we will drive the synergy down into the smaller accounts.

Speaker Change: Many of our high-quality leads for Dentrix products and services are generated by the U.S. dental field sales representative. And by the way, this is the case not only in the U.S., but in Canada and in all the markets abroad where Henry Schein 1 operates.

Stanley Bergman: Nemotech, the specialty software that was developed by Biotech in France, is now integrated with our Dentrix practice management software in the US, providing, as we discussed during our investor day, the integrated three-click digital workflow software for implants and orthodontics. This has been recognized by some of the big DSOs as very, very important. We have implemented some of the big DSOs, and we expect this to advance further, advancing Henry Schein's strength and connectivity to these DSOs, and again, this will, over time, improve the smaller practice.

Speaker Change: Here are a few further examples of integration. Nemotech, the specialty software that was developed by Biotech in France, is now integrated with our Dentrix practice management software in the U.S.

Speaker Change: Providing, as we discussed during our investor day, the integrated three-click digital workflow software for implants and orthodontics.

Speaker Change: This has been recognized by some of the big DSOs as very, very important.

Speaker Change: We have implementation of some of the big DSOs and we expect this to advance further.

Speaker Change: Advancing Henry Schein's strength and connectivity to these DSOs. And again, we'll, over time, advance the smaller practices.

Stanley Bergman: We also expanded our solutions offering by pairing Dentrix Detect AI, that's the AI system, clinical AI system we sell, powered by Vidya Health, an early caries detection solution, with a terrific power product, CuraDent, an early caries treatment product.

Speaker Change: We also expanded our solutions offering by pairing Dentrix Detect AI, that's the clinical AI system we sell, powered by Vidya Health, an early carriage detection solution.

Stanley Bergman: We're also having early success with the recent launch of Reserve with Google. All of these are being well-received by the more sophisticated, larger DSOs, and we are quite optimistic that the Vidya CuraDent solution will become standard of care over time in many practices. So these are some of the examples of the unique strength of our combined platform, and we continue to unlock benefits and value from the interconnectivity. Interconnectedness across our business. All of this is contained in our strategic plan thinking. Let me just now quickly return to our medical group. Second quarter sales also reflect slower than anticipated growth.

Speaker Change: with a terrific power product, CureGant, an early caries treatment product.

Speaker Change: We're also having early success with the recent launch of Reserve with Google. All of these are being well received.

Speaker Change: by the more sophisticated, larger DSOs. And we are quite optimistic that the VIDIA cure-event solution will become standard of care over time in many practices.

Speaker Change: So these are some of the examples of the unique strength of our combined platform and we continue to unlock benefits and value from the interconnectivity.

Speaker Change: Interconnectedness across our business, all of this.

Speaker Change: is

Speaker Change: Contained in our strategic plan thinking. Let me just now quickly return to our medical group. Second quarter sales also reflect the slower than anticipation

Stanley Bergman: In addition, sales were impacted by ongoing migration to generic alternatives for certain brands of pharmaceuticals, and particularly in the injectable area, where we have a very strong market presence. Of course, there was a decline in sales of PPE products, yeah, all primarily the result of lower pricing for glove prices. As with the dental distribution business, we continue to win back episodic medical customers, and in particular large accounts that moved their prescription drug business to other distributors, primarily drug distributors. Once the customers understand our unique, logistics capabilities, they are moving back. It takes time; it may enter into a commitment.

Speaker Change: In addition, sales were impacted by ongoing migration to generic alternatives with certain branded pharmaceuticals, and particularly in the injectable area where we have a very strong market presence.

Speaker Change: Of course, there was the declining sales of PPE products, yeah, all primarily the result of lower pricing, glove pricing.

Speaker Change: Once the customers understand our unique

Speaker Change: Logistics capabilities, they are moving back.

Stanley Bergman: And I think. Although this is slower than anticipated, we will get these customers back. Excluding the infected patients of Point of Care Diagnostic Tests, which were impacted by flu seasonality, so... The Bulletproof Executive 2013, The flu diagnostic testing, moving from one quarter to another, did have an impact on the quarter, but sequentially, medical sales growth is improving. Excuse me.

Speaker Change: It takes time, it may enter into commitments, and I think, although this is slower than anticipated, we will get these customers back.

Speaker Change: Excluding the impaired.

Speaker Change: of point-of-care diagnostic tests, which were impacted

Speaker Change: The Codling Sequence of...

Speaker Change: The flu diagnostic testing, moving from one quarter to another.

Speaker Change: that have an impact on the quota, but sequentially medical sales growth is improving.

Stanley Bergman: Our home solutions business again performed well, with sales up double digit percentage during the quarter led by the Shield Healthcare Prism Medical Businesses. We're particularly pleased with S.H.I.E.L.D.; it's been well received since we acquired the majority interest in last October. So although our overall home care sales volumes are still relatively modest, this is a strategically important market for us, and together with the movement of procedures to the ASC, the American Surgical Center, represents an enormous growth opportunity for Henry Schein. So, let me conclude my remarks, my opening remarks, before Ron takes over with the specific mat.

Speaker Change: Excuse me.

Speaker Change: Our Home Solutions business again performed well.

Speaker Change: with sales up double-digit percentage during the quarter, led by the Shield Healthcare and Prism Medical businesses.

Speaker Change: We're particularly pleased with S.H.I.E.L.D. It's been well received.

Speaker Change: Since we acquired the majority interest in last October .

Speaker Change: So, although our overall home care sales volumes are still relatively modest.

Speaker Change: This is a strategically important market for us.

Speaker Change: And together with the movement of procedures to the ASC, the Ambulatory Surgical Center, represents enormous growth opportunity for Henry Schein.

Speaker Change: So, let me conclude my remarks, my opening remarks.

Stanley Bergman: We believe, excuse me, we believe we delivered solid second-quarter financial results. Inc. Inc. Inc. And although in the short term we expect our results to be... impacted by the challenging economic environment in certain markets, we have in dentistry experienced these kinds of ups and downs over the years. This one seems to be a little bit more of a challenge.

Speaker Change: Again, including strong operating cash flow.

Speaker Change: And although in the short term we expect our results to be...

Speaker Change: Impacted by the challenging economic environment in certain markets, we have in dentistry experienced these kinds of ups and downs over the years. This one seems to be a little bit more of a challenge.

Stanley Bergman: Of course, the anticipated recovery from the cyber incident has been slower but consistent. Every month, we get a little bit better. So we remain bullish about the prospects for the business in general. And, of course, we'll get into more details, but before we get into answering questions, let me ask Ron to discuss our quarterly financial results and the 24-month guidance with a little bit greater detail. So thank you, everyone. Ron, please.

Ron South: Of course, we'll get into more details. But before we get into answering questions, let me ask Ron to discuss our quarterly financial results and the 24 guides with a little bit greater detail. So thank you everyone. Ron, please.

Ronald South: Thank you, Stanley, and good morning, everyone. As we begin, I'd like to point out that I will be discussing our results as reported on a GAAP basis and also on a non-GAAP basis. All items excluded from our second quarter non-GAAP financial results for 2024 and 2023 are detailed in Exhibit B of today's press release. A reconciliation of our GAAP to non-GAAP income statement is also available in our quarterly earnings presentation on our website.

Ron South: All items excluded from our second quarter non-GAAP financial results for 2024 and 2023 are detailed in Exhibit B of today's press release.

Ronald South: With respect to sales, I will provide details on total sales, total sales growth, as well as LCI sales growth, which is internally generated sales in local currencies compared with the prior year and excludes acquisitions. Turning to our second quarter results, global sales were $3.1 billion, with sales growth of 1.1%. This reflects 4.0% sales growth from acquisitions, a 0.5% sales decrease resulting from foreign exchange rates, a 0.5% sales decrease from lower sales of PPE, which is primarily the result of lower glove prices, and the pace of recovery from the cyber incident late last year. LCI sales for the quarter decreased 2.4 percent, which includes a 0.5 percent decrease from lower PPE sales.

Speaker Change: With respect to sales, I will provide details on total sales, total sales growth, as well as LCI sales growth, which is internally generated sales in local currencies compared with the prior year and excludes acquisitions.

Speaker Change: Turning to our second quarter results, global sales were $3.1 billion with sales growth of 1.1%. This reflects 4.0% sales growth from acquisitions.

Speaker Change: LCI sales for the quarter decreased 2.4%, which includes a 0.5% decrease from lower PPE sales.

Ronald South: As noted by Stan, our underlying sales growth for the quarter reflects improving sales trends at our distribution businesses. However, the pace of recovery in these businesses since the cyber incident late last year has been slower than anticipated. Our GAAP operating margin for the second quarter of 2024 was 5.09 percent, a 137 basis point decline compared with the prior year. On a non-GAAP basis, operating margin for the second quarter was 7.75 percent, a 41 basis point decline compared with the prior year non-GAAP operating margin.

Speaker Change: Our GAAP operating margin for the second quarter of 2024 was 5.09%.

Ronald South: Consistent with our bold plus one strategic plan, gross margin expanded by 101 basis points, primarily due to our greater contribution from high growth, high-margin products and services. Operating expenses were higher as a percentage of sales, primarily due to recent acquisitions and lower sales at our distribution business. Second quarter 2024 GAAP net income was $104 million, or $0.80 per diluted share.

Speaker Change: Second quarter 2024 GAAP net income was $104 million, or $0.80 per diluted share. This compares with prior year GAAP net income of $140 million, or $1.06 per diluted share.

Ronald South: This compares with prior year GAAP net income of $140 million, or $1.06 per diluted share. Our second quarter 2024 non-GAAP net income was $158 million, or $1.23 per diluted share. This compares with prior year non-GAAP net income of $173 million, or $1.31 per diluted share. The foreign currency exchange impact on our second quarter diluted EPS was unfavorable by approximately one cent versus the prior year.

Speaker Change: Our second quarter 2024 non-GAAP net income was $158 million, or $1.23 per diluted share. This compares with prior year non-GAAP net income of $173 million, or $1.31 per diluted share.

Speaker Change: The foreign currency exchange impact on our second quarter diluted EPS was unfavorable by approximately one cent versus the prior year.

Ronald South: Adjusted EBITDA for the second quarter of 2024 was $268 million compared to the second quarter 2023 adjusted EBITDA of $279 million, with EBITDA growth expected to accelerate in the second half of the year. Turning to our second quarter sales results, global dental sales were $1.9 billion, with sales decreasing 1.7%. LCI sales decreased 2.1% or 1.7% when excluding PPE sales.

Speaker Change: Adjusted EBITDA for the second quarter of 2024 was $268 million, compared to the second quarter 2023 adjusted EBITDA of $279 million, with EBITDA growth expected to accelerate in the second half of the year.

Speaker Change: Turning to our second quarter sales results, global dental sales were $1.9 billion with sales decreasing 1.7%.

Speaker Change: LCI sales decreased 2.1% or 1.7% when excluding PPE sales.

Ronald South: Global Dental Merchandise LCI sales decreased 2.6% versus the prior year, as the pace of our recovery in merchandise sales following last year's cyber incident is taking longer than anticipated. Regarding dental equipment, although our global LCI sales decreased 0.4%, our North American equipment LCI sales grew 2.9%, with solid growth in our traditional equipment category, digital imaging, CAD CAM, as well as our parts and service business. Our international equipment LCI sales decreased by 5.5%.

Speaker Change: Global Dental Merchandise LCI sales decreased 2.6% versus the prior year, as the pace of our recovery in merchandise sales following last year's cyber incident is taking longer than anticipated.

Speaker Change: Overall, digital equipment sales were up slightly from the prior year.

Ronald South: And as Stan noted earlier, this was the result of sales decreases in France, Italy, and Australia, with sales in other markets in line with last year. Changes in French legislation limiting DSOs negatively impacted equipment investment in France, while the overall equipment market in Italy was slow. In addition, the end of tax incentives last year in Australia and the UK provided difficult year-on-year comparisons in these markets.

Ronald South: We expect modest overall equipment sales growth for the remainder of the year in both North America and internationally. Dental specialty product sales were approximately $279 million, with growth of 7.2% driven by strong dental implant and biomaterials sales in Europe as well as endodontic sales globally. Global technology and value-added services sales during the second quarter were $214 million, with total sales growth of 10.8%.

Ronald South: LCI sales growth of 3.9% included 2.9% LCI sales growth in North America and 10.5% LCI sales growth internationally. In North America, while sales growth is still recovering from the changed healthcare disruption, we have solid growth in our value-added services, revenue cycle management, and Dentrix Ascend practice management business. International growth was driven by our Dentali cloud-based solution. Global medical sales during the second quarter were $1.0 billion, with sales growth of 5.0 percent, and LCI sales decreased by 4.3 percent, reflecting the slower pace of recovery from the cyber incident, as well as lower PPE sales as a result of lower glove pricing and ongoing migration to generic alternatives for certain brands and pharmaceuticals. Excluding PPE sales, LCI sales decreased by 3.6%.

Speaker Change: International growth was driven by our Dentale cloud-based solution.

Speaker Change: and LCI sales decreased of 4.3 percent, reflecting the slower pace of recovery from the cyber incident, as well as lower PPE sales as a result of lower glove pricing and ongoing migration to generic alternatives for certain branded pharmaceuticals.

Ronald South: Our Home Solutions business had strong growth driven by recent acquisitions. As Stan noted, we also benefited in the first quarter this year from strong point-of-care diagnostic test sales driven by flu seasonality. Regarding stock buybacks, we repurchased approximately 1.4 million shares of common stock in the open market during the second quarter, buying at an average price of $70.64 per share for a total of approximately $100 million. We had approximately $90 million authorized and available for future stock repurchases at the end of the quarter. An additional $500 million of share repurchases was authorized by our Board of Directors on July 31.

Speaker Change: Our Home Solutions business had strong growth driven by recent acquisitions.

Speaker Change: As Stan noted, we also benefited the first quarter of this year from strong point of care diagnostic test sales driven by flu seasonality.

Speaker Change: Regarding stock buybacks, we repurchased approximately 1.4 million shares of common stock in the open market during the second quarter, buying at an average price of $70.64 per share for a total of approximately $100 million.

Speaker Change: We had approximately $90 million authorized and available for future stock repurchases at the end of the quarter. An additional $500 million of share repurchases was authorized by our Board of Directors on July 31st.

Speaker Change: We expect to repurchase approximately $175 million in shares in the second half of this year, but this new authorization provides us the flexibility to repurchase more.

Ronald South: We expect to repurchase approximately $175 million in shares in the second half of this year, but this new authorization provides us with the flexibility to repurchase. Turning to our cash flow, we had strong operating cash flow of $296 million for the second quarter, which exceeded operating cash flow of $274 million last year. Year-to-date, operating cash flow was $493 million, driven by lower working capital and $192 million more than last year. Restructuring expenses in the second quarter were $15 million, or $0.08 per diluted share, and were incurred as part of our previously disclosed restructuring initiative.

Speaker Change: Turning to our cash flow, we have strong operating cash flow of $296 million for the second quarter, which exceeded operating cash flow of $274 million last year. Year-to-date operating cash flow was $493 million, driven by lower working capital, and $192 million more than last year.

Speaker Change: Restructuring expenses in the second quarter were $15 million or $0.08 per diluted share and were incurred as part of our previously disclosed restructuring initiative.

Ronald South: That specific initiative was completed on July 31st, 2024, and these expenses mainly related to severance benefits and costs related to exiting certain facilities. As Stan mentioned, we also announced today a new restructuring initiative that we expect to continue over the next 18 months, targeting $75 million to $100 million in annual run rates. Our second quarter GAAP results include $10 million in pre-tax proceeds as part of our cyber insurance claim. As we have previously mentioned, this policy has a $60 million claim limit on after-tax losses with a $5 million retention.

Speaker Change: That specific initiative was completed on July 31st, 2024, and these expenses mainly related to severance benefits and costs related to exiting certain facilities.

Speaker Change: As Stan mentioned, we also announced today a new restructuring initiative that we expect to continue over the next 18 months, targeting $75 million to $100 million in annual run rate savings.

Stan: Our second quarter GAAP results include $10 million in pre-tax proceeds as part of our cyber insurance claim.

Stan: As we have previously mentioned, this policy has a $60 million claim limit on after-tax losses with a $5 million retention.

Ronald South: We expect to continue to receive payments over time. The $10 million of proceeds received in the second quarter is not included in our non-GAAP results and is detailed along with other non-GAAP adjustments in Exhibit B of today's press briefing.

Stan: We expect to continue to receive payments over time. The $10 million of proceeds received in the second quarter is not included in our non-GAAP results and is detailed along with other non-GAAP adjustments in Exhibit B of today's press release.

Ronald South: I'll conclude my remarks with our updated 2024 financial guidance. At this time, we are not yet able to provide, without unreasonable effort, an estimate of the restructuring costs associated with the new restructuring plan for 2024, although we expect this to primarily include Severance Bay and facility-related costs. Therefore, we are not providing GAAP guidance.

Stan: I'll conclude my remarks with our updated 2024 financial guidance.

Stan: At this time, we are not yet able to provide, without unreasonable efforts, an estimate of the restructuring costs associated with the new restructuring plan for 2024, although we expect this to primarily include Severance Bay and facility-related costs.

Ronald South: Our 2024 guidance is for continuing operations as well as acquisitions that have closed. It does not include the impact of potential future acquisitions. Guidance also assumes that foreign currency exchange rates are generally consistent with current levels and that end markets remain consistent with current market conditions. As a result, our 2024 total sales growth is now expected to be 4-6% over 2023, versus our previous guidance of 8-10% growth. The previous guidance anticipated a stronger economy as well as a faster recovery from the cyber incident.

Stan: Therefore, we are not providing GAAP guidance. Our 2024 guidance is for continuing operations as well as acquisitions that have closed. It does not include the impact of potential future acquisitions.

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

Stan: Our 2024 total sales growth is now expected to be 4-6% over 2023, versus our previous guidance of 8-10% growth.

Stan: The previous guidance anticipated a stronger economy as well as a faster recovery from the cyber incident.

Ronald South: This sales guidance also includes sales from the acquisitions we have completed to date. For 2024, we now expect non-GAAP diluted EPS attributable to Henry Schein Inc. to be in the range of $4.70 to $4.82, which compares with previous guidance of $5 even to $5.16 and reflects growth of 4-7% compared to 2023 non-GAAP diluted EPS of $4.50. This guidance reflects an estimated non-GAAP effective tax rate of 25%.

Stan: This sales guidance also includes sales from the acquisitions we have completed to date.

Stan: For 2024, we now expect non-GAAP diluted EPS attributable to Henry Schein Inc. to be in the range of $4.70 to $4.82.

Stan: which compares with previous guidance of $5 even to $5.16 and reflects growth of 4-7% compared to 2023 non-GAAP diluted EPS of $4.50.

Stan: This guidance reflects an estimated non-GAAP effective tax rate of 25%.

Ronald South: As a result of the timing of implementing our restructuring plans, we expect year-over-year growth in diluted EPS to be higher in the fourth quarter than in the third quarter. Our 2024 adjusted EBITDA is expected to grow in the low double digits versus 2023 adjusted EBITDA of $984 million and compares with prior guidance of more than 15% growth. We expect adjusted EBITDRAD to grow faster than non-GAAP diluted EPS because of higher interest expense, a higher effective tax rate, and higher depreciation as a result of the investments we have made to execute on our strategic plan.

Stan: As a result of the timing of implementing our restructuring plans, we expect year-over-year growth in diluted EPS to be higher in the fourth quarter than in the third quarter.

Stan: Our 2024 Adjusted EBITDA is expected to grow in the low double-digit percentages versus 2023 Adjusted EBITDA of $984 million and compares with prior guidance of more than 15% growth.

Stan: We expect Adjusted EBIT Draw to grow faster than non-gap diluted EPS because of higher interest expense, a higher effective tax rate, and higher depreciation as a result of the investments we have made to execute on our strategic plan.

Stanley Bergman: Through the second quarter, our specialty products, technology, and value-added services contributed 38.5% of total non-GAAP operating income. We continue to believe that we will achieve our goal of exceeding 40% operating income contribution from these products and services for the full year. With that, I'll now turn the call back to Stanley. Thank you, Ron.

Stan: Through the second quarter, our specialties products, technology, and value-added services contributed 38.5% of total non-GAAP operating income. We continue to believe that we will achieve our goal of exceeding 40% operating income contribution from these products and services for the full year.

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

Stanley Bergman: As we lead into the Q&A... I want to reiterate that we are confident in the prospects for our business, even in the face of challenging economic conditions. Although, um... We do believe markets are stable, and now we can continue to gain market share, recovery from the cyber incident is going in a good direction, but not as fast as we expected when we gave our last guidance a quarter ago. And we also are comfortable that we will benefit from the trends and increased Specialty Procedures.

Stanley Bergman: Thank you, Ron.

Stanley Bergman: So, as we lead into the Q&A,

Stanley Bergman: I want to reiterate, we are confident in the prospects for our business, even in the face of challenging economic conditions.

Stanley Bergman: although

Speaker Change: We do believe markets are stable.

Stanley Bergman: And now we can continue to Gay and Michael Cher.

Stanley Bergman: to the recovery from the cyber incident.

Stanley Bergman: which are going in a good direction, but not as fast as we expected when we gave last guidance a quarter ago.

Stanley Bergman: And we also are comfortable that we will benefit from the trends.

Stanley Bergman: I think we've rounded out the implant offering we have, we had a big gap, and we've got that in place in the United States. We're also confident that the movement of medical procedures to alternative care settings will continue.

Stanley Bergman: and Increased Specialty Procedures.

Stanley Bergman: I think we've rounded out.

Stanley Bergman: The implant offering we have, we had a big gap, we've got that in place in the United States and Canada soon.

Stanley Bergman: We are also confident that the movement of medical procedures to alternate care settings will continue.

Stanley Bergman: We are generating good synergies, connecting our distribution businesses, specialty products, and technology, and value-added services. While we focus on these opportunities, we're also taking action to increase shareholder value, as we've noted in the restructuring plan. We need to right-size the restructuring plan.

Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the

Speaker Change: We are generating good synergies, connecting our distribution businesses, specialty products and technology and graduate-added services.

Speaker Change: While we focus on these opportunities, we're also taking action to increase shareholder value, as we've noted in the restructuring plan.

Stanley Bergman: The sales have not grown as rapidly as we thought. Some of that is attributable to the fact that inflation does not exist at the moment, but we believe in our market. Very moderate, and may actually be going down slightly as our customers are more price conscious and moving to some alternative brands, some owned brands. But we think from a gross profit point of view, this will be fine, in fact, maybe slightly accretive. And, of course, we will continue to buy stock. We anticipate spending $500 million. And so, with that in mind, please, let's... Thank you, Stanley.

Speaker Change: We need to right-size the restructuring plan.

Speaker Change: The sales have not grown as rapidly as we thought.

Speaker Change: Some of that is attributable to the fact that inflation...

Speaker Change: Does not exist at the moment, we believe, in our markets.

Speaker Change: Very moderate, may actually be going down slightly as our customers are more price conscious and moving to some alternative brands, some owned brands. But we think from a gross profit point of view, this will be fine. In fact, maybe slightly accretive.

Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the

Speaker Change: And of course, we will continue to buy stock. We anticipate spending the $500 million. And so, with that in mind, please, let's...

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you'd like to remove a question from the queue.

Speaker Change: Answer some questions, Operator.

Speaker Change: Thank you, Stanley. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove a question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. And the first question comes from the line of John Block with Stiefel. Please proceed with your question. Thanks, guys, and good morning. Maybe I'll just stick to the same topic. Ron, you know, the 2024 sales growth expectation is now 5% at the midpoint, down from 9%, so I think we're looking at roughly a half a billion step down. Maybe you can just talk about, you know, where that is coming from, call it the more conservative approach?

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: to your distributor recapture versus that of the slower economy that you also allude to in the press release, and I'll just stop there, and then I'll ask my follow-up question on the same topic. John, thank you for that question. Let's start with Ron giving you the basics, and I'm happy to fill in further.

Speaker Change: One moment please while we poll for questions.

Speaker Change: And the first question comes from the line of John Block with Stiefel. Please proceed with your question.

Ronald South: Certainly. Hi John. From midpoint to midpoint, we came down four points, right? But the math works to approximate what you have enumerated. Going back and thinking about our original guidance and even our amended guidance on sales from the first quarter, our investor day assumption, going back a year and a half ago, was that long-term growth for dental was about 2 to 4% in terms of market growth. And our assumption this year was at the low end of that range.

Speaker Change: Go back a year and a half ago was that long-term growth for dental was about 2-4% in terms of market growth and our assumption this year was at the low end of that range and of course part of that growth would be coming from anticipated price increases as well.

Ronald South: And of course, part of that growth would be coming from anticipated price increases as well. But as we've progressed through the year, our view has shifted to more flat year-over-year market growth, which still reflects a stable patient traffic environment, and I think others in the industry have even indicated flat to negative growth in the market, right? As the pricing itself has also remained fairly flat compared to the prior year, and we see customers frequently moving to some lower cost options, including our own corporate brand in some cases, which is, in general, positive for us from a gross profit perspective.

Speaker Change: As we've progressed through the year, our view has shifted to more flat year-over-year market growth, which still reflects stable patient traffic environment, and I think others in the industry have even indicated flat to negative growth in the market, right?

Ronald South: Those conditions, and you couple it with the company-specific challenge of recovering from the cyber incident, which has been delayed but is still showing sequential growth quarter to quarter, are the primary drivers to the reduction in our sales guidance, right? So the fundamentals of the business remain intact. We believe we're once again gaining market share, working our way back to pre-incident market share, and we expect that to continue over the balance of the year. Thank you, Ron.

Speaker Change: Those conditions, and you couple it with the company-specific challenge of recovering from the cyber incident, which have been delayed but are still showing sequential growth quarter-to-quarter, are the primary drivers to the reduction in our sales guidance, right?

Stanley Bergman: I think you've covered it quite well, actually. If there are any specifics, John, or anyone has with respect to any particular market, any particular sector, I think we could answer that. But that's the broad...

Operator: Okay, and just as a follow-up or tack on to that, to push you guys a little bit, you talked about the recapture being slower than you had anticipated so far, but you still expect to get this business back. And I guess my question is, like, why do you still expect to get that business back? Here we are, almost nine, 10 months post-cyber incident, I would think it's like a hot lead, and either you get them back with incentives, or they might move, especially if they're episodic, to a different platform that they're somewhat content with. So maybe you can talk about your conviction about getting those customers back and the strategy to do so. And thanks for your time.

Speaker Change: I love you.

Speaker Change: Thank you.

Speaker Change: Okay, and just as a follow-up or tack on to that, to push you guys a little bit, you know, you talked about the recapture being slower than you had anticipated so far, but you still expect to get this business back. And I guess my question is, like, why? You know, why do you still expect to get that business back? Here we are.

Speaker Change: Almost nine, ten months post-cyber security incident. I would think it's like a hot lead, and either you get them back with incentives, or they might move, especially if they're episodic, to a different platform that they're somewhat content with. So maybe you can talk about your conviction on getting those customers back and the strategy to do so. And thanks for your time.

Stanley Bergman: So, John, that is a very important question. Look, our sequential month over month reduction of the gap has been quite good. But it's going slower.

Speaker Change: So, John , that is a very important question. I'm glad you did ask it. Look, our sequential month over month...

Stanley Bergman: We need to get our field sales force visiting again the smaller customers. They've been focused on the big ones, and that's been pretty good. They need to focus on the smaller ones, and we need to kick our telesales team back into full action. They had a deal with...

Speaker Change: Reduction of the gap has been quite good. It's going slower.

Speaker Change: They need to focus on the smaller ones, and we need to kick our telesales team back into full action.

Stanley Bergman: The fallout of the cyber incident. There were many issues that had to get resolved. Yes, the customers were okay in the end that we resolved it. But our call centers have been very busy, and only in the last couple of months. Actually, the last six or so weeks, they've been doing outbound calls.

Speaker Change: The fallout of the cyber incident.

Speaker Change: There were many issues that had to get resolved. Yes, the customers were okay in the end that we resolved it. But our call centers have been very busy, and only in the last couple of months.

Stanley Bergman: So, we are well-received. I just happened, we had an opening of our... New Distribution Business in Texas, and I was with some of our FSCs, our field sales consultants, who many of them have gone back now for the first time into the smaller accounts. And they reported that the customers are very happy to see them. They just wondered why they were not there in the last couple of months.

Speaker Change: Actually, the last six or so weeks, they're doing outbound calls.

Speaker Change: So, we are well-received.

Stanley Bergman: They were not there because people were focused on dealing with the larger customers, and the customers are the better customers, where they buy a bigger market quality from us. We are confident that over time we will continue to gain market share. We are gaining market share from where we left off at the end of 2023. It's going to be hard to split exactly what's market share growth because of general market share growth, the effectiveness of the sales force, and what's the result of the recovery, but I think overall we're confident that we'll be able to continue. Again, market share. And the question is, exactly at what pace? We've given you guidance on what we expect. That's really the key.

Speaker Change: are the better customers, where they buy a bigger market wallet from us.

Speaker Change: We are confident that over time we will continue to gain market share. We are gaining market share from where we left off at the end of 2023.

Speaker Change: It's going to be hard to split exactly what's market-shared growth because of general market-shared growth, effectiveness of the sales force, and what's the result of the recovery. But I think overall we're confident that we'll be able to continue.

Speaker Change: to gain market share. And the question is...

Speaker Change: Exactly at what pace?

Speaker Change: So we've given you guidance of what we expect.

Stanley Bergman: I mean, there's nothing more we can add to that. We have a pretty good track record, and we expect to deliver. Will we be off by a couple of quarters, one way or the other? Hard to give you the exact...

Speaker Change: That's really the key.

Speaker Change: The facts. I mean, there's nothing more we can add to that. We have a pretty good track record, and we expect to deliver. Will we be off a couple of quarters, one way or the other? Hard to give you the exact...

Operator: Number, but I think you're asking a very important question. And the next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question. Good morning, everyone. There is definitely a lot to cover here in the second quarter of the balance of 24. But I actually want to fast forward a bit to 2025.

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

Jason Bednar: And apologies up front; I'm going to pack a few in here. We've got a lot of moving parts here this year. The story, though, should be a little cleaner exiting this year as we'll have less of the cybersecurity impact and the PPE headwinds. Where do you see organic growth for the business once we emerge from all the noise? You know, what's the right underlying growth rate and the margin profile we should be using as a jumping off point as we start thinking about 2025?

Jason Bednar: Hey, good morning, everyone. A lot definitely to cover here in the second quarter of the balance of 24, but I actually want to fast forward a bit to 2025. And apologies up front, I'm going to pack a few in here. We've got a lot of moving parts here this year. The story, though, should be a little cleaner exiting this year as we'll have laps of cybersecurity impacts and the PPE headwinds.

Speaker Change: Where do you see organic growth for the business once we emerge from all the noise? You know, what's the right underlying growth rate and the margin profile we should be using as a jumping off point as we start thinking about 2025? And then within all of that, you know, can you give us a bit of color as to the phasing of the savings assumed in the restructuring program? It sounds like some of that's coming here in the fourth quarter of 24, some of the benefit, but how much of that should be expected to be, you know, in the fourth quarter versus the contribution in 2025?

Stanley Bergman: And then within all of that, can you give us a bit of color as to the phasing of the savings assumed in the restructuring program? It sounds like some of that's coming here in the fourth quarter of 24, some of the benefits. But how much of that should we expect to see in the fourth quarter versus the contribution in 2025? Jason, again, let Ron give you some thoughts on that. The suffix that has been baked in to the extent that we can give you that information.

Speaker Change: Jason, again, let Ron give you some thoughts on

Ron South: Specifics that have been baked in to the extent we can give you that information.

Ronald South: Uh, back into our assumptions, but, in general, we believe the consumable markets in the United States and Canada are relatively stable. Yes, there's been a shift, I think, to more price-conscious opportunities. I don't think that necessarily impacts our gross profit, although it may depress our sales slightly. And we believe we can gain market share on the pure distribution of products. Adding to the profitability, I think, continues to be our specialty businesses. We think we are well positioned globally in that area. We don't really have exposure to China.

Ron South: Back into our assumptions but

Ron South: In general, we believe the...

Ron South: Consumable markets in the United States and Canada is relatively stable.

Ron South: Yes, there's been a shift, I think, to more price conscious opportunities.

Ron South: I don't think that necessarily impacts our gross profits.

Speaker Change: It may depress our sales slightly.

Speaker Change: And we believe we can gain market share on the pure distribution of products.

Speaker Change: Adding to the profitability, I think, continues to be our specialty businesses.

Speaker Change: In particular, implants, bone regeneration, that's material, and we think we're well positioned globally in that area.

Stanley Bergman: We're selling very little there. There are going to be ups and downs there, in Asia generally. But the market that we're strongest in is the DAC region in Europe, and I think we're very well positioned. We are, I think, well-positioned in the United States, specifically with the implant dentist that is looking for a high-value but a branded product. We are hopeful and expect that as the year goes by this year, we will be able to get some market share in that area.

Speaker Change: We don't really have exposure to China. We're selling very little there.

Speaker Change: There's going to be ups and downs there, Asia generally, but...

Speaker Change: The market that we're the strongest in is the dark region in...

Speaker Change: Europe , and I think we are very well positioned. We are, I think, well positioned in the United States, specifically with the

Speaker Change: The implant dentist that is looking for high-value but a branded product.

Speaker Change: We are hopeful and expect that as the year goes by this year, we will be able to get some market share in that area.

Stanley Bergman: I think the endo, though it's not as big as implants, continues to move in a positive direction, and the medical business. Yeah, there have been some anomalies there, on the pharma side, the whole point of care switching between one quarter and another.

Speaker Change: I think the endo, though it's not as big as implants, continues to move in a positive direction.

Speaker Change: And the medical business, yeah, there have been some anomalies there, the pharma side.

Stanley Bergman: But I think the movement to the alternate care side, the Ambulatory Surgical Center, the home care, those are all positive, good ways for us to sell our own brand. And I think we will recover in that area. We've done OK with the large customers.

Speaker Change: The whole point of care switching between one quarter and another. But I think the movement to the alternate care...

Speaker Change: The Ambulatory Surgical Center, the home care, those are all positive, good ways in which for us to sell our own brands.

Speaker Change: And I think we will recover in that area. We've done okay with the large customers. The small ones, the same.

Stanley Bergman: The small ones, the same as I noted in response to John's question; we just have to get our sales force in front of more of those smaller customers, our telesales groups, our e-commerce groups. I think equipment continues to be an area that we're quite optimistic about in the United States. Uh... We did have relatively good equipment growth; there was an anomaly with scanners. We had some challenges with equipment abroad. We have a big market share in France, so there's a bit of an impact there on some legislation. Italy's not so great.

Speaker Change: As I noted in response to John's question, we just have to get our sales force in front of more of those smaller customers, our telesales groups, our e-commerce groups.

Speaker Change: I think equipment continues to be an area that we're quite optimistic about in the United States.

Graham Stanley: and Graham Stanley.

Speaker Change: We did have relatively good equipment growth. There was an anomaly with scanners.

Speaker Change: This is a big sale last year, but generally we're in positive territory, I think we're gaining market share.

Speaker Change: We had some challenges on equipment abroad.

Speaker Change: We have a big market share in France, there's been a bit of an impact there.

Stanley Bergman: Australia, we had a challenge this quarter because of some tax benefits that lapsed, I think. As the year goes by, into 2025, we will do well in that market. And then, generally, I think in the equipment market, we'll be okay, and we'll grow. There is, I might add, though, a view on pricing. Dentists are looking at value.

Speaker Change: On some legislation, Italy's not so great. Australia, we had a challenge this quarter because of some tax benefits that lapsed, I think, as the year goes by, and into 2025 it will do well in that market.

Speaker Change: And generally I think in the equipment market we'll be okay, we'll grow. There is, I might add though, a view on pricing. Dentists are looking at value.

Stanley Bergman: I think some of the manufacturers have understood this; others are adjusting. But the average unit price may come down slightly, but I think the profit will be fine, specifically as our clinical workflow initiatives kick in. And on the Henry Schein side and the value-added services side, I think those are all going to be contributors to profitability this year and more in 2025. So, Ron, I don't know if you have anything that you can share from a macro point of view. Unknown Speaker Yeah, you know, Jason, I will say too.

Speaker Change: I think some of the manufacturers have understood this, others are adjusting.

Speaker Change: But the average unit price may come down slightly, but I think the profit will be fine, specifically as our clinical workflow initiatives kick in.

Speaker Change: And on the Henry Schein one side and the Value Added Services side, I think those are all going to be contributors to profitability.

Speaker Change: This year and more in 2025. So, Ron, I don't know if you have anything that you can share from a macro point of view.

Ron South: in your guidance formulation.

Ronald South: You know, you were kind of talking about the balance of the year and then kind of going into 25, you know? We have announced a new restructuring initiative. We do expect, as you inferred, that we will get some benefits this year. I mean, we can take some immediate actions that will provide, you know, some short-term benefits for us, you know, in this quarter as well as next quarter. There will be, I'll call them, kind of other more complex actions that I think will take us over the course of 2025 to complete.

Ron South: Jason, I will say two.

Ron South: You know, you were kind of talking about balance of year and then kind of going into 25, you know, we have announced a, you know, a new restructuring initiative. We do expect, as you inferred, that we will get some benefits this year. I mean, we can take some immediate actions.

Ron South: that will provide some short-term benefits for us in this quarter as well as next quarter. There will be, I'll call them kind of other more complex actions that I think will take us over the course of 2025 to complete.

Ronald South: I think it's important to, you know, note that as we work, we've done a lot of building under the B of our bold plus one strategy in the last year or so, year and a half, and there are going to be some integration opportunities there. And something that might fly under the radar a little bit this year is that we've also invested this year a little over $200 million in buying out shareholder partners in certain subsidiaries where we have a minority partner.

Ron South: I think it's important to...

Ron South: We've done a lot of building under the B of our Bold Plus One strategy in the last year or so, year and a half, and there's going to be some integration opportunities there.

Ron South: And something that might fly under the radar a little bit this year is that we've also invested this year a little over $200 million in buying out shareholder partners in certain subsidiaries where we had a minority partner.

Ronald South: And this kind of increased ownership also provides us with, you know, a very good opportunity to combine certain operations for the leverage of our One China approach with customers. And so, those, as you can appreciate, are a little more complex, not the kind of thing you can do overnight.

Ron South: And this kind of increased ownership also provides us with, you know, very good opportunities.

Ron South: To combine certain operations for the leverage our one-chain approach with customers

Ronald South: So those will likely spill into 25 for some time, but that's the plan. And we've, we've incorporated that into the balance of the guidance, what we think we can achieve this year. And, and then, you know, when we provide 25 guidance, we'll be able to address it. Okay. All right. That's helpful.

Ron South: And so, but those, as you can appreciate, are a little more complex, not the kind of thing you can do overnight.

Ron South: So those will likely spill into 25 for some time.

Ron South: But that's part of the plan, and we've baked that into the balance of the guidance, what we think we can achieve this year, and then when we provide 25 guidance, we'll be able to address that.

Jason Bednar: As a follow-up, I want to shift gears a little bit and discuss what came up on a conference call last week from one of your manufacturer partners. I'm sure you anticipated this question, but just wanted to see if you could discuss what your position is with respect to the relationship with your manufacturing partners and maybe address the status of your particular agreement with Dentsupply Serona. When specifically, if you can share, did your contract come up for renewal?

Speaker Change: Okay, all right, that's helpful. As a follow-up, I want to shift gears a little bit and discuss what came up on a conference call last week from one of your manufacturer partners.

Speaker Change: I'm sure you've anticipated this question, but just wanted to see if you can discuss what your position is with respect to the relationship with your

Speaker Change: Your manufacturing partners and maybe address the status of your particular agreement with Dentsupply Sirona When specifically if you can share it as your contract come up for renewal And can you discuss how you're proceeding now that you're aware that your main distribution competitor received a non-renewal notice on their contract?

Jason Bednar: And can you discuss how you're proceeding now that you're aware that your main distribution competitor received a non-renewal notice on their contract? Yeah, Jason, first of all, we have never really spoken about specific relationships with Debs Bly.

Speaker Change: Yeah, Jason, first of all, we have never really spoken about specific relationships with that supply.

Stanley Bergman: But because generally it's not a good idea, but yesterday I had a call with Simon Dent, CEO of Dentsupply, and we confirmed to each other that our relationship is good. I believe we are the biggest customer and one of our biggest. Global suppliers. We work with them in practically every country, one or two that we don't.

Speaker Change: But, because generally it's not a good idea, but yesterday I did have a call with the CEO of Simon of Dentsply and we confirmed to each other that our relationship is good.

Speaker Change: I believe we are the biggest customer. They're one of our biggest global suppliers.

Stanley Bergman: And they're a very important supplier of ours. The company has had some management changes over the years, but it seems like the current management team is in place and understands what needs to get done. I believe that they are working well with our team here, particularly in North America and Canada, also in Europe. It's a bit more complex in Europe, it's one of the biggest markets for them, and for us. We work well, by the way. Germany, France, Spain, and the UK.

Speaker Change: We work with them practically in every country, one or two that we don't.

Speaker Change: And they're a very important supplier of ours. The company has had some management changes over the years. It seems like the current management team is in place.

Speaker Change: understands what needs to get done.

Speaker Change: I believe that they are working well with our team here, in particular in North America and Canada, also in Europe . It's a bit more complex in Europe . It's not the biggest market for them, for us.

Speaker Change: We work well, by the way, I think in Germany, France, Spain, UK.

Stanley Bergman: And yeah, they have committed to adding more sales power to the organization, which can only be helpful to us. They have products, and we'd like to get them in front of our customers. On the other hand, there are other suppliers that have competing products, and we will always do what's best for our customers. But at the same time, we have strategic relationships. I would view them as one of our strategic relationships. We do not have a formal contract with them.

Speaker Change: in Italy too.

Speaker Change: And, yeah, they have committed to adding more sales power to their organization, which can only be helpful to us.

Speaker Change: They have products, and we'd like to get them in front of our customers. On the other hand, there are other suppliers that have competing products.

Speaker Change: And we will always do what's best for our customers, but at the same time, we have strategic relationships. I would view them as one of the strategic relationships. We do not have a formal contract with them.

Stanley Bergman: Memorandum of Understanding, one way or another, I don't know whether it expires or not, and actually, he's going to look at that, but in general, it's a good relationship, and we have good relationships with all of our suppliers, and then I'm sure the next question is selling direct, and that rumor has been going around in dentistry for years. Specialty products are shoulder wraps, implants, orthodontic We need to be in a position to offer the entire offering of all those products. We are in that position today where we have gaps and can't get products.

Speaker Change: Memorandum of Understanding, one way or another, I don't know whether it expires or not.

Speaker Change: I haven't actually got a look at that, but in general, it's a good relationship, and we have good relationships with all of our suppliers. And then I'm sure the next question is selling direct, and that rumor has been going around in dentistry for years.

Speaker Change: Specialty products are solderette, implants, orthodontics.

Speaker Change: To some extent, endodontics. We need to be in a position to offer the entire offering of all those products.

Speaker Change: We are in that position today where we had gaps, we couldn't get products.

Stanley Bergman: We entered into manufacturing, those are the specialty products we've discussed. We're doing well, and like in any industry, there are own brands, corporate brands, and where manufacturers are ready to provide good pricing that meets the customer's needs.

Speaker Change: We entered into the manufacturing. Those are the specialty products we've discussed, and we're doing well. And like in any industry, there's own brand, corporate brand products.

Speaker Change: and where manufacturers are ready to provide good pricing that meets the customer's needs. We're happy to take the manufacturer's products in. Where we need to have a private corporate brand, we have that, like in any industry.

Stanley Bergman: We're happy to take the manufacturer's products in. Where we need to have a private corporate brand, we have that. Like in any industry. And, in general, I think we have good relationships with our suppliers as it relates to their specific issues with a specific... Distributed, it's not for us to comment. So I'm trying to be as transparent as possible.

Speaker Change: And in general, I think we have good relationships with our suppliers as it relates to their specific issue with a specific distributor. It's not for us to comment.

Speaker Change: So I'm trying to be as transparent as possible.

Elizabeth Anderson: And the next question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question. Good morning, guys.

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

Stanley Bergman: Thanks so much for the question. I was wondering, Stanley, going back to what you were mentioning before, could you comment specifically on the growth rate for implants in 2Q, maybe in North America, and then specifically, globally, and sort of what your expectations are, particularly for implants for the back half of the year? To Elizabeth Implant. So, the easiest, the purest, would be Europe.

Elizabeth Anderson: Good morning, guys. Thanks so much for the question. I was wondering, maybe, Stanley, going back to what you were mentioning before, could you comment specifically on the growth rate for implants in 2Q, maybe in North America, and then specifically globally, and sort of what your expectations are, particularly for implants for the back half of the year?

Stanley Bergman: Sure, Elizabeth. Implants.

Stanley Bergman: So, the easiest, the purest, would be Europe .

Stanley Bergman: That is Germany and Austria, a little business in Switzerland. In general, we continue to do very well. We have a complete line.

Speaker Change: And the biggest market for us is Dutch.

Speaker Change: That is Germany and Austria, a little business in Switzerland.

Speaker Change: In general, we continue to do very well. We have a complete line.

Stanley Bergman: We have an outstanding sales force built over many years. We have what's needed. We are not the biggest player in Europe yet, in Germany, for bone regeneration, but we're growing very nicely. We only entered that market about three or four years ago, but for implants, we're doing very well, and continue to expect to do well. And in the other European markets, we will continue, I think, to do well, but we have a relatively small market share, except in France, where we're the number one player, and with all the challenges in France. And, you know, just because you're asking such a specific question, I will answer it.

Speaker Change: We have an outstanding sales force built over many years.

Speaker Change: We have what's needed.

Speaker Change: We are not the biggest player in Europe yet and Germany on bone regeneration, but we're growing very nicely. We only entered that market about three or four years ago. But on implants, we're doing very well and continue to expect to do well.

Speaker Change: And in the other European markets, we will continue, I think, to do well. But we have relatively small market share, except in France, where we're the number one player. And with all the challenges in France...

Stanley Bergman: But generally, we're not going to provide specific information on specific countries. But we are growing in France. Biotech is growing organically and doing quite well with its implants. I think they're number one. So Europe is the easiest, the purest, as it relates to Latin America.

Speaker Change: And, you know, just because you're asking such a specific question, I will answer it. But generally, we're not going to provide specific information on specific countries. But we are growing in France.

Speaker Change: Biotech is growing organically and doing quite well with its implants. I think they are the number one. So Europe is the easiest, the purest.

Stanley Bergman: Our SIN new joint venture, although it's viewed as acquisition growth, continues to gain market share. Unfortunately, they were not hit by the sad situation in that part of Brazil that got a lot of rain. But overall, it's doing well. The biodiversity part of the equation is a bit challenged because of a couple of countries of instability. Latin America, but they were not really a participant in the Brazilian market, and our view of Latin America is primarily through... S-I-N, as it relates to the U.S. Until last year, we were gaining significantly in market share.

Speaker Change: As it relates to Latin America, our SIN new joint venture, although it's viewed as acquisition growth,

Speaker Change: In Latin America, but they were not a participant really in the Brazil market and our view to Latin America is primarily through SIN.

Speaker Change: As it relates to the U.S.

Speaker Change: [inaudible]

Speaker Change: Until last year, we were gaining significantly in market share. Our sales were good. This year, the market is a little bit frozen for us because of our introduction. Our customers, our sales force are aware of the new product.

Stanley Bergman: All sales were good. This year, the market is a little bit frozen for us. Because of our introduction, our customers, and our sales force are aware of the new product. We were supposed to get it around March and April, but we got FDA approval in the middle of June. It's going to take a little time for the market to fire up.

Speaker Change: We were supposed to get it around March, April , but we got the FDA approval in the middle of June .

Stanley Bergman: But we're quite confident that we will do well with our new product, which I think is also well-received by DSOs, whether they are... BioHorizon DSOs or Henry Schein DSOs. Bringing the SIN product into the U.S. will also be helpful. So we did go backwards in terms of our sales, but I'm not sure in terms of market share. In the United States, it's hard to tell.

Speaker Change: It's going to take a little time to fire up.

Speaker Change: But we're quite...

Speaker Change: I have confidence that we will do well with our new product.

Speaker Change: Bio Horizon DSOs or Henry Schein DSOs. Bringing the SIN product into the U.S. will also be helpful.

Speaker Change: So, we did go backwards in terms of our sales, but I'm not sure in terms of market share in the United States. It's hard to tell. The data is not readily available. We do extremely well in the...

Stanley Bergman: Data's not readily available. We do extremely well with Bone Regeneration Fields in the United States. Canada's kind of flat-ish.

Speaker Change: Phone Regeneration Field in the United States

Stanley Bergman: Just off the top of my head, that's where we are, and I'm quite happy. I'm confident with the progress we're making in the implant arena, as well as biomaterials. Thank you for all that covered that color. It was super helpful.

Speaker Change: Canada's kind of flat-ish.

Speaker Change: Just off the top of my head, that's where we are and I'm quite happy.

Speaker Change: I'm confident with the progress we're making in the implant arena as well as the biomaterials arena.

Elizabeth Anderson: Just maybe, as a follow-up, can you comment specifically? And this is maybe not just related to implants, but more broadly how you're thinking about trends in July and sort of so far in the third quarter. Are they similar to what you saw in 2Q, better or worse?

Speaker Change: Thank you for all that color. That was super helpful. Just maybe as a follow-up, can you comment specifically, and this is maybe not just related to implants, but more broadly, how you're thinking about trends in July and sort of so far in the third quarter? Are they similar to what you saw in 2Q? Better? Worse?

Ronald South: Yeah, I mean, specifically, you know, Elizabeth, I'll address The Distribution Businesses first because I think that's probably of the most interest to people. You know, we have experienced growth in our distribution businesses from Q1 into Q2, you know, as we recapture some market share. As we said before, that recapture has not been as high or at the pace that we had originally desired, but we are recapturing shares, and that has continued into July, and we expect to continue for the balance of the third quarter, and then, of course, into the fourth quarter as well. So that's distribution. I think with the other products, they could be a little choppier.

Speaker Change: Yeah, I mean, specifically, you know, Elizabeth, I'll address.

Speaker Change: The distribution businesses first, because I think that's probably of the most interest to people. You know, we have experienced, you know, from Q1 into Q2

Speaker Change: Growth in our distribution businesses as we recapture some market share

Speaker Change: As we said before, that recapture has not been as high or at the pace that we had originally desired.

Speaker Change: But we are recapturing share and that has continued into July and we expect it to continue for the balance of the third quarter and then of course into the fourth quarter as well.

Speaker Change: So that's with distribution. I think with the other products, you know, they can be a little choppier. You get into kind of the European holiday season now with distribution there. But I would say, especially within the U.S. distribution business, we feel very good about the ongoing trends there.

John Stansel: You get into the kind of European holiday season now with distribution there. But I would say, especially within the US distribution business, we feel very good about the ongoing trend. And the next question comes from the line of John Stansel with JP Morgan. Please proceed with your question. Great, thanks for taking my question. I just wanted to dig in a little bit on the medical side. Can you just speak in a little bit more detail about the effects for some of your larger customers potentially ordering away with the pharmaceutical distributors and then what your expectation is for that return process over the back half? Thanks.

Speaker Change: And the next question comes from the line of John Stansel with J.P. Morgan. Please proceed with your question.

John Stanzel: Great, thanks for taking my question. Just wanted to dig in a little bit on the medical side. Can you just speak in a little bit more detail about the effects from some of your larger customers potentially ordering away with the pharmaceutical distributors and then what your expectation is for that return process over the back half? Thanks. Thank you, John .

Stanley Bergman: Thank you, John. Generally, our large customers have come back. We have... One large customer that just came back for the pharmaceuticals hasn't come back for the med surge, although I think... The practitioners are. I'm going to ask why.

Speaker Change: Generally our large customers have come back.

Speaker Change: We have...

Speaker Change: What one large customer that just came back for the pharmaceuticals hasn't come back for the med surge although I think

Speaker Change: The practitioners are...

Stanley Bergman: On the other hand, we picked up some larger customers along the way. So it's a give and take. The area is not for large customers.

Speaker Change: I'm going to ask why.

Speaker Change: On the other hand, we've picked up some larger customers along the way.

Speaker Change: So it's a give and take. The area's not the large customers. I think we're doing okay there. We're doing okay with the ASCs. In fact, I think we're doing very well with ASCs. We're growing.

Stanley Bergman: I think we're doing okay there. We're doing okay with the ASCs. In fact, I think we're doing very well with ASCs. We're growing. It's these smaller practices, the DERMs that are in private practice, the aesthetic people in private practice. The ones where our salespeople just have not had the time to go back, and our telesalespeople have been mostly focused inbound, but are now being focused outbound, externally too. Excuse me, so...

Speaker Change: It's these smaller practices, the derms that are in private practice, the aesthetic people in private practice.

Speaker Change: The ones where our salespeople just have not had the time to go back, and our telesalespeople have been mostly focused inbound, but are now being focused outbound.

Stanley Bergman: Overall... I think the recovery is good, it's not working as fast as we wanted. There is some depression, as we noted, in the price of injectables. As the market moves generic, I think there's a movement also to corporate brands in medical. And the whole point of care diagnostic slips from one quarter to another, including the flu vaccine.

Speaker Change: So, overall, I think the recovery is good, it's not worked as fast as we wanted, there is some depression as we noted in the price of injectables.

Speaker Change: As the market moves generic, I think there's a movement also to corporate brands in medical.

Speaker Change: And the whole point of care diagnostics slips from one quarter to another, including flu vaccine shipments.

John Stansel: Just on the potential kind of shift towards own brands that you called out here, is that embedded in your guidance? Is that kind of going to persist through the back half, and there's kind of a more sticky shift to private label brands for you? Or do you expect that to revert at some point?

Speaker Change: And then just on the potential kind of the shift towards own brands that you've called out here, is that embedded in your guidance? Is that kind of persist through the back half and there's kind of a more sticky shift to private label brands for you? Or do you expect that to revert at some point?

Ronald South: Now, we are taking a look at the run rate on corporate brands, John, and it is considered in our guidance. You know, it's a little difficult to talk about it in broad terms because we are still seeing a little bit of price pressure on gloves, and gloves are a very important corporate brand for us. So but outside of gloves, you know, we're seeing, you know, relatively good demand because there does seem to be a greater kind of consciousness around cost in the customer. And the next question comes from the line of Dane Reinhart with Baird.

Speaker Change: No, we are taking a look at the run rate on corporate brands, John , and it is considered in our guidance.

Speaker Change: It's a little difficult to talk to it in broad terms because we are still seeing a little bit of price pressure on gloves and gloves is a very important company brand for us.

Speaker Change: So, but outside of gloves, you know, we're seeing, you know, relatively good demand, because there is, there does seem to be a greater kind of consciousness around cost in the customer base right now.

Speaker Change: And the next question comes from the line of, my apologies, the last question comes from the line of Dane Reinhart with Baird. Please proceed with your question.

Dane Reinhart: Please proceed with your question. Hey guys, thanks for taking the questions this morning. I guess just wanted to kind of follow up on John's first question here. I mean, I thought last quarter you guys had kind of touched on, you know, the 96, 97% recapture rate in the distribution business. And I guess if you're kind of, you know, trailing your original expectations, were you kind of already expecting to be back at 100%? And then is there any variation between your medical and dental?

Dane Reinhart: Hey guys, thanks for taking the questions this morning. Um, I guess just one to kind of follow up even on John's first question here. I mean, I thought last quarter you guys had kind of touched on a, you know, 96, 97% recapture rate in the distribution business. And I guess if you're kind of, you know, trailing your original expectations, were you?

Dane Reinhart: You know, kind of already expecting to be back at 100%. And then is there any variation in there between your medical and dental? And then I guess just last one to follow up on that within the dental business. I mean, if you are recapturing a slightly greater.

Dane Reinhart: And then I guess just last one to follow up on that within the dental business. I mean, if you are recapturing a slightly greater percent of that loss share from last year, it seems like, on a comp-adjusted basis, your North American distribution business did kind of flow with merchandise. So is there anything else in there?

Speaker Change: percent of that loss share from last year. I mean, it seems like on a comp adjusted basis, your North American distribution business did kind of slow with merchandise. So is there anything else in there? I mean, you mentioned patient volumes kind of flat, so

Speaker Change: Has that mixed shift to, you know, kind of lower priced branded options really accelerated here, you know, more meaningfully than what you were expecting?

Dane Reinhart: I mean, you mentioned patient volumes kind of flat. So has that mixed shift to, you know, kind of lower priced branded options really accelerated here, you know, more meaningfully than you were expecting? Hi Dan, it's Ron.

Ronald South: This is where it gets a little fuzzy, because it is difficult to assess. Like you said, based on SHIP-2s and based on other data we had, you get a feel for the so-called recovery from cyber. Those customers are very sporadic, though. They're very episodic with their purchasing habits, and some that you recapture, you might not see again for a while, then you get somebody else.

Ron South: Hi, Dan. It's Ron.

Ron South: This is where it gets a little fuzzy because it is difficult to assess, like you said, we, you know, based on SHIP-2s and based on other data we had, we, you get a feel for the...

Ron South: The so-called, you know, recovery from cyber.

Speaker Change: Those customers are very sporadic, though. They're very episodic with their purchasing habits, and some that you recapture, you might not see again for a while, then you get somebody else. So they have not been as consistent, and that's where it gets kind of difficult to put a number behind.

Ronald South: So they have not been as consistent, and that's where it gets kind of difficult to put a number behind the actual percentage of recapture there. For us, it's important that we not only focus on recapturing our old customers but also gain other new customers. So the focus of the business really is on gaining market share, whether it be former customers or new customers. That's really the focus of the business, as it should be under the, you know, just ordinary course of business.

Speaker Change: The actual percentage of...

Speaker Change: of ReCAPTCHA there.

Speaker Change: For us it's important that we not only focus on recapturing our old customers, but also gaining other new customers. So the focus of the business really is on gaining market share, whether it be former customers or new customers. That's really the focus of the business, as it should be under the, you know, just ordinary course of business.

Ronald South: In terms of what we're seeing in dental and medical, I would say that the effect has been relatively the same across the two. I don't think it's, you know, it's slightly, it could be a little more accentuated with dental, but I would say it would only be slightly more in terms of that so-called recapture rate.

Speaker Change: In terms of what we're seeing in dental and medical, I would say that the effect is relatively the same across the two. I don't think it's, you know, it could be a little more accentuated with dental, but I would say it would only be slightly more in terms of that so-called recapture rate. And again, we have to use a lot of assumptions to determine what is that real recapture rate, right?

Ronald South: And again, we have to use a lot of assumptions to determine what that real recapture rate is, right? And I forgot the last part of your question. Yeah, sorry.

Ronald South: I think like on a comp adjusted basis, your growth in North America distribution, consumables, and dental seems to have slow a little bit. So is that just reflective of, you know, the more shift to the lower price branded consumables products? And then I'll just kind of add my last one here.

Speaker Change: And I forgot the last part of your question, you had a three part question.

Speaker Change: Yeah, sorry. I think like on a comp adjusted basis, your growth in North America distribution consumables, dental seemed to slow a little bit. So is that just reflective of, you know, the more shift to the lower price branded consumables products? And then I'll just kind of add my last one here. I mean, I think, you know, with the EPS guide, I think your midpoint for the back half of the year is kind of in that 242 range. And I think historically, your second half EPS, you know, tends to be around 49 to 50% of the full year.

Dane Reinhart: I mean, I think, you know, with the EPS guide, I think your midpoint for the back half of the year is kind of in that 242 range. And I think historically, your second half EPS, you know, tends to be around 49 to 50% of the full year. So just how do we think about that, you know, kind of a 242 back half guide and think about that as a jumping off point for next year? Thanks. Yeah, so in terms of the back half guy.

Speaker Change: So just how do we think about that, you know, kind of 242 back half guide and think about that for a jumping off point for next year? Thanks.

Ronald South: It does, you know, we expect to maintain the momentum we have in terms of the recapture of market share, although again, not at the pace we had originally anticipated, but we anticipate regaining and gaining market share into Q3, into Q4, and that'll help drive some of that, some of that increase. We also expect the back half of the year to be better in special. We have a new product launch in North America on the implant. So we also, you know, we do expect specialty to be better. And we expect the technology business to bounce back a little better in the second half as well. So all of those would be contributors.

Speaker Change: Yeah, so, in terms of the back half guy...

Speaker Change: It does, you know, we expect to maintain the momentum we have in terms of recapture of market share, although again, not at the pace we had originally anticipated, but we anticipate

Speaker Change: Regaining and gaining market share into Q3, into Q4, and that will help drive some of that increase. We also expect the back half of the year to be better in specialty.

Speaker Change: We have the new product launch in North America on the implant. So we also, you know, we do expect specialty to be better. And we expect the technology business to bounce back a little better in the second half as well. So all of those would be contributors to that.

Stanley Bergman: In terms of your question around, you know, brand, I do think that, uh, the We are seeing, like I said, we see some move towards the corporate brand. Those are better margins for us. It doesn't quite show up on the top line, but it does help contribute a little bit to some of that gross margin favorability. Let me just add one more. Um, the larger accounts are growing at a faster rate than the very small ones. The larger ones are more conscious.

Speaker Change: In terms of your question around, you know, brand, I do think that, uh,

Speaker Change: You know, we are seeing, like I said, we see some move towards corporate brand. Those are better margins for us. It doesn't quite show up on the top line, so it does help contribute a little bit to some of that gross margin favorability you see out there.

Speaker Change: Let me just add one other thing.

Speaker Change: The larger accounts...

Speaker Change: are growing at a faster rate than the very small ones.

Stanley Bergman: All sorts of brands where they can get better prices. As I noted early on, it's not bad for our gross profit; it's actually quite good. So, just because.

Speaker Change: The larger ones are more conscious.

Speaker Change: of all sorts of brands where they can get better pricing.

Speaker Change: As I noted early on, it's not bad for our gross profit, it's actually quite good.

Stanley Bergman: Large customers are growing at a faster rate than the smaller ones. Alternate options of brands are featured to a greater extent in the buying patterns of our large customers. And this is shifting to certain manufacturers or to manufacturers that are prepared to give price discounts for large contracts, larger contracts, and it does depress our sales a little bit. That's certainly good for gross profit, okay?

Speaker Change: So, just because large customers are growing at a faster rate than the smaller ones,

Speaker Change: Alternate Options of Brands

Speaker Change: are featured to a greater extent in the buying patterns of our large customers.

Speaker Change: And this is shifting.

Speaker Change: to certain manufacturers or to manufacturers that are prepared to give price discounts.

Speaker Change: for large contracts, larger contracts.

Speaker Change: And it does depress our sales a little bit, but it's certainly good for gross profit.

Speaker Change: Okay.

Stanley Bergman: Yeah, so we are now four minutes late. Let me end by thanking everyone for participating. I realize this is a complex quarter from a math point of view.

Speaker Change: Is that it? Okay.

Speaker Change: Yeah, so we are now four minutes late. Let me end by thanking everyone for participating.

Speaker Change: I realize it is a complex quarter from a math point of view.

Stanley Bergman: Ron Graham and Susan are ready to meet with you; of course, I will make myself available as well. The business is solid, and has been that way for decades. Have we had bumps along the way?

Ron Graham: Ron Graham

Ron Graham: Susan are ready to meet with you. Of course, I will make myself available as well.

Ron Graham: The business...

Stanley Bergman: Yes, we have. We had a cyber incident, and before that, we had... COVID PERIOD. 2008-9, we had some challenges also because of the economy. It doesn't feel like it's as bad this time, but we have to make sure that we respond accordingly. Um, although our sales are not what we wanted them to be, from an economic point of view, I think there is... I think we can cover that well.

Speaker Change: It's solid.

Speaker Change: It's been that way for decades. Have we had bumps along the way? Yes, we have.

Speaker Change: We had the Cyber Incident, before that we had the...

Speaker Change: COVID period.

Speaker Change: I think 2008-9 we had some challenges also because of the economy doesn't feel like it's as bad this time. But we have to make sure that we respond accordingly.

Speaker Change: All sales are not what we wanted them to be.

Speaker Change: Economic point of view, I think there is a little bit more shopping on price. I don't think it's between us necessarily, our competition, but between brands.

Stanley Bergman: Consumables on the equipment side. And we just have to make sure that our expense structure matches our... Operating Profits. We'll be good at executing on this. We'll be getting right to it, by month. I'm not sure, I don't think so, but we will get it run right.

Speaker Change: We can cover that well.

Speaker Change: whether it's on the consumables or the equipment side.

Speaker Change: And we just have to make sure that our expense structure matches our...

Speaker Change: gross profits, continue to grow gross profit and continue to grow our operating.

Speaker Change: Prophets

Speaker Change: We're pretty good at executing on this. We'll be getting it right.

Stanley Bergman: Medium-term, long-term, it's for confidence in the business. We felt very good about our strategic direction; we will give you more information. 25-27 Strategic Plan, Finalized. Not a change, but it's going to be an emphasis.

Speaker Change: By month, I'm not sure, I don't think so, but we will get it run right in the medium term, long term, still confident in the business.

Speaker Change: We felt very good about our strategic direction. We will give you more information on the 2025-2027 strategic plan, which has been finalized.

Stanley Bergman: It may be a lightening up of certain parts of the business and a heavy emphasis on other parts. We'll give you that information. But we're pretty comfortable with the business. Very pleased with our senior management team, and our management team, in general. And again, remain optimistic. We gave you our best ideas on where companies are going from a mathematical point of view. And this team has delivered in the past, and we're very comfortable that it's the same team. Lots of succession, but the team in place has been around for a while.

Speaker Change: It's not a change, but it's going to be an emphasis and maybe a lightening up on certain parts of the business and a heavy emphasis on other parts. We'll give you that information. But we're pretty comfortable with the business spirit.

Speaker Change: Very pleased with our senior management team, our management team in general.

Speaker Change: And again, remain optimistic.

Speaker Change: We gave you our best ideas on where to start.

Speaker Change: The company is going from a mathematical point of view, and this team has delivered in the past, and we're very comfortable that it's the same team.

Stanley Bergman: Many functions, the move..., retirement, people moved up, Ron, and Graham found a good job in that area, and businesses in general. So, I thank you again, and the team is ready to take questions. Thank you very much.

Speaker Change: Lots of succession, but the team in place has been around for a while. Many functions have moved.

Speaker Change: Because of retirement, people moved up, Ron.

Speaker Change: Graham

Speaker Change: have done a good job in that area and in the businesses in general. So I thank you again and the team is ready to take questions, just reach out to them and they will schedule time for you. Thank you very much everyone.

Operator: Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. © The Bulletproof Executive 2013, Like, Comment, Subscribe © BF-WATCH TV 2021, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good morning, ladies and gentlemen, and welcome to Henry Schein's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker Change: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: [inaudible]

Speaker Change: Thank you for watching!

Operator: 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 the end of the call. If anyone should require assistance during the call, please press the star key followed by zero on your touchtone phone.

Speaker Change: If anyone should require assistance during the call. Please press the star key followed by zero on your Touchtone phone as a reminder, this call is being recorded I would now like to introduce your host for today's call Graham Stanley Henry Schein, Vice President of Investor Relations and strategic Financial Project Officer.

Graham Stanley: As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Office. Please go ahead, Graham.

Speaker Change: Please go ahead Graham.

Graham Stanley: Thank you, operator. And my thanks to each of you for joining us to discuss Henry Schein's financial results for the second quarter of 2024. With me on today's call are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Ron South, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to state that certain comments made during this call will include information that is forward-looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and 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's filings with the Securities and Exchange Commission and included in the Risk Factors section of those filings.

Speaker Change: Thank you operator and my thanks.

Speaker Change: Thanks to each of you for joining us to discuss Henry Schein financial results for the second quarter of 2024.

Graham Stanley: In addition, all comments about the markets we serve, including end market growth rates and market share, are based on 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 the business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and 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.

Speaker Change: With me on today's call are stomach Bergman chairman of the board and Chief Executive Officer of Henry Schein.

Ron <unk>: And Ron <unk>, Senior Vice President and Chief Financial Officer.

Graham Stanley: Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the financials and filings section of our Investor Relations website under the Supplement Information heading and in 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 the live broadcast, August 6, 2024. 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.

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

Speaker Change: Risks and uncertainties involved in the company's business may affect the math as referred to in forward looking statements and the company's performance may materially differ from those expressed in or indicated by such statements.

Speaker Change: 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.

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

Speaker Change: Today's remarks will include both GAAP and non-GAAP financial results.

Speaker Change: We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of the business enable the comparison of financial results between periods, where certain items may vary independently of business performance and allow for greater transparency with respect to key metrics used by management in operating our business.

Speaker Change: 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.

Speaker Change: Reconciliations between GAAP and non-GAAP measures are included in exhibit B of today's press release and can be found in the financials and filings section of our Investor Relations website under the supplemental information.

Speaker Change: Our quarterly earnings presentation, and also posted on our Investor Relations website.

Speaker Change: The content of this conference call contains time sensitive information that is accurate only as of the date of the lifeboat cast a focus 2020 for Henry.

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

Speaker Change: 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.

Stanley Bergman: Good morning and thank you, Graham. Thank you all for joining us today. We delivered solid second quarter financial results, including strong operating cash flow that reflected stability in markets. Gross margin has continued to increase. Driving by our strategies to expand our high-growth, high-margin products and services and by the successful performance of our recent acquisition, we are experiencing improving sales trends in our distribution businesses. However, the pace of recovery since the cyber incident last year has been slower than anticipated.

Stanley Bergman: Good morning, and thank you Graham.

Stanley Bergman: Thank you all for joining us today.

Speaker Change: We delivered solid second quarter financial results, including strong operating cash flow.

Speaker Change: It reflects stable end markets gross margin has continued to increase.

Speaker Change: Even by our strategies to expand our high growth high margin products and services.

Speaker Change: And by the successful performance of our recent acquisitions.

Speaker Change: We are experiencing improving sales trends in our distribution businesses.

Speaker Change: However, the pace of recovery since the cyber incident last year has been slower than anticipated.

Stanley Bergman: Now, given the challenging economic environment we'll talk about a little bit later, in certain markets, as well as Mr. Lane's cyber incident recovery, we are updating our 24 full-year financial guidance. We remain committed to our long-term financial goals through our advancement of the Bold Plus One strategic plan, which has served us well.

Speaker Change: Now given the challenging economic environment will talk about a little bit later in certain markets.

Speaker Change: As well as the delay in cyber.

Speaker Change: Uncovering.

Speaker Change: Updating our 24 full year financial guidance.

Speaker Change: We remain committed to our long term financial goals through our advancements of the bulb plus one strategic plan, which has stood us well.

Stanley Bergman: Supported by a strong balance sheet and new restructuring plan. As we continue to generate synergies by connecting our distribution businesses, Specialty Products and Technology, and Value Added Services, we continue to see Great Symbiotic Relationships Between Our Various Prisoners. We're also announcing a restructuring plan to integrate recent acquisitions and Wright Size Operations and further increase efficiency, targeting somewhere between $75 million to $100 million annual savings.

Speaker Change: Supported by a strong balance sheet.

Speaker Change: And new restructuring plan.

Speaker Change: As we continue to generate synergies by connecting our distribution businesses.

Speaker Change: Specialty products and technology and value added services.

Speaker Change: We continue to see.

Speaker Change: Great symbiotic relationships between our various businesses.

Speaker Change: We are also announcing a restructuring plan to integrate recent acquisitions and right size, our operations and further increased efficiencies.

Speaker Change: Targeting somewhere between 75 million to $100 million annual savings.

Stanley Bergman: We are comfortable that we will continue after this restructuring plan is put in place. Improving Operating Margin. And we are increasing, at the same time, our repurchase authorization by an additional $500 million as we expect to leverage the strong cash flow we have. So let me turn to the various business units. Dental Distribution, to start with. In North America, patient traffic was generally flat compared with the prior quarter.

Speaker Change: Well, yes.

Speaker Change: Sensible that we will continue after this.

Speaker Change: Restructuring plan is put in place.

Speaker Change: Yes.

Improving operating margins.

Speaker Change: And we are increasing at the same time our repurchase authorization.

Speaker Change: In a recent board approval, an additional $500 million as we expect to leverage the strong cash flow we have.

Speaker Change: So let me turn to the various business units.

Speaker Change: Dental distribution to Starwood.

Speaker Change #100: In North America patient traffic was generally flat.

Speaker Change #100: With the prior quarter.

Stanley Bergman: With unemployment rates and dental insurance coverage generally remaining consistent with prior periods, we are experiencing improving sales trends in our dental distribution business, and we believe we gained market share in the quarter as we strengthened our focus on getting back episodic customers following the cyber incident late last year. However, the pace of recovery since the cyber incident late last year has been slower than anticipated.

Speaker Change #100: With unemployment rates in dental insurance coverage generally remaining consistent with prior periods.

Speaker Change #100: We are experiencing improving sales trends in our dental distribution businesses and we believe we gained market share in the quarter.

Speaker Change #100: As we strengthened focus on gaining back episodic customers following the cyber incident.

Speaker Change #100: However, the pace of recovery since the cyber incident late last year has been slower than anticipated.

Stanley Bergman: We reported a year-over-year decline in merchandise sales, which reflects the pace of recovery and, of course, lower sales of PPE products, which are primarily the result of lower glove prices. Membership in the Thrive Signature Program continues to increase, with nearly 1,500 new members added in the second quarter, bringing the total membership to approximately 6,000 U.S. dental practitioners.

Speaker Change #100: We reported year over year decline in merchandise sales.

Speaker Change #100: Which reflects the pace of recovery.

Speaker Change #100: And of course, lower sales of PPE products.

Speaker Change #100: Primarily the result of lower glove pricing.

Speaker Change #100: Membership in the thrive citizenship program continued to increase with nearly 500 new <unk>.

Speaker Change #100: Members added in the second quarter, bringing the total membership to approximately six six.

Speaker Change #100: 6000 U S dental practices.

Stanley Bergman: This subscription-based program drives customer loyalty and has been very good at driving Sticky Notes to our various businesses, whether it's distribution, specialty products, or, for that matter, specialty services. We were pleased with our North American Dental Equipment sales growth. This reflected positive trends across the board, traditional equipment, digital imaging, CAD CAM, and parts and services. We achieved modest growth in international dental merchandise sales, driven by good growth in the Dutch countries and in Brazil.

Speaker Change #100: The subscription based program drives customer loyalty and has been very good.

Speaker Change #100: Gain in driving.

Speaker Change #100: Stickiness to our various businesses, whether it's distribution specialty products or for that matter of specialty <unk>.

Speaker Change #100: Services.

Speaker Change #100: We were pleased with our North American dental equipment sales growth.

Speaker Change #100: This reflected positive trends across the board traditional equipment digital imaging cadcam and parts and services.

Speaker Change #100: We achieved modest growth in international dental merchandise sales driven by good growth in the countries and in Brazil.

Stanley Bergman: International dental equipment sales were impacted by a decrease in sales in France as a result of changes in the DSO legislation, a generally slow economic and generally slow equipment market in Italy, and the expiration of tax incentives last year in Australia, with other markets generally in line with last year.

Speaker Change #100: International Dental equipment sales were impacted by a decrease in sales in France as a result of changes in the DSO legislation.

Generally slow economic Gen.

Speaker Change #100: Generally slow equipment market in Italy.

Speaker Change #100: And the expiration of tax incentives less Janus and Australia.

Speaker Change #100: With other markets generally in line with last year.

Stanley Bergman: Given demographic trends, we expect patient demand to outpace the supply of dental services. We've seen this for a while, and for this to drive further efficiency needs in dental practices, which we expect to be a positive driver in the growth of our dental businesses, all fitting in the goal of the Bold Plus One strategic plan. Now, let's take a look at dental specialties.

Speaker Change #100: Given demographic trends, we expect patient demand to outpace the supply of dental services.

Speaker Change #100: <unk> seen this for a while and for this to drive further efficiency need in the dental practices.

Speaker Change #101: Would you expect to be a positive driver in the growth about our dental business is offsetting and develop of the boat plus one strategic plan.

Speaker Change #101: Now, let's take a look at dental specialties.

Stanley Bergman: Moving to our specialties business, sales growth in the quarter was generally consistent with the pace of growth in the first quarter, as acquisitions and organic growth in Europe were offset by lower sales in North America. In Europe, sales of dental implant products posted solid growth as we continue to gain market share with our broad and highly competitive offering. Within North America, we received FDA approval to launch the bone-level tapered proconical implant in mid-June.

Speaker Change #101: Shifting to our dental specialties business sales growth in the quarter was generally consistent with the pace of growth in the first quarter.

Speaker Change #101: Acquisitions, and our organic growth in Europe were offset by lower sales in North America.

Speaker Change #101: In Europe sales of dental implant products posted solid growth as we continued to gain market share with a broad with our broad and highly competitive offerings.

Speaker Change #101: Within North America, we received FDA approval to launch the blood lead level tapered probe.

Speaker Change #101: <unk> implant in mid June.

Stanley Bergman: This was a bit later than we expected, and we believe this timing impacted the quarter's sales growth as some customers, who held back on purchases, deferred them. In anticipation of the launch of this important new product, we expect dental implant sales growth in North America to resume in the third quarter, aided by this new product line. As a reminder, the Tapered Probe Clinical positions us to provide an innovative, highly competitive offering for the half of the U.S. dental implant market we weren't previously addressing.

Speaker Change #101: This was.

Speaker Change #101: A bit later than we expected and we believe this timing impacted the quarter two sales growth is sub customers held.

Speaker Change #101: We held back on purchases to further.

Speaker Change #101: In anticipation of the launch of this important new products.

Speaker Change #101: We expect the dental implant sales growth in North America to resume in the third quarter aided by this new product line.

Speaker Change #101: As a reminder.

Speaker Change #101: It taper probe conical positions us to provide an innovative highly competitive offering for the half of the U S. Dental implant market, we weren't previously addressing.

Stanley Bergman: The initial feedback we are receiving from customers is quite positive, and we look forward to reporting on our progress in future calls. Our endodontic business continued to grow, aided by a small acquisition we made in Latin America. The focus for orthodontics last quarter was the launch of the Biotech Smiler Clear Aligner into the U.S. market.

Speaker Change #101: The initial feedback we are saving from customers is quite positive.

Speaker Change #101: And we look forward to reporting on our progress in future calls.

Speaker Change #101: In the domestic business continued to grow aided by small a small acquisition, we made in Latin America.

Speaker Change #102: The focus for the <unk> last quarter was the launch of the biotechs myeloid clear aligner into the U S market again.

Stanley Bergman: Again, our orthodontic business is very, very small relative to the entire specialty business. Now, it's important for our investors to understand we continue to align our dental sales team, successfully deepening our penetration of the DSO segment last quarter across our entire specialty. It's the distribution side working in concert with the specialty businesses and the value-added services that are creating great value for our customers and, in turn, for the profitability of Henry Schein.

Speaker Change #102: Our orthodontic business is very very small.

Speaker Change #102: Relative to the entire specialty business.

Stanley Bergman: So now let's turn to Technology and Value Added Services and Henry Schein 1, which is our dental software business. The customer base for our Dentrix, Ascent, and Dynalink cloud-based solutions continued to grow during the second quarter and was up more than 25% year over year, with now worldwide installations exceeding 8,000. What I think is important to understand is that in the past, when we sold software, we recognized SAIL on-premise software right away. We are now switching rapidly to cloud-based solutions, which are highly profitable in the long run. And the attention rate is great.

Stanley Bergman: But you don't recognize the full sale at the time, the full revenue at the time of the sale. These cloud-based practice management software products are both the cornerstone of Henry Schein 1, and at the same time, a powerful enabler of additional product sales and equipment. Merchandise at the Henry Schein level, as well as driving specialty products through the NEMOTEC software that is now being advanced in sales. Additionally, the number of claims processed by our revenue cycle management e-claims business increased by single-digit percentages versus the prior year.

Stanley Bergman: Now this is the spike that changed the healthcare cyber industry. And under normal circumstances, we would have expected greater growth. But the Change Healthcare Cyber Incident has slowed us down. We are servicing our customers. There's no interruption from that point of view, but there is some impact on the cash collection of our customers because Change Healthcare changed the process, the actual payment.

Stanley Bergman: We process through change Claims Processing; we found an alternative source, but the actual check or electronic transfer to the customer of the funds is still going through change. Some dental practices are therefore facing cash flow challenges due to reimbursement delays, and we believe this will continue to temporarily impact demand for certain software products, and we think a little bit also on the equipment side. We believe this is a temporary cash flow issue which will get resolved. It didn't really impact our collections of our receivables, but it is a bit of a challenge to some practices that are not getting their checks as frequently as they were. However, the claims are being processed.

Stanley Bergman: The collaboration between Henry Schein and one, and our distribution and specialty products businesses support highly integrated solutions that enable deeper customer relationships and multiple touch points between Henry Schein and our dental customers, which helps drive growth, as I mentioned early on, and this is especially the case with the DSO segment. Although, as we move towards our 2025 strategic plan, we will drive the synergy down into the smaller accounts. Furthermore, many of our high-quality leads for Dentrix products and services are generated by the U.S.

Stanley Bergman: Dental Field Sales Representative, and by the way, this is the case not only in the U.S. but in Canada and in all the markets abroad where Henry Schein 1 operates. Here are a few further examples of integration.

Stanley Bergman: Nemotech, the specialty software that was developed by Biotech in France, is now integrated with our Dentrix practice management software in the US, providing, as we discussed during our investor day, the integrated three-click digital workflow software for implants and orthodontics. This has been recognized by some of the big DSOs as very, very important. We have implemented some of the big DSOs, and we expect this to advance further, advancing Henry Schein's strength and connectivity to these DSOs, and again, this will, over time, improve the smaller practice.

Stanley Bergman: We also expanded our solutions offering by pairing Dentrix Detect AI, that's the AI system, clinical AI system we sell, powered by Vidya Health, an early caries detection solution, with a terrific product, CureVent, an early caries treatment product.

Stanley Bergman: We're also having early success with the recent launch of Reserve with Google. All of these are being well received by the more sophisticated, larger DSOs. And we are quite optimistic that the Vidya CureVent solution will become standard of care over time in many practices. So these are some of the examples of the unique strength of our combined platform, and we continue to unlock benefits and value from the interconnectivity. Interconnectedness across our business. All of this is contained in our strategic plan thinking. Let me now quickly return to our medical group. Second quarter sales also reflect slower than anticipated.

Stanley Bergman: In addition, sales were impacted by ongoing migration to generic alternatives with certain branded pharmaceuticals, and particularly in the injectable area, where we have a very strong market presence. Of course, there was the declining sales of PPE products, yeah, all primarily the result of lower pricing for glove prices. As with the dental distribution business, we continue to win back episodic medical customers, and in particular, large accounts that moved their prescription drug business to other distributors, primarily drug distributors.

Stanley Bergman: Once the customers understand our unique, logistics capabilities that are moving back, it takes time; it may enter into commitments. And I think although this is slower than anticipated, we will get these customers back. Excluding the fact of Point of Care Diagnostic Tests, which were impacted by flu seasonality. The Bulletproof Executive 2013, Flu diagnostic testing, moving from one quarter to another, that has an impact on the quarter, but sequentially medical sales growth is improving. Cough, cough, excuse me.

Stanley Bergman: Our home solutions business again performed well, with sales up double-digit percentage during the quarter led by the Shield Healthcare Prism Medical Businesses. We're particularly pleased with S.H.I.E.L.D. It's been well received since we acquired the majority interest in last October, so although our overall home care sales volumes are still relatively modest. This is a strategically important market for us, and together with the movement of procedures to the ASC, the American Surgical Center, represents an enormous growth opportunity for Henry Schein. So, let me conclude my remarks, my opening remarks. Before Ron takes over with the specific mat,

Stanley Bergman: We believe, excuse me, we believe we delivered solid second-quarter financial results, including strong operating cash flow. And although in the short term, we expect our results to be... Impacted by the challenging economic environment in certain markets, we have in dentistry experienced these kinds of ups and downs over the years. This one seems to be a little bit more of a challenge.

Stanley Bergman: And... Umm... Of course, the anticipated recovery from the cyber incident has been slower but consistent. Every month, we get a little bit better. So we remain bullish about the prospects for the business in general. Of course, we'll get into more details. But before we get into answering questions, let me ask Ron to discuss our quarterly financial results and the 24-month guidance in a little bit greater detail. So thank you, everyone. Ron, please.

Ronald South: Thank you, Stanley, and good morning, everyone. As we begin, I'd like to point out that I will be discussing our results as reported on a GAAP basis and also on a non-GAAP basis. All items excluded from our second quarter non-GAAP financial results for 2024 and 2023 are detailed in Exhibit B of today's press release. A reconciliation of our GAAP to non-GAAP income statement is also available in our quarterly earnings presentation on our website.

Ronald South: With respect to sales, I will provide details on total sales, total sales growth, as well as LCI sales growth, which is internally generated sales in local currencies compared with the prior year and excludes acquisitions. Turning to our second quarter results, global sales were $3.1 billion, with sales growth of 1.1%. This reflects 4.0% sales growth from acquisitions, a 0.5% sales decrease resulting from foreign exchange rates, a 0.5% sales decrease from lower sales of PPE, which is primarily the result of lower glove prices, and the pace of recovery from the cyber incident late last year. LCI sales for the quarter decreased 2.4 percent, which includes a 0.5 percent decrease from lower PPE sales.

Ronald South: As noted by Stan, our underlying sales growth for the quarter reflects improving sales trends at our distribution businesses. However, the pace of recovery in these businesses since the cyber incident late last year has been slower than anticipated. Our GAAP operating margin for the second quarter of 2024 was 5.09 percent, a 137 basis point decline compared with the prior year. On a non-GAAP basis, operating margin for the second quarter was 7.75 percent, a 41 basis point decline compared with the prior year non-GAAP operating margin.

Ronald South: Consistent with our bold plus one strategic plan, gross margin expanded by 101 basis points, primarily due to our greater contribution from high growth, high-margin products and services. Operating expenses were higher as a percentage of sales, primarily due to recent acquisitions and lower sales at our distribution business. Second quarter 2024 GAAP net income was $104 million, or $0.80 per diluted share.

Ronald South: This compares with prior year GAAP net income of $140 million, or $1.06 per diluted share. Our second quarter 2024 non-GAAP net income was $158 million, or $1.23 per diluted share. This compares with prior year non-GAAP net income of $173 million, or $1.31 per diluted share. The foreign currency exchange impact on our second quarter diluted EPS was unfavorable by approximately one cent versus the prior year.

Ronald South: Adjusted EBITDA for the second quarter of 2024 was $268 million compared to the second quarter 2023 adjusted EBITDA of $279 million, with EBITDA growth expected to accelerate in the second half of the year. Turning to our second quarter sales results, global dental sales were $1.9 billion, with sales decreasing 1.7%. LCI sales decreased 2.1% or 1.7% when excluding PPE sales.

Ronald South: Global Dental Merchandise LCI sales decreased 2.6% versus the prior year, as the pace of our recovery in merchandise sales following last year's cyber incident is taking longer than anticipated. Regarding dental equipment, although our global LCI sales decreased 0.4%, our North American equipment LCI sales grew 2.9%, with solid growth in our traditional equipment category, digital imaging, CAD CAM, as well as our parts and service business. Overall, digital equipment sales were up slightly from the prior year.

Ronald South: Our international equipment LCI sales decreased 5.5%. And as Stan noted earlier, this was the result of sales decreases in France, Italy, and Australia, with sales in other markets in line with last year. Changes in French legislation limiting DSOs negatively impacted equipment investment in France, while the overall equipment market in Italy was slow. In addition, the end of tax incentives last year in Australia and the UK provided difficult year-on-year comparisons in these markets.

Ronald South: We expect modest overall equipment sales growth for the remainder of the year in both North America and internationally. Dental specialty product sales were approximately $279 million, with growth of 7.2% driven by strong dental implant and biomaterial sales in Europe as well as endodontic sales globally. Global technology and value-added services sales during the second quarter were $214 million, with total sales growth of 10.8%.

Ronald South: LCI sales growth of 3.9% included 2.9% LCI sales growth in North America and 10.5% LCI sales growth internationally. In North America, while sales growth is still recovering from the changed healthcare disruption, we have solid growth in our value-added services, revenue cycle management, and Dentrix Ascend practice management business. International growth was driven by our Dentali cloud-based solution. Global medical sales during the second quarter were $1.0 billion, with sales growth of 5.0 percent, and LCI sales decreased by 4.3 percent, reflecting the slower pace of recovery from the cyber incident, as well as lower PPE sales as a result of lower glove pricing and ongoing migration to generic alternatives for certain brands of pharmaceuticals. Excluding PPE sales, LCI sales decreased by 3.6%.

Ronald South: Our home solutions business has had strong growth driven by recent acquisitions. As Stan noted, we also benefited in the first quarter of this year from strong point-of-care diagnostic test shipments driven by flu seasonality. Regarding stock buybacks, we repurchased approximately 1.4 million shares of common stock in the open market during the second quarter, buying at an average price of $70.64 per share for a total of approximately $100 million. We had approximately $90 million authorized and available for future stock repurchases at the end of the quarter. An additional $500 million of share repurchases was authorized by our Board of Directors on July 31.

Ronald South: We expect to repurchase approximately $175 million in shares in the second half of this year, but this new authorization provides us the flexibility to repurchase. Turning to our cash flow, we had a strong operating cash flow of $296 million for the second quarter, which exceeded operating cash flow of $274 million last year. Year-to-date, operating cash flow was $493 million, driven by lower working capital and $192 million more than last year. Restructuring expenses in the second quarter were $15 million, or $0.08 per diluted share, and were incurred as part of our previously disclosed restructuring initiative.

Ronald South: That specific initiative was completed on July 31st, 2024, and these expenses mainly related to severance benefits and costs related to exiting certain facilities. As Stan mentioned, we also announced today a new restructuring initiative that we expect to continue over the next 18 months, targeting $75 million to $100 million in annual run rates. Our second quarter GAAP results include $10 million in pre-tax proceeds as part of our cyber insurance claim. As we have previously mentioned, this policy has a $60 million claim limit on after-tax losses with a $5 million retention.

Ronald South: We expect to continue to receive payments over time. The $10 million of proceeds received in the second quarter is not included in our non-GAAP results and is detailed along with other non-GAAP adjustments in Exhibit B of today's press briefing.

Ronald South: I'll conclude my remarks with our updated 2024 financial guidance. At this time, we are not yet able to provide, without unreasonable effort, an estimate of the restructuring costs associated with the new restructuring plan for 2024, although we expect this to primarily include Severance Bay and facility-related costs. Therefore, we are not providing GAAP guidance.

Ronald South: Our 2024 guidance is for continuing operations, as well as acquisitions that have closed. It does not include the impact of potential future acquisitions. Guidance also assumes that foreign currency exchange rates are generally consistent with current levels and that end markets remain consistent with current market conditions. As a result, our 2024 total sales growth is now expected to be 4-6% over 2023, versus our previous guidance of 8-10% growth. The previous guidance anticipated a stronger economy as well as a faster recovery from the cyber incident.

Ronald South: This sales guidance also includes sales from the acquisitions we have completed to date. For 2024, we now expect non-GAAP-diluted EPS attributable to Henry Schein Inc. to be in the range of $4.70 to $4.82, which compares with previous guidance of $5 even to $5.16 and reflects growth of four to 7% compared to 2023 non-GAAP diluted EPS of $4.50. This guidance reflects an estimated non-GAAP effective tax rate of 25%.

Ronald South: As a result of the timing of implementing our restructuring plans, we expect year-over-year growth in diluted EPS to be higher in the fourth quarter than in the third quarter. Our 2024 adjusted EBITDA is expected to grow in the low double digits versus 2023 adjusted EBITDA of $984 million and compares with prior guidance of more than 15% growth. We expect adjusted EBITDRAD to grow faster than non-GAAP diluted EPS because of higher interest expense, a higher effective tax rate, and higher depreciation as a result of the investments we have made to execute on our strategic plan.

Stanley Bergman: Through the second quarter, our specialty products, technology, and value-added services contributed 38.5% of total non-GAAP operating income. We continue to believe that we will achieve our goal of exceeding 40% operating income contribution from these products and services for the full year. With that, I'll now turn the call back to Stanley. Thank you, Ron.

Stanley Bergman: As we lead into the Q&A... We're confident in the prospects for our business, even in the face of challenging economic conditions. Although, um... We do believe markets are stable. And now we can continue to gain market share, thanks to the recovery from the cyber incident, which is going in a good direction, but not as fast as we expected when we gave our last guidance a quarter ago. And we also are comfortable that we will benefit from the trends and Increased Specialty Procedures.

Stanley Bergman: I think we've rounded out the implant offering we have, we had a big gap, and we've got that in place in the United States. We're also confident that the movement of medical procedures to alternative care settings will continue.

Stanley Bergman: We are generating good synergies, connecting our distribution businesses, specialty products, and technology, and value-added services. While we focus on these opportunities, we're also taking action to increase shareholder value, as we've noted in the restructuring plan. We need to right-size the restructuring plan.

Stanley Bergman: The sales have not grown as rapidly as we thought. Some of that is attributable to the fact that inflation does not exist at the moment. We believe inflation in our market, very moderate, may actually be going down slightly as our customers are more price conscious and moving to some alternative brands, some owned brands, but we think from a gross profit point of view, this will be fine, in fact, maybe slightly accretive. And, of course, we will continue to buy stock. We anticipate spending $500 million. And so, with that in mind, please, let me... answer some questions, Operator. Thank you, Stanley.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you'd like to remove a question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. And the first question comes from the line of John Block with Stiefel. Please proceed with your question. Thanks, guys, and good morning. Maybe I'll just stick to the same topic. Ron, you know, the 2024 sales growth expectation is now 5% at the midpoint, down from 9%. So I think we're looking at roughly a half a billion step down. Maybe you can just talk about, you know, where that is coming from, call it the more conservative approach?

John Block: to your distributor recapture versus that of the slower economy that you also allude to in the press release, and I'll just stop there, and then I'll ask my follow-up question on the same topic. John, thank you for that question. Let's start with Ron giving you the basics, and I'm happy to fill in further. Certainly. Hi, John.

Ronald South: You know, the, yeah, from midpoint to midpoint, we came down four, you know, four points, right? But it is, you know, the math works to approximate what you have enumerated. If you, going back and thinking about our original guidance and our, even our amended guidance on sales from the first quarter, you know, our investor day assumption, going back a year and a half ago, was that long-term growth for dental was about 2 to 4% in terms of market growth.

Ronald South: And our assumption for this year was at the low end of that range. And, of course, part of that growth would be coming from anticipated price increases as well. As we've progressed through the year, our view has shifted to more flat year-over-year market growth, which still reflects a stable patient traffic environment, and I think others in the industry have even indicated flat to negative growth in the market, right? As the pricing itself has also remained fairly flat compared to the prior year, and we see customers frequently moving to some lower cost options, including our own corporate brand in some cases, which is, in general, positive for us from a gross profit perspective.

Ronald South: Those conditions, and you couple it with the company-specific challenge of recovering from the cyber incident, which has been delayed but is still showing sequential growth quarter to quarter, are the primary drivers to the reduction in our sales guidance, right? So the fundamentals of the business remain intact. We believe we're once again gaining market share, working our way back to pre-incident market share, and we expect that to continue over the balance of the year. Thank you, Ron.

Stanley Bergman: I think you've covered it quite well, actually. If there are any specifics, John, or anyone has with respect to any particular market, any particular sector, I think we could answer that. But that's the broad...

Operator: Okay, and just as a follow-up or tack on to that, to push you guys a little bit, you talked about the recapture being slower than you had anticipated so far, but you still expect to get this business back. And I guess my question is, why do you still expect to get that business back? Here we are, almost nine, 10 months post-cyber incident. I would think it's like a hot lead, and either you get them back with incentives, or they might move, especially if they're episodic, to a different platform that they're somewhat content with.

Operator: So maybe you can talk about, you know, your conviction about getting those customers back and the strategy to do so. And thanks for your time. So, John, that is a very important question. I'm glad you asked. Look, our sequential month over month reduction of the gap has been quite good. It's going slower.

Stanley Bergman: We need to get our field sales force visiting again the smaller customers. They've been focused on the big ones, and that's been pretty good. They need to focus on the smaller ones, and we need to kick our telesales team back into full action. They had a deal with the fallout of the cyber incident. There were many issues that had to get resolved.

Stanley Bergman: Yes, the customers were okay in the end that we resolved it. But our call centers have been very busy, and only in the last couple of months. Actually, the last six or so weeks, have they been doing outbound calls?

Stanley Bergman: So, we are well received. I just happened, we had an opening of our... New Distribution Business in Texas, and I was with some of our FSCs, our field sales consultants, who many of them have gone back now for the first time into the smaller accounts. And they reported that the customers are very happy to see them. They just wondered why they were not there in the last couple of months.

Stanley Bergman: They were not there because people were focused on dealing with the larger customers, and the customers are the better customers, where they buy a bigger market quality from us. We are confident that over time we will continue to gain market share. We are gaining market share from where we left off at the end of 2023. It's going to be hard to split exactly what's market share growth because of general market share growth, the effectiveness of the sales force, and what's the result of the recovery, but I think overall we're confident that we'll be able to continue. Gain Market Share. And the question is, exactly at what pace?

Stanley Bergman: We've given you guidance on what we expect. That's really the key. I mean, there's nothing more we can add to that.

Stanley Bergman: We have a pretty good track record, and we expect to deliver. Will we be off by a couple of quarters one way or the other? Hard to give you the exact...

Stanley Bergman: Number, but I think you're asking a very important question. And the next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question. Hey, good morning, everyone. There is definitely a lot to cover here in the second quarter of the Balance of 24, but I actually want to fast forward a bit to 2025.

Jason Bednar: And apologies up front; I'm going to pack a few in here. We've got a lot of moving parts here. This year, the story, though, should be a little cleaner exiting this year as we'll have left the cybersecurity impact and the PPE headwinds behind. Where do you see organic growth for the business once we emerge from all the noise? You know, what's the right underlying growth rate? And what is the margin profile?

Stanley Bergman: We should be using this as a jumping off point as we start thinking about 2025. And then, within all of that, can you give us a bit of color as to the phasing of the savings assumed in the restructuring program? It sounds like some of that's coming here in the fourth quarter of 24, some of the benefits, but how much of that should we expect to see in the fourth quarter versus the contribution in 2025? Jason, again, let Ron give you some thoughts. The suffix that has been baked in to the extent that we can give you that information.

Stanley Bergman: Uh, back to our assumptions, but, in general, we believe the consumable markets in the United States and Canada are relatively stable. Yes, there's been a shift, I think, to more price-conscious opportunities, but I don't think that necessarily impacts our gross profit, although it may depress our sales slightly.

Stanley Bergman: And we believe we can gain market share on the pure distribution of products. Adding to the profitability, I think, continues to be our specialty businesses. We think we are well positioned globally in that area. We don't really have exposure to China.

Stanley Bergman: We're selling very little there. There are going to be ups and downs there, in Asia generally. But the market that we're strongest in is the DAC region in Europe, and I think we're very well positioned. We are, I think, well-positioned in the United States, specifically with the implant dentist that is looking for high value but a branded product. We are hopeful and expect that as the year goes by this year, we will be able to get some market share in that area.

Stanley Bergman: I think the endo, though it's not as big as implants, continues to move in a positive direction, and the medical business. Yeah, there have been some anomalies there, on the pharma side, the whole point of care switching between one quarter and another.

Stanley Bergman: But I think the movement to the alternate care side, the Ambulatory Surgical Center, the home care, those are all positive, good ways for us to sell our own brand. And I think we will recover in that area. We've done okay with the large customers, the small ones, the same, as I noted, in response to John's question; we just have to get our salesforce in front of more of those smaller customers, our telesales groups, our e-commerce groups.

Stanley Bergman: I think equipment continues to be an area that we're quite optimistic about in the United States. Uh... We did have relatively good equipment growth, there was an anomaly with scanners. This is another example of a big sale last year, but generally, we're in positive territory. I think we're gaining market share. We have some challenges with equipment abroad. We have a big market share in France, so there's a bit of an impact there on some legislation. Italy's not so great.

Stanley Bergman: Australia, we had a challenge this quarter because of some tax benefits that lapsed, I think. As the year goes by, into 2025, we will do well in that market. And then, generally, I think in the equipment market, we'll be okay, and we'll grow. There is, I might add, though, a view on pricing. Dentists are looking at value.

Stanley Bergman: I think some of the manufacturers have understood this; others are adjusting. But the average unit price may come down slightly, but I think the profit will be fine, specifically as our clinical workflow initiatives kick in. And on the Henry Schein side and the value-added services side, I think those are all going to be contributors to profitability this year and more in 2025. So, Ron, I don't know if you have anything that you can share from a macro point of view. Subscribe to www.youtube.com, Jason, I will say too.

Ronald South: You know, you were kind of talking about the balance of the year and then kind of going into 25, you know? We have announced a new restructuring initiative. We do expect, as you inferred, that we will get some benefits this year. I mean, we can take some immediate actions that will provide, you know, some short-term benefits for us, you know, in this quarter as well as next quarter. There will be, I'll call them, kind of other more complex actions that I think will take us over the course of 2025 to complete.

Ronald South: I think it's important to note that as we've done a lot of building under the B of our bold plus one strategy in the last year or so, year and a half, and there are going to be some integration opportunities there, and something that might fly under the radar a little bit this year is that we've also invested this year a little over $200 million in buying out shareholder partners in certain subsidiaries where we have a minority partner. And this kind of increased ownership also provides us with, you know, a very good opportunity to combine certain operations for the purpose of leveraging our one China approach with customers. And so, but those, as you can appreciate, are a little more complex, not the kind of thing you can do overnight.

Ronald South: So those will likely spill into 25 for some time. But that's the plan. And we've factored that into the balance of the guidance, what we think we can achieve this year. And then when we provide 25 guidance, we'll be able to address it. Okay. All right. That's helpful.

Jason Bednar: As a follow-up, I want to shift gears a little bit and discuss what came up on a conference call last week from one of your manufacturer partners. I'm sure you anticipated this question, but just wanted to see if you could discuss what your position is with respect to the relationship with your manufacturing partners and maybe address the status of your particular agreement with Dentsupply Serona. When specifically, if you can share, does your contract come up for renewal?

Jason Bednar: And can you discuss how you're proceeding now that you're aware that your main distribution competitor received a non-renewal notice on their contract? Yeah, Jason, first of all, we have never really spoken about specific relationships with DADS Bly.

Stanley Bergman: But because generally it's not a good idea, but yesterday I had a call with Simon Dent, CEO of Dentsupply, and we confirmed to each other that our relationship is good. I believe we are the biggest customer, they're one of our biggest... Global suppliers. We work with them in practically every country, one or two that we don't.

Stanley Bergman: And they're a very important supplier of ours. The company has had some management changes over the years, but it seems like the current management team is in place and understands what needs to get done. I believe that they are working well with our team here, in particular in North America and Canada, also in Europe. It's a bit more complex in Europe, it's one of the biggest markets for them, for us. They are working well, by the way. Germany, France, Spain, and the UK.

Stanley Bergman: And yeah, they have committed to adding more sales power to the organization, which can only be helpful to us. They have products, and we'd like to get them in front of our customers. On the other hand, there are other suppliers that have competing products, and we will always do what's best for our customers.

Stanley Bergman: But at the same time, we have strategic relationships. I would view them as one of the strategic partners. We do not have a formal contract with them, a Memorandum and Understanding, in one way or another; I don't know whether it expires or not.

Stanley Bergman: I haven't actually taken a look at that, but in general, it's a good relationship, and we have good relationships with all of our suppliers. And then I'm sure the next question is selling direct, and that rumor has been going around in dentistry for years. Specialty products are cell direct, implants, orthodontics, and to some extent, Endodontics.

Stanley Bergman: We need to be in a position to offer the entire offering of all those products. We are in that position today where we have gaps, can't get products. We entered into manufacturing, those are the specialty products we've discussed. We're doing well, and like in any industry, there are own-brand, corporate-brand products, and where manufacturers are ready to provide good pricing that meets the customer's needs.

Stanley Bergman: We're happy to take the manufacturer's products in. Where we need to have a private corporate brand, we have that. Like in any industry, and in general, I think we have good relationships with our suppliers as it relates to their specific issues with specific, Distributed, It's not for us to comment. So I'm trying to be as transparent as possible.

Elizabeth Anderson: And the next question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question. Good morning, guys.

Stanley Bergman: Thanks so much for the question. I was wondering, Stanley, going back to what you were mentioning before, could you comment specifically on the growth rate for implants in 2Q, maybe in North America, and then specifically, globally, and sort of what your expectations are, particularly for implants for the back half of the year? To Elizabeth Implant. So, the easiest, the purest, would be Europe.

Stanley Bergman: And the biggest market for us is ducks. That is, Germany and Austria, a little business in Switzerland. In general, we continue to do very well. We have a complete line.

Stanley Bergman: We have an outstanding sales force built over many years. We have what's needed. We are not the biggest player in Europe yet, in Germany, for bone regeneration, but we're growing very nicely. We only entered that market about three or four years ago, but for implants, we're doing very well, and continue to expect to do well. And in the other European markets, we will continue, I think, to do well, but we have a relatively small market share, except in France, where we're the number one player, and with all the challenges in France. And, you know, just because you're asking such a specific question, I will answer it.

Stanley Bergman: But generally, we're not going to provide specific information on specific countries, but we are growing in France. Biotech is growing organically and doing quite well with its implants. I think they're number one. So Europe is the easiest, the purest. As it relates to Latin America.

Stanley Bergman: Our SIN new joint venture, although it's viewed as acquisition growth, continues to gain market share. Unfortunately, they were not hit by the sad situation in that part of Brazil that got a lot of rain. But overall, it's doing well. The biodiversity part of the equation is a bit challenged because of a couple of countries of instability. Latin America, but they were not really a participant in the Brazilian market, and our view of Latin America is primarily through..., as it relates to the U.S. Until last year, we were gaining significantly in market share.

Stanley Bergman: All sales were good. This year, the market is a little bit frozen for us. Because of our introduction, our customers, and our sales folks are aware of the new product. We were supposed to get it around March or April, but we got FDA approval in the middle of June. It's going to take a little time for the market to fire up.

Stanley Bergman: But we're quite confident that we will do well with our new product, which I think is also well-received by DSOs, whether they are... BioHorizon DSOs or Henry Schein DSOs. Bringing the SIN product into the U.S. will also be helpful. So we did go backwards in terms of our sales, but I'm not sure in terms of market share in the United States. It's hard to tell.

Stanley Bergman: Data's not readily available. We do extremely well in the Bone Regeneration Field in the United States. Canada's kind of flat-ish.

Stanley Bergman: Just off the top of my head, that's where we are, and I'm quite happy. I'm confident with the progress we're making in the implant arena, as well as biomaterials. Thank you to all that covered that color.

Ronald South: That was super helpful. Just maybe, as a follow-up, can you comment specifically, and this is maybe not just related to implants but more broadly, how you're thinking about trends in July and sort of so far in the third quarter? Are they similar to what you saw in 2Q, better, worse? Yeah, I mean, specifically, you know, Elizabeth, I'll address the distribution business first because I think that's probably of the most interest to people.

Ronald South: You know, we have experienced growth in our distribution businesses from Q1 into Q2, as we recapture some market share. However, as we said before, that recapture has not been as high or as at the pace that we had originally desired. But we are recapturing shares, and that has continued into July, and we expect it to continue for the balance of the third quarter and then, of course, into the fourth quarter as well. So that's distribution. I think with the other products, they could be a little choppier.

John Stansel: You get into kind of the European holiday season now with distribution there. But I would say, especially within the US distribution business, we feel very good about the ongoing trend. And the next question comes from the line of John Stansel with JP Morgan. Please proceed with your question.

Stanley Bergman: Great, thanks for taking my question. I just wanted to dig in a little bit on the medical side. Can you just speak in a little bit more detail about the effects of some of your larger customers potentially ordering away with the pharmaceutical distributors and then what your expectation is for that return process over the back half? Thank you, John.

Stanley Bergman: Generally, our large customers have come back. We have... One large customer that just came back for the pharmaceuticals hasn't come back for the med surge, although I think... The practitioners are.

Stanley Bergman: I'm going to ask why, and on the other hand, we picked up some larger customers along the way. So it's a give and take. The area is not for large customers.

Stanley Bergman: I think we're doing okay there. We're doing okay with the ASCs. In fact, I think we're doing very well with ASCs. We're growing. It's these smaller practices, the derms that are in private practice, the aesthetic people in private practice, the ones where our salespeople just have not had the time to go back, and our telesalespeople have been mostly focused inbound but are now being focused outbound. Externally, too. Excuse me, so...

Stanley Bergman: Overall... I think the recovery is good, but it's not working as fast as we wanted. There is some depression, as we noted, in the price of injectables. As the market moves generic, I think there's also a movement to corporate brands in medical. And the whole point of care diagnostic slips from one quarter to another, including flu vaccine. Just on the potential kind of the shift towards own brands that you called out here, is that embedded in your guidance to persist through the back half, and there's kind of a more sticky shift to private label brands for you? Or do you expect that to revert at some point?

John Stansel: No, I mean, we are taking a look at the run rate on corporate brands, John, and it is considered in our guidance. You know, it's a little difficult to talk about it in broad terms, because we are still seeing a little bit of price pressure on gloves, and gloves are a very important corporate brand for us. So, but outside of gloves, you know, we were seeing, you know, relatively good demand because there does seem to be a greater kind of consciousness around cost and the customer. And the next question comes from the line of Dane Reinhart with Baird.

Dane Reinhart: Please proceed with your question. Hey guys, thanks for taking the questions this morning. I guess just wanted to kind of follow up on John's first question here. I mean, I thought last quarter you guys had kind of touched on, you know, the 96, 97% recapture rate in the distribution business. And I guess if you're kind of, you know, trailing your original expectations, were you kind of already expecting to be back at 100%? And then is there any variation between your medical and dental?

Dane Reinhart: And then I guess just last one to follow up on that. Within the dental business, I mean, if you are recapturing a slightly greater percent of that loss share from last year, I mean, it seems like, on a comp-adjusted basis, your North American distribution business did kind of flow with merchandise. So is there anything else in there?

Dane Reinhart: I mean, you mentioned patient volumes kind of flat. So, has that mixed shift to, you know, kind of lower priced branded options really accelerated here, you know, more meaningfully than you were expecting? Hi Dan, it's Ron.

Ronald South: This is where it gets a little fuzzy, because it is difficult to assess. Like you said, based on SHIP-2s and based on other data we had, you get a feel for the so-called recovery from cyber. Those customers are very sporadic, though. They're very episodic with their purchasing habits, and some that you recapture, you might not see again for a while, then you get somebody else.

Ronald South: So they have not been as consistent, and that's where it gets kind of difficult to put a number behind the actual percentage of recapture there. For us, it's important that we not only focus on recapturing our old customers but also gain other new customers. So the focus of the business really is on gaining market share, whether it be former customers or new customers. That's really the focus of the business, as it should be under the, you know, just ordinary course of business.

Ronald South: In terms of what we're seeing in dental and medical, I would say that the effect has been relatively the same across the two. I don't think it's, you know, it's slightly, it could be a little more accentuated with dental, but I would say it would only be slightly more in terms of that so-called recapture rate.

Ronald South: And again, we have to use a lot of assumptions to determine what that real recapture rate is, right? And I forgot the last part of your question. Yeah, sorry.

Ronald South: I think like on a comp adjusted basis, your growth in North America distribution, consumables, and dental seems to have slow a little bit. So is that just reflective of, you know, the more shift to the lower price branded consumables products? And then I'll just kind of add my last one here.

Dane Reinhart: I mean, I think, you know, with the EPS guide, I think your midpoint for the back half of the year is kind of in that 242 range. And I think historically, your second half EPS, you know, tends to be around 49 to 50% of the full year. So just how do we think about that, you know, kind of a 242 back half guide and think about that as a jumping off point for next year? Thanks. Yeah, so in terms of the back half guy.

Ronald South: It does, you know, we expect to maintain the momentum we have in terms of the recapture of market share, although again, not at the pace we had originally anticipated, but we anticipate regaining and gaining market share into Q3, into Q4, and that'll help drive some of that increase. We also expect the back half of the year to be better in special. We have a new product launch in North America on the implant. So we also, you know, we do expect specialty to be better. And we expect the technology business to bounce back a little better in the second half as well. So all of those would be contributors.

Ronald South: In terms of your question around, you know, brand, I do think that, uh, the We are seeing, like I said, some move towards corporate brands. Those are better margins for us. It doesn't quite show up on the top line. But it does help contribute a little bit to some of that gross margin favorability. Let me just add one more.

Stanley Bergman: The larger accounts are growing at a faster rate than the very small ones. The larger ones are more aware of all sorts of brands where they can get better prices. As I noted earlier on, it's not bad for our gross profit; it's actually quite good. So just because

Stanley Bergman: Large customers are growing at a faster rate than the smaller ones. Alternate options of brands are featured to a greater extent in the buying patterns of our large customers. And this is shifting to certain manufacturers or to manufacturers that are prepared to give price discounts for large contracts, larger contracts. And it does depress our sales a little bit, but that's certainly good for gross profit. Okay, is that it?

Stanley Bergman: Yeah, so we are now four minutes late. Let me end by thanking everyone for participating. I realize this is a complex quarter from a math point of view.

Stanley Bergman: Ron Graham and Susan are ready to meet with you; of course, I will make myself available as well. The business is solid, and has been that way for decades. Have we had bumps along the way?

Stanley Bergman: Yes, we have. We had a cyber incident. Before that, we had COVID PERIOD.

Stanley Bergman: 2008-9 we had some challenges also because of the economy. It doesn't feel like it's as bad this time, but we have to make sure that we respond accordingly. Um, Although our sales are not what we wanted them to be, from the economic point of view, I think there is... Please see the complete disclaimer at https://sites.google.com.au. We can, I think, cover that well.

Stanley Bergman: Consumables on the equipment side. And we just have to make sure that our expense structure matches our... Gross profits, continue to grow gross profit, and continue to grow our operating profits. By month, I'm not sure, I don't think so, but we will get it run right, medium term, long term. We feel very good about our strategic direction. We will give you more information. 25-27 Strategic Plan, finalized. Not a change, but there's going to be an emphasis and maybe a lightening up on certain parts of the business and a heavy emphasis on other parts.

Stanley Bergman: We'll give you that information, but we're pretty comfortable with the business. Very pleased with our senior management team, our management team in general. And again, remain optimistic. We gave you our best ideas on where companies are going from a mathematical point of view. And this team has delivered in the past, and we're very comfortable that it's the same team. Lots of succession, but the team in place has been around for a while.

Stanley Bergman: Many functions, the move..., retirement, people like Dr. Ron Graham, who found a good job in that area, businesses in general.

Stanley Bergman: So, I thank you again, and the team is ready to take questions. 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.