Good afternoon, everyone. Thank you for joining us for this session of the Bank of America Healthcare Conference. I'm Michael Cherny, the healthcare tech distribution analyst. With us today is the Henry Schein management team. We have Ron South, just coming up past a year of CFO, but a long time Schein vet, and also Graham Stanley, who heads up IR and has a whole bunch of other functions and also a long time Schein vet. I feel like it's a theme typically. We get, you know, Schein is fresh off of their 1Q earnings yesterday, so they did not bring any slides, which is great because I prefer not to have that. We're gonna, we have plenty of questions to go, but maybe just to kick things off, Ron, Graham, obviously, there's a lot of moving pieces with your business, macro and operational, but seems like on an underlying basis, the results were pretty solid yesterday. Any high-level thoughts you wanna start with on the earnings themselves? Yeah. Thanks, Mike. I think, you know, first, we were very pleased with the results of the quarter. I think that, when you look at, we had 6.3% growth ex PPE and COVID test kits, on an internal, you know, local currency basis, which, we were quite happy with. I think that, you know, some of the headwinds that we had, talked about, you know, coming into the quarter as it related to, COVID test kits and PPE came to fruition. You know, matter of fact, we've even kinda had to adjust our guidance around where we think COVID test kits will be coming in on a full year basis. On PPE, we actually saw a little better profitability than we expected on those revenues, and that's giving us a little bit of a little bit of help. I think that, you know, all in all, we were very, you know, very pleased with, you know, for example, our dental merchandise numbers, exceeded 8% growth year-over-year. There were a couple of things there that helped us, but we were very, very happy with that. We still see a very robust demand for standard equipment. Those are the chairs, units, and lights. That's depressed a little bit by declining demand for some of the high-tech equipment. Our standard equipment really represents about 2/3 of our equipment sales, so we still get a net benefit out of that strong growth that we're seeing in standard equipment. On the medical side, I think people got a little used to our the robust growth that our medical team was able to provide last year. Last year, I think we had, excluding COVID test kits and PPE, our medical business did double-digit growth in every quarter except for the second quarter last year, including close to 15% growth in the first quarter last year. This year that, you know, off that tough comp, they still got 4% growth. They were hurt a little bit by lower sales on point-of-care diagnostics, which saw a very good quarter last year when the Omicron variant was relatively prevalent, you know, in January. They had a very tough comp and still managed to get, you know, mid-single digit growth, which we're happy with, and we think that they can build on that as we, as we go through the year. Our technology business, Henry Schein One, had a very good quarter. We expect that to be able to continue, you know, throughout 2023 as well. Maybe just to level set, you kept your total revenue guidance the same. Yes. You took down the contribution expectations from COVID-related items. Yes. otherwise, didn't, not enough to move. COVID, specifically COVID test kits. yes. Yes. not enough to move the whole needle. No. So- I'm sorry. I'm sorry to interrupt. We do have a bit of an offset by bringing Biotech into the fold now. Yes. Our acquisition growth is gonna probably tick up a little bit, and there's a little bit of a compensating factor there. Got it. Yeah, M&A's core competency. Yes. Completely logical to me. I guess maybe to build into that 1% to 3% reported growth rate, what are your views on utilization broadly? I know we've talked about this before, the market is all hyped up about seemingly every hospital company, every med tech company is putting out really strong utilization numbers. You have a direct exposure. Start on the medical side. I'm just gonna jump back to dental after. What underlies that growth, that total growth rate from a guidance perspective? Well, I think for us on the medical side, where we benefit the most is the ongoing kinda transition of procedures from a hospital environment into the ASCs or into the physician office, right? More and more procedures are working their way kinda downstream. That, you know, we don't, we don't serve the hospital. We serve those ASCs. We serve the physician. That's creating a really good kinda traffic pattern for us, if you wanna think of it that way. You know, last year, I said, you know, like I said, we had a kind of a difficult comp with the Omicron variant occurring, being so prevalent in January of last year. You had a lot of traffic into the physician office, which didn't just lead to more sales of COVID test kits, but it was also, if you didn't test positive for COVID, then you were getting a flu diagnostic, or a flu test, or you were getting a strep test, or you were getting. Then just the churn of other consumables there, right? I do think that as we look at the in that macro environment, as more procedures keep working their way downstream, into the ASCs, into the physician offices, that's continuing to provide a source of growth for us. Turning back to dental, typically tied to the quarter, you talked about the merchandise strength that you saw on an underlying basis. The international to me really stood out. Mm-hmm. North America was solid. International was really solid. What do you think is driving the underlying dynamics of the merchandise growth? Is it utilization? Is it share gains within DSOs? Is it just better penetration of your book? Maybe break down some of the building blocks there. Yeah. I think, you know, you have to kinda look at the various different international markets where we operate. You know, there were a couple of things that helped us from a growth perspective, including our fiscal calendar, where we didn't have that week between Christmas and New Year's in the first quarter this year. That was part of the fourth quarter. That's a more prominent, say, growth factor internationally 'cause there tend to be more dental practices that might close during that week than there are in North America. Having said that, it was still a really strong, you know, growth quarter for our international businesses. I think it's just continuing... You mentioned penetration into the existing customer base. I think we're getting really good stability in some of our larger European markets, such as Germany, France, the U.K. France had a little bit of interruption from some of the kind of social disruption that they experienced. Nevertheless, we saw, you know, good growth in the U.K. and in Germany. Brazil, another very good market for us, where we saw very nice growth. That's really good market penetration. We're the market leader in Brazil, and they continue to get good market penetration there. Also, I think we had a good quarter in Australia. Each of those markets have really served us well. We got a little bit of price advantage as well. I mean, internationally, we did see a little more of a price increase that occurred kind of later in the year. That annualized and helped us in the first quarter. I think that, you know, we're very happy with the, with the customer penetration we're getting internationally. I think one of the changes that we're seeing or the benefits we're seeing this year, Michael, is just the predictability and stability of the business, which is coming back from sort of, you know, the COVID period, where, you know, 2021 and to a lesser extent, 2022, you know, we saw, you know, changes, quarter-on-quarter changes in patient traffic and demand because of flu or COVID. It, you know, it's hard because you end up having a tough year-over-year comparison. This year we're seeing far more predictability and stability in terms of overall patient demand. I guess, is that pretty widespread across your entire book of business? Are you seeing differences from GPs versus orthos versus endo and resto that you service? How do you break down that dynamic between, I guess, so your base level customers versus more specialty oriented? Yeah, I think it's, I think it's similar across all like, the specialties. You know, some parts of the market are a little bit softer maybe than other parts of the market. I mean, things like, you know, preventatives, for example, you know, that's like, it's just like the staple of the sort of the business as it were. You know, maybe a little bit of softness in terms of implants and that part of that segment. You know, we're not talking big changes. We're just, you know, talking sort of like, you know, a couple of percentage points plus or minus in terms of overall demand. Maybe just to use this as a, you know, while we're still on the merchandise consumable side, I would love to get an update on private label. Schein's always been at the forefront of all things private label oriented. It used to be one of my personal tasks to go to your New York Dental Show booth and try and find a salesperson to ask what their book of business looked like. It was my proxy of figuring out your penetration. Where does private label stand now, and especially in a world where, A, people are more cost conscious in a post-COVID world and with the macro conditions. B, DSOs are a bigger part of your business. C, which might be the offsetting factor, is, I assume private label, the way you define it, also includes a decent chunk of PPE-oriented products. Yeah. For that, for reason C that you just said, we kind of look at what kind of penetration are we getting with private label, kind of excluding gloves at this point. Sure. Excluding PPE, which is principally gloves, right? We are seeing, you know, an upward trend. I won't say that we've really gone from here to here, but we are seeing a slope up in terms of the, as a percentage of total sales in kind of the relevant product categories, what are we getting in private label? We are seeing a steady tick up as we go. I think some of that is from some of the, you know. There is a more cost sensitivity perhaps in the market this last year or two than what there had been, you know, prior to the pandemic. As we got into kind of the inflationary environment of 2022, we really began to see that move a little more. We are seeing a little more in private label. There's still, I think, more opportunity for us there. Yes, we are seeing an uptick of a little bit in private label. Would you say the opportunity is more tied to further penetration of what you already have or building out the portfolio, or both? Both. I would say both. Okay. Either one more short term, more long term? I think at the moment, probably, you know, overall, our private label business is around about 9% of our total sales, so something of that order. Of course, you know, that's total sales. When you look at it as a percentage of merchandise only, it's higher. But, you know, one of the things that our private label team is looking at is, you know, category management and making sure that we've got proper branding around our private label products and making sure that we've got selection of different products within each category, and we've got a full selection of it across the categories. That's like the next thing to try and make sure that we're getting the right penetration and assortment to offer our customers. We do think there's value to the brand, and we do think that, you know, our customers respect the brand. To the extent we can offer them up our branded products, we do find that they are, you know, willing to take a look at what we have, so. Got it. Makes sense to me. Mm-hmm. Maybe turning to the equipment side, and I think everyone appreciates the frankness you have on what you're seeing, especially in the high tech component. Maybe within that, obviously, I think the concerns in the financing environment, aside from just macro, don't wanna put it out like are a big component of what we're seeing in other businesses as well. What are clients telling you in terms of their desire, their willingness to finance equipment in this higher interest rate environment? How much do you think that alone creates some of that slowdown effect, delayed purchasing, that might be factoring into how your backlog book builds? You know, to be honest, I don't think interest rates are having a real meaningful effect. I really don't. I mean, maybe there's a little bit of a pullback, but, you know, we're able to offer up financing. We don't, you know, we facilitate financing. We don't, we don't finance equipment transactions, but we have pre-arrangements with a couple of financing partners who are very bullish on the industry and still offer, I think, very attractive financing terms. As a result, I don't think we've lost a meaningful amount of sales as a result of the increasing interest rates. You know, having said that, if you're talking about a $50,000 kinda chairside mill, that might be a, you know, that's gonna be a slightly different conversation, right? Especially in today's kinda high-tech environment of some emerging products coming out that people wanna have a, you know, a better feel for. Along those lines, what is bucking the trend? If we say the whole book is growing slower or saw some pockets of weakness, where are the pockets of strength within that high-tech equipment? It's interesting. In terms of a pocket of strength, I mean, on a, and I'll say this on a normalized basis, but we still had volume growth in intraoral scanners, for example, right? Because of the fairly significant drop in average selling price of intraoral scanners, we're not seeing that revenue growth happen there. But there's still demand for scanners. I mean, there's still a relatively low percentage of dental offices out there who don't have scanners. So there's still a large kind of unmet market that we think might be, you know, this price point's becoming a little more attractive as some of these other, as Medit and some of these others come in. Then you could see, you know, greater penetration in the market. I still think there's a good demand for scanners, but you just don't see it in terms of revenue growth. I mean, on the high-tech side too, we see a little bit of growth in 3D printers, but that's growth off a very low base, and it still isn't getting to absolute numbers that are real meaningful for us just yet. Look, I mean, the key driver for us in terms of growth in our equipment segment is, you know, driving growth within the traditional equipment. You know, that's still two-thirds of our overall equipment book. Of that, say 15% is parts and service. That's a really important sort of value-added service that we offer the customer. That's like a stable, which shouldn't be, shouldn't change that much. You know, you talked about the sort of the backlog. That should help support the traditional equipment growth. In Q1, our traditional equipment grew double digits, offset by, you know, by double-digit decline in digital. The backlog should help support the sort of the traditional equipment sales growth. We actually want that backlog to come down. You know, it was created by some supply chain challenges in 2021 and 2022. It's not good for the customer if the customer is placing an order and they've got to wait six months or nine months for their chair. That's not something that we wanna be doing. You know, what we see is the backlog naturally reducing as the supply chain is back to normal. For us to do that in a, you know, in a normal manner, right? We don't want big swings in terms of sales increases or sales decreases. We want it to be stable and to gradually sort of like, you know, bleed that backlog out into the sort of like sales line. Let me ask a dumb, potentially dumb question, but also kind of direct. Why do you think the basic equipment has remained that steady? The only reason I say that is, I think of an intraoral scanner, which has innovative approach, and I feel like to me is a revenue driver. Versus if you're repairing a chair or repairing a lighting system, it's not necessarily gonna get more patients in the door. If we are in an environment where equipment spending is tighter, I would almost think that high tech might actually get a bit more of the budget versus the chair. My old dentist, he had four different coats of duct tape wrapped around the headpiece that would pull my hair out. I guess, why do you think that's the case that it's been so steady? I think it's partly productivity that we've seen. You know, again, 2020, a number of dentists have exit the market. It means that the dentists are busier today than they were pre-COVID and have to be more productive. Maybe it's, you know, as a practice that had one or two operatories needs to be operating under three or four operatories. So there's an investment that's taking place there. Part of it's a consolidation similarly. Like if you're a DSO, you wanna brand your products similarly between different sort of practices that you're operating. You know, it's probably today is a more competitive world now that the private practice can't really sort of operate and gain new patients if they've got a drab office. They've got to continue to invest in order to compete against the DSOs. A combination of, you know, market demand and competition, I think is driving investment in dental practices. There's also been, you know, think about what the dental practices have gone through since the beginning of the pandemic. You know, you had a situation where you had a month where offices kind of shut down. Slowly people started going back. You had a fair number of dentists decide, "I'm retiring. I'm out." Right? You also had a pretty significant shuffle of patients, people who were going to a dentist that was near where they worked. Well, now if you're working at home, you were changing dentists. There's been kind of this odd dynamic within the end market that has created a lot of opportunities for dentists to expand their practices. I think that's what's driving a lot of the traditional. I think it also created a... I think it may have actually, you know created this market that wasn't growing a lot, meaning that it was constrained by its own capacity. As we get these chairs out, a lot of these chairs are expanding chairs. They're not new chairs. These are dentists that are expanding their practices. It expands that capacity, which is good for us over a period of time. All right. Helpful answer to my admittedly, potentially- No, it was actually a good question. -dumb question. I wanna go back to the Investor Day from end of February. Mm-hmm. You've always had a specialty products business, you've always had a technology business. Walking into that event, it felt like there was a very strategic flipping of the company priorities in terms of, if you just look at the deck, you had specialty and tech first- Yeah. Then the more traditional business after. Maybe give a sense on where you think you stand right now from a competitive perspective across your major specialty products. We'll start there. Then in that constant dance, you know, balance between working with your manufacturer partners versus being competitors to them. You know, I think on the, on the specialty side, I mean, obviously, we're very bullish on the implant business because we just went out and we've just closed a, you know, a transaction with the largest implant, the leader in France in implant, and then the leader in Brazil in implants as well, that we have signed but not closed yet. I think that, as we look at the specialty markets, I mean, you're right, there's a delicate balance that I feel like we achieve quite fairly with our, you know, with our competitors in the implant industry, who also are our suppliers of certain merchandise. You know, I'll put this delicately. Years ago, we offered to distribute their product. They didn't want us to distribute their product. If we wanted to be in that industry, we had to go get our own manufacturers, that's what we did. It wasn't like we kind of went behind their back on these things, right? This was something that we all chose to do, you know, through our own elections, I think people respect that. We, you know, we feel very good about the implant market and the future of the implant market. We do think that there's a large unmet need. There's a high percentage of people in the world who need an implant, who don't have access to an implant right now. We think that access to care is coming, and it's becoming more of a standard of care at this point. That's going to be one reason why we are, you know, willing to invest as much as we are investing right now in the implant market. You know, other specialties include endodontics, which has been a very steady business for us. It's much less vulnerable to, say, an economic withdrawal. Endodontic products are typically used for, you know, for root canals. If you need a root canal, you get it. You know, you're in pain. You don't wait until you got more money. You go, and you get your root canal. We also, you know, we're still in orthodontics. We'd like to, you know, be a bigger player there, but I think we're getting a little bit of traction, and we feel like we can, you know, ultimately be a bigger player in orthodontics as well. Yeah, you know, we're really kinda leading with that specialty side. We're not ignoring our distribution business. That's our core business. That's what's really gotten us the into the door with so many practitioners, and now we can work with these practitioners to help them expand into specialty products, into our Henry Schein One software products, et cetera. Before we get to software, maybe sticking with implants. It's one of the areas of the world where being a value player is not a dirty word in terms of. Right. description. Obviously, it's been a market that, as long as I've followed, it's been heavily competitive. How much of your approach to the market is balancing the best product versus the best reach? 'Cause you serve the most dentists in the world, so it gives you a very strong competitive leg up. Where do you think or what drives more of the, your right to win? Well, you know, there's not a whole lot of differentiation between the physical product of a premium implant and a value implant. The value, you know, the premium pricing really comes with the support service you get, right? What happens is, if you're an oral surgeon who might be willing to do some very complex implants, you're gonna wanna use a premium product. If you hold up that premium product and that value product, you're not gonna really notice much of a difference, if any. If you have a kind of a complicated procedure, you're gonna get additional support from Henry Schein in terms of completing that procedure. If you're somebody who's willing to do a basic implant, you're not gonna do the complicated ones. Maybe you're a GP, you can do basic implants, you're gonna reference your complicated ones to an oral surgeon. You might be willing to use that value implant. That's where you're seeing kinda the dynamics at play within those markets, right? I think as the revenues grow of the so-called value market, I don't think that... In some cases, maybe they're taking a little bit from premium, I think they're really almost like two distinct markets. I think as the value market grows, it's just, it's penetrating into markets that previously didn't have a lot of implants, you know, whether it be in Eastern Europe, you know, certain markets in Asia, et cetera. Can I just add to something to that, Ron? Mm-hmm. I think part of the... Yes, ultimately, the sale is the implant or the specialty product. A lot of the sort of the sale is based on either technology or service, right? In terms of service, that service comes in terms of customer support, product education, potentially select clinical sort of support in terms of like case management and things like that. You've got to be able to provide those services to the practitioner to help them with their procedures, whatever they're doing with their patient. The other way to sort of to help the customer around it is with technology. You know, making sure that you've got good, your placement design, software, which is integrated into your practice management software, your patient record-keeping, insurance claims management, et cetera. Without those services and technology to help the customer, you know, you're not gonna sell the implant as, you know, in terms of the end, part of the sort of the purchase chain. Even if they are separate markets growing at different rates, I think back to 2008, 2009, when it did feel like there actually was a period of some share shift from premium to value just 'cause the world was imploding. As we move into end of this year in 2024, and whether we go into a recession or have recession-like conditions, do you feel like that's potentially in play at all? Are you hearing that from your dentists? Obviously it seems to me like that would be something, a position Schein would be well-positioned for. Yeah. I mean, it's hard to say. I think on the implant side, it's hard to say, right? You know, what would be the actual shift? I mean, I gotta believe it takes something fairly significant for an oral surgeon to change what implants they're using. I really do. I mean, I don't know if they're gonna be willing to change to that value play. You know, the patient, quite frankly, is relatively ignorant to what kind of implant they're getting, right? You know, the patient's not coming in and saying, "I want that. I want an implant from X because it's cheaper." That doesn't really happen, you know. This is really the surgeon or the practitioner making that decision. I think if they believe my practice is starting to lose business because the out-of-pocket costs associated with implants, which can be pretty high, needs to come down, but for me to do that, I gotta go to a value play, then you might get some of that, right? I don't think that's gonna be a seismic shift, so to speak. Turning to the IT side, we'll probably run out of time, but I'm gonna do my best anyways. I mean, Dentrix has been the market-leading practice management solution for as long as I can remember, but the portfolio continues to get bigger. Can you maybe just give us a sense where you feel you are competitively, first, I would say on the administrative side, which practice management, then I wanna get into kind of the clinical side after. Yeah. I think, you know, the practice management side is, you know, one of the things that has really helped us is its ease of use, and its common platform is very popular with the DSOs. They, you know, would like to have all their practices on the same systems, if at all possible. We have that scale that we can offer up to them. Then you start having kind of the add-ons that you can provide with those practice management systems, such as business analytics. We have a tool that allows, you know, each of the practices to get, you know, a very good dashboard of how profitable are they. You know, Just very various different, you know, KPIs that they can go through, and it allows the DSO to look at where are the outliers, both positive and negative, and how do we, you know, learn from these things. I think that's, you know, one of the areas. Where we're getting real, you know, really good traction. We're seeing, you know, some transition from Dentrix to Dentrix Ascend, which is the, you know, the cloud-based system. I think we'll continue to see, some transition there. Graham, anything you wanna add? No. I mean, some of the investments we've been making around some of the sort of the revenue cycle management products to make sure that, you know, in this world of paperless, that, you know, we've got a product that supports that, whether it be paperless statements, paperless invoices, paperless claims, et cetera. So that's something that's evolving. I think certainly this last quarter, we saw some very, very good growth in the revenue cycle management part of that business. You know, practice relationship or patient relationship management is another area where, you know, we've had a number of products, some of which, like, compete with each other. Really this is the priority for us over, you know, over the last year, you know, that we're doing at the moment is trying to consolidate those products so that we're taking the best of functionality across the product line to be able to, you know, have one product which is a leading product to compete. The competitor in that sort of like part, it's a very fragmented part of the market, whereas like Dentrix and the practice management part of the business, there's only, like a couple of players. With patient relationship management, there's a number of different smaller companies that are out there competing, none of which can sort of like provide the sort of the holistic, sort of like full range of services. you know, it's, you know, but it's still sort of like small businesses that have got certain niche, niches that, you know, we like to sort of be able to compete effectively against them unless they provide the full solution rather than just the piecemeal product. I'm gonna squeeze this in. We're gonna run out of time probably. Mm-hmm. You introduced some new clinical applications and, you know, kind of workflow guided products. What's been the early uptake and early feedback from your dentists on that? I think, you know, that's still kind of in, I don't know if I wanna call it the beta phase, but that's really a product that we have kind of adopted from Biotech, right. It's very early phases of that. Our larger customers about what we see as the advantages of this, getting feedback from them, and we're really excited about, you know, the future opportunities that this kind of platform, this work platform can provide, because we think it can really provide a lot of efficiency to the dental office, which gets our customers very excited. I'm loading up the question list next year. Ron, Graham, thank you so much for being here, for updating us after earnings. I know it was a quick turnaround, thank you everyone in the audience. Thank you, Michael.