Okay, excuse me. Good afternoon, everyone, and, I'm Erin Wright, healthcare services analyst at Morgan Stanley, and welcome to the Morgan Stanley Healthcare Conference. We're happy to have with us today a full lineup here from Henry Schein. So we have Stanley Bergman, Chairman and CEO, Ron South, SVP and CFO, as well as Tom Popeck, CEO of the Healthcare Specialty Group. So with that, for some important disclosures before we get started, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, I'll get started with the Q&A, if that's okay. So I guess, you know, Stanley, I wanna talk to you about sort of just how you think about sort of the underlying demand, underlying health of the broader kind of dental market right now, as you see it today. Thank you, Erin, for hosting us. I lost my voice chasing grandchildren this weekend, so I'll try to speak as clearly as possible. The basic dental market is stable in North America. There are a couple of anomalies. First of all, on the specialty side, the implant side, the high-end procedures are not as good, shall we say, from a demand point of view, as they were a year or a year and a half ago. I think it'll come back if interest rates come down a little bit, and people are more positive about the economy. I think the same in the aligner field, although that's not a big part of our business. So generally, the market is good. The equipment business is stable. If you take a look at where the equipment business was in 2019, and you draw a line, it's been going quite well. But there was a lumpy period, 2020, 2021. We had to catch up at the end of 2021, 2022. So I don't think you can take the business that dentists were generating in 2022 at the peak and draw a line from there. You have to take 2019 and go forward, and I think you'll see that it's basically quite stable. Pricing has not increased this year from the manufacturers. It went up significantly in 2022. There has been some price resistance. The manufacturers have adjusted. They've continued to do okay, but they haven't adjusted. Business has gone to second-tier manufacturing, manufacturers and to own brand. So the price increases of 2%, 3%, 4% that we saw a few years ago have probably moved into the minus category. So I think this will settle out. This was an unusual anomaly. Okay, and then you did, in the context of that, lower guidance in the most recent quarter, just on sort of a challenging backdrop and from a macro perspective and kind of slower than maybe expected, some of the recovery from the cyber incident as well. But, you know, what do you assume now, I guess, for the balance of the year, excluding some of the cyber incident dynamics, and how are you thinking about kind of those demand trends into 2025? Yeah, well, Ron will give you statistics, but the cyber recovery has been going quite well. Each month we do a little bit better, but it did not grow. The gap did not decrease, shall we say, or the sales in certain categories did not grow as fast as we expected, so it's somewhat of a delay, but we are closing that gap every month. Ron, what guidance are we giving specifically? I think what, you know, something we've pointed to, Erin, is that we do expect fourth quarter to be better than third quarter. We have a number of things as we, you know, sequentially, as we regain market share on the distribution side, that's part of it. Also, you know, we had. We did have the new implant launch right at the end of the second quarter. As we begin to gain a little better momentum with that, that should contribute to some growth in the fourth quarter as well. We also expect a little more normalization in our technology business in Henry Schein One, coming out of some of the disruption that was caused by the Change Healthcare cyber incident that they had. Also, some new technology products that are coming out that we think that will contribute to some revenue growth. And then finally, we think bottom line will benefit a little bit better in the fourth quarter as we do initiate a new restructuring plan, and some of the actions we're taking during the third quarter will provide a full quarter of benefit in the fourth quarter as well. So we do think as we move through, you know, through the year, all those things are essential to us, you know, and executing on all those things are going to be essential for us to, you know, to continue with the sequential growth that we're expecting. Okay. Okay, and then how are you thinking about just that promotional activity? We kind of talked about it in the most recent quarter and the nature of kind of some customers moving where there was more aggressive promotional activity, and it seems to be in very certain kind of categories that you're seeing this. Does that stabilize at some point, in your view, in terms of what you're seeing in Yeah. How much of it do you think is a function of the aftermath of the cyber incident, or is it unrelated at this point? I think it's pretty stable. There are a couple of items, like gloves- Yeah ... where prices went up significantly, and so customers are looking at those prices. So there's a little bit of shopping over there. We disclosed that number, but generally, I think from a competitive point of view, things have stabilized, and I think price adjustments that needed to be made by certain manufacturers, and it doesn't really impact our margin, have been made, and I think that pricing is relatively stable, but at a lower percent, a lower number to where it was last year. Okay, and then share shifts. You know, what are you seeing across the consumable space? You know, has the dynamics there changed at all in terms of what you're seeing? I know you've had a pretty stable- Yeah Kind of DSO relationships, but what about kind of below that, in sort of that middle market or mid-tier kind of DSO? I think with the larger DSOs, it's pretty stable. Yeah. With the smaller ones, we are gaining some. I'm sure we're losing some. And generally, even with the smaller ones, we are closing that gap on business that we lost to the episodic buyers. I think it's relatively stable. I think on the traditional side, the traditional full-service distributors, I think we've come back. I don't think there's any erosion. Maybe some of the websites, but episodic is a shift, but we own some of those websites, and we see that the movement is not significant. Okay, and then on dental equipment, I guess, can you parse out kind of traditional versus high-tech equipment growth and demand trends? And you mentioned the higher interest rate environment- Right. -but any pockets where you're seeing kind of, you know, durability or areas where you're still seeing kind of pressure, maybe CAD/CAM, ASPs, or has that stabilized in- Yeah. In that category? On the traditional equipment, I think many made the mistake and looked at 2020 equipment and took it from there. That was a bubble. If you X out that bubble, the traditional equipment is pretty stable. It probably could be better if interest rates came down. The CAD/CAM is so many dynamics. I think the mills, for the first time, we saw some stability last quarter. They are coming back. The iOS device, the scanners, there's a lot of dynamics there. Gotten some imports coming in at a pretty low price. But I think if we see some innovation, which we're expecting to unfold in the not-too-distant future from some of our traditional brands, I think that will stabilize. But overall, we're predicting modest growth, but that was off some very good comps. Right. Right. And how do you think about, you know, relationships, like, for instance, your relationship with Dentsply? They recently announced this morning a new launch of a scanner, Primescan 2. How do you expect to kind of participate with that kind of offering? But also, you know, they're taking a hard look at some of their distributor relationships as well. I guess, how are your discussions and nature of those? Yeah, I mean, our relationship with Dentsply and with Envista and with the spinoff of 3M, and the second-tier manufacturers, is all pretty good. I don't think we have any issues that I'm aware of. It's helpful when our manufacturers come up with new products. We're very excited about the potential new product from Dentsply, and we hope to do well at Sirona World. So I would say it's pretty good. We don't have any real issues. I mean, they would like us to sell more. We would like product at a lower price, but that's the nature of the game. So I think our basic relationships are good, and we are thirsting for new innovation, which the big players have not really introduced in a few years. But we're hopeful. In the meanwhile, some of these new entrants have come in on some products, a little bit lower price, and they all have done quite well. So we work with all. And speaking of innovation and some areas of focus for you on specialty and the implant side, I guess, can you talk about kind of... Well, let's take a step back, and let's talk about recent demand trends in implants and kind of what you're seeing, whether it's premium or value, and how would you characterize the current underlying environment in implants right now? Yes. You know, we have two sets of implant portfolios. One is focused on the higher-end premium that we sell at a lower price, and then we have other brands, like Dentis and Biotech and our business in Brazil, that is more of a discount brand. So we've been relatively well-positioned. If you look at our business in Europe, and particularly Germany, where we are, we believe we're the number one provider of implants. There's been no change in really new major products, so we've done very, very well. In the U.S., we just introduced a new product, so our business was a bit frozen until the new product came. We thought we'd have it at the beginning of the second quarter. We had it at the end of the second quarter. But overall, the premium side is doing okay. We don't really play heavily in the top end, but we have some business in that area, and I'm talking about the top end of the procedures, and that's been impacted. And the more valued products, we don't have a big portfolio, but the portfolio we have is doing relatively well. If you're only talking about implants, that's it. But maybe we, you know, Tom's here, and he can talk about some of our other specialty businesses. Yeah. Yeah, no, that would be great. Yeah, if you wanna discuss kind of what's going on from an innovation standpoint across kind of specialty and your areas of focus, Tom, that would be great. Sure. Well, some of the key focuses for us are in endodontics. Orthodontics, a smaller part of our business, and a newer part of our business, which is orthopedics. In endodontics, we're number two player. We got a nice, robust portfolio of new products that we're coming out with. Good growth this year. Business is doing very well. On the orthopedic side, we, you know, expanded our orthopedic business, which was originally started with orthopedic cutting instruments and expanded that into extremity implants on the upper extremity, hand and wrist, and foot and ankle. My background, eleven years at Stryker, so I've been here at Henry Schein for five years. Natural addition to our product portfolio. Doing very well. Made those acquisitions earlier this year, and, we're really encouraged with the progress we're making on the specialty products. Yeah, that's great, and you know, what percentage of kind of the total business is now what you focus on, either from a revenue or EBIT perspective at this point? I'm sorry, what was the question? Oh, what percentage of, I guess, total Schein, I guess, do you look at from a specialty perspective, from a revenue or from an EBIT perspective? As I don't know, Ron. Yeah. Ron, do you. Well, I would say, you know, specialty business, specialty dental businesses. Right. You know, Tom's portfolio does not include implants. If you include implants in Tom's portfolio, it's about a $1.2 billion run rate for us, right? If you tag on, as well, other kind of home solutions, for example, is that specialty, but we consider that more part of core medical. But things like home solutions within our medical business has greater growth and accretive margins, you know, versus that core medical business. So there's other areas where we're investing as well that might not be necessarily seen as specialty businesses, but we do get better growth out of them. I guess that's what I was trying to get at in terms of the evolution of Henry Schein, you know, and Tom, you're here today to talk about, you know, some of the specialty businesses you look at, but there's also the dental specialty business and how that's evolved in terms of, you know, what is the mix of Henry Schein look like longer term, in terms of how you're thinking about the mix of the business, where your areas of focus are, and also just, you know, greater focus on some of those faster-growing, inherently higher-margin businesses like tech and specialty. Yeah, well, if you take those dental specialty businesses and then add to it our technology business, collectively, they are, you know, in the range of, say, 20% of our revenue, at the most, probably more kind of closer to high teens. But we expect those businesses to contribute about 40% of our operating income by the end of the year. So it gives you a feel for, you know, for the effect of those businesses. If you include other kind of company-owned brands that we sell, it increases that operating income mix to close to 50% of the total company. So that's 50% of the operating income coming from brands that we control, that we own and we control. Okay. Okay. Tom is responsible for all of our own brands. Mm-hmm. Other than implants, although he works- Other than implants, okay. Although he works closely with the implant people, on bone regeneration, that's part of the implant business. But his responsibility does include our own brands that are sold primarily through the distribution business, which is about 10% of our sales. Right. Okay. Quite profitable. And then in terms of the... Going back to implants a little bit in the innovation there, could you talk a little bit about that being a driver for you, as well as we kind of head into the second half, like you also did the SIN acquisition? Yeah ... with the U.S. FDA approval there. Just what are the initiatives, I guess, where do they stand now, and how meaningful- Uh Can that be for Henry Schein? Ron, what are we talking about in terms of what have we disclosed? On implants, what we have said is that we do expect some growth in the back half of the year, largely driven by the Tapered Pro Conical launch BioHorizons had late in the second quarter. But also, you know, we're annualizing some of the acquisitions we did last year. 'Cause we acquired Biotech in France, effective April one of last year, and SIN in Brazil, effective July one of last year. So we're gonna be able to show those are growing markets for us. So we do expect to talk about implant growth also on an internal basis for the back half of the year this year as well. The tapered conical has been in Europe for a while, and that's one of the reasons why we're doing so well in Germany with implants. Okay, great. Great, yeah. And as you think about also your ortho offering, your orthodontic offering, I should explain in the clear aligner offering, I guess, how do you expect that landscape playing out? You've kind of gone back and forth with Reveal, and then, yeah, where does the strategy lie from an orthodontic perspective? Yeah. So again, orthodontic business is small, right? Yes. But we have a recent acquisition with Biotech Dental. They have a advanced product portfolio on the clear aligners. We're looking to transition to that. We're in the midst of doing that, and really excited about what that could bring to us in here in the US and globally. But it's less than 10% of our specialty business. ...And then medical, I guess, can you remind us of kind of your unique positioning across kind of medical and the distribution market there, your key areas of focus, and also kind of the competitive landscape where it stands today? And just longer term, how do we think about growth across that medical segment? You know, our medical business, as you're aware, you know, is really confined to. We don't serve the hospitals. In the space that we really, our strategy has always been to follow the patient. And as more and more procedures have moved to the ambulatory surgical centers, as they have moved to physician offices, and now as more and more patients are being cared for at home, that's where we're making, starting to make, you know, more investment. So we did a very important acquisition last year when we bought Shield HealthCare in the back half of the year. We were able to take that, combine it with Prism, which was a home solutions business we acquired a couple of years earlier, and we have kind of merged them into a singular business, but under a hold co. So we have common management, common infrastructure, that we can now begin to scale a little more so. We'll continue to look for growth opportunities in the home solutions side within the medical business. That's where we like I said, that is a faster-growing subsegment of medical than what our core medical business had been doing. Having said that, core medical is still doing quite well. It gets a little lumpy because it frequently will move with how well we do with certain product categories, such as point-of-care diagnostic kits. You see, you know, spikes in demand when flu infection rates go up and things like that. So you can get a little bit of lumpiness in medical, but we do like the long-term trend. How fast is- And this lumpy stuff, we show that separately, the whole- Yes, that's helpful. Number one, and number two is the profits have been pretty good, but there have been a number of injectables that have moved to generic form. That has brought down the price, but actually has done quite well with the profits. Got it, and in the home health market, how fast is that growing? You know, it's. I wouldn't want to put an actual number on it, but I would say our expectations are that we can grow anywhere from mid to high single digits in that area. I mean, while core medical is probably something closer, the market. Long-term market growth that we expect on core medical would be more in that 4 to 7% range. I think this year it's kind of trending more, you know, closer to the 4% in terms of the market, but I would think home solutions are exceeding that 4% growth rate right now. Okay, and then tech and value-added services, a key kind of profit driver also across your business. I guess, how are you thinking about some of the dynamics going on with whether... With the cyber incident dynamics, with Henry Schein One, I guess, how it's influencing that, but also to your, that broader segment in terms of your tech and value-added services and how you think about near term as well as longer term, I guess, growth opportunities across that segment? The growth opportunities there are quite good. We look at it as even though we have a significant market share in practice management systems, there's still a very good opportunity for us in terms of share of wallet within our existing customers. As we have developed, you know, some additional kind of technological solutions for them, such as DetectAI, which has been a product that we're, you know, pretty excited about. DetectAI allows a dentist to very efficiently and really kind of to diagnose cavities as well as caries that may not be necessarily visible to the naked eye. So this has been an area that has... It is gaining in popularity, and it is sold as a subscription-based service through Henry Schein One. So those are the types of products: business analytics that we have been able to introduce that really give the practices a very good kind of dashboard snapshot of how they're doing as a business. Our DSO customers like it because it gives them an opportunity to benchmark some of their practices as well. So these are all areas where there's good opportunity for us to increase share of wallet beyond selling that practice management system, where we have arguably about a 50% market share right now. Yep. I think what is also important is the model is changing. We're moving to SaaS. So in the past, we've recognized the sale up front, now it moves to a monthly payment. So the sales may not look as good as they have historically, but the profits are good, the units are there, and more of the business is moving to the SaaS model. And then talking a little bit in the last few minutes here, capital deployment. I guess M&A has been, you know, a key part of the strategy as well over the years. I guess, what does the pipeline look like? Where is the focus now? You mentioned home health, you've done several deals there. Mm-hmm. You're bringing Tom along. Is there more along in that, in that arena as well? Yeah, can you talk a little bit about the inorganic opportunities? Certainly. You know, so last year we did approximately $1 billion in acquisitions, which is by far the most we've ever done. You know, this year has been a year that we really want to focus on integrating those, those acquisitions, but also continuing to be opportunistic for those, in those areas where we see, opportunities for accelerated growth or, you know, higher margins. The best example is the orthopedics business that Tom just described. We closed on that acquisition in, around the 1st of April. Another area that we are looking at and making some investments in this year. Our acquisition strategy historically has included, frequently acquiring a business where there is an owner-operator who stays in as a minority partner with us. After you know a number of years, we are then able to. Frequently that owner-operator wants to exit, we buy that owner-operator out, so we have been a little more aggressive this year in investing in businesses where we already had a controlling interest, but now we're taking that interest to 100% because it does increase the leverage opportunities for us. We've done that in Tom's area, in two of the businesses within endodontics, for example. That's gonna give us some much greater opportunity to kind of bring some of the resources together within endodontics, as one example. There are a couple of other areas as well, where we see great leverage opportunities once we don't have to kinda work with a minority partner in terms of the split of what's the appropriate split of profits on certain things, and et cetera. So that's been an area of focus this year for us on the M&A side as well. Of course, these minority partners were very important as we entered into particular areas, but in the meanwhile, we've developed our own management capability in these specialty areas. The other area of investment has been our global e-commerce platform, which we've been investing in for the past three years. It went live in the U.K., in one of our businesses a few weeks ago. Looks pretty good. So we've had expenses in this area, and we will have expenses, but the related sales will take time to come, as these systems are installed or unfolded in different countries. But the system is up and running now in the U.K. Okay, great. And then as we think about sort of the broader dental market, there just does seem to be a large focus on just underlying demand trends. When will that turn, and, like, how thinking about? You mentioned it's stable, but there are kind of pockets of, you know, isolated, maybe pressure or like equipment dynamics that are at play. But, you know, what are some other areas, I guess, that you think are the biggest underappreciated opportunities that you're seeing now across your business, like outside of that, maybe disconnected from that underlying? Yeah, I think, you know, we have this particular anomaly of catching up from where we were before the cyber incident. The gap is narrowing. I think we'll work through that this year, probably a little bit into next year. But essentially, the market is stable, it's growing. I think we'll see price increases coming back into play, next year, early part, not significant. But if you have two factors going on, one is a reduction in sales because of the cyber incident, which annualizes for us in the middle of October. At the same time, you have no price increases, yet your costs go up because of inflation, which we're addressing through our restructuring. I think all of that results in incremental growth in EPS and certainly in cash flow. Okay. All right, well, thank you so much for the time. I really appreciate it- Thank you. And, yeah, hope you have a great conference. Thank you. Thanks. Thank you.