Good morning, we're gonna get started. My name is Jeff Johnson. I'm the senior medical technology analyst at Baird, and our next presentation this morning is from Henry Schein, the largest distributor of healthcare products and services to office-based practitioners in North America and Europe. With us today from Henry Schein, we're happy to have Chairman and Chief Executive Officer Stanley Bergman, Chief Financial Officer Ron South, and President of the International Business, Andrea Albertini. Ron, I think you said really no slides, you'd rather go straight into Q&A? I'm good I'm good with that if you guys are. Yeah, we can just go straight into the Q&A. All right. I think that works. All right. Well, Stanley, I'm gonna start with you, 'cause it's always such an honor to have you join us. Yes. And, I think this is my twenty-third Baird conference, maybe it's your seventy-fourth or so. I can't remember. But, Please don't exaggerate, it's seventy-three. Seventy-three, sorry, I was off on my count. So, you know, I thought I'd just throw it open to you, which is always a little bit of a dangerous thing to do, but I'd love to hear your comments just on the overall state of the dental market, both in the U.S. and more broadly, outside the U.S. You know, there's been mixed signals here and there, but just generally, how are you thinking about the markets today? So, Jeff, first of all, it's great to see a lot of dental people in the room. It is. Which it is a great industry, and a place that Wall Street can do well, number one. Number two is, I'm sorry about my voice, I was chasing grandchildren this past weekend. Nice. How are the knees? The knees are fine, I have two brand-new knees. Do you? One, 14, 15 months, and one, four months. Great, out of the hospital same day, good for the ambulatory surgical center business. And it was done on a Stryker Mako, just for Absolutely. the buy rating I have on Stryker, but we'll move on. But it's true because our team that runs our new orthopedic business, many of them been with us for four or five years, are Stryker alums. Yes, sir. So. Exactly. All right, dental end markets. Right, so the dental market overall is a good market. Business is stable generally around the world, patient visits are stable. We have data we believe to substantiate that. It's not perfect data, but I think we have pretty good data. There are some challenges, but there are also opportunities. The challenge is that on the high end of procedures, because there's been a significant amount historically of patient financing, it's not so great. But I think as interest rates come down, people may be a little bit more positive about the economy, I think that's gonna get better. But this is not a structural problem in dentistry. The second is, although our equipment sales have been okay, they would be better if interest rates were a little bit less, so that's a challenge. The U.S. market, Canadian market, are fine. Without getting into trouble with some of our suppliers, et cetera, generally, the German market is okay. If you look at the expensive part of the procedures, you'll see implants are doing okay. You look at France, it's okay, implants, not terrible. But there was a DSO change from a legislative point of view, and my understanding is there was some impact because of the Olympics. I don't accept that. We do, yeah, we had that in Australia a few years ago, a month or so, but not material. Then, if you go to the UK, it's relatively stable. You go to Southern Europe, where there's no reimbursement at all, Spain, Portugal, I suppose, Italy, it's not great, but it's not terrible in the context of the whole of Schein. And Australia, New Zealand, very good markets for us, but there was some legislative change because of taxes, that for a quarter or two, people were not buying equipment. That'll come back. And Brazil is a good market. Having said all of this, Jeff, I think it's really important to understand: take 2019 and project the sales forward, it's been pretty good. But we had significant inflation in 2022, and some in 2023, so we were up against high years from an inflation point of view. Some of that inflation has been rolled back. I once said on a panel, never say it again, "Deflation," there is no deflation. Yeah, no. But when certain manufacturers took their products out, they started losing market share. Others came in, some little bit private label, I'll admit that, and products business was taken away at a lower price. A lot of this has been adjusted, not necessarily through price reductions, but buy four, get one free, buy three, get two free, and that's been going on now for a while, so this depresses sales a bit. But this is not structural, this is a periodic issue. So the business in the software field is fine. Yeah, there's a movement from sale on-prem to SaaS, so you don't see it necessarily in the sales, but in the units placed, it's pretty good. And I'd take a SaaS model any day over an on-prem because you have revenue and profits for a long time. I'm going on and on talking, and I know you don't want me to. I love to hear you speak, Stanley. You're a fountain of wisdom. It's a great industry. But, uh It's a great, great industry. Let me just unpack a couple of the- Yes things you said there in, in a little bit more specific questions. You talked about, you know, the implant market in Europe, generally okay, and I think most of your competitors and your results would agree with that. The U.S. market is obviously where we've seen more pressure here recently. Seems like that's been in maybe some of the higher-end, full arch cases that you don't participate as much in. You have some exposure Mm but not as much. But the other issue you've had in the U.S. is not having that conical connection on the BioHorizons product, the Tapered Pro product that you just launched. Is that something we should think of really closing a product gap in a short-term basis, or is that just something that you had to have, and maybe it starts to contribute over a intermediate to longer term? There's a big chunk of the market Yeah. It would- Almost half the market now is moved conical, right? That's our calculation. And now, from a pure Henry Schein perspective, to some extent, our sales were frozen. Because as much as we tried to say, "Continue to buy what we have and don't look at the newer products," people were looking forward. And so it wasn't frozen 100%, but it was, this wasn't a tailwind for us. So it was a little bit rough in the first quarter and in the second quarter. I think you'll see, as the year goes by, and particularly, I think, as we get three, four, five months of new product in the market. And as you know, we were slightly delayed. I mean, we're off two, three months. Yep. From an FDA point of view, it's not unusual. I think you'll see some catch-up. But I think from a Henry Schein, pure Henry Schein point of view, we're quite optimistic about the North American market. Okay. There was this unique circumstance that occurred. Is the unique circumstance the cyber issue, or? Well, that's another unique lots of unique things. Somebody said to us, "It got quite complicated in the last quarter. Yeah, well, But no, we had this situation where people were just not buying. Yeah, okay the implants. As I said. Yeah, yep. The cyber issue is another issue. Yeah, yeah. No. Yeah, yeah. No. But the implant business is a very good business for Henry Schein, and it's even quite profitable, even compared to others. Yeah. Well, maybe a third unique situation. I didn't hear you mention, and I'd like to take your temperature on, only because one of your competitors did call it out as a headwind, is obviously the Change Healthcare cyber, if we look at the different cyber issues, and you know, dentists have struggled to get paid. Mm you guys did a good job, obviously, of switching over to a new claims processor. But processing those and actually getting the payments are two different things. Yes. So, you know, do you think the lack of payments that dentists are still struggling with, some dentists are still struggling with in the U.S. market, has that put any pressure at all on the consumables business? And has it put any pressure on the equipment business? Look, Jeff, I think business would be better- Yep ... if Change hadn't occurred. So there is something in there, that maybe some equipment is being held back because people don't see the cash flow. Mm-hmm. The claims are, from our customers' point of view, being processed. They were processed 48 hours later. Yep. The United team were also doing, cutting checks for certain insurance companies. That got delayed. They were not only cutting checks, but they were wiring, and the wiring of the electronic funds were not getting into accounts. Okay. I think that has had a dampening effect, but it's actually been a good thing from a Henry Schein point of view, because we've picked up, I think, quite a few new customers in our claims processing area. Yep. Having said that, it did jam up our call centers for a while. Do you think those customers will stay sticky, as others have taken multiple months, as opposed to, I think, as you said, you did it in two days or so, the claims processing conversion over to Dentrix or whoever you went to. But, are those customers sticky now that some of your other competitors are starting to get their claims processing back on track? I would say it gave a boost to our Ascend system. Yeah. That's one of the areas that gave a boost. The other area that I think is getting a lot of traction is our Google system and our insurance verification system. There are. Everyone has some kind of an insurance verification system, but as the dentists understand what we have, I think that, in combination with Google, and the fact that we were processing claims so quickly, that word is getting out, and I do believe we will continue to gain market share with our Ascend product. And by the way, I think you know this, we give data every quarter on how Ascend is doing. I expect we will do better. Okay. Okay. That's an expectation. Yep, fair enough. And look, I don't think any of us can predict twenty twenty-five, and I know Ron's not gonna let you predict twenty twenty-five today, but- He's smiling a lot better than he was in October. That's good, that's good. That, and that's what I was gonna ask. I mean, we're coming up, not quite, but coming up on the one-year anniversary of your own cyber issues. You know, your consumables business has been down 5% or so in North America the last quarter or two. There's the Change issue that's out there. Within that consumables is the lack of the conical on the implant side. I mean, there's a whole host of factors impacting this year that I think a lot of us kind of understand are probably not going to continue into next year. As we get into twenty twenty-five, can it be a year of North American dental growth? Again, not asking for guidance and, not even trying to push much beyond that high-level view, but can we get back to North American dental growth? I think as you progress through this year, it gets better, and I think Ron should give you some specifics on that. Yeah. But middle of October, we start annualizing the cyber event. And I think we can be more optimistic. Exactly how we wanna convey that, I would leave up to Ron. But I would also have Andrea address some of that. Yeah, and that, I was gonna push him and then- 'Cause quite frankly, our international businesses came up a little later from a cyber incident point of view. The pressures came up a little later? No, the systems. No, the system. I'm sorry, yeah, I gotcha. Okay, well, Ron, and then maybe Andrea. The pressure's always on him. Yeah, yeah. Who wants to go first? Whoever has the better outlook can go second, so Go ahead, Andrea. Yeah, okay, that tells me a little something there. I mean, the dynamic are similar, of course, but as Stan said, we unfortunately, some of our countries came back online a little bit later, so it took more time to bring back the full service to our businesses and therefore, the recovery of the customers. We are sequentially seeing an improvement. We believe our equipment business is quite strong despite the overall economy situation, especially in Germany is going well. In Australia, New Zealand is restarting after the normalization after the government incentive on taxes that ended mid of the year last year, and Brazil is going well. We have a strong equipment business also on the lab side, where laboratory are investing in digital transformation, so we see a strong demand of digital equipment. As Stan said, France is probably the market that is more stable and not growing as fast as we expected because of this DSO legislation change, so there was a slowdown in DSO. And DSO, for us, is a big market. We are very well positioned for DSO customers across all the international markets, being the biggest distributor, and especially in Europe, where these big groups are going from one market to the other, and we are the only one able to serve them across the market. So it's quite important for us, the DSO business, and we believe this is a trend that will continue, of course. It's delayed versus U.S., probably four or five years, the consolidation, but it's happening in the same way. So we look at this as one of the key strategic area for us. Yeah. As we get into 2025, I guess, and I'll just ask the question a little more directly again, without... I know you're not guiding. But can 2025 in your international markets be a year of, you know, maybe not normal growth, and I don't even know how we'd define normal, but I think by your LRP, we'd define it as kind of 3-5% or 4-6% or something. But can it be something that at least is, gets closer to normal? I stay away from numbers. I let Ron reply with the numbers, but for sure, we see a sequentially improvement, and normalization of events like cyber. We don't want to talk about cyber anymore, but i t's normalizing, and, yeah, we believe it will be sequentially better. Sequentially better. Ron? Yeah, I mean, you know, Jeff, I think if you kinda look at, you know, directionally, where are we going, you know, I think, you know, kinda starting with, okay, where are we right now? Let's talk about 2024, so about second half of 2024. It's important to kinda go back and look as a point of emphasis, something we said on the earnings call, and that was that we, you know, as you look at the second half of 2024, we do expect the earnings in the second half to be more heavily weighted to the fourth quarter than the third quarter. There's a lot of different things that contribute to that, right? One is just the ongoing, kind of marginal increases we're getting in market share, that momentum we have kind of from Q1 to Q2, coming out of the kind of, what I'll call the cyber hangover in many respects. While in absolute terms, not... the recovery is not as great as we want it to be, we're encouraged by the trend. If that trend continues, Q3, Q4, logically, Q4 would be a little better, right? Also, just in an ordinary course of business, Q4, seasonality-wise, is typically a slightly better quarter for us, especially on equipment. There's a lot of tax incentive buying that happens on equipment, so that also contributes to that. When you look at new product launches, you brought up the, you know, the Tapered Pro, the new implant. Implant conversions do take a little bit of time, and I would expect us to have a greater contribution from that product launch in the fourth quarter versus what we have in the third quarter. As well as you look at Henry Schein One, Stanley brought up the our kind of in, the insurance tool, which is we call Eligibility Pro. We think we'll get a greater contribution from that new product launch in the fourth quarter as well. You mentioned Change Healthcare. While we haven't really seen anything that would be tangible evidence that it has impacted merchandise and equipment, we do actually think it may have had some impact on other technology revenues, that practices may have been a little more reluctant to invest in a new technology tool when they're trying to recover from a problem that was caused by technology. Yeah. Right? So we do think that did dampen a little bit some of the technology growth. As we get further from that incident and get into Q4, we think that that effect begins to minimize a little bit, right? And then lastly, as it relates to '24, we did announce a re- you know, a new restructuring plan. We have taken some actions in the third quarter, which will give us at least some partial benefit in the third quarter, but gives us a full benefit in the fourth quarter. So those are all things that create, I think, a greater opportunity for us in the fourth quarter than what we'll see in the third quarter, but we're... You know, that's kind of the transgression that we're looking at. If you then wanna kinda look at twenty-five, and we're still, you know, we're digesting a lot- Yeah, sure Of these moving parts as we think about 2025. 2025 will be, you know, when you look at 2025, a lot, a lot of this will be contingent on how have we done in terms of recovery of market share and distribution? How, you know, how well have we executed on the new product launches, whether it be implants or in technology? How are we doing in terms of progressing through the restructuring plan, and what kind of benefits might we get in 2025 related to that? Those are all things that are gonna be very important, as well as we, one of the things we mentioned on the call was that we expected to do about $175 million in share repurchases in the back half of the year, but we did have an opportunity to do more than that if we thought it was you know, optimal from a capital outlay perspective because of a $500 million authorization for repurchases that we had just gotten from the board at the end of July. So share count, you know, might be something that benefits us a little bit in 2025 as well. But these are all things that are, as you can appreciate, you know, we have to kind of put that into the mixer and see what comes out in terms of when we start thinking about 2025 guidance. Yeah, fair enough. I guess a couple follow-ups there. One, on the cost savings, I've got it somewhere in my notes, I can't find it here. Was it $75-$100 million in cost savings? I think you've been pretty explicit that you plan to let most of that drop through to the bottom line. It hasn't been how you've always run cost savings programs in the past, but just help me understand if that's still the case. Certainly. So the $75 million-$100 million is our best estimate of what we think we can get in terms of an annual run rate of savings. But we, we do think it's gonna take us through the end of 2025 to kind of complete the actions necessary. Okay. So it would really be a number. The seventy-five to a hundred might be a number that's a little more applicable to twenty-six. Okay. To your point, in terms of how much of that gets reinvested, obviously, we want, we wanna keep investing in our growth businesses. I've always said, you know, money is fungible. Is it coming from the restructuring, or where is it coming? We're gonna make those, you know- Yeah. It might give us an opportunity to invest a little more in some of those businesses. So how much of that actual $75-$100 falls to the bottom line? Not quite sure just yet, but I would expect us to get a, a meaningful benefit from it. Okay, that's helpful. And then, just as you kind of lay out twenty-four, and to your point, maybe the share recapture post-cyber hasn't been quite as strong as you've thought. The down 5% consumables number for North America that you put up this past quarter, do you think, you know, is that primarily an indicator that if the markets were flat-ish in the first half, and you guys were down 5%, that means you've recaptured about 95% of the business, and the math is pretty straightforward of, you lose 5% of your business, but the markets are flat, and, you know, as we go into next year, then you take that at least five-point headwind away? Yeah, I think it's hard to put a hard number to that b ecause we're also still dealing with, you know, kind of a very competitive pricing environment on PPE, specifically on gloves. That's affecting that a little bit. You know, so there's a few other dynamics in play in the end market as it relates to core merchandise. I think a lot of it is driven by the fact that while patient traffic is stable, it's also not necessarily providing a lot of growth. Yeah. We're not seeing a big step up, and that's typically gonna be the primary derivative when you're trying to establish what to expect from your merchandise business, right? It's that churn of merchandise. So I think we really need to see patient traffic get a little better before we see that meaningful increase in merchandise revenues. Okay. I mean, to be fair, I think the SDM data, I don't get a look at it every single quarter, I try to get my hands on it every quarter, but I think it's kinda shown in the first half, flat to just barely negative for the industry, and then you guys down five. I mean, I gotta assume most of that gap is probably just the cyber share loss. There's also gonna be some PPE effect in there as well. Okay, I thought that number was ex-PPE. Yeah. But okay. But I would, I think the. Yeah, I would have to. No, that's fine. Yeah, okay. Okay, well, let's move on. If we look at the medical side of your business, you know, I think, Stanley, that's a part of your business that, for years, we've just kind of had on autopilot. You know, I don't know if there's others in the room who cover the medical distribution space. I don't see Eric's team in here. But, you know, we haven't covered Cardinal and McKesson, and all those guys over the years. But, you know, as I think about kinda your differentiated strategy there of going into the ASCs and the hospital outpatient departments, and that, you know, that has really allowed you over the years to grow at a healthy rate in that medical business. It seems like some others have kinda tacked into that, those markets here in the last couple of years. Your growth, whether it's cyber or other issues, has slowed in that medical business. Just what's your outlook for the medical business from here, and how much of it is cyber versus competitive? versus end markets, what have you? I've heard, Jeff, I've heard this competitive thing. Yeah. We've always had competitors. Yeah. I don't think anyone is really moving No Into our space. Yeah. Large ASCs, yes. We've seen a phenomenon, which is the increase in generic injectables. Remember, we don't really sell tablets and capsules, we do injectables. Fortunately, there've been, for the healthcare practitioner, a movement towards generics. Yeah. Doesn't impact our gross profit. Our gross profit is pretty good, but the selling price comes down. On the other hand, we have invested in the homecare space that has done very well and that will start annualizing, and you'll see internal growth there. So the business is quite healthy, great management team. We did have a little competition from, during the cyber incident, where we had some drug wholesalers coming into our space. But I do, to help, because we couldn't ship controlled drugs for two months. Yeah. But I think our customers are understanding. If you want eaches, it's better to go to Henry Schein. We do that better. We can take a box of gloves, we can take a thermometer, a tongue depressor, and a vaccine, put it in one box, and get it to you tomorrow. No one else does it as well as we do. Okay. So I would say the business is quite solid. The generics help the customer. It's okay from a profit, from our point of view, could even be slightly better, and home care is doing well. Yeah. Yeah, okay. And ASCs. You know, your level of confidence over the next, call it, three to six quarters or something like that, a year and a half, which of those two businesses will be back closer to growing at however we define normal? I think you define normal slightly, you know, a point or two off in medical versus dental. But is the medical business, as you get through some of those, those generic issues and other issues, does that come back in twenty twenty-five closer to normal, or does the dental market come back closer to normal? I think we get back both. Both have got some high octane. One is the generics are quite profitable- Yeah And our customers love it. And then on the dental side, you've got the specialty products, where there's some high-octane opportunity, both in the implants and on the endodontic side. Remember, on the endodontic side, we're now putting a big part of that portfolio through Henry Schein. Our sales reps love it. Our customers can get endodontic products from Henry Schein in the same box they're getting other products. I think we'll be okay in both areas. Okay. without giving 2025 guidance. Yep, sure, and we're down to forty-five seconds, so this question will not be for you, Stanley. I'll- Right, I can. I've never answered a I can. I've never answered a question in forty-five seconds. How about Ron? On technology and value add, I wish we had more time to talk about it, 'cause obviously it's your highest margin segment. It you know, could be good growth over the longer term. Are there any product gaps left in Henry Schein One offering that you could take more on the technology value add side into these dental offices? You know, we did recently introduce Detect AI, which is, you know, a subscription-based service, you know, for our practitioners. I think you could continue to see, as technology develops, you're gonna see that type of product come out, which is more, perhaps less administrative, less back office Yep And more supporting the practice. Okay. No gaps per se, but high opportunity. You take the Cadent Yep. And you connect it with AI, that should be exciting. It's that kind of stuff I think you'll see. So velocity of new products can continue at a good rate, no big gaps. We just need it from the manufacturers of the traditional equipment and the CAD/CAM, but I think there are other areas in the technology area that are going to contribute nicely. All right. You'll see that, I think. Wonderful. Our time is up, so thanks to the whole Henry Schein team here for a great overview of the company. Our next presentation is set to begin at 10:50 A.M. Eastern Time, include Gilead Sciences and PTC Therapeutics.