The operator introduces the conference call for Henry Schein's fourth quarter 2023 earnings and reminds participants that the call is being recorded. Graham Stanley, Vice President of Investor Relations and Strategic Financial Project Officer, introduces the CEO and CFO. He also mentions that some statements made during the call may be forward-looking and are subject to risks and uncertainties. The company's comments on market growth and share are based on internal analysis and both GAAP and non-GAAP financial results will be discussed.

Henry Schein believes that non-GAAP financial measures provide useful supplemental information for investors and allow for transparency in key metrics used by management. Reconciliations between GAAP and non-GAAP measures can be found on their Investor Relations website. The company's fourth quarter and full year results were in line with expectations and showed a solid recovery from last year's cybersecurity incident. Strong growth was seen in technology and value-added services, as well as global sales of implants and biomaterials, although acquisition-related expenses and adjustments had a negative impact.

The cyber incident had a significant impact on the company's dental and medical distribution businesses in North America and Europe, but they have since recovered. The revenue impact was lower than expected, but earnings were higher due to successful promotions. The company is confident in their recovery efforts and expects the residual impact to diminish over the first half of the year. Their 2024 guidance reflects their confidence in the stability of their markets, recovery efforts, and strategic plan, despite some short-term impact from the cyber incident. They believe they will continue to strengthen their leading market position.

The markets that the company serves are expected to grow at the lower end of the range set out at the Investor Day last year. The company is introducing adjusted EBITDA guidance to reflect the performance of the business as it pivots to higher growth, higher margin products and services. The dental distribution business in North America saw an increase in patient traffic in November and December, but this was impacted by illness and weather in January. The medical business has strong sales of point of care diagnostic products due to the late flu season. International markets remain consistent. Sales of dental equipment declined due to a redeployment of sales consultants and specialists during a cybersecurity incident.

The paragraph discusses the impact of lower prices of intraoral scanners on digital equipment sales, but expects demand to remain strong due to investment plans of DSO customers. The impact of lower global equipment sales was partially offset by growth in global equipment technical services. The company also saw an increase in global market share for implants and biomaterials, mainly due to acquisitions and some internal growth in European, Latin American, and Asian markets. There was also low-single digit growth in U.S. implant sales.

The cyber incident had a negative impact on the endodontic and orthodontic sales of the company, but they have launched a replacement product which is performing well in the market. The company remains optimistic about the growth of their dental specialty products in 2024, with a strong pipeline of product innovations. The technology and value-added services business showed excellent sales growth, driven by cloud-based solutions and AI technologies. The company also introduced digital clinical workflow solutions and has over 1,000 users subscribing to them. Product enhancements and features like remote scheduling and payments are contributing to growth. The medical business was also impacted by the cyber incident, resulting in slower growth during the fourth quarter.

The late flu season had a negative impact on point of care diagnostic sales and patient visits, but is driving higher sales in quarter one. The company's new homecare platform saw high-single digit growth and they have entered into a strategic agreement to acquire a majority interest in TriMed, expanding their presence in the orthopedic market. They also entered into a strategic relationship with Extremity Medical to develop complementary products. The company is on track to achieve their goal of generating 40% of their operating income from high growth, high margin products and services, and the cyber incidents in the fourth quarter of 2023 were the only factor preventing them from reaching this goal.

In 2024, the company's priorities include focusing on customer experience, recovering sales after a cybersecurity incident, enhancing technology and product development, and growing sales through acquisitions and new product launches. The CFO then discusses the company's financial results for the fourth quarter of 2023 and 2022, including non-GAAP results and LCI sales growth figures.

The sales growth for the company was affected by a cybersecurity incident, resulting in a decrease of $350 million to $400 million in sales for the fourth quarter. The global sales for the quarter were $3.0 billion, with an estimated 10% to 12% impact from the incident. The GAAP and non-GAAP operating margins also declined due to the incident and sales recovery initiatives. The incident negatively impacted operating income by $120 million to $130 million and resulted in a decrease in net income and EPS compared to the previous year. The non-GAAP EPS includes acquisition expenses and adjustments, and the incident is estimated to have impacted it by $0.70 to $0.75 per diluted share. The foreign currency exchange had a minimal impact on EPS.

In the fourth quarter, global dental sales were $1.8 billion, with a decrease of 10.9% in LCI sales due to the cybersecurity incident. Dental specialty product sales saw growth of 17.2%, driven by acquisitions and organic growth. Global Technology and Value-Added Services sales increased by 13.4%, with North America and international sales growing by 6.8% and 9.8%, respectively. Global Medical sales were $1.0 billion, with a 17% decrease in LCI sales due to the cybersecurity incident. The company also invested $50 million in stock repurchases and $287 million in business acquisitions during the fourth quarter.

The company's balance sheet and cash flow remain strong, allowing for growth initiatives and returning capital to stockholders. Operating cash flow decreased due to delayed billings related to a cybersecurity incident, but is expected to improve in the first quarter. Restructuring expenses and expenses related to the cybersecurity incident were incurred in the fourth quarter, and additional expenses are expected in 2024. The company also recorded non-cash impairments in Europe and intangible assets. 2024 financial guidance cannot be provided at this time due to uncertainties related to integration and restructuring costs and expenses from the cybersecurity incident.

Henry Schein, Inc. is not providing GAAP guidance but is introducing financial guidance for 2024, including total sales growth, non-GAAP EPS, and adjusted EBITDA. They expect non-GAAP diluted EPS to be in the range of $5 to $5.16, reflecting an 11% to 15% growth compared to 2023. This guidance takes into account the residual impact of a cybersecurity incident and an increase in the non-GAAP effective tax rate. They also expect to file an insurance claim for the incident but do not include any potential proceeds in their guidance. Sales of COVID test kits and PPE have normalized and will not be separately reported. The 2024 non-GAAP total sales guidance is 8% to 12% growth over 2023, with higher growth in the second half of the year due to business recovery from the cybersecurity incident. This includes sales from acquisitions completed in 2023.

The company expects adjusted EBITDA growth to increase by more than 15% in 2024 compared to 2023. They anticipate market growth rates to be at the lower end of their long-term assumptions and their 2024 guidance does not include the impact of future share repurchases or potential acquisitions. The guidance assumes consistent foreign currency exchange rates and market conditions. The CEO is pleased with the team's recovery efforts and is confident in delivering long-term growth metrics. The operator then opens up the call for questions, with the first one coming from an analyst at Evercore ISI. The analyst asks for more details on the equipment sales and any potential impact from the cybersecurity incident on the first quarter.

Stanley Bergman discusses the company's dental equipment backlog, which was flat at the end of the third and fourth quarters. The North America backlog was down mid-single-digits and the international backlog was up high-single-digits. The company's equipment sales growth was impacted by a cybersecurity incident, but the traditional equipment market is expected to be flat. The company believes that the average selling price for digital equipment has stabilized and there may be opportunities to expand the market further.

The demand for intraoral scanners is strong and the company is optimistic about equipment sales. They expect good growth in the first quarter due to orders being pushed from the previous quarter. There are also plans to launch new dental specialty products and value-added services, which will contribute to the company's growth along with recent acquisitions.

Stanley Bergman, CEO of Brasseler, discussed the company's upcoming product launches and acquisitions. Highlights include advancements in the Pediatric Putty program and a new NiTi file in Europe, as well as a recovery in the orthodontic portfolio with the introduction of a new clinical system. On the software side, there is a lot of activity happening, particularly in AI revenue cycle management and job analytics. The company is also pleased with their recent acquisitions, including a software launch in the US and plans to introduce innovative products in the Latin American market. Overall, there is a strong pipeline of new product introductions and the acquisitions are performing well.

The speaker states that if there are questions about the product side, it would be best to speak to Graham, who has a lot of information and is closely involved with the businesses. The next question is from Jason Bednar of Piper Sandler, who asks about the revenue guidance and the core organic growth rate. The speaker confirms that acquisitions will contribute a few points, business recapture and easy comps from cybersecurity incidents will add a few points, and FX will add a little bit as well. The speaker estimates that the organic growth range will be between 1-5% or 2-6% local internal growth, with 3 basis points coming from the recovery of cybersecurity and 3 points from acquisitions. FX will account for 0.5-1 point. The remaining internal growth will come from continued accelerated growth in technology and value added services, as well as growth in the core and specialty businesses.

The analyst asks about the company's expected growth and margin assumptions. The company's CFO confirms that the expected core growth includes specialty and that they are aiming to outperform market growth rates. The analyst also asks about margin expansion and the CFO explains that there may be some margin pressure due to recovery from cyber attacks and delayed projects.

The speaker discusses the company's projected revenue growth and margin improvements after recovering from a cyber incident. They also mention their plans for capital allocation in 2023, including potential debt pay down and share repurchases. The speaker expects to do less M&A in 2024 and will consider debt pay down as an alternative use of capital. The next question asks about the company's projected earnings for 2024, which the speaker clarifies is $5.36 normalized, with a midpoint of $5.08 plus tax and residual amounts.

The speaker is discussing projections for the company's earnings per share and revenue growth in 2023 and 2024. They mention that there will be low single digit EPS growth due to investments being made in the business, but solid internal revenue growth. The speaker also confirms that the first quarter of 2024 will see a tailwind from equipment sales but a headwind from consumables, resulting in a net impact of the $0.15 residual. They also mention that 2025 may benefit from the investments made in 2024.

The company is aiming for revenue growth of 6% to 8% and EPS growth of 8% to 11% by 2025. For this year, they are expecting 3% to 4% organic growth, with a slight tailwind from currency. The company is also moving some of their products from the specialty sales force to the FSCs, which could potentially bring in additional revenue.

The speaker is responding to a question about the potential for increased sales of endo products through Henry Schein. They mention that the company's reps have not been focused on biomaterials, but with the addition of a specialty salesforce, they expect to see growth in this area. They also mention collaboration with BioHorizons and S.I.N. for implant sales. The speaker is optimistic about future sales, especially after the national sales meeting. The next question is about equipment sales and the speaker mentions that the traditional market is flat.

Stanley Bergman discusses his role in helping practitioners operate more efficiently, particularly in the areas of clinical workflow and digital equipment. He believes the company will continue to gain market share in the rapidly growing digital market, while also edging forward in the traditional market. However, there may be challenges in certain international markets where lower priced brands are being sold. Overall, he remains optimistic about the equipment business.

The company's market has stabilized in the post-COVID period and they are confident in their ability to gain market share. Their equipment service business is performing well due to investments in software and systems. The company expects to see more pricing pressure on IOS scanners in the beginning of the year, but believes they are close to the bottom and that introducing lower-priced products with fewer features will only expand the market. The digital space, including 3D printing and software integration, is a promising area for growth.

The speaker is asked about the impact of a recent cybersecurity incident on merchandise sales. They explain that for about a month, the company's website was not functioning, resulting in a decrease in sales from customers who make impulse purchases or look for deals. However, the website is now back up and the company is actively working to regain those customers. The speaker expresses confidence in their e-commerce team and states that they are already starting to see an increase in sales.

The company's larger customers are mostly back and they have not lost many customers due to the recent cybersecurity incident. The company's services are highly regarded and they were able to quickly come up with alternative procedures in response to the incident. The company's brand in the marketplace is strong and they expect to recover soon. However, it is difficult to predict an exact timeline. In terms of first quarter expectations, there was some disruption to patient traffic in January due to weather and illness, and there may be a mid-single digit decline in consumables due to the cybersecurity incident.

The company saw increases in their medical business due to flu diagnostic kits, which may lead to increased cancellations in dental offices. They expect to see improvements in February and are on track to reach their first quarter goals. They also mention potential headwinds from PPE and other market conditions. There are no major investments needed to bring S.I.N. Implant to the United States, but the company is still working on fully realizing their acquisitions.

The company acquired or invested in a business that already had approval, and they do not expect to have to invest much more in it. There is some investment in aligning facilities and systems, but it is not significant for the entire company. The home healthcare business is doing well and is not a drain on earnings. The specialty dental business is less than 10% of the company's overall business and is doing well, particularly with DSOs. The company does not expect much to change in terms of demand for their specialty business, but they are providing good value to DSOs.

The company's business in France and other European countries is doing well, but it is relatively small and not expected to significantly impact corporate numbers. The company is confident in its business and has seen a quick recovery in the latter part of the fourth quarter and into the first quarter, despite challenges with the flu. The team was focused on servicing customers rather than sales in the fourth quarter, but now they are getting back to selling and are expected to do well in the equipment and software areas. The European business is stable, while Brazil is slightly challenged due to the economy. Overall, the company's software businesses are performing well.

The speaker is impressed with how quickly their team responded to a major challenge and believes it will attract new customers. They also mention growth in specialty businesses and a positive outlook for the future, including digital workflow and the medical business. The call concludes and the audience is thanked for their participation.

This summary was generated with AI and may contain some inaccuracies.