The operator introduces the Henry Schein Second Quarter 2024 Earnings Conference Call and the host, Graham Stanley, who introduces Stanley Bergman, Chairman and CEO, and Ron South, CFO. The call will include forward-looking statements and both GAAP and non-GAAP financial results. Non-GAAP measures provide useful information for investors and allow for transparency in key metrics used by management.

The non-GAAP financial measures presented in the second quarter are for informational purposes only and should not replace corresponding GAAP measures. The company's financial results were solid, with strong operating cash flow and increased gross margin. However, sales recovery since the cyber incident has been slower than expected, leading to an update in full-year financial guidance. The company remains committed to its long-term goals through its strategic plan and strong balance sheet.

The company is seeing positive results from connecting their distribution businesses, specialty products, and technology and value-added services. They are also implementing a restructuring plan to increase efficiency and save money. The dental distribution business in North America has experienced flat patient traffic but is seeing improving sales trends and gaining market share. However, the pace of recovery since a cyber incident last year has been slower than expected. The company has also seen an increase in membership for their THRIVE Signature program, which promotes customer loyalty and has been beneficial for all of their businesses.

The company experienced growth in North American dental equipment sales, driven by positive trends in traditional equipment, digital imaging, CAD/CAM, and products and services. Modest growth was also achieved in international dental merchandise sales, with strong performance in the DACH countries and Brazil, but a decrease in sales in France and slow markets in Italy and Australia. The company expects patient demand to drive further efficiency in dental practices, contributing to the growth of their dental businesses. In the dental specialties business, sales growth was consistent with the first quarter, with solid growth in Europe and a delay in the launch of a new product impacting North American sales. However, the company expects sales growth to resume in the third quarter with the launch of the new product.

In the dental implant market, Henry Schein has received positive feedback from customers and plans to report on progress in future calls. The endodontic business is growing, aided by a small acquisition in Latin America. The focus for orthodontics last quarter was the launch of a clear aligner in the U.S. market. The company continues to align its sales teams to deepen penetration in the DSO segment. The technology and value-added services, specifically the cloud-based software solutions, are also growing and driving additional product sales and equipment merchandise.

The revenue cycle management e-claims business experienced single-digit growth despite the Change Healthcare cyber incident, which has caused delays in reimbursement for some dental practices. This has temporarily impacted demand for certain software and equipment products. However, the collaboration between Henry Schein One and the distribution and specialty products businesses has helped drive growth, especially in the DSO segment. The company plans to expand this synergy to smaller accounts and utilizes its dental field sales representatives to generate leads for Dentrix products and services globally.

The integration between Nemotech and Dentrix has resulted in a three-click digital workflow software for implants and orthodontics, which has been well received by big DSOs. Henry Schein has also expanded its solutions offering by pairing Dentrix Detect AI and Caries Detection Solution with Curodont, and has had success with the launch of Reserve with Google. The slower pace of recovery from the cyber incident and the migration to generic alternatives have impacted sales in the medical group, along with a decline in PPE product sales due to lower pricing.

Henry Schein is experiencing growth in their dental distribution and episodic medical businesses, as they win back customers who have moved to other distributors. Their home solutions business is also performing well. However, they expect their results to be impacted by the challenging economic environment and the slow recovery from a cyber incident.

In this paragraph, the speaker discusses the financial results for the company's second quarter of 2024. They mention that they will be discussing both GAAP and non-GAAP results and provide a reconciliation of the two. The global sales for the quarter were $3.1 billion, with a 1.1% growth. This includes sales from acquisitions, a decrease in sales due to foreign exchange rates and lower sales of PPE. The speaker also notes that LCI sales decreased by 2.4%, with a decrease in PPE sales. They mention that the pace of recovery for the business since a cyber incident last year has been slower than expected. The GAAP operating margin for the quarter was 5.09%, a decline compared to the previous year.

In the second quarter, the company's non-GAAP operating margin declined by 41 basis points, but gross margin expanded due to high growth, high margin products and services. Operating expenses were higher due to recent acquisitions and lower sales at distribution businesses. GAAP net income was $104 million, while non-GAAP net income was $158 million. Sales decreased by 1.7%, with global dental sales at $1.9 billion. Dental merchandise sales decreased by 2.6%, while North American equipment sales grew by 2.9%. International equipment sales decreased by 5.5%. Adjusted EBITDA was $268 million, with expected growth in the second half of the year.

The paragraph discusses the sales performance of Danaher Corporation in the second quarter, with a focus on equipment sales and dental specialty products. Sales decreased in France, Italy, and Australia due to various factors such as changes in legislation and the end of tax incentives. However, there was growth in other markets and the company expects modest overall sales growth for the remainder of the year. The dental specialty product segment saw strong growth, particularly in Europe and globally. The global technology and value-added services segment also had strong sales growth. In the medical segment, sales increased overall but LCI sales decreased due to the cyber incident and lower PPE sales. The home solutions business had strong growth and point of care diagnostic test sales were also strong in the first quarter.

In the second quarter, the company repurchased 1.4 million shares of common stock for $100 million and has $90 million authorized for future buybacks. An additional $500 million in share repurchases was authorized by the Board of Directors. Operating cash flow was strong at $296 million, driven by lower working capital. A new restructuring initiative was announced, targeting $75 million to $100 million in annual savings over the next 18 months. The company received $10 million in pre-tax proceeds from a cyber insurance claim, with a $60 million claim limit and $5 million retention. This is not included in non-GAAP results. The company also provided updated 2024 financial guidance.

The company is unable to estimate the costs associated with their new restructuring plan for 2024 at this time. They are not providing GAAP guidance and their 2024 guidance is for continuing operations and completed acquisitions. Sales growth for 2024 is now expected to be 4% to 6%, lower than previous guidance due to a weaker economy and slower recovery from a cyber incident. Non-GAAP diluted EPS is expected to be in the range of $4.70 to $4.82, reflecting growth of 4% to 7%. Adjusted EBITDA is expected to grow in the low-double-digit percentages compared to 2023, but at a slower rate than non-GAAP diluted EPS due to higher interest expense, a higher effective tax rate, and higher depreciation.

The company's specialties products, technology, and value-added services accounted for 38.5% of their non-GAAP operating income in the second quarter and they are confident in exceeding 40% for the full year. They are also confident in their business prospects despite economic challenges and are benefiting from trends in increased specialty procedures and the movement of medical procedures to alternate care settings. The company is taking action to increase shareholder value through a restructuring plan and plans to spend $500 million on stock buybacks.

The speaker, Jon Block, asks a question about a decrease in sales growth expectations for the company. The CEO and CFO respond, explaining that the decrease is due to a more conservative approach to distributor recapture and a slower economy. They also mention that the original guidance for sales growth was lower and that the market growth for dental products is expected to be flat. They also note that customers are opting for lower cost options, which is positive for the company's gross profit.

The company's sales guidance has been reduced due to delays caused by the cyber incident recovery and slower recapture of lost business. However, the fundamentals of the business remain intact and the company expects to continue gaining market share and recovering pre-incident levels. The CEO acknowledges that the recapture process has been slower than anticipated, but expresses confidence in getting the business back through efforts such as field sales visits and tele sales.

The speaker discusses the success of their call centers and the positive reception of customers. They mention their new distribution business in Texas and their confidence in gaining market share. They also mention their guidance for the future and their track record of delivering results. The speaker then shifts to discussing the second quarter and the balance of 2024 before asking about the company's plans for 2025.

The company believes that their business will see cleaner results once they have overcome the impacts of cybersecurity and PPE challenges. They anticipate stable growth in the consumable market in the United States and Canada, with potential for gaining market share through distribution of products. They also expect profitability to come from their specialty businesses, particularly in the DACH region in Europe and the United States. They hope to gain market share in the implant dentistry market and are optimistic about their prospects for the year.

The endodontics and medical business are moving in a positive direction, with a focus on alternate care options like Ambulatory Surgical Centers and home care. Sales to smaller customers need to be increased, and equipment growth is expected in the United States, but there are challenges in international markets. Dentists are looking for value and pricing may decrease, but profit will still be good due to clinical workflow initiatives and value-added services. The CEO asks the CFO for any additional insights on the company's guidance.

Ronald South, speaking to Jason, discusses the company's restructuring initiative and the expected benefits for the current and next quarter. He also mentions the opportunities for integration and leveraging their One China approach with customers. Jason then asks about the company's relationship with manufacturing partners and specifically mentions Dentsply Sirona.

Stanley Bergman discusses the current state of their relationship with Dentsply, their main distribution competitor. He confirms that their relationship is good and that they are one of their biggest global suppliers. He also mentions that Dentsply is adding more sales power to their organization and that they have products that they would like to offer to their customers. However, Bergman also states that they will always do what is best for their customers and that they have strategic relationships with all of their suppliers. They do not have a formal contract with Dentsply, but rather a memorandum of understanding. Overall, their relationship with Dentsply is positive and they have good relationships with all of their suppliers.

The speaker discusses the topic of selling specialty dental products directly to customers, and mentions that this has been a rumor in the industry for years. They state that their company is now able to offer a full range of these products, and they have good relationships with their suppliers. They also mention that they are doing well in the implant market in Europe, particularly in Germany and Austria.

The company has been doing well in the European market, particularly in France where they are the number one player. In Latin America, their joint venture is gaining market share, but their BioHorizons division is facing challenges due to instability in some countries. In the US, they have faced a setback due to delays in introducing a new product, but they are confident it will be well received and help them gain market share. Overall, data on market share in the US is not readily available.

The speaker discusses the company's success in the bone regeneration field in the United States and flattish performance in Canada. They express confidence in their progress in the implant and biomaterials arena. In terms of trends, they have seen growth in their distribution businesses and expect this to continue in the third and fourth quarters. They also mention potential effects from larger customers ordering away with pharmaceutical distributors and their expectation for this to return in the back half.

Stanley Bergman, CEO of a company, is discussing the recovery of their business during a conference call. He mentions that their large customers have come back, but they have also gained new customers. The company is doing well with ASCs, but smaller practices like dermatologists and aesthetic practitioners have been slower to return. The company is also facing price pressure on certain products due to a shift towards corporate brands and a focus on cost by customers. This shift is considered in their guidance and is impacting their sales of gloves.

Dane Reinhardt from Baird asks about the recapture rate in the distribution business and whether it has returned to 100%. Ron South responds that it is difficult to assess as the customers are sporadic and episodic with their purchasing habits. He emphasizes the importance of gaining market share from both former and new customers.

The focus of the business is on recapturing market share in dental and medical, with a slightly more pronounced effect in dental. The company is using assumptions to determine the real recapture rate. In terms of growth in North America distribution consumables, dental has slowed due to a shift towards lower priced branded products. The company expects to maintain momentum in recapturing market share in the back half of the year, with contributions from specialty and technology businesses.

The speaker addresses a question about the company's brand and mentions that there is a shift towards corporate brands, which has better margins. They also note that larger accounts are growing faster, but are more likely to consider alternative brands for better pricing. This may affect sales, but is good for gross profit. The speaker acknowledges that the quarter may seem complex, but assures that the business is solid and has overcome challenges in the past. They mention the current economic climate and the importance of responding appropriately. The speaker believes that there may be more focus on price in customer shopping, but is confident in the company's ability to compete.

The company is focused on maintaining a balanced expense structure in order to continue growing gross profits and operating profits. They are confident in their strategic direction and will be emphasizing certain parts of the business in their upcoming strategic plan. The senior management team is strong and the company remains optimistic about the future. The team is available for questions and the conference call has concluded.

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