The paragraph is an introduction to Henry Schein's Fourth Quarter 2024 Earnings Conference Call. The operator announces the call and introduces Graham Stanley, the Vice President of Investor Relations and Strategic Financial Project Officer. Graham Stanley acknowledges the attendees and introduces key executives present on the call, including Stanley Bergman, the Chairman and CEO, and Ron South, the CFO. Stanley mentions that the call will include forward-looking statements subject to risks and uncertainties, and that these statements are qualified by cautionary statements in the company's SEC filings. The remarks will cover both GAAP and non-GAAP financial results.

The paragraph discusses the presentation of non-GAAP financial measures to provide investors with additional insights into the business's financial performance, facilitating comparisons across different periods. These measures are meant to complement, not replace, GAAP measures, with reconciliations available on their Investor Relations website. The content of the conference call is accurate as of February 25, 2025, and there is no obligation to update forward-looking statements post-broadcast. During the Q&A session, participants are asked to limit themselves to one question and a follow-up. Stanley Bergman, addressing analysts and investors, mentions that the financial results and guidance shared align with the preliminary figures given earlier, noting stable trends in the dental and medical markets.

The paragraph discusses the completion of the 2022-2024 BOLD+1 Strategic Plan, surpassing goals by generating significant income from high-growth, high-margin businesses. With a new plan for 2025-2027, the company has restructured its organization and appointed Andrea Albertini to oversee key groups. The Global Distribution and Value-Added Services Group will handle dental and medical market distribution and additional services. The Global Technology Group focuses on practice management software and related services. KKR's investment highlights confidence in future growth, targeting earnings growth post-cyber incident recovery.

The paragraph discusses the appointment of Tom Popeck to lead the Global Specialty Products Group, which handles various healthcare-related products and services. The company anticipates growth by leveraging its product portfolio and improving e-commerce operations. As per investor requests, they are changing their reportable segments to offer more meaningful information on business performance and aligning it with management reporting. They aim to drive growth through high-margin products and services, providing separate data on these metrics for strategic planning from 2025 to 2027. The review of the Global Distribution and Value-Added Services Group shows stable patient traffic but market growth is below expectations due to a shift toward value-priced products.

The paragraph discusses the performance and growth of various segments within the company's business. In the U.S., dental merchandise saw strong growth, not including PPE sales, and U.S. dental equipment sales grew double-digit benefiting from previous sales deferrals due to a cyber incident. Traditional equipment, parts, and technical services performed strongly, and digital equipment sales saw good unit growth despite price declines. The U.S. medical business was affected by a late flu season and lower sales of vaccines, PPE, and COVID tests. The Home Solutions business excelled, further boosted by acquiring Acentus, particularly in continuous glucose monitors, increasing the business's annual run rate to $400 million. Internationally, dental merchandise sales grew strongly with positive performance in Canada, Europe, and Brazil, while Australia, New Zealand, and Asia experienced slightly softer growth. International equipment sales were solid, with traditional equipment outperforming digital equipment due to global pricing trends.

The Global Specialty Products Group experienced solid growth in dental implants, biomaterials, and endodontics, with newly launched orthopedic products also performing well despite a decline in orthodontic sales due to patent expiration. The group is addressing this with new product introductions. Biomaterial sales were strong in Europe, especially in the DACH region, and the U.S. launch of BioHorizons Tapered Pro Conical implants is progressing, primarily converting existing customers. Implant sales in the value segment showed strong growth, particularly in Brazil with the S.I.N. product line expanding in the U.S. Endodontic sales also grew through an expanded U.S. distribution channel. The orthopedic business, including the TriMed acquisition, continues to perform well, targeting ASCs and specialty customers.

The paragraph discusses the company's sales growth driven by new products in extremities and a dedicated sales team for foot and ankle products. Despite challenges in orthodontics, overall performance is strong. Within the Technology Group, while the total sales growth was low, operating growth was strong, particularly in cloud-based practice management and revenue cycle management software, despite the discontinuation of certain brands. The shift from on-premise sales to a SaaS model presents short-term revenue challenges but offers long-term benefits from recurring subscription revenue, with over 9,000 customers subscribed. Cost efficiencies are being realized, enhancing technology operating margins. The company expects this improving trend to continue. Lastly, a change in reportable segments is announced to better align with management reporting and investor information, with prior segment data recast accordingly.

In the fourth quarter of 2024, the company reported global sales of $3.2 billion, reflecting a 5.8% increase from the previous year, despite a 0.4% negative impact from foreign currency exchange. LCI sales saw a growth of 5.5%, or 6.6% when excluding lower PPE and COVID test kit sales. The GAAP operating margin improved by 358 basis points to 4.86%, and the non-GAAP operating margin increased by 260 basis points to 7.46%, benefiting from reduced operating expenses and restructuring initiatives. Full-year operating income from high-growth businesses constituted 41% of the total. GAAP net income for the quarter was $94 million ($0.74 per share), significantly higher than the previous year's $18 million ($0.13 per share), while non-GAAP net income rose to $149 million ($1.19 per share) from $86 million ($0.66 per share).

In the fourth quarter of 2024, the company experienced an unfavorable foreign currency exchange impact on diluted EPS by approximately $0.01 compared to the previous year. Adjusted EBITDA rose to $270 million from $172 million in the same quarter of 2023. U.S. distribution sales are now reported separately from Canada, which is included in international sales. Canada's annual revenues are approximately $400 million, with two-thirds from merchandise sales and one-third from equipment sales. Global Distribution and Value-Added Services Group saw sales of $2.7 billion, a 5.9% growth from the previous year, with LCI growth at 5.8%, and excluding PPE and COVID test kits, LCI sales growth was 7.3%. U.S. dental distribution LCI sales increased by 5.9%, with dental merchandise growing by 4.8%, or 6.5% excluding PPE, and equipment sales growing by 10.0%. U.S. medical distribution LCI sales grew 4.5%, or 7.3% excluding PPE and COVID test kits. Sales of diagnostics and vaccines were affected by flu season timing. Home Solutions business saw an 8% year-over-year growth.

The paragraph reports on the financial performance of various segments within a dental distribution company. International dental distribution LCI sales grew by 7.3%, with dental merchandise excluding PPE products growing by 8.0%. Global value-added services saw an 8.1% sales increase, despite a 0.7% decrease in LCI sales. The Global Specialty Products Group, which includes dental and orthopedic products, achieved $368 million in sales, showing a 7.2% growth. This segment faces challenges due to reorganization and expense management. The Global Technology Group reported $160 million in sales with a 2.4% growth, driven by practice management software and cloud solutions, although hindered by a shift to a SaaS model. The company incurred $37 million in restructuring expenses in the fourth quarter, aimed at achieving annual savings of $75 million to $100 million by 2025.

The paragraph discusses the company's financial activities and results, focusing on the fourth quarter and full year of 2024. The GAAP results include $20 million from a cyber insurance claim, while non-GAAP results are detailed separately in Exhibit B. The company repurchased 1.1 million shares in the fourth quarter, spending $75 million, and a total of $5.4 million shares for $385 million throughout the year, with $380 million remaining authorized for future buybacks. The Board authorized an additional $500 million for share repurchases in early 2025. They reported strong operating cash flow of $204 million in Q4 and $848 million for the year, attributed to better management of working capital. The company is unable to provide GAAP guidance for 2025 due to uncertainties about restructuring costs, which are expected to include severance and facility expenses.

The paragraph provides guidance for Henry Schein, Inc.'s financial expectations for 2025. The company anticipates 2% to 4% growth in total sales over 2024, with non-GAAP diluted EPS expected to be between $4.80 and $4.94, representing a 1% to 4% increase from 2024's $4.74 per share. The EPS growth is projected to be stronger in the second half of the year, assuming stable foreign currency rates and no debt impact from new shares issued to KKR, offset by a share repurchase program. The effective tax rate is estimated at 25%. Adjusted EBITDA is expected to grow in the mid-single digits from 2024’s $1.1 billion, outpacing EPS growth due to higher depreciation expenses from the global e-commerce platform. The guidance excludes restructuring and integration expenses and assumes improvements in dental and medical markets.

The paragraph discusses the company's revenue guidance and assumptions, particularly regarding expected growth in the dental and medical markets. The company anticipates 2% to 4% overall revenue growth, driven by modest market growth, with core dental expected to grow between 0% to 2%. Price increases are minimal, and the contribution from mergers and acquisitions is lower than usual for 2024. In terms of new reporting segments, the company remains optimistic about future growth, especially in achieving high single-digit growth after 2025. They also address the global distribution structure, distinguishing between U.S. and international segments, as well as global specialty and technology markets.

The paragraph features a discussion about upcoming financial expectations, where Ronald South attributes the future performance to a combination of ongoing restructuring benefits and possible market recovery. He mentions that current market growth is slower than previously anticipated, particularly in medical and dental sectors, with expected growth rates below earlier projections. The operator then introduces Jeff Johnson from Baird, who questions the inconsistency in the company's revenue reporting for the fourth quarter. Johnson highlights that the earlier reported $3.2 billion in revenue for Q4 was overstated compared to updated guidance, resulting in a shortfall of 500 to 700 basis points in revenue expectations.

In the fourth quarter, revenues were 500 basis points below the low end and 700 basis points below the midpoint of guidance, with actual revenues at $3.191 billion, which was rounded up to $3.2 billion. Ronald South attributes the lower-than-expected revenues to flat patient traffic, an underestimated impact of Christmas timing, and a slower-than-expected end to the quarter. Additionally, the timing of the flu season resulted in lower-than-anticipated medical revenues. On the dental side, consumables saw mid-single-digit growth, but with an 8% to 10% negative comparison, the overall stack basis was still negative. Despite a flat market, the company has regained some market share lost due to a cyber incident and sees share stabilization in the fourth quarter, with expectations of maintaining this in 2025.

The paragraph discusses the challenges faced by a company in transitioning to a new segment reporting method, which has been implemented for the first time in 29 years due to SEC requirements. Stanley Bergman acknowledges that understanding these changes is complicated and cannot be fully grasped within 1.5 hours, but suggests that the detailed data provided in the exhibits will make it clearer upon further analysis. He reassures analysts, such as Jeff, that additional clarification is available if needed. Meanwhile, Allen Lutz from Bank of America inquires about the opportunity for improving specialty operating margins, noting they are up year-over-year but slightly below expectations.

The paragraph discusses the financial performance and growth expectations of different business segments within the company. It highlights that the pro repair handpiece business has lower margins compared to the implant and endodontic businesses. The segment also includes costs related to brand management and distribution, affecting the overall margins. Management expects the operating margins to grow over time, despite challenges in the orthodontic business. Allen Lutz inquires about dental implant growth, noting a potential impact from a major Medicare Advantage payer stopping coverage for implants in 2025. Ronald South responds that while implant growth is healthy in Europe, particularly through the Camlog subsidiary, the U.S. market remains more challenging, with growth primarily in the value segment rather than premium implants.

In the paragraph, Allen Lutz asks about the impact of a large Medicare Advantage (MA) payer stopping coverage of implants in 2025. Ronald South responds that it has not significantly impacted their business. John Stansel of JPMorgan asks about the KKR agreement and its impact on the company, emphasizing the use of KKR Capstone for value creation and the potential synergies with KKR's extensive dental portfolio. Stanley Bergman explains that KKR is not yet on the Board due to the pending Hart-Scott-Rodino filing, but once cleared, they expect to leverage KKR's capabilities. However, there is a strict separation between the involvement of KKR and their large customers, ensuring different people handle each side.

In the paragraph, Ronald South discusses the company's financial outlook for the upcoming years, emphasizing expected market share gains and product momentum, particularly from new product launches like the Tapered Pro Conical implants anticipated in late 2024. He explains that these factors will likely boost revenue growth more in the first half of 2025, while adjusted EPS growth is expected to be higher in the latter half of the year, due to ongoing reductions in expenses from a restructuring plan. South also notes a challenging comparison for equipment sales in Q1 2025 due to a prior cybersecurity incident that led to deferred equipment installations, affecting the timing of revenue recognition. Overall, he anticipates that EPS growth will align closely with revenue growth in 2025.

The paragraph covers a discussion during a financial call where Ronald South explains the challenges affecting the company's revenue and bottom line. The company is investing in and depreciating its global e-commerce platform, which was tested in Europe in late 2024 and will launch in the U.S. soon. This investment, along with returning to normal incentive compensation, poses internal financial challenges despite some cost savings. Jonathan Block then shifts the conversation towards innovation, asking Stanley Bergman about the pipeline of new products from partners and how this could provide confidence for future growth. Stanley acknowledges the importance of the question regarding incremental innovation and its potential impact over the next 12 to 18 months.

The paragraph consists of two distinct parts. The first part discusses expectations for advancements in the digital space and consumables, with potential movement toward second-tier and corporate brand-type products, while noting consistent innovation in specialty areas like implants and endodontics. However, no significant surprises are anticipated. The second part involves Kevin Caliendo from UBS inquiring about the company's operating margins and how they relate to cost savings of $75 million to $100 million. Ronald South responds by explaining that despite shifts to lower-priced items in distribution, operating margins remain stable due to these shifts being beneficial from a gross margin perspective.

The paragraph discusses various market and company-specific factors affecting operating margins, including pricing pressures on digital equipment and shifts in implant preferences. Despite these challenges, the company is investing in long-term plans, independent of restructuring efforts, and expects future margin improvements, particularly in specialty and technology segments. The technology team has notably reduced costs and improved margins recently. Kevin Caliendo asks Stanley Bergman about the partnership with KKR, wondering if they are viewed as a strategic or operational partner. Bergman responds by affirming KKR as a strong strategic partner.

The paragraph discusses a company's strategic focus on the dental space, emphasizing opportunities in consumables, equipment, software, and specialty areas. It highlights alignment with their strategic plans for 2022-2027, particularly in high-growth, high-margin areas and advances in distribution efficiency and technology. The company is excited to partner with KKR and benefit from the expertise of new directors with experience in relevant markets, indicating a long-term investment outlook. Additionally, a question from Brandon Vazquez seeks clarification on whether changes in sales incentives are to be expected and touches upon the topic of tariffs.

The paragraph discusses the impact of tariffs on the company's operations, particularly with regard to China, Canada, and Mexico. Ronald South explains that while tariffs from China affect glove products, the company has shifted its supply chain to other Southeast Asian countries to mitigate this. They also maintain supplier relationships in China to service European markets without tariff issues. Canada's role as a major producer of dental anesthetics means any cost increase will impact everyone, not just the company. Mexican supply reliance is minimal. Additionally, changes in management incentive compensation and sales commission structures are aimed at driving growth and possibly improving margins, with anticipated increases in stock-based compensation expenses tied to normal growth rates. Overall, the company believes it is well-positioned to manage potential tariff-related challenges.

The paragraph discusses Henry Schein's product portfolio and strategy with branded and private label products. Stanley Bergman explains that while the company collaborates with branded manufacturers for their pricing needs, they also offer alternatives through their corporate brand, especially in consumables on the dental side, where they cover most needs but not traditional dental equipment. On the medical side, although they don't offer their own brand of generic drugs, they do provide a range of products, focusing on injectables and vaccines at competitive prices, fulfilling customer demands comprehensively.

The company is continuously adding new products and improving their brand image, expecting an increase in gross profit margins through their own brand and support from manufacturers. Elizabeth Anderson from Evercore ISI asks about the tariff impact and the orthodontic market transition. Stanley Bergman responds that there is no significant expected impact from tariffs on their bottom line, as they can source products like nitrile gloves from countries like Malaysia without facing tariff issues.

The paragraph discusses the company's strategy and challenges related to tariffs and the dental and orthodontic markets. The company anticipates minimal impact on its bottom line from potential tariffs on products from China and dental anesthetics from Canada due to sufficient inventory and ability to source alternatives. However, tariffs on dental anesthetics could affect the industry since most supply comes from Canada. The company is adjusting its orthodontics infrastructure after losing a patent, which led to financial losses in 2024, and plans to consolidate aligner production in France to improve profitability. The company expects the orthodontic segment to become profitable by the end of 2025, despite it being a small part of its overall business.

Stanley Bergman thanks participants for joining the call and acknowledges the challenges in transitioning to a new segment accounting system. He apologizes for any confusion caused by providing a lot of information at once and assures that his team is available to address questions. Bergman expresses confidence in the business, highlighting the strong management teams across various regions and segments. He mentions market share growth despite some fluctuations and notes that 2025 will serve as a base year for growth, with optimism for 2026. The goal is to achieve high single-digit to low double-digit EPS growth.

The business is experiencing good cash flow and successful strategic investments, particularly with the BOLD+1 plan. Digital advancements, such as the GEP system in the U.K. and Ireland, are progressing and expected to expand to the U.S. Despite past challenges, including COVID-19 impacts, restructuring, and a cyber incident, the company is now stable. The sales team is actively securing new business while focusing on regaining past customers, specifically in e-commerce. The strategic plans set for 2022 to 2024 are anticipated to carry strong momentum into 2025 to 2027.

The speaker apologizes for the abrupt announcement of changes in segment accounting and the timing of their conference call shortly after the press release. They assure investors that their feedback is valued and express enthusiasm about KKR joining as an investor and the addition of three new Board members. The speaker encourages investors to engage with them at upcoming conferences and reassures that they will respond to queries while adhering to regulations. The teleconference is then concluded by the operator.

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