HENRY SCHEIN INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Advancing the BOLD+1 Strategic Plan 2025-2027, focusing on growing the distribution business through operational efficiency and customer experience, growing dental and medical specialty businesses, corporate brand products, and developing digital solutions.
• Established new business units: Global Distribution and Value-Added Service group, Global Technology group, and Global Specialty Products group.
• Highlights: Launched new products/solutions, acquired Acentus (US national distributor of continuous glucose monitors), expanded specialty product sales through distribution, implemented restructuring initiatives, GEP UK/Ireland fully operational, high-growth businesses expected to contribute over half of operating income by 2027, and corporate brand products contributing over 10% of operating income.

Segment Performance

• Global Distribution and Value-Added Services group: Global sales were $3.2 billion, down 0.1% compared to first quarter 2024. US dental merchandise grew 0.7% excluding PPE products, while US dental equipment declined 8.9% due to a deferral of $20 million in equipment sales from Q4 2023 to Q1 2024. US medical distribution grew 4.7% excluding PPE and COVID test kits. Home solutions business had 23% total sales growth, including 9% internal growth. International dental merchandise constant currency sales grew 1.1%, and international dental equipment constant currency sales grew 4.3%. Global value-added services sales were impacted by the timing of transactions in the practice transitions business.
• Global Specialty Products group: Constant currency sales growth was 4.3%, benefiting from acquisition growth (4.0% from TriMed). Implant and biomaterial business had good growth, especially in the DACH region of Europe. The endodontic business had slight negative growth due to a supply chain issue, and the orthodontic business is being reorganized. Orthopedic products had high single-digit sales growth.
• Global Technology Group: Total sales growth was 2.9%. Practice management systems grew with a 20% increase in cloud-based customers, but legacy product sunsetting had a short-term impact on sales. However, it enabled operating cost reduction and improved customer experience.

Guidance

• 2025 non-GAAP diluted EPS expected in the range of $4.80 to $4.94, more heavily weighted to the second half.
• 2025 adjusted EBITDA expected to grow in the mid-single-digits versus 2024's $1.1 billion.
• 2025 total sales growth expected to be 2% to 4% over 2024. Guidance assumes an estimated non-GAAP effective tax rate of 25% and foreign currency exchange rates remaining consistent with current levels. Tariff mitigation efforts are factored into maintaining guidance.

Risks

• Tariff impact on corporate brand products, requiring diversification of sourcing and working closely with suppliers and customers to mitigate financial impact.
• Past cyber incident impact, though largely behind us, with ongoing monitoring of tariff changes and their effects.

Question and Answer

Q: Talk about the dollar impact on revenue guidance and bottom-line A: First quarter had a 1.5% headwind from foreign exchange. Now expecting foreign exchange to be largely neutral versus prior year. Sales guidance accounts for this, and tariff mitigation efforts are expected to impact the bottom-line positively.

Q: US implant market weakness in 1Q '25 A: US implant market slightly down due to weaker consumer sentiment for high-end dentistry. New launches like Tapered Pro Conical and SmartShape healer are doing well, and bone regeneration business is solid.

Q: Tariff mitigation mechanics and sourcing flexibility A: Diversifying sourcing for corporate brand products to lower tariff countries, working with suppliers and customers to find mitigation strategies. Many specialty products are manufactured in local markets, and alternate sourcing is available for corporate brand products if tariffs don't change.

Q: DSOs performance A: DSOs are stable to positively leaning, adjusting to higher interest rates, with most DSOs doing well and expanding their operations.