Good morning ladies and gentlemen. And welcome to the Henry Schein First Quarter 2022 Earnings Conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's call. Graham Stanley, Henry Schein Vice President of Investor Relations, and Strategic Financial Project Officer. Please go ahead Graham.

[Indiscernible]

Excuse me, Graham. Can you speak a bit louder? You sound far from the phone.

Our conference call remarks will include both GAAP and non-GAAP financial results. We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable the comparison of financial results between periods, where certain items may vary independently of business performance, and allow for greater transplant to reflect the key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes which should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non-GAAP measures can be found in the supplemental Information section of our Investor Relations website, and in Exhibit B of today's press release, which is available in the Investor Relations section of our website. Lastly, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 3rd, 2022. Henry Schein undertakes no obligation to revise or base any forward-looking statements to reflect events or circumstances after the date of this call. Please limit yourself to a single question and a follow-up during Q&A to allow as many listeners as possible to [Indiscernible] questions within the one hour we have allotted for this call. We have updated the format of today's call with Stanley covering the business performance followed by Ron's review of our financial results. We hope you find this format beneficial. And with that, I'd like to turn the call over to Stanley Bergman.

Thank you very much, Graham. Good morning, everyone. Thank you for joining us. Before we get into the details of today's call, I would like to take a moment to express my appreciation once again to Steven Paladino, who retired last week after 35 years of outstanding service to Henry Schein. For the excellent execution of Steven succession plan and the smooth transition of his responsibility to Ronald South. I'm certain that investors will appreciate working with Ron and Graham and as we continue to build our Investor Relations communications. Ron is joining us on today's call and we'll discuss details of our first quarter financial performance and full-year guidance. So Ron will discuss that in a moment. At the start of the call. I would like to highlight that 2022 is off to a strong start. With record first-quarter financial results as we successfully execute on our 2022 to 2024 strategic plan that sets out our winning proposition. Our winning proposition is that customers rely on us for an exceptional experience delivering differentiated solutions that make their practices most successful and improve patient outcomes. Our bold plus one priorities, which we have discussed with in the past, is as follows. The B stands for building complementary software, specialty, and services businesses, for high growth. Operational one Distribution to deliver exceptional customer experience, increased efficiency and sales growth. And the L stands for one Schein to broaden and deepen relationships with our customers that is with our entire product offering -- service offering. And the D, the drive, stands for driving digital transformation for our customers and for Henry Schein. So our [Indiscernible] priorities will be executed in the context of the plus one. Aligning our key stakeholders, which of course, our suppliers, customers, shareholders, investors, and Team Schein members…

Excuse me, just the Operator. Apologize that there will be a slight delay in today's conference. Please hold and conference will resume shortly.

We are lowering both line's disconnected mainline and the backup. I don't think that's a function of our foundries.

Yes.

Everything disconnected.

Please proceed.

Just sorry. We had the [Indiscernible] the line disconnected, but let me continue on where we ended. So the decline in patient traffic was primarily the result of the appointment cancellation, strapping shortages, and some office closures given the spread of COVID, although we believe patient traffic has now returned to December 21 level, I think I covered that already, and I think it went through. The global trends are somewhat vary depending on the region of the world. So lower sales of PPE products in the quarter were primarily as a result of lower glove sales. The glove market has been quite volatile for about a year, maybe a little longer, not much longer, 15 months. We expect glove pricing will be an increasing headwind for a few quarters since pricing peaked in the second quarter of last year. That's 2021. Nevertheless, if you exclude PPE products, North American consumable merchandise, internal sales growth in local currencies was quite solid. Despite the softer stock to the quarter, we gained momentum as the quarter progressed. This was supported by good growth in sales to new DSO accounts. Our North American dental equipment business had very good quarter with strong sales in both traditional and digital categories. Now, particularly in digital restorative restoration equipment, our equipment order book in North America remains strong at the quarter-end, consistent with the backlog at the beginning of the corner. So new orders continue to come in at a very nice rate. As commented early in the call, we did not see a significant impact from inflation on this quarter's equipment sales due to long lead times for equipment, as we had largely lacked in supplier prices for orders shipped during the quarter. Our equipment results benefited from sales to some of our large DSOs.…

Very good. Thank you, Stanley. And good morning, everyone. So turning now to our record, first-quarter financial results, total net sales for the quarter ended March 26th 2022 were $3.2 billion reflecting growth of 8.7% compared to the prior year period. Internally generated sales were up 7.7% in local currencies. And when excluding sales of PPE and COVID 19 related products, internal growth in local currencies was 8.9%. Formerly mentioned prices for PPE products and specifically gloves increased last year due to market volatility and supply chain disruptions. More recently, prices of these products along with COVID-19 test kits have declined. This pricing volatility combined with a strong Q1 prior year sales comparison is [Indiscernible] a year-over-year decline in sales of PPE and COVID-19 related products. Detail from sales performance are contained in Exhibit A in our earnings press release issued earlier today. Operating margin for the first quarter of 2022 was 7.7%, representing a decrease of 17 basis points compared to the prior year GAAP operating margin. When compared with prior year Non-GAAP results, operating margin decreased 71 basis points. Operating margin contraction was due to higher operating expenses primarily as a result of increases in payroll commissions in travel and entertainment. Since most of our operations have returned to normal this year. The year-over-year contraction was also due to the unusually high operating margin in the first quarter of last year. Turning to taxes, our effective tax rate for the first quarter of 2022 was an even 24%. This compares with an effective tax rate of 25.1% for the first quarter of 2021 on both a GAAP and a Non-GAAP basis. GAAP net income attributable to Henry Schein for the first quarter of 2022 was $181 million for $1.30 per diluted share. This compares with prior year GAAP…

Thank you very much, Ron, unfortunate the beginning part of our call with Graham made his introductory remarks. We're not sort of broadcast to our participants. There was a problem versus Operator and intervention the call got disconnected. I think my remarks and Ron's are fully picked up. Graham. You may want to repeat maybe a remarks, please, Graham. Thank you.

Sure. Thank you, Stan. I just like to state that certain comments made during this call will include information that's forward-looking. As you know risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements. As a result, the company's performance may materially differ from those expressed in or indicated by such forward-looking statements. These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission included in the Risk Factors section of those filings. In addition, all comments about the markets we serve, including end market growth rates and market share, are based upon the company's internal analysis and estimates. So with that, I'll hand the call back to Stanley cause I think everybody heard the rest of the statements at the beginning. Thank you, Stanley.

Thank you very much, Graham. Operator, please refer the questions, open the line for questions. Thank you.

You're welcome. [Operator Instructions] Please stand by while we compile the Q&A list. We have our first question comes from the line of Jeff Johnson from Baird. Your line is open. Please go ahead.

Thank you, guys. Just two quick ones maybe and then I'll get back in queue. Stanley, could you give us any update maybe just on April trends that you're seeing in the specialty dental area, the general dental area and medical? And then Ron, just for you from a guidance standpoint on the 5% to 8% revenue growth, I think a lot of us just look at organic growth for Schein. It tends to be a very consistent metric in your business. Could you just give us how we should be thinking about maybe organic growth given that you do a lot of acquisitions and currency obviously is a big impact this year. Thanks, guys.

Thank you, John. Drip, I mean, thank you. Equipment sales remained strong in April with internal sales growth double-digit numbers. As we indicated, we expect list at this moment, equipment sales remain strong for the balance of the year. Now, in North America with particularly encouraged by the sales in April. How about PPE sales we're lower than prior year due to the lower price of gloves. The brushing clubs has had quite a bit of an effect. Therefore, while the line growth is good, XPP&E and the general PPE excluding grabs pretty good. Overall, therefore, merchandise, internal sales growth in local currencies. So if you take out the PPE is okay, it's pretty good. Now, international -- so that was about North America. If you look at our international components. Again, PPE is having quite a bit of an impact in particular loans. But we're quite encouraged because from a European point of view, most of the markets now are back in full swing in this major markets that we're in. Also, Australia reached the peak towards the end of the quarter, last quarter and they're back in business again. We'll continue the nice growth we've experienced in Australia for a while. For whatever reason, Brazil continues to be very good, doesn't seem to have been impacted at all in the first quarter and continues to be strong in April. Now, we've seen quite a bit of disruption as you could tell from new [Indiscernible] of course, particularly in Shanghai. But I think now other parts of the country, even Beijing or the other because of total lockdown. Our China sales are impacted in April. Having said that, please remember, China is relatively immaterial in the context of our 12.5 or so billion-dollar business. And on medical, very similar results primarily here in North America. Our medical businesses continue to have very, very good growth, non - COVID, non -- that's not COVID -related products, excluding diagnostics and the PP&E. So Ron, will you provide certain for the color on the -- what you took in accounts in coming up with guidance?

So Jeff, if you recall, our original sales guidance was 6% to 8% and the components of that included about 0.4 acquisitions and a point for the 53rd week this year. So that left us with about 4% to 6% of internal growth, whether it be the price increases or from increased volumes. I think we were taking down the sales growth of 5% to 8% and that extra point we're taking off the floor. There is really a combination of what we're seeing in trends in the COVID test kits, as we said, for expecting those sales be 15% to 25% lower than last year versus our original guidance of 10% lower and also the FX headwinds. You can kind of do that math and say, the internal number, now be something that's closer to say 3.5% to 5.5% or 6% in terms of the internal number that we're still aiming for for this year. I don't know. Hopefully that acceptably.

It does. Thank you.

Our next question comes from the line of Jason Bednar from Piper Sandler. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions. A couple from us, just actually wanted to first come back on the top line guide their point there. Just to confirm, coming to the bottom end of that guide, coming 100 basis points lower, so now [Indiscernible] reported for the year, it looks like 50 basis points of that is COVID test kits. Just to confirm that the balance of that is just [Indiscernible]. I guess -- are there any other good guys or bad guys within that revenue guidance that we should be considering, whether it's glove pricing or anything else that's playing out here just as we, as we think through some of those mechanics.

But I'd say your estimate on the COVID test kits to the FX are pretty reasonable. And that's really -- those are really the components. There's not offsetting items that were [Indiscernible]

Okay. All right. Perfect. And then just thinking through how the first quarter played out. Your earnings came in significantly better than how you were communicated it back in February. I think the original guide was for earnings to be slightly lower on a year-over-year basis. Can you talk about where the outperformance came versus expectations? Was it a quicker recovery in the top line and like in core trends in dental and medical, better expense control? Where you've got -- you beat the street by over a dime. So I guess where did that outperformance come from in your eyes?

I think a couple of areas. In a COVID test kits the $250 million in the quarter, and while we're taking down the full year on COVID test kits, I don't think we didn't expect to do quite that well in the first quarter with a test kits sales. I think also, we're really happy with our gross margins in the dental business. In spite of some of the pressure we're feeling on gloves, we still did fairly good on the margins there. And then of course the equipment. The equipment came in much better than what we had originally expected. And as we said on the call, we remain bullish on equipment. So I think all those things when combined, guide us to a good place on the quarter. There's other things I would acknowledge that we did well on effective tax rate, we did well in a few other areas, but I think that between the good margins that we experienced in dental, not just in gloves, but in non-PPE sales as well, helped us out for the first quarter.

All right, very helpful. Thanks, Ron.

Our next question comes from the line of Justin Lin, from William Blair. Your line is open. Please go ahead.

Hi. Good morning. Thank you for taking my questions. First of all, can you talk about your dental market spending growth outlook for 2022 and beyond? Do you think the elevated spending per visit levels from 2021 can persist or are you seeing a decline already?

I think generally strong, a visit to dentist point-of-view, taking into account COVID -impacted locations. I think generally, we're in positive territory from visits dentist, from what we can tell, the higher end procedures remained quite strong with some specialty products at the high end, sleep quite. The strong at the moment, we're more respect to where we were in December of 202’1 posts. You never know where this variant is going to have an impact. Right now, though we did have pretty bad January from a business point of view, and February, March started getting better April looking okay. I think [Indiscernible] to stable leading pasture.

Got it. Thank you. And the line was a big surprise last week, and I -- just wondering, any visibility on your end regarding the declining consumer sentiment that some of these companies are seeing, maybe especially around your -- I know it's a small part still, but your reveal clear line of business?

I would reveal a line of business is relatively small and growth is impacted by new accounts, particularly some DSOs that have not taken on the [Indiscernible] line. I don't think our sales are much of an indication. Although obviously, in the first part of the first quarter, visits or elective procedures were down. It came back again. But I'm not sure we're the right party to give you an indication of the market in general. Suffices to say, we remain quite bullish for our reveal line. Having said that, it's a very small business, relatively small business compared to the market.

Okay. That's fair. Thank you very much.

Our next question comes from the line of Elizabeth Anderson from Evercore ISI. Your line is open. Please go ahead.

Hi, guys. Thanks so much for the question. I was wondering if you could provide some additional detail on the North American medical account penetration. Was that broadly expanding your range of products into certain clients? Was that of share gain wins versus peers? Any additional details there you can provide would be super helpful.

Our medical business focuses on the ultimate key areas, mostly physician offices. With our independent or part of a group or in fact, a large part of it is with the medical practices are owned by IDNs. We also have businesses that focus on the government. And we have businesses that focus on smaller ambulatory surgical centers. And we have businesses that focus on provide us such as renal treatment centers and cancer centers. That's -- we do not serve as the long-term care in a way, nor the acute care area, and obviously not the drugstore. So that's really our business. And the net area, we have been gaining market share for a decade. Just very good execution. I would say that all this continues to point to gain market share. Obviously the PPE and the tests the spot numbers sometimes magnified and sometimes you reduce our underlying business performance. But essentially within that particular part that I described, we continue to gain market share. We do add some new products, but we should contribute. I would say, including better way we entered the homecare space in small way and would expand that. But I'm not sure if that contributed at all to the internal growth as miss the acquisition growth. So overall, the business is just gaining market share.

Got it. That's very helpful. And Ron, maybe one for you as we think about the cadence of opex spend going forward for the rest of the year, can you help us think through the [Indiscernible] takes as increase in wages and some of the other labor type cost that you called out versus some of the ongoing impacts of the cost cutting plans that you guys have put into place?

Yeah. We're dealing with wage inflation, like everybody is right. And our normal cadence of salary increases as the company goes into effect people one, so we will see an increase in payroll costs going forward. That is taken into consideration when we talk about operating expenses and our plant operating expense, expansion for the margin expansion.

Unfortunately, we had a putting space, a straight surcharge. We've done this in the past to deal with increased costs. Utilities. Generally, customers average shifted that as the requirements.

Got it. Okay, thanks.

Next question comes from the line of Nathan Rich from Goldman Sachs. Your line is open. Please. Go ahead.

Hi. Good morning. Thanks for the questions. I'll ask them both upfront. I guess, maybe on the dental equipment business, it seems like you're seeing longer lead times and you expect those kind of delays to continue through the second half of the year, but you had a strong first quarter from a revenue standpoint and it doesn't sound like the outlook for dental equipment, at least on the revenue side has changed this year. Can you maybe just talk about how you've been able to work through the supply issues, and also where you're still seeing, just in terms of demand for CapEx from practices? And then just a quick follow-up for Ron. It looks like the seasonality of earnings this year is a little bit different than what you've seen historically. And so I guess should we think about kind of earnings towards the back half of the year as closer to what the go-forward run rate of the business will be, one PPE normalizes some of these equipment supply issues resolve. It will just be helpful to get your color on what the back half of the year means for the longer-term go-forward. Thank you.

Yeah. Two very good questions. First of all, the demand for dental equipment, both traditional and digital, has been quite strong, actually since around the early part of the time we -- practices went back after COVID. So I guess from the second quarter of -- third quarter, post third quarter of 2020. It's been pretty well. Demand is there. There's one particular challenge, and that is on the chairs, units, and lines, that part of traditional business. We had a big supplier exit the markets. And the other two major suppliers plus three or four other smaller ones, have had challenge keeping up with our demand because we were a big customer of the business that closed down on the chairs, units, and lines side of the business. The capacity has increased. We certainly can provide equipment, traditional equipment to any customer urgency needs it. Having said that, demand continues to grow, supply increases, but it's still a bit of an imbalance. And we don't see at the moment the time when the demand for traditional equipment will significantly reduce status view as of this very moment. On the digital side, demand continues to grow. Digital dentistry is growing rapidly. We have a number of suppliers providing us with products. They all to one extent to another had some challenges in providing satisfying demand, though, some fall is challenged than others. And the demand is doing -- and we continue to sell a lot with [Indiscernible] buildup in the backlog in that regard, there it's related to the suppliers having thoughts, chips, challenges. So the market is stable. There is a problem, is satisfying all about purchase orders. And the demand is good so dentists are investing the practices I might add the same is on the medical side. So practitioners are generally investing in the practices we have a good selection in good manufacturer support and equivalent business both in dental, medical, domestic, and globally is quite strong. And regarding your question on seasonality, I will say it's a very good question and it's a very difficult question to answer. You're right. Historically, there were some seasonal trends, they were somewhat nuanced, but they were some seasonal trends to our business and I think as we went into the pandemic and are coming out of the pandemic a lot of that has -- that dynamic has changed. And I think that there's -- there are so many different factors, whether they be covid test kit, pricing of PPE, demand for PPE. The days are kind of predicting increased sales in the fourth quarter for equipment, tax incentive, equipment purchasing are difficult now. I think it's admittedly our sales -- our earnings are probably going to be a little choppier than they have been historically. And that's really just driven by the dynamics of the markets in which we're operating right now.

Thanks very much.

We have time for one last question coming from the line of Mike Miksic from Credit Suisse. Your line is open. Please go ahead.

Hello. This is Justin Wang stepping in for Mike. Thank you so much for the question. We were wondering if you could provide any color on implant trends in the U.S. as well as OUS and how you've seen these carry into April, as well as your expectations for Q2. Thank you very much.

This implant trends continue to be quite strong. As I noted, the Hyatt end of industry seems to be doing quite well. Our strengths of close is in North America and Europe course we have a presence in Asia, but we're not as large in those markets. On a global basis, the Asian markets and some of developing world markets are growing at a faster rate than the pin, with particularly strong in Germany, The U.S. market. In the markets we're in. I think we're doing a pay for these. We are gaining market share from a global point of view, there are other markets that are growing faster that we're not really in and imagine those other markets will have a setback because of sales in China and Russia and Eastern Europe. Overall, I think from our point view, the market's are continued to be quite good, and we continue to gain market share with a number of very important introductions products in the specialty areas, implants with bone generally that we liked regeneration and of course to moving. Thank you. So -- Unfortunately, we have to end the call. We are few minutes over, but we have this interruption. It was beyond under control. Thank you, everyone for the interest. We changed the format. And if you have feedback a little bit on the format or on the press release, hopefully it's more concise, satisfied our investor needs, but we will very much would appreciate any input from our investors. As you can tell, we remain bullish about the business. We're quite happy with our 2022 to 2024 strategic plan. We're making very good progress. We have an outstanding management team behind the plan. And generally think our both +1 strategy will increase shareholder value and nice consistently as we've done for the past 100 + quarters as a public company. Thank you for your interest and feel free to reach out to Graham or to Ron and look forward to seeing people at the -- speaking to people at the future conferences next month ahead. And have a great summer. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.