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Henry Schein(HSIC) - 2024 Q3 - Earnings Call Transcript
HSICHenry Schein(HSIC)2024-11-06 02:35
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Financial Data and Key Metrics - Global sales for Q3 2024 were 3.2billion,reflectinga0.43.2 billion, reflecting a 0.4% growth compared to Q3 2023 [20] - GAAP operating margin for Q3 2024 was 4.94%, a 140 basis point decline from the prior year [21] - Non-GAAP operating margin for Q3 2024 was 7.64%, a 45 basis point decline from the prior year [21] - GAAP net income for Q3 2024 was 99 million, or 0.78perdilutedshare,comparedto0.78 per diluted share, compared to 137 million, or 1.05perdilutedshare,inQ32023[22]−Non−GAAPnetincomeforQ32024was1.05 per diluted share, in Q3 2023 [22] - Non-GAAP net income for Q3 2024 was 155 million, or 1.22perdilutedshare,comparedto1.22 per diluted share, compared to 173 million, or 1.32perdilutedshare,inQ32023[22]−AdjustedEBITDAforQ32024was1.32 per diluted share, in Q3 2023 [22] - Adjusted EBITDA for Q3 2024 was 268 million, compared to 278millioninQ32023[24]BusinessLinePerformance−Dentaldistributionbusinessshowedstablepatienttrafficglobally,withNorthAmericandentalmerchandisesalesconsistentwiththeprioryear[10]−DentalequipmentsalesinNorthAmericawereconsistentwiththeprioryear,withtraditionalequipmentsalesgrowingslightlyanddigitalequipmentsalesdecreasing[11]−Dentalimplantandbiomaterialsalesgrewmid−singledigits,drivenbythelaunchoftheBioHorizonsTaperedProConicalimplantintheU.S.[12]−OrthodonticsalesdeclinedduetorestructuringandthetransitiontotheSmilersbrandClearAligner[14]−Technologyandvalue−addedservicessegmentpostedmid−single−digitgrowth,drivenbygrowthincloud−basedsolutions[15]MarketPerformance−NorthAmericandentalmerchandisemarketsharegrewsequentiallycomparedtoQ22024[10]−InternationaldentalmerchandisesalesshowedsolidgrowthinGermany,Austria,France,Brazil,Australia,andNewZealand[10]−Internationaldentalequipmentsalesgrew5.6278 million in Q3 2023 [24] Business Line Performance - Dental distribution business showed stable patient traffic globally, with North American dental merchandise sales consistent with the prior year [10] - Dental equipment sales in North America were consistent with the prior year, with traditional equipment sales growing slightly and digital equipment sales decreasing [11] - Dental implant and biomaterial sales grew mid-single digits, driven by the launch of the BioHorizons Tapered Pro Conical implant in the U.S. [12] - Orthodontic sales declined due to restructuring and the transition to the Smilers brand Clear Aligner [14] - Technology and value-added services segment posted mid-single-digit growth, driven by growth in cloud-based solutions [15] Market Performance - North American dental merchandise market share grew sequentially compared to Q2 2024 [10] - International dental merchandise sales showed solid growth in Germany, Austria, France, Brazil, Australia, and New Zealand [10] - International dental equipment sales grew 5.6%, with strong performance in Europe, Australia, and New Zealand [11] - Medical sales reflected less demand for respiratory diagnostic products and flu/COVID vaccines, but Home Solutions business showed strong growth [18] Company Strategy and Industry Competition - The company is implementing its BOLD+1 Strategic Plan, focusing on high-growth, high-margin products and services [7] - Acquisitions made during 2022-2024 and product launches are delivering strong financial results [9] - The company is transitioning to a global e-commerce platform, with positive feedback from customers in the UK and Ireland [9] - The company expects to exceed its target of 40% of operating income generated by high-growth, high-margin businesses for fiscal 2024 [8] Management Commentary on Operating Environment and Future Outlook - The company is recovering from last year's cyber incident and steadily gaining market share in dental and medical distribution businesses [7] - Management expects modest improvement in dental and medical markets in 2025, supported by recent investments, new product launches, and continued cyber recovery [36] - The company is on target to achieve its restructuring goal, which should help offset headwinds from higher depreciation expenses [37] Other Important Information - The company repurchased approximately 2 million shares of common stock in Q3 2024 at an average price of 69.09 per share, totaling 135million[31]−Thecompanyexpectstocollectmostofits135 million [31] - The company expects to collect most of its 60 million cyber insurance claim by the end of 2024 [30] - The company updated its 2024 non-GAAP diluted EPS guidance to 4.74to4.74 to 4.82, reflecting growth of 5% to 7% compared to 2023 [34] Q&A Session Summary Question: Overall health of dental and medical trends and impact of one-time items on guidance [39] - Management noted stable market conditions, with a shift towards lower-priced products in the dental market [41][42] - Equipment sales are expected to benefit from the timing of DS World, with most sales recognized in Q4 [44] - Medical sales are being monitored for flu season timing and its impact on diagnostic kit sales [45] Question: 2025 revenue and EPS growth expectations [47] - Management indicated that 2025 guidance will be provided in February 2025, with expectations for modest market improvement and continued market share gains [48] Question: Restructuring savings vs. higher depreciation costs [52] - Management expects restructuring savings to more than offset higher depreciation costs, leading to operating margin expansion in 2025 [53] Question: Market share recovery and consumables tailwind in 2025 [55] - The company expects to enter 2025 with higher market share compared to 2024, though the pace of recovery has been slower than expected [56] Question: Drivers of expected market improvement in 2025 [58] - Management cited stable dental equipment sales, potential interest rate reductions, and positive trends in Europe and other international markets as key drivers [59][61] Question: Implant performance and halo effect of new products [65] - The BioHorizons Tapered Pro Conical implant is driving growth in the U.S., with strong performance in Europe and Brazil [66] Question: Pricing environment and specialty vs. non-specialty market trends [69] - Management noted a shift towards lower-priced products in the dental market, with stable profitability despite pricing pressures [70] Question: Cost savings and revenue impacts from restructuring [74] - Restructuring efforts are focused on minimizing revenue impacts while achieving cost savings, particularly in distribution and technology businesses [75] Question: Medical market trends and competitive dynamics [78] - The medical business is stable, with recovery from the cyber incident and growth in Home Solutions and orthopedic businesses [79][81] Question: Technology and value-added services revenue dynamics [82] - The LPS acquisition and shift to SaaS models are impacting revenue recognition, but the business is growing well [83][84] Question: Manufacturer pricing trends and Clear Aligner restructuring [86] - Management noted price resistance among some manufacturers and is transitioning to the Smilers brand in orthodontics [89][90] Question: Capital allocation and M&A priorities for 2025 [93] - The company expects capital allocation in 2025 to align with historical trends, with potential M&A in Home Solutions and other strategic areas [94][97] Question: Strategic plan and future outlook [98] - The company is optimistic about its market share recovery, high-growth businesses, and upcoming 2025-2027 strategic plan [98][99]