Henry Schein(US:HSIC)2024-02-27 18:50Financial Data and Key Metrics Changes - The fourth quarter global sales were $3.0 billion, reflecting an LCI sales decrease of 12%, primarily impacted by the cybersecurity incident, which affected sales growth by an estimated 10% to 12% [25][57] - The non-GAAP operating margin for the fourth quarter was 4.86%, a decline of 279 basis points compared to the prior year, largely due to the cybersecurity incident and sales recovery initiatives [26][59] - Fourth quarter 2023 non-GAAP EPS was $0.66, down from $1.35 in the prior year, with the cybersecurity incident impacting EPS by approximately $0.70 to $0.75 [59][60] Business Line Data and Key Metrics Changes - Global Dental sales were $1.8 billion, with LCI sales decreasing by 10.9%, affected by the cybersecurity incident [28] - Global Technology and Value-Added Services sales were $212 million, with total sales growth of 13.4% and LCI sales growth of 7.1% [29] - Global Medical sales were $1.0 billion, with LCI sales decreasing by 17% due to the cybersecurity incident [30] Market Data and Key Metrics Changes - North American and international distribution businesses experienced merchandise sales below pre-cybersecurity levels, with a low-single digit percentage headwind to merchandise sales growth [12] - European, Latin American, and Asian markets posted significant growth, mainly from acquisitions, while U.S. implant sales showed low-single digit growth [16] - The late flu season negatively impacted patient visits and point of care diagnostic sales, but is expected to drive higher sales in the first quarter [52][47] Company Strategy and Development Direction - The company is focused on executing its BOLD+1 Strategic Plan, aiming for high-single digit to low-double digit operating income and EPS growth [13][54] - The company plans to enhance technology and product development, particularly in integrated digital workflows and specialty products [55] - Recent acquisitions, including a majority interest in TriMed, are expected to complement existing product lines and drive growth [19][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery from the cybersecurity incident and expects to strengthen market position despite short-term impacts [5][69] - The company anticipates that sales of COVID test kits and PPE have normalized, with some residual impact from lower PPE pricing expected in the first quarter [35][92] - Management expects 2024 non-GAAP diluted EPS to be in the range of $5 to $5.16, reflecting growth of 11% to 15% compared to 2023 [34][92] Other Important Information - The company repurchased approximately 692,000 shares in the fourth quarter at an average price of $72.32 per share, totaling $50 million [30] - Operating cash flow for the fourth quarter was an outflow of $32 million, compared to positive $254 million in the previous year, primarily due to delayed billings related to the cybersecurity incident [64] - The company expects to incur additional expenses related to the cybersecurity incident in 2024, but at a lower amount [65] Q&A Session Summary Question: Can you provide more detail on the end market environment and quantify the expected push out into Q1 from the cybersecurity impact, specifically on equipment? - Management indicated that dental equipment backlog was generally flat, with North America down mid-single digits and international backlog high-single digits. They expect good equipment sales growth in Q1 due to orders pushed from Q4 [71][74] Question: What are the margin assumptions for 2024? - Management confirmed that there will be some margin pressure due to ongoing recovery from the cybersecurity incident, but improvements in margins are expected as revenues ramp up throughout the year [83] Question: How does the company plan to close the gap in merchandise sales related to the cybersecurity incident? - Management noted that the incident affected impulse shoppers and pricing visibility, but they are confident in their e-commerce recovery efforts and expect to regain business over the next few months [122][126]