Henry Schein Inc (HSIC) — Q1 2022 Earnings Call Transcript

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 transparency 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 ask 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's succession plan and the smooth transition of his responsibility to Ronald South. I'm certain that investors will appreciate working with Ron and Graham as we continue to build our Investor Relations communications. Ron is joining us on today's call and will 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 in the past, are 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 with our entire product and service offering. And the D, drive, stands for driving digital transformation for our customers and for Henry Schein. Our priorities will be executed in the context of the plus one. We are affirming our full year 2022 GAAP diluted EPS guidance of $4.75 to $4.91, reflecting the solid growth and stability of our business. To emphasize, we're very excited about our 2022 to 2024 strategic plan, which started at the beginning of this year. We believe we are on a very good trajectory in that regard. So let me comment on two topics that are on the minds of many investors: inflation and Global supply chain. We are continually monitoring the potential impact of inflation on our business. The impact varies by product category for both merchandise and equipment. We estimate that on balance, price inflation on our product offering so far this year has been about 3%. Some of our manufacturing partners are currently implementing additional price increases, which will likely impact that 3%, but so far it's been about 3%. While we have generally been able to pass along these increases to our customers, we do seek to reduce supply increases wherever possible. Of course, we are aligned with our customers in that regard. Where customers wish to explore alternative sources of products because of these pricing pressures, we are typically able to offer various, less expensive alternatives given our broad product assortment of national brands, as well as our wide selection of Henry Schein corporate brands and owned brand products. Our extensive offering to our customers provides many options and is an important differentiator for Henry Schein in the marketplace. The impact of inflation on our equipment business is significantly deferred due to the lead times between confirmation of an equipment order by manufacturers and delivery of the equipment. Generally, we book orders in advance with our manufacturers for the delivery at a future date at a confirmed price. So not much inflation in the first quarter, some of course, but not much on the equipment side. In addition, inflation largely impacts the traditional equipment products, as average selling prices for digital equipment continue to decline, although somewhat modestly. Now, turning to the supply chain pressure on our business, the situation is relatively stable, pretty similar to the fourth quarter. Of course, we continue to experience extended lead times for certain products, which are primarily impacting the equipment. On the consumable side, we generally had products. May not be every single product option in a particular category, but we have basically the products. The lead time problems are impacting our equipment deliveries. The recent lockdowns in China, we've received a lot of questions on that, so far they are not having a significant supply chain impact on us as most of our manufacturing partners are located outside the affected regions and ports are largely operational from our point of view with some delays. Now, this may be slightly different for specific suppliers of ours of finished goods. Our team is actively managing these inflationary and supply chain matters, which are reflected in our financial guidance. Turning now to the Ukraine. Henry Schein has relatively low dental sales to customers and really no direct presence in either Ukraine or Russia. So the conflict itself is not directly impacting our business per se. Of course, it could impact our suppliers. Consistent with our longstanding commitment to humanitarian work and disaster relief, our team continues to support refugees and displaced persons in and from Ukraine. As we have done, for example, with refugees from Syria and other parts of the Middle East and of course elsewhere. Our support is through the delivery of healthcare product donations in partnership with several of our suppliers and with international NGOs that we've worked with for a long time. Yes, in this case, through our local teams on the ground in Poland and other on-the-ground teams that are working with us to provide these support programs. We're actively supporting refugees through the management of donations, products, clothing, and yes, in some instances, money. We also are responding to those affected by natural disasters around the world, such as floods in Australia, last year in Germany, and continuing to work in advancing health equity. Advancing health equity has been a key component of Henry Schein's success for many years. That goes to advance access to oral care and, in many respects, to primary care as well. Turning now to the business review of recent accomplishments, starting with our dental distribution business. The first quarter growth in our dental business was driven by strong global equipment sales, as dentists continued to invest in their practices, and consumable merchandise sales recovered well during the second half of the quarter in line with the decline of COVID-19 infection rates. Let me peel the onion a little bit more for you. In North America, we believe consumable merchandise sales were impacted by lower patient traffic in January as a result of COVID-19, but we are progressively stronger in February and March. Sales were also impacted by lower sales of Personal Protective Equipment, which I will refer to as PPE products for the rest of the call. This decline in patient traffic was primarily a result of appointment cancellations, staffing shortages, and some office closures due to the spread of COVID. Although we believe patient traffic has now returned to the levels of early December 2021. We are seeing similar trends globally.

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Just sorry. We had the line disconnected, but let me continue on where we ended. So the decline in patient traffic was primarily the result of the appointment cancellations, staffing shortages, and some office closures due to the spread of COVID. Although we believe patient traffic has now returned to December 2021 levels. The global trends somewhat vary depending on the region of the world. Lower sales of PPE products in the quarter were primarily a result of lower glove sales. The glove market has been quite volatile for about a year, maybe a little 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. Nevertheless, if you exclude PPE products, North American consumable merchandise internal sales growth in local currencies was quite solid. Despite the soft start 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 a very good quarter with strong sales in both traditional and digital categories. 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 quarter. So new orders continue to come in at a very nice rate. As I commented earlier 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 largely locked in supplier prices for orders shipped during the quarter. Our equipment results benefited from sales to some of our large DSOs. As we believe that anticipation of further price increases modestly provides some of the elevated demand we see today. It's not a huge impact, but I will nevertheless point that out for you. We continue to experience supply chain issues for traditional equipment, arising from component shortages, port delays, and longer lead times with digital imaging technology. It is not that the product is not available; it's just taking a little longer on the digital side to deliver our orders. Having said that, if a practitioner needs anything urgently, we will of course ensure that we supply both traditional equipment and digital imaging. We now expect these equipment delays will continue to be factors through the second half of the year and will provide further support for good equipment sales over the next few quarters. In fact, bottom line, we remain bullish on the equipment market and especially the digital dental equipment product offering. We expect to continue demonstrating good growth in the digital category, including intraoral scanners. Now, in the last period of time, the impact from digital 3D printing, we're starting to see that flow through as well, net demand to be of interest. We continue to look for innovative ways to add value to our customers. Last month, we hosted Thrive Live in Las Vegas. This was a three-day dental educational conference that replaced the successful ten-click business of dentistry conference we have held in years prior to COVID. We designed this inaugural event to offer a learning path for every member of the dental office from the front office staff to the hygienist to the dentist themselves. So everyone from the staff all the way to the dentist participated in this conference. The programs were designed for the various players in the office. We were able to select from over 50 CE accredited courses led by more than 40 leading commissioners with a strong educational focus on digital technology and practice management solutions that Henry Schein has a lot of competency in advising our customers on. The customer feedback we received was the most positive and has advanced our position, at least from our point of view, to connect with our customers in deeper ways, and position our team to help provide greater productivity and better clinical care in practices. Educational events like this provide great sales opportunities as well. Turning now to the international side of our operation, our international equipment sales were also quite strong for the quarter. Our international consumable sales were impacted by similar trends as North America, including lower PPE and COVID-19 related product sales, and by the decline as patient visits, particularly during the first half of the quarter. That said, compared to North America, the impact of COVID-19 was more pronounced internationally, especially in Europe. So let's peel the onion a bit more in Europe. Patient traffic picked up at various paces as the quarter progressed and COVID-19 restrictions were relaxed in certain parts of Europe, and we expect these markets to continue to recover. We also expect the Australian market to start to recover having reached its peak COVID-19 infection rate towards the end of the quarter. This should help as we see similar trends in Europe, and our billion dollar business remains strong throughout the first quarter. Balance in China impacts our business. Note that our growing Chinese business is still a relatively small part of our global dental business. These lockdowns also intensified during our fiscal second quarter. They had little impact in the first quarter. I remind you though, we have a nice growing business in China, but it's not material in the relative concept about the relative size of Henry Schein compared to our global consolidated sales. Pertaining to dental specialties and technology and value-added services, sales of dental specialty products were solid during the first quarter. Specifically, oral surgery, which consists of dental implants and bone regeneration products. In particular, sales of BioHorizons implants grew double digits this quarter. We are executing well in North America, with these businesses primarily focused on and with the markets for restorations continuing to be quite strong. Our Camlog and Merck Dental brands in Europe, primarily in Germany, also had a good first quarter for the implants and bone regeneration products. We have also had success selling ACE bone regeneration products into the large DSO market. This is another good example of the health of our bold strategy leveraging our one Schein strategic priorities. Now, within our endodontics product offering, our business is also quite solid. We recently launched our age pro laser, which has actually had a successful launch, having been well-received at next week's meeting here in the United States. We do believe that ACE bone is outstanding for cleaning, debridement, and disinfection, coupled with greater value compared with competing products. Meanwhile, our priority in the orthodontic business is our Reveal clear aligner product line. In March, we completed the U.S. domestic launch of the Reveal product and are now rolling out the software update globally. Software features advanced treatment planning and realization tools. Obviously, I think investors are aware that orthodontic sales were not great in the first quarter because practices were not operating at full capacity as a result of COVID. Overall, our solid position in dental specialty products is built upon a strong customer offering and our commitment to meaningful, ongoing investments in R&D. If there are questions on that, happy to provide further color during the call. Turning to technology and value-added service sales, they also increased by double digits during the first quarter, in both North America and internationally. We believe Henry Schein One offers one of the broadest product offerings of dental practice management and related software and services, and is the largest contributor to sales in the sector of technology and value-added services. Growth within Henry Schein One continues to be driven primarily by recovery in patient traffic to dental offices, which generates demand for our revenue cycle management solutions, and also by cloud-based solutions that provide flexibility and scalable services to drive practice efficiency, and yes, patient engagement too. As another example of our commitment to expanding our technology product offering, we are making our job's analytics software products available to private practices, whereas previously, the job's software was available primarily to DSOs. Within our value-added services business, our eAssist business provides revenue cycle management solutions for insurance reimbursements. We're quite pleased with the integration and performance of this business which we acquired last year. So now turning to our medical business, where global medical sales were excellent as we achieved further penetration into existing customer accounts. Internal sales growth in local currency, if you exclude PPE and COVID-19 related products, also continued to be strong. The U.S. patient traffic to physician offices and ambulatory care sites, in particular in our cases, the ambulatory surgical centers, was up consistently throughout quarter one versus the prior year. Sales of medical laboratory equipment were up double digits while demand for non-COVID point-of-care diagnostic tests was also quite strong. Sales of PPE products declined by double digits compared to the strong first quarter last year. As I mentioned earlier, we expect further pricing declines for gloves throughout the rest of the year, as prices remain above pre-pandemic levels. Sales of COVID-19 tests were extremely strong during January, very strong, but declined shortly towards the end of the quarter. The future of these products is difficult to predict as we face the somewhat offsetting forces of new variants spreading rapidly, trading demand, along with increased availability from other sources, many of which are being paid for by the government in the U.S. So that's a broad overview. Now, Ron will give you more specifics on the financial results for the first quarter. So Ron, there you go. Thank you, and welcome to your first call.

Very good. Thank you, Stanley. And good morning, everyone. 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 leading to a year-over-year decline in sales of PPE and COVID-19 related products. Details from our 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, and 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 net income of $166 million or $1.16 per diluted share and prior year non-GAAP net income of $178 million or $1.24 per diluted share. Amortization from acquired intangible assets for Q1 2022 was $32.2 million pre-tax or $0.14 per diluted share. This compares with $29.7 million pre-tax or $0.13 per diluted share in the same period last year. Foreign currency exchange negatively impacted Q1 2022 diluted EPS by approximately $0.01. I'll now provide some detail on our sales results for the first quarter. Global Dental sales of $1.8 billion increased 2.2% compared with the same period last year with internal sales growth of 3.5% in local currencies. Global Dental consumable merchandise internal sales increased 1.3% in local currencies and excluding sales of PPE and COVID-19 related products, internal sales in local currencies increased 4.7%. Global Dental equipment internal sales growth in local currencies was 11.9%. North American dental internal sales growth in local currencies was 4.8%, which was driven by especially strong performance in equipment, which internally grew 13.2% compared with the prior year period, with strong performance in both traditional and digital categories. This growth also comes off a difficult comp, as Q1 2021 internal equipment sales growth in local currencies was 17.4%. North American dental consumable merchandise internal sales in local currencies increased 2.6% compared with Q1 2021 or 7.3% when excluding sales of PPE and COVID-19 related products. International dental internal sales growth in local currencies was 1.8% compared with the first quarter of 2021 when we had an exceptionally strong sales quarter, with internal sales growth of 17.9% in local currencies. International dental consumable merchandise internal sales in local currencies decreased 0.5% compared to the first quarter of 2021, an increase of 1.3% when excluding sales of PPE and COVID-19 related products. Sales were impacted by an increase in COVID infections, especially in January and February. This sales growth is also against a difficult comp, as the internal sales growth in the prior year was 19.2% in local currencies. International dental equipment internal sales growth in local currencies was 10.1%, and this is also against a difficult first quarter of 2021 comp, with such growth being 12.9% in local currencies. Sales of Dental Specialty products were approximately $236 million in the first quarter with internal growth of 7.2% in local currencies compared with Q1 2021 when we had an exceptionally strong sales quarter with internal sales growth of 18.3% in local currencies. This quarter, growth was strong in our oral surgery category, which consists of implants and bone regeneration products. Technology and Value-Added Services sales during a $179 million, an increase of 23.4% compared to the prior year. Included internal growth of 11.1% in local currencies. In North America, technology and value-added services internal sales growth was 10.3% in local currency. This growth was driven by our practice management business, the strong growth in Dentrix and Ascend. Our revenue cycle management business also exhibited solid revenue growth. Internationally, technology and value-added services internal sales increased 15.7% in local currencies compared with the prior year. This growth was driven by a strong performance in the UK, which benefited from a favorable comparison to the prior year when the lockdown was just beginning to ease. During Q1, our technology and value-added services businesses, together with our Dental Specialty products, achieved total sales growth of 13.1% and internal sales growth in local currencies and 8.7%. This total sales growth is in line with our double-digit growth goal for the forward year. Global Medical sales during Q1 was $1.2 billion grew 18.3% compared with the same period of 2021, with internal sales growth of 14.7% in local currencies led by growth in COVID test kits and other point-of-care diagnostics. We sold approximately $250 million in COVID-19 test kits in the first quarter of 2022, including multi-assay flu and COVID-19 combination test kits. This compares with approximately $180 million in test kits in Q1 of 2021. We expect continued volatility in sales of test kits for the remainder of the year. Excluding sales of PPE and COVID-19 related products, Global Medical internal sales in local currencies increased 14.5% compared with Q1 of 2021. Regarding share repurchases, we did not repurchase any shares of Henry Schein stock during the first quarter because we had a plan that did not result in any shares being repurchased during the quarter. We intend to put in place an additional plan that is effective as of tomorrow, May 4th. As of the end of the first quarter, Henry Schein had $200 million authorized and available for future share repurchases. This program remains a core pillar of our balanced capital allocation strategy, which also includes ongoing disciplined investment to support organic growth and strategic acquisitions. Turning to our balance sheet and cash flow, we have continued to benefit from significant liquidity providing our businesses flexibility and financial stability. Operating cash flow for the first quarter of 2022 was $93 million compared to $63 million for the first quarter of last year. Turning to 2022 financial guidance, I will conclude my remarks by noting that we are affirming our 2022 full-year GAAP diluted EPS guidance range of $4.75 to $4.91 reflecting growth of 7% to 10% compared to our 2021 GAAP diluted EPS of $4.45 and growth of 5% to 9% compared with our 2021 non-GAAP diluted EPS of $4.52. We expect 2022 full-year sales growth of approximately 5% to 8% over 2021 versus our previously communicated expected sales growth of 6% to 8%. This change primarily reflects the latest foreign exchange rates and a decrease in sales of COVID-19 test kits. As Stanley mentioned earlier, the future demand for test kits is difficult to predict. However, given recent trends, we now estimate sales of COVID-19 test kits to be 15% to 25% lower than 2021, as opposed to the 10% decline we had previously communicated. We continue to expect full-year 2022 operating margin expansion of 20 basis points to 25 basis points over the 2021 Non-GAAP operating margin and expansion of 39 basis points to 44 basis points over the 2021 GAAP operating margins. Our guidance is for current as well as completed or previously announced acquisitions and does not include the impact of future share repurchases, potential future acquisitions, or restructuring expenses, if any. Guidance also assumes that foreign currency exchange rates will remain generally consistent with current levels. That the end markets will remain stable and consistent with current market conditions. And if there are no material adverse market changes associated with COVID-19. With that, I will now turn the call back to Stanley.

Thank you very much, Ron. Unfortunately, the beginning part of our call with Graham made his introductory remarks. were not captured in our broadcast to our participants. There was a problem with the Operator and the call got disconnected. I think my remarks and Ron's are fully picked up. Graham, you may want to repeat your remarks, please. Thank you.

Sure. Thank you, Stan. I would 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 because I think everybody heard the rest of the statements at the beginning. Thank you, Stanley.

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

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, Jeff. Equipment sales were robust in April, showing significant internal sales growth. We anticipate that equipment sales will continue to be strong throughout the remainder of the year. In North America, we are especially encouraged by the sales in April. However, PPE sales declined compared to last year due to lower glove prices, which has affected overall performance. Despite this, internal sales growth in local currencies is still positive when excluding PPE. Regarding our international components, PPE, especially gloves, is also impacting performance abroad. However, we're optimistic as most European markets are now fully operational. Australia has recovered well after reaching its peak at the end of last quarter, and we expect continued growth there. Brazil continues to perform well and has not experienced disruptions in the first quarter, maintaining strength in April. While we've faced challenges due to new lockdowns in locations like Shanghai and Beijing, it's important to note that China remains relatively small within our overall business of approximately 12.5 billion dollars. In the medical sector, we are witnessing similar trends, particularly in North America, where our medical business is showing strong growth in non-COVID products, excluding diagnostics and PPE.

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 from price increases or from increased volumes. I think we were taking down the sales growth to 5% to 8%, and that extra point we're taking off the floor is really a combination of what we're seeing in trends in the COVID test kits. As we said, we're expecting those sales to 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 would now be something closer to 3.5% to 5.5% or 6% in terms of the internal number that we're still aiming for this year. I don't know if that helps.

It does. Thank you.

Hey, good morning. Thanks for taking my questions. A couple from us. I just wanted to first come back on the top-line guide. Just to confirm, coming to the bottom end of that guide, coming 100 basis points lower, it looks like 50 basis points of that is from COVID test kits, just to confirm that the balance of that is just. 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 think through some of those mechanics.

I'd say your estimate on the COVID test kits and the FX is pretty reasonable. Those are really the components. There are no offsetting items that we are seeing.

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 communicating 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, better core trends in dental and medical, better expense control? 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 contributed to that. The $250 million in COVID test kits in the quarter, while we're taking down the full year on COVID test kits, I don't think we expected to do quite that well in the first quarter with test kit 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 well on the margins there. And then of course the equipment came in much better than what we had originally expected. As we said on the call, we remain bullish on equipment. So I think all those things, when combined, led us to a good place in the quarter. There are other things I would acknowledge that we did well on, such as effective tax rate, but I think that between the good margins 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.

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, from a visit to a dentist point of view, taking into account COVID-19 impacted locations. I think generally, we're in positive territory from visits to dentists. From what we can tell, the higher end procedures remain quite strong with some specialty products at the high end showing resilience. The overall trends are favorable given the current landscape. However, you never know where this variant is going to have an impact. Right now, though we did have a weak January from a business point of view, and February and March started getting better, with April looking okay. I think we will maintain stable performance moving forward.

Got it. Thank you. And the line was a big surprise last week, and I was 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 aligner business?

Our Reveal clear aligner business is relatively small and growth is impacted by new accounts, particularly some DSOs that have not taken on the Reveal 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, they 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 relatively small business compared to the market.

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 share gain wins versus peers? Any additional details there you can provide would be super helpful.

Our medical business focuses on key areas, mostly physician offices, whether independent or part of a group, and in fact, a large part of it is with the medical practices owned by IDNs. We also have businesses that focus on the government and also on smaller ambulatory surgical centers. We do not serve the long-term care area, nor the acute care area, and obviously not the drugstore segment. So that's really our business. The net area, we have been gaining market share for a decade through very good execution. I would say that all this continues to point to gaining market share. Obviously, the PPE and the tests can sometimes magnify and sometimes reduce our underlying business performance. But essentially within the specific part that I described, we continue to gain market share. We do add some new products, but I'm not sure if that contributed at all to the internal growth as miss the acquisition growth.

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

Unfortunately, we had a pricing strategy as a surcharge. We've done this in the past to deal with increased costs, especially utilities. Generally, customers have accepted that as the new normal.

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 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 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. So I guess should we think about earnings towards the back half of the year as closer to what the forward run rate of the business will be once PPE normalizes and some of these equipment supply issues resolve? It would just be helpful to get your color on what the back half of the year means for the longer-term go-forward. Thank you.

Two very good questions. First of all, the demand for dental equipment, both traditional and digital, has been quite strong since around the early part of the time we practices went back after COVID, from the third quarter of 2020. The demand is there; however, there is a significant challenge with traditional business equipment. We had a major supplier exit the market. The other two major suppliers and a few smaller ones have had challenges 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, and we can provide equipment to any customer urgently needing it. Demand continues to grow, supply is increasing, but there is still a bit of an imbalance. We don’t see at the moment a time when the demand for traditional equipment would significantly reduce; thus, we view the market as stable. Similarly, on the digital side, demand continues to grow. We have a number of suppliers providing us with products. So the market is stable, though there are challenges in satisfying all purchase orders.

Having said that, seasonal patterns may fluctuate. I think we are entering a more stable phase post-COVID, but external factors could lead to fluctuations in revenue and earnings. For Q2, it’s too early to say how earnings may trend, but we do expect to remain strong despite any potential disruptions.

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.

The implant trends continue to be quite strong. As I noted, the high-end of the industry seems to be doing quite well. Our strengths are in North America and Europe; of course, we have a presence in Asia, but we're not as large in those markets. Overall, I think we're doing well and gaining market share in those regions as well, particularly implant and bone regeneration products. Overall, I think from our point of view, the markets continue to be quite good, and we continue to gain market share with a number of very important products in our specialty areas. Thank you. Unfortunately, we have to end the call. We are a few minutes over, but we had some interruptions that were beyond our control. Thank you, everyone for your interest. We changed the format, and if you have feedback, we'd appreciate it. 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 bold +1 strategy will increase shareholder value 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 we look forward to speaking to people at the future conferences next month. Have a great summer. Thank you.