Henry Schein Inc (HSIC) — Q1 2024 Earnings Call Transcript

Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's financial results for the first quarter of 2024. With me on today's call are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein; and Ron South, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to state that certain comments made during this call will include information that's forward-looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and the company's performance may materially differ from those expressed in or indicated by such 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 and 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. Today's 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 with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the Financials and Filings section of our Investor Relations website under the Supplemental Information heading. And also in our quarterly earnings presentation also posted on our Investor Relations website. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 7, 2024. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Lastly, during today's Q&A session, please limit yourself to a single question and a follow-up. And with that, I'd like to turn the call over to Stanley Bergman.

Thank you, Graham. Good morning, everyone, and thank you for joining us. Our first quarter financial results show solid earnings, supported by gross margin expansion and a strong recovery from last quarter's cyber incident. We estimate that the incident reduced merchandise sales growth by low to mid-single-digit percentages during the quarter. For PPE products, sales continue to decline mainly due to lower glove prices compared to last year. We expect a smaller impact on PPE sales growth as the year progresses. We are very pleased with our progress on the BOLD+1 strategic plan and the contributions from our recent acquisitions, which boosted the profitability we achieved in the first quarter. We are reaffirming our expectations for 2024 non-GAAP diluted EPS and adjusted EBITDA growth while narrowing our expectations for total sales growth in 2024. Our projected sales growth reflects the continued recovery from last year's cyber incident and a strong pipeline of new specialty products and software innovations. Let me now review our business units, starting with dental distribution. In North America, patient traffic to dental offices was affected by weather and seasonal viruses like the flu in January and February but improved in March. Overall, we observed consistent improvement in dental merchandise sales throughout the quarter, a trend that has continued into April. In the U.S., our THRIVE Signature program is driving sales growth, with membership increasing by about 2,000 new members in the first quarter, bringing the total to approximately 5,000. This program offers a range of services such as free shipping, product discounts, and THRIVE reward points, all of which enhance customer loyalty. International merchandise also saw steady sales improvement in most markets, although sales growth was negatively affected by two fewer selling days in many international regions. Global dental equipment sales were consistent with the previous year and benefited from a shift of sales from late 2023 to the first quarter. Equipment sales increased in North America but slightly declined internationally. Regarding our global dental specialties business, we experienced strong growth in oral surgical products, endodontics, and orthodontics, mainly driven by acquisitions. We believe we gained organic market share in the global dental specialties market. North American implant sales remained consistent with last year, and international sales, especially for our BioHorizons Camlog brand, performed well, particularly in Germany. The first quarter saw benefits from the introduction of Easy 2.0, our value implant system in Germany. We anticipate launching a new BioHorizons implant system in the U.S. in the second half of the year and early next year in Canada. This new bone-level implant with a deep conical connection is based on our proven Camlog technology, which we expect will significantly expand our market share in the United States, thus enhancing implant sales growth in the latter half of the year. Along with the launch of Simi Valley implants, this will position the company strongly across all market segments in North America. In the first quarter, we achieved solid sales growth as we launched our Edge branded products through the Henry Schein U.S. distribution channel. Although orthodontic product sales comprise a smaller portion of our specialty product sales, the launch of our Motion Probe Bracket System is performing well, addressing last year’s motion product preference. We also introduced biotech Smilers, Clear Aligner, and clinical digital workflow software at the recent American Association of Orthodontics meeting, both of which already had successful launches in Europe via Biotech Dental. Let’s turn to our technology and value-added services businesses, the largest of which is Henry Schein One, our dental software division. The customer base for Dentrix Ascend and Dentally, our cloud-based solutions, continues to grow, increasing by 36% in the first quarter compared to the prior year, with approximately 8,000 installations of our cloud systems. We also saw solid growth in our revenue cycle management e-claims business, despite the impact of Change Healthcare's cyber incident. Thanks to the prompt response from the Henry Schein One team, we established an alternative approach for processing customer insurance claims within 48 hours, successfully managing the backlog through a new clearing house. We are pleased with how the team handled the Change Healthcare cyber incident, which helped us support our customers, many of whom have turned to Henry Schein One for assistance during this challenging period. While overall technology sales were affected by the Change Healthcare incident, we expect sales in the second quarter to return to more normalized growth levels. Turning to the Medical business, we saw strong contributions from point-of-care diagnostics, including flu and multi-tests, as well as a shift toward lower-priced generic pharmaceuticals. Our North American Rescue business and Home Solutions performed well during the quarter. We also completed the acquisition of TriMed in early April, which strengthens our medical group's long-standing relationships with IDNs, ASCs, and orthopedic specialists as we expand our offerings in the orthopedic market. Finally, we recently hosted our fourth Annual THRIVELIVE event in Las Vegas, achieving record attendance of nearly 1,500 attendees, with significant support from our suppliers. This primarily educational event enables our customers to earn continuing education credits through seminars on the latest innovations in clinical dentistry, including digital equipment and software. This year featured the launch of new innovations to help attract new business, such as the Dentrix Eligibility Pro module that automates claims eligibility data delivery directly into practice management software. We believe this is a unique software feature. Additionally, I’m pleased with the integration of Reserve with Google, a product launched at the THRIVELIVE event, enabling consumers to schedule dental appointments directly from Google into our customers' appointment systems. These advancements showcase our ongoing commitment to driving innovation in the industry with products and services that add value to our customers' dental practices, allowing them to run more efficiently while providing better clinical care. Let me now turn the call over to Ron to discuss our quarterly financial results in more detail. Thank you very much.

Thank you, Stanley, and good morning, everyone. As we begin, I'd like to point out that I will be discussing our results as reported on a GAAP basis and also on a non-GAAP basis. The items excluded from our first quarter non-GAAP financial results for 2024 and 2023 are detailed in Exhibit B of today's press release. A reconciliation of our GAAP to non-GAAP income statement is also available in our quarterly earnings presentation on our website, which includes the non-GAAP effects of adjustments on noncontrolling interest. Also, please note that for most international businesses, the first quarter had two fewer selling days than the first quarter of last year. With respect to sales, I will provide details of total sales related sales growth and LCI sales growth, which is internally generated sales in local currencies compared with the prior year and excludes acquisitions. Turning to our first quarter results. Global sales were $3.2 billion, with sales growth of 3.7% and LCI sales decreased 1.8%. Please note that our sales growth for the quarter reflects the residual impact of the cyber incident, which we estimate reduced sales growth by approximately 300 to 400 basis points. In addition, lower PPE sales, primarily due to lower glove pricing, reduced sales growth by 60 basis points. Our GAAP operating margin for the first quarter of 2024 was 4.72%, a 101 basis point decline compared with the prior year GAAP operating margin. On a non-GAAP basis, operating margin for the first quarter was 7.11%, a 57 basis point decline compared with the prior year non-GAAP operating margin. Gross margin improved 32 basis points primarily due to the contribution of businesses acquired in 2023. Operating expenses were higher as a percentage of sales, primarily due to lower sales at our distribution businesses. First quarter 2024 GAAP net income was $93 million or $0.72 per diluted share. This compares with prior year GAAP net income of $121 million or $0.91 per diluted share. Our first quarter 2024 non-GAAP net income was $143 million or $1.10 per diluted share. This compares with prior year non-GAAP net income of $161 million or $1.21 per diluted share. The residual impact of the cyber incident on our first quarter 2024 results was consistent with the expectations we set out in the guidance we provided on our earnings call in February. The foreign currency exchange impact on our first quarter diluted EPS was favorable by approximately $0.01 versus the prior year. Adjusted EBITDA for the first quarter of 2024 was $255 million, which is consistent with the first quarter 2023 adjusted EBITDA of $256 million. Turning to our first quarter sales results. Global dental sales were $1.9 billion, with sales growth of 0.8% and LCI sales decreased by 2.9%. The Global Dental merchandise LCI sales decreased by 3.7% versus the prior year. Merchandise sales were impacted by lower purchases by episodic customers and by lower PPE sales. Global Dental equipment LCI sales increased 0.2%. Our North American equipment LCI sales grew 2.9% with some traditional equipment sales having shifted into the first quarter from last year. International equipment sales decreased 3.8% with positive trends in Germany, driven by technical service. On a global basis, CAD/CAM equipment grew nicely with pricing on intraoral scanners having stabilized. Digital imaging sales decreased slightly. Dental specialty product sales were approximately $284 million with growth of 21.6% driven by acquisitions with low single-digit organic growth in implants and endodontics. Global Technology and value-added services sales during the first quarter were $217 million with total sales growth of 13.8%. LCI sales growth of 3.2% included 2.3% LCI sales growth in North America and 8.9% LCI sales growth internationally. In North America, sales growth was driven primarily by value-added services, while international growth was driven by our Dentally cloud-based solution. During the first quarter, we exceeded our goal of generating 40% of total non-GAAP operating income from our high-growth, high-margin businesses, with that metric coming in at 40.9% for the quarter. Global Medical sales during the first quarter were $1.0 billion, with sales growth of 7.3% and LCI sales decreased 0.7%. We have strong sales of point-of-care diagnostics but lower PPE sales as well as lower pharmaceutical sales due to conversion to lower-priced generics. The cyber incident also impacted sales to episodic customers, which we are working to regain. Regarding stock repurchases, we repurchased approximately 1 million shares of common stock in the open market during the first quarter. Buying at an average price of $75.10 per share for a total of approximately $75 million. We had approximately $190 million authorized and available for future stock repurchases at the end of the quarter. Turning to our balance sheet and cash flow. We continue to benefit from significant liquidity, providing our businesses with the flexibility and financial stability to execute on organic growth initiatives and strategic acquisitions, while continuing to return capital to our stockholders and reducing borrowings. Operating cash flow for the first quarter was $197 million compared with $27 million last year, driven by a reduction in our receivable balances, which were elevated at the end of the year. Restructuring expenses in the first quarter were $10 million or $0.06 per diluted share and were incurred as part of our previously disclosed restructuring initiative. These expenses mainly relate to severance benefits and costs relating to exiting certain facilities. We reported other non-GAAP adjustments in the first quarter, which are detailed in Exhibit B to today's press release. I'll conclude my remarks with our 2024 financial guidance. At this time, we are still unable to provide estimates for costs associated with integration and restructuring for 2024. Therefore, we are not providing GAAP guidance. We are affirming our guidance for non-GAAP diluted EPS and adjusted EBITDA growth. In addition, we are updating our guidance for total sales growth. For 2024, we expect non-GAAP diluted EPS attributable to Henry Schein, Inc. to be in the range of $5 to $5.16 per share, reflecting growth of 11% to 15% compared to 2023 non-GAAP diluted EPS of $4.50. As a reminder, our 2024 guidance does not include any associated benefit from potential insurance claim proceeds related to last year's cyber incident. Our policy has a $60 million claim limit on an after-tax basis with a $5 million retention. We have begun the process of filing a claim and believe it is covered under our cyber policy, although final resolution remains subject to insurer approval. We do not expect to begin recording any benefits from the claim recovery until later in the year. Our 2024 adjusted EBITDA growth is expected to increase by more than 15% versus 2023 adjusted EBITDA of $984 million. Our 2024 total sales guidance is now expected to be 8% to 10% growth over 2023 versus our previous guidance of 8% to 12% growth. This projected growth reflects continued recovery by our distribution business from the cyber incident and a strong pipeline of new specialty products and software innovation contributing to higher sales growth in the second half of the year. We expect modest overall equipment sales growth for the remainder of the year, with traditional equipment sales in line with last year and strong growth in Technical Services and CAD/CAM equipment. This sales guidance also includes sales from the acquisitions we have completed to date. Our 2024 guidance is for current continuing operations as well as acquisitions that have closed does not include the impact of future share repurchases and potential future acquisitions. Guidance also assumes that foreign currency exchange rates are generally consistent with current levels and that end markets remain consistent with current market conditions.

Thank you, Ron. As investors can hear, we continue to make good progress in restoring sales to pre-incident levels with specific focus on bringing back episodic customers and advancing several programs, of course, to reinforce to our customers the value and benefits Henry Schein provides to our customers. Again, we have made steady progress in this area and are quite optimistic as we restore our sales on the distribution side to pre-incident levels and beyond. We are making good progress with the BOLD+1 strategic priorities, which are driving growth and further strengthening our business and value proposition. You can see from the investor package posted on the website that in each area of the BOLD+1, we are executing quite well. The new innovative products and software enhancements, clinical digital workflow for dental implants, and some good work in the endodontic and orthodontic areas should positively impact momentum as the year goes by. These new innovations, coupled with sales growth we are seeing from our recent acquisitions, should enable us to meet both short and long-term expectations and are hopeful that we could even exceed that. So with the overview of the business and our financial results, we are ready to take questions. Operator, we're ready if you are. Thank you.

Stan or Ron, I wanted to start on gross margin. That was really the biggest positive surprise in the quarter to us. By our model, you're at a record high, and that's in spite of volumes maybe being a touch lighter than we would have thought. It doesn't seem like segment mix explains the entirety of that margin result. So just wondering if you can unpack for us the drivers here that pushed you to nearly 32% gross margin in the quarter? And then could you also speak to the confidence in this line or the sustainability of this performance as we look over the balance of the year, can gross margins stay up near this level?

Jason, I will begin and then let Stanley add anything if he wishes. I believe it largely comes down to mix. We've experienced some challenges in our distribution businesses as we recover from the cyber incident. However, we are pleased with the growth in value-added services. Despite a tough end market on some specialty segments, we are seeing growth in that area as well. This mix is positively influencing our gross margin and aligns with our strategy. Our acquisitions last year were aimed at increasing higher-margin businesses. As mentioned in our prepared remarks, these businesses will start to enhance our gross margin growth. Whether this continues for the rest of the year will depend significantly on the ongoing recovery in our distribution businesses. Nevertheless, I believe our performance aligns with our expectations and strategic plan.

So thank you, Ron. Jason, as you know, we have been investing in high-growth, high-margin businesses for the past several years. Last year, we had quite a bit in that direction. Not all of those have been in place for the full year. But in general, the mix towards high-growth, high-margin has increased. Number one. Number two, the margins on the distribution side are doing quite well. And we did offer quite a few discount programs in the fourth quarter, a little bit in the first quarter, but not much. And generally, we're restoring margins quite nicely on the distribution side. So mix and the fact that our distribution businesses are doing well from a margin point helped drive the gross margin up. And as Ron said, we're quite comfortable with the fact that we're going to continue in this direction going forward.

All right. Very helpful, both of you. And then as a follow-up, I wanted to ask on dental equipment. I know the message last quarter was one of a shortfall in deliveries tied to the cybersecurity incident. A lot of that business would shift into the first quarter and eventually be realized, dental equipment didn't show as much growth as what we were looking for. What was the shift out of the fourth quarter, maybe just simply not as large as we would have thought we were just over modeling that? If I guess, was that consistent with your expectations, what you saw in the first quarter? And then just trying to understand, I appreciate the comments on the outlook for dental equipment this year, but really trying to see relative to where we were a few months ago, if you're seeing private practices or DSOs, taking any kind of different approach with their capital equipment budgets? Or is it really just status quo out there?

It was hard to gauge exactly how much business will flip from one quarter to the other, Jason. Remember also, our equipment people in the fourth quarter last year were very much engaged in providing support to customers during the incident period. And that actually took up a lot of their time. So I'm not saying we lost that business to our competition, but our equipment people are used to going into dental offices to identify opportunities and harvest those opportunities. We were on a relative pause in the fourth quarter with the hunting for new equipment. We've restored basically the equipment backlog to where it was pre-pandemic period. We think that the market is quite good. The traditional equipment has stabilized. It's not where it was during the peak in the post-COVID recovery period but it's stabilized, and it's quite good. The whole CAD/CAM area is doing quite well. The pricing has stabilized. I don't think the discounting we saw several quarters ago is in place any longer. It's pretty stabilized. It doesn't mean that there may not be a newer unit coming out less features, lower price in the future, but I don't think that will cannibalize the business today. Where we were a little bit surprised is digital imaging, which decreased slightly I'm not sure if that is a temporary situation. Maybe there for a couple of quarters. We've seen this in the past. I don't believe it's a permanent issue. I think digital imaging continues to grow, but we did seem to see a bit of a pause. Like, by the way, we saw a pause in CAD/CAM equipment on the milling side a few quarters ago, and that's come back. So overall, I think it's best to be a little bit cautious and project a modest growth. Hopeful that it will be a little bit higher than that, but we're taking a more cautious approach at this time. I don't think private practices have pulled back a lot. There's a little bit because of the interest rates. A few of the larger DSOs have paused a bit. But on the other hand, there are a lot of DSOs that are actually in the market right now and buying equipment and actually installing equipment. So it's a mixed bag over there.

Stanley, maybe you could provide some more color on the implant market growth and how you're faring from a share perspective. I don't know, maybe that worldwide market is growing low single digits. It seems like you guys grew low single digits in implants in the quarter on an organic basis, but I think you're underindexed in China relative to peers where a good amount of growth came from in terms of the other players. So do you feel like you're capturing share more prominently sort of on an apples-to-apples basis where you guys actually compete? And then I'll ask my follow-up.

Yes, that's a great question. I'm glad you brought it up, as there's been a lot of confusion. First, we don't have a significant presence in the Chinese market. Our Medentis business does some work there, and we have a small stake in Camlog, which hasn't really been affected since it's a minor business. While there are some instances of price sensitivity in the implant market, specifically with full arch implants, it's crucial to note that this hasn't directly affected us. Our pricing is generally lower than that of other premium brands, and our customers tend to be less focused on full arch procedures. It's important to highlight that there are a few customer groups that concentrate on price, and we're listening to them to remain competitive. Overall, our product line is competitively priced in the premium segment, and some competitors have had to adjust their prices to match ours. We are viewed as a more affordable option within premium products, and our product quality is strong, making it attractive to both private practitioners and dental service organizations. From our perspective, the segment of the market we serve hasn't been as affected as others. Additionally, the launch of the Easy 2.0 implant system in Germany has been successful; it's a quality product at a good price, and we've gained significant market share there. Customers appreciate the value and reliability of our products. With some customers focusing on pricing, we believe we are well positioned to continue expanding our market share. In the U.S., we have a new bone-level implant with a deep conical connection that has proven technology, which we anticipate will significantly enhance our market presence. This new product launch later this year addresses a market segment that we've previously not tapped into, estimated to be around 40% to 50% of the market.

Got it. That was great. That was very helpful. And maybe just a quick one, Ron, for you. The Street was 9% or even below that top line. We were at 8% for 2024 anyway. But I'm just still looking for a little clarity on where the top end of the sales guidance is, call it being locked off. In other words, is it market related? Is it lower trajectory of cybersecurity recapture? Is it stronger dollar or all of the above when we think about things relative to February?

Yes, John. We aren’t anticipating significant changes in foreign exchange rates, so that should have a minor impact. We still expect acquisitions to contribute similarly to our original guidance. The focus is more on the distribution side of our end markets, such as cyber recovery. As time passes since the cyber incident, our projections become less certain. We're pleased with the progress made this quarter regarding sales recovery for certain customers and believe we can sustain that momentum throughout the year. However, after evaluating different projections, we concluded that an 8% to 10% growth rate would give us a more accurate revenue estimate compared to the previous 8% to 12%.

Just on the technology side, I appreciate that the change cybersecurity event impacted the business a little bit here. A, is it the right way to think about performance impact as kind of the difference between that 3.2% global internal growth and say, like, a mid-single to high single-digit growth number that you would kind of have been producing over the last few quarters? And then b, just what portions of the business were directly impacted? And kind of how are you seeing the help of dentists as they kind of manage through these kind of claims processing and benefit verification headwinds?

Yes, John, regarding the Change Healthcare impact, we observed that Henry Schein One maintained steady revenue growth during the quarter, which experienced a slight stagnation in March. We attribute this to the effects of Change. Since then, the company has returned to a more typical growth rate. To answer your initial question, we anticipate better growth for Henry Schein One and on the technology side compared to the 3% plus reported in the LCI. We expect that figure to be higher now that we are emerging from the disruptions caused by the Change management cyber incident. This incident did result in some cash flow challenges for certain customers, but we assisted them using our revenue cycle management tools. We also extended terms to some clients. Additionally, we noticed a temporary decline in their interest in acquiring new technology products, which contributed to the stagnation in revenues for Henry Schein One. Despite this, we originally expected to see improved operating cash flow during the quarter; however, receivable balances were slightly higher than anticipated due to practices managing cash through this disruption. Things are returning to normal, and I believe our technology business, along with some new software products we are launching, will support ongoing growth moving forward.

John, let me just add one more comment to what Ron said, and Ron provided a very good outline. Our ability to immediately, within 48 hours, process claims through an alternate methodology was very well received. Having said that, it took up a lot of resources that perhaps would be focused on sales, and we're focused on ensuring that our customers were able to process the claims. But more importantly, answer problems that emerged as a result of the issues with Change. I would say that a huge number of dentists are most appreciative of Henry Schein's quick response. They were involved in basic operational issues in their practices, took a lot of their resources. We helped them, it took a lot of hours. And so they were also focused on managing their cash. I think we're largely out of that, although these claims are not being processed through Change but are being processed on an alternative provider that we have a relationship with.

Great. And then just one on the medical distribution business. There's been a lot of discussion in the market, particularly regarding the inpatient side or for medical distributors about competitive balance and various contract wins. How are you observing the competitive balance between distributors in the alternative side of care market and how is that influencing competition?

I don't think that's an issue for us. There's a lot happening with other parts of drug distribution, especially in acute care settings. We believe we are still performing well in securing awards and our business is completely restored from a large customer IDN perspective. There is some pressure on generic drug pricing, but that's beneficial for profits. If you look beyond that and consider the variability in testing, you'll find our medical business is in good shape. We continue to win new awards and we are not losing existing customers. The challenges faced by other areas of health care distribution aren't affecting us; we remain quite insulated from their experiences. Our service is unique and highly valued, and our customers have shown strong loyalty during tough times. There is still some business where customers seek better pricing, particularly among smaller practices, which we are addressing as part of our recovery efforts. However, we have the necessary infrastructure to serve larger customers, such as IDNs and group practices, who greatly appreciate our services. It's not an issue for us at all.

I wanted to talk about the North American dental consumables number that you put up, the down 5%, I think if we adjust for that cyber number, you said 300, 400 basis points down 1% to 2%. That fits pretty well with some of the independent industry data that came out in 1Q. So one, is that your take on the market? The market is kind of down in that low single-digit negative range right now and you guys are kind of in line ex cyber. And two, I think the other interesting thing in that independent data was that volumes were actually up a couple of points, but revenue is down a couple of points. So maybe what are you seeing your customers doing from a trading down for maybe premium branded to other kind of lower-priced branded or even your private label products? Has there been a change in that dynamic over the last 6, 12 months relative to historical?

Jeff, that's a great question. I believe pricing is generally stable. Looking at our data, inflation seems to be around 1% to 2%. However, there is a trend towards corporate brands, which offsets much of that inflation. In certain areas, especially excluding the glove business, there is some pricing pressure, with company-wide impacts around 60 basis points. Dental pricing falls within that range as well. Overall, I think pricing and margins have stabilized. Larger manufacturers recognize the need to be more competitive, while mid-sized practices are doing well. This quarter, the situation feels much more stable than it did two or three quarters ago. Our main challenge remains recovering our cyber business, which mainly affects episodic customers rather than large or mid-sized practices. We're hopeful about our gains in those segments. Our focus now is on attracting episodic customers who shop for prices on our website.

All right. That's helpful, Stanley. And then, Ron, maybe just one quick follow-up, just on that 300 to 400 basis point cyber impact. Would it be fair for us to split that kind of over your medical and your dental business combined? Is it about an equal impact there? You've mentioned both these episodic and larger customers, I think, in kind of your prepared remarks in both areas, number one. And number two, do we look at that 300 to 400 basis points as being kind of stable? Is there anything you can say about kind of maybe the exit in March recapture rate versus kind of how you went into the year, just where to think maybe where that 300 to 400 basis points pressure from cyber goes over the next quarter or two?

Yes. To answer the first part of your question, Jeff, yes, the spread and the impact on Dental and Medical is pretty consistent, right? It's not the one bearing the brunt more so than the other. I would say it's difficult to assess kind of going forward. Like I said, the further out we get from the cyber incident, the more difficult it gets to determine how much of the revenue base and how much of the market share that we're managing is attributable to cyber. That gets more and more difficult. But we have taken a look at this, and any impact on revenues that we believe we have out there is contemplated in the revenue guidance, and the related impact on earnings has been contemplated when we have in the affirmation of the EPS guidance as well.

I was looking on the medical environment. We have heard of higher sort of some outpatient utilization trends broadly in the market. How do we think about some of those trends continuing and sort of the ordering patterns between like procedures or some of your ambulatory surgical clients and then sort of the impact on their ordering as we move through the year?

Elizabeth, the transition from acute care to alternate care settings for procedures is ongoing. This quarter hasn't shown a more significant change than in the past year or two. There hasn't been a notable increase or decrease in procedures across any specific ones, though there might be some isolated cases that I'm not aware of. Overall, the main procedures appear to be stable from our perspective each quarter. Additionally, we see growth in this area, both through the expansion of existing surgery centers and the acquisition of new accounts. Thus, it's clear that procedures are consistently shifting from acute care to alternate care settings and remain stable within individual centers.

Got it. As a follow-up, while considering some of the cost reductions, it appears that SG&A was slightly higher than we had projected for this quarter. I want to understand the timing as we look at the second half of the year and the effects of the cost restructuring as we progress through the quarters.

Yes. Elizabeth, the SG&A, the whole kind of mix of the P&L of some of the businesses that we acquired last year are going to be a little different. With the higher gross margins, but then greater expenses as it might relate to R&D and other selling costs associated with some of those businesses. So that's you're seeing that show up in the consolidated P&L a little bit more. So some of the favorability we got on the gross margin side was the offset on the SG&A side. I think in terms of cadence, it's going to be with these businesses having a greater importance in our P&L as we go forward, it could get a little lumpier, a little less predictive with the SG&A, but I would suspect that over time, it will be something fairly consistent with what we had in the first quarter as well.

So Stanley, I'm wondering, you've had PRISM for a few years and Shield, I think, for a couple of quarters. I'm just curious, home health obviously large end markets, presumably opportunities for above-average growth. I'm just curious. Is home health something that you now can sort of say, hey, we feel really good about this, we want to build this into something really big over time? Or is this a little bit different than you thought? And maybe you just sort of stick with the assets you have?

Thank you, Mark. Thanks for that question. Home Care Solutions continues to be a big area for us going forward. We continue to expect to grow organically, make some additional investments. Our business is approaching $350 million annually, $20 million a month or so. And we expect that to continue to grow nicely from an organic point of view, and we will add to that platform. At the moment, we are moving those businesses to a common platform so we can provide a national service with high customer service. We believe that the business complements our physician business very nicely, our ASC business, and we're very, very optimistic about our Home Solutions business as well as our North American Rescue business, which provides first responder and military medical solutions, these two are areas that are doing quite well in our medical portfolio.

Okay. Great. And then just shifting to Dental. I guess one of the benefits of talking to anybody at Henry Schein or leadership at Henry Schein, there's a lot of folks, including yourself, Stanley, that have been in the chair for a long time. You've seen different markets and different challenges and all the rest. It just seems among investors right now, there's just a lot of skepticism around Dental and concerns about persisting high interest rates and how that sort of flows into capital equipment decisions and concerns about pricing compression with maybe consumables, imaging products, and other things. I'm just curious, when you sort of think about the Dental space in general right now and Schein's position within it. Do you think the skepticism is sort of appropriate given the givens? Or do you think it's appropriate for others but maybe not as much for Schein? Or can you just talk about historically the current challenges and how you see them, given your experience?

Yes. I think it's a very good question too. The dental markets are relatively stable. If you look at the U.S. patient dental traffic in January and February was impacted by weather and some seasonal viruses, including the flu, but improved beginning in March and again an improvement continued through the quarter into April. I think there are seasonal issues we need to take into account, weather, but overall, the U.S. dental market is stable, maybe leaning towards some growth. I think the same would be the case globally, especially in those markets where you have government reimbursement. So it's quite stable. It's a good market. I think one has to be very careful reading the tea leaves when it's some basis points down in 1 quarter, some basis points up in another quarter. I think the underlying stability remains. Yes, there is a challenge with interest rates on high-cost procedures in 1 implant we spoke about $20,000, $30,000 procedures; interest rates impact that. But basic traffic is good. And I think these are solid markets. Change that have a little bit of an impact here in the U.S., but not materially. We'll get out of that. Our customers have decent cash flow, maybe some of them had challenges of Change, we had to support them, arrange financing for them, extended some credit terms. But overall, I would say the market is stable. And on the equipment side, we are taking a bit of a cautious approach. In that, we've talked about modest overall equipment sales. But the basic traditional equipment is stable. The whole digital world is growing. And I think in the long run, it's a good area, too. So we're quite positive about dentistry and remain that way. And if you add to that, the medical business, where procedures are continuing to move from the acute care setting into the alternate care setting. And there's no material movement in terms of reducing the number of procedures in any one particular area. I think generally, the businesses we're in are positive. We are working on the recovery of our cyber business that related primarily to these episodic customers and have made quite a bit of progress in that area too. So we're quite optimistic about the future.

Sort of a similar question to what sort of came up earlier, but slightly different. Your Technology segment organic growth, I think, came in lower than the Street, but the reported number was relatively in line. Did the Street just kind of mismodel that? Or was kind of the acquisition contribution, particularly from North America, was that above your own expectations as well?

Yes, that segment includes other value-added services businesses, some of which we have acquired in the last year. This contributed to the acquisition growth from those value-added services businesses, which had very strong quarters. While they exceeded our expectations, we anticipate they will continue to generate strong profits moving forward.

Okay. Got it. And I guess more of a high-level question here. You obviously made a number of acquisitions. Anything you would call out. Surprising whether positive or negative relative to your expectations over the past few quarters?

We've been pleased with all of our acquisitions; some perform better than others in the initial phases. We are actively integrating our significant implant acquisitions from last year, particularly Biotech, which has now annualized. This will start to reflect as internal growth beginning in the second quarter. We are also integrating S.I.N, the implant manufacturer based in Brazil, which will annualize on July 1. Therefore, the second quarter will be the last one where we see addition from acquisitions. We are very satisfied with the results in the Home Solutions business. Regarding growth potential in this area, the answer is certainly yes. We are pleased with the benefits we've gained from the acquisition of Shield last year, as well as Mini Pharmacy. Additionally, our value-added services are becoming increasingly crucial in our strategy to help customers operate more profitable practices, especially as they consider exiting their businesses. The significant practice sales acquisition has also been very successful for us. Overall, when looking at all the acquisitions, we are very happy with their performance and the returns they have generated thus far.

A lot of comments around April and the back half of the year and new product launches and like there's so many moving parts with M&A and the like. Ron, maybe can you just give us an update on cadence of what you expect revenue growth and earnings to be? Is 2Q trending as you thought? Just trying to understand because there are so many moving parts, is this going to be a typical seasonality in terms of revenue growth, EBIT growth, and especially EPS growth?

Yes. As we mentioned earlier, we expect sales growth to be more pronounced in the second half of the year compared to the first half. This increase is partially due to recovery from cyber impacts and also driven by the launches of new products in our implant segment, as well as some new technology offerings. All of these factors are expected to contribute to stronger growth in the latter half of the year. We experienced a positive recovery during Q1 and maintained good momentum into Q2, though there is still work to be done. We are confident that we will continue to gain market share in distribution as the year progresses. Therefore, from both a sales and earnings standpoint, I anticipate that Q3 and Q4 will show improved growth relative to Q2.

That's helpful. I'd like to follow up on the implant and the new products. How does this impact your product portfolio? Is it enhancing what you already have? I've always thought of your positioning as being between value and premium. Are you expanding your offerings or improving existing ones? Additionally, are you altering the positioning of your implant portfolio with these new product launches?

In the U.S., we're expanding and we're going into about half the market that we do not cover today. We're waiting for finalization of the approval. We expect that in the second half of the year. In international, I think our value proposition is expanding with the Easy 2.0. Easy 1.0 was good, but there were a couple of features that were missing. We've added that to it, and it's been well received already in Germany where we launched it in this quarter. So on the one hand, we're entering into a part of the market that we really are not in, in the United States. And at the same time, we're providing better value products in Europe. So generally, I would say it's an expansion of the product offering plus better pricing, better value in Europe. Okay. Operator, thank you very much. Thank you, everyone, for calling in. As you can tell, this year everyone is off to a solid start. We remain enthusiastic about the markets we serve, our position in the industry. The opportunities for growth and enhanced profitability lie ahead. We're doing quite well on expanding our high growth, high margin portfolio. The portfolio of high growth, high margin is doing well. We expect to show some decent results also in the orthopedics section, where we're expanding our Henry Schein Orthopedic business. And overall, we think our distribution businesses are in good shape, operationally fully restored. We have to deal with the episodic side of the business, which is growing, recovering nicely, but not fully back to where it was pre-incident. We're growing with our large customers in Dental and Medical. And Henry Schein One continues to provide significant value to our customers as you saw from the Change cyber recovery, where we played a key role in dentistry in general. So, thank you for calling in. We remain most optimistic about the future. And thank you very much.