Henry Schein Inc (HSIC) — Q1 2025 Earnings Call Transcript

Thank you, operator, and thanks to each of you for joining us today to discuss Henry Schein's financial results for the first quarter of 2025. With me on today's call is 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 as 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 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 5, 2025. 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. Thank you for joining us. I want to start by expressing our satisfaction with our first quarter financial results and the positive momentum as we move into the second quarter, maintaining our confidence in the business fundamentals. After a slow January due to weather-related challenges, we experienced good sales performance in February and March, aligning with our full year guidance. Sales growth was notably affected by a strong US dollar, and I want to remind everyone that last year's US equipment business had sales deferred from the fourth quarter of 2023 to the first quarter of 2024, creating a challenging year-over-year comparison. Adjusting for the strong dollar and excluding PPE and COVID test kit sales, our sales growth was around 2%, with an acceleration throughout the quarter. We are advancing our BOLD+1 Strategic Plan, which has been updated for 2025 to 2027, with our team focused on expanding the distribution business through improving operational efficiency and enhancing customer experiences, growing our dental and medical specialty businesses, corporate brand products, and developing our digital capabilities. We remain committed to our long-term financial goal of achieving high single-digit to low double-digit earnings growth by successfully executing our strategy. In our last earnings call, we announced the formation of two main business units: the global distribution and Value-Added Service group, led by Andrea Albertini, and the Global Specialty Products group, led by Tom Popeck. We commenced operations under these new business groups this past quarter and are pleased with their leadership and performance. Here are some highlights from the first quarter regarding the BOLD+1 strategy. We launched several new products and solutions in our specialty and technology sectors. We expanded our Home Solutions platform by acquiring Acentus, a national distributor of continuous glucose monitors for home use. Specialty product sales increased through our distribution businesses, which are now sold by the Henry Schein distribution sales team. We are also implementing restructuring initiatives to optimize expenses in our distribution businesses and corporate functions while consolidating manufacturing facilities. The Global eCommerce Platform in the UK and Ireland is now fully operational, and we plan to roll out a phased launch in North America in the third quarter of this year. After surpassing our strategic goal of achieving 40% of our operating income from high-growth, high-margin businesses in 2024, we expect this contribution to continue growing steadily, projecting that these businesses will account for over half of our total operating income by 2027. This includes specialty products, value-added services, and technology. Additionally, our corporate brand products contributed over 10% of total operating income. Now, let's review our key businesses, starting with the Global Distribution and Value-Added Services group. In this quarter, we observed stability in the US and international dental merchandise and equipment markets, as well as in the US medical market, during which we gained market share. Our sales growth in core dental and medical distribution accelerated after a slow start in January, primarily due to weather-related factors, ending March within our full year guidance range of 2% to 4%. US dental merchandise sales grew modestly, excluding PPE sales, with product pricing consistent with the previous year, reflecting volume growth. We also initiated a new commission plan aimed at driving sales and profitability growth. US dental equipment sales growth faced challenges due to sales being deferred from the fourth quarter of 2023 to the first quarter of 2024, complicating year-over-year comparisons. We notice steady demand for both traditional and digital equipment as practitioners invest in their practices, and there's a rising number of new practice build-outs. Our US medical business growth was solid for the quarter, boosted by increased patient traffic for respiratory illnesses, strong home solutions performance, and some acquisitions. Internationally, dental merchandise sales were robust in Canada, Central Europe, and Brazil, but weaker in France. Similar to the company's trend, sales accelerated during the quarter. I would like to emphasize that when reviewing our international sales, investors should consider foreign exchange fluctuations. International dental equipment sales thrived in Canada and much of Europe. The new product launches at this year's International Dental Show in Cologne were focused on 3D printers and intraoral scanners intended to improve dental office workflows, with expected sales benefiting from orders taken at the show. Again, foreign exchange impacts affected our sales results in US dollars. On the value-added services side, sales decreased in the quarter due to lower revenues from our practice transitions business, which can vary greatly from quarter to quarter; however, we have a robust pipeline of active transactions anticipated to close throughout the year. Turning now to the Global Specialty Products group, it encompasses implants and biomaterials, as well as endodontics, orthodontics, and orthopedic products. The first quarter saw continued growth in implants and biomaterials alongside some acquisitions. Implants sales grew in the mid-single digits in constant currency, with significant foreign exchange fluctuations evident, particularly in the DACH region and Latin America, bolstered by our premium brand BioHorizons' Camlog and S.I.N. value brand. We estimate that the US domestic market for dental implants dropped slightly in the quarter, with our US sales aligning with overall market growth, reflecting ongoing rollout of the BioHorizons' Tapered Pro Conical implant and SmartShape Healers abutment, alongside increased sales of S.I.N. implants in the United States. Overall, across our markets, we believe we continued to gain share in both implants and biomaterials this quarter. We are consistently launching new internally developed products in our endodontics segment and seeing encouraging underlying growth. While orthodontics remains a smaller part of our specialty product line, sales declined year-over-year as improvements are made in restructuring this segment. Our orthopedic products, however, saw solid sales growth in the high single digits for the first quarter. In closing, I'd like to discuss the Global Technology Group. We experienced substantial growth in practice management systems, including Dentrix Ascend and Dentally cloud-based solutions, as well as revenue cycle management products. This was somewhat offset by declining sales of certain legacy products that are being phased out. While the consolidation of these products hampers short-term sales growth in this segment, it allows us to lower operating costs and achieve significant operating income growth, setting a stronger customer experience for the software portfolio in the future. Practice management software growth was driven by a 20% increase in cloud-based users, leading to 9,500 customers for Dentrix Ascend and Dentally, and we are making good progress in advancing these systems into Dental Service Organizations. We are also enhancing our practice management software’s functionality with a new dental imaging subscription that automatically includes images with insurance claims for quicker payments. Lastly, regarding tariffs, several years ago, we began diversifying our sourcing of corporate brand products to lower tariff countries. Most of our specialty products are also produced in local markets. We are actively working with our suppliers and customers to manage the impact of current tariffs. For price-sensitive customers, we will continue to provide corporate brand alternatives. We believe our current strategies with suppliers and customers will effectively mitigate this year's financial impact from tariffs. We are closely monitoring the situation, recognizing the unpredictable nature of tariff changes and their potential effect on macroeconomic conditions. Now I’ll turn the call over to Ron to discuss our financial results for the first quarter and provide our guidance for 2025. Ron, please?

Thank you, Stanley, and good morning, everyone. Today, I will review the financial highlights for the quarter and remind investors that our Investor Relations website contains a financial presentation with additional detailed information. Starting with our first quarter sales results, global sales reached $3.2 billion, reflecting a decline of 0.1% compared to the first quarter of 2024. The sales growth included a 1.5% decrease due to foreign currency exchange and a 1.2% growth from acquisitions. Excluding the impact of PPE and COVID test kits, constant currency sales growth was 2.0%. Our GAAP operating margin for the first quarter of 2025 was 5.53%, an improvement of 81 basis points from the previous year's GAAP operating margin. On a non-GAAP basis, the operating margin was 7.25%, an increase of 14 basis points from last year, driven by lower operating expenses due to our restructuring program. The first quarter GAAP net income was $110 million or $0.88 per diluted share, compared to last year's GAAP net income of $93 million or $0.72 per diluted share. Non-GAAP net income for the first quarter was $143 million or $1.15 per diluted share, compared to $143 million or $1.10 per diluted share last year. Adjusted EBITDA for the first quarter was $259 million, up from $255 million in the first quarter of 2024. Regarding sales growth, the components for the first quarter are outlined in Exhibit A of this morning's earnings release. In the global distribution and value-added services group, acquisition growth contributed 0.9%, primarily from the acquisition of Acentus. Constant currency sales, including acquisitions, grew by 1.5% after excluding PPE and COVID test kits. US dental merchandise sales increased by 0.7% excluding PPE products, while US dental equipment sales fell by 8.9%. Our sales experienced a decline due to a deferral of about $20 million in equipment sales from the fourth quarter of 2023 to the first quarter of 2024, complicating year-over-year comparisons. When adjusted, US dental equipment sales growth was flat. For US medical distribution, after excluding PPE products and COVID test kits, sales grew by 4.7%. Our home solutions segment had a strong quarter with total sales growth of 23%, including 9% internal growth. Internationally, dental merchandise constant currency sales rose by 1.1%, and PPE products didn't significantly impact this growth. International dental equipment constant currency sales increased by 4.3%, driven by strong growth in Canada and Central Europe. Global value-added services sales growth was influenced by transaction timing within our practice transitions business. In the Global Specialty Products Group, constant currency sales growth was 4.3%, aided by acquisition growth of 4.0%, primarily from TriMed. This business will be considered in internal sales starting in the second quarter as our TriMed acquisition annualizes in April. Our implant and biomaterial business grew well, especially in the DACH region of Europe, while our endodontic business faced slightly negative growth this quarter due to a supply chain issue with the EdgePRO laser product, which has now been resolved. The orthodontic business also had negative sales growth and is undergoing reorganization for future profitability. In the Global Technology Group, total sales grew by 2.9%, with operating income increasing by 24% from the previous year due to strong expense management. Restructuring expenses for the first quarter amounted to $25 million or $0.14 per diluted share, mainly for severance benefits. We now believe we will reach annual run rate savings at the top end of our $75 million to $100 million goal by the end of 2025. Our first quarter GAAP results included $20 million in pretax proceeds from our cyber insurance claim, which are excluded from our non-GAAP results. We have received all proceeds totaling about $60 million over 2024 and the first quarter of this year. About share repurchases, we bought back approximately 2.3 million shares at an average price of $71.58 per share for a total of $161 million. As of the quarter-end, we have about $718 million authorized for future stock repurchases. In terms of cash flow, we generated operating cash flow of $37 million in the first quarter of 2025, which is typically lower than in other quarters, but we still expect operating cash flow to exceed net income for the full year. Finally, regarding financial guidance, we are currently unable to provide an estimate of restructuring costs for 2025 without unreasonable effort, so we are not issuing GAAP guidance. Our 2025 guidance includes continuing operations and acquisitions that have closed but excludes restructuring and integration expenses. We expect non-GAAP diluted EPS attributable to Henry Schein, Inc. to be between $4.80 and $4.94 and anticipate it to be more heavily weighted towards the second half of the year. We predict 2025 adjusted EBITDA to grow in the mid-single-digits compared to 2024's adjusted EBITDA of $1.1 billion and total sales growth of 2% to 4% over 2024. Our guidance also assumes a non-GAAP effective tax rate of 25% and relatively stable foreign currency exchange rates. Now, I’ll turn the call back to Stanley.

Thank you, Ron. Operator, do we have some questions?

Great. Thanks, guys. Good morning. Ron, I guess I'll just start at a high level. Can you talk about the dollar? I'm just guessing it's a decent tailwind to the initial reported revenue guidance of 2% to 4% year-over-year. Is there a figure or a metric to provide? And then similarly, how do we think about that when it flows down to the bottom-line, I'm guessing somewhat accretive there, but any specifics would be appreciated. And then I'll just ask a follow-up.

Well, for the first quarter, Jon, we did have a headwind versus prior year of about 1.5% from foreign exchange. What we've seen happen in the rate since then would suggest that we should be fairly neutral versus prior year, more or less, as you can appreciate, very difficult to project the foreign exchange rates right now. So, our sales guidance takes that into consideration at this point in time. So we're not expecting any further significant variance in impact on growth going forward when looking at the foreign exchange rates versus last year. But we did have a significant headwind in the first quarter, primarily driven by the euro. Our biggest exposure, foreign exchange wise, is to the euro and it’s primarily driven by the euro.

I have a follow-up question for clarity. I understand the first quarter results, but the dollar weakened significantly in March. Many companies with 35%, 40%, or 45% of their sales internationally are reporting that this has positively impacted their revenue guidance by 100 to 200 basis points for the full year. I'm curious if you can quantify the dollar's impact on both the top and bottom lines based on your original guidance of 2% to 4%. Additionally, could you provide more insights into the environment you mentioned? I know February and March showed improvement, which wasn't unexpected, but the ongoing momentum you noted in the press release suggests positive trends in April, despite the volatility we've observed in the markets due to Liberation Day. Any clarity you can provide on what you're currently experiencing, especially regarding April, would be appreciated. Thank you.

That's a great question. I can talk about what we're currently experiencing. While we can't predict future consumer sentiment, April was a fairly decent month. We believe that traffic for our dental distribution businesses remains stable globally. Specifically in the US, dental merchandise appears steady. We have not noticed many price changes at the beginning of the year, although I expect that will start to happen due to tariffs. We also observed some modest volume growth. Our medical sales indicate increased patient traffic, particularly for respiratory illnesses. Overall, both the dental and medical markets in the US are stable at this time. We recently held our THRIVE customer meeting, which had a good turnout; however, there were more practices represented with fewer attendees per practice, suggesting dentists are being mindful of expenses. Nevertheless, the mood was positive and sales were decent. I also attended the leading DSO meeting on Saturday where the atmosphere was reasonably good. On the equipment side, we are witnessing new practice build-outs and expansions of existing practices, indicating a stable market in the US. In Canada, the situation is also stable, but in Europe, it varies by market. Australia appears a bit cautious due to the election period. Meanwhile, Brazil is stable. Overall, I would say the mood is okay, but it could quickly change with shifts in the macro environment. If anyone has specific questions about the implant side, I can provide more information, but that's the general sentiment.

Thank you.

Thanks and good morning, everyone. Maybe I'll start with a quick follow-up, maybe to Jon Block's question. Ron, are there any adjustments to the inputs into your guidance that you're making today, even though the output isn't changing? And then I want to clarify on the tariff comments today. I think you said you're confident in mitigating this year's impact. Is that an acknowledgment that there will be direct impacts on your business from tariffs? Or is the mitigation content more related to how you expect to navigate price adjustments from suppliers?

I'll start with the first part of your question. Regarding our guidance, I assume you're asking about sales guidance and its relationship to other metrics like EPS and EBITDA. Our sales guidance indicates that we anticipate most of our sales growth to come from internal sources. Given the current exchange rates and the headwinds we faced in the first quarter, we now expect foreign exchange impacts to be largely neutral for the remainder of the year. Therefore, we are projecting a sales growth of 2% to 4%. We expect acquisition growth to contribute less than one percentage point to our overall growth this year, meaning our sales growth will be primarily driven by internal factors. On the topic of tariffs, when we use the term mitigate, we are referring specifically to reducing financial impacts. We've explored various scenarios internally regarding potential tariff effects. As mentioned earlier by Stanley, we have started diversifying and shifting the sourcing of our corporate brand products to countries with lower tariffs. We find ourselves in a unique position as we are the importer of record for certain products that we manufacture and for those sold under our private label. Additionally, we source many products from third-party suppliers where we are not the importer of record. We have strategies in place and are collaborating closely with our suppliers and customers to find ways to lessen any potential impacts from tariffs. Based on what we currently know, we believe we can minimize those effects. However, we will need to observe any potential price increases from our branded suppliers. They have suggested in public remarks their intention to avoid passing on those increases. In maintaining our guidance, we are expressing confidence in our ability to mitigate the overall financial impact.

All right. That's very helpful. And then for a follow-up, Stanley, you've seen a lot of different macro situations in your career, and fluctuations in the economy and/or the dental market. How does tariff uncertainty from the past couple of months back up? And even if you're not seeing foot traffic changes in the office, I think a lot of us are anticipating that maybe that happens at some point. But right now, consumers don't seem to be changing? And what about dentists' behavior because dentists oftentimes are consumers themselves. And we've seen the ADA data around dentist sentiment tick lower here alongside broader consumer sentiment in the US. So, I guess, how are you thinking about dentists' behavior in this market?

At this time, we do not observe any significant negative impact. In fact, our equipment bookings remain quite steady, even showing some robustness, which aligns with the pre-COVID backlogs. Overall, the situation appears stable. Dentists continue to invest in their practices, with considerable investments in digital technologies, while traditional equipment sales are stable, and we are witnessing new practices opening. Well-financed dental service organizations are expanding with new sites. Currently, the outlook seems to be slightly better, and while I don't have specific data, it feels more positive compared to general consumer sentiment. The Medical business is performing well. Although we faced challenges during the early respiratory-sensitive part of the year, overall sales this year have been better. This leads us to believe that the markets we serve are stable. Most of my comments pertain to the US. When we look outside the US, conditions vary by country, but generally, it's acceptable in most of the countries we serve. Regarding tariffs, particularly for specialty products, most of what we sell is locally manufactured, so there's little impact from tariffs. The US market for implants is somewhat weaker than it was a year ago, but we have experienced strong sales in Europe, especially Germany. We have limited sales of specialty products in Asia; we do sell in Japan but not in China. These are crucial distinctions for us, unlike some other implant companies that may face challenges in Asia. Overall, we began with a message of stability, and I believe that remains true. While uncertainty exists regarding the broader economy, the current situation appears satisfactory.

Thank you. Good morning, guys. Just maybe a modeling question, Ron, for you, if I could, guys. You talked about the high end of that $75 million to $100 million in cost takeout now that you expect to hit for the year, which is an encouraging number to get. What were you at run rate wise coming out of 1Q, just as I think about how to layer in maybe that $90 million to $100 million in savings over the next three quarters? What's already been included in the 1Q number? Thank you.

Yeah, Jeff, so the $100 million in savings that we're referring to would be kind of on an annualized run rate basis. So, there won't be a full $100 million of savings in the 2025 results. But we had achieved kind of coming into the year, we were in about a $60 million run rate as we came into the year. So, if you just take that piece of it and divide it out by the four quarters, you can get some feel for what the first quarter benefit may have been. And then, of course, on top of that, we continue to take measures and taking certain cost-saving opportunities over the course of the year as well.

Yeah, understood. All right, thank you. And then just, we saw the 8-K on Friday, it looks like Max has now joined the Board. I don't think I've seen if Dan has yet joined the Board. Just, one, can you confirm that? Maybe I missed an 8-K somewhere there. And, two, just any updated thoughts on kind of maybe strategies the Board might take the company direction-wise as the new Board members join and any kind of updated thoughts there? Thank you.

Yes, Jeff, that's correct. Matt joined the Board on Friday. Dan will join the Board once we receive final approval in Europe for KKR's investment. As we have mentioned before, KKR sees Henry Schein as well managed and acknowledges the great opportunities ahead, despite the challenges we faced due to the pandemic, the cyber incident, and various macro issues. We are exploring numerous opportunities, and KKR is collaborating with us to enhance shareholder value, particularly regarding the BOLD+1 strategy and related initiatives. We are partnering with their internal team to develop these initiatives, which we believe will lead to additional sustainable profitability for the company. We will provide more updates in the coming quarters. Overall, the collaboration and the ideas being developed to support our BOLD+1 strategy have been very positive, making this partnership productive. Max has just joined the Board now, and we hope Dan will join in the next few weeks.

Hey, good morning. I just want to ask a question around the internal growth in home solutions. The 9% seems kind of strong. And I was just curious, I mean, is that mostly getting deeper with existing accounts? Or are there sort of new account growth there? And also, I was just curious what the actual revenues were if you would be willing to share that? Thanks.

I didn't catch the last part of your question, but our momentum in the home solutions business has been very good. We're expanding our footprint. We're adding more referral sources and managing reimbursement quite well. We have a very good team, and this is an area of growth that we expect to continue into the future. So, we're very pleased with our home solutions business. It's a natural fit with the Henry Schein core physician referral business. And so, I didn't catch the last part of your…

The revenue base. Yeah. I mean on an annualized basis, that business is now approaching something, I believe it's around $360 million a year, but quickly growing and approaching $400 million soon.

Good morning, and thanks for taking the questions. One for Stanley or Ron. Why do you think the US implant market is a little weaker in 1Q '25 versus a year ago? Can you talk about what you're seeing there and give us an update on the performance of some of the new launches here in the US? Thanks.

I'm not sure we can give you anything specific as to why it's weaker other than to say that consumer sentiment for high-end dentistry may be a bit weaker. I think for the more price-sensitive procedures, it seems to be relatively stable. The basic products that are used, implants used in lower cost procedures seem to be more stable than the higher end. Our bone regeneration business is quite solid. As it relates to products, the Tapered Pro Conical product, we are focused right now on moving our existing customer base over to the new product, which has been well received. We have the SmartShape healer, which provides what we believe is an innovative advancement to supporting functions of healing abutments and impression taking. This is doing well. So overall, the US market is slightly down. We believe we're keeping pace with that. Perhaps we're picking up a little bit more market share in our bone regeneration area. But overall, I think the high end then is more linked to the elasticity of the consumer sentiment and that the lower end of the cost of a procedure, that part of the market seems to be rather stable.

Thanks, Stanley. And then you said in your prepared remarks, you said new dental practice build-out is increasing. Can you expand on that a little bit? Do you mean that it's accelerating from where it was maybe in the back half of '24? Are you just saying that it's growing year-over-year? Thanks.

In 2024, there weren't many new build-outs either de novo or with existing practices. However, we are witnessing an increase in de novos, not just with dental service organizations, but also among smaller practices, mid-sized practices, group practices, and regional DSOs. Activity in this area has picked up compared to a year ago. There may have been a temporary slowdown due to rising interest rates, but now dentists and financial managers at these DSOs seem to have accepted that interest rates are likely to remain at current levels and are adjusting their purchasing and investment strategies accordingly. Some larger DSOs without solid financing may not be expanding as quickly, but those with good financing are beginning to invest again, and the investment sentiment appears to be positive.

Great. Thanks for taking my question. Can you just walk through in the case where you need to pass on cost to your customer base in the dental space? What are the mechanics of that? And how quickly can you pass on cost increases to customers? And how have the discussions with large practices gone to date?

We currently have a significant amount of inventory that was not subject to tariffs. We are collaborating with our customers to explore alternative products if price becomes a concern. These alternatives may include products from domestic manufacturers or items produced outside the US that can be converted to US-made products. We are actively working on our national brand products, which we do not import directly. On our owned brands, we have been improving our sourcing efforts, with a substantial portion of these products being manufactured in the US, particularly our specialty items, although some are sourced from elsewhere. We are managing sourcing strategically and collaborating with various manufacturers to lessen the tariff impact, addressing this on a case-by-case basis for each product. Over the past few years, we have developed a solid database to assist in sourcing our products. Furthermore, we are considering switching brands when necessary. Ultimately, if we are unable to offset the tariff through sourcing adjustments and product changes, we may have to pass costs on to our customers. So far, we have limited price increases, with a few exceptions, such as a 5% increase in our handpiece repair business due to imported parts. We are handling this on a product-by-product basis, and while tariff increases have not been significant so far, we are optimistic about managing these challenges.

Great. Could you provide more details on the positive impact from the unusually strong respiratory season this year in the medical distribution sector, considering you mentioned that the market is generally stable?

I don't know if we have specific information on that.

Well, I think what I can say is that we did see better sales in our medical business in February and March than we did in January. Quite frankly, that also holds true for our dental business. January was a very soft month as we've emphasized in our prepared remarks. So some of that is the return to normalcy but I think medical got a little bit of a better bump as well because of the timing of the respiratory illness season. And of course, as the year progresses, you see that go back to a more normal mode. But having said that, we were pleased with how the medical business did recover over the course of the quarter and the momentum going into the second quarter.

Hey, good morning, and thanks so much for taking the questions. So just two for me. Appreciate the comments on the tariff exposure so far. But I'm just curious if you can just talk about what percent of your products are sourced from or manufactured in either Mexico or China and the EU? And then I had a follow-up, please.

Regarding Mexico, our sourcing there is minimal, mainly in our specialty area, and it's unaffected by tariffs. A significant portion of our dental business involves anesthetic, which is mainly produced in Canada and is not subject to tariffs. Concerning China, we've been rebalancing our sourcing for some time. For instance, we previously sourced gloves for the United States from China, but we've shifted that production to Europe and primarily sourced them from Malaysia for the U.S. We are in negotiations with our manufacturers in that region, similar to our competitors. I do not expect a direct dollar-for-dollar increase corresponding to the 10% changes, but there will need to be some increase eventually. It's important to note that our exposure to China is not significantly material. We have around $100 million worth of products where we are the importer of record, with some of that coming from China. However, in the context of our $12.5 billion to $13 billion business, it's not a major concern. Currently, consumer sentiment seems stable regarding dentists, and there appears to be some elasticity related to overall consumer sentiment, but for now, it looks acceptable concerning dentists.

Thank you very much for that. My follow-up question is whether you can comment on the dental capital equipment environment. Given the current trade situation and macroeconomic risks, have you noticed customers pausing or extending their timelines to purchase capital, either in the US or internationally? Thank you.

Certainly, Vik. I understand your question regarding potential signs of a macroeconomic slowdown in the sector, particularly if we start to see significant declines in equipment orders. We have been closely monitoring that and have not observed any negative reactions from the market. Our equipment orders align well with our expectations when we review them on a year-over-year basis. There is still healthy demand, although it may not be exceptionally strong. This demand is present for both traditional and digital equipment.

Hey, everyone. Thanks for taking the question. Ron, maybe for you first as a modeling question, I think what everyone was trying to get around a little bit in the earlier questions in regards to FX and implied guidance. I'll ask it slightly differently and just say, is there an organic growth number that was embedded into the full year guidance that you guys had last quarter versus this quarter? Like, basically, did the organic growth expectations change embedded within the full year guidance?

No, I would say they're largely consistent with what our original expectations were, Brandon.

Okay. Perfect. As a follow-up, I noticed many other dental manufacturers highlighted the strong performance of DSOs this quarter. Some of them seem to have increased their advertising and direct-to-consumer spending or are starting to convert some of their backlog at the beginning of the year. Did you observe any significant strength from DSOs? I know you mentioned it briefly, but what are their current expectations? They handle a significant volume and contribute to a lot of the growth. How are they coping in this uncertain macroeconomic climate moving forward? Thanks, everyone.

The DSOs are generally stable and even leaning positively. A few are performing quite well, and I can't think of many that are struggling. Looking back a year or two, there were some that raised concerns, although not quite to the level of defaults. Currently, I don't know of any in that troubling category, although there may be some small regional ones that are less stable. Overall, DSOs are managing well and have adapted to the higher interest rates, both in terms of handling their debt and investing in expansion. So overall, the DSOs are doing fine.

Hey, guys. Thanks so much for the question. Just on the back of IDS being solely in March this year, can you talk about how you sort of thought about that show and sort of the traditional maybe bump and particularly in equipment that we generally see in that business and sort of how you guys think about the likely impact for that for this year?

The IDS and the timing of the Christmas and Easter holidays in Europe tend to balance each other out, so I don’t believe there will be a significant impact. However, the IDS has shifted to become more focused on business-to-business trading rather than direct customer engagement. The only notable customer momentum seems to be from Germany and Austria, much of which is driven by our pre-show promotions. I believe we have strong momentum in Europe overall. The show highlighted our commitment to 3D printing and the continued digitalization of dentistry, which are key areas of focus. As for the equipment market, it remains stable to positive, although it can be inconsistent. This quarter has presented challenges due to the transition between the fourth quarter of 2023 and the first quarter of 2024, creating tough comparisons. Nevertheless, I would characterize the equipment market as good, and I think Central Europe is doing reasonably well.

That's helpful. Regarding your private label products, I understand you manufacture some in-house and collaborate with external partners for others. How should we consider the flexibility of potentially changing sourcing countries, especially if the Chinese tariffs stay at their current high levels, and what would the timeline for those changes be?

To summarize, in our owned brands, particularly in specialty areas like implants and orthodontics, we primarily manufacture products in the markets where we sell them, so we don't expect significant impacts there. There may be some price adjustments for handpiece repairs, but it's not substantial. For our corporate brand, or private label, we are sourcing from OEM manufacturers and have been shifting products globally for some time. While there are a few products coming from China, most have alternative manufacturers available, even if tariffs remain high. If tariffs decrease, we could collaborate more with Chinese manufacturers, but if they don't, we are prepared to explore alternate sourcing options, which we've been planning for years. We may face challenges with some commodities, though alternatives exist, such as sourcing gloves from Malaysia. Competing against tariffs will be an industry-wide challenge, but we're managing this situation and expect to navigate it product by product. Assuming the economy and foreign exchange rates remain stable, we believe we can maintain our guidance.

Thank you very much for your time. We are feeling positive about the business and believe we had a strong quarter. I would like analysts and investors to consider the impact of foreign exchange on our sales. Taking that into account, we see good momentum, which is carrying into the second quarter. March, during the first quarter, was decent, and as we enter the second quarter, the outlook is promising. Our equipment backlog remains robust, although some office build-outs can be uneven. The THRIVELIVE event in Las Vegas had decent attendance, which I would describe as positive. The lead-up to the IDS event in Germany was encouraging, and we anticipate equipment sales to reflect that, though the market can be somewhat unstable in that segment. Regarding our high-growth, high-margin initiatives, we have increased our target from 40% to 50% over the next three years, and we are confident in achieving that. Profits from our corporate brands are showing good performance at just over 10%. While most markets remain stable, there are exceptions, with some performing well and others less so. Our global implant biomaterials business is performing strongly, with Europe doing well and the US market stabilizing, allowing us to gain market share. In technology, we are optimistic about our cloud-based systems and expense management. We remain committed to our long-term goals for EPS, cash flow, and EBITDA. Although we faced a challenge with a cyber incident, we are mostly past that now and believe the business is in good shape, with high morale. We are pleased with the management changes we implemented, which included some cost-cutting measures, part of a necessary standard response for businesses like ours. We expect to see better performance in expense reduction than initially anticipated. We continue to be positive about our business, acknowledging some general economic elasticity, though it is not as directly tied to consumer sentiment as one might think. Our medical business is stable, and our distribution operations are performing efficiently. The management team is meeting our expectations for the year. Thank you to our investors, and Ron, Susan, and Graham are available to address any questions. We look forward to engaging in group meetings and webinars to answer inquiries. Thank you all for your participation.