Good morning, ladies and gentlemen, and welcome to Henry Schein's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And as a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Officer. Thank you. Please go ahead, Graham.

Thank you, operator, and thanks to each of you for joining us to discuss Henry Schein's Financial Results for the Third 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 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 analyses 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 regard 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, November 5, 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'll turn the call over to Stanley Bergman.

Thank you, Graham. Good morning, everyone, and thank you for joining us. Our businesses performed well during the third quarter, driven by the successful implementation of our BOLD+1 Strategic Plan that is resulting in growth and efficiency throughout Henry Schein and a strong contribution from high growth, high margin products and services. We believe we continue to steadily gain market share in our dental and medical distribution businesses following last year's cyber incident. Our dental equipment business is showing ongoing stability in North America and increased investment by customers across Europe, Australia, and New Zealand. Implant and endodontic products had good growth in Europe and Brazil, as well as in North America following the successful launch of the BioHorizons Tapered Pro Conical implant in the United States. We're reporting another quarter exceeding our target of 40% of operating income generated by our high-growth, high-margin businesses and we expect to exceed the target of the 40% for fiscal 2024. Acquisitions made during 2022 to 2024, during that strategic planning cycle, along with product launches are delivering strong financial results and our restructuring plan is on target. We also continue to return capital to shareholders through our share repurchase program. We exceeded our financial expectations for the quarter. So today, we are increasing our non-GAAP EPS guidance range to $4.74 to $4.82. We also launched our global e-commerce platform in the UK and Ireland, that's the GEP program and expect to launch next year in the United States. So far, we have received positive feedback from our customers that have moved onto the new system. Now let me turn to a review of our business units and start with the dental distribution business. Overall, third-quarter results for our dental distribution businesses generally reflect continued stable patient traffic globally. We believe the North American market for dental merchandise sales was consistent with last year with unit sales increasing low single digits, offset by PPE price declines and a shift in sales to lower-cost brands and owned brand products. We also believe that our North American dental merchandise market share grew sequentially last quarter compared to the second quarter, reflecting a similar trend from the beginning of the year as we continue to recover from last year's cyber incident. Our third-quarter sales increased internationally in the dental merchandise arena and reflects solid growth in Germany, Austria, France, Brazil, Australia, and New Zealand. On the equipment side, North American dental equipment sales were consistent with the prior year, and we believe we continue to outperform the overall market. Sales of traditional equipment grew slightly, while digital equipment sales decreased. Parts and services sales continued to grow strongly. We believe our North American digital equipment sales were impacted in part by the timing of DSO. It was a successful show for us because it took place in the last week of September. Sales from the show will mostly be recognized in the fourth quarter of this year and on the international equipment side, sales growth was quite good in parts of Europe, Australia, and New Zealand. Let's turn to the dental specialties. Our dental implant and biomaterial sales as well as our endodontic sales grew mid-single digits for the quarter, with continued above-market growth in the United States and Europe. U.S. sales were fueled by the launch of BioHorizons Tapered Pro Conical implant, driving mid-single-digit sales growth in the third quarter against the backdrop of a North American market that is trending flat to slightly negative. Additionally, in the U.S., we launched the SmartShape Healers abutment product line at the end of the quarter in our implant business, which we expect to further attract new customers and drive implant sales. The product is being well received, specifically by customers who feel we've got something that is of great interest to them. We are confident practitioners will value the product's benefits, including less chair time, enhanced patient comfort, and improved clinical efficiency. Turning to our orthodontic business, we are in the midst of restructuring this business as well as transitioning to the Smilers brand Clear Aligner in the United States and in the European markets. This resulted in lower orthodontic sales for the quarter compared to the prior year. Now let's turn to the technology and value-added services part of the business. During the quarter, sales of our practice management software and revenue cycle management products posted mid-single-digit growth. This was driven by growth in the customer base of our Dentrix Ascend and Dentally cloud-based solutions, which was up more than 20% year-over-year with now approximately 8,600 installations worldwide at the quarter-end. Now it's important to understand our results are impacted by customers moving from on-prem to SaaS-based solutions. Revenue is recognized in a different way in a SaaS-based model versus an on-prem sales model. In addition, we recently introduced Reserve with Google, Eligibility, Essentials, and Eligibility Pro, each of which helps our customers grow their businesses and are well-received. The number of claims processed by our revenue cycle management e-claims business also increased by mid-single-digit percentages compared to last year. In conclusion, our dental business is an important priority for our BOLD+1 growth strategy and it's in this area that the 'L' in the B-O-L-D is important for leveraging our strong customer relationships across our product portfolio. We are providing integrated solutions that strengthen customer relations, driving software, driving distribution, and driving specialty sales, especially with our large customer segment. For example, we had a number of dental distribution DSO customers switch their implants to BioHorizons and their technology to Dentrix Ascend and Jarvis Analytics. We have also had multiple successes with customers that have switched to Henry Schein for their merchandise and equipment purchases as a result of our differentiated offering and the excellent value-added services provided by BioHorizons and Henry Schein One. Each of these successes has resulted in coordination in our go-to-market strategy and accordingly incremental sales. Let me conclude my remarks with a review of our medical group. During the third quarter, we believe we continued to increase market share sequentially compared to the second quarter and again reflecting a similar trend from the beginning of the year as we continue to recover from last year's cyber incident. Our sales reflected less demand for respiratory diagnostic products and flu and COVID vaccines this quarter, and therefore along with related medical products. Sales were also impacted by the ongoing migration to generic alternatives for certain branded injectable pharmaceuticals. We continue to have good growth in our Home Solutions business. So let me now turn the call over to Ron to review our quarter three financial results and our 2024 guidance. Ron, please.

Thank you, Stanley, and good morning, everyone. Turning to our third quarter sales results, I will provide details on total sales, total sales growth as well as LCI sales growth, which is internally generated sales in local currencies compared with the prior year and excludes acquisitions. Global sales were $3.2 billion with sales growth of 0.4% compared with the third quarter of 2023. This reflects 3.2% growth from acquisitions and a 0.2% decrease from foreign currency exchange rates. LCI sales for the quarter decreased 2.6% for the quarter, which includes a 0.4% decrease from lower PPE sales. As Stan noted, our underlying sales for the quarter reflect continued improving sales trends in our distribution businesses. Our GAAP operating margin for the third quarter of 2024 was 4.94%, a 140 basis point decline compared with the prior year GAAP operating margin. On a non-GAAP basis, operating margin for the third quarter was 7.64%, a 45 basis point decline compared with the prior year non-GAAP operating margin. We had good operating income growth in our dental specialties and technology and value-added services businesses, offset by a decrease in our distribution businesses resulting from lower sales following last year's cyber incident. Third-quarter 2024 GAAP net income was $99 million or $0.78 per diluted share. This compares with prior year GAAP net income of $137 million or $1.05 per diluted share. Our third-quarter 2024 non-GAAP net income was $155 million or $1.22 per diluted share. This compares with prior year non-GAAP net income of $173 million or $1.32 per diluted share. Our third quarter GAAP and non-GAAP results include a remeasurement gain resulting from the purchase of a controlling interest of a previously held non-controlling equity investment. This business has performed well since we made our initial investment. And as a result of our decision to take majority ownership, we recognized a remeasurement gain of $19 million pre-tax or $0.11 per diluted share in the quarter. This is similar to a remeasurement gain of $18 million pre-tax or $0.10 per diluted share that we recorded in the second quarter of 2023. We regularly make non-controlling investments in companies with high-growth potential as part of our strategic plan. Leveraging our expertise, we have helped these businesses grow and become more profitable. The foreign currency exchange impact on our third-quarter diluted EPS was unfavorable by approximately $0.01 versus the prior year. Adjusted EBITDA for the third quarter of 2024 was $268 million compared to the third-quarter 2023 adjusted EBITDA of $278 million. Turning to our third quarter sales results. Global dental sales were $1.9 billion with sales decreasing 1.6%. LCI sales decreased 1.6% or 1.0% when excluding PPE sales. Global dental merchandise LCI sales decreased 2.5% versus the prior year with an LCI decline in North America of 4.9% and international LCI sales growth of 0.9%. Note that when excluding PPE products, global dental merchandise LCI sales decreased 1.9%, North America merchandise LCI sales decreased 4.0% and international merchandise LCI sales growth was 1.0%. We believe the overall dental market continues to be generally flat with the shift in sales to lower-cost products and lower PPE pricing. We also believe we had a sequential improvement in market share in the third quarter compared to the second quarter. Our global dental equipment LCI sales increased 1.8% with flat sales in North America and 5.6% growth internationally. We expect modest overall equipment sales growth for the year in both North America and internationally. Dental specialty product sales were approximately $258 million and grew slightly compared to the prior year. As Stan mentioned earlier, this was driven by solid dental implant, biomaterials, and endodontic sales globally, offset by sales weakness in our orthodontic business resulting from restructuring of the business and the transitioning of our Clear Aligner business from Reveal to Smilers, a product developed by Biotech Dental, which we acquired last year. Note that our dental specialty acquisitions that we completed last year have now all annualized as of this quarter. So our total sales growth is equal to internal sales growth. Global technology and value-added services sales during the third quarter were $221 million with total sales growth of 5.1%. The LCI sales decline of 1.1% included a 3.1% decline in North America and 13.4% growth internationally. Our value-added services revenue was bolstered by the LPS acquisition. This is a leading transaction advisory services business that we purchased in August of 2023. The timing of revenues recorded by LPS distorted internal sales growth numbers during the quarter, and we believe that total sales growth of 5.1% for the Technology and Value Added Services segment is most reflective of the growth of the business. For the third quarter, specialty products, technology, and value-added services businesses contributed over 40% of total non-GAAP operating income. Global medical sales during the third quarter were $1.1 billion with sales growth of 2.9% and a decrease in LCI sales of 4.8%. Excluding sales of PPE products, LCI sales decreased 4.6%. As Stan noted, our sales reflected less demand for respiratory diagnostic products and flu and COVID vaccines along with related products. Sales were also impacted by the ongoing migration to generic alternatives for certain branded pharmaceuticals. Our Home Solutions business had strong growth, which was driven by our strategic acquisitions. Restructuring expenses in the third quarter were $48 million or $0.26 per diluted share. This includes $12 million incurred as part of the plan announced in the third quarter of 2022, which was completed on July 31, 2024, and $36 million incurred as part of the 2024-2025 restructuring initiative announced last quarter. These expenses mainly relate to service benefits and costs related to exiting certain facilities. Actions approved in the third quarter under the new initiative are estimated to provide over $50 million in annual run rate savings. And we believe this indicates strong progress towards our goal of $75 million to $100 million in annual run rate savings by the end of 2025. Our third quarter GAAP results include $10 million in pre-tax proceeds as part of our cyber insurance claim, which is excluded from our non-GAAP results. At the end of the quarter, we had already collected $20 million and anticipate collecting most of our $60 million claim by the end of this year. Regarding share repurchases, we repurchased approximately 2 million shares of common stock in the open market during the third quarter at an average price of $69.09 per share for a total of $135 million. We had $455 million authorized and available for future stock repurchases at the end of the quarter. We expect to continue to repurchase shares in the fourth quarter. Turning to our cash flow. We had good operating cash flow of $151 million for the third quarter, which compares with operating cash flow of $231 million last year. Year-to-date, operating cash flow was $644 million, which is $112 million more than last year. Turning to our updated 2024 financial guidance. At this time, we are not able to provide without unreasonable effort an estimate of restructuring costs associated with the new restructuring plan for 2024, although we expect this to primarily include severance pay and facility-related costs. Therefore, we are not providing GAAP guidance. Our 2024 guidance is for current continuing operations as well as acquisitions that have closed and does not include the impact of potential future acquisitions or future share repurchases. The guidance also assumes that foreign currency exchange rates are generally consistent with current levels and the end markets remain consistent with current market conditions. Our 2024 total sales growth is now expected to be 4% to 5% over 2023 compared to prior guidance of 4% to 6% growth. For 2024, we are increasing non-GAAP diluted EPS attributable to Henry Schein, Inc. to be in the range of $4.74 to $4.82 compared with prior guidance of $4.70 to $4.82 and reflects growth of 5% to 7% compared with 2023 non-GAAP diluted EPS of $4.50 as a result of better than expected results in the third quarter. This guidance reflects an estimated non-GAAP effective tax rate of 25%. Consistent with prior guidance, we continue to expect our 2024 adjusted EBITDA to grow in the low double-digit percentages versus 2023 adjusted EBITDA of $984 million. We expect adjusted EBITDA to grow faster than non-GAAP diluted EPS because of higher interest expense, a higher effective tax rate, and higher depreciation as a result of the strategic investments we have made to execute on our strategic plan. I will conclude my remarks with some comments on 2025. We plan to issue 2025 guidance as usual on our Q4 earnings call this coming February. As you have heard today, we expect modest improvement in the dental and medical markets next year, and we expect to continue to grow faster than the markets, supported by some of our recent investments, new product launches and focused execution, and continued cyber recovery. We are on target to achieve our restructuring goal and this should help offset headwinds from higher depreciation expense resulting from our global e-commerce platform and additional investments in technology. We expect this e-commerce platform to accelerate growth once fully launched in the United States. With that, I'll now turn the call back to Stanley.

Thank you, Ron. Operator, we're ready to answer any questions that investors may have.

Thank you, Stanley. We will now be conducting a question-and-answer session. And the first question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks so much for the question. I ask maybe a two-part question. One, can you sort of comment on the overall health of the dental and medical trends as we kind of get through October and into November? And then two, it seems like you have a bunch of one-time items. I think you talked about sort of the generic impact and some other things in medical in the respiratory season. And then in dental, you talked about like DSO pushing some sales into the fourth quarter and some other things. Like, how do we think about the third-quarter results versus the guidance, if we have some sort of push-outs into the fourth quarter? How do we think of that vis-a-vis the full-year guidance on the revenue side coming down a little bit? Is that just conservatism? Are there other trends that we should think about as we think about the fourth quarter? Any comments there would be very helpful. Thank you.

Elizabeth, I'll give you a few thoughts on the current market, and Ronald will talk about the guidance. He's been working on that with the team. So the market is pretty stable, we think. There is a shift on the consumable side, at least in the United States towards lower-priced alternative brands and our own brands. This doesn't really impact our profitability, but it may impact and does impact the sales. We also think the units have gone up in low-single digits. So with lower-single digits and movement of merchandise units to lower-priced alternative brands including national brands and owned brands, you see a stable to slightly reduction in dollar sales in the dental market in the United States. Our October merchandise sales trends in our distribution businesses were generally consistent with September 2024. So it's pretty stable. And having said that, October sales growth in implants and biomaterials are strong, driven by S.I.N., Biotech Dental, and in Europe, of course, our Camlog business. And we are seeing continuing good adoption of the BioHorizons Tapered Pro Conical implant in the U.S. So this is all taken into account by Ron as he works with the team on the guidance. And Ron can give you specifics. But I think we can report a pretty stable market, and from our point of view, we are gaining back market share that we lost during the cyber incident, albeit at a slowish rate, but the rate continues in a positive direction really since the beginning of 2024 and consecutively improving. Of course, you've got to take into account for us, glove sales where there has been a significant reduction in the price of units of gloves. And we think we may be seeing the bottom right now, but we will call that out separately because that's a business where we don't really control the selling price at all. It's a commodity. So, Ron, maybe you want to give some input on how you've worked on the guidance.

Certainly, Elizabeth. We considered many of the trends Stanley just mentioned regarding how we saw the end of Q3 and the beginning of October. Markets appear to be relatively stable, although there seems to be a shift towards some lower-cost products. Regarding equipment, as mentioned earlier, we anticipate a slight benefit from the timing of DS World for Q4. However, it’s important to note that Q4 is typically the most significant quarter for equipment. All these factors were taken into account, along with the ongoing growth on the implant side for the fourth quarter. On the medical side, we are closely monitoring the flu season, as we observed some declines in diagnostic kit sales in Q3. We’re considering information from the CDC in our guidance, as these factors may also influence Q4 moving forward.

Got it. Thank you.

And the next question comes from the line of Jeff Johnson with Baird. Please proceed with your question.

Thank you. Good morning. Ron, maybe just one clarifying question on what you said about 2025 and then one question on EPS this quarter. But on 2025, you talk about maybe some modest margin improvement and expect to gain a bit of share, things like that. The Street sitting at just over 4%, almost 4.5% revenue growth next year, and 11% EPS growth or nearly 11%. Relative to your comments, those both sound a little bit high. And you don't usually comment, I know on the third quarter call about 2025, but you did kind of bring it up and open the door a little bit. It just feels like to me maybe were your comments specifically kind of asking us to sharpen our pencils and maybe bring those two sets of numbers down a little bit for next year. Thanks.

Certainly, Jeff. Well, as you stated, we haven't provided 2025 guidance yet. We are looking at both what's happening in terms of market trends as well as on our own recovery of and gains in market share. Those are factors that will be taken into consideration when we provide that guidance in February of next year. Beyond that, a lot of this is just what kind of momentum can we take from Q3 into Q4 and sustain from Q4 into 2025. So we just need to kind of see how the balance of the year plays out and all that will be taken into consideration in the 2025 guidance.

All right. And then just on third-quarter EPS itself, you had the $0.11 remeasurement gain in there. Obviously, you had kind of a $0.10 remeasurement gain in 2Q last year. I think the net in 2Q last year was closer to a $0.05 benefit because you also had some of the S.I.N. and Biotech kind of higher-than-normal acquisition costs you called out in that second quarter last year for kind of a netting that to a $0.05 benefit. But if I adjust for both those factors, both the remeasurement this quarter, the net of those factors in 2Q last year, your first-half EPS this year was down about 5%, with your core consumables in both medical and dental down 4% to 5%, I think that makes sense. This quarter, if I take the $0.11 out and there wasn't really anything in 3Q last year, I don't believe your EPS would have been down closer to mid-teens year-over-year. So where was that extra 10 points, if you will, of adjusted basis fall-off in earnings growth this quarter versus the first half of the year? That's the one hole I can't plug. Thanks.

I believe the primary factor for the ongoing recovery of market share in our distribution businesses, more than anything else, is significant to note, Jeff. We were encouraged by some very positive developments regarding what we're seeing in equipment and implants. However, I think the main contributor to the gap you've pointed out is the continuous recovery in distribution.

And the next question comes from the line of Kevin Caliendo with UBS. Please proceed with your question.

Thanks for including me. Ron, I have a question regarding the restructured savings of $75 million to $100 million expected by the end of 2025. How do we assess this in relation to the higher depreciation costs? Does one counterbalance the other? My main point is, considering those two aspects and the fact that revenues are expected to grow above market next year, is there any reason, aside from the restructuring costs compared to depreciation, that margins shouldn't improve next year?

We expect margins to improve. The increase in depreciation expense will apply some pressure, but I believe the benefits from lower operating expenses due to our restructuring efforts, which began in the third quarter and will continue into the fourth quarter and throughout 2025, will more than counteract the increase in depreciation expense. This should lead to some improvement in our operating margin. A key factor in this will be revenue growth, particularly in the distribution business, because of the fixed-cost nature of that sector. If we can achieve sustained market recovery in distribution and successfully execute our restructuring initiatives, we should see some expansion in operating margin in 2025. However, we need to assess the momentum we can achieve this year before making any commitments.

I'm just following up on the share recaptured in the third quarter, its magnitude, and how it's progressing in the fourth quarter. Is it reasonable to assume that you still expect a tailwind in consumables or share from lapping lower share in the first half of next year? Given your current situation, do you feel confident that there will be a benefit at least for the first half, or is that still relatively insignificant?

Well, yes, by definition, like we've said, we believe that sequentially this year, we have picked up some market share as we recover from the cyber incident from Q1 into Q2 into Q3. And so we do expect that our existing market share when we go into 2025 on the distribution side will be higher than when we went into 2024. Now, as we have stated in previous calls, that pace of recovery has been lighter than we originally expected. So we're still working on what we believe that incremental market share will be as we think through the 2025 results. But yes, by definition, one would expect that market share to be slightly higher.

And the next question comes from the line of Jon Block with Stifel. Please proceed with your question.

Thanks, guys, and good morning. Stanley, or Ron, maybe I'll just start pretty big picture. I think in the comments, you said next year, you expect the dental and medical markets to get a bit better and then you think you'll take share of that improvement. The improvement in the end markets, I'd say, has proven to be somewhat elusive over the past handful of quarters. And so maybe you guys can just talk to your conviction there. What is the drivers? Is it a lower interest rate environment that leads to the improvement, notably on equipment? Is it consumer confidence? Is it lower financing on higher ASP procedures? What's really driving your improvement outlook, if you would? And do you expect it to be more acute in either dental and/or medical? Thanks.

Yes, John, that's a great question. Let's start with the simpler aspects. Regarding dental equipment sales in the United States, there is significant interest from practitioners in investing in their practices. They are quite busy; in fact, Ron mentioned that he is having trouble getting an appointment with his local dentist because they are so occupied and feeling positive about their practices. They understand that investing in digital technology will enhance their performance. The entire area of clinical workflow, digital devices, and integrating that with software and electronic medical records is progressing well. However, it's not consistent. This quarter, we faced a situation where one of our largest scanner suppliers reported differing performance compared to last year. Nonetheless, the market is solid. If interest rates were to decrease by 100 basis points or more, that could significantly impact growth; a decrease of 200 basis points would be even more beneficial. Practitioners are committed to investing. On the consumable side, there is a positive trend in unit sales, but there is also a shift towards lower-priced branded products. If similar products are available at a lower price, customers are inclined to switch, which affects our margins slightly. However, this is offset by a rise in our own brand products, which are priced higher. I believe the implant market has stabilized from our perspective. The high-end segment is still facing challenges, but within the value implant market we are involved in, conditions appear reasonably stable to slightly positive. The outlook in Europe has improved compared to a year or two ago when there was instability due to Ukraine, and it seems to have calmed down. Positive trends are also emerging in other regions like Australia, New Zealand, and Brazil, despite a previous decline. It's difficult to predict exactly, especially with the upcoming election and its influence on sentiment, but I think we've reached a bottom and are seeing slight positivity in both consumables and equipment. From our perspective, we expect to perform well in implants, endodontics, and our smaller orthodontic business, which should begin showing positive growth as we expand our Smilers brand globally. On the medical side, we are doing reasonably well, though we are impacted by two factors: flu season variability and the market for generics, especially injectables. The price of gloves also plays a role, but factoring that out should provide a clearer view of the market. Practitioners are investing in software, and while we are performing adequately in that area, we are transitioning from traditional on-premise sales to SaaS subscriptions, which should be considered. Overall, Home Care is performing well, and our new orthopedic business is trending positively due to a notable shift towards ambulatory surgical centers, where we are seeing success.

Okay, great. That was very helpful, Stanley. Thanks for that. And then maybe just a quicker follow-up. Implants, impressive North American performance, pretty clear you're taking share. But it's hard to believe that would all be from the Tapered Pro Conical alone, recent introduction. So any more details on the contribution from that offering? And maybe more importantly, is the conical having, call it sort of a halo effect on the overall implant portfolio? Thanks, guys.

Yes, that's a good question. I believe our sales team feels confident that the efforts they've made over the past two to three years, engaging customers about our exciting offerings, are now turning into tangible results. We're seeing increased interest from customers in our reasonably priced, high-quality product, supported by strong key opinion leaders, along with an expanded market opportunity. This is especially true in the United States. In Europe, we continue to perform well, particularly in Germany, as well as in Brazil and France. While there can be slight fluctuations in sales due to exports, the overall state of our business in the U.S. is very solid for BioHorizons, gaining momentum from the team's efforts over recent years. Additionally, the recognition of our product line by dental service organizations has been beneficial. In Germany, specifically, where we hold a significant market share, we usually gain a bit more market share each quarter. The rest of the world is less significant in terms of impact but can influence market share depending on exports and our performance in countries like Japan. Our participation in Germany is limited, mainly with lower-priced, high-quality products, along with our presence in Brazil and France.

And the next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Good morning. Thank you for your questions. I would like to clarify some points from the earlier inquiries. Could you first separate the assumptions regarding growth expectations for 2025? If next year's market shows modest growth, should we assume this is mainly due to volume with stable pricing, or would you describe the pricing environment as slightly positive or negative based on the manufacturer schedules for 2025? Additionally, could you share your thoughts on how specialty and non-specialty segments fit into your overall perspective on the dental market?

So Jason, as a distributor, if we move more towards manufacturers that want to compete a little bit more aggressively and that tends to be the second-tier manufacturers and there is a movement towards own brand, it could impact sales a little bit, all things being equal, but our profits are solid. So we can't tell exactly on the consumable side, but I would imagine that particularly with some of the larger accounts, our suppliers will want to be competitive. As it relates to equipment, specifically in Europe, there is a movement towards high-quality, lower-priced equipment units and that has resulted in good sales for us, margins are not bad. And I think the manufacturers will, all of them really in the end will understand that there has been consumer resistance as a result of the increase in pricing in the post-COVID period. I think from our point of view, the profitability point of view, I think, we're okay. Obviously, on the distribution side, regaining customers as a result of the cyber incident is going to continue to be important and we have repositioned our sales force accordingly. Our sales team was very much engaged until a few months ago in making sure that the customers that were impacted by the cyber incident are okay and safely embedded with Henry Schein. Now these smaller periodic customers, we do not spend a lot of time with. Our salespeople are focused on that. Our telesales team has been reorganized to focus on that, more resource put into these smaller accounts that we seem to have had challenges, we did have challenges with in the post-cyber incident and that's the focus. Our website, which was down, had some challenges in regaining customers. I think we've got a lot of very good e-commerce activity going on there, social media-type stuff, and we are recovering. So I think those items are very much going to impact us and we see more or less a continued stable market with us driving our sales in the areas that I've mentioned and of course, focused on high-growth, high-margin businesses that now account for just over 40% of our operating income and another 10% or so percent from our corporate brand, private brand product offering. So it's about half the business that we have to make sure that we continue to grow.

Okay. Thanks, Stan. And then just as a follow-up, Ron, you mentioned in the prepared remarks, in the press release having already influenced cost savings of $50 million. Can you give maybe a bit more detail on just where you're seeing these cost savings, maybe outside of the orthodontics business you referenced during your prepared remarks on some of the consolidation or cost efforts on, I think the endodontic business that you fully acquired. Are there other revenue impacts or disruptions we need to think about as we look ahead to 2025 beyond just orthodontic?

We are proceeding cautiously to ensure that any reductions we make have minimal to no impact on revenues. Due to a decline in distribution revenues, some restructuring initiatives have targeted our distribution businesses. We've also experienced lower revenue growth than anticipated in certain technology areas, which has led to cost reductions in those sectors. However, I believe we can continue to invest in new products and are optimistic about 2025, aiming to enter the year in a lean position with opportunities to reinvest in our businesses as needed. Regarding 2025, we expect the dental markets to grow at a normal rate of around 2% to 4%, with a more realistic projection being closer to 2% next year. Various factors could affect this outlook. As Stanley mentioned earlier, lower interest rates might stimulate more investment, potentially leading to an increase in new practices. Expanding the supply of dentistry would be highly advantageous for us, and we anticipate that greater investment in building out practices will be the primary driver influencing our numbers in 2025.

And the next question comes from the line of John Stansel with J.P. Morgan Chase. Please proceed with your question.

Great. Thanks for taking my question. Just want to get a sense of intra-quarter trends within medical. And beyond that, how you're seeing your different end-markets, the ASCs, doctor's offices, IDNs, how they're behaving both from customer and competitor perspective, and what you're seeing just generally in the competitive balance for medical right now?

Yes. If you consider the medical market for Henry Schein and set aside the fluctuations related to flu season, including vaccines and COVID, those aspects may vary somewhat from quarter to quarter. Additionally, if we remove the effects of respiratory issues, which can influence whether people visit doctors more or less, the business remains quite stable. We are recovering from the cyber incident, during which we did lose some customers, particularly to drug wholesalers. However, customers in our sector recognize the unique services we provide, and they are returning. This forms the foundation of our distribution business, which remains stable when excluding the respiratory and flu-related factors and the variability in glove sales. We are gaining market share as a result of our recovery. Furthermore, while not significant in sales, we are making progress in the orthopedic area, which is performing well, including our recent acquisition related to extremities and our source of blades business—showing strength in profits even if not in sales. The Home Care business is also performing well. Although we haven't seen local currency growth yet, I anticipate that may change in the future.

In the middle of the fourth quarter, yes.

So that's pretty good. And the movement to ASC is pretty good. There was some encouraging news. We just got that reimbursement for foot and ankle and procedures undertaken in the ASC is going to be going up. The medical business is a very efficient business, a great sales organization, extremely well-managed also dental, by the way. I think you can expect continued momentum and decent margin improvements. I can't give you the exact quarter where all this is going to happen, but the trend is very good and the business is quite stable. We still have to get back some of that pharmaceutical distribution that went to the drug wholesales, but I think our team will get that back because our service is very unique.

The next question is about the technology business and specifically regarding value-added services. It has been noted that the difference between LCI and reported revenue seems more cosmetic, making reported revenue look better. Can you explain the dynamics at play and why the headwind from value-added services is causing an issue?

Yes, I'll provide a brief explanation. The transaction we completed last year with LPS became effective between July 31 and August 1. Therefore, we had one month of acquisition activity from LPS compared to two months of internal growth, and LPS performed well in July. This month’s revenue influenced our acquisition growth rather than our internal growth. If we had averaged those revenues throughout the quarter, we believe total sales growth would more accurately reflect our expectations for that segment moving forward. However, this business can be quite variable; it's not based on recurring customers but a series of transactions, and the timing of these transactions can lead to unusual calculations. Now that the transaction has fully integrated, it will contribute to our internal sales growth in the future.

And Ron, thank you. And you would need to also ensure that you've taken into account the movement from on-prem sales to the SaaS model where it's a monthly subscription, but the units are doing quite well in our cloud-based system both in the United States, which is our big market and our international business. So the business is quite good and it's growing.

And the next question comes from the line of Brandon Vazquez with William Blair. Please proceed with your question.

Hey, everyone. Thanks for taking the question. Since we're nearing the end, I'll combine two questions. First, Stan, you mentioned some dental manufacturers wanting to compete more, and I'm wondering how that trend might affect you going into 2025. Can you elaborate on that? Is this a new development or something you've always managed? Any insights would be appreciated. Secondly, could you provide some details about the restructuring in the Clear Aligner business? That would be helpful as well. Thanks.

We've been mentioning in our calls now, I can't remember three or four quarters now that consumers are of dental products, and I guess, consumers in general are looking at quality of the product versus price, the value, and that they can see a better value in something else rather than necessarily a national brand, they're going to go in that direction. That has been, of course, a driver in our own brands. Now not every large manufacturer is ignoring this trend. Many are dealing with it, but there are some that took their prices up quite high and there's been price resistance. And we've said this for a while. And not only in the consumables but on the equipment side, specifically on the equipment side in Europe. So I think this is going to adjust itself. We certainly have mentioned this to our manufacturing partners, they understand this. Remember, we are committed to national brands, but we need to ensure that the national brands we represent are competitive in the eyes of our customers. I think this will adjust. I don't think this trend will go on for a long time, but it's certainly magnified this quarter and in actually the last couple of quarters. Ron, on restructuring?

Yes. Regarding the orthodontics question, we are in the process of transitioning our Clear Aligner products in the U.S. and European markets from Reveal to Smilers over time. We viewed this as an opportunity because our orthodontics business wasn't reaching the scale needed to justify the existing infrastructure. By making this change, we can utilize our current distribution infrastructure more effectively and reduce some operating costs within that business. Ultimately, we believe that Smilers is a superior product compared to Reveal, and given the size of the business, it didn’t make sense to maintain both brands, so we are moving forward with Smilers.

It will take a couple of quarters to smooth this out but the Reveal product is a very good product but the Smilers brand has additional software with Nemotec backing it up and wherever we've tested it seems to have gone quite well, has gone well. So, operator, I think we're near the end. I want to thank everybody.

We do have one more.

Oh, we have one more question. Sorry, sorry, sorry.

No problem. We have time for one last question coming from the line of Mike Petusky with Barrington Research. Please proceed with your question.

Good morning. Thank you for fitting me in. I realize this isn't a call focused on 2025, but I'm curious about your thoughts on capital allocation for that year. Will it resemble 2024 in terms of M&A, share repurchase, and internal investment decisions, or might it be more similar to 2022 and 2023 when external investments were more prominent? Thanks.

Yes. Mike, I expect it will align more with the historical run rate that we experienced in the 2022-2023 period, where share repurchases typically fell within the $300 million to $400 million range, and M&A activity was also in that range. Additionally, there might be some opportunities to pay down debt more quickly, given our strong positive cash flow, depending on where we see the best returns for that capital investment. However, I anticipate it will reflect those historical trends. That said, we continue to maintain an opportunistic approach to M&A. If the right transaction arises that aligns with our strategy and business growth, we would consider pursuing it.

Okay. Great. And a quick follow-up, just in terms of potential M&A, whether it's in 2025 or beyond, you guys have made some positive comments about Home Solutions and obviously have built that business up, but I know you want to scale it further. Can you just talk about where assets in the Home Solutions space would sort of rank in terms of M&A priorities? Thanks.

Yes, we plan to keep investing in that area. While we don't need to make large investments, we aim to enhance our national offering in the United States and gain access to our contracts. This isn't about spending a lot of money; it's more about taking advantage of opportunities to expand our platform and improve delivery capabilities. We will utilize the Henry Schein infrastructure for deliveries in certain areas and tap into specific insurance contracts that could facilitate faster growth. We have assembled an excellent team in this area through acquisitions and recruitment over the past few years, and we are optimistic about the business operationally and demographically. We appreciate your attention and apologize for going over time. We are confident about our performance and believe we will continue to regain market share in our distribution segments affected by the cyber incident. Our high-growth, high-margin product and service lines are progressing well. Although we are restructuring a small endodontic business, our implant and bone regeneration businesses are performing positively. Our value-added services are also showing good momentum, which should strengthen our relationships with core customers. We are concluding our strategic plan for 2022 to 2024. Excluding the cyber incident, we have performed well in executing our plans and strategies. We will outline our 2025 to 2027 strategic plan in our next call, emphasizing certain opportunities, while we expect capital deployment to remain similar to this year. We may find opportunities to use cash flow for acquisitions, buy backs, and investments, with over $300 million still available. As we approach the holiday season, I wish everyone a safe and pleasant time. We will return early next year with a positive outlook, and our team is performing exceptionally. The restructuring process has been well-received, and we value our people. Thank you all for your support. Graham and Ron?

Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.