MELVILLE, N.Y.–(BUSINESS WIRE)–Henry Schein, Inc. (Nasdaq: HSIC), the world’s largest provider of health care solutions to office-based dental and medical practitioners, today reported financial results for the third quarter ended September 30, 2023.
“We are reporting solid financial results for the third quarter. The Company achieved good total sales growth and non-GAAP diluted EPS growth despite continued lower sales of PPE products and COVID-19 test kits. Profitability benefitted from our technology, value-added services, and dental specialty products as we continue towards our goal of achieving 40% of operating income from sales of high-growth, high-margin products,” said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.
“Regarding our recently reported cybersecurity incident, our distribution businesses are now operational and we are initiating the reactivation of our ecommerce platform early this week. We have also made significant progress resuming the high levels of service our customers have come to expect from us,” Mr. Bergman said.
“We are more than halfway through our three-year BOLD+1 Strategic Plan,” Mr. Bergman continued. “Despite current macroeconomic conditions and the cybersecurity incident, we have confidence in the stability of the dental and medical markets and remain committed to our strategic priorities and long-term financial model, which includes high single-digit to low double-digit operating income growth.”
Third-Quarter Financial Results
- Total net sales for the quarter were $3.2 billion, an increase of 3.1% compared with the third quarter of 2022. This increase included a 1.2% decrease in local currencies excluding acquisitions, reflecting some market softening in the second half of the quarter as well as lower sales of PPE products and COVID-19 test kits. Growth from acquisitions was 3.2% and there was a 1.1% increase in net sales related to foreign currency exchange1. Sales of PPE products and COVID-19 test kits in the quarter were $175 million, a decrease of $69 million versus the prior-year period. When excluding sales of PPE products and COVID-19 test kits, third-quarter internal sales growth in local currencies was 1.1% compared with the prior year period.
- GAAP net income3 for the quarter was $137 million, or $1.05 per diluted share, compared with third-quarter 2022 GAAP net income of $150 million, or $1.09 per diluted share.
- Non-GAAP net income3 for the quarter was $173 million, or $1.32 per diluted share, compared with third-quarter 2022 non-GAAP net income of $177 million, or $1.29 per diluted share2,4, and excludes restructuring expenses of $11 million, or $0.06 per diluted share, and amortization expense of acquired intangible assets of $44 million, or $0.21 per diluted share.
- Global Dental sales were $1.9 billion for the quarter, an increase of 5.4% compared with the prior-year period, with strong sales growth in consumable merchandise driven by acquisitions. Internally generated sales decreased 0.2% in local currencies and reflect a 0.9% decrease in North America and 0.9% growth internationally, and increased 0.3% in local currencies when excluding sales of PPE products.
- Global Dental consumable merchandise internal sales increased by 0.3% in local currencies. Excluding sales of PPE products, internal sales growth was 1.1% in local currencies.
- Global Dental equipment internal sales decreased by 2.0% in local currencies, with continued growth in traditional equipment sales offset by a decrease in digital equipment sales despite higher unit sales.
- Global Medical sales were $1.1 billion for the quarter, a decrease of 3.1% compared with the prior-year period. Internally generated sales decreased 4.6% in local currencies1. Internal sales increased 0.8% in local currencies when excluding sales of PPE products and COVID-19 test kits and continued to be impacted by a difficult prior-year comparison of 9.3% sales growth, and a product mix shift to generic pharmaceuticals and corporate brand products.
- Global Technology and Value-Added Services sales were $210 million for the quarter, an increase of 18.8% compared with the prior-year period, driven by the strength of Henry Schein One and by acquisitions. This included 9.6% internal sales growth in local currencies and 8.6% growth from acquisitions1 including Large Practice Sales LLC. Henry Schein One achieved strong growth across its practice management software products, with particular strength in its cloud-based solutions, Dentrix Ascend and Dentally.
Year-to-Date Financial Results
- Total net sales for the first nine months of 2023 were $9.3 billion, an increase of 0.5% compared with the first nine months of 2022. This increase included a 1.7% decrease in local currencies excluding acquisitions, 2.5% growth from acquisitions and a 0.3% decrease related to foreign currency exchange. Internal sales growth for the first nine months of 2023 in local currencies excluding sales of PPE products and COVID-19 test kits was 3.5% compared with the prior year.
- GAAP net income3 for the first nine months of 2023 was $398 million, or $3.02 per diluted share, compared with $491 million, or $3.55 per diluted share, for the first nine months of 2022.
- Non-GAAP net income3 for the first nine months of 2023 was $507 million, or $3.84 per diluted share, compared with $557 million, or $4.03 per diluted share, for the first nine months of 20222,4.
Capital Deployment
To accelerate the implementation of its 2022-2024 BOLD+1 Strategic Plan, the Company invested $417 million in business acquisitions during the third quarter of 2023 and $668 million year to date, and has committed over $1 billion in capital to announced acquisitions year to date.
During the third quarter of 2023 the Company repurchased approximately 660,000 shares of its common stock at an average price of $75.79 per share, for a total of $50 million. The impact of the repurchase of shares on third-quarter diluted EPS was immaterial. At quarter-end, Henry Schein had approximately $315 million authorized and available for future stock repurchases.
Update on Previously Reported Cybersecurity Incident
As disclosed in the Company’s Current Report on Form 8-K filed on October 16, 2023, Henry Schein discovered a cybersecurity incident on October 14, 2023 that primarily affected its dental and medical distribution businesses. The Company has contained the incident, restored most of the business-critical systems it proactively took offline in response to the situation, and is making significant progress towards resuming normal-course operations.
On November 2, 2023, the Company filed a Form 12b-25 with the SEC and expects to file its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 before the end of November 2023.
The Company also expects to file an insurance claim in 2024 related to this incident. We expect the claim will be covered under its cyber insurance policy, although final resolution is subject to insurer approval. This policy has a $60 million after-tax claim limit after a $5 million retention, and any recovery from the claim will likely not be recognized until late 2024.
2023 Financial Guidance
Henry Schein updates guidance for full-year 2023, and now expects non-GAAP diluted EPS of $4.43 to $4.71. This reflects:
- a narrowing of the previous guidance range for the underlying business to $5.18 to $5.26 from its previous guidance of $5.18 to $5.35, reflecting softening macroeconomic conditions, and
- an estimated $0.55 to $0.75 per share business interruption impact of the recent cybersecurity incident, which excludes any future insurance claim recovery, and does not include certain expenses directly associated with the cybersecurity incident.
Full-year 2023 sales are now expected to be approximately 1% to 3% lower than full-year 2022 sales, which is an update from prior guidance of 1% to 3% sales growth. This change in guidance is primarily due to the recent cybersecurity incident.
Guidance is for current continuing operations as well as announced acquisitions and does not include the impact of future share repurchases, potential future acquisitions, restructuring and integration expenses, amortization expense of acquired intangible assets, and certain expenses directly associated with the cybersecurity incident. This guidance also assumes that foreign currency exchange rates remain generally consistent with current levels and that end markets remain consistent with current market conditions.
Adjustments to 2023 GAAP Diluted EPS
The Company is providing guidance for 2023 diluted EPS on a non-GAAP basis, as noted above. The Company is not providing a reconciliation of its 2023 non-GAAP guidance to its projected 2023 diluted EPS prepared on a GAAP basis. This is because the Company is unable to provide without unreasonable effort an estimate of integration and restructuring costs related to an ongoing initiative to drive operating efficiencies and certain expenses directly associated with the cybersecurity incident, including the corresponding tax effect, that will be included in the Company’s 2023 diluted EPS prepared on a GAAP basis. The inability to provide this reconciliation is due to the uncertainty and inherent difficulty of predicting the occurrence, magnitude, financial impact and timing of related costs.
Management does not believe these items are representative of the Company’s underlying business performance. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.
1 See Exhibit A for details of sales growth.
2 See Exhibit B for a reconciliation of GAAP net income and diluted EPS to non-GAAP net income and diluted EPS.
3 See Exhibit C for details of acquisition expense and acquisition-related adjustments included in GAAP and non-GAAP net income.
4 Reference to diluted EPS refers to diluted EPS attributable to Henry Schein, Inc.
About Henry Schein, Inc.
Henry Schein, Inc. (Nasdaq: HSIC) is a solutions company for health care professionals powered by a network of people and technology. With approximately 24,000 Team Schein Members worldwide, the Company’s network of trusted advisors provides more than 1 million customers globally with more than 300 valued solutions that help improve operational success and clinical outcomes. Our Business, Clinical, Technology, and Supply Chain solutions help office-based dental and medical practitioners work more efficiently so they can provide quality care more effectively. These solutions also support dental laboratories, government and institutional health care clinics, as well as other alternate care sites.
Henry Schein operates through a centralized and automated distribution network, with a selection of more than 300,000 branded products and Henry Schein corporate brand products in our distribution centers.
A FORTUNE 500 Company and a member of the S&P 500® index, Henry Schein is headquartered in Melville, N.Y., and has operations or affiliates in 33 countries and territories. The Company’s sales reached $12.6 billion in 2022, and have grown at a compound annual rate of approximately 12.1 percent since Henry Schein became a public company in 1995.
For more information, visit Henry Schein at www.henryschein.com, Facebook.com/HenrySchein, Instagram.com/HenrySchein, and Twitter.com/HenrySchein.
