The profession of dentistry took a big financial hit during the spring and summer of 2020. The pandemic forced closures of dental offices and mandated lockdowns kept everyone at home and the only dental treatment being done was on emergency patients. This helped keep folks with dental problems out of crowded emergency rooms giving hospitals more time for treatment of Covid-19 patients as well as keeping those dental patients from being exposed to the SARS-Cov-2 virus that might have been present in the hospitals.
Offices opened again around June, but many patients, still concerned about Covid-19 stayed away from dental offices. Then, six months after the original shutdown, we saw dental offices dealing with the "six month recall reflection". Since patients were not in offices for hygiene visits in March through May, no one made their second six month cleaning appointment of the year which resulted in a slow autumn for many offices.
Now we are seeing dentistry rebound in a big way. As people become more comfortable with being out of their homes, dentistry is seeing patient flows return to pre-pandemic levels. This is best reflected in the numbers that dentists spend on supplies, especially disposables that are tied directly to patient appointments. The following is a news release from the world's largest dental supplier, Henry Schein.
Henry Schein, Inc. (Nasdaq: HSIC), the world’s largest provider of health care solutions to office-based dental and medical practitioners, today reported record third-quarter financial results from continuing operations. Results from continuing operations exclude contributions from Henry Schein’s former Animal Health business, which was spun off in February 2019 to form a new publicly traded company, Covetrus (Nasdaq: CVET).
Total net sales for the quarter ended September 25, 2021, were $3.2 billion, up 11.9% compared with the third quarter of 2020. The 11.9% increase included 7.2% internal growth in local currencies, 3.9% growth from acquisitions and 0.8% growth related to foreign currency exchange. (See Exhibit A for details of sales growth.)
GAAP net income attributable to Henry Schein, Inc. from continuing operations for the third quarter of 2021 was $162.3 million, or $1.15 per diluted share, compared with prior-year GAAP net income attributable to Henry Schein, Inc. from continuing operations of $141.7 million, or $0.99 per diluted share. Non-GAAP net income from continuing operations for the third quarter of 2021 was $154.8 million, or $1.10 per diluted share, compared with prior-year non-GAAP net income from continuing operations of $147.0 million, or $1.03 per diluted share. Exhibit B provides a reconciliation of GAAP net income and diluted EPS from continuing operations to non-GAAP net income and diluted EPS from continuing operations.
“Today we reported record third-quarter financial results, driven by a keen focus on execution by Team Schein and steady patient traffic, resulting in excellent momentum across the entire company. We believe that patient traffic was generally similar to the previous quarter for our dental customers and is improving for our medical customers. Compared with the year-ago quarter, Henry Schein’s worldwide internal sales in local currencies increased a robust 7.2%, or 6.3% excluding sales of personal protective equipment (PPE) and COVID-19 related products,” said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. “Our third quarter financial results are solid with growth in diluted EPS from continuing operations of 16.2% on a GAAP basis and 6.8% on a non-GAAP basis.”
Global Dental sales for the third quarter of 2021 of $1.8 billion increased 10.5% versus the prior-year period. In local currencies, internally generated sales increased 5.2% with 3.9% growth from acquisitions and 1.4% growth related to foreign currency exchange. The 5.2% internal growth in local currencies included growth of 4.7% in North America and 5.9% internationally.
Global Dental consumable merchandise internal sales growth was 2.9% in local currencies. Excluding sales of PPE and COVID-19 related products, internal sales growth in local currencies was 4.8%. In North America, dental consumable merchandise internal sales in local currencies increased 3.9%, and 5.7% when excluding sales of PPE and COVID-19 related products, and dental equipment internal sales in local currencies increased 7.8%. Internationally, dental consumable merchandise internal sales in local currencies increased 1.3%, and 3.5% when excluding sales of PPE and COVID-19 related products, and dental equipment internal sales in local currencies increased 23.9%.
“North America dental consumable merchandise internal sales growth in local currencies with and without PPE and COVID-19 related products was solid in the third quarter. Consumable merchandise sales continued to improve, which we believe were bolstered by a steady flow of patient traffic,” said Mr. Bergman. “North America dental equipment sales growth reflected strong sales of high-technology equipment and modest growth of traditional equipment sales which remain impacted by equipment manufacturing and office construction delays. Overall gains in consumable merchandise and equipment sales in North America and International markets reflect the continuing recovery of underlying markets.”
Global Medical sales for the third quarter of 2021 of $1.2 billion increased 15.5% versus the comparable period last year, consisting of 13.1% internal growth in local currencies and 2.4% growth from acquisitions. There was no impact related to foreign currency exchange. Excluding sales of PPE and COVID-19 related products, internal sales in local currencies increased 8.3%.
“Global Medical internal sales growth in local currencies for the third quarter was once again very strong, with and without sales of PPE and COVID-19 related products. Trends in the physician office, ambulatory surgery center and alternate care markets all were positive, and we have increased the number of accounts we serve and further penetrated existing accounts,” said Mr. Bergman.
Global Technology and Value-Added Services sales of $168.6 million increased 21.9% versus the prior-year quarter and included 6.3% internal sales growth in local currencies, 14.7% growth from acquisitions and 0.9% growth related to foreign currency exchange.
“Global Technology and Value-Added Services sales growth was driven by the acquisitions we made over the past year in software analytics and by expanding our range of dental practice solutions. We also saw solid sales growth in Dentrix technical support, our Dentrix Ascend cloud solution and our Software of Excellence business in the UK,” added Mr. Bergman.
Stock Repurchase Plan
During the third quarter of 2021, the Company repurchased approximately 650,000 shares of its common stock at an average price of $76.77 per share, for a total of approximately $50 million. The impact of the repurchase of shares on third-quarter diluted EPS was immaterial. At the end of the third quarter, Henry Schein had approximately $350 million authorized and available for future stock repurchases.
Year-to-Date Financial Results
Net sales from continuing operations for the first nine months of 2021 were $9.1 billion, an increase of 30.4% compared with the first nine months of 2020. The 30.4% increase included 24.0% internal growth in local currencies, 4.1% growth from acquisitions and 2.3% growth related to foreign currency exchange.
GAAP net income attributable to Henry Schein, Inc. from continuing operations for the first nine months of 2021 was $484.0 million, or $3.40 per diluted share, compared with GAAP net income attributable to Henry Schein, Inc. from continuing operations of $260.9 million, or $1.82 per diluted share, for the first nine months of 2020. Non-GAAP net income from continuing operations for the first nine months of 2021 was $489.9 million, or $3.45 per diluted share, compared with non-GAAP net income from continuing operations of $281.7 million, or $1.97 per diluted share, for the first nine months of 2020. Non-GAAP results for the first nine months of 2021 and 2020 exclude certain items noted in Exhibit B, which provides a reconciliation of GAAP net income and diluted EPS from continuing operations to non-GAAP net income and diluted EPS from continuing operations.
2021 Financial Guidance
Henry Schein today increases guidance for 2021 non-GAAP diluted EPS from continuing operations. At this time, the Company is not providing guidance for 2021 GAAP diluted EPS from continuing operations as it is unable to provide without unreasonable effort an estimate of costs related to an ongoing restructuring initiative, including the corresponding tax effect. Financial guidance is as follows:
• 2021 non-GAAP diluted EPS from continuing operations is expected to be $4.27 to $4.35, reflecting growth of 44% to 46% compared with 2020 non-GAAP diluted EPS from continuing operations of $2.97. This compares with previous guidance for 2021 non-GAAP diluted EPS from continuing operations to be at or above $3.85.
• Guidance for 2021 non-GAAP diluted EPS is for current continuing operations as well as completed or previously announced acquisitions and does not include the impact of future share repurchases, potential future acquisitions, if any, or restructuring expenses. Guidance also assumes that foreign currency exchange rates are generally consistent with current levels, that end markets remain stable and are consistent with current market conditions, and that there are no material adverse market changes associated with COVID-19.
2022 Financial Guidance
Henry Schein today introduces preliminary guidance for 2022 non-GAAP diluted EPS from continuing operations. At this time, the Company is not providing guidance for 2022 GAAP diluted EPS from continuing operations as it is unable to provide without unreasonable effort an estimate of restructuring costs for 2021, including the corresponding tax effect, which serves as the basis for 2022 GAAP diluted EPS guidance. Financial guidance is as follows:
• Growth in 2022 non-GAAP diluted EPS from continuing operations in the mid to high single digits over 2021 non-GAAP diluted EPS from continuing operations.
• Preliminary guidance for 2022 non-GAAP diluted EPS growth is for current continuing operations as well as completed or previously announced acquisitions and does not include the impact of future share repurchases, potential future acquisitions, if any, or restructuring expenses. Preliminary guidance also assumes that foreign currency exchange rates are generally consistent with current levels, that end markets remain stable and are consistent with current market conditions, and that there are no material adverse market changes associated with COVID-19.
Adjustments to Projected 2021 and 2022 Non-GAAP Diluted EPS
The Company has provided guidance for 2021 and preliminary guidance for 2022 diluted EPS from continuing operations on a non-GAAP basis, as noted above. A reconciliation to the Company’s projected 2021 diluted EPS from continuing operations prepared on a GAAP basis is not provided because the Company is unable to provide without unreasonable effort an estimate of costs related to an ongoing restructuring initiative to mitigate stranded costs and drive additional operating efficiencies, including the corresponding tax effect that will be included in the Company’s 2021 diluted EPS from continuing operations prepared on a GAAP basis. A reconciliation to the Company’s projected 2022 diluted EPS from continuing operations prepared on a GAAP basis is not provided because the Company is unable to provide without unreasonable effort an estimate of restructuring costs for 2021, including the corresponding tax effect, which serves as a basis of 2022 GAAP diluted EPS guidance. The inability to provide these reconciliations 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.
Third-Quarter 2021 Conference Call Webcast
The Company will hold a conference call to discuss third-quarter 2021 financial results today, beginning at 10:00 a.m. Eastern time. Individual investors are invited to listen to the conference call through Henry Schein’s website by visiting www.henryschein.com/IRwebcasts. In addition, a replay will be available beginning shortly after the call has ended for a period of one week.
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