HSIC

Henry Schein, Inc. (HSIC)

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Henry Schein, Inc. (HSIC)

March 12, 2013 10:45 am ET

Executives

Steven Paladino - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Executive Director

Analysts

Elliot Feldman - Barclays Capital, Research Division

Presentation

Elliot Feldman - Barclays Capital, Research Division

Hello. Good morning, everyone. Welcome to Day 1 of the Barclays Health Care Conference. My name is Elliot Feldman, I work on the health care distribution and technology team here at Barclays. Our next presenting company will be Henry Schein. Pleased to, once again, have Steve Paladino with us, Executive Vice President and CFO of Henry Schein. Just to let you know, this is going to be a fireside chat format. I'll ask Steve a few questions and then we'll head down the hallway in about 20, 25 minutes or so, to the breakout session, where you guys can feel free to ask him anything you like. So Steve, welcome back, and thank you very much for being with us. I appreciate it.

Steven Paladino

Thank you for having me.

Elliot Feldman - Barclays Capital, Research Division

First off, maybe a bit of reflection. You guys embarked on a sort of new strategic plan, a restructuring, January 1st of last year. So now, a year and a few months into it, can you give us a sense of how it's gone, and also to initial expectations, what you saw, what to do? And perhaps what benefits you may see maybe 2013 and 2014?

Steven Paladino

Sure. So we're well into our strategic initiatives. They center around a few different things. First thing that we've completed is organizational structure. So today, we're structured where each of our Global, Dental, Medical and Veterinary businesses are under one leadership team. And separately, we have our Technology business, which has kind of a dotted line for its responsibly into each of Dental, Medical and Vet, but also has a separate leader in order to produce initiatives across all the technology businesses. So that went well. We think it was important for a couple of reasons. If you look at each of our health care providers, the supplier relationships are generally global. Many of our manufacturers span more than just one country. So having access to one point of contact within Henry Schein, the supplier relationships we think will be beneficial. Second thing is custom and needs are very similar. So best practices, country-by-country, can be shared. Previously, we had geographic responsibilities, so all of our European and international businesses were under one leader and that didn't allow for sharing of best practices. So we feel that all of that is complete and went very smoothly. And there's 2 or 3 main focus for us. One is to be bigger in each of our specialty areas, in each of our disciplines, so dental specialties, as well as on the medical and veterinary side, to grow that, since we tend to be a little bit underpenetrated on specialties. We still believe that expansion on a geographic basis is very important for us. Most people know us by our U.S. dental presence because it's our best biggest business and largest market share, but there's plenty of parts of the world where we do not have a presence, either on a dental side or in those areas, so we feel that, that's a very good opportunity for us. And maybe, just to conclude that, one last thing. We feel that we have a highway to our core customer, the practitioner. And being able to get high margin products that we can source from, really, anyone who needs access to the customer, is more advantageous we believe going through us, than anywhere else because we really are touching the customer so frequently that they can piggyback ourselves in marketing activities and we think that it would be the most efficient way of getting product to market is through our network.

Elliot Feldman - Barclays Capital, Research Division

Great. Maybe switching gears, as you mentioned to dental, particularly here in the U.S. and North America, clearly saw some strong growth in that category in Q4 even with some of the puts and takes you mentioned. So given that backdrop, can you discuss some of your expectations for equipment growth in dental here in 2013, in the U.S.? And maybe, perhaps what product categories have been performing well? And in particular, if you can focus around the CAD/CAM space? You mentioned some good growth out of E4D product line, maybe how that's doing, as well as your partnership with 3M product?

Steven Paladino

Sure. So the U.S. equipment market has been very strong. We grew by 22% in Q4. Now certainly, that was aided a little bit by the medical device excise tax that went into effect January 1, as well as some tax benefits that was scheduled to expire at the end of the year, the Section 179, and it turned out they did not expire. But even with that, it was very strong growth. And we saw growth in equipment categories, very broad-based. So certainly high-tech equipment was the strongest growth categories, but we also saw very good growth on traditional and basic equipment. So on the high-tech, first of all, the strongest product category was CAD/CAM, and for us, in the U.S., that's E4D. That has been our fastest-growing product category for a number of quarters, maybe the last 3 or 4 quarters, for us. But other high-tech equipment, digital imaging, has also been very strong. What we are very pleased with, is that it wasn't just high-tech equipment. Then again, we saw basic chairs, dental units, lights and cabinetry, traditional equipment also being strong. And we think that's for a few reasons. One, if you look at the last few years, we did see, I think, a slowdown of equipment purchasing in the U.S. market because of economic conditions. And I think, now, customers are comfortable that their practice is doing well. Yes, it could even be doing better if the economy would improve additionally. But I think people are comfortable with making investments, and you could only delay equipment purchases so long. So if you delayed an extra year or 2 or 3, eventually you need to replace or upgrade your equipment because, if you have too much downtime on equipment and requires repair, it actually is more costly to a practice to have that downtime than just buying a new equipment because productivity is significantly reduced. So we are looking for a strong equipment year in 2013 also. Now certainly, we won't put up 22% growth like we did in Q4 but we still think that,that will be the fastest-growing piece of the U.S. dental business for us.

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