Henry Schein Reports Second Quarter 2024 Financial Results and Updates 2024 Financial Guidance

Highlights:

• Second-quarter 2024 GAAP diluted EPS of $0.80, and non-GAAP diluted EPS of $1.23
• Operating cash flow of $296 million for the second quarter of 2024, year-to-date operating cash flow of $493 million up $192 million compared with year-to-date 2023
• 2024 full-year non-GAAP EPS guidance updated to $4.70 to $4.82
• New restructuring plan targeting $75 million to $100 million in annual run-rate savings
• Share repurchase authorization increased by $500 million

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 second quarter ended June 29, 2024.

"We delivered solid second quarter financial results, including strong operating cash flow, that reflected stable end markets. Gross margin continued to increase, driven by our strategies to expand our high-growth, high-margin products and services and by the successful performance of our recent acquisitions. We are experiencing improving sales trends in our distribution businesses, however, the pace of recovery in these businesses since the cyber incident late last year has been slower than anticipated," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.

"Given the challenging economic environment in certain markets, as well as this delay in recovery from the cyber incident, we are updating our 2024 full-year financial guidance.

"We remain committed to our long-term financial goals through advancement of the BOLD+1 Strategic Plan, supported by our strong balance sheet and new restructuring plan, as we continue to generate synergies by connecting our distribution businesses, specialty products, and technology and value-added services," Mr. Bergman added.

Second-Quarter 2024 Financial Results

• Total net sales for the quarter were $3.1 billion, an increase of 1.1% compared with the second quarter of 2023. This reflects 4.0% sales growth from acquisitions, a 0.5% sales decrease resulting from foreign exchange rates, a 0.5% sales decrease from lower sales of personal protective equipment (PPE), primarily the result of lower glove pricing, and the pace of recovery from the cyber incident late last year.
• Internal sales for the quarter decreased 2.4%, which includes a 0.5% decrease from lower PPE sales.

Second-quarter sales and internal sales growth are summarized below and detailed in Exhibit A¹.

• GAAP net income² for the quarter was $104 million, or $0.80 per diluted share⁴, and compares with second-quarter 2023 GAAP net income of $140 million, or $1.06 per diluted share.
• Non-GAAP net income² for the quarter was $158 million, or $1.23 per diluted share⁴, and compares with second-quarter 2023 non-GAAP net income of $173 million, or $1.31 per diluted share.
• Operating cash flow for the quarter of $296 million, up $22 million compared with second-quarter 2023.
• Adjusted EBITDA³ for the quarter was $268 million, in line with second-quarter 2023 Adjusted EBITDA of $279 million.

Year-to-Date Financial Results

• Total net sales for the first half of 2024 were $6.3 billion, an increase of 2.4% compared with the first half of 2023. This reflects 4.5% sales growth from acquisitions, a 0.7% sales decrease from lower sales of personal protective equipment, and the pace of recovery from the cyber incident late last year. The impact from foreign exchange rates was not significant.
• Internal sales for the first half of 2024 decreased 2.1%, which includes a 0.7% decrease from lower PPE sales.

First half of 2024 sales and internal sales growth are summarized below and detailed in Exhibit A¹.

• GAAP net income² for the first half of 2024 was $197 million, or $1.52 per diluted share⁴, and compares with first-half 2023 GAAP net income of $261 million, or $1.97 per diluted share.
• Non-GAAP net income² for the first half of 2024 was $301 million, or $2.33 per diluted share⁴, and compares with first-half 2023 non-GAAP net income of $334 million, or $2.52 per diluted share.
• Operating cash flow for the first half of $493 million, up $192 million compared with first-half 2023.
• Adjusted EBITDA³ for the first half of 2024 was $523 million and compares with first-half 2023 Adjusted EBITDA of $535 million.

Restructuring Plan

Henry Schein is today announcing a restructuring plan to integrate recent acquisitions, right-size operations and further increase efficiencies, targeting $75 million to $100 million in annual run-rate savings.

The Company expects to record restructuring charges in the second half of 2024 and in 2025; however, an estimate of the amount of these charges has not yet been determined as plans are still being finalized. Restructuring charges are expected primarily to include severance pay and facility-related costs.

The restructuring plan announced in the third quarter of 2022 was completed on July 31, 2024.

Share Repurchases

During the second quarter of 2024, the Company repurchased approximately 1.4 million shares of its common stock at an average price of $70.64 per share, for a total of approximately $100 million. The impact of these share repurchases on second-quarter diluted EPS was immaterial.

At quarter-end, Henry Schein had approximately $90 million authorized and available for future stock repurchases.

An additional $500 million share repurchase program was authorized by the Company's Board of Directors on July 31, 2024.

2024 Financial Guidance

Henry Schein is updating full-year 2024 financial guidance, as described below. Guidance is for current continuing operations as well as acquisitions that have closed and does not include the impact of potential future acquisitions, restructuring and integration expenses, amortization expense of acquired intangible assets, contingent consideration revaluation adjustments, certain expenses directly associated with the cyber incident or any related insurance claim recovery. 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.

• 2024 total sales growth is now expected to be approximately 4% to 6% over 2023, compared with prior guidance of 8% to 10% growth. The previous guidance anticipated a stronger economy as well as a faster recovery from the cyber incident.
• 2024 non-GAAP diluted EPS attributable to Henry Schein, Inc. is now expected to be $4.70 to $4.82, compared with prior guidance of $5.00 to $5.16, and reflects growth of 4% to 7% compared with 2023 non-GAAP diluted EPS of $4.50.
• 2024 Adjusted EBITDA is expected to grow in the low double-digit percentages versus 2023 Adjusted EBITDA and compares with prior guidance of more than 15%.

Adjustments to 2024 GAAP Net Income and Diluted EPS

The Company is providing guidance for 2024 diluted EPS on a non-GAAP basis and for 2024 Adjusted EBITDA, as noted above. The Company is not providing a reconciliation of its 2024 non-GAAP guidance to its projected 2024 diluted EPS prepared on a GAAP basis, or its projected 2024 Adjusted EBITDA to net income prepared on a GAAP basis. This is because the Company is unable to provide without unreasonable effort an estimate of restructuring costs related to an ongoing initiative to drive operating efficiencies, including the corresponding tax effect, that will be included in the Company's 2024 diluted EPS and net income 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. Internal sales growth is calculated from total net sales using constant foreign exchange rates and excludes sales from acquisitions.

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 a reconciliation of GAAP net income to Adjusted EBITDA.

⁴ References to diluted EPS refer to diluted EPS attributable to Henry Schein, Inc.

Second-Quarter 2024 Conference Call Webcast

The Company will hold a conference call to discuss second-quarter 2024 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.

The Company will be posting slides that provide a summary of its second-quarter 2024 financial results on its website at https://www.henryschein.com/us-en/Corporate/investor-presentations.aspx.

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 more than 25,000 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 main 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 $12.3 billion in 2023, and have grown at a compound annual rate of approximately 11.5 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 @HenrySchein on X.

Cautionary Note Regarding Forward-Looking Statements and Use of Non-GAAP Financial Information

In accordance with the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of future performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements include total sales growth, EPS and Adjusted EBITDA guidance and are generally identified by the use of such terms as "may," "could," "expect," "intend," "believe," "plan," "estimate," "forecast," "project," "anticipate," "to be," "to make" or other comparable terms. A fuller discussion of our operations, financial condition and status of litigation matters, including factors that may affect our business and future prospects, is contained in documents we have filed with the United States Securities and Exchange Commission, or SEC, including our Annual Report on Form 10-K, and will be contained in all subsequent periodic filings we make with the SEC. These documents identify in detail important risk factors that could cause our actual performance to differ materially from current expectations.

Risk factors and uncertainties that could cause actual results to differ materially from current and historical results include, but are not limited to: our dependence on third parties for the manufacture and supply of our products; our ability to develop or acquire and maintain and protect new products (particularly technology products) and technologies that achieve market acceptance with acceptable margins; transitional challenges associated with acquisitions, dispositions and joint ventures, including the failure to achieve anticipated synergies/benefits, as well as significant demands on our operations, information systems, legal, regulatory, compliance, , financial and human resources functions in connection with acquisitions, dispositions and joint ventures; certain provisions in our governing documents that may discourage third-party acquisitions of us; adverse changes in supplier rebates or other purchasing incentives; risks related to the sale of corporate brand products; security risks associated with our information systems and technology products and services, such as cyberattacks or other privacy or data security breaches (including the October 2023 incident); effects of a highly competitive (including, without limitation, competition from third-party online commerce sites) and consolidating market; changes in the health care industry; risks from expansion of customer purchasing power and multi-tiered costing structures; increases in shipping costs for our products or other service issues with our third-party shippers; general global and domestic macro-economic and political conditions, including inflation, deflation, recession, ongoing wars, fluctuations in energy pricing and the value of the U.S. dollar as compared to foreign currencies, and changes to other economic indicators, international trade agreements, potential trade barriers and terrorism; geopolitical wars; failure to comply with existing and future regulatory requirements; risks associated with the EU Medical Device Regulation; failure to comply with laws and regulations relating to health care fraud or other laws and regulations; failure to comply with laws and regulations relating to the collection, storage and processing of sensitive personal information or standards in electronic health records or transmissions; changes in tax legislation; risks related to product liability, intellectual property and other claims; risks associated with customs policies or legislative import restrictions; risks associated with disease outbreaks, epidemics, pandemics (such as the COVID-19 pandemic), or similar wide-spread public health concerns and other natural or man-made disasters; risks associated with our global operations; litigation risks; new or unanticipated litigation developments and the status of litigation matters; our dependence on our senior management, employee hiring and retention, and our relationships with customers, suppliers and manufacturers; and disruptions in financial markets. The order in which these factors appear should not be construed to indicate their relative importance or priority.

We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control or predict. Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements except as required by law.

Included within the press release are non-GAAP financial measures that supplement the Company's Consolidated Statements of Income prepared under generally accepted accounting principles (GAAP). These non-GAAP financial measures adjust the Company's actual results prepared under GAAP to exclude certain items. In the schedules attached to the press release, the non-GAAP measures have been reconciled to and should be considered together with the Consolidated Statements of Income. Management believes that non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance and allow for greater transparency with respect to key metrics used by management in operating our business. The impact of certain items that are excluded include integration and restructuring costs, and amortization of acquisition-related assets, because the amount and timing of such charges are significantly impacted by the timing, size, number and nature of the acquisitions we consummate and occur on an unpredictable basis. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.

(TABLES TO FOLLOW)

Management believes that non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent 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, similarly captioned, GAAP measures. Net income growth rates are based on actual values and may not recalculate due to rounding. Amounts may not sum due to rounding.

Q2 2024 restructuring costs primarily consisted of employee severance and costs related to the exit of facilities.