Henry Schein, Inc. (NASDAQ:HSIC) is a leading global distributor of healthcare products and services, serving dental practitioners, medical professionals, and alternate care sites across 33 countries. With a rich history spanning over 91 years, the company has established itself as a trusted partner, providing a comprehensive portfolio of consumable products, specialty items, equipment, and value-added services to its vast customer base.
Financials
In the fiscal year 2023, Henry Schein reported annual net income of $416 million and annual revenue of $12.3 billion, reflecting the company's scale and market dominance. The company's annual operating cash flow stood at $500 million, while its annual free cash flow reached $313 million, underscoring its strong liquidity position and ability to invest in strategic initiatives.
During the first quarter of 2024, Henry Schein reported global net sales of $3.2 billion, representing a 3.7% increase compared to the prior-year period. This growth was driven by the company's diversified business model, with the health care distribution segment contributing $2.9 billion in revenue and the technology and value-added services segment adding $217 million.
Business Overview
The health care distribution segment, which includes the company's dental and medical businesses, saw a 3.0% increase in sales, with the dental division reporting a 0.8% rise and the medical division experiencing a 7.3% jump. The dental business benefited from steady improvements in merchandise sales, particularly in international markets, as well as growth in the company's THRIVE Signature program, which provides a suite of services to customers. The medical division's performance was bolstered by strong sales of point-of-care diagnostics and a shift towards lower-priced generic pharmaceuticals.
The technology and value-added services segment, which encompasses the company's practice management software and other value-added offerings, reported a 13.8% increase in sales. This growth was driven by continued expansion of the customer base for the Dentrix Ascend and Dentally cloud-based solutions, as well as solid performance in the revenue cycle management e-claims business.
Recent Developments
Despite the residual impact of a cyber incident that affected the company's North American and European dental and medical distribution businesses in the fourth quarter of 2023, Henry Schein has made steady progress in restoring sales to pre-incident levels. The company estimates that the cyber incident lowered merchandise sales growth by low to mid-single-digit percentages during the first quarter of 2024.
Outlook
Looking ahead, Henry Schein has affirmed its guidance for non-GAAP diluted earnings per share (EPS) to be in the range of $5.00 to $5.16 for the full year 2024, reflecting growth of 11% to 15% compared to the 2023 non-GAAP diluted EPS of $4.50. The company has also updated its guidance for total sales growth, now expecting an increase of 8% to 10% over 2023, compared to its previous guidance of 8% to 12% growth.
This revised sales guidance reflects the continued recovery of the company's distribution business from the cyber incident, as well as a strong pipeline of new specialty products and software innovations that are expected to contribute to higher sales growth in the second half of the year. Henry Schein also anticipates its 2024 adjusted EBITDA to grow by more than 15% compared to the 2023 adjusted EBITDA of $984 million.
Geographically, Henry Schein's operations are diversified, with the company serving customers in North America and internationally. During the first quarter of 2024, the North American region accounted for approximately 73% of the company's global net sales, while the international segment contributed the remaining 27%. The company's international presence provides exposure to growth opportunities in emerging markets, while also diversifying its revenue streams.
In terms of product and service offerings, Henry Schein's health care distribution segment distributes a wide range of consumable products, dental specialty items, equipment, and branded and generic pharmaceuticals. The technology and value-added services segment, on the other hand, provides practice management software, revenue cycle management, and other value-added solutions to healthcare practitioners.
The company's strategic focus on high-growth, high-margin businesses has been a key driver of its performance. In the first quarter of 2024, Henry Schein exceeded its goal of generating 40% of total non-GAAP operating income from its high-growth, high-margin businesses, with this metric coming in at 40.9% for the quarter.
Liquidity
Henry Schein's strong liquidity position, with $159 million in cash and cash equivalents as of March 30, 2024, and access to various credit facilities, provides the company with the financial flexibility to pursue organic growth initiatives and strategic acquisitions. The company's balance sheet remains healthy, with a debt-to-equity ratio of 0.68 as of the end of the first quarter.
The company's acquisition strategy has been a key component of its growth, with several notable transactions completed in recent years. In 2023, Henry Schein acquired S.I.N. Implant System, a manufacturer of dental implants, and Shield Healthcare, a supplier of homecare medical products. These acquisitions have strengthened the company's position in the dental specialty and medical distribution markets, respectively.
Conclusion
Henry Schein's diversified business model, strong market position, and strategic focus on high-growth, high-margin segments position the company well for continued success. The company's ability to navigate challenges, such as the recent cyber incident, and its commitment to innovation and customer service have been instrumental in maintaining its industry leadership. As Henry Schein continues to execute on its strategic priorities, investors can look forward to the company's continued growth and value creation.