Henry Schein, Inc. (Nasdaq: HSIC), the world’s largest provider of health care solutions to office-based dental and medical practitioners, reported record first quarter financial results from continuing operations. Note that 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.

Net sales from continuing operations for the quarter ended March 30, 2019, were $2.4 billion, an increase of 3.8% compared with the first quarter of 2018. The 3.8% increase consisted of 6.6% growth in local currencies and a 2.8% decline related to foreign currency exchange. In local currencies, internally generated sales increased 4.3% and acquisition growth was 2.3%. Excluding approximately $15.0 million in corporate revenues from product sales to Covetrus under the transition services agreement entered into in connection with the Animal Health spin-off, normalized internal sales growth in local currencies was 3.7% (see Exhibit A for details of sales growth and a reconciliation of this non-GAAP measure to GAAP sales).

Net income attributable to Henry Schein, Inc. from continuing operations for the first quarter of 2019 was $118.4 million, or $0.78 per diluted share, compared with prior-year net income from continuing operations of $111.5 million, or $0.72 per diluted share. Non-GAAP net income from continuing operations for the first quarter of 2019 was $120.6 million, or $0.80 per diluted share, compared with non-GAAP net income from continuing operations of $113.6 million, or $0.74 per diluted share, for the first quarter of 2018. Non-GAAP results for the first quarter of 2019 and 2018 exclude certain items noted in Exhibit B, which provides a reconciliation of GAAP net income from continuing operations and diluted EPS from continuing operations to non-GAAP net income and diluted EPS from continuing operations.

“We are pleased with our performance to date as we execute on our 2018 to 2020 strategic plan. We have completed the first quarter of what we have characterized as a transition year as we continue to separate operations of our former Animal Health business. Throughout this transition, we believe we gained market share in both of our global Dental and Medical businesses, and are confident that Henry Schein is well-positioned for operational success over the long-term,” said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.

“We will continue to focus on supporting our customers around the world with the broadest array of products and services, along with innovative technology that expands our value-added solutions offering while pursuing new investment opportunities,” Mr. Bergman continued.

Dental sales of $1.5 billion decreased 0.1%, consisting of 3.8% growth in local currencies and a 3.9% decline related to foreign currency exchange. In local currencies, internally generated sales increased 3.2% and acquisition growth was 0.6%. The 3.2% internal growth in local currencies included 2.7% growth in North America and 4.0% growth internationally.

“First quarter dental consumables internal sales growth in North America was 2.5%, reflecting modest market-share gains in a stable end market. Dental equipment internal sales growth of 3.3% in local currencies improved sequentially, driven by double-digit growth in CAD/CAM equipment sales,” commented Mr. Bergman. “Internationally, dental consumables internal sales in local currencies had robust growth of 5.5%. Dental equipment internal sales in local currencies declined by 1.2%, due largely to the timing of the International Dental Show (IDS) in Cologne, Germany, in March, which customarily results in lower international equipment sales in the first quarter that typically accelerate in the second quarter.”

Medical sales of $683.7 million increased 6.8%, consisting of 7.0% growth in local currencies and a 0.2% decline related to foreign currency exchange. In local currencies, internally generated sales increased 5.1% and acquisition growth was 1.9%.

“We were pleased with Medical internal sales growth of 5.1% in local currencies during the first quarter, despite a fairly light influenza season that adversely impacted patient office visits,” remarked Mr. Bergman. “We are well-positioned in our partnerships with large group practices, independent physician offices, and alternate sites of care, which are driving our continued market-share gains.”

Technology and Value-Added Services sales from continuing operations of $115.5 million increased 35.1%, consisting of 36.8% growth in local currencies and a 1.7% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.1% and acquisition growth was 34.7%.

“Technology and Value-Added Services growth in the first quarter was primarily driven by the formation of Henry Schein One. North America internal sales growth in local currencies was 0.9%. Internal sales increased by 7.0% in local currencies in our international business. With a single connected platform in Henry Schein One, we are helping our customers leverage technology solutions to automate tasks, share data, and better communicate with their patients. We expect these solutions will drive long-term growth in our technology, as well as our distribution businesses,” said Mr. Bergman.

Stock Repurchase Plan

The Company repurchased approximately 2.5 million shares of its common stock during the first quarter at an average price of $59.45 per share, or a total of approximately $150 million. The impact of the repurchase of shares on first quarter 2019 diluted EPS was immaterial. At the end of the first quarter of 2019, Henry Schein had approximately $250 million authorized and available for future stock repurchases.

Restructuring Program

Henry Schein previously disclosed a comprehensive restructuring initiative designed to increase profitability by improving business efficiencies, reducing redundancies and maximizing the Company's infrastructure. The Company recorded a pretax restructuring charge in the first quarter of 2019 of $4.6 million, or $0.02 per diluted share. These charges primarily include severance pay, facility closing costs, and outside professional and consulting fees directly related to the restructuring.

2019 EPS Guidance

Henry Schein today raises 2019 non-GAAP financial guidance. At this time the Company is not providing GAAP guidance as it is unable to provide an accurate estimate of costs related to its restructuring initiative on full-year 2019 financial results. Guidance is as follows:

• 2019 non-GAAP diluted EPS from continuing operations attributable to Henry Schein, Inc. is expected to be $3.38 to $3.50, reflecting growth of 7% to 10% compared with 2018 non-GAAP diluted EPS from continuing operations of $3.17. This compares to prior guidance of $3.38 to $3.46, reflecting growth of 7% to 9%. The Company’s Animal Health business was spun off to shareholders as of February 7, 2019, and that business is classified as a discontinued operation for all current and prior periods presented.

• Guidance for 2019 non-GAAP diluted EPS attributable to Henry Schein, Inc. is for current continuing operations as well as completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any. Guidance also assumes foreign exchange rates that are generally consistent with current levels.

The Company has provided guidance for 2019 diluted EPS on a non-GAAP basis as noted above. A reconciliation to the Company’s projected 2019 diluted EPS prepared on a GAAP basis is not provided because the Company is unable to provide such reconciliation for an estimate of restructuring costs without unreasonable effort. The inability to provide a reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact, and the periods in which the non-GAAP adjustments may be recognized.

The Company’s 2019 diluted EPS prepared on a GAAP basis will include the impact of such items as restructuring charges and any litigation settlement expenses and the tax effect of all such items. 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.

First Quarter 2019 Conference Call Webcast

The Company will hold a conference call to discuss first quarter 2019 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 at www.henryschein.com. In addition, a replay will be available beginning shortly after the call has ended.