Henry Schein, Inc. (HSIC) Earnings Call Transcript & Summary

Hi, everybody. I'm Elizabeth Anderson. I'm the health care technology and distribution analyst here at Evercore. I'm very pleased this morning to be joined by Stanley Bergman, CEO of Henry Schein; Steve Paladino, CFO of Henry Schein; and Carolynne Borders from IR. Just so you know, in terms of the way the format is going to go, we have some questions that we're going to go over just in terms of -- from my perspective. And then the idea is to have this to be interactive and helpful for you guys as well. [Operator Instructions] So thank you very much, guys, for joining us. Steve, I think you had a couple of things you wanted to say before we kick off.

Yes. Thank you, Elizabeth. I just wanted to note that certain comments made during this call may include forward-looking statements. And as you know, risks and uncertainties involved in the company business may affect the matters referred to in forward-looking statements. As a result, the company's performance may differ from those expressed in or indicated by such forward-looking statements. And all of these forward-looking statements are qualified in their entirety by the cautionary statements included in Henry Schein's SEC filings. So with that, I'll turn the call over to Stanley.

Thank you, Steven, and thank you, Elizabeth, for hosting us. Really appreciate it. Thank you all for calling in just ahead of the 4th of July weekend. I'll be very, very brief because I think the Q&A is most important. Both Elizabeth and then anyone who is participating in this webinar, we'd appreciate any questions that you may have. Essentially, Henry Schein is the largest provider of products and related services to office space health care practitioners. That's dentists -- largely dentists and physicians in most of the developed world but also now in the last 5, 6, 7 years in developing world. It's a full-service, value-added solutions model. In other words, our goal is to help our customers operate a more efficient practice, so that they can provide better clinical care. And we carry practically every product a practitioner may need from consumables to, of course, pharmaceuticals, equipment. And we service that equipment. We design the practice, and we'd install the equipment. We have the largest offering of software practice management, electronic medical record, other interactive software offerings in the dental environment. We provide digital connectivity in the medical environment. We are growingly an important player in the dental specialty arena, namely endodontics; orthodontics; and oral surgery, that's implants and bone regeneration products; and other specialty areas. So with that in mind, Elizabeth, why don't we jump right into your questions and then perhaps the questions from the participants. Thank you.

Perfect. That sounds good. Okay. So Stan, I think you hit upon some of the points. But I think as we think about the universe of distribution businesses, people get confused. They think, okay, just sort of pack and ship, pack and ship, pack and ship. Can you talk about the broader differentiation in terms of the platforms, the value-added solutions, the softwares, which obviously have a different growth and margin profile? So how are you building this differentiated model?

Right. So listen, thank you for asking that question. I think it's the most relevant question because we're often confused with others in the health care distribution space. It is true that a big part of our sales are in pure distribution, in other words, buying the product from the branded manufacturer and selling it but not so without profits. A significant amount of our profits come from a number of different areas. And there's a key differentiator between us and, say, the drug wholesalers, the med-surg distributors or even some of the -- and even the dental distribution businesses, in particular, one that may -- that is a public company. There is a clear differentiation. So just -- let's just take a look at -- on the dental side. Less than 1/3 of our sales and even less of our profits could be compared directly with our largest North American competitor. We compete in the consumable and merchandise area with that competitor. But we're the only pan-European dental distributor. We also serve Australia and New Zealand, Asia Pacific, Brazil and a number of emerging markets. These are fast-growing markets, and the margins are pretty good. We have economies of scale globally. We have vendor-supplier relations globally. We are, in fact, the largest full-service distributor in the United States and in Canada, and that's where we overlap. But beyond that, we offer much different services our to competition. And I think this is important. And any comparison to the drug wholesalers or to the med-surg distribution, I think it's a mistake from an investor point of view. If you take a look at our practice management systems, Henry Schein One, the offering not only our practice management systems by electronic medical records and a number of interactive services, there's no comparison, our scale, our offering, our margins. When you go to dental specialties area, none of the other distribution entities offer dental specialties the way we do. It's fast growth. I think we're one of the fastest growing in that area. Maybe across the portfolio, we are the fastest. We can discuss each area, each of the specialties. And it's vertically integrated from a manufacturing point of view. Our software includes areas such as managed treatment plans, and these are high margins, our patient engagement, patient demand generation. So this, together with the fact that we're really the only pan-European distributor products, which is important when we discuss DSOs, which we can talk about a little later. And I think it would be fair to say that our own brands are no longer private label brands. There's the Henry Schein brand of products which is the widest of its kind in the marketplace. And so I think it is really important to understand our high-growth, high-margin aspects of Henry Schein, which, at the end of the day, is very different to any other public company out there, whether it's drug, medical, surgical, manufacturing or indeed, dental distribution.

Okay. Awesome. That's helpful. And then just on the back end, Steve, how do you think about the investments needed to, not only sustain your core business, but also to do some of these value-added services that Stanley was talking about?

Yes. Thanks, Elizabeth. As Stanley just highlighted that there's a significant portion of our sales that are outside the core dental and medical distribution business. Those areas primarily include Henry Schein One and dental specialties, but there are also some additional areas. We believe that our investments will continue to be more so in areas that will enable us to deliver solutions that have efficient and intuitive practice workflows. And that's really what our customers are looking for, to help them with workflows. And some examples of those items are patient engagement and patient demand creation solutions. We have solutions that can help our customers when they have downtime or cancellations to get patients into the office to continue to have as little downtime as possible. We also have developed differentiated technologies in implant treatment, digital workflows and prosthetic solutions. We're also investing in clear aligners with our Reveal solution. And that really will be linked to other solutions that we have in our DDX hub. And really, what we want to do is make sure that we are the source to go for customers for all of these solutions. And by doing that, we feel that we'll increase our trust and confidence for customers, and they will buy more consumable supplies and equipment also. So our investments will continue to focus on those areas that have additional differentiated solutions for us.

How do we think about that, just as a follow-up there, in terms of like quantity? Is it terms of like you think about it in terms of percentage of revenue every year and you have sort of like an internal ROI hurdle? Like how do we think about that from a dollar perspective?

Yes. All of our large investments, we prepare an analysis to look at return on investments and benefits. So for example, we talked about a couple of quarters ago, our GEP or global e-commerce platform that we're investing in. We have a detailed analysis that shows what the cost will be as well as what the benefits will be. But the benefits come not immediately, they come after implementation. So it has a very high return on investment, plus arguably, it will become table stakes at some point. So we definitely look at ROI, definitely prioritize based on ROI. But sometimes there are things that you just have to do because it's a regulatory or a technical requirement, and you really don't do but detailed ROI analysis on that. This is something that just has to get done.

That makes sense. And then, Stan, I think one of the big takeaways, at least for me, from COVID was the increase in digital dentistry out of COVID. That was one of the things that personally, I was most shocked by. What are some of the areas that you've seen in terms of innovation that people in terms of dentists and providers have been interested in investing in COVID? And sort of what are the -- what do you see as the areas where you're most excited as we hopefully, knock on wood, emerge from COVID?

So Elizabeth, I think Steven touched on it already, patient engagement communication, digital engagement. Just like with every part of the economy, the ability for a provider to connect with their patients is key. And this is an area that we have seen significant demand and, in fact, significant progress from the offering that we make to our customers. We've seen this really in the last year. Digitalization has, they say, in a 6-month period, 5 to 10 years of digitalization has taken place. And that is clearly the case in engagement between our customers and their patients. Same-day dentistry, as a lot has been written about, is now very, very important. It was thought about. But practically, every practitioner didn't have same-day dentistry offering, but it's now key. And practically, every dentist either has some kind of same-day dentistry offering or thinking about it in particular. And if they're not thinking about the same-day prosthetic manufacturing, chairside, they definitely are thinking about the replacement of the impression material in the digital solution. Of course, you know about the reducing airborne pathogens, particles, et cetera. There's been a lot written about that. That took-off. It was important. And practically, every practitioner is invested in it, but there is now a growing interest in replacement of some of those devices and these new devices that have been brought to market. On the orthodontic side, we offer a minimal touch orthodontic treatment, fewer visits. Our Carriere Motion appliance and the SLX 3-bracket system all have an increased demand because they all result in fewer visits. Of course, clear aligners with remote monitoring also now growingly -- the whole area of fewer visits, digitalization of dentistry is growing. Our Reveal product is maturing. All of this is of interest. And of course, things like improving revenue collection that practitioners are entitled to receive as a result of digital tools, such as our eAssist investment, are all areas that have advanced through this COVID period. On the medical side, innovation continues to accelerate, to address cost, better care and the whole notion of moving patients from the acute care setting to the ultimate care setting, preventing people from getting sick, wellness and prevention. The lower acuity setting, as I noted, is really, really important, and it's growing fast, all contributing to our medical business growth. There are many new devices. Point-of-care rapid test took a huge jump during this period. And of course, the whole digital monitoring of patients in the home setting, these are all areas that took a jump during COVID. We made our investment in PRISM, which is the home care wound dressing and wound care business. All these areas, I think, will gain momentum as patients on the medical side move from the hospital to the acute care setting, including, of course, growth in ambulatory surgical center business, which, by the way, took us still not quite back to where it was from an elective point of view, but there are new procedures that are moving in. And so that business continues to grow nicely and will accelerate as all elective procedures start to be undertaken as COVID moves into the rear mirror.

Yes. No, that makes sense. And maybe sort of the other aspect that I think is, I would say, coming to the forefront was COVID. Can you talk about where we are with PPE in terms of from a volume demand perspective now? As -- and then also relatedly, can you talk about the availability of supply, of what you're seeing pricing? And then some others in the industry have talked about sort of inventory issues. So if you could in terms of the accounting side, so if you could touch on that as well, that would be helpful.

Sure. I'll cover a little bit of the -- I'll cover the -- try and pick a little bit of the accounting. And Steven, maybe you can just provide further focus on the accounting side. Essentially, we're back to normal with PPE in terms of availability. Having said that, we are at an elevated level to where we were in '19. I think our customers are buying for their needs now. They're not buying any longer to hold or to have excess inventory. I'm sure the inventory levels in the physician and dental offices are actually a little bit higher than they were going into COVID just for safety levels. But people are not going to the market just to buy whatever is available. So essentially, there's availability of everything. And there is right now a glut in masks. So we can buy out or we can replace our masks on the branded side at a pretty good price. On the corporate brand side, while we've always had good pricing, I think we get very good pricing. We'll continue to get good pricing. It is a little bit of inflation there because of availability of raw materials around the world. But essentially, it's back to normal on the supply chain. Having said that, I think it would be fair to say that there are challenges generally in the supply chain as with every industry. The global supply chain for every product in the world is fragile because of just in time. And there are some products that manufacturers are having the problem securing raw material or simply getting enough labor to manufacture them. There are container issues around the world. But I would say there is no particular category of product that we don't have inventory. We may not have every single brand for every single private brand and product offering. As it relates to accounting treatment, I think you know that we have been adjusting our inventory costs to market value really for the last 3 or 4 quarters. Steven can get into the details. But there have been some announcements by other distributors. I think we largely dealt with that issue at the time when we felt it was necessary. But Steven could perhaps provide a little bit further information on that.

Sure. So because pricing for PPE in 2020 had significant volatility and pricing went really very high, and I'm not just talking up 10%, 20%, 30%. I'm talking maybe pricing -- our acquisition costs going up 2 or 3x what we have historically paid. And because of that, we did buy inventory at higher levels during 2020. And pricing that, as the supply chain starts to normalize, pricing has come down, and that caused us to take some inventory adjustments, which was primarily done in 2020. If you look at our Q1 2021 numbers, our gross margin was strong. And we did say that while there was a little bit of inventory adjustments, it's nowhere near what it was in 2020. And we don't expect to have any material inventory adjustments going forward. So we think our gross margin has stabilized now based on the Q1 results. And we're looking forward to have a normal balance of the year in gross margin.

Okay. That's really helpful. Maybe coming out of the pandemic, people sort of turning to sort of the longer-term drivers. Maybe -- and could you comment, Steve, on how you would characterize the position of the DSOs in the market as we're coming out of COVID? And can you talk about some of the longer term, how that will impact the longer-term drivers of the business in terms of both growth and margins for you?

Sure. First, I'll tell you how we're positioned. We believe we're very well positioned in the DSO market, both domestically as well as internationally. When you look at the market in the U.S., and I'm really talking about the large DSOs, not the small or mid-market ones, we believe that in the U.S. market, it represents 15% to 20% of the U.S. market. And I'm really referring to the core consumables and equipment. So it's probably in that 15% to 20% range. We believe that we're somewhere in the 70% or slightly greater than 70% of the U.S. market with DSOs. But DSOs exist outside of the U.S. market also. And we do believe that we have a competitive advantage internationally because many DSOs are not really staying in a country-specific area. They are looking to expand throughout Europe. And since most of our competition really is country-specific, there's a few that maybe have some more than 1 country, but there's none that are pan-European like Schein. So that really gives us a competitive advantage that we can serve the DSOs as -- in Europe as they expand internationally. And I don't think anyone really can do that as effectively as we are. I'd also say that while, of course, we know that DSOs have lower margin in the core business, they're still profitable. We still think it's good business. We still think that it's an area that we can continue to focus on and do well in. And part of our strategy is not only to sell these DSOs the core consumable supplies and equipment but also to bring some higher-margin products to that. So things like the technology products that we've talked about as well as dental specialties. We're making good progress, especially on dental specialties with some of our large customer DSOs and getting them to try our specialty products. So while it is lower margin, we still feel it's a good business and that we can continue to be successful in that area.

And just maybe just as an aside for people on the call who are not as familiar with the European DSO market as they are with some of the U.S., would you mind just taking a couple of seconds just to sort of describe it broadly, like how consolidated is that? And I know traditionally, we've heard of countries like Spain seeing more, but you're saying you're not -- you're seeing them expand across borders. Can you just provide a little extra color there?

Yes. Stanley, do you want to do that? Or you want me to start?

You start, Steven. I'll finish it.

Yes. It's still really emerging DSOs. But we think that maybe the largest DSO of the world is not in the U.S. And the focus really for them has been to move across borders. And we're speaking to our current customers. I don't think the penetration is quite as high as in the U.S. market with 15% to 20%, but it's growing rapidly. And over time, I think both Europe and the U.S. will have a similar market share with DSOs. It is a faster-growing subsegment. It is a business that, again, we think we can do well in. But the market, I would say, is less penetrated today in the U.S. market, although there are some very large ones that are growing rapidly.

So let me just, thank you, Steven, build on that, Elizabeth. Essentially every European country today, and I might add, the same would be the case in Australia and New Zealand, in China, even our little Thai business has DSOs that deal with dental tourism, definitely in Brazil, they all have DSOs in one way or another. And these DSOs are spreading. There's now one that's jumping across Atlantic. Maybe there will be more. There are definitely DSOs that are moving across borders in Europe. There's 2 that I think have a pretty good footprint throughout Europe. But as Steven said, they're not as penetrated. Having said that, I'll be first to say that each of these DSOs in one way or another is doing business with Henry Schein, maybe it's our practice management systems, maybe it's specialty businesses, maybe it's the supply chain stuff where we're buying branded product and shipping them -- shipping those to their sites or equipment service. So it's coming together, but the integration of what we call One Schein where it's a one-stop shop is not as deep in Europe as it is in the United States. I will add quickly that Australia and New Zealand and [indiscernible]. In Canada, a few and one in particular, where it's almost 100% Schein shop. So this movement is growing. And I think what's also very important, Elizabeth, is for analysts to understand it's not just about shipping branded products. There's a lot more that goes into satisfying the DSO, and the margins in the aggregates are reasonable given the investment we make for those accounts. And let me just quickly say that there are similar characteristics on the medical side. The movement is about 10 years ahead of it -- of dental. And we do pretty well with large group practices and IDNs, integrated delivery networks, that own physician practices and ambulatory surgical centers. So there's a lot of commonality between what's happening in dentistry, what happened in medical and what's still happening in medical. And in fact, from an infrastructure point of view, we have shared services today to provide optimal service at the best price to these various forms of group multiple sites under common management group practices.

That's helpful. So I would -- maybe turning to Henry Schein One since I know we've touched upon it a bunch of different times over the last couple of months. But where are the biggest -- I mean, there are so many things within Henry Schein One. Like where are the biggest opportunities there? And so where are you focusing your next set of investments there, Stan?

Yes. Sure, Elizabeth. Very, very good question. So Henry Schein One presents significant growth opportunities both in terms of sales, stickiness to Henry Schein customers and, yes, profits. Of course, the #1 priority is to tightly integrate the solutions we have, other solutions and apps that we think are good apps, not even developed by us, but that will add value-added service. We are relatively open architecture. If there's a good app out there and we believe it's of interest to dentistry in general, we'll be there to integrate it. So that the priority is, of course, integration. And that priority will be there likely for a long, long time, which is so much new that's unfolding in this space every day. Of course, investing in analytics and patient marketing solutions to drive practice efficiency, greater patient engagement, that is the top, top priority. Revenue cycle management, the percentage of cash collected by practitioners and specifically DSOs, large DSOs, but across the board relative to what practitioners are entitled to collect is quite a gap, and we want to help with that. The big, big goal and a big priority is to migrate our customer base to the cloud. We have Ascend, Jarvis. These are terrific cloud-based tools. One is a system. One is a tool growing rapidly. I think it's really our scale, the only truly native cloud-based system. There are other smaller ones. And there are lots of cloud-based systems that have been, where traditional systems that maybe [ developed ] in Windows and just post it to the cloud. So those are all priorities. And of course, the big priority as well is what we call One Schein, the connection between Henry Schein One, our Henry Schein dental distribution organization, our specialty organization. And of course, we'll always be focused on improving the customer experience, retention of clients, practice efficiency, all of that's important. And then there's a very good business we have. It's relatively small but very important, and that is DentalPlans.com, which provides a discount dental plan to the public, and of course, it is nicely connected with our customer base. They do advertising and stuff, and it brings more patients into the office but also results in stickiness to Henry Schein's customers. So that's also our priority.

Yes. No, that's very helpful. Perfect. And maybe turning to sort of the rest of 2021 as we think about the re-ramp, et cetera. How -- what are you -- Steve, what would you say are the biggest puts and takes of our margins?

Sure. We had a lot of question on margins, so I'm glad you asked so we can clarify. So first, if we look at gross margin, then I'll talk about operating margin. So as I said a little bit earlier, we think that our gross margin has stabilized for the balance of 2021. We do expect to have lower inventory adjustments that we just spoke about as well as improved vendor rebates. And just to touch upon the vendor rebate situation. During 2020, we didn't achieve much in the way of vendor rebates because they're all performance-based. And given the pandemic, we were not able to achieve any of the goals or very little of the goals. And most suppliers did not renegotiate the target because they said, "Look, we're also seeing less sales, and we can't afford to give additional discounts or lower sales." That turned around in 2021, although it's not going to come back 100% in 2021 because we do think that some of big targets were a little bit aggressive because the assumptions on how quickly the market comes back, really, I think suppliers were a bit aggressive on. But after saying that, I would still say that we do expect our gross margins to be relatively stable to the Q1 levels. We could have a little bit of fluctuation because of mix. But primarily, we don't see really much change there. On an operating margin, we did have very strong operating margin in Q1. It was a 5-year high. And remember, some of that operating margin was helped by some lower expenses caused by the pandemic, lower travel, lower convention expense, et cetera. And some of those expenses -- not some. Many of those expenses we expect to come back later this year. So we're not expecting the Q1 operating margin to be the operating margin for the balance of the year. It really does need to reset because of the operating expenses coming back as well as we expect to have increased investment spend later this year, primarily on IT projects. And the 2 projects that I would focus on, again, is the GEP or global e-commerce platform initiative that we'll be ramping up expenses later this year as well as Alpha, Ascend, cloud-based software system. We want to make some enhancements on that also. But I think the important thing also is once the operating margin resets, we still feel that on a long-term basis, we have opportunity for margin expansion. We still think that the things that helped us get margin expansion historically, like leveraging expenses, taking cost out of the system through restructuring efforts as well as having our higher-margin products and services grow at faster rates than the remainder of the business. So we still think there's room for operating margin expansion. We haven't given guidance yet on how much at this point, but we'll probably look at whether we have enough confidence in the way the market is moving. And maybe later this year, we'll give a little bit more specific guidance. But we do feel comfortable that there is margin expansion opportunities on a long-term basis.

Got it. Okay. That's helpful. And Stan, in terms of [indiscernible] COVID, what are your current expectations in terms of playing a role in the COVID-19 vaccine distribution and any potential updates on expansion there?

Elizabeth, also another good question. We have, of course, a history of helping office space practitioners procure their vaccines. In fact, we are quite a large distributor of vaccines, injectables as well to office-based practitioners. And a significant part of the vaccination of patients in the United States, it's placed in the physician offices. And it's something like 80% or more for pediatric. So I think we will go back to that model. I expect the public will drive towards that potential increase in vaccination acceptance will really help. That potential will help in driving acceptance in general if the physician and, to some extent, the dentist is brought into the fold. There's a lot of activity going on in this area. Physicians feel they were left out to a large extent. Of course, they can access the vaccine. But it's very difficult because there are 50 states with 50 different requirements, and many counties have their own requirements. So the supply chain right now is not working very well for the physicians. Of course, the remarkable job was done in wholesale with massive distribution inoculation. But for the physicians and the dentists who want to play a role here, they've been largely left out of this. And there's quite a bit of activity going on the government area in that regard. As you may know, Henry Schein has been involved in public-private partnerships for 30 years. We've played a key role in the whole area of PP&E, providing PP&E to office space practitioners through these government public-private partnerships. So we expect that the government will provide vaccinations at some point to office space practitioners, so that they cannot only make it convenient for all the public but also in helping to advocate for the importance of inoculation. So we've been, of course, in dialogue with the CDC Advisory Committee on Immunization Practices. We've been involved with various government agencies related to COVID vaccination. And we expect to play a role as we did in the area of PP&E when there was a challenge with access in PP&E for the office space practitioner. But this is a very, very important area from a public health point of view. I'd also add similar with testing, office-based practitioners were not given the rapid point-of-care testing demand that needed to satisfy the demand and the quantities they needed. And Henry Schein played a very import role in advocating for the office space practitioner. Now that matter is resolved. And a huge part of testing has gone back to the office space practitioner, the practice where it really belongs.

That makes sense. Okay. So just in terms of -- for the people who are listening, that is the end of my sort of prepared questions. Thank you to those of you who have e-mailed me questions over the course of the last 35 minutes or so. If you want, I have a bunch, and I'll go start to go through those list of questions now. [Operator Instructions] The first question I got -- or one of the first questions I got, can you talk about your view on the current proposal? I think Bernie Sanders and Chuck Schumer have been talking about including dental potentially in Medicare. Can you talk about how you view that and sort of where you would see that contributing to your business? Obviously, we expect volume contribution.

Yes. There's a big part of the dental world that has been advocating for inclusion of oral care under Medicare. There are significant studies showing a direct correlation between good oral care and good health care. Whether it's in the noncommunicable diseases, whether it's in diabetes, in cancer, pulmonary, cardiac, all those areas, there are studies showing that if patients -- if the public is provided with prevention, oral care prevention, the cost of those treatments or the ability to prevent those diseases actually is significantly reduced. There's even a very good study on Alzheimer's, and there's also been several good studies on obstetrics. So a number of the key universities have played a key role in advocating [indiscernible] Pacific, most of them. And there's a group called the Santa Fe Group, are the leading thinkers in dentistry that have published quite a bit on this area. So if any of you participants are interested in the studies, they are there. These studies have been made available to elected officials. I would say that, yes, Bernie Sanders has been pushing this for a long time. But I think Chuck Schumer knows about this quite well today. And there is some debate in dentistry as to how it should be covered because our dentists that are concerned with the coverage impacting the way in which dentistry is practiced. So there are some challenges, but this movement is gaining momentum. How it will impact our business? I can't imagine it would impact our business in any way other than there would be more procedures, and more procedures require more products. I don't think the methodology of reimbursement will impact our practice. But the exact way which reimbursement is handled doesn't impact the vast majority of our medical business because we're not generally reimbursed based on the reimbursement amount. We sell our products into the market at a fair price and are used by practitioners in their procedures, and they're billed for the total procedures. There are a few products where the price we charge may be tied into reimbursement. But generally, the more patient usage or the more practitioner usage based on greater reimbursement, the more units will be sold by Henry Schein. And I'm quite optimistic that some form of coverage will take place in the near future.

Correct. That's very helpful. You talked about in your earlier comments that, broadly speaking, PPE is widely available and you're not seeing any major supply constraints there. And then there've been subchannel checks recently that have pointed to potentially some supply chain disruption in equipment. Could you comment about that? And anything you're seeing there and sort of what product areas and sort of degree?

Yes. Sure. So I mentioned this in my remarks earlier, but maybe I wasn't clear. There is supply chain disruption generally in the marketplace, I mean, in every consumer product, in automobiles, et cetera, whether it's chips or it's something else. There is availability on the consumable side of practically every product. And you may get every brand but every product. On the equipment side, we do not sell a private brand. We only sell manufacturer product -- branded manufacturer products. There are some manufacturers that are having a supply chain issue, some of it relating to spare parts and raw materials, but others relating to labor. I think we have experienced that. I don't think it's going to impact the year. But it may, in fact, impact from 1 quarter to the other a little bit. And there's a lot being written about it. I don't think any of this would be material to the Henry Schein organization in total. But I think if a practitioner really wants to open up a massive practice on 30 days' notice, they have to wait a few more weeks to get certain components. But I don't think it's nothing of the nature of factories are closing down. It's a little bit is because also because there's demand, extra demand now and people are investing the practice. But also in the dental chairs units and the likes arena, one player left. And there are a few players, there are many that can provide chairs, but there are at least 2, I can think of 2 major ones that are getting the benefits, 2.5 maybe, of this particular situation. And they are working very hard to catch up. And I think Henry Schein will get our fair share of what's available. And I don't think this is going to cause much of a disruption beyond maybe 90 days one way or the other for certain products. But the demand, I would say, as we said in our call in April, we've got this pretty good.

Okay. No, that makes sense. What's the typical lead time that you need for equipment and consumables? Is that sort of [indiscernible]?

Yes. On consumables, obviously, it varies. And I think Henry Schein has one of the best -- I mean, I'm sure there's somebody that can say they're better, they could do better. But fill rates for consumables in the industry, both in dental and medical, our fill rates are very good. Our distribution centers are unique for our former customers. I don't think there's anyone else that does general and medical better than us. I think we're better than others. And this is not only in the U.S. but global. It's the reason why we have gained market share for 26 years in these areas of organic market share, so growth. I don't think there's certainly not an average. The supply chain is all over the place from the replenishment point of view, and our systems are very good at managing that. So from an equipment point of view, if somebody wanted to open a practice literally tomorrow, we can do it. We can do with every piece of equipment right away. And the number of days it takes to get a unique, customized or color of equipment can vary. I can't give you a direct number. But we can have practices up and running 30 days out, certainly now within a few weeks on products if the manufacturer is an equipment, if the customer is not that picky on the exact brand and its color. But if the customer wants a particular color brand of a brand or a particular brand, particular color model, it could take, I don't know, 30, 45 days, 60 days. But we manage through this. But there's days of delay. I mean, it's, yes, within those days I've discussed.

Yes. No, that makes sense. Another question that's come in is that some DSOs, I guess, have been suggesting that volumes have slowed somewhat over the course of June. Can you sort of comment on how the pacing of recovery is going from what you're seeing?

Yes. We are in our quiet period, so I want to be careful. Number one, I don't want to comment -- have this comment then used by investors to assess our customers or our competitors or manufacturers. But they have not heard of what you've said in general terms. I have not seen any data in general terms. And if it is, I think it's within the margin of error. So I mean, we made a statement in our fourth quarter call that the recovery was going quite well. I've not really much to say that it's not going well. But I wouldn't want to talk about Henry Schein sales per se for obvious reasons. But we made -- our first quarter call, the earnings, the market growth, the information we gave on April, you have it.

Okay. That's good.

Elizabeth, I'd add that you also have to be careful in looking at short periods of time like a 30-day period. The general ebbs and flows of patient traffic, you could see a few weeks or a month period that's very strong or weak. And that doesn't mean that, that's indicative of the way the market is going. It just means that the ebbs and flows of the market. So we've seen historically both very positive and very negative periods that reversed shortly thereafter. So I wouldn't get overly concerned about that. And generally, we think the recovery is proceeding quite nicely.

No, that makes sense. And then maybe speaking of the recovery. I think you also touched on this in your margin comment. But in terms of sales compensation, can you talk about any changes to the changes to the structure you're making in terms of implications and the benefits and any risks you see as that transition occurs?

Steven, I don't know what information we provided. So Steven, please go ahead, and then I can add to it.

So we did make some changes recently on our U.S. dental commission plan. We feel that the changes were received quite well by our sales force. Maybe the key thing is really incentivizes growth more than the previous plan. And it also has certain areas that we want the sales force to focus on that have additional incentive to. So we believe that it's an improvement to the old commission plan. We also believe it will help us achieve the goals we want to achieve going forward. And if people work on those goals that are important, they can do quite well, our sales force. So this is -- it's not a reduction in commissions. It's just really try to provide incentive that aligns interest better, and the potential for salespeople is to actually make more money if they can achieve those goals.

Elizabeth, the goal for us is a lot more than simply selling product that we ship through our distribution supply chain, buy and sell. It's what products are important to help the practitioner manage their practice. We want to make sure that a huge amount of innovation that we're seeing in dentistry is provided, explained to practitioners for connectivity to software, interoperability components of dentistry, the specialty product offerings. And we want to make sure that our sales force is focused on what's important and at the same time not be involved in taking orders. We have digital ordering capabilities, internal sales capabilities. And I think these changes which have been going on for the past, I would say, 2-plus years, started before COVID. Some analysts are just trying to write about it. It have been relatively well received, I would say.

Okay. That's helpful. And then maybe also as we exit COVID, Steve, can you talk about free cash flow and sort of the ability and your appetite for share repurchases?

Yes. So we expect to continue to generate very strong cash flow. The business has always been a very strong cash flow generator. We would assume that -- not assume, we expect to continue to use our cash flow on not only growing the business and capital expenditures but the free cash flow after CapEx. Really, we still like to use a fair amount for acquisitions. And that's probably going to continue because the acquisition pipeline is very active. But we also feel like stock repurchase is something that we want to continue. We feel like even as of today, we feel like the stock is a bit underperforming what we think it should be at. So we feel like it's a good investment to buy. Most of our shareholders, really, I think, think that the share repurchase, the way we've done it, has created shareholder value, and I think they like it. So we would expect it to continue, Elizabeth. And one last point. We do look at -- we're not just buying evenly every quarter. What we're really looking to do is when the stock is under pressure, we buy more heavily, obviously. When stock is doing well, then we'll buy less, but we'll still buy at that time.

Got it. Okay. That's helpful. And then in terms of obviously one of the higher-growing dental segments and to your specialty strategy, can you tell to us or give us an update on how Reveal is ramping as we exit COVID?

Yes. Remember, we have a relatively small market share in the orthodontic space. But our overall orthodontic sales have been doing quite well. I think we gave data on our specialty sales in general. In orthodontics, I think we've provided information that it's going well. We have not given specific numbers yet. We don't want that to become a focus of an understanding of Henry Schein overall. But it is a product item in our offering. And Reveal is being well received in the marketplace. There is some information available in general in the marketplace. Some DSOs are using it very well. The basic product, we believe, is excellent. The area we wanted to focus on was the software around the [ clear ] aligner. We've had some good releases this year. We'll have some further leases as the year goes by. And I think we will have a best-in-class offering within the not-too-distant future. So it's really around -- focus right now is around improving of our software. We have a good team working on that. And I think we continue to grow very nicely in that market, but it's relatively small market share. And orthodontics in general is important to us, not only the wires and brackets and the Reveal, but the connectivity to Henry Schein One and driving the equipment sales. All of that is important. We want to help orthodontists operate a more efficient practice, so they can provide better clinical care as we want to do with all other parts of -- all other customers of Henry Schein. And the aligner offering, the integrated aligner offering is very helpful.

Okay. Yes. No, that's great. And then in terms of, I know, obviously, this year is different from many years. But IDS, do you -- are you going to be present of the IDS in September? And if so, sort of how to think about that, both from an expenses and sort of how you're viewing the potential for outlook there?

I don't think the IDS per se from an expense point of view is material to any business other than, I don't even say material, but it's an important item for our German, Austria and Swiss business, maybe in the Netherlands, but nothing other than that. Certainly not material for the company. At the moment, we've taken a position that we will not attend. If things change dramatically and Europe stabilizes even more, but there are some instability in Europe right now and we're certainly not going to send people from across the Atlantic. We, at the moment, do not have a -- we do not allow travel internationally, except for emergencies or something that's really important. There are very few travel outside of the U.S. Border of Canada is closed still. So I just don't see us participating in IDS. At the moment, we're not. And if that change, I don't know if IDS will have a place for us. I assume they would. But we're not going at the moment. Now we have plenty of virtual conference as well. Actually, Henry Schein has very good attendance. At the moment, we are scheduled to go to the [ enterprise ] around the world. Hopefully, nothing will change there.

Yes. No. Hopefully. Well, I want to be respectful of your time. We're coming up to the 10:30 mark. But thank you very much. This was really great to sort of hear -- get the updates from you, both Stan and Steve, and thank you, Carolynne. Thanks so much, and we'll talk to you in a couple of weeks.

Thank you, Elizabeth. Appreciate it.

Yes. Thank you.