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

Good morning. Thanks for joining our full day dental event today. Glad you could all be with us here. This is Jason Bednar. I'm pleased to have with me today from Henry Schein, Chairman and CEO, Stanley Bergman; CFO, Steven Paladino; incoming CFO and current Chief Accounting Officer, Ron South; and Graham Stanley with Investor Relations. Gentlemen, thanks for joining us today. So Graham, I think I'll throw it over to you real quick here, just for maybe some legal language you want to read before we get going.

Yes. Thank you, Jason, and thanks for hosting us today. So before we begin, I'd just like to say some safe harbor sort of wording that certain comments made during this call could include information that is forward-looking. As you know, risks and uncertainties involved in the company's business may affect the matters that are referred to in the forward-looking statements. And as a result, the company's performance may materially differ from those expressed in or indicated by such forward-looking statements. These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission, including in the Risk Factors section of those filings. And with that, I'll hand over to sort of the presentation to Stanley.

Thank you, Graham. Thank you, Jason, for hosting us. I think investors can see on the call, Steve Paladino, our CFO; and Ron South, who is CFO elect, who becomes the CFO on May 1; and Graham who heads up Investor Relations. Graham is a 19 year veteran with Henry Schein and moved into the Investor Relations slot last year and Erin was replaced in Investor Relations department. So I'd rather -- I'd give you very high few thoughts, Jason, but I think it's much more valuable to receive questions. So generally, as investors know, Henry Schein is the largest provider of products and related services to office-based practitioners. That's dentist physicians in their private practices, or actually now it's grown into large IDNs that own office-based practitioners as well. And the business has moved really out of exactly that slim lane into urgent centers and ambulatory surgical centers, renal dialysis centers, cancer centers, providing these kinds of products and services to the military, to other government associations, to workplace health, but it's generally around that theme. Of course, we are not directly in the acute care setting, but hospitals do buy our products for specific areas, whether it's related to podiatry or orthopedics or dentistry, but extremely custom around that. And essentially, there is a growing understanding that good oral care leads to good health care. I think buyers are understanding it, insurance carriers are understanding it, government is growingly understanding it. And there's a growing understanding that prevention and wellness generally is important. Sick care is not the best way to necessarily handle the health care issues of any country. It's to prevent need for sick care. And so this is generally the theme that we're involved with. We carry practically every product that an office-based practitioner may need from consumables, to pharmaceuticals, to equipment, and then a whole bunch of services around that, namely practice management software, educational services, various services and claims processing, all of that kind of stuff. And we have now, in the last decade or so, focused on specialty products. For example, in dental field, we have a very nice and rapidly growing oral surgery business of implants, bone regeneration products, different kinds of technology around that, endodontics, orthodontics, particular aligners these days. And at the same time, we have a wide variety of services, as I mentioned, that relate in general to the upgrading of practices. So we have our distribution business, and we have our specialty and specialty products and services businesses. We are now implementing our 2022 to '24 strategic plan, which calls for, on the distribution side, driving customer satisfaction and moving on experience. I mean this is kind of standard stuff in the post-COVID period. There's a greater expectation on customer service. And we had traditionally been focused on this, but now we're even adding to that. And now we expect to drive our business from distribution side and also focused on increasing profits on that side of the house. At the same time, on the other side of the house, we're focused on when we can turn to call our high-growth, high-margin businesses, the specialty businesses, the specialty software and the specialty services businesses. All this, we believe, and we've provided guidance, and Ron and Steven can reiterate that -- not to reiterate the guidance, but explain what was in our last call, providing for top line growth -- market growth plus growing market share and at the same time, increasing our profits and therefore, resulting in EPS growth where we have been traditionally a very good generator of cash. We have no plans to change that. And we're going to continue to add to our internal growth through acquisitions -- strategic acquisitions. We've been doing this for 30 years now, and bolt-ons, add-ons. No need to really lead the business areas, we aren't going to new areas, but everything to do with expanding our focus on the customers we serve is within our lens of interest. As relates to the markets that we're in, the dental market has been quite stable. It's been doing quite well in the last year of change. I think it's fair to say that there's an increased interest in the more extensive procedures these days, the liners, the implants and endodontic work. But as in our call, the last call, I think we confirmed that more or less on the dental side, in most parts of the world, we are returning to where we were pre-COVID, maybe a little extra. And on the medical side, we also confirmed or we reflected on our last call that doctor visits are not necessarily absolutely where they were pre-COVID, but are getting back to that level. People are coming back to the doctors. ASC procedures were somewhat up already, about 100% where they were. But that's, I think, a function of time. I think investors can read the newspapers relative to COVID in certain parts of the world. This new variant, which seems to be not as lethal or severe, but has grown around the world, in parts of the current world such as China, where cities have closed; in Europe, there are parts where people have been asked to stay at home, which was not the case 3 months ago. And thus far in the U.S., it's relatively stable, as you can read from the paper, but there are some that say that the wave will come here. I don't know, we're not public health people. But right now, it's relatively stable at this very moment. Jason, I can talk about Henry Schein for hours, but I'll still move. This team is ready to answer questions.

That's a great introduction, Stanley. And yes, for all those listening in, we have about 35 minutes here for our discussion. There is no audio Q&A, but if you do have questions, you can type them in the box at the bottom of your screen, or you can e-mail them to me at jason.bednar@psc, and I'll ask the team here on your behalf. But maybe just to kick it off and picking up on some of those topics you were mentioning there, Stanley, and Steve and Ron feel free to weigh in. It's quite an environment out there. It's keeping all of us at the edge of our seats with respect to geopolitical events; supply chain uncertainty; new COVID waves, you mentioned there Stanley that is impacting parts of Europe and China; inflation that's taking off; and the monetary policy response that's really trying to account for all these variables. So you've managed through a variety of exogenous dynamics in the past, but how do you see the current dental environment? Is it akin to anything that you've experienced before and managed through before? And I guess have you seen any of these variables affect how you're operating and serving customers on a daily basis?

Well, that's a broad question, Jason, and a very appropriate question. Look, we presented our strategic plan in the middle of February to our Board. And we said international dynamics could change, geopolitical. No sooner had we presented when the challenges in Ukraine emerged. So we're in a very dynamic environment. There are several of us that lived through this kind of inflationary period challenges before, whether it's 2008, whether it's 9/11, whether it's really the inflation of the 1980s. So I think, as we mentioned in our management meeting 10 days ago to our team, we've just got to be ready to move on a dime. And I think Henry Schein is ready to do that. We showed that to COVID. Happy to go through what we did and how we got through COVID. The world has changed. And instability is now the new normal. So I think we have to continue to be on vigilance. We have to continue to move. But as I noted in my earlier remarks, I think the industry is understood to be very valuable. And treatment to patients in the hospital is not necessary the right way to go these days. I believe there's a movement towards the ultimate care sites. And this is where we are. So each 1 of those things; inflation, yes, it's happening, there's no doubt, you can read in the papers. We just have to make sure that we work with our suppliers to really help them reduce their costs to the extent possible. And unfortunately, where there's a price increase, that we are pretty vigilant on passing that along to our customers. However much we would like to not do that, but we have to do it. And we're just going to manage to ensure that our margins grow in the way that we've committed to do that. So we're not going to take advantage of our customers, but at the same time, we have to deal with this inflation, with this foreign exchange inflation. The Ukraine situation, it hasn't impacted us significantly. We don't do a lot of business in Ukraine. But like with many companies around the world, we have a lot of team members, a lot of customers that come from that part of the world. Our Polish business is not material, but it's a nice business. They're processing business right now, but the team are on the front line, servicing refugees. And we've had situations, we've had to deal with family members of refugees. We've helped them get out. All these things are there. I think we have the infrastructure to deal with it. But the world is not what it was in January of 2019, '20. So any 1 of these specific things we can talk about. We've got teams assigned to this, to each of these issues, and we're working on it. So we just have to go with the times. There's nothing we can do about it. At the same time, we have to continue to invest. We are investing in our technology, whether it's internal or Henry Schein One, some of our specialty services, we just have to go forward.

Got it. And I definitely want to come back to, I guess, some of the pricing and the ways that you might be managing through some of the inflationary impacts. But probably the 1 topic that I get asked most about and I know it came up on just about every call here during the 4Q earnings season is really the supply chain. It's probably captured the most attention of the dental world, at least of dental investors. So how are you managing through those dynamics here real time? Did you think the environment gets worse before it gets better, particularly on the equipment side? How are you seeing things here right now?

Yes. So if we deal with the consumables, I don't think there's any material product or critical product that we don't have an alternative to. I'm sure there are. But yes, we have the products. We just don't have necessarily immediately every brand. So if somebody wants a particular brand of an impression material, we'll tell them more or less when we're going to get it. And when I'm talking about months of delays on a lot of the stuff, we talk about it's not available this week in every distribution center around the world, but we have the alternative. So injectables. Of course, there are some pharmaceutical issues that are really unrelated, I would say, to the current supply chain challenges that we talk about, there are always issues with injectables. And I don't think there are more issues or less issues today than there were, but there's always something going on. But it's unrelated to the COVID supply chain issues we read about. On the equipment side, I mean the very good news that we told you about in February is that demand is good. So we can't satisfy every order right away. Having said that, if somebody has a problem with facility got flooded or they needed to bring in a new associate next week, we'll make sure they get whatever products they need, or if the compressor breaks down. But I would say that, yes, there are some things related to the books, couple of manufacturers can keep up, but you can get, if it's not 1 brand of a scanner or a DI unit or a sensor, we have another one. And yes, the lead times have grown. But generally, our products are more or less available. Yes, it's also the case now in offices not necessarily being ready to complete new installation. So we have to wait on that. I don't think we're seeing cancellations of orders, I don't think dentists are having a problem financing their practices. In fact, they're investing in their practices with their own cash, and there's no problem in getting funding on the pricing still, although it's a nirvana 20%, but 20% from 3% to 4%, it's not a lot. So I would say there are issues. It's causing our supply chain people a lot of work. There are issues in the equipment area, the traditional equipment. There was a capacity issue in the U.S. It's not filled yet, but if somebody needs a chair unit lot there urgently, they will get it. And on some of the imaging equipment, there are problems in getting the product. And you know who those manufacturers are. Some of them are public companies that talk about it. So it's not our role to tell you when the product is going to come. We're not going to deal with those manufacturers directly. But I would say to you, it's disruptive, but dentists more or less, we're satisfying their needs. And as we said in February, our equipment business was pretty strong.

I do want to dig in on a couple of things you mentioned there, and I've had a couple of questions coming on the topic too, and they're not really all that surprising to me. Stanley, you made a comment about possibly some chip access challenges with respect to DI scanners. And forgive me, I mean, I've been so in tune with the basic equipment supply challenges and the digital imaging supply challenges that have popped up. But this is the first time that I've really heard someone talk about the challenges with respect to chip access on DI. So is that something you're seeing that's been going on? Or has this been kind of like percolating underneath all the other issues that have been out there with respect to...

Yes, I don't want to -- maybe I spoke too fast. I don't want to say that there's a chip issue and there's a DI issue. I'm not actually sure if the DI issue is related to chips or not. These are delays in delivery. But I don't know -- Graham comes out of The Dental business. So we have been specific, we've had to be careful not to deal with any manufacturer. I don't know if what the delay is and how much the delay is and how much we can actually give here, but there's not an unlimited amount necessarily of availability of those units from every manufacturer. Having said that, I know that we have a very big installation going on right now, and we had to move from 1 manufacturer to the other, but we got it done. So Graham, do you have anything more specific?

I think probably on DI, I mean there were some delays that were caused by construction delays, for example, right, where I mean, it impacts sort of the traditional area, if there's construction going on at a laboratory of our customers, they'll delay the delivery of equipment, like mainly chairs, cabinetry, lights, and if they're investing in other technology products, they'll delay those as well. So I think there's some of that going on. I'm not aware of specifically anything around sort of other oral scanners and the delays around that, because I think that's the last quarter we talked about chip manufacturer sort of issues around the 2D and 3D imaging area, which is probably the bigger issue, along with the traditional equipment which was an issue I think we first identified in the third quarter of last year.

Thank you, Graham. Just to reiterate, I know that we've had some delivery issues on the DI side and we've had to switch. I wouldn't refer to this as a material issue from a dollars and cents point of view, and I'm not saying it's months of delays. The demand is high, we have product, and we receive these from multiple manufacturers on the DI side. So we can satisfy the needs, but I'm not sure if we're going to do it immediately in the quantities that the demand sort of the management is receiving. But I would not point -- I would not say that DI is a material matter from the dollars and cents point of view. Although there is this general office delay matter that's not DI-related only, it's spread across the board. But there have been some delay issues on DI in terms of delivery. I'm not sure if that is related to the chip side. I know the chips are impacted specifically, as Graham said, in imaging.

Okay. So just to be clear, I guess the way for all of us to think about that are tuning in here today is these are probably right now on the DI side activity that what we've seen in the basic equipment and the digital imaging side, where you can still get access to product, you just might have to wait a little bit longer. Is that the right way to think about it at least to be here today?

I do not believe it's as severe as in the U.S., chairs units and lights, and we have a major dislocation. It's gotten better, but we have a major dislocation when we received notice in October last year that our #2 supplier was closing down. It was particularly an issue for Schein because that manufacturer -- actually that business was originally owned by us and we decided to get out of manufacturing equipment and they'd had to, so ultimately closed, but there are 2 major manufacturers that are doing very well and there's 4, maybe 5 actually other manufacturers that have come back, but we did have a pretty bad situation in the last year, I would say, and it's not cleared up yet. The other good news, though, is that the demand is there. Dentists are -- they want -- they're investing in their practices. So that includes a nice shiny chip.

Yes. That's a good sight for sure. From the investor group here just there's a question just on equipment, and when a dentist or an office can't get access to a specific product immediately, I guess, what percent of the time are they going with an alternative brand? Or what percent of the time are they choosing to go a different route and what would have been their kind of preferred or A option? How often are they going to the B or C option?

I don't think we have that information. That is now pretty specific and I think very specific as it leads to a particular manufacturer. So I don't think we can answer that question. But I think I said it earlier -- and we said in our call, we're not receiving cancellations. So I think the order delivery is extended. And how much of the order book is there because of delay in construction and how much is due to the manufacturer, I don't think it's even worth trying to get that information to customers. It takes a lot of time and effort to get that. Suffice this to say, on a micro basis, the equipment sales people are managing the relationships. And on a macro basis, the book is strong, and we're dealing with the manufacturers to get the products. I have to say though, I have no quarrels with any manufacturer today. I think they're treating us very well. Can't speak on behalf of others, but I think they're treating us very well, some of our major suppliers. Smaller ones, I can't comment on. I have been in talks personally to the larger ones and talking to CEOs, giving the minutes from meetings of the teams and again, Ron and Graham and I think Steven have been involved. I don't think we can go break it down that specifically. I'd love to do that. I mean, I'd love to know that myself, but...

I'd agree with you, Stan. I'll just probably add that I mean, these orders are very bespoke orders, right? I mean, a dental practice orders a piece of equipment, and it's not -- typically, these are not off-the-shelf purchases. These have got a lot of functionality specific to the order. And therefore, sort of the customer will want that particular product, which meets that functionality. Also, if they've got multiple offices, they'll want typically the same brand that they've already got in their office, so that they're maintaining 1 product rather than multiple products. I don't think this is practically still like a switch around sort of market where if you can't get access to 1 product, you'll try and get another different product. I think this is something which is a significant investment for a practice and when they make the investment, they want the product that they want to invest in.

Makes sense. Okay.

This is Steve. One final point on it for both traditional equipment and the high-tech equipment, the manufacturer delays are expected to be very short term. The manufacturers have advised us that they expect normal lead times sometime during the second half of this year. So we may have some quarterly timing differences. We're not overly concerned about that because we think most of it is timing, but again, we expect it to get rectified in the second half of 2022. And that's all based on what the manufacturers are telling us.

Okay. Maybe why don't we pivot over to pricing. It's another hot topic for dental investors here this year. It seems like just across the board, most manufacturers are taking prices about 2% to 3% higher. But there's also chatter out there right now about possibly multiple price increases this year. Even 1 of your bigger manufacturing partner is discussing such a possibility. So where do you sit in the discussion? I guess do you see Schein as being agnostic when it comes to pricing just because the company acts mostly as a price pass-through? Or I guess do you anticipate any level of pushback if manufacturers do get more aggressive in kind of going outside kind of their normal cadence of 1 price increase per year and taking multiple given the environment?

So Jason, I would like to be careful how we handle that. I don't want to give the impression that we don't care, because every time we have to pass on increased prices, it hurts the customer somewhere. So we work with the manufacturers to try to mitigate that. And of course, there's a marketplace out there. And if you're dealing with a product like an impression material or composite, there are customers that say, are there alternatives? And if you're going to increase the price 6%, I've heard that the manufacturer XYZ maybe 4%. So we do work on that. Having said that, generally, broadly speaking, we do not have much of our business tied into long-term price commitments, medium term, even short term. So we are a bit of a conduit. But before we write it that way, and I would hate a customer to say, Henry Schein doesn't care, because we do care. And believe me, our supply chain people spend a lot of time with international brand manufacturers on that issue and on our own brand products. We try to make sure that we negotiate the best pricing we can. Having said that, price increase doesn't necessarily impact our bottom line negatively. But we're very careful how we say that and how we act.

I'd also add, Stan, that the price increases do shine a spotlight on to making sure that the distributor can provide alternatives to the customer, whether it be an alternative brand that is a cheaper alternative brand or, in fact, whether it's an own-brand private label product, which is cheaper. And Henry Schein has 1 of the broadest array of your own brand private label products that's available to the customer if price becomes an issue for them.

And I would say that, that is a critical point, Jason. There will be price resistance. There is already. It doesn't impact us per se, and we're not going to manufacture to our customers and say, please suggest you switch on a great brand you're using through Henry Schein on another brand. We're very delicate about this. Having said that, there's going to be -- it's not simply -- I think some manufacturers, especially those that don't know our industry that well, just passing price increases on, I think will backfire, but we're in the middle. So not terrible for us. Having said that, our job is to champion our customers.

Stan, just I guess on the topic, we're kind of -- I don't want to say dancing around the issue, but it almost seems like you're suggesting there may be some behavioral changes that are going on out there in the market in response to some of these price increases. Have you seen that? And if so, is it concentrated in U.S. versus Europe or private practice versus DSO? I mean any kind of coordinated response that you've seen to these price increases from the manufacturers?

We've already put this into 2 categories; sophisticated, and I'm not saying in a derogatory way, please, just trying to find the right words; sophisticated large groups, who have professional buyers, of course, we hear it from them. Smaller players, it's a marketplace. We don't be in the mark-to-market like the New York Stock exchange or the NASDAQ every day. But there are customers. Of course, there must be. You're a consumer yourself. And when you see something has gone too high, you say to yourself, well, time to look at something else. And so the big guys are watching it. And they're asking us, you're our supply chain adviser, give us alternatives. And then we'll go back to some of the manufacturers and say, you may have gone a little too high for this brand for this customer. Do you want to think about and some manufacturers aren't. So some may say, you know what, that's it, corporates are going to increase and I'm going to increase. So there will be a consequence for that. This is the time that I think most in our industry have not been through. I lived through this in the 80s. So it's not a shooing. It's not manufacturer saying that we can increase that prices and then it will be fine. And yes, the big guys, they are sophisticated, and they're asking us, we'll put out this product a bit, they're coming to us, and we have to give them alternatives. And the little guys, it's a marketplace. It's hard for us to put up in the zone. But of course, they're out there. They're configured.

So I guess maybe related to this topic, too, just on maybe on fuel surcharges or other ways you might be trying to offset this natural inflation you're seeing in your own business across the operations. I think when we spoke maybe a couple of months ago, you had talked about implementing fuel surcharges. That was before we saw the volatility here recently in oil. I guess, how -- I won't say how easy, but how quickly could you implement an additional fuel surcharge? Or is that something you're contemplating in order to, again, offset some of these higher prices that you're probably having to absorb on the shipping side?

Yes. Henry Schein has traditionally done all we can to prevent supply chain price increases because of fuel utilities, and we work very closely. Our biggest carrier is UPS. We work very closely with UPS. But there comes a time when UPS just there's nothing to do about. And yes, we have, I think for 20 years, had some kind of a methodology of dealing with that. There's nothing we can do about it. Again, we don't mark it up. And we are there to help our customers. But at the end of the day, if any carrier comes to us with absolute need to increase, we have long-term contracts, but they've all had some provision for fuel increases, and we have to pass it on, and we have had that in place. I would say, all of our large markets. There are some smaller markets, but perhaps we don't have that perfectly, but it's not stable for the Henry Schein. For the Henry Schein in the U.S. and European markets, we've sadly had to push up the prices if we can't hold the line with our manufacturers -- with our carriers.

Are there any other levers at your disposal in order to offset it? I mean we talked about fuel surcharges before. Maybe more coming. I think you have raised the fees on some of your service call outs. Are there other things that you could do? Or are those kind of like called the 2 main buckets that we should be thinking about?

No, there's nothing that Henry Schein could do that's different to what others can do. Of course, we have our plans, but these are, I would say, unrelated to the current circumstances, to reduce our total costs in general as part of our ESG program. Are we trying to accelerate some of that, of course, but these are longer-term initiatives. We're not going to put solar panels on all of our businesses overnight. Having said that, I think everybody is aware, less people are going to be working in the office, which means likely in the summer, there's going to be less air conditioning in certain offices. But these are at the margin. I mean the only thing we can do is if we get a price increase, we negotiate it the best we can, whether it's on products or fuel, then we have to pass it on in a most sympathetic way. But as it relates to the manufacturers, there is a marketplace. And if our customers feel it's too high, they would switch manufacturers. And our private brand is there, but we're not taking from our customers because there's inflation switch from manufacturer A to B to ours. Customers know we have our brands and the manufacturers have the ability to address any market resistance. So this is not a time when there's a onetime solution to all of this. There's so many thousands of little things going on at once. We just have to make sure that our systems don't result in us being caught. I would say to you, COVID was a pretty big dress rehearsal in that, from the masks, from the gloves, and all of that stuff.

Right. Maybe shifting over to a new topic. I did want to actually move on to your '22 to '24 strategic plan. And I had a question come in that was at this time that was right on this topic. Just with respect to margins, I know you didn't outline specific margin targets within that '22 to '24 plan, but margin expansion seems pretty critical within that outlook. I guess in this environment -- again, I understand we just put this out just a couple of months ago, but in this environment, is it easier or harder to manage that operating margin expansion that was kind of embedded in that plan?

Let me give you my broad thoughts, and then Steven has something specifically, and then Ron in particular, because he owns this plan. Generally, I would say, COVID has added the new dynamic of when you get a price increase and you fight it, and then if you lose the price increase thing, you just want to make sure you pass it on. So in that context, yes, there are additional things that we have to do internally, system things. Our business units have to meet on that and deal with it. But I would say, inflation is relatively neutral to that expansion plan. But this is a lot of managing the details. Ron, Steven, I think if you have anything to add...

Yes, I'll comment a little bit on that. I mean I think it is a 3-year plan. We are 3 months into it, right? So I'm not quite ready to extrapolate current conditions across the whole 3 years. But I understand the basis of your question is really kind of the -- we're in the roots of this thing right now. But you're right, margin expansion is important to us over that 3-year period. We see some really good opportunities in the high growth, high market products and that -- whether they be physical products or technology products that Stan referenced earlier kind of in his opening remarks. So a lot of the emphasis of that strategic plan is greater expansion in whether it be with the specialty products or with the technology. And we do believe that gives us the best opportunity for that margin expansion that you are referencing.

All right. Great. No, I understand it's a little bit of a tough question. And maybe I've got a few just on that topic myself too as well here. If we're maybe trying to bucket and I always like to try to segregate this stuff out -- if we look at general distribution, we look at specialty and we look at tech and value-added services. I mean those latter 2 specialty, tech, value-add, it seems like a mixed shift more towards those categories is what's going to be the chief driver of margin expansion over the next 3 years. So I'm not saying that we're signing up here today to 20 to 25 basis points every year in the next 3 years. I mean we're just talking about this year for that guidance. But if we look about 3 years, I mean what's the right way to think about general distribution versus those other 2 categories? Is it a modest margin expansion or holding the line on margins with general distribution? And then like all the expansion coming from those higher-margin categories? Or should we be thinking about it maybe in a different way?

Well, Ron can answer specifically, or Steven. Our goal is twofold, to increase the profits from our distribution businesses, and in many ways to do that. And we're not investing in our customer experience to drive our market share and our profits. On our general distribution, there is substantial investment in technology. We've discussed that before. And we will continue to do that with the expectation to increase the profits, and then at the same time, drive our financial profits coming from high-growth, high margin to a greater extent. So there's these 2 that play. We have 2 separate sets of management groups focused on these. And that's the goal, make more money from the distribution. While you are doing it, in order to get there, you are going to make sure that the customer experience is better. It's expected now, but also it's a way to get more market share. At the same time, we got our specialty products, our specialty services, our software drive those businesses. That's the plan. Ron, anything more specific that you want to provide?

Yes. And Jason, you did mention kind of what we call our core distribution. We have talked a lot about what we are categorizing as high growth, high margin. But our core distribution remains very, very important to us. We have to stay really, really good at that. We have to be good at it. We have to be efficient with it. And as you know, in the U.S., we have brought our medical business and our dental business under common leadership in an effort to find even more kind of internal synergies that will help us deliver more efficiently. So I think there's opportunity to continue to grow that business. which will grow operating income dollars. And then if we could also be successful in executing on some of those synergies, internal synergies, we can also see some of that operating margin expansion that you referenced.

I guess, Ron, just as a follow-up, out of those 3 categories that I mentioned, I mean, is there any that you see as like greater risk that would pose to that long-term plan? Or 1 where you feel really confident on delivering against that plan. And if you're saying today it's like specialty the 1 where it's like -- it's going to take care of itself? Is it tech? I guess, I'm just too curious to hear your level of comfort or confidence on that margin expansion that underlies that plan?

No, I don't think there's any 1 particular outlier there, whether it be risk or opportunity. I mean it's a competitive marketplace. We have to execute in all 3 of those areas in order to be successful in any 1 of them. So I don't think there's any low-hanging fruit, so to speak, that's there. Having said that, we do think we're very well positioned to optimize on all 3 of those and be very competitive in all 3 of those areas. But I wouldn't say there's any 1 over the other that really provides an easier opportunity, so to speak, than the others.

Got it. Stan, I'll throw the last question to you here just in the last maybe 30 seconds. And you've been very strategic in acquiring specialty assets over the years, vertically integrated, but you couldn't get distribution access. And this is mirroring a similar strategy. You mentioned it before, you previously owned a base equipment business. At 1 point you owned the CAD/CAM business that you sold to Planmeca. I guess what's the end game for specialty, or does it end up playing out similar to what we saw with those other interests that you had investments or owned? Or is specialty somehow different and that it's going to be a perpetual fit for Schein to operate going forward?

Well, 2 things. One is I would not discount the notion that there's distribution businesses that could be bought and integrated. I mean they're going to be in our field. And so I wouldn't say that -- I'd be careful to rock that. Because I've seen analyst reports that indicate that Schein's days in acquiring distribution businesses are over. It's not the case. Surprisingly, it's not the case. And on the manufacturing, our goal is to advance in the 3 areas of dentistry, oral surgery, endodontic, orthodontic, and so we will invest in those areas, plus these services and then many kind of services as within revenue cycle management type businesses and businesses that deal with analytics for practitioners with lots and lots of opportunity and on the software. And there are some medical specialty businesses we would like to further expand. We do have a very modest orthopedic business and there are opportunities to add to that. So there's lots of opportunities for us in both the distribution arena, but also the specialty areas. Having said that, we do want the specialty businesses, the product services to be a greater percent of our operating income as time goes by.

Very well said. With that, I think we're out of time. Stan, Steve, Ron and Graham, thanks for joining us today. I always enjoy our discussions. For those tuning in, the next fireside chat for Dental Days in a little under 15 minutes with Envista. Thanks, everyone.