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

All right. Good afternoon, everyone. We are going to resume our Emerging Technologies in Dental Industry event for William Blair. I'm John Kreger, one of the health care and dental analysts at Blair. Thank you all for joining us. Our next session is Henry Schein. We're going to go for the next 45 minutes talking to management team. And we've really got a special treat. In addition to Stan Bergman, the CEO; and Ron South, the CFO, we have several members of management that are going to jump on and talk about some really cool innovations going on at the company. So there's a lot to cover. And again, we only have 45 minutes, so we're going to jump right into it. I'm going to start. I think, Graham, you want to jump in first, and then we'll kick it off and hand it to Stan.

Thank you, John. So just before I start, I just wanted to make a couple of comments about forward-looking statements that, as you know, risks and uncertainties involved in the company's business may affect matters referred to in 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 included in the Risk Factors section of those filings. So with that, I'll hand over the presentation to Stanley.

Thank you, Graham, and thank you, John, for hosting us, to you and your team. I'm going to go through these slides very quickly because I think this is a great opportunity for you to hear from the team that is involved on the innovative front at Henry Schein. We'll post this presentation on our Investor Relations website. So here, you have a summary on one slide of Henry Schein; 7,600 field sales consultants. Over 3,000 suppliers. Last year, we had $12.5 billion in sales. 99% of what's ordered gets shipped relatively on the next day. 22,000 team Schein members around the world on the ground with 32 countries. We serve about 1 million, several million customers, about 1.5 million office space practitioners, that's dentists and practitioners, medical practitioners, nurses, et cetera, in the office space setting. In other words, the alternate care setting, essentially out of the acute care setting and out of the drug store. We have practically every product available that a practitioner may need. We support this with an extensive line of value-added solutions. Concept is to help practitioners operate a more efficient practice, so they can focus on their clinical activities. Been around for 90 years. On the most admired list of Fortune for 21 years. 11 years as one of the Ethisphere's most ethical companies. The last 7 years, Best Place to Work from LGBTQ point of view. And we're in the S&P 500 Index. So can we have the next slide. I think it's very important for our investors to understand. Yes, we are, in our roots, a distributor, but Henry Schein is much more today than a distributor of products. In fact, our customers are our winning proposition. Our customers rely on us for the exceptional experience in delivering differentiated solutions. Not only supply chain, but our plethora of solutions, which I'll go through now, enable them to practice more -- have a more successful practice and yes, better clinical outcomes. And yes, we have outstanding, perhaps at least we would view, the best supply chain capabilities in the markets that we serve, but it's really the value-added software and value-added services, you'll hear from Mike on our software and related-type services, but these value-added services and immense and run as to helping the customers operate a more efficient practice and have better clinical outcomes. That's what we help them with at any rate. We are manufacturers of specialty products. We own the brands. We do a tremendous amount of innovation in that area and you'll hear about it from Todd in a few minutes. And the key here at Henry Schein is that we have deep relationships with our customers on what we call One Schein, which is a complete offering of the products and services that are needed to manage the office. Can we have the next slide, please. We started off our 2022 to 2024 Strategic Plan in January. We worked on it throughout last year. It's obviously much more complex than what's on the screen. But in a nutshell, we refer to it internally as our Bold+1 Strategic Plan. It's B-O-L-D plus 1, which will come in a minute. The B stands for advancing building our complementary software, specialty and services businesses, about 15% or so of our sales, but well over 1/3 of our income, operating income, about a 20% margin set of businesses. A key strategy goal for our strategic plan is to operationalize one distribution. We have 2 large distribution groups, one in North America and one for the Rest of the World. Each one of them is charged in finding ways to provide better customer satisfaction, improve on experience plus drive profitability. And then we have the L, which I've already covered a little bit, which is to leverage One Schein, to leverage all the various products and services, so that we can give the customer an experience from soup to nuts on the products they need and the business and clinical services they need to run their practice. And the D is digitalization. There's nothing in our business, whether it's internal or from a customer point of view, that is not one way or another driven by this digital transformation that is occurring. It has accelerated in the last 2 years or so, a huge amount of activity there. And then we've got the +1. And this is to create value for all of our stakeholders. On the one side, the people that give us the products, our suppliers, factories that give us products, want to make sure for our suppliers have the best way to bring their products to market; on the other side is our customers. Of course, we'd like them to buy more from us, but the goal is to help our customers succeed in operating a more efficient practice, so they can provide better clinical care. That's the key goal about customer stakeholder strategy. And then there's our Team Schein. I believe we have an outstanding set of values that have been implemented consistently for 90 years. And of that, we have our culture that, of course, is unique, we call it Team Schein, but it evolves as the world evolves. And then we have our investors, and we've been clear since we went public 27 years ago that we're committed to providing our investors with a consistent rate of return. And we've done that, I think, quite well. But of course, our investors are 1 of the 5 constituents that make up what we call internally the Henry Schein Mosaic of Success. And the fifth constituency, of course, the society in general, where we focus on improving, supporting the communities that we're in, the world in general, and specifically the professionals in the markets that we serve. So you'll find Henry Schein very active in all of the dental and medical related organizations. So with that in mind, Ron, do you want to take us quickly through some highlights from 2022 first quarter earnings?

Yes, certainly, Stanley. Thank you. Just a brief overview of our first quarter, just to get people kind of grounded on the numbers. We reported $1.30 per share in earnings for the first quarter, that represents 4.8% growth against the prior year first quarter non-GAAP EPS. Operationally, we did see a little lower patient traffic in January. We saw some improvement over the course of the quarter and into April. That can be a little inconsistent around the world, but we did see emergence from that lower patient traffic as the quarter progressed. Sales of PPE, which are primarily gloves, did have a decline, primarily due to pricing, but that was more than offset because we had some very strong COVID-19 test kit sales of about $250 million, just as a point of measure that was $180 million in the prior year. So very good growth in COVID-19 test kits in the first quarter. Good strong equipment sales in spite of some continuing delays on the traditional equipment that's primarily from delays in construction or build-out of some of the practices. We did see an inflationary price increase of about 3%. Just to be clear, that 3% is primarily on merchandise in both our dental and our medical areas and our consumable merchandise and excludes PPE and other COVID-related items. Collectively, our technology products, value-added services, and our specialty products saw total sales growth of 13.1% versus the prior year, and it's appropriately called out because the people who are going to be speaking to you soon work in those particular areas of the business. And then finally, we did affirm our full year 2020 -- 2022 EPS guidance of $4.75 to $4.91 a share. So with that, I'll turn over to our next presenter.

Thank you, Ron. So the COVID pandemic has changed many of our lives and it's accelerated many aspects of digitalization. And that's including in the dental office, where we're seeing more digitalization taking place. The first theme that we wanted to cover today is CAD/CAM and chairside. Where CAD/CAM and intraoral scanners are both representing strong sales categories for us as we see practices investing in their offices and this being a standard to the type of piece of equipment that many practices are implementing within their practices. And there's really 3 areas. One is chairside CAD/CAM, which is providing better customer experience and a good ROI, return on investment, to the office and the practice. We've done to see new 3D printing products coming through into the practice, both in terms of better materials or more versatile materials and better equipment. And both of these solutions, along with prosthetic lab solutions, orthodontics and mouth guards all need intraoral scanners in order to provide a quick clinical workflow. So that's really what's driving a lot of that investment. The second point we'll talk a little bit more about, which is really the implementation of the Internet of Things and that how connectivity between the office equipment and practice management systems and patient records are developing, but also connectivity with third parties outside the dental practice, whether it be dental labs, insurers and patients, providing better operational and clinical workflow for the dentist. And then finally, we want to talk today about some of the artificial intelligence solutions that are in development, which will also provide better clinical outcomes. So with that, I'd like to hand over the presentation to Mike Baird, CEO for Henry Schein One; and Alan Rencher, Henry Schein One's Chief Technology Officer, to provide you more information on some of these developments.

Super. Great to be with you all today. If you can move the slides forward for me Graham. As you all know, Henry Schein One is our organization to drive and continue to innovate our leadership in global dental software. Our vision is to deliver the market-leading cloud-based suite to make sure we're driving improved patient experiences and higher dental practice success. And we're very fortunate because we have both the responsibility and the unique opportunity to shape the future of dental software within Henry Schein One. Today, we provide nearly 70 successful dental software products in over a dozen countries that deliver value across the various needs of everything from solo private practices to dental service organizations. As we look at our strategy going forward for the next few years, there's a number of things that we're focused on. As you can see on the right, we play in a number of markets. We have software solutions across various parts of the dental value-add cycle. We have products, obviously, in practice management, in patient marketing, to help with communication retention. We support office technology. We've added dental analytics software, and we continue to drive all of those things to provide an integrated experience to help dentists. When we look at our strategic priorities, there's a couple that I want to highlight here, and then we'll share a few of the initiatives -- new developments that we have coming to the market. Overall, we talk a lot about 2 themes. One is having our products work as one. Because we have so many products that play across many aspects of the dental portfolio, the more that we can integrate those, we add more value to dentists to make their lives easier, to make it easier to deliver quality support. We're also working very hard to drive the dental industry to the cloud. So when you look at our objectives that we're trying to deliver right now, the first is to accelerate attention to the cloud. As we do that, we have more efficient systems, we can do more things with data. We help serve both group practices and dental service organizations as they get larger. But that's a huge part of delivering quicker innovation and scalability in dental software. The second is we're really focused on optimizing our product portfolio. As I mentioned, we've got a number of products that span many different categories. And one of our initiatives is to drive towards our winning products in every single category, so that we can accelerate innovation across those products. That doesn't mean that we won't remove support for legacy products, but we're doubling down on key areas like our Ascend platform. We're doubling down on improving revenue cycle management and making it more frictionless. We're looking for ways to find new growth engines. Our third area is we feel a great responsibility within the broader Henry Schein organization to be one of the drivers of that double-digit high-margin growth. And so for us, there's a number of areas that we're focused on. One, of course, is the DSO segment. We see significant growth there and great opportunity for us as we continue to bring enterprise functionality to our various products. Another area is new segments that we see growth. One example is analytics that I'll have Alan speak a little bit about, but we see that as a new trend for dental offices to have more insight into what's happening in their practice and to drive better patient outcomes. I briefly mentioned RCM, but we think this is an area of significant growth opportunity as we look for ways to make that more frictionless. Clearly, consumerization is on the rise and patients want things to be simple. And it's our job to do the same thing in the way that they interact with dental practices through the way that we bring revenue cycle management services into play. I also highlight international as a growth opportunity for us as well. We continue to look for select geographies that we can expand our services and drive additional growth. The fourth area of focus for us is to deliver customer value through an integrated portfolio. Our vision is really to deliver what I like to call the Dental 360 suite. You think about the way we use Microsoft Office 365 today, we really ought to have the equivalent in the dental office. Tightly integrated products that are both practice management, patient marketing, integrated revenue cycle tools, analytics that spans across all of that, as well as a variety of other services that we provide is key for us in delivering additional value for practices. And finally, all of this is on a foundation of building a world-class organization. We're fortunate to have very strong values and culture here at Henry Schein. But we're continuing to add experts across the software value chain, making sure that we have experts in security, in SaaS, in the new trends for Agile workplaces and continuous innovation and deployment. These are all key priorities for us as we drive innovation faster. So I'm going to turn the time over to Alan Rencher, who's the Henry Schein One CTO, to walk you through just a few of the examples that we're doing right now to bring innovation to the dental market. So if you go to the next slide, Graham, I'm going to have Alan talk about a few of these. Alan?

Thanks, Mike. Great to be with everyone today. One of our growth examples Mike discussed is Jarvis Analytics. We believe dental offices that dig deep into their data will be a lot more efficient and be able to deliver much better patient outcomes. Jarvis makes it easy for them to do this. Jarvis is a powerful cloud-based dental analytics engine and business intelligence platform. It helps dentists optimize their business and more importantly, improve patient outcomes. Jarvis' close integration with practice management products as well as competitive practice management products helps to unleash insights from their data to drive better outcomes. Next slide, please. So now I'm going to talk just briefly about PhoneSight. PhoneSight is a great example of a set of features that we're bringing to market that bring efficiency to the office staff in the dental office. PhoneSight provides a telephony solution for the office that enables office staff in office to quickly see patient data and personalize those interactions to improve the customer experience. This showcases how we bring more features to the broader dental office software suite to make individual software programs work more closely together. Next slide, please. Finally, we're going to briefly talk about the Dentrix Imaging Center. This powerful system is something that we will use as we move to a cloud architecture that allows our engineering teams to build ones via a microservices pattern architecture, and it allows us to build these individual microservices that can be releveraged throughout all of our software tools. The Dentrix Imaging Center is one of the first set through that we've built, this first shared microservice. We originally built it for the Ascend platform, and we've been able to adapt it and use it on our Dentrix product as well. This flexibility allows us to provide a very rich and powerful capability across all of our tools with one product, and it makes us more efficient in the meantime, and it helps us be a lot faster and bring innovation to market quicker. This robust feature can be used across our entire global portfolio. And that's it for the things I wanted to talk about, and Mike is going to talk about some of our other exciting R&D offerings. Thank you.

Thanks, Alan. And what I love about each of those features that we shared with you, these are all additions to our portfolio. So if you've got a practice management system, it's really easy to turn on Jarvis Analytics. If you're already on Dentrix, we can instantly turn on our Dentrix Imaging System. If you want a new phone system and you purchase our PhoneSight product, it works seamlessly with the practice management system. So these are all ways that we continue to add value to the offices and build off of an already robust software portfolio. But the last thing I want to talk just briefly on, and then will let Bruce go into more detail, is areas we're driving significant innovation in dental. One of those areas that we're very excited about is artificial intelligence. Our teams have been hard at work for the last year or so on building artificial intelligence modules that will be available soon for our Dentrix Ascend and Dentrix core products. Imagine this as an embedded tool that will help assist the dental provider in identifying tooth decay very simply. We found that this identifies things a lot sooner and helps assist that provider then and ultimately creating a more robust treatment plan that really is a win-win for the dentists and for the patient. We treat things sooner and drive better patient outcomes. This is an example of the kind of innovation that we believe is our stewardship to bring to the market because we're in a position to invest in those technologies and widely deploy them and ultimately drive better patient outcomes. And it will be deeply embedded in your clinical workflow. These are FDA-approved clinical applications, and we couldn't be more excited about it. But it doesn't just apply to HS One's software products. We're looking at ways to use this technology across the broader Henry Schein portfolio. And so for that, I'll go to the next slide, I'm going to turn the time over to my friend and colleague, Bruce Lieberthal, to talk about how we're using these technologies elsewhere within the portfolio.

Thanks, Mike and Alan. Great to be with everybody, and thank you for spending time with us. As we all know, medical and dental health care is increasingly employing AI-enabled equipment and software to assist doctors in diagnosis, treatment planning, actually executing procedures, running their practices, marketing, interacting with payers, and a lot more. At Henry Schein, we're incorporating these tools in a number of ways, including embedding them in our practice software, as Mike talked about a moment ago, as easy to use, but very powerful workflows. One area of particular excitement to us is the utilization of a type of AI known as computer vision, which is essentially a branch of AI associated with computer-enabled analysis of images. Those images might be radiographs or cone beam images or photos, et cetera, and utilizing that technology, assisting doctors and making faster, more accurate diagnoses, more efficiently and appropriately treatment planning and performing procedures. So let's go to the next slide and look at an example of how Henry Schein is bringing this technology to customers in a number of ways. As Mike mentioned, we embarked on a mission to embed computer vision AI into our practice management and imaging software starting about 18 months ago. Our goals were to find the very best technology embedded deeply within our practice and imaging software, creating really powerful workflows right where doctors already are, in other words, within the patient record. We started deeply diligencing the young, brilliant companies in this space, third parties who were developing AI technology, and then doing technical integrations with them and testing those integrated solutions live and practices and determining from a technical and business perspective, who to best partner with. We are now more deeply integrating this technology into our practice and imaging software to deliver truly elegant, unique, and powerful workflows to assist our customers in doing more accurate diagnoses, building better treatment plans, optimizing their interactions with payers, deriving powerful analytics and reporting from their practice data, assisting with patient acquisition, automating scheduling, enabling patients and providers to simulate outcomes, intelligently monitoring and correlating patient home care with health and much more. We'll deliver our initial product in Q3 of this year, which assists doctors in diagnosing dental caries, tooth decay. From there, we'll deliver future modules at a regular cadence. Customers will opt in and pay for only those modules that they want. For example, a doctor may want assistance diagnosing dental caries, but not want the orthodontic module. So let's go to the next slide, Graham, and see this actually in action. I'm going to just describe this a little because, as you'll see in a moment, this happens rather quickly. On this slide, you'll actually see a quick clip of the technology in action. The video you're about to see was taken in real time when we did our integration for our customer pilot. What you'll see is our imaging software, which is a component, as Mike and Alan spoke of, a component of our cloud-based practice software, Dentrix Ascend, acquire radiographic images and then quickly, securely and, in the background, upload an image to cloud-based servers, where AI algorithms run against those images and return the results to the doctor's screen inside our software. Watch carefully as the AI happens in about 1 second. So Graham, if you'll just click on the video, we can start that. [Presentation]

So maybe pause it there, if you could. Yes. So the results are displayed as annotations. You see them here as red and yellow squares on the images. So that's what happens after the images are acquired very quickly, those images are uploaded to AI cloud-based servers and again, in about a second, sometimes even less, the images come back with the circles and squares on them. And you may note that some of the squares are yellow, some of them are red, that actually correlates to how confident the AI software is in reaching its diagnosis. From this point, because this is embedded within our practice software, other workflows assist the clinician to properly and efficiently update the patient's treatment plan in Dentrix Ascend and connect with other smart digital tools, some of which Alan and Mike mentioned, to communicate with and schedule patients for treatment. This technology, we believe, is great for professionals, patients and payers and holds the promise of more thorough and accurate diagnosis and importantly, at a much earlier stage. AI and dentistry delivers practice growth, better patient outcomes and washes cost out of the system. So it's really a win across the board. In a few moments, by the way, my colleague, Todd Strong, who's the CTO of our Global Oral Reconstruction Group, is going to discuss with you our vision for how we can use this computer vision AI in a dental implant therapy. Graham, we can go to the next slide. Another solution we are very excited to bring to market this month actually, after several years of R&D and planning, is the equipment protection system, EPS for short, which is an Internet of Things or IoT solution. EPS uses smart Internet-connected sensors coupled to special cloud-based software to monitor the health of critical equipment in real time and raising alerts when appropriate. Importantly, the data from this monitoring is not only shared with the practice, it's also delivered to Henry Schein's equipment service teams, so that our experts remotely diagnose and intercept issues with critical equipment before problems cause irreversible equipment damage or fatal system failures. Customers purchase this as a very affordable subscription service from Henry Schein. EPS actually comes in 2 flavors. For new equipment, Henry Schein has partnered with key suppliers who've smart enabled their equipment and integrated that equipment into our software solution. For equipment already in practices, and there's thousands and thousands of these pieces of equipment, and manufactured earlier without smart sensors, Henry Schein developed its own hardware and software, so that the thousands of pieces of equipment in these practices can be retrofitted with our proprietary sensor pack and integrate seamlessly into our software platform. We'll go to the next slide. We've also incorporated, for both our medical and dental customers, telehealth solutions and integrated them into our practice management workflows. For dental, in addition to video consultations with doctors, patients and professionals use these tools to monitor treatment, especially orthodontic therapy at key points. Checkups and exams during treatment are done remotely by employing sophisticated teledentistry tools with smart software that captures specific images, analyzes them, and rapidly share them with the practice for evaluation. Further, this software is increasingly AI-enabled to do simulation, so that patients can use these tools on their mobile devices to take a picture of their teeth and then have simulations done showing them treatment recommendations and how they'll look after that treatment. So for instance, if a patient wanted to see, if I whiten my teeth, how will I look; if I use clear aligners, how would I look; crowns, dentures, tooth-colored fillings, et cetera. Additionally, these tools enable patients to communicate with a dentist or orthodontist, ask questions and automatically schedule treatment. Graham, I'll turn things back over to you.

Maybe go over to Todd Strong, who is the Chief Technology Officer for our Global Reconstruction Group.

Thank you, Graham. Well, we hope to combine computer vision data, patient health history and demographic data to determine if a patient could be an eligible candidate for implant therapy. Based on the results from this AI analysis, we may be able to suggest a particular type implant, it would be best suited for that patient's specific clinical indication. Several treatment options could be presented for the medical professional to choose and refine that option. Coupling this technology with PMS systems may allow for the patient to be marketed and also future scheduling. Thank you, Graham. Next slide.

Thank you. So with that, John, we can open up things to Q&A.

All right. Excellent. You guys got through a lot. We got 10 minutes to go, wonderful. I'll start. So this morning, we've heard, I think, a compelling case from you guys, invest and align, I'll talk about sort of the need to build a digital ecosystem. So I guess the question is, do you view that as kind of competing with each other? Or can these software elements be sort of layered on and be complementary?

So our goal has always been open architecture, and it's in that context that we're hopeful that others will work with us on interoperability given our large position in the practice management, electronic medical record arena. Most key players in this field have connected to our platform. We actually expect to advance our platform from a clinical point of view and interoperability is really important. So we don't see this as competing. We see this as working together to provide a clinical environment that is helpful to the dentist and the laboratory.

Great. Okay. Second one, you mentioned AI tools several times. Do those need to be FDA approved? Or can you just validate them and roll them out?

Bruce?

Thanks, Stan. And great question, John. So it depends. The quick answer here is, if they're used for diagnostic and treatment planning purposes, they do need FDA 510(k) approval. You may have noticed in the news, those are beginning to happen now at a fairly good clip. If they're used for things like helping to adjudicate claims, analyzing practice performance, and things of that nature, they don't need FDA clearance. So it really depends on the use case. But diagnostics, treatment planning, yes, they do need FDA clearance.

And maybe just a follow-up. What are you hearing back from the field. Are those tools being embraced aggressively, are dentists a little hesitant? Where are you seeing the most traction?

So I'm smiling at you because when we did our pilot about a year ago, we were concerned about that because -- and I'm a former practicing dentist. I figured we're going to put these tools in doctors' offices, they're going to think, I'm trained to do this, I know how to do this, I don't really need some computer to tell me what is and isn't dental decay. What was really fascinating to us is when we went through the pilot, they were so enthusiastic, and when it came time for us to turn it off at the end of the pilot, several of them begged us not to. So we're expecting that this is really going to be breakthrough kind of stuff. The way to look at this and the way we will position it is that this is clinical decision support. So the software is not making the decision, it is aiding and assisting the provider in doing so.

Great. Very interesting. Ron, this one is probably for you, jumping around a bit. There's been a lot of concerns about the health of the consumer and then maybe sort of tapping the brakes on spending. You mentioned that as you came out of omicron in the U.S., kind of office volumes were getting a little bit better. If we kind of bring that forward to today, any update, any signs that consumers are getting a little bit more cautious and tentative, particularly for maybe higher cost procedures?

John, I mean, I think I need to kind of restrict my answer to what we were able to disclose in the earnings call on May 3. And Graham, can you confirm that? I don't think I can give you anything kind of beyond that date. I think then we did confirm that there was improving patient traffic and it did kind of vary depending on where you were in the world. We were seeing, I would say, a positive trend, and also in elective procedures, perhaps on the medical side at that point in time as well.

All right. Sounds good. Another thing we've been hearing throughout today, and even I know in prior years we've heard this, the staffing crisis is sort of critical issue, number one for the typical dentist. I'm curious, do you guys share that view that that's a crisis for the industry? And if so, what can Schein do to help alleviate it?

So John, I wouldn't necessarily refer to the availability of dentists per se as a crisis. There are parts of the industry, of the commercial aspects of the industry, that can't find enough dentists. So some of the big DSOs would like to open up in more locations. They have the capital, they don't have enough dentists. I wouldn't refer to that as a crisis. It's the demand for more dentists, desire to increase the number of graduates from dental schools, that's happening. But if you spoke to the ADA, they would disagree with that. So it's not a crisis. Having said that, what is a crisis is the availability of auxiliary staff in the offices today, and that is no different to what we're experiencing in the economy in general. So there is a labor shortage in the United States. In fact, a number of other countries as well. And that's impacting the dentists. What is Henry Schein doing? We do have an online agency for identifying dentists and assistants. It's relatively small. We're investing in that and driving our capabilities up in that area. But above all, I think the opportunity to increase efficiency through the One Schein system, through digital dentistry, whether it's in the imaging area, particularly in the scanning area, CSI dentistry, all of that will drive efficiency in the long run. And of course, Henry Schein fields over 7,000 field sales consultants and to the sales representatives around the world that are there to advise practitioners on increasing efficiencies on the practice management side and the clinical side of dentistry.

Great. Mike, I think this one is for you. Where do you stand in building up the functionality for Ascend and some of the other cloud-based tools. I know a couple of years ago, the on-premise systems were viewed as a little bit more robust. Where does that stand now?

When we look at our sales that happen today, the vast majority of new sales are on cloud systems. So we know what the future is going to look like. That means we've made great strides in adding the functionality that's required for these platforms to be very successful. If you look at our Dentally products that we use internationally as a cloud system and our Ascend products, both are doing incredibly well. And in fact, today, I would say over 50% of our R&D resources are dedicated to accelerating that innovation in these products. We absolutely see that as the future, in particular because once you move to the cloud, you can open up APIs that make these platforms more useful. That's both for our own suite of additional features, like Jarvis, as an example, or like the PhoneSight product that we talked about, both of which drive efficiency in the office for our last question. But it also means we can provide linkages to DSOs, for example, to do other things with the data. So we have major DSOs that use this and they want to get other connections to their phone center, as an example. And when we have APIs direct into the cloud data, it makes it much easier for them to do so, or they may have different analytics platforms that they want to specialize reporting on. So it is absolutely the future of where we're going in practice management, and we've made great strides on that. We've got a number of high-level DSOs that are starting to use that now and significant adoption in the private practice segment as well.

Sounds good. Another question that we just got in. So you walked us through a number of innovations that you guys are working on. If you think about investment, what are the top 2 or 3 priorities where you've got to continue to spend over the next 1 or 2 years?

Yes. That was a really small sample. Those are things that are sort of coming out within the last quarter. So you can imagine there's lots of things that we're working on. But I would say overwhelmingly, one of the big investments is in our architecture, making it -- adding additional APIs, which just increases the functionality both within and outside, as we talked about. As we move to more of these cloud-based architectures, they actually provide security and stability as well. They just scale a lot better. And as the industry tends to move towards more and more group practices and DSOs, that ability to have very high market-leading security as well as ability to access your data from multiple locations, these are very important functionalities. And a lot of that takes place behind the scenes in the architecture. So that's where a lot of our development is, in addition to some of the upfront features like AI, analytics, PhoneSight, where we're integrating into the phone systems, right, and making the office flows better. So you'll see a wide range of innovation that we're working on.

So John, just on that point, maybe, Bruce, you would like to talk about some of the investment areas you're involved with Todd. I know there's a huge amount of activity going in your world. And Ron, you may want to cover some of the gift-type investments. And I know we don't have a lot of time.

Yes. We're a couple of minutes over, but let's just make this the last one.

Okay. So I'll be really quick. One of the things that, I mean, as Mike said, we're working on dozens and dozens of things. But one thing that comes to mind is one place that Henry Schein can be extremely valuable is in creating middleware, technology, APIs, as Mike mentioned, that tie together a lot of disparate software and devices that are being manufactured by different manufacturers, either that we represent or don't, that allows us to create workflows and tie everything back to where the doctor and the patient live, which is inside the patient record. So that's a really important aspect of the work we do.

All right. That's great. Any final words before we sign out?

Todd, do you want to just go and talk briefly on your investment areas?

You said Todd, Stan? Me?

Yes.

Yes. So I think based on what Bruce said, using this technology to see where it can help drive our other products. For example, our implant products, how we take advantage of this investment to help push our other high-margin areas. I think that's what's very exciting for the GOR Group.

Okay. So just -- I don't think it will be much more time, but we are investing significantly in our e-commerce platform, which is designed to provide better value-added services to our customers. Maybe we can have a separate meeting on that one day. So then Ron can talk about that, and others.

Excellent. Thanks. Well, we covered a lot. Thanks to all of you for the overview. It sounds great. I appreciate the time, and thank you all for listening.

Thank you.

Thank you John.

Thanks guys. Appreciate it.

Thank you for hosting us. Thank you, everyone.