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

Hi, everybody. Thanks for joining us this morning. I'm Elizabeth Anderson. I'm the health care technology and distribution analyst here at Evercore. And I'm very excited to be joined by CEO, Stanley Bergman; CFO, Ron South; and VP of Investor Relations and Strategic Finance Project Officer, Graham Stanley, all from Henry Schein. But I imagine you all know that since you click down the Henry Schein link. So we're very excited to chat through things. [Operator Instructions] Stanley, I don't know if you had any couple of intro remarks that you wanted to make or I can jump straight into the questions.

Elizabeth, feel free to ask questions, but I think the track record of Henry Schein, 28 years, public company, compounded annual EPS growth of about 12% for that period of time. And since we've been public and we grow top line, we grow operating income, we grow bottom line and return our profits into cash and spend on acquisitions and stock buybacks.

Yes. Yes. No, I think that is to the point and makes a lot of sense. So I think maybe we'll start with the topic that's obviously been the topic du jour of dental for approximately the last 12 months and unfortunately, remains the topic of du jour of dental. Can you talk to us about patient volumes in the quarter, both on the domestic front and internationally? We've heard a bunch of mixed things from different players, but it would be helpful given your broad portfolio and geographical reach to understand what you're seeing.

Sure. Ron, why don't you give the information that we've been talking about in terms of dental in the United States and perhaps some thoughts on international and medical?

Yes. Certainly. So Elizabeth, we read the same surveys as other people do, right? I mean I think that the ADA has information out there that would conclude that the patient traffic is a tick lower than what it was prior to the pandemic. And I always said patient traffic information was available prior to the pandemic, but no one really paid a whole lot of attention to it. And then when the pandemic occurred and all the offices got shut down for a period of time, it became the metric that everyone wanted to look at in order to determine are we getting back to normal? And I think that -- I'm not going to say that survey information is flawed, but I do think that the way the information is gathered has changed a little bit. So I think it's difficult to compare patient traffic now versus prior to the pandemic. So I always caution people to look at it in absolute terms, but instead, maybe look at the trends, the quarter-to-quarter, month-to-month trends. And I think what we're seeing is good patient traffic. I think anecdotally, and speaking with our customers, they're all very busy. They're investing in their practices. That's evidenced by the equipment growth that we saw in the third quarter in North America, which was 12.8%. So I do think that -- we feel pretty optimistic. We think that there's probably potentially a shortage of dentists out there because -- just given the capacity issues a lot of them are dealing with. So while the survey information will tell you that patient traffic could be down some, what we're seeing is that our customers are busy and their businesses are pretty healthy.

Got it. And would you say that as also true for Europe?

Yes. Europe, it's hard to paint with a broad brush, right? You have to look at the individual markets.

I know we say Europe as if it's like one single entity, but...

Yes. It's not the same as Illinois and Wisconsin. You can -- it's -- you have to look at each country. And I think there, what we're seeing is those countries that have dental services including their -- included in their national health plans are remaining fairly steady. And examples of that would be Germany and the U.K. Countries that have -- do not have dental services included in their plans, such as Italy and Spain, are perhaps impacted a little more.

Okay. That makes sense. And so -- okay, that is very helpful. If you sort of think about how that demand is sort of -- you said it sort of follows the patterns there. Are you worried in terms of as we like jump off into next year, anything that sort of flags your mind besides the overall macro? Or is that sort of just where you're focused on in terms of trying to think about overall macro demand? Or are there any other kind of like indicators that you're broadly looking at?

I think the one indicator that we look at closely, at least in the U.S. is unemployment rates. Unemployment rates -- in the U.S., you lose your job, unfortunately, you lose -- you often lose your health insurance with it. But at least with the ACA people can -- if they're able to, can jump back in. But with unemployment remaining low, we think that that's -- bodes well for us because it means that people are holding their insurance. They're visiting their physician, they're visiting their dental practitioner, and that traffic -- that access to care is really a key to our success, right? So that's one thing we're looking at that we do track fairly carefully. There's been a lot of talk of what would the impact be if there's a pullback in discretionary spend in some of the specialty areas. They might be a little more vulnerable, but we do think that there's also a lot of penetration opportunities, for example, in implants and -- as well as orthodontics that can help offset -- that increased penetration could help offset some of the other softness.

Got it. No, that makes sense.

Just one -- Ron has been focused on dental. But in the U.S., our medical business, if you take out the software and the specialty side, is approximately the same size -- the dental and the medical are approximately the same size. So I think it's really important to also focus on the medical business. And there it's not so much an economic issue, but it's a macro trend that is important. The movement of procedures from the acute care setting to the alternate care site, namely the ambulatory surgical center and even today from the ASC to the physician office, this trend continues, and it's one of the reasons, of course, why our business is doing so well. It doesn't mean that we don't do business with IDNs, integrated delivery networks. They own physician practices and those practice groups are growing significantly, and that's our core customer.

Yes. No, that was going to be one of my questions later, Stanley, you -- because it's almost like -- I feel like people forget that you have a medical distribution business sometimes, and you're sort of nodding along, which is obviously a large contributor to the overall operation. In terms of maybe on the medical side, what are you seeing -- maybe outside of PPE, which we can talk about as a separate category and things. But like how are you seeing sort of medical cost inflation for some of the ambulatory and ambulatory surgical center like products that people use like? Are people willing to accept like, hey, these costs are not the same? Are they willing to pass that through? Has there been much push back? How do you think about that?

The -- in that world, specifically, there's been inflation on the PP&E side, some of the commodity items. And that is an area where we have a pretty good private brand and we can compete very nicely. On the more sophisticated products, the price is the price, and they generally accept it. On vaccinations, we don't set the price, the manufacturers do, and we fulfill those orders. Of course, we have an attitude to discount. So it's not as elastic as perhaps some other markets in health care or I want to say the dental is relatively elastic, too, where we generally pass on the price increases. Having said that, if that becomes through high, customers look for corporate brand products and alternative manufacturers are ready to match pricing or come up with more competitive pricing.

Yes. I mean, private label has always been one of the strengths of the Henry Schein biz portfolio overall. Are there any key areas that you're sort of looking to expand your private label reach as we think about both on the medical side and the dental side?

Yes. Well, we've always had the most extensive line of dental private brand, corporate brand, we call it, under multiple labels, under the Henry Schein name. There are some alternate discount brands. And then we have our own distribution businesses that are specialty distribution businesses like Brasseler, for example, which is a key distributor under its own brand. We own the brand of our products such as endodontic treatments, products, handpieces, diamonds. So -- and then, of course, on the medical side, we also have an extensive line, although we do not have our own generic drug line, we use branded generics. But overall, we've always had a significant offering. So we do not necessarily kick off with our corporate brand if price becomes a concern or even quality becomes a concern, then we have an alternative. So we are, of course, interested in growing our corporate brand as a percent of sales, and we do that. But we are a national brand company, and we focus on the brands that want to remain competitive and work with us.

Got it. Maybe just to understand some of the other parts of your business. One of the things that's been very interesting is we've seen continued strength in dental equipment despite higher interest rates and macro fears. How has that sort of been trending of late? I think it's been particularly notable -- well, one, maybe we'll start there.

Ron, on the trend?

Yes. I mean, dental equipment has been strong. And like I said, we see that as a really positive indicator for us going forward because it is an indication that the practices are willing to invest. A lot of that is through expansion by adding shares to their practice. And in some cases, it's also adding high-tech equipment, whether it be scanners. We're seeing -- we've seen good demand for scanners. I think the price point on scanners has come down, and that has created, I think, a very attractive price point for a lot of practices to invest in additional scanners. So it's -- the backlog, we do have a backlog on equipment, primarily on the traditional equipment side on the chairs, units and lights. But in the third quarter, in spite of the 12.8% growth we had, we still had a slight tick up in the backlog as well. So we feel like that 12.8% is indicative of true demand for that quarter. And while -- I think -- if we were to have expectations that we can continue to get double-digit growth in equipment going forward, it might be a little unreasonable. But I do think that we expect to continue to see some good growth there as we complete the year and go into next year.

And you have some nice -- I mean, the comps -- you said -- the comps obviously were great for this year, but obviously, it's a tough setup to...

Yes, it is. Yes, it is.

Can you help me sort out one maybe channel dynamic? I mean one of the things that like you guys and the other large dental distributors have been talking about is this continued strength in equipment demand. And then from the outside perspective, we're sitting here and then you hear from the manufacturers or at least the public manufacturers that numbers are softening or down year-over-year, et cetera. And obviously, the public manufacturers are not 100% of the market. So I realize there could be other elements of shift as well. But can you help us sort of square that set of commentary with your commentary on what you're seeing in the market?

Elizabeth, we're obviously in a quiet period, so we can't talk about this quarter. But generally speaking, you should view dental equipment in 3 major categories. First is the -- what we've always called traditional. I think today, the industry and [indiscernible] seem to have followed that definition that we sort of established maybe 15 years ago. So traditional chairs, units, lights, that business has a strong demand. Obviously, there was some challenges with delivery. One of our major suppliers, the #2 went out -- of chairs went out of the business, and they were a big supplier of Henry Schein because that was -- company was originally owned by Henry Schein when we owned manufacturing of chairs. We don't own chair manufacturing anymore. No need. There's terrific capacity around the world. So we have a bit of a challenge, but that market is still quite stable. And there's quite a bit to run off over there, not only in terms of availability of equipment but also offices are challenged in terms of opening on time because of availability of material in the construction world. So -- but I would say the chairs feels like the demand will go on for a while. We were just with these manufacturers this week at the Greater New York meeting, and they concur with that. Then there's the 2D and 3D imaging, what you used to call x-ray. The price there is like with all digital stuff. It tends to go down. The units are okay. There is some -- there are quite a few interesting developments there in terms of storage of that information on our electronic medical record. You may have seen that we introduced an AI product. So that, I think, will be interesting because the few units -- there's still actually more than a few traditional wet x-ray units we have to convert sooner or later. And so the units are stable, but there's some pricing pressure. And there's many entrants into that market, not entrants, but there are many options. And then there's the whole digital. The scanners, that market is good. Expect that to be good for a while, still probably half, maybe more of the market that doesn't have a scanner and many dentists want to have a scanner in each room in their operatory. So that market is going to go on for a while, albeit that there now are many options price options, there's clearly deflation. And there's entrants in that market, other products that we sell other than our traditional suppliers of those products. And then you've got the printers. The printers, I wouldn't say there's much deflation there because it's a product that has a lot of parts that have to be purchased and parts that have to be purchased, obviously, is subject to inflation unlike perhaps software where there's opportunity in the digital world for deflation. So it's an okay part of the business. But the area that is growing is the area of 3D printing. It's not huge, but it's growing. And for us, we're the largest distributor of dental laboratory products in the world, and that whole thing is moving from desk side artisans, if you will, to digitalization. And those customers -- those laboratories are generally our customers.

Where are dental labs in the digitization process if we think about them versus individual practices?

Early. Some of the big ones have invested, the ones that are private equity owned. But the smaller labs are still the bulk of the market, I think, in the U.S. is 9,000 of them. They are early, early in the cycle.

Got it. No, that's very interesting. So if we think about your equipment backlog, which obviously is sort of a nice forward visibility. How do we think about the sort of breakup in the backlog between some of the traditional equipment that you just talked about, digital equipment and then maybe imaging?

Graham or Ron?

Yes, Go ahead, Graham.

This is Graham. I mean much of the backlog is a combination of both the traditional equipment and then some of the 2D, 3D x-ray machines or imaging machines. Intra-oral scanners tend to be more like plug and play. So you can sort of generally like get access to that, and those are selling into like the market where you're not needing a fit out and you've not got the same challenges of potential construction delays in that area. So yes, much of it is sort of like the large equipment or the traditional equipment.

Got it. No that's...

Elizabeth, our equipment sales, it's roughly a 2:1 ratio. The 2 being traditional equipment, the chairs, units and lights, and the 1 being high-tech equipment. And I would say our backlog is probably skewed even more so to traditional equipment, but there is some high-tech equipment that can be in there depending on -- like Graham said, you can get some things that are in some of the larger units that might have a backlog as well.

Got it. And I think over time, you guys have commented on there are still some delays. But generally speaking, the sort of ability to source products and stuff has been increasing. Is that something you're continuing to see that trend continue to improve?

If you need a chair now this minute, is chairs available, may not be the brand and the color you want. If you want a specific brand, you may have to wait. Having said that, if you really want that brand urgently, we'll go to the manufacturer, that manufacturer specifically the leading brand is very collaborative with us. So it's -- if there's a priority, we can get it done. I think we have enough good relationships amongst manufacturers to get things done. But in the ordinary course, there are -- the delays have not gone away.

Got it. No, I think that's helpful. Maybe on some of the specialty items that you guys have, how are you seeing sort of trends in the implant market? It's been interesting to see, I mean, broadly speaking, penetration continues to increase. There's some cyclicality, obviously, from a macro perspective. There may be less so than some orthodontic products. But everyone I've talked to in implants as they're gaining share this year, which is exciting, maybe mathematically not possible, but can you sort of tell us how that's trending and how do you see your portfolio and how it's positioned versus sort of like how you think it will be maybe in the next year or 2 as we're getting on the other side of our macro excitement?

Yes, if you ask the salespeople in any business, they're gaining market share. So...

Excellent. Excellent. Glad to hear it.

Are you asking about our portfolio?

Yes. Only implants. Yes.

On implants, we're particularly strong in 2 areas. One is the Germanic countries, specifically Germany and the other one is the United States and Canada. In both those markets, we have premium brands. And in the U.S., we have a premium brand that also has a discount product. In Europe, we -- and particularly Germany, we have the leading discount product. So the discount, I'm not using the right term because I would hate if I use the word discount, the lower price.

Value implant?

Even that's -- I don't think -- say it's a good product, which it is. But you know what I mean. Those -- we have a very good position in the U.S., but particularly in Germany and the Medentis line is doing extremely well. So we have good positioning. Now we're not well positioned in a lot of countries around the world. That's an acquisition opportunity, inorganic opportunity over time. And -- but in the 2 markets we have alternatives, and we do very well in bone regeneration products. Some would say we're close to #2. Some would say we're #3. And we do very well under different brands, under BioHorizons, which is a premium brand and then a number of alternative brands such as ACE and Medentis brand, et cetera. So I think we have a very good mix of products. And then, of course, in the products related to oral surgery, we have the -- in the United States, the ACE SOUTHERN Anesthesia line, which is all the products that oral surgeons use, not necessarily the actual titanium or the bone regeneration. We have all the pharmaceuticals, et cetera. So we're in a pretty good position to help what customers need.

No that make sense. And I learned the other day, we had a KOL call with a German dentist that in Germany, they have to itemize the cost of the implant on the bill that they give to customers. So that's like a very interesting sort of dynamic that from a U.S. perspective, you don't necessarily think through and gives you kind of like...

That's done like a -- that's a DME product in the United States. But that's the product that's reimbursed. And there, the premium works very well. But then for the private insurance, our Medentis line does -- not private insurance, private pay where people don't have insurance, Medentis line is pretty good. It's high-quality line but positioned at a lower price.

Got it. And in that market, as you think about sort of new geographies, et cetera, are there assets available? Like how are sort of valuations trending? Is it something that people are still sort of trying to figure out like post-COVID valuation, there's still a lot influx, like maybe -- if you could give us some more details about that would be helpful.

I don't think valuations have ever really been an issue for Henry Schein. We're well known. Very often we enter into partnerships. People want -- family members or in the case of BioHorizons, a private equity firm, we're in there for 2 or 3 years. And then we own an interest and then they were able to generate value from the synergies. So I don't think we're going -- we don't respond too much to books. I mean we have bought companies through investment banker books, but most of our relationships are longstanding. And it's the opportunity post acquisition that really is more important than the price on the day of acquisition.

Got it. No, I think that's a good point. If you think about the rest of your specialty portfolio, where else are you most excited about the opportunity outside of implants?

Well, it's implants and orthodontics and endo as well. We've done okay in that from an acquisition point of view. And also on the medical side, I think we will, hopefully, at some point, enter the -- more into the orthopedics space. We have a leading line there today with saws and blades and we want to expand that line on the medical side.

No, that makes a lot of sense. Maybe what you just said about orthodontics, just circling back there. What are you -- how are you sort of thinking about brackets and wires? We've heard some mixed commentary, some commentary about maybe some providers like using up inventory. Other people are telling us that, that's not a trend that they're seeing in terms of sort of macro impact. Is there anything you can sort of comment on that side?

We are so small. We have a very small market share. So I don't think anything we comment on is indicative of the market. It's an area we want to grow. We work with a few DSOs who buy their brackets and wires from us and also the reveal aligner product from us. But our business is really dependent on the amount of business those particular customers give us versus a general trend in the marketplace.

Got it. And you sort of see that as the focus for the orthodontic strategy in the next couple of years is really focusing on the DSO customer segment?

I wouldn't say. I mean, that's what we are focused on now. There's no deals done. Deals are done when the ink is dry. But there's an opportunity for inorganic growth in that area, all of our specialty businesses. And that could change the dynamics of our customers.

Got it. That makes sense. And maybe settling back to what you just said about specialty and the medical business. What kind of opportunity -- I mean, I think at least to my recollection, this is the first time I've heard you sort of talk about that. What's the opportunity in terms of or where are the opportunities into the medical specialty business? You just talked about some of the orthopedic work, but it would be helpful to hear a little bit more about that.

Yes. That's an area that we've been focused on for a while. We have done quite well, I would say, mostly servicing ASCs, but others buy our products, and we want to expand those products. It's been an opportunity for us for years. Again, you asked the direct question. So to respond directly that's an area for inorganic growth interest. But again -- and we have a team that focuses on that but again, nothing is final until we announce it.

Okay. Well, I'll stay tune in. Okay. Maybe switching over on the sort of pricing side in dental. How sort of -- throughout the pandemic and maybe in 2022 particularly, people -- you've been pointing out that people have been willing to accept sort of price increases. Are you seeing any changes with people's perception in terms of their willingness to take on price increases for products? Or is that sort of -- we should think of that as continuing to be fairly steady versus earlier in the year?

I would say that customers are not immune to this. They are shopping. They're not shopping necessarily distributors. I mean, there's always this 10% to 15% of the market that looks at pure price from a distributor point of view. We're in that market under different brands. But I would say from -- switching from one manufacturer to another, there is some resistance to price increases and people are looking at other manufacturers, maybe they're not as aggressive in our corporate brand. I discussed that earlier on. I think, yes, there is a pushback.

Yes. No, that makes sense. Maybe it's interesting to one area of the business that we haven't really been talking about on the technology and value-added service side. Where are the sort of biggest interest these days in terms of some of the dental -- on the dental side on the technology products? Is it still like Dentrix is still sort of moving some of that over to the cloud? Is it -- are there other specific modules that are helping people as they work through some of their current workflow issues, et cetera?

Yes. Well, of course, moving to the cloud, we have 2 important systems. I think probably the best brands. One is the Ascend in the United States and internationally, it's the Dentale brand, which we're moving throughout our portfolio, not fully done yet. And there's a lot of interest in moving to that. I would say if you look -- talk to [ audience ], I can't take an exact number, but I would say about 40% of them, they just want to get to the cloud pretty quickly. And so that's a lot of opportunity. A huge number of our customers don't use our ancillary services, whether it's credit card processing, claims processing, demand generation tools, revenue cycle management, all those options. And that's -- or website, cybersecurity products. There's a big option there. But if you're asking about where is excitement heading and that's into AI and the connection, there are several AI businesses out there. They all seem to have products in one area or another that are of interest connecting into Dentrix, who go to our Dentrix enterprise system. So our the Axion system that is in about 90-plus percent of dental schools in the U.S., that connectivity is a huge interest. And the insurance companies are now quite focused on that to process claims to make sure that the claims kind of fit in with the average claim for that particular type of situation and the ability to give the dentist the opportunity to ensure that they are doing clinical services that they're going to get paid for. All of that digitally is using AI is a big opportunity. It's relatively early in the game. We announced a product at the -- for the Greater New York meeting. And I think there will be more interest in this.

That makes sense. Speaking on sort of Greater New York and some of the upcoming dental shows like Chicago Midwinter and IDS. What are you expecting in terms of new launches for the sort of like -- traditionally, you see companies launch new products sort of into these shows? Is that something you're continuing to expect this coming year? Or is that sort of whole cadence maybe changed since COVID?

Hard to tell. I don't know. You never know with some new entrants. But the work is in AI, the opportunity and 3D printing. I don't expect the new anti-lock brake chair to come in and no one has an anti-lock brake. I just don't think that impossible. But I don't think for that, maybe some tweaking on imaging. But I think there will be more scanners with all sorts of whistles and bells. Yes, I'm sure they'll be there. And materials, each of the manufacturers will have something. I don't know if there's any breakthroughs. I'm not that close to our team in the consumer area that is looking at new products from manufacturers. I mean, I'm sure if there was something a used breakthrough, Graham, Ronald, and I would have heard about it.

Yes. No, that seems sort of a consistent and sort of more incremental.

I wouldn't view these meetings anymore as these big banks. People come, they get serious about buying a new chair, they're making an appointment with our salesperson and ask our salesperson to take them around and look at the 3 or 4 options. But these are not -- I don't think Dennis is showing up just to look at products and they're getting bombarded with the social media, with e-mails, with video conferencing. So I'm not sure at the conference and the physical conference is any longer the place you don't find out about new products.

How have you guys switched your marketing spend is sort of in relation to that trend?

Well, of course, we're spending a lot more on the digital side. We are -- you probably know about it. We're investing in a whole new front end called GEP. We will see it, test it in the U.K. probably in the second quarter of next year. And we're spending money on that, the customer experience on social media and we hired a Chief Data Officer. We want to use -- mine our data better. I think all of that is more important than getting a big add. We want to know who's interested in our products and get to them in a customized way. We're doing nothing different to what is happening in any other best practices.

Yes. Yes. No, that's interesting because I think it is an interesting trend as people obviously accelerated by COVID. In some places, we're seeing it blow back a little bit. In some places, we're seeing it continue to accelerate. So it's interesting to hear about how you guys are thinking through on that.

But we -- I'm not saying it's -- we're not taking everything. By the way, we still print our catalog. We -- it's a catalog used by every salesperson in the industry, including our competitors. They go around our catalog, which is okay. Unfortunately, they'll buy all their products from their catalog from us. But it's the catalog that's used the reference guide. It's there -- we love to get rid of it, but we can't.

Yes, yes. That makes sense. Where did they see -- I think one of the questions is as we sort of go into next year, where conceptions do you guys see the biggest opportunities to maybe get some additional leverage on that SG&A line?

I think Ron just came from a meeting to deal with that particular -- you would expect us to be having regular meetings on this, and we've had these kinds of meetings quarterly for years. But of course, we've announced a restructuring and that is to be defensive in case the economy tanks, but it gets much worse. And if we manage our expenses better and the economy does better. Great. But Ron just came from such a meeting, Ron, what are our plans?

I would like it. Hot off the press, Ron.

Yes. It's -- like Stanley said, we announced kind of a restructuring initiative as we went into Q3. And I think that it's a little fluid. I mean one of the things we're looking at is our -- just our global footprint in general, which includes office space. Just based on the number of people who are now kind of working in a hybrid environment or permanently from home. We did announce about a month ago or so that -- we had 2 buildings in our corporate headquarters, and we are exiting one of those buildings, building that we lease, the other building we own. And so we're going to retain that building and people will be working in that building, but we are exiting the lease in one of the buildings. We've got a similar type of study going on throughout the world on basically all the space we have. So we see opportunities to reduce that occupancy cost and the related costs going forward. In addition, there's opportunity to take a look at some of the more recent transactions we've done, to what extent can some of those be further integrated, what's core, what's not core, how can we move on some of those businesses and either accelerate their growth or find ways of kind of absorbing them a little better. So -- there's a number of things that -- and quite frankly, those are things we do all the time regardless if we got a kind of a restructuring initiative in place or not. It's just that right now, it is on a larger scale, and we wanted to -- we need to kind of call these out as restructuring plans. So I think that we don't want to be -- I don't see us going into a kind of defensive mode or a survival mode if there's a pullback in discretionary spend or a recession of some sort. We want to stay aggressive. We want to stay -- we're the market leader. We want to continue to be the market leader. We're going to continue to invest in the business. And if, in fact, there is a recession, I haven't seen a recession yet that didn't eventually end. And if we want to be in a good position that when that recession ends then we have good momentum and an opportunity to take even more market share if that's the case.

Got it. So if I'm sort of understanding correctly, no sort of pullback on sort of things that generate growth, but you're taking a look at some of the like overall structural costs.

Absolutely. We operate differently now than we did prior to the pandemic. So how should that global footprint look like? And -- but the areas of the business that are going to drive our growth going forward, whether it be our global e-commerce platform, whether it be continued external investment and higher growth, higher-margin businesses, that's -- I don't see us pulling back on that at all. Those are the growth engines for us going forward. And I want to be able to continue to invest in that. And to do so -- it's easier to do so if I can reduce costs elsewhere in something that's either noncore or could reduce things like occupancy, can reduce some of our fixed costs.

Got it. So if I'm thinking about that, like obviously, having a good economy next year would be the best thing. But it sounds like you're saying that like maybe even if the growth is maybe flat or obviously depending on the severity of the session, like you could still probably get some degree of margin expansion even with flatter -- like flattish revenue growth.

Well, I think for us, the formula for operating margin expansion and it starts with gross margin expansion, right? And that means growing our higher-margin businesses, accelerating that growth at a rate faster than to the core business, right? So things like are the dental specialty businesses, our technology businesses. Those all have higher margins than our standard distribution business. So to the extent that, that revenue mix becomes more heavily weighted towards them, we're going to get that gross margin expansion, which allows us to kind of reinvest back into the business but still get some operating margin expansion. Now we're still working on what we think we can do for next year. Obviously, I want to be able to expand that next year, but -- and we'll be able to provide more details around that when we provide our 2023 guidance, which will be in February when we release our Q4 earnings.

Got it. We are running up on time. Excitingly, next year, this conference is going to be in Miami. So in addition to maybe more tropical shirts. What are you most excited about if you're sitting -- when we're sitting here this time next year using your crystal ball?

Well, we don't have a crystal ball. One of our managers reminded us about that when we asked about the budget. But we have our BOLD strategy, which is that B is to stands for building on our specialty businesses and our software businesses, always to operationalize and drive efficiency from our distribution business, including attracting and making it easier to do business through our digital platform. The L to lead with our One Schein, which is our trying to get more of the wallet. Somebody's been business on one side of Schein having to do business on the other. And the D is the digitalization, and this we're investing heavily in this area. So we want see advances of all of this. And the plus one is to continue to satisfy and make all of our constituents, our suppliers, our customers, our team, our investors and the social responsibility work that we've been doing for decades, well before ESG was even thought about. So to make everyone happy. And I think our job is to execute and balance the needs and I think we're well positioned to do that. We've got a great team, had some very successful succession. On the financial side, Steve wanted to retire before COVID, but stayed on during COVID. Ron moved in 13 years later. Graham moved into the -- 13 years later after he joined. Graham -- we asked Graham to get our message out to the street on the transformation, the focus on the specialty and the One Schein ideas. And Ron knows the business very well, so -- and the CFO of many of our businesses. So our goal is to satisfy the needs of our customers. We had very successful financial transition, our infrastructure succession, the whole inside 30-plus-year veteran, replaced with a 20-plus-year veteran, and one if is to continue the story and it's -- I think we grow top line, we grow profits, and we grow cash -- cash flow. So that's...

Sounds like a good plan.

May be boring, but it's pretty exciting for us.

Hey, that's my new appreciation post the pandemic. I highly value -- much more highly value boring versus previously. So I have a couple of that. I have an e-mail in my inbox. Somebody wants to know about your topical shirt selection for next year. But I told to Mike, I'll keep you...

That is Graham. Graham is such a [indiscernible] on shirts.

Perfect. Perfect. [indiscernible] before this next year. So awesome. Well, on that note, thank you guys so much for joining. It's always a pleasure Stanley, Ron, Graham for giving me the time during what is I'm sure a very busy end of the year season. So thank you, and look forward to catching up again soon.

Thank you.

Thank you.

Thank you, Elizabeth. Bye-bye.