Stanley M. Bergman
Chairman of the Board and Chief Executive Officer at Henry Schein
Good morning, and thank you, Graham. And thank you all for calling in today. We closed out 2022 with a very good fourth quarter in which we continue to execute effectively on our 2022 to 2024 strategic plan goals, achieving strong growth in earnings for the fourth quarter and of course for the full-year of 2022. Despite the macroeconomic concerns and of course, the foreign-exchange headwinds, we overcame significant headwinds from lower sales of PPE products and COVID-19 test kits.
Our sales were affected by a decline in sales of PPE products and COVID-19 test kits, excluding sales of PPE products and COVID-19 test kits. And taking out the 53rd sales week for 2022, we achieved very good internal growth of 5% in local currencies, that's internal. There was a negative impact on dental visits for seasonal flu and COVID-19 last quarter. And this is both in North-America and internationally. So, dental visits were down because of the impact of flu both the seasonal and the COVID.
On the other hand, this was offset by a positive impact at least from a product sales point-of-view of visits to our physician customers. We experienced growth in each of our businesses, across-the-board. And overall, we generated sound financial results for the quarter una reflective, I think the stable market -- in the markets that we serve. So, we made excellent progress in advancing our 2022 to 2024, both plus one strategic plan.
So, first set of the plan was '22, where we advanced our One Distribution strategy to enhance the customer experience and improve operational efficiency, very important, for creating our North American Distribution Group led by Brad Connett and our International Distribution Group led by Andrea Albertini. We had good results across-the-board, both in North American Distribution and in our International Distribution Group. We strengthened our dental position with national DSOs, one new account and had excellent success, with our technology solution and specialty products within our customer -- within the National DSOs segment.
And on the Medical side, we did expand our position with IDNs and large group practices. On the Digital side, the BOLD plan calls for a significant effort in this area. We created our global digital team, including the appointment of experienced veterans in this area, Trinh Clark as Chief Global Customer Experience Officer; Sara Dillon as Chief Data Officer. We're working closely with Leigh Benowitz, Chief Global Digital Transformation Officer; and Mark Hillebrandt, Chief Digital Revenue Officer.
We made excellent progress, designing and building our global e-commerce platform and this is an advancement of our current platform, which we expect to start rolling out in the latter part of this year and that's -- we start to roll-out the upgrades to the current platform. At the same time, we had some exciting news on the AI side, where we launched our Detect AI and AI enabled X-ray analysis tool powered by VideaHealth. And last week we were advised that VideaHealth has received 501 k FDA clearance for its periodontic solution, which we expect will further advance the use of AI as a tool in dentistry.
We were active on the M&A front, we acquired midway dental in the U.S. and Condor Dental in Switzerland. They both -- expanding our reach into under-penetrated areas in the market. We acquired a majority stake in Unitas and announced plans to acquire a major -- a majority stake in biotech dental. Both of these investments we'll address in a moment.
We have begun implementing our restructuring plan to reduce our global real-estate footprint to reflect TSM that's Team Schein Member preference for flexibility in work locations. In this connection, we have closed one of our two buildings in our Melville headquarters on Long Island. We intend to invest in our remaining real estate footprint around the world to provide modern and flexible office space, and we will also continue to invest in technology to ensure that we maintain and build on our strong competitive position from a technology point-of-view, in other words, the tools that we provide to our team to operate and of course, the tools we offer to our customers to face with us.
This past quarter, we disposed of an unprofitable business, so we can redirect our resources to operations that are priorities in our 2022 to 2024 strategic plan. The cost associated with this exit are included in our restructuring costs for the quarter. So, if you look ahead a bit, we are introducing guidance for 2023, which Ron will discuss in a moment.
We expect operating income growth in the high-single-digits to low-double-digit percentage range, when excluding the contributions from PPE products and COVID-19 test kits. We anticipate the impact of lower selling prices of PPE products and reduced demand from COVID-19 test kits will largely be offset by earnings momentum in our underlying core businesses, and the good momentum we have, as we enter 2023. This gives us confidence in the 2023 guidance, and specifically, the growth in our operating income when you exclude PPE products and COVID-19 test.
So little bit of specifics on our Dental Distribution business. Merchandise sales in North America grew slightly when excluding sales of PPE and taking out sales from the 53rd week. In North America, we have a relatively stable market, and our market share, we believe remains stable to slightly positive. We believe global dental consumable merchandise growth as noted earlier, was impacted by higher -- the high incidence of flu and COVID-19 cases, which caused increased rates of patient appointment cancellations and extension of the staffing shortages.
Now what's important is the rates of patient flow appears to have returned to more normal levels in January -- this past January of 2023. The impact from manufacture -- merchandise price increases, we believe lessened as last year's increase began to annualize. The depth and breadth of the Henry Schein product portfolio, of course, allows us to support our customers' needs when we have customers that are concerned with pricing, as we have offerings of alternative national and corporate brand products, that's our own brands, as well as alternative national brands where we experienced customers' resistance to price increases. But having said that, price increases, we believe that are sticking in the marketplace, are relatively stable now and not anywhere near what they were at the beginning of last year.
Demand for dental equipment in North America remains healthy and our North American equipment order book is stable. Although, we saw good sales from traditional equipment and steady sales for digital imaging equipment, which we had challenges in the past, because of pricing issues, but this seems to be stabilized now. And there was a decline in sales of digital restoration equipment, compared to corresponding -- the corresponding period in the fourth quarter.
And of course, we had good sales in the fourth quarter last year. But the challenge has been, customer demand is shifting from chairside mills, quite expensive to 3D printing, much less expensive and a mix-shift to lower-priced intraoral scanners. There was also a supply chain issue with one of our important intraoral scanner suppliers that introduced a new scanner, this in the last few months. So, all in all, the demand for digital restoration, that market is pretty up, but there are these mixed challenges that I've just described, I mean, go into the greater detail, if anyone has questions.
The value of our North American order book for equipment is stable. We continued to see construction delays to some extent and a slight reduction in the number of planned new office openings amongst specifically some of our larger DSOs.
On the International Dental Merchandise sales side, the same impact as in the United States, North America. The COVID patient flow challenges we experienced also, as well as the lockdowns in China that will offset on the international side, but those were largely offset by good growth in the U.K., Eastern Europe and Brazil. Towards the end-of-the quarter, dental office staffing absenteeism and patient appointment cancellations began to ease likewise in our international business.
Demand for equipment internationally held up quite well with sales moving to lower priced intraoral scanner units as well. And the overall equipment sales essentially were in-line with last year. The fourth quarter equipment sales and our outlook was slightly impacted by purchase delays in anticipation, this is on the international side, again, with the biannual IBS Show in Cologne, where customers expect new promotions to introduce new products and that show takes place at the end of the first-quarter.
The fundamentals in our dental end markets remain solid, of course, the aging population and the growing global awareness of the healthcare benefits of preventative care and oral health, all play into our strategic benefits for Henry Schein, short, medium, and long term. So, demand for dental service is also generally correlated we believe with unemployment rates. And in the developed world, these remain relatively consistent, historically low, if you will. So, we think the underlying basis is okay, supporting are okay.
And let me now turn a little bit to the Dental Specialty Products business, where we were impacted, particularly in our largest sector, implants and bone regeneration products with significant prior year growth -- prior year comparisons. The BioHorizons, Camlog premium value implant segment continues to grow in North America and Europe, and we offset here with the decline in China, although, I pointed out that our China business is not material, but it did impact the growth line to some extent.
Sales to DSO customers in United States for the BioHorizons and Camlog line remain solid and our value brand Medentis, primarily in Germany, but also to some extent in China, achieved double-digit sales growth. But this is mainly coming, as I said from Europe and a little bit from Asia. When I refer to Asia, specifically talking to Japan where implants are good going and oral surgery products do quite well.
In December, we announced plans, subject to regulatory approval to acquire a majority ownership stake in the French dental solutions provider Biotech. We look forward to bringing Biotech Dental's high-quality software. This is so important. It's the whole digital flow that is so important that Biotech Dental will contribute to Henry Schein, but also the general products and services that dentists and dental labs buy are important for new geographies with respect to Biotech, specifically in France, where we believe we will be close, if not, the leader in implants at some point in the near future. These also have in a line of products that is well-received in that market.
So, dental products implants biomaterials all are high growth, high margin products, and Biotech will contribute to that as well as providing support -- additional support for our leading digital workflow solution in dentistry, of course.
On the endodontic side, sales growth remained strong, driven by new products introduced earlier in the year. Recent data suggest that the percentage of general practice -- practitioners in the U.S., who performed root canal procedures is increasing. That plays right into our sweet spot as well. We believe that this trend, combined with an aging population intent on obtaining with the bodes quite well for the Henry Schein endodontic business.
Now turning to our technology and value-added business. The largest segment of course is Henry Schein One, our software business. Growth was strongest in International business due to the strength of our entirely cloud-based solution which is doing very well outside of the United States. Growth in North America was driven by sales of our practice management software. Also, the -- specifically the cloud-based software that we offer, Dentrix Ascend. And we see customers upgrading to Dentrix -- Dentrix Ascend as the lifecycle of our Easy Dental product ends. So, we're very pleased with the progress, progressing from Easy Dental's to our Dentrix and Dentrix Ascend products.
What is very important is we now see close to 6,000 customers on our cloud-based products, Dentrix Ascend entirely. We have noted in the past, these cloud-based systems drive demand for other Henry Schein One products. We also had nice customer wins during the fourth quarter with our Jarvis Analytics business. It assisted well as well. This is -- the business had helped with revenue cycle management. It's just made a significant investment in Unitas, the PPO solutions provider. And generally, puts us in a very, very good position to help practitioners operate a more efficient practice while of course they provide good clinical care.
We've enjoyed a relationship with Unitas since 2014 and we are now delighted to be able to integrate these value-added services into our product offering at Henry Schein One. So, you'll see that the dental specialty products, technology, and value-added services business did well, record year this year, up against some tough comparable towards the end-of-the year. And this is where we're placing a lot of emphasis on important parts of our '22, '24, both plus one strategic plan, which we'll talk about in greater detail at our Investor Day.
The medical distribution business continued to see excellent growth. This did reflect higher patient traffic to ultimate care sites, partially driven by the incidence of flu and COVID-19, but generally, the trends are they moving from the acute care setting to the ultimate care sites. We had good sales, of course, as you would expect in point-of-care diagnostics and other products associated with flu. When excluding sales of PPE products and COVID-19 test kits, we experienced double-digit growth in local currencies, adjusting for that extra week.
And really, absent any public health outbreaks, new ones, medical sales should return to more normal, mid-to-high range single digits. We are pleased with the continued growth of new accounts across independent and large group practices as well as ambulatory surgical centers and urgent care facilities.
Strong pharmaceutical sales were driven by pneumonia treatments and equipment sales also continued to do quite well as practitioners invest in the practice, and as we are offerings our office-based practitioner equipment expense in terms of availability to treat and diagnose more treatments, more diseases, and other elements in the office-based practitioner environment.
Over the last several years, Henry Schein has been able to ship priorities and provide solutions needed to help our medical and dental customers and the public, of course, during the COVID-19 crisis, and last year's flu season and even with -- during last -- during the crisis and of course last year's flu season and even with this change, the impact of COVID-19 and flu which required huge support from our team to deal with these currently significant inflows of orders. You know, order realize that we delivered the compound with average sales growth, even with these Inflows -- unusual inflows of PPE COVID tests of about 6 points just over 6%, when you take out the PPE and COVID.
So, in Schein internal growth -- growth in general, excluding PPE and COVID is quite solid. And so, we also believe that the PPE and COVID efforts that we undertook, helped us generate more customers, helped our customers understand, therefore, healthcare products, it's better to go to a reliable source. And so, I want to thank the team for doing a remarkable job, getting out the billions of dollars of unusual onetime irrespective COVID tests and PPE products which helped generate customer loyalty.
So, with that, I will turn over the call to Ron for a review of the fourth-quarter results and our 2023 guidance.