Stanley M. Bergman
Chairman of the Board and Chief Executive Officer at Henry Schein
Thank you, Graham. Good morning, everyone, and thank you for joining us. Before reviewing our third quarter performance, I'd like to update investors on the cybersecurity incident that we discovered on Saturday, October 14, primarily affecting some of our distribution businesses. That morning, we initiated our business continuity plan when we promptly took cautionary actions, including taking certain systems offline and other steps intended to contain the incident, which led to temporary disruption of some of our operations. The following week, our distribution centers were processing orders with temporary interim processes and were generally delivering orders to customers within one to two business days.
In accordance with our business continuity plan, we activated a previously identified team of leading cybersecurity experts to assist in the investigation and recovery of the systems and to advise us through this recovery process. Over the past weeks, we have worked to create a clean network in a controlled manner from the backup data we maintained. Our distribution businesses are now operational and we are initiating our e-commerce platform early this week, and we're indeed hopeful that the website will come up tomorrow morning.
We've also made significant progress resuming the high levels of service our customers have come to expect from us. Over the last week, orders from our distribution businesses were approximately 85% to 90% of what they were pre-incident. We expect orders to increase with the reactivation of our e-commerce platform. Of course, our field sales consultants and telesales representatives have deep relationships with our customers, and our complementary software and other value-added services bring value that we believe continues to make us the best choice for our customers in the areas of services we provide.
As a reminder, this incident mostly affected the operations of our North American and European dental and medical distribution businesses. Our distribution operations in Australia, New Zealand, Asia and Brazil were generally not affected. Henry Schein One, our practice management software, revenue cycle management and patient relationship management business, was not affected, and our manufacturing businesses and our equipment sales and service operations were mostly unaffected.
We are now aware that a significant amount of information was obtained by an unauthorized third party in the cybersecurity incident. Bank account information for a limited number of suppliers was misused, and we have already separately addressed this with those impacted. More details have been posted on our Investor Relations website. We are continuing our investigation of the cybersecurity incident. In a moment, Ron will speak about the financial impact of the cybersecurity incident, which will affect our fourth quarter financial results.
I would like to extend a heartfelt thanks to our customers as well as our suppliers and team members for their patience and the incredible support we've received from all of our constituents during this period. Our customers, our suppliers and our team understand that a cyber incident could occur to any business and has been particularly prevalent in the healthcare arena over the last six months.
Turning now to the third quarter. We're reporting solid financial results for the third quarter. We achieved good total sales growth and non-GAAO diluted EPS growth, despite continued lower sales of PPE and COVID-19 tests. Our internal sales growth slowed in the third quarter due to some market softness in September as a result of general macroeconomic weakness as well as lower sales of PPE products and COVID tests. However, we believe that the dental and medical markets that we serve are relatively recession resilient.
Sales of PPE products and COVID-19 test kits continue to decline, but at a lower rate compared to the earlier year. Increased customer demand for lower priced corporate brand, merchandise and generic products, along with growth of equipment technical service revenue also has helped our profitability this quarter. Profitability for the quarter benefited from our technology, value-added services and dental specialty products as we continue towards our goal of achieving 40% of operating income from sales of high-growth, high-margin products.
We are now more than halfway through our three-year BOLD+1 Strategic Plan. Despite current macroeconomic conditions and the cybersecurity incident, we have confidence in the stability of the dental and medical markets and remain committed to our strategic priorities and long-term financial model, which includes high single-digit to low double-digit growth in operating income.
Year to date, we have closed several strategic investments. And just last month, we were pleased to announce the closing of the acquisition of Shield Healthcare, a business that distributes medical products to patients in their home, including continuous glucose monitoring. Overall, these acquired businesses are performing well.
So let me turn to a review of our quarterly highlights from each of our business units, beginning with dental distribution. In North America, dental offices generally remain busy. However, dental patient traffic somewhat slowed in September. This seemed to be the result of an increase in patient cancellations, which we believe were partially due to the seasonal uptick of flu cases and COVID-19. And our overall consumable merchandise sales, excluding PPE products, reflected this. Looking at our international dental business, overall volumes of consumable merchandise held steady across the regions.
Sales of traditional dental equipment in North America have largely reverted to pre-pandemic levels with growth in mid single digits. Dental equipment sales continued to be impacted by lower average selling prices, and we expect this to normalize in the first quarter of 2024. The equipment backlog was sequentially slightly higher and included strong orders taken at DS World show held in September, actually at the end of September of 2023. This increase reflects typical seasonality as we head into the fourth quarter.
International dental equipment sales reflect a slowdown in sales in large equipment, and this is, though, in parts of the world outside of North America, not everywhere. Our equipment sales vary quarter to quarter, of course, partially as a result of purchasing dynamics of large DSOs. But over the long term, we continue to expect equipment sales growth in the range of low-to-mid single digits.
Dentistry is undergoing a significant transition to integrated high-tech digital workflow systems in the dental practice. Henry Schein is well positioned to be the brand of choice for our customers who are seeking an integrated digital clinical workflow, and we remain confident in the long-term outlook for dental equipment in general.
Turning now to the dental specialties. Overall, we believe we continued to gain global market share during this quarter. Our global implant business grew 40%, predominantly through acquisitions. BioHorizons and Camlog continued to perform -- outperform the market, growing sales in the mid single digits. Our acquisitions of Biotech Dental in France and S.I.N. in Brazil are showing strong growth in implants and related products in their local markets. Our value brand, Medentis, is also growing well. This is offset by somewhat slower -- in fact slowing market -- the slowing market in North America.
The performance of our endodontic business continued to be strong and the clear aligner segment of our orthodontic business grew by double digits, albeit off a small base. So we are optimistic about the long-term growth prospects for the specialty markets as we continue to see adoption of specialty procedures among general practitioners, the growing adoption by DSOs of specialty procedures and, of course, due to the macro trends of demographics. We are also optimistic about the dental specialty products in 2024 as we have a robust new product line with upcoming launches in various geographies. So we are really optimistic about our specialty businesses in 2024, driven by the macro demographic trends and robust new product -- and our robust new product pipeline.
Let's now turn to our technology and value-added services businesses. We had excellent sales growth in our technology and value-added service businesses driven by the Henry Schein One practice management software sales and by Large Practice Sales, the practice brokerage business we acquired at the close of this quarter. Henry Schein One's growth continues to be driven by practice management software solutions and, of course, particularly by Dentrix Ascend and Dentally, our cloud-based solutions which provides the opportunity for dental practices to integrate clinical workflow, and it's very important, throughout the dental office. Once again, the customer base of cloud solutions increased by about 40% this quarter compared to prior year.
DSO accounts in particular are seeking integrated platforms along with the tools that are enhanced by artificial intelligence. In this connection, we recently formed the DSO Strategic Advisory Council, which is strategically focused on growing practice revenues and solving operational issues for large group practices. We, of course, have similar programs for mid-sized practices and for the smaller practices, where this advisory kind of service is provided by our field sales consultants.
During the third quarter, we introduced new features and upgrades, including the launch of Lighthouse 360. This new platform facilitates integrated patient communications, reputation management and overall practice success. This feature-rich product includes online patient scheduling, digital customized forms for patient intake and payment reminders and more. Henry Schein One's goal is to continue to grow our practice management customer base and to increase the breadth of solutions offered to our existing customers. Our priorities regarding software integration are critical to achieving this goal, and we are well on our way towards an integrated clinical offering for the clinical aspects of the practice with a focus on specialty procedures as well.
Turning to our medical business. Third quarter growth was in the low single digits, excluding sales of PPE and COVID-19 test kits, similar to recent quarters. This growth reflects high prior year comparison sales growth and higher sales of lower priced products, including generics and corporate brands, albeit with the higher margins. Of note, we are now distributing COVID-19 vaccines, although we do not expect this low-margin product category to have a significant impact on sales or profits. In September, we saw an uptick of sales in COVID-19 test kits, which we expect to continue into the fourth quarter.
So in summary, the underlying fundamentals of our core business remain solid. We are executing ahead of schedule with our 2022-2024 BOLD+1 Strategic Plan.
So with that in mind, let me ask Ron to discuss the quarterly financial results and our full year guidance. Ron, please.
