Henry Schein, Inc.

one on your touchstone phone if you'd like to ask a question at the end of the call. If anyone should acquire operator assistance during the call, please press the star key followed by zero on your touchstone phone. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Officer. Please go ahead, Graham.

Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's financial results for the 2024 fourth quarter. With me on today's call is Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Ron South, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to state that certain comments made during this call will include information that's forward-looking. RISKS and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and the company's performance may materially differ from those expressed in or indicated by such 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, and included in the risk factors section of those filings. In addition, all comments about the markets we serve, including end market growth rates and market share, are based upon the company's internal analyses and estimates. Today's remarks will include both GAAP and non-GAAP financial results. We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of the business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the financials and filings section of our investor relations website under the supplemental information heading, and in our quarterly earnings presentation also posted on our investor relations website. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 25th, 2025. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Lastly, during today's Q&A session, please limit yourself to a single question and a follow-up. And with that, I'd like to turn the call over to Stanley Berman.

Thank you, Graham. Good morning, everyone. Thank you for joining us this morning. I hope that the new time is appreciated by analysts and investors, and if not, and you would like to go back to it later in time, please be in touch with Graham and we will take your thoughts into account. The financial results and guidance being provided today are consistent with the preliminary financial results and guidance provided on January 29th. Our fourth quarter financial results reflect relatively stable dental and medical end markets. We continue to make progress as we sunset our 2022 to 2024 Bull Plus One strategic plan, which is now completed. We've exceeded our key goal of and the major target in the plan of 2024, by 2024 generating 40% of our worldwide operating income from high-growth, high-margin businesses. And let me remind our investors there's another 10% or so of our profits that are coming from our own brands, so well over half of our profits are today coming from our high-growth, high-margin and own-brand products. We have confidence in the underlying fundamentals of our business and look forward to advancing the opportunities contained in our updated 25 to 27 Bull Plus One strategic plan. KKR announced its investment to become our largest non-index shareholder recognized as they recognize the potential of Henry Schein. We expect 2025 to be the base year from which to grow and achieve our previously provided long-term goal of high single digit to low double digit earnings growth with the incident now in the rear mirror. As part of the launch of the updated 25 plus one strategic plan, we have simplified our organizational structure and appointed Andrea and Albertini to have responsibility for our global distribution and value added services group as well as our global technology group. The global distribution and value added services group includes distribution to the global dental and medical markets of national brand and corporate brand merchandise as well as equipment and related technical services. This group also includes value added services such as practice transitions, continuing education, consulting, financial and other services. The global technology group includes development marketing and sales of practice management software e-services and other products and related services. We also appointed Tom Popek to lead our global specialty products group which includes manufacturing marketing sales of dental implant and biomaterial products, endodontic orthodontic and orthopedic products and other health care related products and services as well as management of our corporate brand offering which is essentially distributed through our distribution group. We expect that these complementary businesses will drive growth by leveraging our current product portfolio across our entire customer base, providing new products and services for our customers and growing our e-commerce business. I think the relationship between each of our groups and the driving of synergies will of course grow sales and related profits. We are also today announcing a change to our reportable segments. This was also requested by investors during our survey some time ago and we have now prepared financial statements in accordance with these reportable segments and they align with our management reporting and provide more meaningful information to investors on the business performance. I will detail the performance of each of these three groups in his prepared remarks. We will continue to provide information on our high growth high margin products and services but these are now included in each of our reportable segments and of course it's a key metric for us to drive high growth high margin profits sales and profits. A very important metric for our 2025 to 2027 strategic plan. We will provide you with separate data on that. Now let's turn to a review of our key business units. Let me start by reporting on the global distribution and value added services group. During the fourth quarter we continued to see relatively stable patient traffic. Market growth for dental and medical products continued to be below the long-term guidance range we provided our investors today. Partially as a result of customer migration to value priced products. Now if we look specifically at the U.S. dental merchandise growth which was strong excluding sales of PPE, personal protective equipment and impacted by a low prior year comparable offset by the midweek timing of Christmas. Ron again will give you specifics later in the call. On the U.S. dental equipment sales which increased double digit and benefited from the deferral last year of some sales in the fourth quarter of 23 into the first quarter of 24 as a result of the cyber incident. We achieved strong growth in traditional equipment and parts and technical service. Digital equipment sales also increased with unit growth quite good offsetting some price declines. On the U.S. medical business results reflect a late start of the flu season and lower sales of vaccines, PPE and COVID tests. Our home solutions business performed particularly well during the fourth quarter. In January we strengthened the business as we completed the acquisition of the centers. This is adding to our offering of continuous glucose monitors an area of the home care market, the home care market they were quite bullish about. Now we've increased the annual run rate in this home care solutions business that we entered a couple years ago to approximately 400 million with significant amount of that 400 million coming from internal growth. Let's take a look now at our international dental merchandise sales which grew strongly with good growth in Canada and Canada now is included in the international group dental group. Strong growth in Canada, Europe, Brazil, slightly softer growth in Australia, Zealand and Asia. International equipment sales growth was solid, the stronger growth in traditional equipment compared to digital equipment which was again good units but digital was impacted by pricing all similar to the U.S. a global trend but overall our equipment business was quite good this quarter. Right now let's turn to a review of the global specialty products group which had solid growth in dental implants, biomaterials and endodontics. Core businesses in this group did well. Our new entry into the orthopedics arena last year especially well we did have some orthopedic products before but the significant investment we made last year also performed well. This growth was offset by a decrease in the orthodontic sales and we're addressing that through restructuring largely a result of a product an important product going off patent we have a new product coming actually we have it in place now and it's gaining some traction in the orthodontic field. Implant and biomaterial sales in Europe continue to be quite strong especially in the duck region that's the German-speaking region where our Bihorizons Camlock products continue to grow well. While the launch of Bihorizons tapered pro-conical implants in the U.S. is proceeding well the initial sales are largely coming from product conversions with existing customers resulting in modest incremental sales but we expect the tapered pro-conical implants to be a way to generate business from new customers in our implant business. Overall our sales of dental implants in the value segment posted very strong quality growth the SIN product line posted solid double digit growth in Brazil and we continue to roll out the brand across the U.S. to serve the value segment of the market. Our endodontic sales growth was strong as a result of our expanded sales focus through our U.S. distribution sales channel of the edge product offering as well as some new product productions. A little bit more on the orthopedic business which continues to perform well including our acquisition which is complementary to our medical focus on ASCs and specialty customers. New products in both upper and lower extremities as well as good momentum with a new dedicated sales team in foot and ankle help drive sales growth. So this whole area of is working well for us and we will deal with the orthodontic challenge but overall taking that out the performance is quite good. Now if you look at the technology group while overall sales growth was low we had strong operating growth in the business. Sales continue perform well in cloud-based practice software that's management practice management software and revenue cycle management also did quite well partially offset by the sun setting of certain brands. The whole idea here is to drive towards common brands each type of application. We lose a little bit of business along the way but we can provide better service and of course greater margins. We now have over 9,000 customers subscribe to Dentrix Ascent and in Tali with -on-year growth of approximately six and a half percent. It's very important to understand that this is a shift from an on-prem sale to a SAS model which creates short-term headwinds on the revenue side which is outweighed by longer term benefits from higher recurring subscription revenues. This model is working quite well. Cost efficiencies in the business are there that have been reaped more as we merge brands and this is driving technology operating margin up. This trend we expect to continue. Now let me turn the call over to Ron to review our fourth quarter financial results and our 25 guidance. Ron please.

Thank you Stanley and good morning everyone. As Stanley mentioned we are also today announcing a change to our reportable segments to align with management reporting and provide more meaningful information for investors on the business. The results being reported today reflect this change in a recast of prior comparative segment information has been provided in exhibit D of today's press release. Turning to our fourth quarter sales results I will provide detail on total sales growth as well as LCI sales growth which is internally generated sales in local currencies compared with the prior year and excludes acquisitions. Global sales were $3.2 billion with sales growth of 5.8 percent compared to the fourth quarter of 2023. This includes 0.7 percent growth from acquisitions and a 0.4 percent decrease attributable to foreign currency exchange. Please note that sales in the fourth quarter of 2023 were negatively impacted by the cyber security incident. LCI sales increased 5.5 percent for the quarter or 6.6 percent when excluding lower PPE sales and COVID test kits. Our gap operating margin for the fourth quarter of 2024 was 4.86 percent a 358 basis point improvement compared with the non-gap basis operating margin for the fourth quarter was 7.46 percent a 260 basis point improvement compared to the prior year non-gap operating margin. In the prior year both the gap and non-gap operating margins were negatively impacted by the cyber security incident. In the fourth quarter of 2024 our operating margin benefited from lower operating expenses year over year as we as we are starting to realize cost savings from our restructuring initiatives. We also continue to experience year over year gross margin expansion in the fourth quarter primarily as a result of acquisitions we have made to advance our bold plus one strategy. For the full year we achieved 41 percent of our total operating income from high growth high margin businesses. Fourth quarter 2024 gap net income was $94 million or 74 cents per diluted share. This compares with prior year gap net income of $18 million or 13 cents per diluted share. Fourth quarter 2024 non-gap net income was $149 million or $1.19 per diluted share. This compares with prior year non-gap net income of $86 million or 66 cents per diluted share. The foreign currency exchange impact on our fourth quarter diluted EPS was unfavorable by approximately one cent versus the prior year. Adjusted EBITDA for the fourth quarter of 2024 was $270 million compared to fourth quarter of 2023 adjusted EBITDA of $172 million. Turning to our fourth quarter sales results we are updating the breakdown of sales as detailed exhibit A of today's press release to reflect the updated reportable segments as well as other internal management responsibilities. Of note we are now reporting U.S. distribution sales instead of North America distribution sales. This means Canada is now being reported as part of international. As a point of reference Canada has approximately $400 million of annual revenues. Approximately one third is equipment sales. Global distribution and value added services group sales were $2.7 billion with sales growth of .9% including LCI growth of 5.8%. Sales were positively impacted by a soft comparison to the prior year. Excluding PPE and COVID test kits LCI sales growth was 7.3%. Our U.S. dental distribution LCI sales grew .9% versus the prior year with LCI growth in dental merchandise of .8% or .5% growth when excluding PPE products and equipment LCI's growth sales growth of 10.0%. U.S. equipment sales growth was driven by both traditional and digital equipment with digital equipment unit growth offsetting some pricing deformations. In addition to the U.S. medical distribution LCI sales grew .5% compared to the Q4 of 2023. Excluding sales of PPE products and COVID test kits LCI sales grew 7.3%. Sales of point of care diagnostics and vaccines were negatively impacted by the timing of the flu season. Our home solutions business had another strong quarter growing 8% year over year. Our international dental distribution LCI sales grew .3% versus the prior year with LCI growth in dental merchandise of .9% or .0% growth when excluding PPE products and equipment LCI's LCI sales growth was 6.0%. Finally global value added services sales grew .1% versus the prior year with an LCI sales decrease of 0.7%. We achieved strong sales growth in E-assist and financial services offset by lower sales at large practice sales as a result of the timing of closing of some practice transition services sales. Turning to the global specialty products group which includes our dental specialty products, orthopedic and other products. Sales were $368 million with sales growth of .2% including LCI growth of 5.0%. This segment includes the orthodontic business which is being reorganized for future profitable growth. It also includes certain expenses relating to managing our own brands that support sales in the distribution businesses and provide a headwind to segments operating margin. Global technology group sales during the fourth quarter were $160 million with total sales growth of .4% and LCI sales growth of 2.1%. This was driven by revenue cycle management and practice management software with double digit growth in ascend and internationally led by our Dentali cloud-based practice management solution offset by lower revenues of certain patient experience modules and as Stan mentioned a headwind to revenue growth as a result of the movement to a SAS model. Restructuring expenses in the fourth quarter were $37 million or $0.23 per diluted share. These expenses mainly relate to severance benefits and costs related to exiting certain facilities. Our restructuring activities in the third and fourth quarters are estimated to provide over $80 million in annual run rate savings. We continue to expect savings from this plan to be $75 to $100 million of aggregate annual run rate savings by the end of 2025. Our fourth quarter gap results include $20 million in pre-tax proceeds as part of our cyber insurance claim which are excluded from our non-gap results. As of the end of the year we collected approximately $40 million. All items excluded from our fourth quarter non-gap financial results for 2024 and 2023 are detailed in exhibit B of today's press release. A reconciliation of gap to non-gap results is also available in our quarterly earnings presentation on our website. Regarding share repurchases, we repurchased approximately 1.1 million shares of common stock in the open market during the fourth quarter at an average price of $71.35 per share for a total of $75 million. For the full year we invested $385 million to repurchase 5.4 million shares. At fiscal year end we had approximately $380 million authorized and $380 million available for future stock repurchases. An additional $500 million of share repurchases was authorized by our board of directors on January 27, 2025 including a commitment to repurchase $250 million in shares under an authorized accelerated share repurchase program. Turning to our cash flow, we have strong operating cash flow of $204 million for the fourth quarter which compares with operating cash flow of negative $32 million last year. Operating cash flow for the full year in 2024 was $848 million which is $348 million more than in 2023. Our strong operating cash flow for the quarter and the year was driven by lower working capital, particularly lower customer receivables which we've been focused on throughout the year. Turning to our 2025 financial guidance, at this time we are not able to provide without reasonable effort an estimate of restructuring costs associated with the new restructuring plan for 2025. Although we expect this to primarily include severance pay and facility related costs. Therefore we are not providing gap guidance. Our 2025 guidance is for continuing, current continuing operations as well as acquisitions that have closed and does not include the impact of restructuring and integration expenses and other items described in our press release. Guidance assumed modest improvement in the dental and medical markets during the year and is supported by strategic initiatives outlined in our strategic plan and recent acquisitions as well as a positive contribution from our restructuring plan. This is partially offset by investments in technology and a return to historical levels of incentive compensation. We also assume that foreign currency exchange rates remain generally consistent with 2024 levels. Our 2025 total sales growth is expected to be 2 to 4 percent over 2024. For 2025 we expect non-gap diluted EPS attributable to Henry Shy Inc. to be in the range of $4.80 to $4.94 which reflects growth of 1 to 4 percent compared to 2024 non-gap diluted EPS of $4.74 per share. 2025 non-gap diluted EPS is expected to be more heavily weighted to the second half of the year. This guidance assumes there is no net impact from the issuance of new shares the KKR which is expected to be offset by an accelerated share repurchase program. It also assumes an estimated non-gap effective tax rate of 25 percent. Our 2025 adjusted EBITDA is expected to grow in the mid single digits versus 2024 adjusted EBITDA of $1.1 billion. We expect adjusted EBITDA to grow faster than non-gap diluted EPS due to higher depreciation expense primarily related to the global e-commerce platform. With that I'll now turn the call back to Stanley.

Thank you Ron. Operator we're ready to respond to questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. To allow as many as possible to ask questions we ask you please zoom your questions to one question and a follow-up. One moment please for our first question. Thank you. Our first question today comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Morning everyone. Thanks for all the detail here in the recast financials. Appreciate that's not an easy undertaking. I want to start with if I could revenue guidance and just some of the underlying assumptions you have there. You're calling for two to four percent reported revenue growth. It's based in part upon improvement in both dental and markets versus last year. I understand why your business can continue to outperform the broader market with your investments and initiatives you have in motion. But it does seem like your market view is slightly more optimistic than what we've heard from some of your peers. Is there something you're seeing today that gives you kind of call it better relative comfort on the market outlook? And then if you're able can you give us a sense of how you're forecasting organic growth for each of your new reporting segments? Really just in the context of that company-wide guide.

Yeah sure Jason. I think that you know the we do say modest growth in the markets right. If you think back to the investor day two years ago we said then we thought core dental could grow two to four percent. I think we're still looking at market well but there's market growth we think the two percent it you know could be challenging. So it's probably somewhere in that zero to two percent but we do expect some modest growth in there. You know price appreciation is also limited so there's not a lot of price appreciation in our revenue guidance. And you mentioned too kind of inorganic versus organic. You know our M&A activity was a little lower than most years in 2024 so we're not getting you know there's a very limited amount of acquisition growth included in that in that overall revenue growth as well.

Okay Ron I guess in the second part of that any breakdown on or how you're how you want us thinking about you know under your new reporting structure you know the global distribution, US versus international thoughts within there, global specialty, global tech and then you know maybe just as a follow-up on the bottom line you seem pretty confident just in the outlook of you know getting back to high single-digit growth once we get past 25. Is that a function of 25 investments tapering in 26 or is it a belief we're going to see better natural leverage coming through the P&L?

I think it's a combination of you know the latter part of your question is it's a combination of that right. It's the ongoing benefits we would get from some of the restructuring we're doing. At some point some recovery in markets and perhaps you know some some better price appreciation going forward as well. In terms of you know going back to the your question on the reportable segments I think that you know within the you know within each of those we are looking at kind of market growth that that continues to be lower than we would normally anticipate and lower than what we communicated on investor day two years ago. So you know for example I think we said that medical growth rates were in the four to seven percent. We think that right now we expect that market growth to still be slightly below that four percent. Dental specialties were in that five to eight percent range. You know so the there are there are pockets of dental specialties that could be you know in that range but there's also you know especially on the on the on the what I'll call kind of the sub-premium side. It's we still think it's lower than five percent. So there are some some aspects of the market that are that are going to be lower than what those those market growth rate scores that we that we assumed a couple years

ago.

All right

very helpful thank you.

Our next questions are from the line of Jeff Johnson with Baird. Please proceed with your questions.

Thank you. Good morning guys. I know we're two months into 2025 but I just want to go back to the fourth quarter for one second here if I could. I mean when you pre-released last month the 3.2 billion dollars in revenue for 4Q you know we frankly had hoped that was a rounded down number. It ends up in today's release that was a rounded up number and when I look at just kind of relative to your third quarter updated guidance that you provided on the third quarter sorry for 2024 you know you fell short in the fourth quarter by 500 basis points in the fourth quarter on a revenue basis at the low end of the guidance 700 plus basis points at the midpoint. So what happened in fourth quarter I guess that drove those revenues 500 basis points below the low end of the guidance 700 basis points below the midpoint of the guidance you know just relative to a guidance that was issued you know a month into the fourth quarter. Thank you.

Sure Jeff I'll address your rounding question first. I mean we did say 3.2 I think revenue is a 3.191 so you're right you know we rounded up 9 million dollars so you know but we did round that to 3.2. You know in terms of the lower revenues than expected as we mentioned we did have it was it was

relatively

flat patient traffic in the quarter and also a really kind of a slow end of the quarter given the timing of Christmas which we underestimated the impact of that. So the quarter did end you know much more slowly than what we may have anticipated and on the medical side the timing of the flu season you know resulted in much lower medical revenues than we had than we had anticipated as well.

Okay and if I look at the dental numbers and you know a little bit hard to compare to our old models obviously but you gave us some historical restatements to help but that U.S. number up mid single digits on consumables I think somewhere in the neighborhood of on a negative eight to ten percent comp depending on how we cut the numbers. So on a stack base is still negative you know we talked about the market being pretty flat and you guys have you know recovered a decent amount of your cyber share loss. I mean talk to me maybe just about share dynamics in the fourth quarter and share dynamics expected in 2025. Do you feel like you're holding your own? Do you feel like you're you know maintaining that share? Are you losing share at this point? Just help me understand kind of that stack comp still negative on the consumable side in the fourth quarter. Thank you.

Yeah in the fourth quarter we did see share stabilized. We had been getting a little bit of additional market share quarter to quarter sequentially over the course of 24. Our Q4 share was relatively flat to our Q3 share. You know there could be a number of reasons for that but we're so confident we can continue to get some market share as we get into 25 as well.

Jeff let me just add that moving to this segment reporting and changing the way we've reported in the past is just not easy to comprehend. We provided a lot of data in the exhibits. There's no way these changes could be understood in an hour and a half. So I'm not sure if there's a there was a better way to do this. This is the best way we thought of providing this information but I think if analysts yourself have a few more hours to look at the schedules that we provided it will make a lot more sense. But you know this is a one-time move in 29 years that we've moved as a public company from one way of describing our business to another. The description follows reporting internal management reporting which is required by the SEC and there's a lot of information that is contained in these attachments and we'd be happy to clarify. We do understand specifically for yourself and for others that covered us for many many years that this is a significant change and it's very difficult to comprehend all the nuances in an hour and a half. Perfect storm. 8 a.m. reporting and new segment reporting all thrown together but we're available to provide more information but I think the attachments will be helpful but you will need time to analyze them.

Understood. Thank you, Stanley.

The next question is from the line of Alan Lutz with Bank of America. Please proceed with your questions.

Good morning. Thanks for taking the questions and thank you Paul for all the updates so far. I want to go to slide eight in the presentation. Specialty operating margins are up pretty nicely year over year but they're maybe a little bit below where we thought they would be. Can you talk a little bit about the opportunity to raise those margins over time? Thanks.

So just on the specialty side, the specialty margins, this is the reporting segment as it relates to reporting of management. So within that segment there are some lower margin businesses. For example, our pro repair handpiece business. It's good but it's about half maybe more or maybe less of the margin compared to our implant business and our endodontic business. We had a challenge with the orthodontic business which we are addressing and that segment also includes expenses for management of our corporate brand products which are essentially distributed through our distribution business. So it's not a pure margin for the implants and the endo. It includes other components as well but it does follow the requirements of all the businesses and all the functions reporting to Tom Popat. So we can provide further information. We will over time but this is the reporting as relates to management reporting rather than products that are in implants, bone regeneration and endodontics. Yes, we do expect the operating margin in this segment to grow over time. That is a key focus but it's not a pure number relating to implants, bone regeneration and endodontics and affect orthopedics which have higher margins.

Thanks, Stanley. And then one for Ron. Is there any way to frame how fast implants grew in 4Q and then as we look at 2025, a large Medicare advantage payor stopped covering implants in 2025. Wondering if there is any change to growth you are seeing through the first two months of the year and what is embedded in the guide for North American implant growth. Thanks.

Yes, with reference to implant growth, we are still seeing relatively healthy growth in Europe more so than in the U.S. In the U.S. we are still getting some value implant growth more so than perhaps on the premium side. And U.S. is a slightly tougher market right now with implants. But in Europe, our analog subsidiary that focuses primarily in Germany, Austria, Switzerland region are really in that kind of low to mid single digit growth range which we are pleased with because it's a difficult market. There was a second part of your question, Alan. Sorry.

Just around 2025, a large M.A. payor stopped covering implants. Wondering if that had any impact through the first couple months of the year.

No, I mean it's not a, what I would call a significant part of the kind of end market for us. So we haven't seen anything that we would point to that we would be able to directly attribute that to an impact on the business at this point.

Great. Thanks, Ron.

The next questions are from the line of John Stansel with JP Morgan. Please receive your questions.

Great. Thanks for taking my question. I want to go back to the KKR agreement. I think in the agreement there's commentary around a value creation plan using KKR capstone. Can you just speak to what areas they'll be looking at? Is this purely in an advisory capacity and then maybe a little bit more broadly, are there things that KKR's pretty extensive dental portfolio can do to work together? Maybe that haven't happened previously. Thanks.

Yeah, so as it relates to KKR, they're not on the board yet. We'll have to clear the hot spot for Dino before they can get deeply involved. We will of course engage with their team. There are a number of areas that they feel they can help us with that we really believe they can. But our focus and the areas, our focus through our strategic plan and areas that KKR has capabilities aligned very nicely. But we can't really get to work in any significant or meaningful way until the filing is cleared. We're still in the preliminary stage of the filing. We haven't received any further commentary. So we're hopeful that we'll clear the hot spot soon and then we can get to work with KKR. But they're not on the board yet. And they cannot really get engaged. I don't expect much benefit from the relationship with one of our large customers. It is definitely a Chinese wall between the two sides and different people involved.

Great. And then just one maybe for Ron. You know, talked about that share gain, you know, versus kind of the beginning of 2024, exiting 2024. You know, I think about that and potentially the flu season pushing into the first quarter. It seems like you would think that growth might be weighted more to the first half of 25 versus the back half at the top line. Can you help me just balance that versus the back half weighting of just DPS? You know, what the factors are that kind of might create that dichotomy?

Well, it does assume kind of ongoing, you know, regaining some market share over the course of year. And also, as we get some, you know, greater momentum on the implant side, for example, with the tapered pro conical and some of the newer products that launched in the back half of 2024 that would give us momentum into 25. And then, you know, that's just reference to the top line. And then bottom line, it's just ongoing reduction in expenses as we, you know, execute on the restructuring plan that would get us, you know, to some, to more, I would expect more earnings growth in the back half of the year than in the first half of the year. Keep in mind, too, one other thing John has said, and we referenced this on the call, you know, we will have a difficult equipment comp in the first quarter of 2024, I'm sorry, 2025, as last year, the first quarter benefited from some deferral of equipment installations coming off cybersecurity incidents. So when we report Q1 and talk about equipment, we'll also be looking at it as we're looking at it internally, we kind of look at that as a six month period, Q4 to Q1, how's that business doing versus last year, given that disruption to the timing last year on the equipment installation as well.

Great, thanks.

Our next questions are from the line of John Block with Stiefel. Please proceed with your questions.

Hey, guys, good morning. Ron, I think this one is probably for you, just the 2025 EPS growth, you know, at a high level, basically in line with revenue growth. You know, I just think about like mixed shift debt pay down, stock repo, ongoing restructuring, maybe some past accretion targets from those deals that were done in prior quarters. You know, can you talk to why we're not seeing some slightly higher leverage on the bottom line versus the top, even, you know, in a year where there's a lot of moving parts or what you seem to be alluding to as like a rebasing type of year?

There's a couple of things and we've, you know, we've kind of touched on some of the challenges on the revenue side. I would say two things that are specific, we have talked about some ongoing investment in IT specifically in our global e-commerce platform, which will be launching in U.S. in, you know, this summer, but we have begun depreciating that system because we did launch it on a test basis in Europe late in 2024, so we are going to get a full year of depreciation on that. And then also, as we referenced in the call, kind of a return to what we'll call hopefully more normal incentive compensation expenses. We, the last couple of years between cyber and the softer markets have not had what I consider to be a normal expense level there. So there are some internal headwinds related to this, you know, some of this is offset by some of the cost savings we're achieving, but there are some top line challenges out there still that, you know, that I touched on when referencing the revenue.

Okay, thanks. And maybe just to shift gears, Stanley, in the past, I think you've alluded to, you know, the need for, call it like accelerating innovation from partners or investments in new products, and, you know, here we are shortly coming up on IDS next month. So I'm just curious on how you see the pipeline from some of your partners, and do you see some of that innovation, call it like incremental innovation, working its way through, nothing's overnight, but that might give you more confidence as you look out over the next, you know, 12 to 18 months in your equipment line. Thank you.

Yes, John, thank you. Very important question. I do think we will see some marginal incremental advancements at IDS, I think particularly in the digital space and the digital materials. I think on the consumables, the basic consumables, hopefully we'll see some advances, but at the moment, not much. There are, of course, always manufacturers that are coming out with something new, but I don't think very much. And on the traditional side, not very much either, the imaging, but the digital side, yes, and I think that may lead to more movement towards a second tier potentially, and maybe corporate brand type products. Of course, I'm not talking about the specialty side, it continues to be good innovation on the implant side, little bits on the endodontic. We'll see what happens next month. Don't expect any big surprises.

Our next question comes from the line of Kevin Caliendo with UBS. Please proceed with your question.

Thanks.

Thanks for taking

my question. Ron, I just want to dive a little bit more into the margin question. I appreciate you saying, you know, you have 75 to 100 million of savings. There's offsets from IT, offsets from the incentive program normalizing again next year. If you're talking about flat operating margins, is that completely offsetting the 75 to 100 million in savings? And if we were to break that apart, what's happening with the margins on the segments X, the cost savings against the one timers that are company specific that are offsets? I'm just trying to understand what's driving the margin, specifically either segment or cost savings against one timers.

Yes, certainly, Kevin. I think I understand your question. For example, in distribution, it's something we've touched on. You're seeing some movement to lower price items. While those gross margins can be beneficial, from an operating margin standpoint, we're seeing relative stability as it relates to that shift to merchandise. We've mentioned some of the pricing pressure on digital equipment that can put a little bit of pressure on margins as well. Those are more market phenomenons that we're trying to manage. You mentioned some of the company specific items that we are investing in. Those are items, quite frankly, that were long-term investment plans regardless if we were doing the restructuring or not. Some of that is, you could argue, is a reinvestment of the restructuring savings. Some of it is, if we were going to incur it anyway, it perhaps just falls out. Once you get past distribution, you get into specialty, we do see a little more of a shift, for example, in implants to value implants versus premium. That has a slightly different margin profile. We are working to improve the orthodontic business, which right now is creating a little bit drag for us on that operating margin. There's a couple of things within specialty as well that we believe once we get beyond 25 and get to a more normal run rate with those businesses, we'll begin to see an operating margin expansion contribution from that portion of the business. In technology, the technology team has done a very good job of reducing costs, of consolidating some brands on the patient experience side. We saw some good operating margin expansion in technology in the back half of 24. Now the challenge will be to try to maintain that type of operating margin going forward.

Great. If I can ask a follow-up to Stan, when you partnered with KKR in this way, I know you have a long-standing relationship with Henry Schein I. Did you view them as a strategic partner or did you think that they would come in more and help operationally? Pick me through what you think the benefits you're going to get from having a stronger relationship with KKR going forward.

I think they will be a very strong strategic partner. They do care about the medical space, but particularly the dental space. I think they're interested in advancing their platform on consumables, equipment, software, synergy between all of those. Specialty area, they have very good capabilities with the capstone area. So I think there are a lot of opportunities and the good news is the areas they see as opportunities align with the areas that we have identified in our 22 to 24 strategic plan that are now magnified in the 25 to 27 strategic plan. The high growth, high margin opportunities, the opportunities relating to advances in efficiency on our distribution side, driving customer satisfaction, the areas of leveraging between our businesses, and of course the technology area. The whole bold area are areas that they align. They're adding to the very fortunate directors who have a lot of experience in the markets that we serve. We've added a third new director who has very good experience in the device field. So I think they will add a lot. The people that we've met are people that really are interested in our business and are long-term players in this field. This is not a buying the stock, driving it up and exiting. This seems like a long-term play. It doesn't seem that's what the assurances are given. So we're partners in advancing our bold plus one

strategic plan. Thank you very much. The next question is from the line of Brandon Vasquez with

William Blair. Please proceed with your question.

Hey guys, thanks for taking the question. Two quick ones that are a little bit of clarification ones. When you were talking, Ron, about sales structure normalizing in 2025, just to be clear, can you clarify that there is there a change in the sales incentives or the structure of the sales incentive packaging, or is it simply a normalization of what you think comp will be because things are normalizing? And then the other clarification question is simply around tariffs. With the Trump admin saying now again that the Mexico and Canada tariffs might be going on soon. And then of course China has gone on just to talk about what is and isn't included within the 25 guidance that's been given.

Yeah, just to clarify, Brandon, first on the compensation question you have. It was with reference really to management incentive compensation, not on the sales side. We've also made some changes in the sales commission structure, which we think can help us drive growth and perhaps improve margins going forward. What I was referring to specifically was when you look at the stock-based compensation and other related expenses going forward, to the extent we can get the business back to more normal growth rates, we can start to expect an increase in like for example with China, the one product category that is most affected by China and historically would be gloves. And over the course of 24, we were able to shift a lot of our supply chain to other Southeast Asian countries, Vietnam, Malaysia as an example. We continue to have supplier relationships in China. We can have them supply our European businesses without having to manage the tariff side of it. Beyond that, in Canada, Canada is a large producer of anesthetics for the dental industry. To the extent that there's an increase in cost of anesthetics, it won't only affect us, it'll affect everybody because that's where most anesthetics, dental anesthetics come from. And regarding Mexico, we rely very little on supply from Mexico. I think that those are really the areas of focus right now. We believe we're well positioned to manage through any situation that would arise as it relates to tariffs.

Thank you. And maybe one big, bigger picture. I'm not sure we've ever gotten a stat like this from you before, but maybe can you talk about, you guys obviously have your own product portfolio of Henry Schein branded products. What percentage of customer needs do you guys think you can fulfill with your current portfolio? Trying to get a sense of how big can this product portfolio actually get over the coming years and how much line of sight do you have in your current customer accounts to grow that business? Thanks.

So of course, we are committed to our branded manufacturers. It's a hybrid model. And where the branded manufacturers have an offering that provides the price, satisfies the pricing needs of our customers. We will work with the branded manufacturers, but essentially for most products on the consumable side, we do have an alternative, whether it's as the brand is as well recognized or not. That's a different story. But I think the Henry Schein corporate brand has moved over the last five or six years to much more of a brand versus a white box. But essentially on the dental side, we have most of the products, if not almost all. We do not have private brand dental traditional equipment. I'm not sure there's a need for that. We have adequate sources of supply and in that area, manufacturers are working with us to meet the value needs of our customers, whether they are DSOs or smaller practices. On the medical side, we have a lot of the products, not everything. And certainly we don't have our own brand of generic drugs, but we do have all products that are purchased by our medical customers and are available generically, available under a generic brand. But we don't have our own brand of generics. Most of our pharmaceuticals anyway are injectables and vaccines. For vaccines, the big one flu, there's adequate supply of not exactly generic, but equivalent products. And on injectables, generally where something is available as a generic, we have access to that at very competitive pricing. So we have a complete portfolio as needed. We're always adding new products, of course, but we're always improving on our brand image to match the quality of the but generally our corporate brand has very good potential. Having said that, we are always working with our branded manufacturers and this hybrid model works well. And we are expecting to increase our gross profit margin because of the specialty products, but also because of our own brand and because of the support from certain of our manufacturers, national brand manufacturers. So we do expect gross profit to increase

this year and in the future. Thank you. We have time for one last question coming

from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your questions.

Hi guys, good morning and thanks so much for the question. I had maybe two follow-ups on some of the things. One, I appreciate all your comments on the tariff impact or potential tariff impact. Can you just remind us, maybe I missed this, like what exactly you included in the guidance or whether you just think it's sort of incremental but not necessarily something that you're was worried about given some of the sourcing changes. And then two, maybe Stanley, can you talk about the transition within the orthodontic market? I appreciate what you said was sort of temporary in nature, but I just want to make sure I understand the dynamics as that sort of patent comes off and you re-ramp both in the broader orthodontics business and also the clear liner business. Thank you.

Sure Elizabeth. On the tariffs, essentially there is no, we're not the only thing that we can do. The only imported product offering is the gloves. And yes, there's some nitrile gloves that we have to purchase in tariffed countries. I think everybody is to some extent reliant on that. But other than that, we've been able to shift our product needs around. We can acquire on gloves, for example, adequate inventory from Malaysia. I'm not aware of any tariff implications on Malaysia. And as it relates to China, if some of the product that we need comes from China, we can use that in Europe and satisfy the U.S. demand elsewhere. Not much else. We've been moving product around now for a while. We've contemplated this tariff for a while. I do not believe it will impact our bottom line. As Ron mentioned, the big one is dental anesthetic from Canada. For the moment we have adequate inventory to get us through for a while. But if there is a tariff on dental anesthetic from Canada, it will impact the entire industry because you can't just move dental anesthetic around. Maybe a little bit more will come from France, but a huge percentage will come from Canada. So I don't think from our bottom line point of view, you know, tariffs implemented, it will impact sales in a positive way, but I don't think the bottom line will be impacted in any material way or in any way really. As it relates to orthodontics, it's a small part of our business, but the infrastructure we had in place for the traditional orthodontics was built for a much larger business. We're now right sizing the infrastructure. Yes, we lost a patent on an important product in the orthodontic space. So we lost money in that space, operating income in 2024. That has been adjusted. As it relates to aligners, we make aligners in the U.S. and in France through our biotech business. We're synergizing those. All aligners will come out of the French factory. It's actually a very good aligner, but we have been losing money on aligners, and we expect to turn this all around in 2024. By the time we get to the third or fourth quarter, actually more the fourth quarter, we will start making money again in a very small orthodontic space, which has been a drag on our specialty earnings in 2024. As we get to the end of 2025, I think you'll see profitability in orthodontic business, but it is small, but we did lose some money in 2024. I think we're at the end now.

Yes, Mr. Berg, when I turn the floor back over to you for closing comments.

Yes. Thank you, everyone, for calling in. I really appreciate it. I am aware that the challenge. I don't know of another way. I'm sure there were other ways in which we could have advised our investors of this change. We did alert our investors in our last call that we would be doing this. We did consult with our advisors and do apologize if we're hitting our investors with too much new information all at once while at the same time having an early call. That's number one. Number two is our team are ready to address questions, of course, all in compliance with FD. Graham and Susan, Ron available. Of course, I will take calls from any investors, too. I just want to emphasize, and maybe it didn't come across clearly, we are quite bullish about the business. I think the business is running well. We have very good management in our segments. Each one of the segments is run by capable people, experienced people, not only heading up, not only Andrea and Tom, but the teams underneath them are very, very solid, both in the United States dental business, in the United States medical business, our Canadian Brazilian business, our European business, and our Asian businesses. I think we've got as good a team as anyone else in our industry. I think we are continuing to gain market share. If you peel the onion, maybe there's some areas where we haven't grown market share this quarter. There's very interesting dynamics as to cut off when Christmas fell, what was moved between 23 last quarter and 24 first quarter, the comparables. These are all areas. I'm hopeful that 25 will be an easier year to understand, and we're well set up for an outstanding, I think, 26. We view 25, as we've noted a couple of times, as a base year upon which we will return to our corporate model for growth, high single digits, low double digits EPS. The cash flow in the business is good. The investments that we've made to advance our strategic plan are doing well. The big ones are doing extremely well. And our advances on all sides of the strategic plan, the Goal Plus One plan, are doing well. You've got a slide in the investor presentation covering the B, the Build, the operationalization of our distribution business, the O. The leveraging is doing well with lots of opportunity. And we're making very good progress on the digital side. The GIP system that we launched in the UK and Ireland is working quite well in that market and will come to the States later in the year. I am quite comfortable that that product will generate much more business. It's not doing it now, although right now we do have to recognize the depreciation. We're doing quite well in advancing our clinical workflow, advancing AI in the business. We're doing, I think, the things we should be doing, but I do realize from an investor point of view there's been a lot of change. The change started with the COVID up and down, some restructuring that occurred after COVID, and as things were settling down, we did have the cyber incident. But we have, I believe, fully stabilized post the cyber incident. It was just at our medical and national sales meeting. Our sales organization is ready, not only ready, but going out again, getting new business. I would say 24 was a year, most of 24 was a year in which we were focused on our existing customers, getting them through the cyber incident. We retained most of our customers, if not all, except for some of the episodic customers. We're getting them back, doing a lot of work on the whole area of e-commerce to attract those customers back, the episodics that left us. I would say the business is quite stable today, and the strategic plan that we executed for 22 and 24 will have very good momentum into 25 to 27's plan, led by, I think, a great team. So with that in mind, again, sorry about the way in which segment accounting changes came out, but I'm not sure there's any good way of really presenting a significant change and having a call right after the press release goes out, an hour and a half. But anyway, we will listen to investors, we'll take your ideas very seriously, we're open to all dialogue with investors, and of course, we're very, very excited about the addition of KKR to our investor base and the three new board members we have. So look forward to seeing people at conferences, Ron Graham, Susan are going out to some conferences, I think, next week, and please feel free to reach out to us. We will answer your questions, also, of course, in compliance with FD. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.