Henry Schein, Inc.

Good morning, ladies and gentlemen, and welcome to Henry Schein's second quarter 2025 earnings conference call. At this time, all participants are on the listen-only mode. Later, we will conduct a question and answer session. Please press the star key followed by 1 on your touchtone phone if you'd like to ask a question at the end of the call. If anyone should require operator assistance during the call, please press star 0 on your touchtone 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 second quarter of 2025. With me on today's call are 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. Rists 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 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 our 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 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, August 5th, 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 Bergen.

Thank you, Graeme. Good morning, everyone. Thank you for joining us. We had good sales growth in our global distribution group this quarter while experiencing lower margins in the U.S. versus the prior year, primarily resulting from lower glove pricing as well as some time-limited targeted sales initiatives. We are pleased with the results from these initiatives and have returned to normal levels of promotional activity. Strong merchandise sales in July cause us to be optimistic about these results. Our specialty products and technology groups continue to deliver strong results driven primarily by sales from innovative products, solutions, and cost efficiencies. And July sales also continue to be strong. We are maintaining our full-year guidance, which continues to reflect earnings weighted to the second half of the year. 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. We are partnering with KKRS Capstone. We have engaged two leading global management consulting firms to support our efforts to enhance distribution gross margins, including accelerating sales of our owned products portfolio and support our ongoing company-wide initiatives to increase efficiencies. We expect these projects, which expand on our bold plus one strategy, to start producing results towards the beginning of 2026 and will support our ongoing initiatives to drive superior customer satisfaction and our financial goal of high single-digit to low double-digit earnings growth. We expect these projects to streamline processes, partially through introducing new technology, including AI solutions, thereby enhancing the customer experience and improving efficiencies. Let me touch on a few of the highlights from the quarter that advance our bold plus one strategic plan. Overall, we believe we are continuing to gain market share across the portfolio. Our customers highly value our price value commercial model, which encompasses technical support, the industry's broadest product offering, including corporate brand, customer loyalty programs, advanced value-added services, business analytics, and reliable next-generation day high-fulfillment. We achieved over 45% of our non-GAAP operating income from high-growth, high-margin businesses during the quarter, driven by sales growth and profitability in our high-growth, high-margin businesses, which outpace growth in the rest of the business. We remain on track to achieving our goal of 50% – over 50%, shall we say – of our total non-GAAP operating income coming from these businesses. Plus, in addition to that, 10% or more coming from our corporate brands. In the United States, our medical business continues to show strong results, including our home solutions platform, underscoring the strength of our strategy of following the patient into the home. We continue to implement initiatives to right-size expenses in our distribution businesses and corporate functions and consolidated various manufacturing facilities. We now expect the run rate for these savings to be slightly over $100 million by the end of the year. And beginning in 2026, we expect further enhanced profitability as a result of our new value creation initiatives. And after our team successfully launched our new global e-commerce platform, Enrichine.com, in the UK and Ireland, we have begun a phased launch in North America, first in Canada and now in the United States, that will continue into the fourth quarter. Turning now to review of our businesses, let me start with the Global Distribution and Value Added Services Group. We achieved volume growth in our U.S. general merchandise business, but at lower average selling prices compared with the second quarter of 2024, primarily due to glove pricing and limited targeted sales initiatives. We have also invested in sales talent, and as mentioned earlier, along with our targeted sales initiatives, we expect this will accelerate merchandise growth as reflected in our July sales results. U.S. dental equipment sales were temporarily impacted by market uncertainty related to tariffs in the second half of the quarter. Dentists are continuing to invest in their practices, and the order intake has since returned to normal. There was a rebound in new office design activity in June, and our equipment backlog recovered with some of these installations being deferred into the third quarter. Overall, this supports our view that the equipment sales will improve in the second half of the year. We are seeing good volume growth in the digital equipment arena, but at a lower average selling price as growth has primarily come from entry-level intra-oral scanners. Moving on to the United States business, the United States medical business, sales grew mid-single digit for the quarter. Patient traffic increased steadily. Our sales reflected strong growth in medical products and pharmaceuticals, partially driven by new accounts and continued outperformance by our home solutions business. International dental merchandise sales growth was steady during the quarter, although April was impacted by the timing of Easter. Sales growth was particularly strong in Brazil. International dental equipment sales growth was strong in Canada and across Europe, particularly in traditional equipment. Growth was bolstered by this year's International Dental Show in Cologne. Digital equipment volumes grew well, with sales at a lower selling price, a lower average selling price. Sales of parts and service in both the U.S. and internationally continued to grow well in the mid-single digits. Value added services sales growth was impacted again this quarter by lower sales in our practice transitions business as a result of a high prior comparable. This is a high margin business where sales fluctuate quite a bit from quarter to quarter. We have a strong pipeline of active transactions that we expect to close throughout the remainder of the year. So let's now go to the Global Specialty Products Group. As a reminder, this group includes implants and biomaterials as well as endodontics, orthodontics, and orthopedic products. Sales in the second quarter reflected accelerating growth in dental implants and biomaterials and endodontic consumables. Profits were also bolstered by a recent consolidation of manufacturing facilities. We are pleased with the sales growth of our implant business, which grew mid-single digits in constant currencies, and we believe that we continue to gain market share in the implant and bone regeneration area. Specifically, we achieved double-digit growth in value implants driven by our SIN and biotech dental implant systems that were complemented by low single-digit growth in our premium brand BioHorizons Camrol. Our U.S. implant sales grew low single digits and reflected the continued rollout of the BioHorizons tapered pro-conical implant, which is gaining momentum. Smart-shaped healer abutments sales also continue to grow. Supported by the expansion of our BioHorizons sales force in the U.S., this expansion is expected to increase sales on a continued accelerating sales growth basis. European implant growth this quarter was impacted by the timing of Easter. Momentum accelerated later part of the quarter, and the business is doing well in the third quarter. Orthodontics remain a small part of the specialty products business, and we continue to work to improve this business. Now, finally, our global technology group sales accelerated during the quarter, driven by strong growth in our core practice management system solution business, particularly our cloud-based platforms, including Dentrix Ascend in North America and entirely outside of North America, as well as strong growth in our revenue cycle management offerings, including EAT claims, electronic billing, and patient messaging. As a result, we are driving growth in annual recurring SAS subscription revenues and increasing adoption of transactional services. Practice management software growth was in the mid-double digits driven by a 20% -over-year increase in cloud-based customers. We now have over 10,000 customers subscribed to the Dentrix Ascend and Dentali systems. We believe our OneShine marketing approach enables greater customer adoption of the Henry OneShine platform and provides us with a unique competitive advantage. This platform differentiates us by seamlessly integrating workflows through technology to create meaningful operational efficiencies. Our workflow integration deepens customer engagement and reinforces our ability to deliver scalable, reoccurring solutions and revenue growth. The overall technology business and our own brands, businesses, specialty businesses are all doing well. Let me comment for a minute on the announcement that I'll be retiring as CEO at the end of the year while continuing to serve as chairman of the board. It has been an incredible journey over the past 45 years and I'm very pleased with all that TeamShine has accomplished over this time. Many transitions from a mail order, small mail order dental distribution business to a global provider of products and services to the dental community and to the alternate care site. Many many changes along the way, expansion of the product and strength, the product offering the services we offer and strengthening of our management team as well as the team in general. It has been especially gratifying to have worked with the tens of thousands of incredibly committed and talented TeamShine members who reimagined and reinvented Henry Shines role as I mentioned from one of product delivery and logistics to one his mission today is to help over one million healthcare professionals operate better and more efficient practices so that our customers can focus on outstanding clinical care. Thank you to each and every TeamShine member for your individual and collective efforts in playing such an important part in building our unique company. Thank you to our investors for your support in almost 30 years as a public company, a full 30 years come this November. As part of succession planning over the years, the company has focused on developing the next generation of leaders and earlier this year simplified the business by separating into three operating divisions, each with outstanding leadership. I fully expect that Andrea Albertini, CEO of the global distribution group or who also has responsibility for the global technology group from our investment point of view and Tom Popek, CEO of the global specialty group together with the rest of the company's executive management committee. I expect these two leaders together with the EMC to elevate Henry Shines to new heights, continuing to advance the bold plus one strategy in conjunction with KKR value creation initiatives and a broad based employee ownership program. Guided by our purpose driven mission, we built an agile company that meets the evolving needs of our customers with much more to come. We've also created significant share of the value and positioned Henry Shines for continued growth and success. Of course, I remain fully committed to TeamShine and look forward to working with the board to identify my successor and effect a smooth transition. I'm committed to doing this of course. In the meantime, the team remains focused on advancing our bold plus one strategy, thereby driving value for our customers and of course our shelves. Let me now turn the call over to Ron to review our second quarter financial results and discuss our 2025 financial guidance. Ron, please.