Henry Schein, Inc.

members who have undertaken this incredible journey to make an impact on the profession and the communities we serve around the world. We have become a leader and a model with our work to create and strengthen public-private partnerships, whether it's in the profession or in the local markets that we serve or even on a global basis, that have expanded access to care around the world. We have made a difference in enhancing global health preparedness and and reinforce the vital link between oral and overall health, including, as I've said, access to care. This has been a big goal of ours and has driven our brand and driven our sales and related profits. In closing, I have huge confidence in the management team who are talented, motivated, working diligently to execute our strategies, including our value creation programs, which We provided further clarity today and I'm quite very optimistic about where this will go and how this will drive up operating income and therefore shareholder value. So before we take questions, let me thank all 25,000 Team Shine members around the world, our incredible board, our suppliers, those investors that have confidence in us, I believe you will be well rewarded in the years to come. Thank you for supporting us for the past 30 years. I personally wish to thank those on this call that I've known for so many years, many analysts for decades, many investors since the beginning. It's been a true wonderful journey. It's been wonderful getting to know all those constituents that are active in supporting the office-based dental and medical practitioners. So with that in mind, Let me turn over the call now to the operator to answer some questions. Thank you very much. And sorry for the words here, but just 120 calls later, I think I should be able to make a couple of extra words. Thank you.

Thank you. We'll now be conducting a question and answer session. To allow as many as possible to ask questions, we ask you to please center yourself to one question. If you'd like to ask a question, please press star 1 from your telephone keypad A confirmation tone will indicate that your line is in the question queue. You may press star 2 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. One moment, please, before we poll for questions. Our first question is from the line of Jason Bednart with Piper Sandler. Please receive your questions.

Hey, morning everyone. Nice quarter and Stan, it's been a pleasure working with you. Congrats on everything. I'll try to stick with the single question request, but I may bend the rule here with a multi-part question. I wanted to focus on the comments you're making about future earnings growth. The third quarter performance might suggest you're back to posting better top line growth. It also seems like you're picking up some benefit from the restructuring program that's been ongoing and then You have the first phase of the value creation targeting $200 million in EBIT benefit. When you say that you're returning to your long-term goal of high single to low double-digit EPS growth, I guess my question is whether that's a comment that's applicable to 2026. And that $200 million benefit is pretty large. I think it's larger than a lot of us were expecting today. Shouldn't that program alone get you in that EPS CAGR range before we even think about core revenue growth and capital allocation opportunities?

So Jason, thank you. And I think you're one of the two analysts that have the longest experience in our space and really know it. So thank you for sticking with Dental. I think Dental will present good rates of return to investors over time. So I think it's a good place to focus from an analyst point of view. But I'll deal with the sales momentum. I think we're very comfortable now that the Cyber incident is behind us. Our salespeople are out aggressively going after business. It's not a matter anymore of explaining what happened in terms of cyber incident. I think it's quite clear now that many in healthcare, unfortunately, have been to this. It's kind of almost normalized. And I think a lot of our customers have tried alternatives. options to save a penny here or there, but realize that the service we provide from a supply chain and all the value added services makes it really worthwhile. So I would say the organization, we've got great management throughout in particular, as it relates to sales and sales management, the marketing management is great throughout the world. And so the momentum is very good. We're attracting excellent representatives to join our sales representatives. So the momentum is there. And I think that's indicative of the fact that we upped our sales guidance. Now, Ron, as it relates to the financials, your thoughts.

Yeah, certainly, Jason. With reference to 2026, as you can appreciate, this is a kind of a multiyear plan to deliver the $200 million in operating income improvements. Having said that, we do expect some operating improvements in 2026. As we assess the plan, and as we kind of work through the sequence that will be necessary to deliver that 200 million, we'll be able to determine the estimated impact and the estimated benefit that will be in 2026, and we'll reflect that in our 2026 guidance when we provide that in February.

Okay, very helpful. Congrats again, Stan. I'll step back for others to ask questions.

The next question comes from the line of John Block with Stifel. Please use your question.

Thanks, guys. Good morning. And Stanley, certainly echo everyone else's congratulations.

A quick one for me. You know, Ron, the midpoint of 25 EPS guidance came up by 5 cents, if I've got that correct. The remeasurement was 8 cents above last year. So maybe if you can talk about what was embedded in the original guidance and clarify that. And then just taking a step back and, you know, maybe this one's for you, Stanley, just the second, the quarter, the third quarter was certainly better relative to 2Q. You mentioned some share gains, but I'm just curious, how much of that was market improving versus Henry Schein execution and maybe any early comments on October? Thanks, guys.

Okay, I'll start with the guidance, Stanley, if you can do the back half. On the guide, John, with the remeasurement gain, there's a range of outcomes that we have to estimate there, because until you actually complete the transaction, it's difficult to assess exactly how much will be there. So it was slightly higher, perhaps, than what we would have expected, but it was within the range of our expectations. So the $0.05 has a little bit of a benefit from that remeasurement gain, but it also reflects, the momentum we feel like we have in sales growth. I mean, if you look at year over year for us and strip out the re-measurement gain, strip out the $28 million in the third quarter on a pre-tax basis this year, strip out the $19 million on a pre-tax basis last year, and take a look at our non-GAAP operating income, we did achieve about 4.5% operating income growth. And that's, you know, we think that's pointing us in the right direction. And so we're We're confident with the momentum we're seeing coming out of the third quarter, going into the fourth quarter, and that's reflected in the revised guide for this year. Stanley, you want to do this?

Yeah. Thank you, Ron. John, thank you also for following us in the dental industry for so long. The markets are, I would say, generally stable. Of course, there are some markets that are a little bit better, some that are not. but generally the big markets are stable. I think units are pretty constant in the markets. It's most encouraging that this time now we don't see pricing going down too much. It's pretty stable, I would say. I don't think customers are moving significantly to lower-priced national brands. There was a movement in that area. Having said that, Our own brands have increased, continue to increase now for the last few quarters. I think there's good momentum there. There is a little bit of tariff inflation, maybe 100 or so basis points in the United States, but not a lot. We've been able to talk to some manufacturers about absorbing the tariffs, others for some products we've switched to u.s manufacturing perhaps a few items more than a few to markets with a terrace a little bit less so generally the market is stable with a tad of inflation 100 or so uh glove pricing is stabilized uh units are a little bit up now for us we are gaining that market share there but generally i would say From a Henry Schein point of view, we believe we're gaining market share. And I'm talking about distribution now. Where it becomes a bit clearer is on the implants and related bone regeneration there. We believe we definitely are growing faster in the market. Maybe there's one manufacturer doing a bit better than us in certain markets that we are not focused on. But generally, I would say we are doing quite well in the implant field. where the market is relatively stable. And endodontics, relatively stable. We're gaining market share. On the medical side, generally, pharmaceutical side of Henry Schein has done well. I think it's stable. I don't think there's much in the generics to report this quarter. For medical equipment, MedSearch products, relatively stable. There has been a decrease in testing. and respiratory products. People have not been very sick this season. But overall, I think the 4% or 5% we're growing in medical in the US is indicative of the market with not a significant amount of inflation. And I think we are picking up market share there. And of course, on the software side, it's quite clear we're doing extremely well. And that's driven by our cloud-based system. The system's growth. our various value-added products that we've added to our electronic medical record system. And overall, I would say we're doing generally quite well. There's a list of countries where we're doing a little bit better, and obviously those are countries where it's largely market share growth because the markets throughout the world are relatively stable.

Thanks, guys.

The next question is in the line of Elizabeth Anderson with Evercore ISI. Please receive your question.

Hey, guys. Good morning. And Stanley, congrats. We're very excited for you. And you've achieved so much in this company over the years. So appreciate all of your work there. Maybe just going, you talked about, I think, during the call, some of the stabilization and the gross margin and the distribution business. So, Ron, I was wondering if you could expand on that a bit and sort of talk through the puts and takes of that and sort of how you see that developing maybe in the fourth quarter and as we think about going forward. Thank you.

Certainly. So, yes, on the U.S., specifically I was making reference to the U.S. dental side. We did see, you know, stabilization in the margins there as glove pricing stabilized, so that definitely helped. And we returned to a more normal level of promotional activity in the quarter. So the Q3 gross margins in U.S. dental were consistent with what we saw in the second quarter. And I would expect that to continue into the fourth quarter as well, largely driven by continued stabilization in PPE, specifically clubs, because that is a very important product category. You know, within medical, we did have a little bit of product mix there, as influenza vaccine sales tend to be very strong in the third quarter relative to the rest of the year, even though they were down year over year, and that is a lower margin product. Also, medical saw very good sales growth in their pharmaceutical products in the quarter, and those tend to be a little lower margin than the overall margin in medical, but very pleased with the sales growth we got in medical and believe we can continue to see see that continue into the fourth quarter.

Firstly, thank you, Elizabeth, for your comment. But Ron, if you could answer. I forgot to answer John's question on October.

Yes, certainly. And with reference to October, we continue to see, I think, the similar trends to what we saw in the third quarter. As we worked through October and looked at the results, we've seen a there may have been some forward buying a little bit as people were trying to get out in front of tariffs, but we didn't really see that impact October negatively for us. You know, medical will be, you know, often is driven by the timing of the respiratory season. So we're anticipating some, you know, some improvement in our diagnostic kit sales in the fourth quarter, depending on the timing of the respiratory season as well. And on the equipment side, While we had very good in the third quarter digital equipment revenues, our traditional equipment revenues were relatively flat, down a little bit in the U.S., mostly just due to the timing of some installations. And we're very comfortable with the equipment backlog we saw. We've been getting to see some of that benefit in October and kind of running into the fourth quarter as well.

Our next question comes from the line of John Stancil with JPMorgan. Please just use your question.

Great. Thanks for taking my question, and congratulations, Stanley, on all your accomplishments as CEO across the career. I just want to quickly talk about specialty products operating profit. I appreciate it was up significantly year over year, but with the $28 million remeasurement gain, it looks like it would be flat to down. stripping that out. And I think you've highlighted some solid top line trends that you're seeing across implants. Can you just talk about what you're seeing on the margin side of specialty products group and what might be driving that? Thanks.

Certainly, John. I think a couple of things in the year over year on the specialty side. Yeah, you're right. You do have to look at it kind of X the $28 million remeasurement gain. Last year, we did have a relatively strong quarter on the US implant business, that did develop a little bit of a strong or difficult comparable for them. But also what we are seeing in the market is, and we mentioned this in the prepared remarks, that the value implant growth was in the low double digits while premium implants were really kind of growing in the low single digits. And we do get better margins on those premium implants versus the value implants. While it's great to see the growth in value, it does dilute that margin a little bit. And I think that the combination of the comp to the prior year and a little bit of a dilution in that gross margin is creating the dynamic that you're referring to there.

Our next question comes from the line of Alan Lutz with Bank of America. Please receive your question.

Good morning, and thanks for taking the questions. Stan, congrats again on the retirement. Appreciate all the time and insights over the years. A question for Ron, just to follow up on that last question around the specialty growth trajectory. As we think about the lower, I guess, gross profit dollar contribution from value implants relative to premium, Can you talk about what you need to see in the model for EBIT dollars within that specialty business to go up in 2026? Not looking for guidance on 2026, but how does the model have to behave in order for that part of the business to grow next year? Thanks.

Well, I mean, I think, you know, Alan, the obvious answer would be greater growth in the premium implants. But I do think that continued growth in value implants can give us gross profit dollar growth, ultimately. And then, you know, recovery, a slight recovery of the market per premium would also benefit that. Endodontic sales, you know, which is also within that specialty area, continue to be steady and should, you know, continue to provide some gross profit dollar growth. And I would say that the, you know, within the orthodontics, you know, we've have made some significant operating changes there, and I would expect that to begin being more of a contributor to some growth in 2026 as well. Albeit, you know, it's still a small part of that segment, but I think it can provide some greater contribution to gross profit growth.

And one other thing, thanks. There's a lot of work going on in that group on value creation, consolidating front office procedures, consolidating facilities. consolidating manufacturing. That has all been planned over the last couple of years, been executed, and I think we'll see some good results in 26. In particular, also, Ron mentioned orthodontics. I don't think we can invest heavily in marketing of orthodontics. It just doesn't give us the traction that I think we can get by using those dollars and investing in other parts of the specialty area. We have some orthodontic products. They sell nicely through the Henry Schein Salesforce, but we're reducing our focus on orthodontic field Salesforce and generally these various consolidation concepts I mentioned. This should all drive up operating income on the specialty product side.

Our next question is from the line of Jeff Johnson with Baird. Please just use your question.

Yeah, thank you. Good morning, everyone. Stanley, thank you for the walk down memory lane there and your prepared remarks. It's been a heck of a run, and obviously we all wish you nothing but the best. Ron was hoping maybe, or Stanley, hoping I could maybe ask kind of a phasing question. I know you're not really talking about 2026 at this point, but in that $200 million now in op income, cost savings savings, Are you expecting that to be, one, a net number then, inclusive of any kind of reinvestments back into the business, number one? And number two, should we split that over the next three years, kind of 70-70-70, something in that ballpark? And on top of that phasing question, maybe just the remeasurement gain, that $28 million, can we expect something similar next year, or should we not have something like that in our model next year, just as we think about the year-over-year comparable there. Thank you.

Hi, Jeff. Yeah, thanks for the question. I think that I'll start with the $200 million. As we said, this is a multi-year plan. We're not in a position yet to kind of commit to what we expect the phasing of that to be. As you've inferred, it will be phased over a period of time. And we are currently assessing what we believe the 2026 benefits may be from these value creation initiatives as we get started on them, as many of them are actually kind of in process now, those initiatives, right? So we'll be able to have a more accurate assessment of what we think the 2026 benefit will be, and we'll reflect that within our 2026 guidance. With reference to a re-measurement gain, What I can say is that they've been a regular part of our business and they've popped up in the last few years in our results. There's always further opportunities to invest in these types of affiliates, but we're not expecting anything significant in the near future. So to the extent that in 2026, if we believe there's not going to be something significant, we will make sure that that is clear when we provide that guidance. If we believe that there is something out there, we will try to provide some color as to what magnitude that could be. But I would expect it to be an integral part of our guidance when we provide that. And then with reference to the $200 million, is it net? I mean, as we've said in the press release, this is $200 million of operating income improvement. So yes, it is net. There will be some additional investment that will be necessary that we think we can do with the cash we generate from these value creation initiatives. So there will be some areas that we have to invest in that might create some costs. But over time, we think that this is a $200 million net opportunity for us to the operating income improvement.

Our next question is from the line of Michael Turney with Lioric Partners. Please just use your questions.

Good morning. Thanks for taking the question. And yes, Stan, not a ton more to add there, but appreciate all the time over the years. Maybe if I could just think about the market a little bit again. You talked about the share gains. Obviously, your biggest competitor has had a change in structure, change in management. As you think about the pathway of getting back to your normalized growth rate, what are the assumptions for share gains on the merchandise, on the equipment side going forward?

So I don't know if it's

We haven't really given guidance on assumptions for 26, so I think, I mean, unless Ron has something specific, I don't think that's... No, I mean, the only thing I would add is we've, you know, we're confident we've been taking some share over a period of time, and we're confident that some of the promotional activity that we deployed earlier this year has assisted in some of the market share gains that we believe we had in the third quarter. And so it's simply a matter of continuing with that type of activity in a thoughtful way such that we can assume some level of market share gains. But at this point in time, if we think it's a relevant assumption when talking about our 2026 guidance, we can provide more color there.

Thanks, Ron. Having said that, we did give guidance on sales growth for this balance of the year. I think it's implicit in there that we feel strength in the business. Really, when you're in one of these cyber incidents, you don't realize systems are up and running, et cetera, but you don't realize what work has to get done to get the customers back in the door. Several of those customers tried alternate Sources, maybe they've got a better deal. Maybe there was a program that was offered. Maybe Coke at the end of the aisle was at a lower price. I think a lot of that is behind us. Our sales organization is highly motivated right now. Dental, medical, in the United States, abroad, they've got their systems back. There's a lot of tools they've gotten that were promised and worked on before the cyber incident that are there. They could see that they get the HenryShine.com system is working in a number of parts of the world. There's huge enthusiasm with that. And generally, we're getting some salespeople that are knocking on our door from our competitors, just not one, but multiple competitors. And generally, and I'm talking about distribution now, the distribution part of Henry Schein has gained momentum. It's back in its stride. We're winning. We're fighting. Our equipment business is solid. consumable business is doing quite well units pricing we've got a great offering and generally the mood amongst our sales organization is great both in the field the telesales group which was largely focused on customer service was for at least a year and a half is back aggressively selling ecommerce services Generally, that group is doing very well. The whole social media group is doing well. And I might add, our relationship with our major suppliers is good. Our suppliers want to work with Henry Scheuer. And then if you add to that the L in the leveraging, leveraging relationships amongst our different businesses, I think you will see the programs are working. We have a great group that is just focused now on our owned brands, products, specialty products that we're selling through distribution. That group is doing very well. The window part, the clinician's choice part, the bone regeneration part. There just is a lot of good momentum in the business. And it sort of started getting better a couple quarters ago. We gave that push of the promotion last quarter. That's now stuck. And generally, I think the momentum is good. And that's reflected in the increase in sales guidance that we've given. And I can't see why that kind of momentum wouldn't go into 26, although I don't think we should be talking about specific numbers for 26 on this call.

Our next question is in the line of Kevin Caliendo with UBS. Please proceed with your question.

Thanks. Thanks for taking my question. And Stan, it's been a pleasure to get to know you over these past 20 plus years. I really appreciate everything. My questions around the Heartland relationship, how, where we stand with that. It was a sort of a key debate a couple months ago and drew some worry from investors. I guess just wanted to, if there's any update on that relationship, if it's going to continue at the same time. same level. And I guess to that point, how successful has the company been, been able to push through the higher costs related to tariffs and things? If you can maybe give us an update on that. Thanks.

Thanks, Kevin. Thanks for that question. Thanks for your good wishes. I don't think we have ever spoken about specific DSO or even IDN relationships. I don't think that's something we should talk about When we gain an account, when we lose an account, we never talk about that. Maybe we did 10 years ago, but we stopped doing that. Our relationships with our DSOs are generally quite good. In fact, I think there are DSOs, specifically the regional ones, that are moving over to us. We definitely have something that others don't have. The supply chain is superb. supply chain solutions are, I believe, and I'm sure many will tell you, the best in the industry, both in terms of dental and medical evaluated services, the combination of software, the DSOs that get the consumables from us, the software from us, those that also have moved to our implant business. In fact, we've just gained another decent movement from dso into the implant arena all of us you put this all together and we offer a very good offering and actually i think the most compelling offering uh so i don't think we will talk about any specific customer moving one way or the other um you know as analysts of course your job is to try to find out what's going on but i don't think it's going to come to us it can't it's not right so uh I'm sure you'll hear through the marketplace about any of these specific DSOs, but generally we feel very comfortable with our business. I can't imagine any DSOs saying to Henry Schein, you know what, we're not going to test your pricing, we want better pricing. It's the standards, what they do for a living, and our job to go into the marketplace to get the best pricing we can for our customers. That's our job. As it relates to tariffs, generally we've been able to find a way in which we can move products Locally, we can negotiate with the manufacturer, find alternative countries. And there's been somewhat of an increase, I think, a percent or so of inflation here. I would say a lot of that is to do with tariffs, not much to do with general pricing increases. So generally, it's sticking. And it's not that our customers think we're trying to take advantage of them. They know we're doing the best we can to get the best pricing, best pricing options, moving to private brand if the national brands are insisting on increasing pricing. So I think overall it's working okay at this point. I think there's been some reduction in tariffs in a couple of important countries. And I think, I mean, it's hard to tell where this is going to go. And I think generally we're doing okay on the tariff side at the moment.

Okay. Thank you. We have time for one last question coming from the line of Brandon Vasquez with William Blair.

Hey, everyone. Thanks for sneaking me in here. And, Stan, I'll echo everyone's congrats on a great career at Henry Schein. I wanted to ask on the update around KKR and the board's approval for KKR to take an even bigger stake in the company. Just curious if you could talk a little bit about the impetus of that decision, what kind of conversations are happening there, and should we think about, as KKR continues to take bigger and bigger slugs of the equity ownership here, potentially, does the partnership become a little more, I don't know the right word for it, but maybe a little more intimate? Are you guys working a little bit closer? Do the strategies on a go-forward basis for Henry Schein see more meaningful changes as they become a bigger and bigger shareholder of this company. Thanks. Thank you very much.

Thank you. You guys have followed us since the day we went public. In fact, took us public. So thank you. As it relates to KKR, we didn't approach them. They came to us. I think they've gained an appreciation of the company. They've studied the dental space for, I don't know, for a long time, arguably over a decade. They know a lot about the space. the consumables, the providers, the software and value added service providers. I think they're like our company. So they came to us and asked if we could go up. Our board had a discussion. Our board ensured that the board was fully aware of all the factors involved in taking this number up to 19.9. And they made a decision. I think the decision was based on all of substance, not on any particular promises or anything from Henshine to KKR. It was a pure decision they made on the value they see within the company and the future and the potential. KKR's capstone group did work with us on selecting the two consulting firms to use. They've been involved in discussions with our management team. Andrea Albertini and Tom Popek are running the value creation project. KTR is aware of the project. They've given us some input on best practices. They've helped us also with some of the indirect spending. They have some good relationships with providers of services that has helped us. So I'd say it's a very good relationship. Two members on the board are very active. One is an expert in health care. The other one understands the dental market very well, expert on various kinds of supply chain methodology, et cetera. And they've been very helpful. So I would say it's been a good relationship, and things have worked out quite well. That's why they're asked to increase their position in MSI. And our board, as I said, discussed that and made the decision to approve that. the request to go up to 19.9%. So, let me just end by saying, I think you've heard through my voice, through my words, I think the company is in very good shape. We have a great team in place, the team is motivated, the team is winning, management team in each of the areas, responsibility the business units the functions with management all around and I think the bold plus one plan with the addition of the value creation program which centers around simplicity for a lot of businesses we've advanced a lot of businesses how do we make the business more simple how do we take our costs how do we manage our margins in the best way possible This is all a supplement to the Bold Plus One initiative or refinement, as we're calling it internally. So I think we've got a good plan. We've got a good roadmap. We've got the team to execute on this. Obviously, there'll be some ups and downs, as they always are in any business. But I think this team is highly enthusiastic and ready to continue to advance the business in accordance with the plans. 12 plus 1 and this evaluation program that we've added. So with that in mind, I thank everyone for the support over 30 years. It's been a great experience. I've enjoyed getting to know the Wall Street analysts, the community, the investors. There have been a lot of great strategic investors over the years. those that have invested short-term and exited and come back. These are all the components of Wall Street. I've enjoyed understanding how this works. I've learned a lot. The team has learned a lot. And I look forward to seeing people at conferences in the future, although not as Finney Shine CEO, but as a keen follower of what goes on in healthcare. So thank you all for your interest, and Appreciate everything. Tomorrow you can see us on, I think, on the NASDAQ media for the opening of the Stock Exchange or the NASDAQ. And appreciate everything. Thank you, thank you, thank you.

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