Q2 2025 Henry Schein Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Henry shines. Second quarter 2025 earnings conference call. At this time, all participants are on a 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,
End of the call, if anyone requires operator assistance during the call, please press star zero on your touchtone phone. As a reminder, this call is being recorded. I would now like to introduce your host for today's call.
Stanley Henry, 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 Spanish, your results for the second quarter of 2025.
With me on today's call, the Stanley, Bergman, chairman of the board and chief executive officer of Henry Schein.
And runs sales, senior vice president and Chief Financial Officer.
uh, before we begin, I'd like to state that certain comments made during this call will include information that's forward-looking
Rest is uncertainties involved in the company's business, which 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 factor section of those filings.
In addition, all comments about the markets we serve including end market growth rates and market share 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 information and comparative purposes and should not be regarded as a replacement for corresponding Gap. Measures
reconciliations between gaap and non-gaap measures are included in exhibit. B of today's press release.
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, Shin undertakes, no obligation to revise or update, any forward-looking statements to reflect events, or circumstances after the date of this call.
Lastly, join 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 Bergman.
Thank you, Graeme. Good morning, everyone. Thank you for joining us.
we had a good sales growth in our global distribution group, this quarter,
While experiencing lower margins in the US versus the prior. Primarily resulting from lower glove. 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 efficiency.
In 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 KKR's Capstone.
We have engaged 2 leading Global management consulting firms to support our efforts to enhance distribution, growth margins.
Including accelerating sales of our own.
Products portfolio and support our ongoing companywide initiatives to increase efficiencies.
We expect these projects which expand on our bold plus 1 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 load 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 this that Advance our B plus 1 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 tech technical support.
The industry's broadest product offering.
Including corporate brand customer loyalty, programs Advanced value added services.
Business analytics and reliable.
Next day. Hi 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 outpaced 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 continued 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 rightsize 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.
Launched our new Global e-commerce platform.
And we shine.com in the UK and Ireland, we have begun.
A phased launched in North America First in Canada and now in the United States that will continue into the fourth quarter.
Turning now to the review of our businesses, we start with the Global Distribution and Value Added Services Group.
We achieved.
Volume growth in our us, Dental, 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, grow growth.
As reflected in our July sales results.
Us 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 in, 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 is growth has primarily come from entry level intraoral scanners.
Moving on to the United States business.
The United States, medical business sales grew mid single digits for the quarter.
Patient traffic increased steadily. Our sales reflected strong growth in medical products and pharmaceuticals, particularly driven by new accounts.
And a continued outperformance by our Home Solutions business.
International Dental, merchandise. Sells 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 cologne.
Digital equipment volumes grew. Well.
With sales at at a lower selling price of a lower average selling price.
Sales of parts and service in both the US and international continue 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 with sales fluctuate.
Quite a bit from quarter to quarter.
Uh, 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 result.
This group includes as a reminder, this group includes implants and biomaterials, as well as Endodontics Orthodontics and Orthopedic products.
Sales in the second quarter reflected accelerated growth in dental implants, biomaterials, and intermittent consumables.
Profits were also bolstered by a recent consolidation of manufacturing facilities.
We are pleased with the sales growth of our implant implants business, which grew middle single digit in constant currency, and we believe that we continue to gain market. Share in the implant and Bone regeneration area.
Specifically, we achieve 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 by Horizon's Camelot.
Our us implant sales, grew low single-digits.
And reflected the continued rollout of the buyer Horizons tapered. Proon implants.
Which is gaining momentum. Smart shape healer abutments.
Sales, also continue to grow.
Salesforce in the US.
This expansion is is expected to increase sales.
Uh to uh 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 uh, in the first in the third quarter.
Or the dontics remain a small part of the Specialty Products business. And we continue to work to improve this business.
Uh, now finally our Global Technology Group sales accelerated during the quarter during by strong growth, in our core practice management system solution business, particularly our cloud-based, 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 and increasing adoption of transactional services.
Management software growth was in the mid double digits.
Double digits driven by a 20% year-over-year increase in cloud-based customers.
We now have over 10,000 customers subscribed to the DRX Ascent and then Tally systems.
We believe our 1 shine marketing approach, enables greater customer adoption of the Henry, Schein 1 platform and provides us with a unique competitive advantage.
This platform differentiates Us by seamlessly integrating workflows through technology, create 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.
Uh, let me comment for a minute.
On the announcement that I'll be retiring as the 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 seems shine has accomplished over the time.
Many transitions from.
a mail order, a small mail order, Dental distribution, business
To a global provider of products and services, to the dental community. And to the alternate care site,
In many many.
Changes along the way include the expansion of the product and strength of the product offering.
Uh, the services we offer and strengthening of our management team as well as the team. In general.
It has been a special gratifying to have worked with the tens of thousands.
Of incredibly committed and talented, team shine members.
Who reimagined and reinvented, Henry Shin's role.
As I mentioned.
From 1 a product delivery and Logistics.
The 1 is Mission today is to help over 1 million Health Care, Professionals, operate better and more efficient at practices so that our customers can focus on outstanding clinical care.
Thank you to each and every team shine 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, come and 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. Earlier this year, we simplified the business by separating it into three operating divisions.
Each with outstanding leadership.
A 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 Pope CEO of the global Specialty Group.
Together with the rest of the companies executive management committee.
I expect these two leaders, together with the EMC, to elevate Henry Schein to new heights.
Ation 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 shareholder value and positioned Henry Schein for continued growth and success.
Of course, I remained fully committed to team shine and look forward to working with the board to identify my successor and affect a smooth transition.
I'm committed to doing this. Of course in the meantime the team remains focused on advancing our both plus 1 strategy, thereby driving value, for our customers and of course our shells. Let me now. Turn the call over to Ron to review our second quarter Financial results and discuss our 2025 Financial guidance Ron please
All right. Thank you, Stanley. And good morning everyone. Uh, as usual today, I will review the financial highlights for the quarter and would like to remind investors that on our investor relations website. We have also included a financial presentation. Containing additional detailed financial information
Starting with our second quarter sales results, I will provide details on total sales, total sales growth, as well as constant currency sales growth compared with the prior year.
Global sales for 3.2 billion with sales growth of 3.3%, compared with the second quarter of 2024.
Constant currency sales grew 2.7%, with 0.6% attributable to foreign currency exchange and 0.8% growth from acquisitions.
Our gaap operating margin for the second quarter of 2025 was 4.67%. A decrease of 42 basis points compared with the prior year Gap, operating margin
on a non-gaap basis. The operating margin for the second quarter was 6.96% a decrease of 79 basis points compared to the prior year non-gaap operating margin.
Driven by lower gross margins within our U.S. distribution business due to lower glove pricing, as well as targeted initiatives to accelerate growth in market share.
In addition, operating income was impacted by higher operating expenses compared to the prior year attributable, to acquired companies, foreign exchange increased technology and marketing investments in anticipation of the launch of Henry, shine.com and non-income tax credits in the prior year, that did not recur this year,
We continue to drive improved operational efficiency by integrating Acquisitions and restructuring as well as executing our new value creation programs.
Second quarter, 2025 gaap, net income was 86 million or 70 cents per diluted share.
This Compares with prior year, gaap net income of 104 million or 80 cents per diluted share.
In the second quarter of 2025, non-GAAP net income was $135 million, or $1.10 per diluted share.
This compares with prior year non-GAAP net income of $158 million, or $1.23 per diluted share.
Adjusted IBA for the second quarter of 2025 was $2,556 million compared to the second quarter of 2024 adjusted EBIT of $268 million.
Turning to our sales results.
The components of sales growth for the second quarter are included in exhibit. A to this morning's earnings release. So I will provide the primary highlights of the main sales drivers for each reporting, segments, starting with our global distribution and value, added Services Group.
US Dental merchandise sales declined 1.2%, resulting from increased volume offset by lower product pricing.
U.S. dental equipment sales declined 4.7%.
Resulting from economic uncertainty. Beginning in May,
Both traditional and digital equipment sales, growth declined. As Stan mentioned, there was a rebound in new office, design activity in June, and we expect equipment sales to grow in the second half of the year.
We are pleased that Sales Group by 6.3% in our us, medical distribution, business reflecting increased, patient traffic, and our Home Solutions business, having another strong quarter.
International Dental, merchandise sales, grew 1.9% or 0.5% in constant currency and was impacted by the timing of Easter.
Germany and Austria and New Zealand.
Finally Global value added Services sales grew 3.6% sales growth was impacted this quarter by lower sales in our practice, transitions business, partially a result of a tough comparison in the prior year.
Turning to the global Specialty Products, group sales grew 4.2%, or 3.3% in constant currency.
Our implant and biomaterial business experience. Solid growth in the second quarter, including double digit growth and our value implants and low single digit growth in premium implants.
Our orthodontic business sales, decline year-over-year, but at a slower Pace that in Prior quarters, as we previously discussed this business is being reorganized to support future profitable growth.
We also had strong results in the Global Technology Group, with total sales, growth of 7.4% or 6.6% in constant currency.
In the US. Sales growth was driven by revenue cycle management and practice management software with double digit growth and ascend
internationally sales growth was primarily driven by our dentale cloud-based practice Management Solutions as well as strong growth in Canada.
Returning to restructuring.
Our restructuring expenses in the second quarter, were 23 million or 13 cents per diluted share.
These expenses mainly relate to Severance benefits.
We now expect to achieve an annual run rate savings of over $100 million by the end of 2025, which is when the current plan is expected to have been completed.
As Stan mentioned, we have initiated two important value creation projects to enhance distribution growth: margins, including accelerating sales of our own products portfolio, as well as companywide initiatives to increase efficiencies. We will provide a further update on these initiatives on our upcoming third quarter earnings call.
During the second quarter of 2025, the company repurchased approximately 3.7 million shares of common stock at an average price of $70.88 per share, for a total of $259 million.
This included approximately 3.1 million shares of common stock under the previously announced accelerated stock repurchase plan at an average price of $71.60 per share for a total of 223 million which followed the company's sale of 3.3 million, shares of common stock at an average price of 76.10 cents per share for a total of 250 million to KKR the ASR plan.
And was completed in July.
In addition to the ASR plan, the company repurchased approximately half a million shares of common stock at an average price of $77.36 per share, for a total of $36 million. The impact of these share repurchases on second quarter diluted EPS was immaterial.
At the end of the quarter, we had 432 million authorized and available for future stock repurchases, plus a further 27 million off, authorized under the ASR which as mentioned, has not been completed.
Turning to our cash flow. We generated operating cash flow of 120 million in the second quarter of 2025.
We still expect operating cash flow to exceed net income for the full year.
This quarter, we invested in additional inventory in the US as part of our plan to mitigate the effects of tariff increases. Our accounts receivable also increased slightly in line with sales growth.
As a reminder working capital was still returning to normal levels in the second quarter of the prior year following the Cyber incident resulting in stronger than normal cash flow.
Let me conclude my remarks with the discussion of financial guidance.
At this time, we are not able to provide without unreasonable effort. An estimate of restructuring costs associated with the restructuring plan for 2025. Therefore, we are not providing gaap guidance.
We are maintaining our 2025 financial guidance. As a reminder, this is as follows.
We expect non-gaap diluted EPS attributable to Henry Schein Inc, to be in the range of $4.80 to $4.94.
25 adjusted ebit da is expected to grow in the mid single digits versus 2024 adjusted ebit da of 1.1 billion dollars.
2025 total sales growth is expected to be 2 to 4% over 2024 and we expect a non-gaap effective tax rate of approximately 25%.
Can be mitigated and also includes expected. Remeasurement Gaines related to the purchase of controlling interest of previously, held non-controlling Equity Investments consistent with our business strategy.
Our 2025 guidance is for current continuing operations and includes Acquisitions that have closed. It does not include the impact of restructuring expenses and other items details in our press release.
With that, I'll now turn the call back to Stanley.
Thank you, Ron.
uh,
Thank you, everyone again for calling in.
so, um,
We Believe Henry, Champs is well, positioned to accelerate growth.
Of course, we're happy to answer any questions that uh investors may have.
We with respect to our distribution business.
We are pleased with the results from the time Limited.
Targeted sales initiatives.
Which together with the rebound and Equipment orders and momentum in our medical business.
Sets us up well for growth for the second quarter for the second half third, and fourth quarter.
The results from our technology value added services, and Specialty. Businesses are strong.
And we look forward to this continued into the second half of the year as well.
We are also excited about the significant opportunities from our new value creation and initiatives.
And we are optimistic about returning to high single-digit, low double-digit earnings growth.
Um so without uh overview operator, we're ready to take questions from uh investors.
Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad,
In confirmation time, we indicate 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, use a speakerphone equipment. It may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions.
Our first question comes from Jason Bednar with Piper Sandler. Please proceed with your question.
Uh, morning everyone, uh, Stan, a big congrats on your announced retirement. Um, you've had such an enormous impact over the years and the the dental Community the investor Community your employees. Uh, you're going to be missed around here, um,
Yeah for my my my first question I I did want to start with uh the dental business and hoping to touch on a couple topics. Um 1 you referenced a good July for Merch uh without those above normal promotions continuing maybe you can give a a bit more color on what you're seeing with respect to Patient traffic, spending the dental office and just the confidence. You have on the sustainability of these better trends that you were seeing in July. And then 2, can you talk about the customer conversation around price increases from terrorists and how you're navigating these discussions to both retain share and protect margins.
thank you Jason, uh, for your
compliments on, uh,
my years here at Henry Schein.
I'm retirement, I have to say, it's been a pleasure working with the
Analysts that cover us.
Uh I mentioned to our team earlier on as we prepared for this call, this is my 119th call uh that investors and although every quarter is a challenge never easy in a public company.
I really enjoyed working with the street very much. I've learned a lot.
July trends.
July Trends, uh, at Henry Schein are positive.
Uh, we're quite pleased with the momentum. In fact, spend a little time last night with our senior Dental sales team who
In town for a strategic meeting. And they feel very strong
Uh they were customers. We had that uh had left us during the Cyber incident.
And these promotions got them back.
Many of them back. And I think our customers understand the value that we provide.
As they test us, the ones that left. And as they test more and more our systems, not only for consumables, but for equipment and the value added services. So across the board,
We're having a good July from a sales point of view.
and from, uh,
A general.
Understanding by our customers of the services that we offer.
Um,
as it relates to Patient traffic.
Uh, we generally believe that in the markets that we serve. Now, there are parts of Dentistry that we don't really serve in a significant way. But the parts that we service we believe that uh patient traffic is relatively stable. Of course, there is some challenges in specific countries but there are also other countries where maybe it's a little positive but we are doing very well.
Overall, we believe that patient traffic and identical distribution, businesses continues to be flat globally.
So that's traffic per se but we as we know that we continue to believe that we are either maintaining or actually growing market share across the board.
We believe in the US for the general merchandise sales.
Uh, which is flat.
With some price increases relating to tariffs. But generally not much price increase from manufacturers and because of the tariffs because customers are concerned with pricing customers are moving towards our own Brands. And I have to say also to brands of Manufacturers that are prepared to provide customers with moderate prices and these include second tier manufacturers. But I would say also,
Some of the national brand manufacturers are also offering us opportunities to sell their products.
in a way that bite into any potential potential, tariff increases so
uh,
the US Dental market growth is still impacted by Staffing challenges and remains challenging to recruit hygienists.
After Support also challenged but not as bad as it was say a year ago.
And but practice productivity is going up. Dennis are investing in devices to increase productivity. So
um, I think it's
for us in any way in any event, it's leaning.
Flat to slightly positive with.
Opportunities. And I think results in the specialty areas in our medical business.
in uh, the software field clearly
Customers are investing in software to increase productivity.
Uh, so uh, uh, it's very difficult to give you specific data.
Um, about countries outside of the United States.
Uh, Canada is
stable.
I would say. But we're doing very, very well in Canada and I think, uh, some of that's because of our large customers. But generally for the normal customers, as well, the smaller retail where we call the retail customers uh are we believe, patient traffic is stable.
Particularly in governments where the in markets, where government reimbursement is there. So,
Overall, I think we can report a relatively stable.
Dental patient traffic Market.
Uh,
I think that, uh, Dennis are in good shape, they're buying. They're paying cash. Flow is okay. Of course, there are all sorts of concerns particularly in in we noticed in the last 6 last
Half of the put, put it this way in the middle of, uh, the the the quarter. It was a pullback on buying of equipment. I'm not saying Dennis doesn't Place orders, but they don't want shipments because of the potential tariff situation, but I think, uh, that's, he's has gotten easier. It's eased a bit and we, the backlog is pretty good again. Um,
Interest rates are not an issue. We thought they would be about a year ago, but customers are accustomed to the interest rate. Now, as it relates to tariffs, I would say our customers fully understand that they are going to be tariff, increases that we can't absorb these therapies and generally where we passed on the Tariff increases they've stuck.
Customers will, uh, look to find alternative options, particularly on products. And we are there with our.
Up and down for years and we continue to gain market share in the glove area. Sorry for the long answer. But that's uh, a bit more of our take of what's Happening.
Yeah, appreciate it, Dan. Just if I could just ask 1, quick follow-up. I, I know it's early days. But anything you can talk about with, um, just this the current state of the engagement and review with the outside consulting firms. I think there's revenue and cost opportunities for sure, but can you give us a teaser at all? Is what's being emphasized or D emphasized? What are the savings opportunities that may have already been identified on top of the value creation projects that you already have underway, right? Right. You point out correctly. There's 2 Opportunity. The restructuring that we went through and as Ron. And I think I mentioned as well. We're over a hundred million dollars in that area. I think you'll see some more, uh, uh, uh, advantages uh, in the
Third quarter, we'll provide you hopefully with more data at that time on our restructuring.
Now, the work we're doing with KKR, which started almost right after they uh told us they had invested in the business.
Uh involved dialogue with a Capstone group, very capable people. I might add who have directed us in 2 areas these areas aligned with our B plus 1. The first is driving gross profit. Now I don't want our customers to think we're just driving up prices because that's not what it's about. It's about providing value for our customers and of course, gross margin enhancements. For Henry Schein involving taking a look at our pricing and particular seeing whether there are options in areas such as own brands, or with particular manufacturers, that understand the value of Henry, Schein and are prepared to work with us so that we can provide our customers with a better a better deal and also help us in Hinds our margins. That's a project that is going on. We started it in Europe already. Some months actually I would say about 5 6 months ago had pretty good results and are now uh working with
An international.
A very large consulting firm in doing this, in the United States or using the expertise of uh kkr's Capstone group. And then we are the restructuring that we went through with respect to uh corporate overhead.
overhead within our, um,
groups that project uh we we've done some good work in that area, but with the support of uh kkr's Capstone group and the
Consulting firm that we've worked that we're working with. We've got great experience in working with complex companies. Exactly the kind of organization we are in finding ways to develop a global, uh, Services versus perhaps services that we offer in each of our units. There's a lot of opportunity here and we're hopeful and actually expect some good results in 2026. Uh, we're not ready to give mathematical numbers yet, but we will of course. But again, our very optimistic with our restructuring plan, taking us well over the hundred million dollar Mark as well as these 2 key initiatives of gross margin enhancement and uh, sgna management. Uh, a lot of that is structural a lot of AI possibilities that uh, you know, these firms have experience in bringing to us have experienced and can bring to us. So we're quite optimistic in general about these 2 engagement.
Um, they've gone on now.
The dialogue has gone on with, uh, with Capstone really. As I said, since they announced last summer or last spring fall their engagement with us, the equity investment and, uh, these firms are now working with us and, uh, our team is extremely enthusiastic about this. They know, it's the right thing to do. And, uh, we've got the teams working on it. In fact, I mentioned bumping it to us sales management team on the dental side that we have for that exact project for the gross, margin management project last night. And uh all I can tell you is I think
the value, we create here will be very good for the company and therefore, for our investors,
Thank you very comprehensive.
All right. Next question comes from Elizabeth Anderson with evercore, please, proceed with your question.
Role as chairman. Um, maybe switching to the question. Um, I and maybe this is partly a question for Ron to if we think about where we are in the year we're halfway done and sort of thinking about the traditional EPS Cadence, in the back half of the year. You know, I realized you said that there's 25 million dollars more of the Bold plus 1 initiatives, plus obviously, those 7,500 you talked about before. So, how do we think about sort of the EPS Cadence in the back half of the year? Um, you know, just these are the your your guidance and sort of the year to date performance. Thank you.
Uh, hi Elizabeth.
Uh, you know, we we, we, we did mention when we talked about our guidance that, uh, uh, even from the beginning of the year that we did expect, you know, to be, uh, more weighted to the back half of the year, of course, versus the first half of the year. So, yes, we are expecting EPS to grow in the third quarter. That I would say the fourth quarter to, to possibly exceed the third quarter as well. Uh, you know, we're we're happy with the momentum, we have coming into July coming off, the targeted sales initiative, we had we've been able to expand our sales team, uh, on the distribution side, we think that's going to help us, you know, Target some of these customers even better.
Um, you know, we, we are confident in spite of some of the uncertainty. Uh, I'd say, macroeconomic uncertainty, we saw in the second quarter that we think impacted equipment sales, what we're comfortable, giving where we are, at the backlog that we'll begin to see some, uh, you know, some momentum with dental equipment and the second half of the year.
Uh our Specialty Products and and and and Technology groups, we think we can maintain the momentum. We have their uh the taper Pro conical. Continued to get good sequential growth during the year. And we think that can continue into Q3 Q4 so that should contribute to growth, uh, sequential growth for us. Um, and you know, you you mentioned as well, the restructuring plan and I think the restructuring plan has provided us with some cost savings. Uh, it will also as we get into some of these value creation projects, there will be uh perhaps opportunity to identify additional savings that that working with the Consultants. What could be some things that we haven't, uh addressed uh, you know, fully and then lastly, we do we did mention within the, you know, the the guidance that it does include just as we have had in the last several years, we measurement gains and that could add a little bit to the lumpiness of this. Sometimes these 3 measurement gains can be a little bit uh you know, can be relative to the quarter can be uh relatively large. So we will to the extent. We
With the remeasurement gain in the third quarter, versus the fourth quarter that could impact that Cadence. But obviously it's something that we would um, you know, alert investors to as part of our of our uh when we report the earnings in terms of, what is the impact of those re measurement gains in the back, end of the year,
Got it. That's super helpful. Thank you for that additional color. Um, and if we think about sort of the ortho, um, turnaround that you guys have been in the process of implementing, can you tell us, sort of the most recent updates on sort of where we are with, uh, the integration of the different clear line of Brands and how you would sort of Define the orthodontic environment? More broadly. Obviously, I think you call that a little bit of weakness in the quarter but just kind of trying to triangulate whether it's sort of that was macro or whether that's the result of your transition. And that's something that could also happen with the help with the 2 uh second half games.
Elizabeth. First of all, thank you for your nice comment at the beginning of your question, second on Orthodontics, it is very small.
It's under 100 million dollar business. There are 2 aspects. There's traditional
There's a particular product offering there that is of interest. Uh,
To customers. But it's very, very small. It had generic. Uh uh,
The competition a year ago.
Plus for the past 2, 3 years,
starting about a year. Yeah, about 2, 3 years ago, it started. And, uh, We've now in the last,
6 months of the year we've stabilized that with an upgraded product.
uh, so the traditional part is doing well, we've cut the is doing
Better is doing well but this way on a reduced sales base.
we reduced our sales organization, our
Marketing, and it's really now moving into positive environment in the traditional area.
It's again, not significant.
Products from Henry Schein. Uh, I would not say that we are indicative of the growth of the market, or the challenges of the market. We have our internal areas we're working on and uh, the goal there is to offer very good products and the traditional side.
Um, unique Niche products, uh, increase the margin and uh, on the aligners have an offering that is unique, that is integrated with some software we have. And I would say, this is not for the moment, a big strategic area for any shine, but there are some profits there and we're turning around the uh the business and making it more profitable. But again, it's very small hundred million dollars or so out of almost 13 billion dollars of sales. So it's not material, but uh, we'll give
Give you updates as they materialize.
Our next question comes from Alan Lutz with Bank of America, please proceed with your question.
Good morning and thanks for taking the questions. Um, Stan you mentioned July sales were good and you've returned to normal merchandise, pricing, I guess the question for Ron here. How should we think about the gross margins in the distribution business? In the second half of the year? If you've returned to normal merchandise, pricing can I go back to where they were a year ago and then related to that around Capstone? Should we view the gross margin initiative?
As a creative to last year's gross margins. As a starting point, thank you.
Contribution side. There is some it's a very competitive areas and we said that we did see some, you know, especially some pressure and glove pricing. I think on the glove pricing side, it has stabilized. I think sequentially we can stabilize those margins. I think versus last year, you're still going to see uh, you know, some slightly lower lower gross margins. That's just really the reality of where the market is, especially for when you have a product category, as important as, as gloves, that is seeing, you know, relatively competitive pricing out there. But we are seeing some stabilization in that glove pricing as we get into the third quarter. I think overall as we look at margins, we're so happy, you know, with with the, with the growth we're seeing in technology, which which given the margins in technology gives us an overall, uh, lift in in Gross margins. As well as the growth. We're seeing in the Specialty Products, uh, within specialty. We did see a little bit of a tick down in gross margin because we saw better growth in, for example, in value implants than we did in specialties.
Uh value implants typically get a slightly lower gross margin than I'm sorry. Not specialty but premium uh and and so but the value in plans taking a little little bigger piece of the pie brought down that segment's gross margin a little but nevertheless that's obviously a creative to our overall. Gross margin so product. Mix will give us some benefit as we go forward. Uh but certain product categories such as gloves uh will will continue to put a little bit of pressure on Gross margins and distribution but but I think that uh we're seeing some stabilization sequentially there.
Great, thank you and then 1 for Stan. Um, last quarter, you talked about an increase in denovo. Builds. Um you know dsos you mentioned were well financed and they're expanding would love to get your updated thoughts on what you're seeing now. Is that still, the case has that improved further and the updated thoughts that would be helpful. Thank you. Yeah, I I think we're pretty, um, consistent with what? With the message of last quarter. The dso's in general, are moving in a positive direction, I think they're getting funding.
Trade. I'm not sure that training is as high a multiple as maybe a couple of years ago.
Generally, uh, the ones that are in the business have funding.
And are investing.
Some are even investing in traditional equipment, but dental technology is uh the digital side is where I would say there's quite a bit of movement and they're all investing 1 way or another in software. So, uh,
I think it's it's pretty, it's stable to
maybe.
I mean, I'm thinking now, maybe leaning even positive.
Uh, there are a couple of places in the world. That is a challenge, France, a pass, some laws that are a challenge, but uh, I would say even internationally, they are growing, they can get funding and they're investing.
uh, um, you know
didn't have any big sales, this quarter, but
generally, every couple of quarters is
Sailed to a DSO and those that's continuing. So uh
you know, I'll just I just want to add on to you know, with with Stanley said there Alan I think that when we look in the US and we look at new office design projects,
every month this year, with the exception of 1 month, we have seen
Uh, what I double digit growth.
Year-over-year in and kind of announced new office, uh, design projects.
Uh the 1 month that we didn't see that was in May and we actually had double digit negative growth that month which was an indication of the of a of a bit of the the the hesitation of that of that uncertainty out there that was a driven by tariffs or or whatever it might have been. Um but every other month we have seen double digit growth here in the year.
Our next question comes from John stanzel with JP Morgan. Chase. Please proceed with your question.
Great. Thanks for taking the question. Um, can you just size potentially the, uh, that targeted sales impact on the second quarter? And then just as we think back to this, the first quarter call what changed that led you to want to kind of pursue this targeted sales initiative and and produce the kind of the positive impacts that you're seeing. Now in July,
No, thank you. Uh I'll address the second and Ron
to provide potentially provide some thoughts on sales. I don't know what exactly we're providing.
To investors. It's not that we want to hide but obviously for competitive reasons we need to be careful. Uh, we saw an opportunity with a group of customers in particular who
Had had had had been buying from Henry Schein.
Uh, returned to buy maybe exclusive products, perhaps with cherry-picking with us, and used to buy.
in, um,
Most in a more, steady way.
Higher numbers.
And we felt there was just
An opportunity, a hole in the bucket if you will.
Sales. We lost over the last 18 months.
And to go to those customers with a equivalent of a frequent fire program and Affinity program.
uh,
that I think has been well received.
Um, and I don't think there's a need for this, any longer.
Maybe.
You mean, in such a, I mean, such an aggressive way. But I I, I think this high octane opportunity was just a hole and we felt we could go through and it has been relatively successful.
Um,
I think, uh,
this is not a general.
um,
offering to all of our customers.
Uh, but it's an offering particularly to customers that we felt had left us. They didn't understand us or the value-added services. This gave our field sales representatives a reason to go into their office and provided our Telus sales representatives an opportunity to call.
and talk about out and outbound way.
About the values that can shine brings.
I think, um,
And all the value added Services, we offer. So I think it was a great opportunity and think
uh, the team went through that, that whole
in.
The bucket and filtered. So
And John regarding the first half of your question, you know? The the it's you know, we mentioned 2 things that kind of put pressure on those margins, right? 1 was the lower glove pricing and the other was those those targeted initiatives because you're going to appreciate there's a bit of an overlap there. Some of those targeted initiatives were on gloves because it's a very important product category. So it's difficult to really uh assess
You know, dollars and and provide dollars to each of those individual items. I think, what's important out of all that is that we are. We're we're pleased with the, uh, with the results we're seeing in July coming out of those out of those targeted initiatives and and, and please also that we're seeing some stabilization in glove pricing. And uh, and so we considered it to be, you know, kind of a successful campaign and uh, and that gives us, you know, you know, some confidence that we go into the back half of the year.
Great. And then there's been some discussion around 1 of your larger customers RF being a portion of their business,
Can you just comment generally on what you're seeing in the competitive balance as as customers potentially RFP, especially on the DSO side and maybe Stanley, if you wouldn't would indulge us in a bit of a retrospective about how these have changed. What, what customers are looking for have changed over time? That's what would be helpful. Thank you. Yeah. Um, again another good question there.
We don't typically comment on contracts with specific customers.
But I think it's normal for some of our larger customers.
To issue rfps every 3 4 years or so.
Uh, it's to some extent. They want to see what our margin is.
But to some extent, there's a negotiation with manufacturers because, in the dental space, we actually perform the GPO.
Function. We work on behalf of manaf, on behalf of
our customers in obtaining,
Pricing specifically related to them.
And then we have put our markup on top of that. So I think this kind of activity is quite normal. It's not been actually as aggressive as we would have expected.
Um,
but and that is to some extent because we've worked well with our larger customers and finding alternative options.
To product sourcing, where there is uh, uh, significant tariff.
Moving to other markets moving to domestic products. Moving to manufacturers, that can absorb part of the Tariff. So I think generally, we remain a very trusted supplier and are partnering with our customers quite well.
As it relates to trends.
Um, I think we continue to gain market share with our larger.
Bigger midsize customers because of the comprehensive offering including our supply chain capabilities, I think it happens to be the best in the market. I'm sure our competitors will say theirs is the best. You know, we do our work to ensure that from a service point of view. We provide our customers with the best service, uh, uh, uh, Best in Class. Uh, but but it's also, uh, owned brand product offering or private brand, uh, that is there and all the value added services. That we provide generally, these larger customers are not only getting their consumables from us, but they're also getting their equipment and the service. I think our national service capability is outstanding, not only in the United States, but globally, and it's best to practice. I'm sure our competitors will say theirs is best practice.
To do, but I think we provide exceptional National coverage here, and in many other countries. So, that is being recognized. And then there's the software opportunities, and the various revenue cycle management opportunities, where we can often save the customer more money or bring them more profits, and perhaps a penny here or there are a glove box. So generally I, I think the market is relatively stable from a
Large customer large, midsize customer as well point of view. And, uh,
Everybody's working to understand the tariffs that working together and finding ways to mitigate these tariffs. I think it's a collaborative collaborative effort with our customers in general.
We have time for 1 last question, and that comes from the line of Jeff Johnson of beard. Please proceed with your question.
Thank you. Good morning, guys. Thanks for squeezing. Me and, uh, Stanley, I I think I Met You in 2002 at our growth stock conference in, uh, Chicago. We were both a lot younger than, but I've appreciated your Steady Hand, and your consistent leadership over the years. So, thank you. And good luck in the future.
Was hoping I could start maybe uh, Ron a question for you on gross margin. Just as you say, glove prices have stabilized, which sounds uh encouraging but but maybe going to be sequentially stable at these levels. How much of the 110 basis points of gross margin pressure. This quarter in 2q uh was maybe glove related was promotional activity? That sounds like it's gone away now and maybe was core pressures elsewhere. It would be helpful to just try to model out the back half of this year, by knowing, you know, gloves versus maybe those other 2 uh, categories of gross margin pressure.
Targeted initiative, you know. Uh, both from a, the perspective of the amount of time that we were doing it as well as. Uh, the nature of the customer that we were that we were primarily targeting. So as we come out of that and as we go into uh, the third quarter, we we feel like it's giving us the appropriate momentum.
All right, thank you. That's helpful. And then just my final question. Just uh you you talked about the the 2 new initiatives. It sounds like we'll get more detail next quarter on those 2 initiatives uh in conjunction with KKR Capstone. Uh I guess my question there is you know there's been a lot of debate out there with investors on whether these initiatives might bring chunkier cost savings, some big cost savings initially in the first year or 2 call it 2026 2027 where earnings could jump up. And then kind of stay on a steady Glide path. Uh, or do you think it at this point with what you're communicating these efforts with KKR? Potentially just to, you know, not just but to get you into that kind of lrp of getting back to just a more consistent over the next few years of the upper singles, the low double digits, should we be looking for chunkier savings up front or just kind of getting back to that consistent? Uh upper singles, a low double digit path over the next several years. Thank you.
Thank you, Jeff. And yes, it's been a quick 23 years uh,
Of course, I wish you and all the other analysts that cover us all the best. And I hope that
The analysts stick with their General market. It's a great Market maybe going through ups and downs, but I can tell you, I've been at this as a public company. For 30 years, they're always ups and downs. And overall, generally the the dental Market is a good Market.
It's a great cash flow all around. And yes, there are ups and downs, periodically, and sectors.
Um, as it relates to the work of Capstone. Yes, there will be, uh, efficiencies over time. Some short-term and the restructuring plan. Some in 26, that will impact 26 and 27.
but,
Really 1.
The other elements of course, is a B plus 1, strategic plan, and our build plus 1, strategic plan. When we announced it, we had just over 30% of our operating income coming from
The high growth, high margin businesses. This quarter was, 45% you add to that about 10%, that is coming from uh our own Brands, which you call it somewhere. You call our private label and we're well over 50% 55% of our earnings coming from our high growth, high margin businesses I think
2 things are going to happen. This is I'm not guaranteeing. And of course
Uh there'll be a new CEO to carry through on a lot of that. You'll 2 2 things 1 of our cost of doing business is going to go. I go down.
Largely as a result of increased efficiencies particularly as it relates to computer type systems, AI is a lot of opportunity. We're learning about that. So there's an opportunity to be more efficient to provide better customer service. I think that will there will be some of them 26, some of that in 27. Uh we'll be able to globalize certain functions that are maybe in the business units. Today. There's
Earlier on.
And generally Drive operational efficiency.
But that will be complemented with a high growth, high margin business growth.
it's been a very good projector, it's
strategy that I think.
Included on quite well. And don't forget the L, the leveraging of relationships amongst our various portfolio, companies to get business for each of the units.
We you where customers know 1 part of the business but not another introducing them to the other part, that's the L.
So we've got the B, the building high growth high margin business, the
operationalizing, a lot of
that's going to come from optimizing operationalizing, coming from the, uh,
Capstone and related Consulting Group work.
Imaging. And the D, we are significant players today. In digitalization of Dentistry, that's the big opportunity for dentists, maybe their sales growth, in some countries, their revenue. Their collections may not be as great, but they
Opportunity to drive efficiency and practice while providing better clinical care. I think that we do very well.
so, uh,
with that in mind, let me conclude the call. Thank you all for calling in. I remain very optimistic about the future of Henry Schein. We're on the way we've retained, a national recruiting firm to work on the appointments of the next CEO.
I thought it's better to announce the the maritime early in the process rather than rumor spreading and I think as a public company we have to look at internal external candidates its best practices. So that's on the way.
The team is enthusiastic the senior team and management. Generally on the Capstone Valley creation initiatives.
The morale from that point of view is quite good people. Understand this opportunity, people understand the competitive and the mark competitive nature of the market from a pricing point of view. But also from a
Experience point of view. I think we've got that combination on the table right now and are working towards improving. The value that we provide to our customers which in turn will provide value creation.
Opportunities for the company in general.
The I believe that the senior team has never been in a better shape each 1 of our areas with its business units, or our infrastructure units has very good leadership.
I would say outstanding leadership working together. It's a good time for me to hand over the range for someone else because the team is really in place.
Is good. Uh, I think the B plus 1 plan, which I outlined is good. I believe our directors, including the KKR directors, the 2 points, they had my enthusiastic about the plan. I think they like the Bold plus 1 plan and the directors. Including, as I said, the take our directors are very supportive and, uh, yes, their economic challenges every day, is a new announcement, 1 way, or the other on tariffs, that's destabilizes us from time to time our customers, but we're moving forward, and I think are very optimistic. The entire team is optimistic with the company's heading. So
thank you again, everyone for calling in and, uh,
We'll be back in 3 months time. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time and we thank you for your participation.