Q3 2025 Henry Schein Inc Earnings Call
Speaker #1: Good morning, ladies and gentlemen, and welcome to Henry Schein's third quarter 2025 earnings conference call. This time, all participants are in listen-only mode.
Speaker #1: Later, we'll conduct a question-and-answer session. Please press the star key followed by 1 on your touch-tone phone if you'd like to ask a question at the end of the call.
Speaker #1: If anyone should require operator assistance during the call, please press the star key followed by 0 on your touch-tone phone. As a reminder, this call is being recorded.
Speaker #1: 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.
Speaker #1: Please go ahead, Graham.
Speaker #2: thank you, operator. And thanks to each of you for joining us today. to discuss HENRY SCHEIN's financial results for the 2025 third quarter. 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.
Speaker #2: Before we begin, I'd like to state that certain comments made during this call will include information that's forward-looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and the company's performance may materially differ from those expressed in or indicated by such statements.
Speaker #2: These forward-looking statements are qualified in their entirety by the cautionary statements contained in HENRY SCHEIN's filings with the securities and exchange commission and included in the risk factors section of those filings.
Speaker #2: In addition, all comments about the markets we serve, including end market growth rates and market share, are based on the company's internal analyses and estimates.
Speaker #2: Today's remarks will include these non-GAAP financials.
Speaker #2: both gap and non-gap financial results. We believe the non-gap 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 a business.
Speaker #3: Market share gains and our distribution businesses are once again focused on driving growth. Now that the cyber incident is fully behind us, the strong sales performance was a key driver of the underlying improvement in our operating income. Our successful execution of the bold Plus One strategy, including the financial performance of our investments in high-growth, high-margin businesses, also sets the foundation for strong future growth.
Speaker #3: With the continued input from KKR, we have made good, good progress on advancing the value creation initiatives we announced last year, last quarter, actually, based on our first phase of work.
Speaker #3: Believe we have the opportunity to deliver over $200 million on improvements to operating income over the next few years. We have begun executing on these multi-year projects, with key areas of focus that include centralization of support services, indirect procurement, automating and simplifying processes and accelerating sales of corporate brand products.
Speaker #3: These initiatives support a return to our long-term goal of high single-digit low double-digit earnings growth. In addition, our board has approved an amendment to the strategic partnership agreement, giving KKR the right to increase its HSIC stock ownership up to 19.9% through the purchases through purchases in the open market.
Speaker #3: momentum from our successful launch of our new HENRY SCHEIN.com global e-commerce platform in the UK and Ireland, we are rolling out a phased launch in North America.
Speaker #3: We expect to start the European rollout in 2026. Turning now to review of our business units, I'll start with the global distribution and value-added services group.
Speaker #3: Here we delivered solid sales growth in the third quarter across our global distribution group in both merchandise and equipment sales. In general, patient traffic remained steady throughout the quarter.
Speaker #3: Notably, sales growth accelerated in the US merchant in the US merchandise area which reflects strong corporate brand sales growth, as well as the positive impact of targeted promotional programs we initiated during the second quarter resulting in continued increase in our market share in the United States.
Speaker #3: if we turn now to the US dental equipment sales, which increased in the low single digits, with digital equipment delivering double-digit growth. We continue to experience a lower average selling price in digital equipment, but this is offset by strong volume growth.
Speaker #3: Traditionally, equipment sales declined slightly; however, it's important to notice we believe this is a result of the timing of installations. We introduced a new online financing program which we believe contributed to the good growth in the US equipment arena.
Speaker #3: Our order intake at DS World was good this year, and we expect this to help our equipment results in the fourth quarter. We expect to maintain overall US equipment growth in the fourth quarter.
Speaker #3: Turning to the US medical business sales grew in the mid-single digits. For the quarter, the growth reflects strong demand for medical products, and for pharmaceuticals, and particularly in the dialysis business, along with continued strong performance in home solutions.
Speaker #3: This was partially offset by lower demand for respiratory diagnostic products and a decline in influenza vaccine. sales. Our international dental merchandise sales stable increasing in the low single digits in constant currencies.
Speaker #3: If we look at the international equipment sales, here we have strong growth. A value-added services sales grew modestly with sales growth driven by consulting services which includes our ESS revenue cycle management business.
Speaker #3: Now let's turn to the global specialty products group. As a reminder, this group includes implant and biomaterials, as well as endodontics, orthodontics, and orthopedic products.
Speaker #3: The third quarter sales reflected continued strength in implants and biomaterials as well as endodontics. We were particularly pleased with our implant performance. Which built on last quarter solid trends.
Speaker #3: Sales growth was in the mid-single digits in constant currency, and we believe we continue to gain market share across most implant markets and particularly the ones where we have our strength.
Speaker #3: so where we service the mar where we service the market, we have resources. We on the ground, we believe we're doing quite well in those implant markets.
Speaker #3: Sales growth was led by our value segment, both SIN and biotech dental implant systems performed exceptionally well. Each posting double-digit gains. This was complemented by steady low single-digit growth in our premium brand by Horizon's CamLog.
Speaker #3: Demonstrating the strength of our broad portfolio of offerings. In the US, implant and biomaterial sales grew in the low single digits against a challenging prior year comparison.
Speaker #3: This growth, of course, reflects increased traction from our rollout of our BioHorizon's tapered proconical implant and ongoing growth we achieved in the smart shape healer buttons.
Speaker #3: We expect growth in these products to continue, the tapered pro-clinical product now represents approximately one-third of our US implant sales and it's important to understand that our customer feedback on this product offering is very, very positive.
Speaker #3: International implant sales increased high single digits once again driven by strong double-digit growth across the DACH region and Latin America. Reflecting strong patient demand and execution by our regional teams which continues to be very good.
Speaker #3: Our endodontic endodontics business delivered mid-single digit growth for the quarter benefiting from expanded sales reached through our US distribution team. Orthodontics, while still a small component of our specialty products, has stabilized and we remain focused on improving the profitability of the orthodontics business.
Speaker #3: And finally, our orthopedic specialty business posted solid double-digit sales growth. So looking ahead, we are encouraged by the momentum across our specialty business. now on the global technology group side, here we continue to accelerate our growth during the third quarter.
Speaker #3: Driven by strong growth in the adoption of our core practice management solutions business, particularly our cloud-based platforms. Including Centrix Ascend and Dental. As well as strong growth in our revenue cycle management solutions including e-claims, electronic billing, and patient messaging.
Speaker #3: As a result, we are seeing growth in annual recurring SaaS subscription revenues as well as in transactional services. Practice management software sales growth was again in the high mid double digits this quarter driven by 20% year-over-year increase in the number of cloud-based customers primarily from new HENRY SCHEIN One accounts.
Speaker #3: The whole cloud-based strategy for us is doing very, very well. We now have over 10,500 Dentrix Ascend and Dentali subscribers. Revenue growth also benefited from recently launched revenue cycle management solutions now being adopted by practitioners as they seek to drive revenue and improve operating efficiencies.
Speaker #3: They are also some exciting new developments in AI in our technology group. Yesterday, we announced a partnership with Amazon Web Services to integrate its generative AI technology with Dentrix Ascend and Dentali.
Speaker #3: Among the benefits are a real-time documentation system that uses AI to capture and summarize patient interactions, voice-activated charting, scheduling, and communication tools to further personalize the patient experience.
Speaker #3: And predictive business intelligence that automates claims validation and facilitates dynamic pricing tools. We believe this will be a significant addition to the HENRY SCHEIN One offering.
Speaker #3: And we expect these will help our customers drive incremental revenue and greater productivity in their practices. Let me now comment on the announcement we made earlier this year that I'll be retiring as CEO at the end of the year, while continuing to serve as chairman of the board.
Speaker #3: As we discussed on our last conference call, the board started a formal search process supported by nationally recognized executive search firm considering internal and external candidates.
Speaker #3: And remains on track to announce my successor by the end of the year. Of course, I remain committed to ensuring a smooth and seamless transition.
Speaker #3: With that, now let me turn over the call to Ron to review our third quarter financial results and discuss 2025 guidance. Ron, please.
Speaker #2: thank you, Stanley, and good morning, everyone. 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 also have included a financial presentation containing additional detailed financial information.
Speaker #2: Including certain reportable segment information. Starting with our third 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.
Speaker #2: Global sales were 3.3 billion dollars with sales growth of 5.2% compared to the third quarter of 2024. Reflecting constant currency sales growth of 4.0% and a 1.2% increase resulting from foreign currency exchange.
Speaker #2: Acquisitions contributed 0.7% sales growth to the quarter. Our GAAP operating margin for the third quarter of 2025 was 4.88%, a decrease of six basis points compared with the prior year GAAP operating margin.
Speaker #2: On a non-GAAP basis, the operating margin for the third quarter was 7.83%, an increase of 19 basis points compared with the prior year non-GAAP operating margin.
Speaker #2: Operating margin improvement was driven by lower operating expenses as a percentage of sales partially offset by lower gross margin. We continue to drive improved operational efficiency by integrating acquisitions, restructuring, and executing our new value creation programs.
Speaker #2: Gross margin was down 56 basis points year over year, primarily related to product mix and our global distribution group and in our global specialty product segment.
Speaker #2: Sequentially, gross margins versus the second quarter declined primarily due to the seasonality of flu vaccine sales in our medical business. Of note, gross margins stabilized in the US dental distribution business.
Speaker #2: Turning to taxes, our effective tax rate for the third quarter of 2025 on a non-GAAP basis was 22.9%. The lower effective tax rate reflects that non-taxable nature of the remeasurement gain recognized in the quarter.
Speaker #2: This compares with an effective tax rate of 24.9% for the third quarter of 2024. We expect the effective tax rate to be in the 24% to 25% range in the fourth quarter, which is more in line with recent historical rates.
Speaker #2: Third quarter 2025 GAAP net income was 101 million dollars, or 84 cents per diluted share. This compares with prior year GAAP net income of 99 million dollars, or 78 cents per diluted share.
Speaker #2: Our third quarter 2025 non-GAAP net income was 167 million dollars, or $1.38 per diluted share. This compares with prior year non-GAAP net income of 155 million dollars, or $1.22 per diluted share.
Speaker #2: Foreign currency exchange favorably impacted our third quarter diluted EPS by approximately 1 cent versus the prior year. Our third quarter results include a remeasurement gain resulting from the purchase of a controlling interest of a previously held non-controlling equity investment.
Speaker #2: That business has performed well since we made our initial investment. As a result, we recognized a pre-tax remeasurement gain of $28 million this quarter.
Speaker #2: This compares to a pre-tax remeasurement gain of 19 million dollars in the third quarter of 2024. The remeasurement gain in the third quarter of 2025 and its related tax treatment contributed approximately 23 cents to EPS.
Speaker #2: Which is approximately $0.08 more than the remeasurement gain recognized in the third quarter of 2024. Adjusted EBITDA for the third quarter of 2025 was $295 million.
Speaker #2: Compared with third quarter 2024 adjusted EBITDA of 268 million dollars, representing growth of 10%. Turning to our sales results, the components of sales growth for the third quarter are included in Exhibit A in this morning's earnings release.
Speaker #2: So I will provide the primary highlights of the main sales drivers for each reporting segment. Starting with our global distribution and value-added services group, whose sales grew by 4.8%.
Speaker #2: Within this segment, US dental merchandise sales grew 3.3%, and US dental equipment sales grew 1.2%, with strong growth in digital equipment. We ended the quarter with a good equipment order backlog for fourth quarter sales.
Regarding share repurchases. During the third quarter of 2025 the company. Repurchased, approximately 3.3 million shares of common stock at an average price of $68.62 per share for a total of 229 million.
At the end of the quarter, Henry Shin had $980 million authorized and available for future share repurchases, which includes $750 million that the board of directors authorized in September.
As Dan mentioned, our expectation is to continue to execute buybacks at a similar pace to this past quarter.
Turning to our cash flow.
We generated strong. Operating cash flow of 174 million in the third quarter of 2025 and continue to expect operating cash flow to exceed net income, for the full year.
This compares with operating cash flow of $151 million in the third quarter of 2024.
Our accounts receivable increased slightly during the quarter in line with sales growth as third quarter revenues were approximately a hundred million dollars higher than the second quarter of evidence.
Let me conclude my remarks with a discussion of our updated financial guidance.
At this time, we are still not able to provide without unreasonable effort. And estimate of restructuring costs associated with the restructuring plan for 2025. Therefore, we are not providing Gap guides.
We are raising our 2025 Financial guidance as follows.
88 cents, per share to 4.96 cents per share, reflecting, stable markets, and good, third quarter Financial results, as well as the remeasurement gain realized, in the third quarter.
2025 sales growth is now expected to be 3 to 4% over 2024
we expect a full year non-gaap effective tax rate of approximately 24 to 25%.
And we are maintaining our 2025 adjusted ibid dog items which is expected to grow in the mid single digits versus 2024 adjusted even do of 1.1 billion dollars.
Our guidance also assumes that foreign currency exchange rates will remain generally consistent with current levels and that the effects of tariffs can be mitigated.
Our 2025 guidance is for current continuing operations and Acquisitions that have closed.
With that, I'll now turn the call back to staff.
Thank you, Ron.
um, I'd like to give you
I'm just very unusual for our calls. Uh, a bit of a reflection on the past 30 years as a public company.
Tomorrow, we will be ringing, the opening bell at the NASDAQ Stock Exchange, to celebrate our 30th Anniversary since our IPO.
That's 120 quarterly calls.
The growth on the journey from IPO in '95 to today has been quite significant.
with sales growth over the period growing at over 11% compounded, average growth rate
from a market capitalization of 280 million, the value of the company's grown had almost 12% compounded average growth rates including the value of the animal health business. We spun off in 200.
And 19. So the 12% compounded annual
average growth rates over this.
30 years as a public company.
Like all rapidly growing businesses. There had been some significant ups and downs along the way when we merge with Sullivan dental and mere Dental back in 1997.
Skeptics question, whether we could integrate 3, distinct, cultures, and turn our business from a dental mail order company to a general full service operation, including a field, sales organization, and Equipment, Sales and Service, while integrating these 3 cultures
That year we also acquired dentrix Dental systems. Creating what? Some called a 3-legged chair.
Selling products, services and Technology.
Shortly thereafter. We had a dental anesthetic recall issue. When our stock price fell, we chose the difficult path of continuing, the Journey of creating the world's, largest full-service panel, distribution, and dental practice management software businesses.
Within a short period of time. Our customers saw the value of our 1 Stop Shop of products and related services.
Then came up both expansion into Europe, which was accelerated in 2004 with the acquisition of the meters. The recently spun out distribution business of serona, this created a global platform which changed the level of discussion within the industry to a global 1 New Markets, new regulations, new cultures, new common values. When the 2008 financial crisis struck, we were forced to make difficult decisions. While staying true to our values, we tightened our belt, but kept investing in our people and our future fast forward to 2020, Co temporary temporarily closed down the dental Market. There were empty offices disrupted, Supply, chains and uncertainty everywhere, but team team shine adapted. And using our world-class supply chain Network played a key role with governments and supplying, personal protective equipment mainly as at masks, as well as Co tests.
To, of course, Health Care Professionals Health Care practices.
Uh, throughout the world.
The business was growing well until October of 23, when the Cyber event hit us for a moment. It felt like everything we built was vulnerable to an invisible threat. But once again, our team rallied restored our systems and began the recovery.
Some customers took a while to return but appreciated our offering in the end, this is now behind us not forgotten.
But overcome by this incredible Sunshine which is once again focused on driving sales.
Each challenge made us sharper more resilient and more united.
Customer partnership and are owned Brands all of us enabled us. Enables us to provide our customers with solutions to operate and more efficient practice. So that our customers can focus on providing better patient care. Our recent results demonstrate the success of the strategy.
In addition to the outstanding growth of over the past 30 years,
And particularly satisfied with the work of the company and all team shine members who have under 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 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 of our talented, motivated working diligently to execute our strategies, including our value creation programs. Which we provide a further Clarity today and I'm quite at that very optimistic about where this will go and how this will drive up operating income and therefore shareholder value.
so,
uh, before we take questions, let me thank.
All 25,000 teams shine members around the world are 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 space dinner and medical practitioners. So uh, with that in mind, let me turn over the call now to the operator, uh,
To answer some questions. Thank you very much, and sorry for the added lengthy. Uh, words here, but I just 120 calls later I think, uh, 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.
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1 moment, please. Will you pull for questions?
Our first question is from the line of Jason Bednar with Piper Sandler. Please receive your questions.
Hey morning everyone uh nice quarter and Stan. It's been a pleasure working with you uh congrats on everything. Um, I'll try to stick with the single question requests but I I may bend the rule here with a multi-part question. Um, I wanted to focus on the comments you're making about future earnings growth. Um, the third quarter performance, might suggest your back to posting better Topline growth. Uh, it also seems like you're picking up some benefits from the restructuring program, that's been ongoing. And then you have the first phase of the value. Creation targeting, 200 million, and even benefit. When when you say that you're returning to your long-term goal of high single, the low double digit EPS growth. I guess my question is, whether that's a, a comment that's applicable to 2026 and that 2
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 K range before, we even think about core Revenue, growth and capital allocation opportunities.
So so Jason, thank you. And uh I think you're 1 of the 2 analog the longest experience in our space and really know it. So thank you for sticking with Daniel. I think Daniel will present good rates of return to investors over time. Uh so I think it's a good place to focus from an analyst point of view. But uh I'll just I'll deal with the sales momentum. I think we we're very comfortable now that the Cyber incident is behind us. Our sales people are out aggressively.
Thank you. It's quite clear now that many in healthcare, unfortunately, been to this site. It's kind of almost normalized and, uh,
I think.
A lot of our customers have tried alternative 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 and 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, uh, 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, with reference to 2026 because you can appreciate, you know, this is a kind of a multi-year plan to to deliver the $200 million in operating income improvements. Uh, having said that, we we do expect some operating improvements in 2026. So as we assess the plan and as we kind of work through the sequence that will be necessary to deliver that 2
200 million will be able to determine, uh, the, the, you know, the estimated impact, and the estimated benefit, that'll be in 2026 and will reflect that in our, in our 2026 guidance. When we provide that February,
Okay, very helpful. Congrats again and I'll I'll step back for others to to ask questions.
Next question comes from the line of John block with stifel. Please just use your questions.
Thanks guys. Good morning and um Stanley sort of showing everyone else's congratulations. Um a quick 1 for me, you know, Ron the midpoint of 25 EPS guidance came up by 5 cents if I've got that correct.
There were measurement was 8 cents above last year. So maybe if you can talk about what was embedded in the original guidance,
Um, and clarify that and then just taking a step back and, you know, maybe this 1's for you Stanley, just the the SEC. The the quarter, the third quarter was certainly better relative to 2q, you mentioned some share games, but I'm just curious. You know, 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. Do you want you can do the back half? Uh, you know, on the guide John? You know, it's it with the remeasurement gain, you know, there's a range of outcomes that that we we have to estimate there because until you actually complete the transaction. Its
It's difficult to assess exactly how much will be there. So it was, it was slightly higher perhaps than than what we would have expected but was within the range of our expectations. So the 5 cents, you know, has a little bit of a benefit from that remote measurement game, but it also reflects. I think the, uh, 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 to 19 million dollars on a pre-tax basis last year and take a look at our non-gaap operating income. We did achieve about 4 and a half percent operating income growth and that's you know, uh, we think that's pointing Us in the right direction and so we we we're we're 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 uh, for for this year Stanley, you want to do? Yeah, thank you. Uh,
John John uh thank you also for following us uh in the General Industry for so long.
um,
the markets are I would say.
Generally stable, of course there are some markets that a little bit better. Some that are not but generally the big markets are stable. I think the units are pretty constant in the markets.
Um, it's most encouraging that this time. Now, we don't see
Price in going down to much. It's pretty stable. I would say.
uh, I don't think um,
customers are moving significantly to lower price.
National Brands, there was a movement in that area. Having said that,
Our own Brands uh have increased uh, continue to increase now for the last few quarters. I think it's uh, it's good momentum there.
um,
there is a little bit of tariff inflation maybe 100 or so basis points in the United States but not a lot.
Um,
we've been able to talk to some manufacturers about absorbing the tariffs.
Perhaps a few items and more than a few to markets with the terrorists 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 are
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. I'm talking about distribution now.
and when it becomes a bit clearer, is on the implants,
In related bone regeneration. There we, we believe we definitely are growing faster than the market. Maybe there's 1 manufacturing 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. Um
Where the market is relatively stable?
And uh, in the dontics relatively stable, we're gaining market share on the medical side. Um,
Generally, the pharmaceutical side of Henry Schein has done well. I think it's stable. I don't think there is much in the generics to report this quarter. The medical equipment and midsize products are relatively stable. There has been a decrease in testing and respiratory products; it's just that people have not been very sick this season. But overall, I think it's been stable.
I think the 4 5% were growing in medical in the US was indicative of the market, was not a significant amount of inflation and I think we are picking up market share there. Um, 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 systems growth. Our various, uh, value added products that we've added to
Our electronic medical records system, and overall, I would say we're doing generally quite well with listed countries where we're doing a little bit better. 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 was ever isi. This is the third question.
Hey, guys. Good morning and Stanley congrats to a very excited for you. Um, and you've achieved so much in this company over the years, so appreciate all of your your work there. Um, maybe just, um, going it's you talked about I think during the call some of the stabilization in the gross margin in the distribution business. Um, around me, I was wondering if you could uh, expand on that a bit and sort of talk through the puts and takes of that. And, and sort of how you see that developing maybe in the fourth quarter. And and, and as we think about going forward, thank you.
Certainly. So yeah. So on the US uh specifically I was making reference to the US Dental site. 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, uh, in in the quarter. So the Q3 gross margins in US Dental are consistent with what we saw in the second quarter and I would expect that to continue into the fourth quarter as well.
As you know, largely driven by continued stabilization in PPE specifically clubs. Uh because that is a very important product category. You know, within medical, we did have a little bit of a product mix there. Uh as influenza vaccine sales, tend to be very strong as a third quarter, uh, 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 a very good sales growth in their pharmaceutical products uh, in the quarter. And those tend to be a little lower margin than than the than the overall margin and medical benefits.
Very pleased with the sales growth. We got in medical school and believed we could continue to see, see that continue into the fourth quarter.
Especially thank you Elizabeth to your comments but, uh, Ron, if you could answer, I forgot to answer. John's question on October. Oh yeah, certainly. And with reference to October. Uh, you know, we we continue to see, uh, I think the, the, the similar Trends to what we saw in the third quarter, as we as we work through, uh, October.
Over and looked at at at the results. We've seen a uh,
Diagnostic kit sales in the, uh, in in the fourth quarter, depending on the timing of the, uh, of the respiratory season as well. And on the equipment side, uh, while we had very good in the third quarter, digital equipment. Uh, revenues are are traditional equipment, revenues were relatively flat of down a little bit in the US, mostly just due to the timing of some installations. And we're very comfortable with the with the uh, with the equipment backlog. We saw we were getting to see some of that benefit uh, in October and kind of running into the fourth quarter as well.
Our next question comes from the line of John stansel with JP Morgan. Please receive your question.
Great. Thanks for taking my question, and congratulations. Stanley on all your accomplishments this CEO across the career. Um, just want to quickly talk about Specialty Products, operating profits. Uh, appreciate it was up significantly year-over-year, but with the 28 million dollar remeasuring, gain it. It looks like it would be flat caught flat to down. Uh, stripping that out and I think you've highlighted some, some solid Top Line trends that you're seeing across implants. Um, can you just talk about what you're seeing on the, on the margin side of the specificity products group and what might be driving that? Thanks.
Certainly John. I think you know, a couple of things in the year-over-year on the specialty side and yeah, you're right. You do have to look at it kind of X, the 28 million remeasurement gain, um, you know, last year, we did have a, a relatively strong, uh, quarter on the, on the US implant business that did develop, uh, a little bit of a strong, uh, our difficult comparable for them. But also what we are seeing in, in, in the market is, you know, we mentioned this in the prepared remarks that the the value implant growth was in the low double digits. While premium implants, were really kind of growing in the in the low single digits, and we do get better margins on those premium implants versus the value of implants. So while it's great to see the growth and value it does, it does dilute that that margin a little bit. And I think that the the the the combination of the of the comp to the prior year and a little bit of a dilution in that gross margin uh is is creating the dynamic that you're referring to there.
Our next question comes from the line of Alan Lutz with Bank of America. Pleased to see if your question.
Good morning, and thanks for taking the questions. Stan, congrats again on the retirement, uh, appreciate all the time and insights over the years. Um 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 IBA 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 I the, the obvious answer would be greater growth than the premium implants, but I do think that, uh, continued growth in, in, in value implants can give us gross profit dollar growth. Ultimately, uh, and then, you know, recovery a slight recovery of the market for premium but also benefits that um, endodontic sales, you know, which is also within that specialty area continue to be steady and and should you know, continue to provide some gross profit dollar growth. And I would, I would say that the, um, the, you know, within the orthodontics, uh, we we know we have made some, uh, 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, it can provide some greater contribution to to gross profit growth.
1 of the things, thanks.
There's a lot of work going on in that group on value creation. Consolidating front office procedures, consolidating facilities, consolidating manufacturing. Uh, that is all
Being planned over the last couple of years being executed and I think we'll see some good results in 26.
Particular also, uh, Ron mentioned the orthodontics. I don't think we can invest heavily in marketing of orthodontics.
It just doesn't give us.
Traction. And I think we can get by using those dollars and investing in other parts of the specialty area.
Old driver.
come on, the
Specialty product side.
Next question is from the line of Jeff Johnson with beard, please just use your question.
Yeah, thank you. Uh, good morning, everyone. Uh, Stanley. Thank you for the, uh, walk down memory lane there and your prepared remarks. It's been a heck of a run and, and obviously, we all wish you nothing. But the best, uh, Ron was hoping, maybe, or, or Stanley hoping I could maybe, uh, ask kind of a phasing question. I know you're not really talking about 2026 at this point, but in that 200 million dollars now in, op income, uh, cost savings, are you expecting that to be 1, a net number, then uh inclusive of any kind of reinvestments back into the business number 1 and number 2, should we split that over the next 3 years? Kind of, you know, 707770 something in that ballpark. Uh, 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 negative, uh, the year-over-year comparable there. Thank you.
Uh, hi Jeff. Uh yeah, thanks for the question. I think that
I'll start with the 200 million. Uh and you know as we said this is a multi-year plan. I don't.
You know, we're not in a position yet to uh, you know, kind of commit to the what we expect the phasing of that to be as, 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 as we get started on them. Uh, as you know, as, as many of them are, are actually kind of in process now, those initiatives, right? So, uh, we'll be able to have a, a, a, a, a more accurate assessment of what we think. The 26th benefit will be, and will reflect that within our, our 2026 guidance. Uh, with with reference, to a re measurement gain, uh, you know, what I can say is that, you know, they've been a regular part of our business and you, they, they popped up in, you know, the last few years in our results. Uh, 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, uh,
There's not going to be something significant, we will, uh, you know, we will make sure that that is clear. When we provide that guidance, if we believe that there is something out there, we will provide try to provide, you know, some color as to what, what magnitude that could be. But the, uh, I, I would expect it to be a, um, uh, you know, we have to be an integral part of our guidance. When we provide that, and then with reference to the, to the $200 million, is it net? I mean, as we've said in the in the, uh, press release, this is $200 million of operating income improvements. So yes, it is net.
Um, there will be some uh you know 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 a $200 million net opportunity for us to to the to the operating income Improvement.
Our next question is from the line of Michael Attorney with Leroy Partners. Please just use your questions.
Uh, good morning. Thanks for taking the question and, and yeah, Stan, not a ton more to add there but, uh, appreciate all the time over the years. Um, maybe if I could just think about the market a little bit. Again, you talk about the share gains, obviously your biggest competitor, has 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
We, we haven't really given guidance on assumptions for 26, so I I, I think, um, I mean, I'm on on this run has something specific. Uh, I I don't think that's no. I mean, I the only thing I would add
Is.
Thanks Ron. Having said that we did give guidance
Uh, really, you know?
when you're, in 1 of these cyber incidents, you don't realize
uh, you know, systems are up and running Etc but you don't realize what work has to get done.
To get.
The customers are back in the door, but some of those customers tried alternatives.
Sources. Maybe they got a better deal. Maybe there was a 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 and that were promised and worked on before the Cyber incidents. That are there. They can see that the Gap, the Henry shine.com system.
Is working.
In a number of parts of the world. There's huge enthusiasm with that and generally we're getting some sales people that are knocking on our door from our competitors. Just not 1, but multiple competitors, and generally and I'm talking about distribution. Now, the distribution part of Henry shiners gained momentum. It's back in its stride, we're winning, we're fighting uh, equipment business is solid.
Our consumable business is doing quite well units, pricing. We've got a great offering and, uh, generally the mood amongst our sales organization is great. Both
In the field.
The Telus Sales Group which was largely focused on customer service for for at least a year and a half is back aggressively selling our e-commerce Services. Uh generally uh that 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 Shai. And then if you put to 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, the Specialty Products that we selling through distribution, that group is doing very well. The kind of part the uh, definition of choice part. Uh, the bone regeneration part. It just is a lot of good momentum in the business and uh, 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 uh,
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 underscore.
The next question, through the line of Kevin Kendo with you, UBS pleased to see if your question.
Thanks. Thanks for taking my question and and Stan. It's, it's been a pleasure to get to know you over these past 20 plus years. I really appreciate everything.
Um, my question is around uh, Heartland relationship, how where we stand with that, it was a sort of a key debate, a couple months ago and Drew Drew some worry from investors. Um, I I guess just wanted to sort of if there's any update on that relationship. If it's going to continue at the same same level and I guess to that point how um how successful has the company been with been able to push through the higher costs related to the tariffs and things if you can, maybe give us an update on that.
Thanks.
Thanks, Kevin, thanks. Thanks. Thanks for the question. Thanks for your good wishes. Uh,
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 account. When we lose an account, we never talked about that.
maybe we the 10 years ago, but we stopped doing that our relationships with our dsos,
They are generally quite good. In fact, I think there are DSOs, specifically the regional ones, that are moving over to us. You know, we definitely have something that others don't have.
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 general and medical
uh, the dsos that get the consumables from us, their software, from us, those that are also
Have moved to.
Our implant business. In fact, we've just gained another decent movement from a 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 1 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 pass the chance. It's not right? So, uh,
We I'm sure you're here through the marketplace about any about any specific dsos. But generally we feel very comfortable with our business.
I can't imagine any DSO saying to Henry Schein, you know what, we're not going to test your pricing, we want better pricing and they all it was a 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 the tariffs generally, we've been able to find a way in which we can move products. Locally we can negotiate with, uh, the, um,
Manufacturer.
Find alternative countries and there's been uh somewhat of an increase I think a percent or so of inflation. Here. I would say a lot of that is to do with uh a tariffs.
Um, not much to do with general pricing increases. So generally, it's sticking, uh, and it's not that our manufacturer, 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 and moving to private brand. If it's a national brands that insisting on increasing pricing. So I think overall it's it's it's working. Okay, at this point, um, I think there's been some reduction in tariffs in a couple of important uh countries and I I think, uh I mean it's hard to tell whether this is going to go, but I think generally what we're doing. Okay. Uh, on the Tariff side at the moment.
Okay, thank you. Uh, we have time for 1 last question, coming from the line of Brandon Vasquez, with William Blair,
Hey everyone, Thanks for uh sneaking me in here and Stan, I'll Echo. Everyone's congrats on a great career at at at Henry Schein I wanted to ask on the um the update around KKR and and the board's approval for KKR to take in even bigger stake in the company. Just curious, if you could talk a little bit about the impetus of that decision, uh, what kind of conversations are happening there and as should we think about it?
KKR continues to take bigger and bigger slugs, with the of the equity ownership here. Potentially, um, does the partnership become a little more? Uh, I don't know the right word for it, but maybe a little more intimate or you guys working a little bit closer to 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 budget. So uh, thank you, um, as it relates to KKR, we didn't approach them. They came to us. I think that gained an appreciation of the company they studied the dental space for I don't know for a long time.
Obviously, over a decade, they know a lot about the space, the consumables, the providers, the software, and value added service providers. I think they like our company. So they came to us and
To go up.
our board had a discussion, a board ensured that
um, the board was fully aware of all the factors involved in taking this number up to 19.9, and, uh, they made a decision. I think, uh,
The decision was based on all of the substance, not on uh,
Any particular promises or anything from him? Shine to take out. It was a pure decision they made.
The value they see within the company and the future. And the potential take ours, uh, Capstone group didn't work with us on selecting, the 2 consultation.
Um, they've been involved in discussions with our management team.
Uh and Andrea albertini and Tom, Pope are running the very creation project.
Um, KKR is aware of the project. They've given us some input on best practices. They helped us also with someone that interact.
Spending. They have some good relationships with, uh,
Relationship. The 2 members on the board are are very active. 1 is experts in healthcare. The other 1, understands the dental Market very well expert on uh various kinds of supply chain methodology Etc and they've been very helpful. Uh so I would say it's been a good relationship.
and uh, things have worked out quite well, I, that's why they asked to increase their, um,
Position and, and the shine.
Uh, and I bought, as I said, discussed that and made the decision to approve the request to go up to 19.9%.
so,
let me just end by saying, I think you've heard to my voice through my words.
I think the company is a very good shape.
We have a great team in place for the the team is motivated keeps winning.
The management team in each of the areas.
Of responsibility, the business units the functions.
Good management or around.
Uh, and uh, I I think
The boat plus 1 plan.
With the addition of the value creation program.
Which centers around Simplicity important. 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 B plus 1 initiative or refinement as we call it internally. So I think we've got a good plan. We got a good road map.
Uh, we got the team.
To execute on this. Uh, obviously there'll be some ups and downs as they always are in any business. But I think this team, uh, it is
highly enthusiastic and ready to continue to advance the business in accordance with the plans, both plus 1 and this
Uh, valid creation program that we've added so uh, with that in mind.
I thank everyone for support over 30 years. Um, it's been a great experience.
I've enjoyed.
getting to know the
Wall Street analysts.
Uh, the community the investors.
In a lot of great strategic investors. Over the years, there's been
those that have, uh, invested short-term and
Exited and come back. Well, these are all the components of Wall Street. I've enjoyed
I've learned a lot about how this works.
The team has learned a lot and, uh, I look forward to seeing people at conferences in the future or not as Finish Line CEO. But as a care team, follower of what goes on in healthcare,
So, thank you all for your interest. And, uh,
appreciate everything tomorrow, you can see us on, uh,
Uh, NASDAQ.
Media.
The opening of the stock exchange or the NASDAQ.
and uh,
Appreciate everything. Thank you. Thank you. Thank you.
This concludes today's tele conference. You may disconnect your lines at this time. Thank you for your participation.