Henry Schein, Inc. (HSIC) Q3 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Henry Schein's Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please press the * key followed by 1 on your touch tone phone if you would like to ask a question. At the end of the call. If anyone should require assistance during the call, please press the * key followed by 0 on your touch tone phone. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic financial project officer. Please go ahead, Graham.

Thank you, operator, and thanks to everyone joining us this morning, to discuss Henry Schein's financial results for the third quarter. With me on today's call are Frederick Lowery, chief executive officer Ronald N. South, senior vice president and chief financial officer and Emmanuel Capre, who will succeed Ronald as Chief Financial Officer effective tomorrow, November 4th. Before we begin, I would like to state that certain comments made during this call will include information that is forward looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements. The company's performance may materially differ from those expressed in or indicated by such statements. These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission and included in the Risk Factors section of those filings. In addition, all comments about the markets we serve, including end market growth rates and market share, based upon the company's internal analyses and estimates. Today's remarks will include both GAAP and non GAAP financial results. 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, allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non GAAP measures are included in the exhibits of today's press release and can be found in the financials and the filings section of our investor relations website under the supplemental information heading. And in our quarterly earnings presentation also posted on our Investor Relations website. The content of this conference call contains time-sensitive that is accurate only as of the date of the live broadcast, November 1, 2026. Henry Schein undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this call. Lastly, during today's Q&A session, please limit yourself to a single question so that we can accommodate questions from as many of you as possible. And with that, I would like to turn the call over to Frederick Lowery.

Thank you, Graham, and good morning, everyone. Before turning to our results, I would like to welcome Emmanuel Capre, who will become Henry Schein's chief financial officer effective November 4th. We are really excited to have you on the team. I would also like to recognize Ronald who has played instrumental roles at Henry Schein over nearly 2 decades, including the past 4 years as CFO. Ronald has demonstrated authentic leadership and disciplined stewardship throughout his tenure, and his contributions have built a solid foundation for our future. He will be staying on as a senior adviser working closely with Emmanuel to ensure a smooth transition. Ronald, thank you again for your leadership and your tremendous contributions to Henry Schein. And on a personal note, I would say a big thank you for how you have helped me onboard into the company. Now before we move to results, Emmanuel, would you like to say a few words? Thank you, Frederick. I am very pleased to join Henry Schein and am excited about the meaningful opportunities ahead to drive growth, expand margins, create long term shareholder value. I greatly appreciate the warm welcome I received from Team Schein members over the last few weeks and I value the opportunity to begin engaging with colleagues across the organization. I look forward to partnering with Frederick, the leadership team, and Team Schein members, and I want to thank Ronald for his support throughout the transition. Also I also look forward to engaging with many of you in the investment community. Thank you, Emmanuel. Now turning to our results. We delivered another strong quarter that increases our confidence in the momentum we are building at Henry Schein. We are gaining share expanding margins, and delivering strong underlying earnings growth. Here are a few highlights from the quarter. US dental merchandise sales grew 8.6%, including 7% internal local currency growth. Driven primarily by volume in a stable market. Excluding the net benefit from tariff refunds this quarter, and the prior year remeasurement gain, adjusted non GAAP diluted EPS increased 19.1% to $1.37. We expanded non GAAP operating margin by 20 basis points in the quarter. And we repurchased $125 million of Henry Schein stock bringing the year to date repurchases to $450 million and reflecting our disciplined approach to capital allocation. I am very pleased with the US dental merchandise sales growth of 8.6%, driven primarily by volume in a stable market and a 19% adjusted earnings per share growth. It shows that we are winning new customers expanding our share of wallet, and growing our company owned and exclusive products and executing effectively through our sales organizations. At the same time, we are seeing growing financial benefits from our value creation initiatives. Our commitments have not changed, and we continue to expect more than $200 million of operating income improvement including a $125 million run rate by the end of 2026. Together, with a more attractive business mix, and greater operating discipline, these initiatives are helping us convert growth into stronger earnings performance. We are therefore raising our financial guidance for the year reflecting the net benefit of tariff refunds received during the quarter targeted and limited growth investments in the fourth quarter, which will contribute to growth in 2027 and improved underlying business performance. My initial priorities coming into the role were clear. Execute against our 2026 financial plan, deliver our value creation commitments, and invest selectively to accelerate growth. And we are making strong progress. Our agenda remains focused on accelerating growth simplifying the business, and bringing greater rigor and discipline to execution. So let's start first with accelerating growth. We continue to invest in those areas we see the greatest opportunities to gain share and deepen our customer relationships. The results we are seeing have increased our confidence in several growth initiatives. We have therefore made the deliberate decision to make some limited incremental investments in the fourth quarter focused on winning new customers, increasing our share of wallet, and converting more episodic customers into long term Henry Schein customers. Our objective is to build on the share gains that we are already achieving. New product development is an important part of our growth expectations particularly across company owned products, and practice management software. For example, our recently launched Versalis implant positions us well in the fast growing value implant category. More suppliers are also choosing to offer exclusive products and promotions through our distribution channel. Underscoring the differentiated value of the Henry Schein platform. Our investments in Henry Schein 1, which is our market leading technology business, continue to drive accelerated growth in our cloud based practice management platforms as we embed AI enabled capabilities that improve workflows, improve collections, patient engagement, and overall practice performance. These capabilities help dental practices by identifying revenue opportunities, automating administrative work, and improving clinical and operational workflows. This is particularly valuable as practices manage labor constraints and rising operating cost. In our medical business, we remain focused on attractive areas of growth, including our home solutions business, where we delivered double digit growth in the quarter. Our second priority is simplifying the business. We are reducing organizational complexity getting closer to the operations, and speeding up decision making. We have continued to delayer the organization establish our executive team, and align decision making more closely with our operating businesses. By advancing shared services centralizing selected activities, and driving greater collaboration we are making it easier for our customers to work with us. We are outsourcing selective functions advancing shared services, centralizing indirect procurement, and building stronger pricing and margin management capabilities. Our focus is ensuring that our operating income improvements we have committed to deliver are realized in the P&L and that they build over time. Additional initiatives are being prioritized based on impact and return, including further portfolio streamlining shared services, and outsourcing, AI capabilities, and supply chain tools designed to improve efficiency reduce inventory, and simplify processes. Simplification should make us faster, more consistent, and more effective at converting top line growth into bottom line growth. Our third priority is bringing greater rigor and discipline to our execution. This includes prioritizing investments and resources toward those areas with the greatest potential to drive sustainable growth and returns. It also applies to capital allocation. We are taking a disciplined approach that balances investments with returning capital to shareholders. This discipline is particularly important in an environment that can change quickly. And like most businesses, we are experiencing inflation and our cost of goods sold which we are successfully offsetting through productivity initiatives, strategic pricing, and lower priced equivalent products, including our company owned brands. Our customers increasingly need an integrated partner that can simplify practice management, and we are uniquely positioned to deliver that breadth of solution at scale. Now let me turn to our business performance and what we are seeing in the market. As I mentioned earlier, we achieved excellent growth in our U. S. Dental merchandise sales in the third quarter, with 8.6% total sales growth 7% local currency, internal growth, importantly, was driven primarily by volume rather than price, and particularly among private practices and emerging DSOs. We believe this reflects continued market share gains from our own brand portfolio and from exclusive products such as CuraDot, This also reflects growth in our active customers and share of wallet. And strong sales execution by our Team Schein members. Based on what we see across our customers and the business, the overall US dental market remains steady, and patient traffic was stable during the quarter. Consumable sales for routine procedures are steady Demand for traditional equipment remains healthy. And DSOs continue to be an important source of growth. We are seeing some pressure in discretionary procedures, where patients can be more selective to out of pocket costs and they may choose to defer treatments. We are watching these trends closely, but they do not materially affect our current growth expectations. US dental equipment sales growth was solid, Consolidation among small and emerging DSOs remains an important driver as office expansions support greater practice efficiency. Our scale, and exclusive sponsored promotions and the quality of our service technicians and our sales teams provides meaningful competitive advantages. As we look to the fourth quarter, we are encouraged by the continued strength in our orders which remain ahead of prior year levels and prior quarter levels. International dental trends in both merchandise and equipment remain stable with particularly good growth among DSOs. The US medical market continues to benefit from procedures moving out of acute care into alternate care settings and to home care. At the same time, we are seeing fewer primary care visits related to respiratory illness. US medical sales growth remains healthy despite the declining market demand for point of care diagnostic test and lower flu and COVID 19 vaccine sales this quarter. Home solutions continue to deliver double digit growth And looking forward, we expect an early 2027 US flu season. To support better medical growth in Q4. Turning to global specialty products, it also grew well. In Europe, the implant market remained steady, and we achieved good growth in both premium and value implants. In The US, despite a softer market, implant sales grew well driven by our SIN 360 value implants. Brazil remained a headwind given challenging macroeconomic and political environment due to elections. Our global technology again delivered good growth. Led by our cloud based platforms and our new AI enabled solutions. Underlying growth was in line with prior quarters, but was partially offset by a difficult comparison with the prior year Windows 10 end-of-life support revenue. We expect fourth quarter sales growth to be in line with the first half of this year. Almost 13.5 thousand customers now subscribe to our Dentrix Ascend and Dentolee cloud based platforms. We are adding approximately 200 net-new customers per month with demand primarily coming from private practices and emerging DSOs. Our technology business continues to deliver good underlying growth, as we invest in product development, and innovation. This is driving increased adoption of our cloud based solutions and conversions to our advanced packages. That is AscendPro, and Ascend Accelerate. Which include AI enabled clinical documentation, insurance eligibility, claims and collections, diagnostics, and treatment capabilities, and integrated imaging. Overall, our third quarter performance demonstrates that the strategy is translating into stronger financial results. Specifically, businesses with higher growth and margin profiles are projected to be 50% of total operating income in 2026. Making important progress toward the portfolio mix that we have been building. We remain focused on increasing the contribution from businesses with higher growth and higher margins and return characteristics. Our value creation plan is contributing to the results our commitment remains unchanged. We are also strengthening operating discipline across the organization to focus on translating revenue growth into stronger earnings growth. And our capital allocation also remains an important part of that value creation framework. Share repurchases are an established and ongoing component of our capital allocation strategy, alongside disciplined investment in the business. Taken together, we are gaining share in the key in key businesses improving our portfolio mix, maintaining a disciplined approach to capital allocation, and realizing the benefits of our value creation initiatives to drive our financial performance. We remain fully committed to delivering those value creation objectives while selectively investing behind the growth opportunities producing the strongest returns. That combination strengthens our confidence in our ability to translate revenue into sustainable earnings growth. And with that, I will turn it over to Ronald to review our third quarter results and our updated 2026 guidance in more detail. Ronald?

Thank you, Frederick, and good morning, everyone. Before I review our financial results, I would like to take a moment to express my appreciation to everyone at Henry Schein, including our finance team and to the many colleagues whom I have had the privilege of working closely over the years. I am incredibly proud of what we have accomplished together and grateful for the dedication, partnership, and support I have experienced throughout my time at Henry Schein. I know I am transitioning an exceptional team over to Emmanuel, and I have great confidence in both the team and Henry Schein's future. it is been a privilege to serve as CFO, and I want to thank everyone who has been part of that journey. Moving to our third quarter results. We were pleased by the growth in the business. As shown on Exhibit D of today's press release, excluding the net benefit from tariff refunds this quarter, and a remeasurement gain in the prior year, our results reflect underlying adjusted non GAAP earnings growth of 19.1%. Global sales were $3.5 billion with total sales growth of 4.0% compared to the third quarter of 2020. This reflects local currency internal sales growth of 3.1% a 0.2% increase resulting from foreign currency exchange and 0.7% sales growth from acquisitions. What stood out especially in the quarter was the 7% local currency internal sales growth in our U.S. dental merchandise sales, driven primarily by volume from market share gains. Our GAAP operating margin for the third quarter of 2020 was 5.57%, an increase of 69 basis points compared to the prior year GAAP operating margin. On a non GAAP basis, operating margin for the third quarter was 8.03%, up 20 basis points compared to the prior year. Third quarter 26 GAAP net income was $119 million or $1.06 per diluted share. This compares with prior year GAAP net income of $101 million or $0.84 per diluted share. Our third quarter 26 non GAAP net income was $175 million or $1.56 per diluted share. This compares with prior year non GAAP net income of $167 million or $1.38 per diluted share. The foreign currency impact on third quarter diluted EPS was immaterial. On an EPS basis, the net benefit from tariff refunds in the quarter was $0.19 per diluted share, which is included in our GAAP and non GAAP results. We did not record any remeasurement gains in the third quarter of 2020, as compared to a remeasurement gain of $0.23 per diluted share in the third quarter of 2020. Finally, adjusted EBITDA for the third quarter of 2020 was $321 million compared with third quarter 2025 adjusted EBITDA of $295 million reflecting growth of 8.7%. The components of third quarter sales growth are included in Exhibit A of this morning's earnings release. I will highlight the primary drivers for each reporting segment. Global distribution and value added services group sales grew by 3.7% Driven by growth in global dental merchandise sales. Looking at the components of that growth, US dental merchandise sales grew 8.6% with local currency internal sales growth of 7%, as growth continued to accelerate. Performance was primarily driven by increased volume from market share gains, Growth in our company owned products continues to significantly outpace branded products. US dental equipment sales grew 1.6%. Driven by growth in traditional equipment, partially offset by a decline in digital equipment sales. Our equipment backlog remains healthy, and we expect U. S. Dental equipment growth to continue in the fourth quarter. US medical sales grew 1.0% as lower sales of point of care diagnostic products and vaccines were offset by solid growth in our core medical business and 11.4% sales growth in home solutions. When excluding point of care diagnostic tests and flu and COVID 19 vaccine sales. Our US medical sales grew in the low to mid single digit range. International dental merchandise sales grew 5.4% with 3.3% local currency internal sales growth. International dental equipment sales grew 2.9% with 3.2% local currency internal sales growth. Internal dental merchandise and equipment sales growth were especially good in Brazil, France, Spain, Australia, and Canada. Note that equipment sales growth in Germany was affected this quarter by a difficult prior year comparison related to the timing of the biennial international dental show in Germany in 2025. Finally, global value added services sales declined 4.8% primarily reflecting lower brokerage revenue where sales can be lumpy, from quarter to quarter. Turning to the global specialty products group, Sales grew 6.1% with 3.4% local currency internal sales growth. Sales growth was driven by value and premium implants in Europe, as well as value implants in The US. Partially offset by headwinds in Brazil. Our global technology group sales grew 5.2% with local currency internal sales growth of 6.5%. Growth was driven by Dentrix Ascend, and Ventali, our cloud based practice management platform as well as good growth in revenue cycle management. Supported by increased claims volume. Internal sales growth slowed slightly from the second quarter due to a challenging prior year comparison. And we expect growth in the fourth quarter to return to the pace we saw earlier this year. Turning to our restructuring program. The company recorded restructuring expenses of $22 million or $0.14 per diluted share during the third quarter of 2020. As we continued to advance our current restructuring programs and value creation initiatives. Our value creation initiatives remain on track. We continue to expect than $200 million of operating income improvement including a $125 million run rate by the end of 2026. These benefits are contributing to margin expansion, and underlying earnings growth. And our fourth quarter investments do not change these commitments. Regarding share repurchase activity, during the third quarter of 2020, the company repurchased approximately 1.4 million shares of common stock at an average price of $86.67 per share for a total of $125 million. At the end of the quarter, we had approximately $330 million authorized and available for future stock repurchases. Turning to our cash flow. We generated operating cash flow of $161 million in the third quarter of 2020. Our operating cash flow is strong and in line with the prior year. We continue to expect operating cash flow to exceed net income for the full year. Turning to our 2026 financial guidance. At this time, we are not able to provide without unreasonable effort and estimate of restructuring costs related to ongoing value creation initiatives. Therefore, we are not providing GAAP guidance. Our 2026 non GAAP guidance is for current continuing operations and does not include the impact of restructuring expenses and related costs. And other items described in our press release. Our 2026 total sales growth expectations are unchanged at 4.5 to 5.5 percent over 2025. We now expect 2026 non GAAP diluted EPS attributable to Henry Schein, Inc. to be in the range of $5.50 to $5.56. Compared to prior guidance of $5.29 to $5.39. We are raising this guidance to reflect the net benefit from tariff refunds recognized in the third quarter targeted and limited growth investments in the fourth quarter, which will contribute to growth in 2027 and improved underlying business performance. 2026 adjusted EBITDA is now expected to grow in the high single digits versus 2025 adjusted EBITDA of $1.1 billion This guidance assumes no significant additional tariff refunds or remeasurement gains for the remainder of 2026. Our guidance also assumes foreign currency exchange rates will remain generally consistent. With current levels, and we are assuming an estimated non GAAP effective tax rate of approximately 24%. With that, I will now turn the call back to the operator for Q&A. Thank you.

We will now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset. Before pressing the star keys. Our first question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Hi. Good morning, guys. Thanks so much for the question. Great working with you, Ronald, and welcome, Emmanuel. I had a question. I would like to double click a little bit on the share gains that you called out, in US dental consumables. Can you talk about sort of the product categories, what that is? And then can you just confirm for us how the tariff refunds flow through the P&L? Thank you very much.

Yeah. Thanks for the question. I will take the first part, I will let Ronald take the second part. The 8.6% growth or 7% internal local growth is really strong for us in the U.S., and we feel great about the. Not only. The fact that it is more volume versus price, so heavily volume weighted, which shows we are gaining share. Particularly interesting part is we are gaining share in private practice. Versus and emerging DSOs versus just large DSOs, which says we are making good progress when I look sequentially from Q1 to Q2, and Q2 to Q3, We got better every single quarter. So that. that is a really exciting part of the growth there. what is really driving it is when I look at our corporate brands. So we are seeing growth in our own brand products. Both our private label and other owned brand products. We are seeing growth in our exclusive products like CuraDot And then we are actually just executing well from a commercial standpoint. Our commercial teams are driving really great programs and great promotions. And, building deeper relationships with customers. I think it shows up as I said before, in the in the private practices.

And, Elizabeth, in terms of the tariff refund flow through the P&L, so excuse me, we had about $28 million of benefit that is flowing through cost of goods sold. About 20 of that is in the distribution segment, and 8 of it is in the specialty segment. We also have a couple million dollars of offsetting OpEx related to that. that is also going through the P&L. And then call it roughly, you know, you get a little bit of interest income on these refunds as well, and we have you know, about $1 million or so of interest income from it.

Got it. Thank you very much.

Thank you. Our next question comes from the line of Jeffrey Johnson with Baird. Please proceed with your question.

Yes, thank you. Good morning, everyone. And Ron, congrats on the retirement. I am a little jealous at this point, but, good luck to you in the future. So I guess for Frederick or Ronald, either 1, just wondering if I could ask a 2-part question on guidance. Implied in the fourth quarter EPS growth somewhere in the 3% to 4% range. I think, Frederick, when you and I last talked at our health care conference, you kind of committed to double digit EPS growth. Moving forward. So talk about maybe some of those targeted investments you are planning in Q4. How much of that 3% to 4% instead of double digit might be end markets a little bit of pressure here with, the macro versus those investments versus, conservatism, just how to think about that 3% to 4%. And then as I think about the tariff refund that helped by $0.19 this quarter, I would assume that double digit EPS growth, if you are still comfortable with that moving into next year, is kind of on an x tariff refund basis. The street's hanging out at, you know, just under $6. Your guidance this year now sitting a little above $5.50 or just above $5.50 at the midpoint. I would assume you do not want us to put double digit growth on top of that. Given that tariff refund is adding $0.19 But help us out conceptually thinking 2027, even though I know you are not guiding there at this point. Thank you.

Yeah. That last point is really important. Thanks for the question. it is it is important to note we are not giving guidance today. But let me just maybe take a step back and since we started value creation, every quarter, since then, we have actually seen double digit EPS growth. And we feel great about having a double digit EPS growth for the full year of 2026, and we are built. We. We are committed to our value creation commitments that we made in the past of a $125 million run rate at the end of this year, which implies that we are building toward double digit EPS growth. Next year. As it relates to the investments that we are making, we are making some targeted limited investments really behind where we are seeing really good growth. And, you know, we will continue to do that. Going forward that it should help us from a growth standpoint just in Q4, but in 2027 as we continue to take share and build closer relations with customers, But I will let Ronald answer the balance of the question here.

Yeah. So. And, Jeffrey, I think 1 thing. You know, regarding your point on the fourth quarter growth, something I just want to point out and just as a reminder, the fourth quarter last year did have a remeasurement gain. Of approximately $0.06 of EPS benefit that will not repeat this year. So when looking at the growth, it is important to normalize for that. You know, when looking at the year over year. Impact of our. You know, the estimates that you are coming up with based on our guidance versus the prior year at this point.

Thank you. Our next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Hey, good morning. Thanks for the questions. And Ron, I will just echo it is been a pleasure working with you. I wish you all the best. And, Emmanuel, welcome, and look forward to working with you. Wanted to first hit on, I guess, The US dental merch growth. Really impressive number. Clearly taking share. like a byproduct of a lot of initiatives you have put in place here, Frederick and Ronald. My question, though, Frederick, you know, hoping you can bifurcate growth a little bit more between volume and price. You have emphasized a few times here already today. That volume was that primary driver, which I think is a little bit of a shift from the message last quarter where growth was a bit more balanced between volume and price. So just can you unpack the growth contributions a bit more? And then has anything changed on the price dynamics over the last few months? Because it is really good to see that the volume is picking up here.

Yeah. Thanks for the question. Let me try to give you just a little bit more context here. We are seeing primarily volume which we have. I think in the past, we have seen primarily price. And so that says to me that we are taking more share when I look at, you know, the market, it clearly is stable. But for our customers, the market actually. We are seeing growth in the market. So means our customers are growing faster. That means our algorithm is working by selling more of our company brands. Into those customers. And we are helping our customers see more customers and see more patients. So it is truly primarily volume, mostly volume, if that helps from a contextual standpoint. And then just on just on the inflationary standpoint, as relates to price, we are still getting good price. We are getting good price that is covering any inflation that we are seeing and able to still either drive more price where it is appropriate or help our customers, you know, use different products or equivalent products that maybe are a lower price but higher margin for us. So that algorithm is working, and I think we will expect to continue, and we do not have any concerns about being able to cover inflationary pressures in Q4.

Thank you.

Thank you. Our next question comes from the line of Jonathan Block with Stifel. Please proceed with your question.

Maybe just to kick things off, is there a way to frame the amount that value creation will contribute in 2026 on a net basis? I am trying to go in there because that may that might help us with the incremental for 2027. When we are considering the $125 million run rate. Exiting this year. So again, you know, what is the contribution from value creation this year in 2026? And then sorry, just to follow-up on that prior question from Jeffrey because I think we all want to sort of get some clarity here. You know, there had been a talk about double digit earnings growth. So, again, are we putting, like, a double digit number on, call it, the $5.53 midpoint for 2027, or are we stripping the 19¢ and arguably putting a double digit on a normalized, if you would, I do not know, $5.34 number. Thanks, guys.

Hey, John. I will start with the value creation piece. You know, like Frederick said, we are. You know, we remain committed to delivering, you know, the ultimately, the $200 million in operating income improvements. And that includes the $125 million run rate that you referred to when exiting. 2026. You know, any of that in your benefit that we have gotten so far is obviously included within our year to date results now, and we have also included it within our full year earnings guidance. So it is a driver. That in-year benefit is a driver of the of the current year growth.

You know? And since we. ever since we initiated these initiatives, starting in late 2025, we have delivered double digit growth each quarter in 2026, and we continue to. And we expect to deliver the double digit growth for the full year of 2020 So I think the important thing here is these are scalable and sustainable activities we are taking and they give us confidence that we will be able to continue to achieve double digit earnings growth as we go into 2027 and beyond. In terms of, you know, the you know, the math in 2027 and as it relates to tariff refunds, we will take. We will take all that into consideration when we provide 2027 guidance I do not wanna put words in Emmanuel's mouth on, you know, on his third week. But I think that is something that we will have to take into consideration And, but, you know, I think you can trust that we believe the underlying operations of the business is gonna continue to deliver double digit growth.

Thank you.

Thank you. Our next question comes from the line of Erin Wright with Morgan Stanley. Please proceed with your question.

Great. Thanks. Can you talk a little bit about the innovation and just the overall market dynamics that you are seeing across implants right now,, particularly across the value segment, the demand trends that you are seeing across geographies? And then just quickly, just on the medical side of the business,, you mentioned flu season. And that being a benefit or maybe a little bit of a pull forward there. How much of that is benefiting the 4Q guide, or how material is that for you? Thanks.

Yeah. So just on the. Just on implants, know, we are excited about our implant business. And I look at our implant performance in Europe, in particular, we are we are seeing really good growth in both the premium and the and the value implant segment. In The US, we are seeing really great growth in our SIN 360, which is our value implant. I mentioned in the prepared remarks that we just launched our Versalis which we think is gonna continue to drive more growth into that segment. So we are quite excited about that. You know, the real headwinds for implants coming out of Brazil, which we think is really tied to the political environment there, tied to the election. So overall, we will feel really great about implants. We think the value implant segment is gonna continue to grow. Innovation is a big part of that, and we are we are excited about the portfolio that we have in place.

Ronald, you wanna take the second part? Yeah. Eric, I just. Were you asking in terms of the impact of new products on the guide? Or just wanna make sure I understand your question? So Well, yeah, innovation across implants, which I think he addressed, and then and then also on the flu season with medical. And not much of a pull forward. Yeah. I mean, it. You know, the impact of the timing of flu season is something that we have contemplated within that sales guidance. I mean, you know, medical was a little lighter in the third quarter than I think originally expected. As we mentioned in the prepared remarks, it was really driven by you know, continued softness in the. In, point of care diagnostic kits. Primarily as well as, you know, a little less demand this year for vaccines. Than what we saw in the prior year. But I think in the fourth quarter, you know, we are holding to that our full year revenue guide and it and it would expect that we would have, you know, some benefit from the timing of flu season in the fourth quarter.

Thank you. Our next question comes from the line of Allen Lutz with Bank of America. Please proceed with your question.

Good morning and thanks for taking the questions. I want to follow-up on the value creation initiatives here. Were the operating income improvements in 3Q across both gross margin and OpEx in line with Or did any fall into 4Q? And then to follow-up on a prior question, how back end loaded is that exit rate of $125 million exiting the fourth quarter? So for example, is there significant amount of cost that go until December 31st and then stop on January 1st? Trying to figure out if there is any way to frame that. Thank you.

Hi, Alan. I will start on this 1. it is I would say that the benefits we got in the third quarter were very much in line with our internal expectations, both from a gross profit perspective as well as on the G&A. Just by their nature, especially the GNA, you do get kind of ongoing benefits as you get into know, further into the year. Know, some of the initiatives that are completing during Q4 or even starting during Q4 because these will continue well into 2027, if not into early 2028. So we are we are gonna continue to get some benefits from that, but I think most importantly, like I said before, these are these are scalable and sustainable activities that we are putting in place that should, you know, could continue to provide earnings growth for us going forward.

Thank you. Our next question comes from the line of John Stansel with JPMorgan. Please proceed with your question.

Great. Appreciate taking the question. Just on traditional equipment, sounds like the backlog still remains robust. But can you just talk about how activity has trended in the backlog? Orders coming in? Just appetites to investment practices over the last month or 2. Is it kind of progressed Yeah.

Thanks for the question. I would say, on a traditional equipment, the backlog is strong. When I look year over year, the backlog is up Quarter over quarter is up, which traditionally we see a little bit of a bump in Q4, anyway. But the backlog looks stronG&Act. And activity is strong. So when we look at our order rates, feel good about continuing to see growth in traditional equipment in Q4.

Thank you.

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

Good morning. Thanks for taking my question. I have 2. 1 is we just asked about equipment. But what about de novo plans from any of your DSOs? Has that slowed in any way, shape, or form? Given some of the tumult and the markets and the like? Just wondering how that is trending and if that would be considered a headwind or anything for 2027. And then just on the $0.19 question because I have gotten 11 people that begged me to ask you to ask again. Should we consider tariffs part of, like, regular course of business or onetime in nature? I know you non GAAP and GAAP it at the same time, but just everybody wants to figure this out, so I am I am asking it in a different way. Thanks.

Yeah. The quest. The. Just on de novos, we are see. We are not seeing any change in activity level as it relates to de novos. If anything, we are seeing really strong growth with emerging DSOs. In particular. But we are seeing good growth with larger DSOs. So there is no real change in. That we are seeing as it relates to de novos.

And, Kevin, your question regarding the $0.19 you are asking, you know, GAAP versus non GAAP on that?

Yeah. I am just. I mean, we are just trying to understand if we should assume it is part of the baseline. that is all. I mean, everybody I got to understand the question. Yeah. Yeah. I asking. I am trying to ask you to Yeah. We elected. I get that. We elected to not, you know, not adjust for non GAAP purposes for a couple of reasons. 1 is most in the industry are not. And 2, we have. You know, it is a refund of a clause that we incurred earlier that we did non GAAP when we incurred that cost. So we. it is kind of a like for like type of comparison. Obviously, it is the type of benefit that is difficult to repeat period to period. So to the extent we believe it is a relevant factor when talking about growth, we will be sure to, you know, to isolate it so that people are reminded of it.

I would just add to that just to close that. That point out. You know, our as we think about the value creation that we are delivering, the growth that we are seeing in the business, We are committed to doubling down in areas where we are seeing success. From a growth standpoint. You know, we really have a lot of conviction around the underlying performance in the business that will help us get to double digit EPS growth in 2027. So we are not at all walking us. Walking away from that. I just do not think should just make that point be really, really explicit about it.

Thanks, guys.

Thank you. Our next question comes from the line of Michael Cherny with Leerink Partners. Please proceed with your question.

Good morning, and thanks for taking the question. And yes, Ronald, best of luck. In what comes next to you once you retire. Maybe another way to kind of dive into some of the investments you are making on the growth side How are you measuring yourself across the success of the growth investments? You talked about target opportunities to gain share. Should we think about this as a recurring dynamic where the more share you gain, the more opportunity you see, the more you will reinvest some of these savings. Trying to balance this all against some of the enterprise initiatives that you have been focused on for a while now? Thank you.

Yeah. Let me be clear. The investments that we are making are not are not at all in impacting the commitment we have made on value creation. We are gonna deliver a $125 million run rate at the end of this year. In spite of the fact we are we are making some limited and targeted investments in the business. I just wanna make sure that is that is that is clear. As it relates to the investments, hey. We are we are doubling down in areas where we are seeing really good benefits. And these are, you know, obviously, variable situations where we can we can push more in a certain area and way we are measuring ourselves is then taking share. This is the initiatives that we are that we are that we are focused on are allowing us to grow faster in private practice, taking those episodic customers and converting them to active customers. And when we do that, we develop deeper relationships with those customers. And we grow faster because of it.

Thank you.

Our next question comes from the line of Brandon Vazquez with William Blair.

Hey, everyone. Thanks for taking the question. I wanted to follow-up on that. The last answer that you have just given, Frederick. I mean, can you talk a little bit about where you see the opportunity to make these incremental investments? In the past, I think the company you are talking about the unquote, episodic customers, I think in the past, that is come from, like, the new henryschein.com ecommerce website. Is it similar investments? Are there. Or are there new investments that the company has not done in the past to go after those? And 1 kinda homework question here while I had you just level set us an exposure to any inflationary headwinds rubber, things like that? I know gloves have been a little bit of noise in the past. Thanks, guys.

Yeah. Thanks for the question. You know, if you would go back to Q2 last year, we started making some investments in promotions and we. We have, in some areas, saw a really good success. I think that has driven some of the momentum that we have seen with private practice. We have learned from those promotions. We have learned what works really well. And those are the areas that we are doubling down on. I do not wanna too many specifics from a competitive standpoint, but it is really helping us grow our company owned brands. And. Which is driving a lot of value for our customers as well. And then we have some exclusive products that are making a real difference like Curodont. So you know, I think those are the kinda things that you will see us do. And on the on the traditional equipment side, we have pretty normal promotions. Nothing that I would say is new, but pretty normal promotions that we would we would typically do at this time of year. So think those things are aligning us to have continued growth in those areas.

And Brandon, just the second part of your question regarding, you know, the commodity pricing on certain things.

Are The strategy we have had in place to try to manage any increase in cost related to the raw materials on some of these products as mitigated know, the impact fairly well for us. And that includes some cases, being able to offer our company owned brands, our private label products to customers where those price. The pricing begins to get a little high. that is been helping, I believe, know, some of that accelerated growth we have seen in private label. So mitigation strategy has. We believe has worked really well there.

Thank you.

Our next question comes from the line of David Larsen with BTIG. Please proceed with your question.

Hey, congratulations on a good quarter. Can you talk a bit more about growth in U. S. Dental consumables? Like what is driving that? Is it broad market demand? Or did you have sort of any pricing events going on where you were reducing prices for certain customers? And then related to that, can you talk a bit about the software infrastructure you have for dental practices? How that is progressing. It seems to me that if you sort of manage all of that tech infrastructure, those practices are more likely to buy more consumables through you. Especially as their practices grow. Thank you very much.

Yeah. Thanks for the question. And we are excited about the growth of our customers. And I think it is important to note that while there is some pressure on discretionary type spending in the. In private practice and in with DSOs. The routine products are actually doing really well and this discretionary parts. Portion of the market is relatively limited in our portfolio. And so on the routine side, we see really good growth. As we engage customers more we typically are able to grow our business more with those customers as we as we expand the portfolio and increase our share of wallet with those customers. We are taking those episodic customers and turning them into active customers. Hey. As it relates to our technology business, we are incredibly excited about the our Ascend and Dentrix and the Dentalee portfolio in dental offices. I mean, we are the system of record. For. Maybe the technology stack, if you will, And the closer we get to those customers, we are helping them drive productivity So they are actually seeing more patients. And because of that, we actually see more growth where we are supplying them. So it is absolutely 1 of our growth drivers is to continue to grow And we are. As I said in the in the in the remarks, we are growing our cloud based portfolio by over 200 installs per month. And so as we continue to see faster growth in our technology business, we absolutely expect to see faster growth in the rest of our business. Both because we are building closer relationships with them but also because we are connecting those portfolios better. So that definitely is a growth driver and part of our algorithm going forward. Thanks very much. 2 hundred installs a month sounds like a lot. Just any more color there? Like, who are you taking share from? Are these de novos? Were they paper based? Previously? Just any more thoughts there would be very helpful. Thank you. Yeah. I would say it is pretty broad based, and I would not specify a specific area. I think we are we are making progress both in both in DSOs and private practices. I would say that emerging DSOs are the faster growing portion of the market from our perspective. So but we are pretty broad based in our success with the new placements of our of our cloud based practice measure software.

Thanks very much. Great quarter.

Thank you. Our next question comes from the line of Michael Sarcone with Jefferies. Proceed with your question.

Hey, good morning, and thanks for taking the question. Ronald, best of luck in retirement and Emmanuel. Looking forward to working with you. You know, on the call, mentioned, you know, starting to see some pressure. In discretionary procedures. I think that was a comment geared toward The US. Was hoping you could elaborate a little more there. And then just talk about, you know, what kind of downside risk there is in the guidance. Or baked into guide, assuming that worsens?

Yeah. So just. When I talk about discretionary, I am saying areas where we do not participate a whole lot. And, I mean, we have small participation areas like ortho, So that is not a huge portion of our portfolio, so we are not really seeing a lot of you know, impact from that in the quarter. And when I think about the guide going forward, it is relatively small as far as downside risk. And I think you will see that you know, we expect pretty steady market and good growth in Q4 relative to you know, maybe some of what we saw in Q3.

Got it. Thank you.

Thank you. Our next question comes from the line of Vikramjeet Chopra with BMO Capital Markets. Please proceed with your question.

Hey, good morning, and thanks for taking the question. Ronald, best of luck, and thanks for all your help over the years. I had 2 questions. Frederick, if I can just start with you first. Given the year to date repurchases, I am just curious how you are thinking about balancing share buybacks against debt paydown, organic investment and M&A? Then I had a quick follow-up, please.

Yeah. You cut out the first part of that, but I think you are asking about capital deployment, share repurchase. But yeah, so we continue to repurchase shares in the quarter because we feel like stock is cheap. And have a lot of confidence in delivering on our value creation. And earnings growth in the future. And so I think we will still continue to be opportunistic, and we will, you know, invest for the best returns for shareholders. Not walking away from M&A by any stretch. I think, there will be opportunities for. Particularly for bolt on M&A in the future and where we find assets that would be additive toward the portfolio and help us grow faster, help us support our customers better, and drive better returns or drive great returns for our shareholders. We will be we will be active in that regard.

Great. And then, you know, I am just curious that beyond the current commitment, how much additional opportunity exists from shared services outsourcing, procurement, and portfolio streamlining? Thank you.

With reference to, you know, the outside services you know, regarding shared services, Vic, I think we are, you know, we are looking at a number of areas that I think would be. I would consider to be conventional with what you see a lot of companies do in shared services. So those are areas that we are exploring. Started with a couple of functions. Already, and we have other areas that we think we can we can centralize and find some efficiencies. You know, you mentioned, you know, the portfolio you can appreciate, the portfolio is always under review. I think as we take a look at it with, you know, with some fresh eyes, but Frederick having come in and now Emmanuel's coming in as well, You know, we will continue to do that portfolio review and find opportunities to, you know, to refine it in a. What we consider to be an optimal way.

Thank you.

Our final question this morning comes from the line of Michael Petusky with Barrington Research. Please proceed with your question.

Hey, so look, I know this question has been tried about 3 or 4 different ways, but maybe for the slow kids in class, meaning me. Could you guys just talk about sort of underlying growth expectations moving forward and whether tariffs are sort of a onetime? If you could just you could just yeah, again, apologize. I know it is been asked, but if you could clarify, I would really appreciate it. Thanks.

So Mike, I just wanna make sure I am clear. You are asking when we provide guidance. When we get to the point of providing guidance on 2027, how are we gonna treat tariffs? Yes. Okay. Yeah. So, you know, we will clearly make it. At that point in time, we will make it clear what we believe the growth is of the business. What we have been saying is that we. The double digit growth we have been talking about in terms of our objectives going forward and our goals going forward. That the activities that we have in place right now give us great confidence that we can achieve that. I believe with the tariffs, there is still an opportunity for that, that we get to the double digit growth. But we will. You know, what. That will be something that we cover in. You know, as part of the guidance. But I think it is it is important to focus on that underlying performance. When you look at the underlying performance of Q3, of this year versus Q3 last year, we would point out, you know, it was 19% EPS growth and it is. that is that is the type of growth rate we wanna be able to keep pushing going forward.

Okay. Great. Could I just. Since I am the last guy, could I just sneak 1 more quick 1 in? Absolutely. Okay. In terms of the medical business that I have been talking about much. You know, a couple, 2, 3 years ago, gloves was always sort of a you would give a number ex impact of headwinds associated with gloves, and it almost feels like point of care diagnostics is now flu and COVID is now sort of almost the same dynamic. I am just wondering, I understand there was comment earlier about Q4 should see a little bit better uptake there with maybe earlier flu season. But just as we move forward, do you expect point of care diagnostics to sort of be the bad guy versus home solutions being the good guy in medical? Or do you see sort of more of a normalized point of care diagnostics relative to history? Thanks.

Yeah. I would just, maybe just characterize it this way. If you. We feel like the growth in medical is good when you back out. Point of care. And by good, I mean, it is low- to mid-single-digit single digit growth. And that is what we would expect going forward. As you normalize for the point of care At Home Solutions, we feel great that it is gonna continue to grow in single-digit, double-digit growth. Going forward. So that is that is how we are thinking about the business at this point.

Thank you. Appreciate it. Thank you.

Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Lowery for final comments.

Yes. Thank you. Just a few comments to conclude. Our third quarter results reinforced our confidence in the direction of Henry Schein. Our US dental merchandise sales growth of 8.6% driven primarily by volume and mostly by volume, and a stable patient traffic environment demonstrates that our growth strategy is delivering results and that we are taking share. You know, we are also delivering on our value creation commitments which are contributing to margin expansion, and underlying earnings growth. And that gives us confidence that we will be able to continue to deliver and achieve double-digit earnings growth in 2027. Where we see initiatives producing attractive returns, we will selectively invest behind them and that will extend our momentum into 2027 and beyond. Our job is straightforward, grow faster, deliver our value creation commitments, and operate with greater discipline and translate those improvements into sustainable earnings growth long term shareholder value. Thank you for your interest in Henry Schein. Enjoy the rest of your day.

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