Henry Schein Inc (HSIC) — Q3 2025 Earnings Call Transcript

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. 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. 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, are based on the company's internal analysis and estimates. Today's remarks will include both GAAP and non-GAAP financial results. We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the Financials and Filings section of our Investor Relations website under the Supplemental Information heading and in our quarterly earnings presentation also posted on our website. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, November 4, 2025. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Lastly, during today's Q&A session, please limit yourself to a single question so that we can accommodate questions from as many of you as possible. And with that, I'd like to turn the call over to Stanley Bergman.

Good morning, everyone. Thank you, Graham. Thank you for joining us. We are pleased with our financial results for the third quarter with sales growth accelerating in each of our reportable segments, including solid market share gains in our distribution businesses as we 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+1 strategy, including the financial performance of our investments in high-growth, high-margin businesses also sets the foundation for strong future growth. With the continued input from KKR, we have made good progress on advancing the value creation initiatives we announced last quarter. Based on our first phase of work, we believe we have the opportunity to deliver over $200 million of improvements to operating income over the next few years. We have begun executing on these multiyear 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. 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 purchases in the open market. Next, let me touch on a few key highlights from the quarter that advanced our BOLD+1 strategy. We remain on track to achieve our goal of over 50% of non-GAAP operating income coming from high-growth, high-margin businesses by the end of 2027, which is the current strategic planning cycle. And that's in addition, we expect more than 10% coming from our corporate brands. So that's in total about 60% of our non-GAAP operating income coming from these high-growth, high-margin businesses and corporate brands. While we have continued to strategically invest in our business, we have focused recent capital deployment on accelerating the repurchase of the company's shares. Our Board recently approved a $750 million increase in this program, and our current expectation is to continue to execute buybacks at a similar pace to the past quarter. Building on the momentum from our successful launch of our new HenrySchein.com Global eCommerce Platform in the U.K. and Ireland, we are rolling out a phased launch in North America. We expect to start the European rollout in 2026. Turning now to a review of our business units. I'll start with the global distribution and value-added services group. 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. Notably, sales growth accelerated in the U.S. 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. If we turn now to the U.S. 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. Traditional 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 U.S. equipment arena. 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 U.S. equipment growth in the fourth quarter. Turning to the U.S. 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. This was partially offset by lower demand for respiratory diagnostic products and a decline in influenza vaccine sales. Our international dental merchandise sales were stable, increasing in the low single digits in constant currencies. If we look at the international equipment sales, here, we have strong growth. Value-added services sales grew modestly with sales growth driven by consulting services, which includes our eAssist revenue cycle management business. Now let's turn to the Global Specialty Products Group. As a reminder, this group includes implants and biomaterials as well as endodontics, orthodontics and orthopedic products. 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's solid trends. Sales growth was in the mid-single digits in constant currency, and we believe we continue to gain market share across most implant markets, in particular, the ones where we have our strength. So where we service the market, we have resources on the ground, we believe we're doing quite well in those implant markets. 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, BioHorizons Camlog, demonstrating the strength of our broad portfolio of offerings. In the U.S., implant and biomaterials sales grew in the low single digits against a challenging prior year comparison. This growth, of course, reflects increased traction from our rollout of our BioHorizons Tapered Pro Conical implant and ongoing growth we achieved in the SmartShape Healers abutment. We expect growth in these products to continue. The Tapered Pro Conical product now represents approximately one-third of our U.S. implant sales. And it's important to understand that our customer feedback on this product offering is very, very positive. 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 team, which continues to be very good. Our endodontics business delivered mid-single-digit growth for the quarter, benefiting from expanded sales reach through our U.S. 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. And finally, our Orthopedics 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 driven by strong growth in the adoption of our core practice management solutions business, particularly our cloud-based platforms, including Dentrix Ascend and Dentally as well as strong growth in our revenue cycle management solutions, including eClaims electronic billing and patient messaging. 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 a 20% year-over-year increase in the number of cloud-based customers, primarily from new Henry Schein One accounts. The whole cloud-based strategy for us is doing very, very well. We now have over 10,500 Dentrix Ascend and Dentally 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. There 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 Dentally. Among the benefits are a real-time documentation system that uses AI to capture and summarize patient interaction, voice-activated charting, scheduling and communication tools to further personalize the patient experience 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. 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. As we discussed on our last conference call, the Board started a formal search process supported by a nationally recognized executive search firm considering internal and external candidates 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.

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, 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. Global sales were $3.3 billion 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. 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 6 basis points compared to the prior year GAAP operating margin. On a non-GAAP basis, the operating margin for the third quarter was 7.83%, an increase of 19 basis points compared to the prior year non-GAAP operating margin. 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. Gross margin was down 56 basis points year-over-year, primarily related to product mix in our Global Distribution Group and in our Global Specialty Products segment. 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 U.S. dental distribution business. 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 the nontaxable nature of the remeasurement gain recognized in the quarter. 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. Third quarter 2025 GAAP net income was $101 million or $0.84 per diluted share. This compares with prior year GAAP net income of $99 million or $0.78 per diluted share. Our third quarter 2025 non-GAAP net income was $167 million or $1.38 per diluted share. This compares with prior year non-GAAP net income of $155 million or $1.22 per diluted share. Foreign currency exchange favorably impacted our third quarter diluted EPS by approximately $0.01 versus the prior year. Our third quarter results include a remeasurement gain resulting from the purchase of a controlling interest of a previously held noncontrolling equity investment. That business has performed well since we made our initial investment. And as a result, we recognized a pretax remeasurement gain of $28 million this quarter. This compares to a pretax remeasurement gain of $19 million in the third quarter of 2024. The remeasurement gain in the third quarter of 2025 and its related tax treatment contributed approximately $0.23 to EPS, 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 compared with third quarter 2024 adjusted EBITDA of $268 million, 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. 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%. Within this segment, U.S. dental merchandise sales grew 3.3% and U.S. 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. U.S. medical distribution sales grew 4.7% despite lower demand for influenza vaccines and respiratory diagnostic products. Our Home Solutions business had another strong quarter, growing over 20% on an as-reported basis and 6% excluding acquisitions. International dental merchandise sales grew 6.0% or 2.5% in constant currency, driven by sales growth in Brazil, Canada, Italy, Spain and Australia. International dental equipment sales were strong with 10.1% total growth with constant currency growth of 5.7%, driven by sales in Germany, the U.K., Canada and Australia. And finally, Global value-added services sales grew 3.3%, driven by consulting services.

Thank you, Ron. I want to take a moment to reflect on the past 30 years as a public company. Tomorrow, we will celebrate our 30th anniversary by ringing the opening bell at the NASDAQ Stock Exchange. This marks 120 quarterly calls for us. Since our IPO in 1995, our growth has been impressive, with sales increasing at an average rate of over 11% annually. From a market capitalization of $280 million, our company's value has also grown nearly 12% each year, even accounting for the Animal Health business we spun off in 2019. Over these three decades as a public entity, this consistent 12% annual growth reflects our journey. Like any rapidly growing business, we've faced significant challenges. When we merged Sullivan Dental and Meer Dental in 1997, some doubted our ability to unify three different cultures and transition our business from a dental mail-order service to a full-service dental operation that includes a field sales force and equipment sales and service. That same year, we acquired Dentrix Dental Systems, forming what some refer to as a three-legged chair—combining products, services, and technology. Then we encountered a dental and aesthetic recall issue, which affected our stock price. We chose to continue our mission despite the challenges and aimed to build the world's largest full-service dental distribution and dental practice management software businesses. Shortly thereafter, our customers began to see the advantages of our comprehensive offerings. We bravely expanded into Europe, accelerated by the acquisition of Demedis in 2004, which transformed our business into a global platform and shifted the industry's conversation to new markets, regulations, and cultures. The 2008 financial crisis forced us to make tough choices, but we stayed committed to our values, tightening our belts while continuing to invest in our people and future. Fast forward to 2020, COVID brought challenges with temporary dental market shutdowns, empty offices, and disrupted supply chains. Yet, Team Schein adapted remarkably, leveraging our world-class supply chain network to deliver personal protective equipment and COVID tests to healthcare professionals globally. When the world reopened, we experienced solid business growth until the cyber incident in October 2023 shook us. For a moment, it seemed everything we worked for was at risk, but our team came together, restored our systems, and initiated our recovery. Some customers returned slowly but ultimately valued our offerings. This experience, although not forgotten, strengthened Team Schein's focus on driving sales. Every challenge has made us more resilient and united, leading us to today's BOLD+1 strategy, which emphasizes product development, innovation, enhancing our digital capabilities, building customer partnerships, and expanding our owned brands. This strategy enables us to provide our customers with the tools for more efficient practices, allowing them to concentrate on improving patient care. Our recent results underscore the success of this approach. Besides the impressive growth we've seen over the last 30 years, I am especially proud of our collective efforts at Team Schein in making a meaningful impact on our profession and the communities we serve worldwide. We have established ourselves as leaders and models in fostering public-private partnerships to enhance access to care on a global scale, contributing to improved global health preparedness and emphasizing the importance of the link between oral and overall health. In conclusion, I have great confidence in our management team, who are skilled, motivated, and dedicated to executing our strategies, including our value creation initiatives. I am genuinely optimistic about how these efforts will enhance our operating income and shareholder value. Before we move to questions, I want to express my gratitude to all 25,000 members of Team Schein around the world, our exceptional Board, our suppliers, and the investors who believe in us. I believe you will be rewarded well in the years ahead. Thank you for your support over these past 30 years. I also want to acknowledge those on this call who I've known for many years, including analysts and investors since our beginning. It has been a truly wonderful journey getting to know everyone who supports office-based dental and medical practitioners. With that, I will turn the call over to the operator to address questions. Thank you very much, and I apologize for the lengthy remarks; after 120 calls, I felt I could share a few extra words.

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

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

Yes. Certainly, Jason. With reference to 2026, as you can appreciate, this is a kind of multiyear plan to deliver the $200 million in operating income improvements. Having said that, 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 $200 million, we'll be able to determine the estimated impact and the estimated benefit that will be in 2026, and we'll reflect that in our 2026 guidance when we provide that in February.

Stanley, I want to echo everyone else's congratulations. I have a quick question. Ron, the midpoint of the 2025 EPS guidance increased by $0.05, if I’m correct. The remeasurement was $0.08 higher than last year. Could you discuss what was included in the original guidance and clarify that? Also, Stanley, looking back at the third quarter compared to the second quarter, it seemed stronger. You mentioned some share gains, but I’m curious about how much of that was due to market improvement versus Henry Schein's execution. Do you have any early insights for October?

I will start with the guidance, and Stanley, you can cover the latter part. Regarding the guidance, John, there is a range of outcomes we need to estimate due to the remeasurement gain. Until we complete the transaction, it’s challenging to determine the exact amount we will have. It might be slightly higher than we initially expected, but it falls within our anticipated range. The $0.05 increase includes a minor benefit from the remeasurement gain and also reflects the momentum we are experiencing in sales growth. Year-over-year, when we exclude the remeasurement gain and adjust for the $28 million on a pretax basis this year and the $19 million on a pretax basis last year, our non-GAAP operating income shows a growth of about 4.5%. We believe this indicates we are heading in the right direction. We are confident about the momentum we are seeing as we transition from the third quarter to the fourth quarter, which is also reflected in the updated guidance for this year. Stan, would you like to continue?

Thank you, Ron. John, I appreciate your long-standing interest in the dental industry. Overall, the markets seem stable, though some are performing better than others. Generally, the larger markets are holding steady, with unit sales remaining consistent. It's encouraging to see that pricing is not dropping significantly, which contributes to this stability. There hasn't been a notable shift of customers toward lower-priced national brands, although there was some movement in that direction. Our own brands have continued to grow over the past few quarters, showing positive momentum. We are experiencing a slight tariff-related inflation, roughly around 100 basis points in the United States, but it's manageable. We've discussed tariff absorption with some manufacturers and have switched to U.S. manufacturing for certain products to mitigate costs. Overall, the market remains stable with minimal inflation. Glove pricing has leveled off, and we are seeing a slight increase in units sold, leading to a gain in market share from a distribution perspective. Specifically regarding implants and bone regeneration, we believe we are outpacing market growth, although one competitor may be performing slightly better in areas we aren't focusing on. Generally, our position in the implant market is solid, and in endodontics, we are also gaining market share. On the medical side, the pharmaceutical segment at Henry Schein is performing well, remaining stable without much to report on generics this quarter. Medical equipment and med-surg products are relatively stable, but there has been a decline in testing and respiratory product sales due to lower sickness levels this season. Nevertheless, our 4% to 5% growth in the U.S. medical segment reflects the market trends without significant inflation, and we believe we are gaining market share. Additionally, our software segment is thriving, largely due to the growth of our cloud-based systems and the new value-added products integrated into our electronic medical record system. Overall, we are performing well and have noted specific countries where we are seeing more significant growth, primarily driven by market share expansion, as global market conditions remain relatively stable.

Congratulations, Stanley. I’m really excited for you and appreciate all your hard work at the company over the years. You mentioned some stabilization in the gross margin in the distribution business during the call. Ron, could you elaborate on that and discuss the factors influencing it? How do you see that evolving in the fourth quarter and moving forward?

Certainly. Regarding the U.S. dental sector, we observed stabilization in margins as glove pricing leveled off. This improvement allowed us to return to a more typical level of promotional activity during the quarter. The gross margins for U.S. Dental in Q3 align with the levels we witnessed in the second quarter, and I anticipate this trend will carry into the fourth quarter, primarily due to the ongoing stabilization in personal protective equipment, especially gloves, which is a crucial product category. In the Medical segment, there was a shift in product mix, as influenza vaccine sales tend to peak in the third quarter compared to the rest of the year, despite being lower year-over-year, and this product has a lower margin. However, the medical division experienced robust sales growth in pharmaceutical products during the quarter, although these generally contribute to a lower margin compared to the overall medical margins. We are very satisfied with the sales growth in the medical sector and are optimistic about its continuation into the fourth quarter.

Firstly, thank you, Elizabeth, for your comment. Ron, could you please address John's question regarding October?

Yes, certainly. In October, we are observing trends similar to those in the third quarter. As we analyzed the results for October, we noticed that there might have been some advance purchasing as customers anticipated tariffs, but this did not negatively affect our performance in October. The medical sector is often influenced by the timing of the respiratory season, so we expect to see an increase in our diagnostic kit sales in the fourth quarter, depending on when the respiratory season begins. On the equipment side, while we experienced strong performance in the third quarter, traditional equipment revenues in the U.S. were relatively flat or slightly decreased, primarily due to the timing of some installations. We are confident about the equipment backlog we have, and we're starting to see some benefits from that in October as we approach the fourth quarter.

Congratulations, Stanley, on all your accomplishments as CEO across the career. Just want to quickly talk about Specialty Products operating profit. I appreciate it was up significantly year-over-year, but with the $28 million remeasurement gain, it looks like it would be, call it, flat to down stripping that out. And I think you've highlighted some solid top line trends that you're seeing across implants. Can you just talk about what you're seeing on the margin side of the Specialty Products Group and what might be driving that?

Certainly, John. In the specialty segment year-over-year, we need to consider the impact of the $28 million remeasurement gain. Last year, we experienced a strong quarter in the U.S. implant business, which makes for a challenging comparison. Additionally, we observed that value implant growth was in the low double digits, while premium implants saw growth in the low single digits. We achieve better margins on premium implants compared to value implants. Therefore, although the growth in value implants is positive, it slightly dilutes our margins. The combination of the year-over-year comparison and this marginal dilution is influencing the situation you're describing.

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

The clear answer would be to see greater growth in the premium implants. However, I believe that ongoing growth in value implants can also contribute to gross profit dollar growth in the long run. A slight recovery in the premium market would support this as well. Endodontic sales, which fall under that specialty area, remain stable and should continue to generate gross profit dollar growth. Additionally, within orthodontics, we have implemented some significant operational changes, and I expect these to start contributing to growth in 2026, even though it remains a smaller segment. I believe it can enhance gross profit growth.

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

Stanley, I appreciate your reflections in your prepared remarks. It's been quite a journey, and we all wish you the very best. Ron, I was hoping to ask a question about the $200 million in operating income cost savings. Will that be a net figure, factoring in any reinvestments back into the business? Also, should we anticipate that amount to be distributed over the next three years, roughly $70 million each year? Additionally, regarding the $28 million remeasurement gain, can we expect something similar next year, or should we not include that in our projections for year-over-year comparisons?

Thank you for the question, Jeff. I'll begin with the $200 million. As we mentioned, this is a multiyear plan, and we are not yet ready to outline the specific timeline for its implementation. As you've pointed out, it will be rolled out gradually. We are currently evaluating the potential benefits for 2026 from these value creation initiatives, many of which are already underway. This will allow us to provide a more precise estimate of the expected benefit for 2026, which we will include in our guidance for that year. Regarding the remeasurement gain, I can confirm that it has been a consistent aspect of our business, appearing in our results over the last few years. We do see further investment opportunities in these types of affiliates, but we do not anticipate anything substantial in the near term. If we determine by 2026 that there won't be a significant opportunity, we will communicate that clearly in our guidance. However, if there are significant opportunities, we will provide more details regarding their potential impact. It will certainly be a key component of our guidance. Concerning the $200 million, it refers to operating income improvement. Yes, it is net. There will be some additional investments required, but we believe we can fund these with the cash generated from the value creation initiatives. While there may be costs associated with these areas, we see this as a $200 million net opportunity for improving operating income over time.

Yes, Stan, not a ton more to add there, but I appreciate all the time over the years. Maybe if I could just think about the market a little bit again. You talked about the share gains. Obviously, your biggest competitor has had a change in structure, change in management. As you think about the pathway of getting back to a 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 have provided guidance on assumptions for '26. Unless Ron has something specific, I don't think that's...

No. I mean the only thing I would add is we're confident we've been taking some share over a period of time, and we're confident that some of the promotional activity that we deployed earlier this year has assisted in some of the market share gains that we believe we had in the third quarter. And so it's simply a matter of continuing with that type of activity in a thoughtful way such that we can assume some level of market share gains. But at this point in time, if we think it's a relevant assumption when talking about our 2026 guidance, we can provide more color there.

Thanks, Ron. We provided guidance on sales growth for the rest of the year, indicating that we are optimistic about the business. During a cyber incident, it's easy to overlook the amount of work needed to regain customer loyalty since some may have explored alternative options for better deals or promotions. However, I believe we are moving past that challenge. Our sales team is highly motivated, both in the dental and medical sectors, domestically and internationally, and they are equipped with the tools that were in development before the incident. There’s considerable enthusiasm about the GEP and henryschein.com systems, which are operational in various regions. We are attracting salespeople from multiple competitors, and our distribution segment is gaining traction. We are experiencing success in our equipment and consumables businesses, along with strong pricing and product offerings. Our sales approach has shifted momentum, with field teams and telesales aggressively pursuing sales again after focusing on customer service for some time. Our e-commerce and social media divisions are also performing well, and our relationships with major suppliers are strong. By leveraging the relationships across our different business areas, we see programs yielding positive results. The team dedicated to our owned brands and specialty products is thriving, especially in dental and bone regeneration. There has been significant momentum in the business since a couple of quarters ago, and the successful promotion from last quarter has had lasting effects. Overall, I think the momentum is positive, as reflected in our increased sales guidance. I believe this momentum could continue into 2026, although we shouldn’t discuss specific numbers for that year on this call.

And Stan, it's been a pleasure to get to know you over these past 20-plus years. I really appreciate everything. My question is about the Heartland relationship and where we currently stand with that. It was a key topic of discussion a couple of months ago and caused some concern among investors. I would like to know if there are any updates on that relationship and if it will continue at the same level. Additionally, how successful has the company been in managing the higher costs related to tariffs? Could you provide us with an update on that?

Thank you, Kevin, for the question and your good wishes. We haven't discussed specific DSO or IDN relationships recently, and I don't believe it's appropriate to comment on account gains or losses. Our relationships with DSOs are generally strong, particularly with regional ones that are transitioning to us. We have a unique advantage in our supply chain, which is among the best in the industry for both dental and medical products. The added value from our combination of software and consumables is significant, especially for DSOs moving into our implant business. We've also recently gained additional traction in the implant sector. We prefer not to disclose specifics about customer movements as part of our strategy. While analysts may want more insight, it's not something we will share. We feel confident about our business, and I can't foresee any DSO stating that they won't test our pricing; they always seek the best value. Our responsibility is to secure the best pricing possible for our customers. Regarding tariffs, we've been effectively managing to source products locally and negotiating with manufacturers. There's been a slight inflation increase, around 1%, largely linked to tariffs, rather than general price hikes. Our customers understand that we're striving to provide the best pricing options, including shifting to private brands if national brands raise their prices. Overall, our approach is working well at the moment, and we've seen some reductions in tariffs from several key countries. It's difficult to predict how things will evolve, but for now, our tariff situation appears stable.

Stan, I want to echo everyone’s congratulations on your impressive career at Henry Schein. I’d like to ask about the recent news regarding KKR and the Board's approval for them to increase their stake in the company. Could you share some insights into what prompted that decision? What discussions are taking place? As KKR continues to acquire a larger equity ownership, should we expect our partnership with them to become closer? Are you collaborating more on future strategies for Henry Schein, and will we see significant changes as they become a larger shareholder?

Thank you, Brandon. I appreciate your continued support since our IPO. Regarding KKR, they approached us after recognizing the value of our company and their extensive experience in the dental field. They have researched the dental industry, including consumables, providers, software, and value-added services, for many years. As a result, they expressed their desire to increase their ownership to 19.9%. Our Board considered this proposal thoroughly and approved it based on their independent assessment of our company’s value and future potential, not due to any commitments from us. KKR's Capstone Group collaborated with us to select two consulting firms, and our management team, led by Andrea Albertini and Tom Popeck, has been engaged in value creation initiatives. KKR has provided valuable input on best practices and has facilitated connections with service providers to help us reduce indirect spending. This relationship has been beneficial, with KKR's board members actively contributing their expertise in healthcare and the dental market, particularly in supply chain methods. Overall, the collaboration has proved to be fruitful, which is why KKR sought to increase their stake in Henry Schein. I want to reassure you that the company is in a strong position. Our motivated team is delivering results across various business units, and we have a solid management structure in place. Our BOLD+1 plan, complemented by a value creation program focused on simplifying operations, aims to enhance profitability and efficiency. We have a clear roadmap and a dedicated team ready to navigate the inevitable challenges of business. While we can anticipate ups and downs, our team remains enthusiastic about advancing the company in line with our strategies. I want to express my gratitude for the support over the past 30 years. It’s been a rewarding journey, engaging with Wall Street analysts, investors, and strategic partners. I've learned a great deal and look forward to participating in future conferences as an advocate for healthcare. Thank you all for your interest and support. Tomorrow, you can catch us on NASDAQ media for the stock exchange opening. Thank you.