Executive Summary / Key Takeaways

• Henry Schein is strategically evolving its business model under the refreshed BOLD+1 plan (2025-2027), focusing on integrating distribution, specialty products, and technology to drive efficiency and high-margin growth.
• The Company is implementing a new restructuring plan targeting $75 million to $100 million in annual run rate savings by the end of 2025 to optimize operations and fund strategic investments.
• Technological advancements, particularly in cloud-based practice management software (Dentrix Ascend, Dentally) and integrated digital workflows (Nemotec, VideaHealth AI), are central to enhancing customer stickiness and operational efficiency, positioning HSIC competitively.
• Recent financial performance reflects stable end markets and sequential recovery from the 2023 cyber incident, though the pace has been slower than initially anticipated, impacting near-term sales growth.
• The 2025 guidance anticipates modest market improvement, supported by restructuring benefits and strategic initiatives, with EPS growth expected to be weighted towards the second half of the year, setting a base for returning to long-term growth targets.

The Foundation of a Healthcare Solutions Giant

For over 93 years, Henry Schein, Inc. has built a formidable presence as a leading provider of healthcare solutions, primarily serving office-based dental and medical practitioners. What began as a distributor has evolved through strategic acquisitions and organic expansion into a comprehensive partner for healthcare professionals worldwide. This history of growth and adaptation is foundational to the Company's current strategic direction, encapsulated in its refreshed BOLD+1 Strategic Plan for 2025-2027. This plan centers on strengthening the core distribution business through operational efficiency and enhanced customer experience, expanding high-growth, high-margin dental and medical specialty products and corporate brands, and deepening its digital footprint.

The industry landscape in which Henry Schein operates is characterized by fragmentation and diversity, ranging from sole practitioners to large Dental Support Organizations (DSOs) and group practices. This environment is undergoing consolidation, a trend Henry Schein believes it is well-positioned to capitalize on due to its extensive infrastructure and broad product and service offerings. Key publicly traded competitors include large, diversified players like McKesson Corporation (MCK), Cencora (COR), and Cardinal Health (CAH), which primarily focus on broad pharmaceutical and medical supply chain management, often leveraging immense scale. In the more specialized dental and veterinary markets, Patterson Companies (PDCO) is a notable direct competitor.

Compared to the large pharmaceutical distributors, Henry Schein differentiates itself through its specialized focus on the unique needs of office-based practitioners and its integrated solutions model. While giants like MCK and COR benefit from economies of scale in high-volume pharmaceutical distribution, potentially leading to lower operating costs per unit, Henry Schein's strength lies in its customer-centric approach, offering a wide array of products, equipment, and value-added services tailored to its niche markets. This integrated model fosters deeper customer relationships and loyalty, particularly with DSOs and larger group practices seeking streamlined procurement and comprehensive support. Patterson Companies, while sharing a similar niche focus in dental and veterinary, generally operates at a smaller scale than Henry Schein and has historically exhibited lower gross and operating margins. Henry Schein's ability to generate higher margins (Q1 2025 Gross Margin: 31.6%) compared to the large, lower-margin pharmaceutical distributors (MCK TTM Gross Margin: 4%, COR TTM Gross Margin: 3%, CAH TTM Gross Margin: 3%) underscores the profitability advantage of its specialized distribution and high-margin product/technology segments.

The Digital Edge: Powering Efficiency and Integration

A critical differentiator and central pillar of Henry Schein's strategy is its technological leadership, particularly within its Global Technology segment, anchored by Henry Schein One. This segment focuses on developing and distributing practice management software, e-services, and other digital solutions essential for modern healthcare practices. The strategic shift towards cloud-based solutions, such as Dentrix Ascend and Dentally, is paramount. While this transition from traditional on-premise software sales to a Software-as-a-Service (SaaS) subscription model creates a short-term headwind on reported revenue growth, it is expected to yield significant long-term benefits through higher recurring subscription revenues and improved profitability. The growing adoption is evident, with the cloud-based customer base increasing by over 20% year-over-year, reaching over 9,500 installations worldwide by the end of Q1 2025.

Henry Schein's technology extends beyond core practice management. The integration of Nemotec specialty software with Dentrix provides an integrated three-click digital workflow for implants and orthodontics, a capability recognized as highly valuable by DSOs. The Company is also incorporating Artificial Intelligence (AI) into its offerings, such as Dentrix Detect AI powered by VideaHealth for caries detection, which is being paired with products like Curodont for early caries treatment. New e-services like Reserve with Google and enhanced Eligibility tools further streamline practice operations and patient interactions.

The "so what" for investors is clear: these technological advancements are not merely product features; they are fundamental to Henry Schein's competitive moat. They enhance operational efficiency for customers, deepen integration within the practice workflow, and create significant customer stickiness, making it more challenging for competitors focused solely on product distribution to replicate Henry Schein's comprehensive value proposition. This digital edge supports higher customer retention rates and facilitates cross-selling opportunities across the Company's segments, contributing to both revenue growth and margin expansion, particularly in the higher-margin Technology segment (Q1 2025 Gross Margin: 67.9%, Operating Margin: 42.1%).

Strategic Execution and Operational Realignment

Under the BOLD+1 framework, Henry Schein is actively pursuing strategic initiatives to drive growth and improve efficiency. A key component is the new restructuring plan, initiated in August 2024 and expected to continue through 2025. This plan aims to integrate recent acquisitions, right-size operations, and increase overall efficiency, targeting $75 million to $100 million in annual run rate savings by the end of 2025. Restructuring costs of $25 million were recorded in Q1 2025, primarily related to severance and employee-related costs, indicating progress towards this goal. These savings are crucial for offsetting planned investments in technology and a return to historical levels of incentive compensation, supporting the Company's operating margin expansion goals.

Strategic acquisitions continue to play a role in expanding Henry Schein's portfolio and market reach. Recent examples include the acquisition of TriMed Inc. in orthopedics (April 2024) and Acentus in Home Solutions (January 2025), which broadens the offering of continuous glucose monitors. These tuck-in acquisitions are intended to provide synergies, cross-selling opportunities, and contribute to the growth of the Global Specialty Products and Global Distribution segments. The Home Solutions business, in particular, is performing well, with its annual run rate approaching $400 million, demonstrating significant internal growth.

The strategic investment by KKR (KKR), completed in May 2025, is another significant development. KKR's investment, resulting in approximately 12% ownership and the addition of two independent directors to the Board, is intended to support Henry Schein's value creation initiatives and the execution of its strategic plan, leveraging KKR's expertise in the healthcare sector.

Recent Performance and Financial Health

Henry Schein's recent financial performance reflects a stable end-market environment and the ongoing recovery from the October 2023 cyber incident. For the three months ended March 29, 2025, total net sales were $3,168 million, a slight decrease of 0.1% compared to $3,172 million in the prior year period. This was impacted by a 1.5% decrease from foreign currency exchange, partially offset by 1.2% acquisition growth. Excluding the impact of PPE and COVID test kits, constant currency sales growth was 2.0%, with sales accelerating throughout the quarter after a slow January.

Segment performance in Q1 2025 showed varied dynamics. Global Distribution and Value-Added Services net sales decreased by 0.7% to $2,676 million, primarily due to lower PPE sales and the impact of U.S. dental equipment sales deferrals from late 2023 into early 2024, partially offset by international dental and U.S. medical growth. Global Specialty Products net sales increased by 2.0% to $367 million, driven by constant currency growth (4.3%) from implants, biomaterials, and acquisitions, despite softness in orthodontics. Global Technology net sales increased by 2.9% to $162 million, with strong internally generated growth (3.4%) in cloud-based software and revenue cycle management, partially offset by legacy product sunsetting.

Profitability metrics in Q1 2025 showed improvement. Gross profit was $1,000 million, resulting in a gross margin of 31.6%. Operating income was $175 million, yielding an operating margin of 5.53%, an 81 basis point improvement year-over-year on a GAAP basis. Non-GAAP operating margin improved by 14 basis points to 7.25%, primarily due to lower operating expenses resulting from the restructuring program. Net income attributable to Henry Schein, Inc. was $110 million, or $0.88 per diluted share, compared to $93 million, or $0.72 per diluted share, in the prior year period. Non-GAAP net income was $143 million, or $1.15 per diluted share.

The Company maintains a solid financial position. Operating cash flow in Q1 2025 was $37 million. While lower than the prior year period (which benefited from residual cyber incident impacts on collections), the Company expects operating cash flow to exceed net income for the full year 2025. Accounts receivable days sales outstanding decreased to 44.1 days, indicating improved collection efficiency compared to the prior year period affected by the cyber incident. Total debt stood at $2,891 million as of March 29, 2025. Henry Schein continues to return capital to shareholders, repurchasing $161 million of common stock in Q1 2025. As of March 29, 2025, $718 million remained authorized for future share repurchases, and the Company plans to accelerate this activity.

Outlook and Key Considerations

Henry Schein's 2025 guidance reflects confidence in its strategic execution and expected market conditions. The Company forecasts total sales growth of 2% to 4% over 2024. Non-GAAP diluted EPS attributable to Henry Schein, Inc. is projected to be in the range of $4.80 to $4.94, representing growth of 1% to 4% compared to 2024 non-GAAP EPS of $4.74. Adjusted EBITDA is expected to grow in the mid-single digits versus 2024 adjusted EBITDA of $1.1 billion.

The guidance is based on several key assumptions: modest improvement in dental and medical markets, foreign currency exchange rates remaining generally consistent with current levels (expected to be largely neutral for the balance of the year), benefits from the restructuring plan, and contributions from recent acquisitions. These positives are partially offset by planned investments in technology and a return to historical levels of incentive compensation. Management anticipates that the benefits from restructuring and strategic initiatives will lead to a weighting of EPS growth towards the second half of 2025. The Company views 2025 as a base year for achieving its long-term goal of high single-digit to low double-digit earnings growth.

Despite the positive outlook, several risks warrant investor attention. The pace of recovery in distribution sales following the cyber incident, while showing sequential improvement, has been slower than initially anticipated. External factors like the Change Healthcare cyber incident have temporarily impacted customer cash flow and demand for certain software and equipment. The ongoing migration to generic alternatives for some branded pharmaceuticals could continue to pressure medical sales. While the Company believes it can mitigate the financial impact of current tariffs through sourcing and pricing strategies, the volatile nature of trade policies remains a potential risk. Furthermore, the Company is involved in opioid-related litigation, although opioid sales represent a negligible portion of its business, and management intends to defend itself vigorously.

Conclusion

Henry Schein is executing a deliberate strategic evolution, leveraging its integrated business model, technological advancements, and operational realignments to drive future growth and profitability. The refreshed BOLD+1 plan, coupled with targeted restructuring and strategic acquisitions, positions the Company to enhance efficiency and expand its higher-margin businesses. While the pace of recovery from the cyber incident and external market factors have presented near-term challenges, recent performance indicates stability and sequential improvement. The 2025 guidance, while reflecting a base year for growth, is underpinned by tangible strategic initiatives and expected operational benefits. Henry Schein's differentiated technology platform and its ability to provide comprehensive solutions offer a competitive advantage in a consolidating market. For investors, the focus remains on the successful execution of the restructuring plan, the acceleration of market share gains, the continued adoption of its digital solutions, and the realization of synergies from recent acquisitions, all of which are critical indicators for the Company's path towards its long-term earnings growth targets.