Alan Lutz

Alan Lutz from Bank of America asked about the expected split of new Bronze exchange plan enrollments between integrated plan partners and HealthEquity's direct channels, and whether there's an opportunity to increase the minimum cash threshold for HSA investing given recent inflation trends.

Answer

CEO Scott Cutler explained that HealthEquity will utilize both its partner distribution channels and its new direct retail enrollment platform for Bronze plan members, emphasizing the need for market education and a gradual growth trajectory. He also addressed the investment threshold, noting it's often client-set, and highlighted strategies to increase overall HSA engagement and investment adoption through education and an enhanced digital experience.

Alan Lutz asked about the expected contribution split for Bronze exchange plans between integrated partners and direct HealthEquity channels, and whether there's an opportunity to increase the minimum threshold for HSA investing given market inflation.

Answer

CEO Scott Cutler explained that while the core business leverages partners, the retail channel's split is evolving, emphasizing direct marketing and education for individual ACA members. He also highlighted strategies to drive engagement and investing, noting that the minimum threshold is typically set by enterprise clients and that only 9% of HSA holders are investors.

Alan Lutz questioned what factors are necessary for Henry Schein's specialty business to achieve EBIT dollar growth in 2026, considering the lower gross profit contribution from value implants.

Answer

Ron South, Senior Vice President and Chief Financial Officer, suggested that greater growth in premium implants, continued gross profit dollar growth from value implants, steady endodontic sales, and improved contribution from orthodontics (due to operating changes) would drive EBIT growth. Stanley Bergman, Chairman and CEO, added that value creation initiatives, consolidation of procedures and facilities, and reduced focus on orthodontic field salesforce are expected to boost operating income.

Alan Lutz followed up on the specialty growth trajectory, asking what specific conditions or changes in the model are necessary for EBIT dollars within the specialty business to increase in 2026, particularly given the lower gross profit contribution from value implants compared to premium implants.

Answer

Ron South, Senior Vice President and Chief Financial Officer, stated that greater growth in premium implants and a slight market recovery for them would benefit EBIT. He also mentioned steady endodontic sales and expected greater contribution from orthodontics in 2026 due to operating changes. Stanley Bergman, Chairman and CEO, added that value creation initiatives, including consolidating front office procedures, facilities, and manufacturing, along with reduced focus on orthodontic field sales, are expected to drive up operating income in the specialty products segment in 2026.

Alan Lutz of Bank of America inquired about the strategic learnings from the terminated RoTEK acquisition and how they will inform future M&A. He also asked about the expected step-down in EBITDA margins in the second half of the year.

Answer

President & CEO Edward A. Pesicka stated that future M&A will focus on smaller, bolt-on deals while the company prioritizes debt reduction. EVP & CFO Jon Leon clarified that the anticipated second-half EBITDA margin decline is '100% related' to an expected increase in stranded costs, assuming a near-term announcement of the PNHS divestiture.