Jason Bednar

Jason Bednar asked about the drivers behind the strong organic growth in the MedSurg segment, its expected trajectory in the second half, and for a detailed bridge of the updated EPS guidance.

Answer

CEO Bryan Hanson attributed MedSurg's success to commercial restructuring, the strength of differentiated brands, and new product launches, stating momentum is still building. CFO Wayde McMillan clarified that after normalizing for advanced order timing, underlying growth is consistent at around 2.5%. He explained the EPS guidance increase reflects the Q2 beat plus expected second-half upside, while acknowledging the company is managing many variables like separation activities and tariffs.

Jason Bednar from Piper Sandler inquired how the 2.5% underlying growth compared to internal expectations and whether the company had observed a drawdown of the Q1 pre-buy activity in April and early May.

Answer

CEO Bryan Hanson confirmed the 2.5% underlying growth was ahead of their internal expectations, attributing the success to enhanced commercial execution. CFO Wayde McMillan added that Q2-to-date trends are in line with their plan, but the majority of the order timing reversal is expected in Q3, following major ERP and distribution center transitions in Q2.

Jason Bednar inquired about the organic growth guidance breakdown by business segment for 2025 and sought clarification on the drivers behind the lighter-than-expected free cash flow guidance.

Answer

CFO Wayde McMillan stated that while segment-level guidance is not being provided, all four segments are expected to improve due to broad commercial initiatives. He attributed the lower free cash flow forecast primarily to peak separation-related costs in 2025, advising analysts to model these costs based on the Q4 exit rate. CEO Bryan Hanson added that more color on business segments would be provided at the March 20th Investor Day.

Jason Bednar of Piper Sandler inquired about the expected pricing and volume dynamics in the Dental Solutions segment, given upcoming comps. He also asked about the procedural requirements for potential divestitures involving former parent company 3M.

Answer

CEO Bryan Hanson acknowledged the easier Q4 comp for Dental and stated that, like other segments, pricing is normalizing, and the focus must shift to increasing volume. He noted that there are additional considerations for portfolio moves due to the recent spin from 3M, which the company is proactively assessing, but any decision would also involve 3M. CFO Wayde McMillan reiterated that overall company pricing was neutral in Q3, and the focus is now on improving volumes after a period of price-driven growth.

Jason Bednar asked about the expected pricing and volume dynamics in the Dental Solutions segment, particularly looking past the noisy comps in the second half of the year. He also inquired about the process and considerations for getting divestiture clearance from former parent 3M.

Answer

CEO Bryan Hanson acknowledged the easy Q4 comp for Dental but emphasized that, like other segments, pricing is normalizing and future growth must come from volume, not price. Regarding divestitures, Hanson explained that there are additional considerations due to the recent spin from 3M, some of which are not in Solventum's control. He stated the company is proactively assessing these factors to ensure they are not a barrier to potential transactions, but acknowledged that 3M would be involved in any such decision. CFO Wayde McMillan reiterated that overall company pricing was neutral in Q3, with a positive turn in volume.

Jason Bednar sought a perspective on the outlook for healthcare subsegments, specifically consumables and capital equipment, relative to service growth. He also questioned if the strong first-half free cash flow was an abnormal occurrence or if the full-year guidance was conservative.

Answer

Dan Carestio, President and CEO, indicated that consumables are expected to continue strong growth driven by share gains and procedure rates. He noted a substantial healthcare capital backlog of over $400 million and strong orders, with capital growth dependent on shipment timing. He ranked service near the top, consumables second, and capital growing but with timing as a wild card. Karen Burton, Senior Vice President and CFO, confirmed that the first-half cash flow was stronger than typical, attributing it to earnings pulled forward, significant working capital improvements from faster collections, and a degree of cautiousness in the full-year guidance.

Jason Bednar sought a perspective on the outlook for healthcare subsegments, specifically service, consumables, and capital equipment, and their expected growth trajectory. He also questioned the strong first-half free cash flow and whether the full-year guidance was conservative.

Answer

President and CEO Dan Carestio indicated that healthcare service would likely be near the top in growth, followed by consumables, with capital equipment growing but being a 'wild card' due to shipment timing despite a strong backlog. CFO Karen Burton confirmed that the stronger first-half free cash flow was due to pulled-forward earnings, improvements in working capital, faster collections, and a 'little bit of cautious' approach in the full-year guidance.

Jason Bednar of Piper Sandler Companies asked about the drivers of impressive order growth in the Healthcare and Life Science segments and inquired about the company's capital allocation strategy given its growing cash balance and strong free cash flow.

Answer

Daniel Carestio, President & CEO, attributed strong orders to STERIS's comprehensive portfolio and partnership model, noting the substantial backlog enhances future visibility. Both he and Michael Tokich, Senior VP & CFO, confirmed M&A remains the preferred use of cash. Tokich added that cash balances may build further due to a lack of prepayable debt and that share buybacks will continue at least to offset dilution.

Jason Bednar requested a breakdown of the $30 million net tariff impact between China-related and other global tariffs, asked about the assumed mitigation efforts, and questioned the rationale for lighter share repurchase activity in the fourth quarter.

Answer

President and CEO Daniel Carestio clarified the $30 million impact is roughly split between China and a 10% global tariff. SVP and CFO Michael Tokich confirmed this is a net number after significant mitigation efforts and stated the lighter Q4 buyback was not a signal, as the company would consider additional repurchases. Executive Julie Winter added that the tariff impact is concentrated in the Healthcare segment.

Jason Bednar asked about the sustainability of the record-high margins in the Healthcare and Life Sciences segments. He also requested an update on the ethylene oxide (EO) litigation, specifically if the scheduled retrial impacts the timing of other cases and if any new cases have been added.

Answer

SVP and CFO Michael Tokich attributed the strong margins to favorable volume, mix, and price, noting that Healthcare also benefited from productivity improvements. President and CEO Daniel Carestio confirmed the May retrial has pushed the next scheduled case to later in the summer and stated that no additional cases have been added.

Jason Bednar of Piper Sandler & Co. pressed for details on the ethylene oxide (EO) litigation, including defendant status and insurance coverage. He also asked if the revised AST outlook was due to factors beyond volume, like pricing, and how the growth trajectory impacts the segment's margin expectations.

Answer

CEO Daniel Carestio declined to provide specifics on the ongoing EO litigation beyond the company's SEC filings. He clarified that the revised AST outlook is based purely on year-to-date volume trends and is not related to pricing. He also affirmed that, excluding a one-time charge, strong AST margins are still expected in the second half of the fiscal year.

Jason Bednar (Piper Sandler Companies) questioned the slight deceleration in Sterigenics' pricing, its stabilization point, and whether NESHAP investments could reverse this trend, also asking about the timeline for NESHAP pricing opportunities and the total number of California personal injury claims.

Answer

Chairman and CEO Michael Petras stated Sterigenics' pricing is consistent with the 3-4% long-range guide, with niche NESHAP opportunities potentially adding to this rate over time, gradually improving post-2026. He confirmed there are 83 personal injury claims in California.

Jason Bednar from Piper Sandler sought to clarify if Sterigenics' growth was driven by same-store sales or capacity expansions and asked if medtech supply chain shifts provided Sotera with increased pricing power.

Answer

Chairman and CEO Michael Petras confirmed that growth came from both healthy same-store sales and incremental volumes from a recent European expansion. He noted that while the company is well-positioned with its U.S. capacity to help customers navigate supply chain shifts, the focus is on partnership rather than leveraging the situation for pricing. He also announced a previously contemplated U.S. expansion project is moving forward.

Jason Bednar asked about pricing trends in Sterigenics, questioning if the current level is defensible and if there is any customer pushback related to the broader tariff environment. He also requested an update on potential EO litigation in other states like North Carolina and Texas.

Answer

CEO Michael Petras stated that the 4% pricing in Sterigenics is consistent with expectations and the company's long-term targets. He acknowledged ongoing customer negotiations but emphasized the value proposition. He also noted that future pricing discussions will need to incorporate NESHAP compliance costs. On litigation, he confirmed no active cases in North Carolina or Texas but did mention an uptick in California case counts, while reiterating confidence in the company's scientific defense.

Jason Bednar of Piper Sandler questioned the slight moderation in Sterigenics' pricing power and asked if rising labor costs could support future price increases. He also inquired about the expected run-rate for Nelson Labs' expert advisory services business.

Answer

CEO Michael Petras stated the company is not concerned about its pricing power, noting that Sterigenics' pricing of around 4.5% is within the company's overall target range of 3.5% to 5%. He affirmed the company's ability to push price to offset costs. For Nelson Labs, Petras suggested the current trend, with improving core testing volumes and normalizing expert advisory services, is a good indicator for the future.

Jason Bednar asked about Henry Schein's future earnings growth, specifically if the high single-digit to low double-digit EPS growth target is applicable to 2026, and how the $200 million EBIT benefit from value creation initiatives contributes to this goal.

Answer

Stanley Bergman, Chairman and CEO, expressed confidence in sales momentum post-cyber incident and market share gains, leading to increased sales guidance. Ron South, Senior Vice President and Chief Financial Officer, clarified that the $200 million benefit is a multi-year plan with some operating improvements expected in 2026, with more details to follow in the 2026 guidance.

Jason Bednar asked about Henry Schein's future earnings growth, specifically if the company is returning to its long-term goal of high single-digit to low double-digit EPS growth in 2026, considering the $200 million EBIT benefit from value creation initiatives. He also inquired about the sales momentum post-cyber incident, market share gains, and the relative impact of market improvement versus Henry Schein's execution.

Answer

Stanley Bergman, Chairman and CEO, confirmed comfort with sales momentum post-cyber incident, noting aggressive sales efforts and customer return due to service value. Ron South, Senior Vice President and Chief Financial Officer, explained that the $200 million operating income improvement is a multi-year plan with some benefits expected in 2026, which will be reflected in the 2026 guidance.

Jason Bednar asked about the sustainability of positive July sales trends in the dental business, patient traffic levels, and how Henry Schein is navigating customer conversations around tariff-related price increases. He also followed up on the engagement with KKR Capstone and other consulting firms, seeking details on potential cost and revenue opportunities.

Answer

Executive Chairman & CEO Stanley Bergman stated that July trends were positive, aided by the return of customers following targeted promotions. He noted that patient traffic is globally stable and customers are shifting to Henry Schein's own brands to mitigate tariff impacts. Regarding the consulting engagements, Bergman explained they are focused on two areas: enhancing gross profit through value pricing and own-brand acceleration, and increasing SG&A efficiency via global services and AI, with tangible results expected in 2026.

Jason Bednar asked for clarification on any adjustments to guidance inputs and the company's strategy for mitigating tariff impacts. He also inquired about how the current macro uncertainty compares to past cycles and its effect on dentist behavior.

Answer

CFO Ron South stated that sales guidance inputs are largely unchanged, with growth expected to be internally generated. He clarified that 'mitigating' tariffs involves a multi-faceted approach including sourcing diversification and working with suppliers to lessen the financial impact. CEO Stanley Bergman commented that the company is not yet seeing a negative impact on dentist behavior, noting that equipment bookings are steady and investment in practices continues, suggesting the dental market is currently more stable than general consumer sentiment.

Jason Bednar of Piper Sandler inquired about the underlying assumptions for Henry Schein's 2025 revenue guidance, noting it seems more optimistic than peers, and asked for a breakdown of organic growth expectations for the new reporting segments.

Answer

CFO Ron South clarified that the guidance assumes modest market growth, likely 0% to 2% for core dental, with limited price appreciation and minimal M&A contribution. He explained that the long-term goal of high single-digit to low double-digit earnings growth post-2025 is based on restructuring benefits, eventual market recovery, and better price appreciation.

Jason Bednar requested a breakdown of the 2025 market growth assumptions between volume and pricing, and how specialty versus non-specialty markets fit into the outlook. He also asked for details on the cost savings and potential revenue impacts from the ongoing restructuring efforts.

Answer

Stanley Bergman, CEO, noted a consumer shift to lower-priced brands could impact sales dollars but that profits remain solid, supported by own-brand products. Ron South, CFO, explained that restructuring has occurred in distribution and some technology areas but is being done carefully to minimize revenue impact. He added that lower interest rates could drive practice build-outs, influencing 2025 growth more than other factors.

Jason Bednar from Piper Sandler Companies questioned the company's confidence that Q2 represents a true sales inflection point, asking for visibility into the Focal One backlog. He also asked if procedure delays from payer reviews were elongating capital sales cycles.

Answer

CEO Ryan Rhodes expressed high confidence, citing a very strong and growing sales pipeline driven by Focal One's clinical necessity, a technology advantage, and strong reimbursement. He confirmed that procedure delays are not impacting capital sales. CFO Ken Mobeck noted investments in the sales team and reiterated confidence by referencing the raised HIFU revenue guidance, while also reminding of typical Q3 seasonality.

Jason Bednar of Piper Sandler Companies asked why the current trade-up dynamic from Clarity to MyDay is causing a drawdown, unlike previous product upgrade cycles in the contact lens market. He also questioned how the company is sure this is an internal cannibalization issue rather than a competitive loss and inquired about the global pricing outlook for 2026.

Answer

President and CEO Al White explained that in some markets, particularly in Asia-Pacific, Clarity and MyDay were not as distinctly positioned, leading to a direct trade-off as MyDay became more available. He contrasted this with EMEA, where the products have more differentiated channels. For 2026, he projected global price increases would moderate to around 1%, down from the 2-3% range, citing more aggressive competitor pricing in regions like Asia-Pacific.

Jason Bednar challenged the channel inventory narrative, pointing to the company's strong performance in April. He also asked about Cooper's pricing strategy in response to significant tariff-related price increases announced by a competitor.

Answer

President & CEO Albert White cautioned against over-interpreting a single month's performance due to the volatility of large shipments and inventory swings, reiterating that the full-year view reflects market softness. Regarding competitive pricing, he stated that Cooper is currently evaluating the situation and will take price increases if deemed appropriate.

Jason Bednar from Piper Sandler asked for details on the early launch planning for MyDay MiSight, including necessary prerequisites, pricing strategy, and the potential for a toric version.

Answer

CEO Al White explained that launching MyDay MiSight requires regulatory work in various markets, which will take time. The company is actively working through the pricing strategy, balancing the premium MyDay brand with the goal of ensuring affordability for children. He confirmed that a key advantage of the new product will be the introduction of a MyDay MiSight toric lens, which will address a significant portion of the market with astigmatism.

Jason Bednar of Piper Sandler questioned whether the timing of Cooper's November 1 price increase communication might have influenced Q4 buying patterns. He also asked for details on the new product pipeline for the next 12-18 months.

Answer

CEO Al White acknowledged it was a "fair question" whether the price increase timing, which differed from the prior year, impacted Q4 results, but noted it was hard to triangulate. For the product pipeline, he emphasized expanding the global availability of existing innovative products like the MyDay family (Energys, toric, multifocal) into more markets rather than launching entirely new platforms.

Jason Bednar asked about the demand cadence for CooperVision during the quarter, the exit rate into August, and whether the strong back-to-school season for MiSight was indicative of broader business trends. He also questioned the potential risk of market share loss from a competitor reversing its decision to discontinue certain toric SKUs.

Answer

CEO Al White confirmed that demand was strong through July and into August, reflecting a healthy market. On the competitive question, he stated he was not concerned, explaining that Cooper did not gain a significant number of patients from the competitor's original decision and that patients fit with Cooper's market-leading toric lenses are very sticky and unlikely to switch back.

Jason Bednar sought more tangible evidence to support the reaffirmed revenue guidance, questioning the path to the required 50% sequential growth. He also asked about the expected international revenue contribution and whether contract renewals include improved economics for Beyond Air.

Answer

CEO Steve Lisi detailed several growth drivers, including the ramp-up with partners in over 30 countries, new federal partnerships via Trilamed, and enhanced relationships with GPOs like Vizient. He noted guidance contains conservative assumptions for international tender wins. Regarding renewals, Lisi explained that while they don't forecast higher rates, contracts are often renegotiated for higher volumes when hospitals exceed initial usage estimates, which can contribute to revenue growth.

Asked for commentary on fiscal '26 Street estimates ahead of guidance, whether future guidance will split U.S. and international revenue, if there's any seasonality in hospital contracting, and for an update on the cardiac label expansion with the FDA.

Answer

The company declined to comment on Street estimates before providing official guidance in June. Future guidance will likely be for total worldwide revenue as it's too early to reliably forecast the geographic split. Management has not observed any significant seasonality in contracting, describing it as 'chunky'. The discussion with the FDA on the cardiac label is ongoing but currently 'in flux', similar to the next-gen system.

Asked about the competitive landscape, the impact of a competitor's new product, and trends in contract pricing. The questions were asked by an associate named John on his behalf.

Answer

The company is not seeing a significant impact from competitors and attributes its own momentum to new commercial strategies. Contract pricing remains stable, with variations based on hospital volume.

Jason Bednar asked about the company's strategic plans for capital allocation now that it is generating cash, questioning the balance between building a cash cushion and reinvesting for growth. He also inquired about the expected commercial adoption curve for the new drug pipeline.

Answer

President & CEO Linda Tharby stated that with major infrastructure investments complete, the company can fund growth while maintaining its cash balance. She noted future investments would primarily be in SG&A with quick paybacks. Regarding the new drug pipeline, Tharby described a linear adoption curve, projecting approximately $500,000 in incremental revenue next year from deferoxamine and vancomycin, with similar contributions from other new drug opportunities.

Jason Bednar sought detailed clarification on the international business, asking about the size of the tender benefit, expected contributions from Japan, and the cadence for the rest of the year, particularly the meaning of 'gradually grow' against tough comps. He also followed up on the tariff impact, questioning if the 100-basis-point figure was for 2025 or an annualized number.

Answer

Executive Linda Tharby explained that the Q1 result included the initial buy-in for the tender win, with another order expected in the second half. She noted that Japan sales are expected to begin in Q2 but are not in the raised guidance, representing potential upside. Executive Tom Adams clarified that international revenue would see a drop in Q2 from Q1's high level before growing sequentially through year-end to achieve the 30%+ full-year target. He confirmed the sub-100-basis-point tariff impact is for the current year and is fully included in the existing margin guidance.

Jason Bednar sought to reconcile comments on strong momentum with guidance implying a growth deceleration, asking about the swing factors in the revenue guidance. He also questioned the working capital impact of international expansion on cash flow and future capital deployment strategies.

Answer

CEO Linda Tharby clarified that the apparent deceleration is due to the lumpy nature of the Novel Therapies business, while the core business remains strong. CFO Tom Adams stated that working capital needs from international expansion are already factored into the operational cash flow positive guidance for 2025. Regarding capital deployment, he mentioned they have means to reinvest and an unused credit line for larger ROI opportunities, feeling adequately capitalized for the current strategy.

Jason Bednar from Piper Sandler Companies asked about the status of Masimo's relationship with Philips following a competitor's announcement and inquired about the medium-term path to further mitigate tariff impacts for fiscal 2026.

Answer

CEO Katie Szyman affirmed that the relationship with Philips remains very strong and she is personally engaged in conversations to continue the partnership. CFO Micah Young detailed that while current mitigation efforts have significantly reduced the tariff burden, the company has identified further medium-term measures that could cut the remaining annualized impact by nearly half over time.

Jason Bednar of Piper Sandler sought color on hospital CapEx spending trends from OEM partners, asked for reassurance on guidance despite a recent systems incident, and inquired about specific tariff mitigation strategies, especially for China-sourced components.

Answer

CFO Micah Young reported solid underlying demand with no signs of softness in hospital spending, noting Masimo's low dependence on high-cost capital. Regarding the systems incident, he stated there is no evidence of sensitive data impact and no expected effect on guidance. For mitigation, Young mentioned altering sourcing, evaluating pricing, and leveraging their U.S. semiconductor plant, while acknowledging that shifting from China is a longer-term effort.

Jason Bednar asked new CEO Katie Szyman how she plans to execute on the pre-existing 2025 guidance and long-range plan, and also questioned CFO Micah Young about the specifics of contingency plans for potential tariffs on products from Mexico.

Answer

CEO Catherine Szyman expressed confidence in the existing plan and stated her focus will be on expanding leadership in core markets, driving commercial excellence, and leveraging the company's talent and technology to increase patient monitoring. CFO Micah Young explained that contingency plans for tariffs include leveraging their expanded global manufacturing footprint, particularly by shifting more production from Mexico to Malaysia, and evaluating pricing strategies.

Jason Bednar asked for clarification on the 2025 healthcare operating margin target of 26%, questioning if it reflects actions already completed or includes future initiatives, and inquired about the breakdown of the improvement. He also asked about the key criteria for the ongoing CEO search.

Answer

Interim CEO Michelle Brennan and CFO Micah Young explained that the 26% operating margin target for healthcare in 2025 includes actions taken to date and those planned through year-end. Young detailed that the gains stem from rightsizing corporate overhead, improving gross margins, and reducing marketing spend on low-return products. Regarding the CEO search, Brennan stated the board is seeking a medtech veteran with a balance of operational and technical experience who fits Masimo's innovative culture.

Jason Bednar asked about the behavioral response of dental practices to economic uncertainty and price increases, specifically regarding brand substitution or delayed equipment purchases. He also requested a detailed bridge for the updated EPS guidance.

Answer

CEO Paul Keel noted that modest price increases have been well-received and that equipment purchase decisions have been delayed, though the diagnostics segment saw positive growth. CFO Eric Hammes provided an EPS bridge, confirming benefits from share buybacks and a lower tax rate, but highlighted that improved operational performance was largely offset by FX headwinds compared to the original guide.

Jason Bednar requested a more prescriptive look at the gross and net impacts from tariffs assumed in the 2025 guidance and asked about real-time dentist responses to economic uncertainty.

Answer

President and CEO Paul Keel clarified that the guidance includes tariffs currently in effect but does not speculate on future changes, leading to wider confidence intervals but an unchanged expected outcome. He noted that while large DSOs remain confident, smaller dental practices are showing more caution, reflecting broader consumer uncertainty, particularly in the U.S. market.

Jason Bednar of Piper Sandler asked for clarification on the Rhapsody reimbursement situation, questioning the nature of the filing error with CMS, the company's confidence in securing Transitional Pass-Through (TPT) payment on the new timeline, and the strategy if TPT is not secured.

Answer

Founder, Chairman, and CEO Fred Lampropoulos and CFO Raul Parra clarified that the company had mistakenly filed for a new technology APC assignment instead of a TPT add-on payment, a mistake they acknowledged and owned. They explained the APC was not awarded, and they now plan to submit the TPT application by the September 1 deadline. They expressed high confidence in the product's data meeting TPT criteria and stated the long-term strategy for Rhapsody remains unchanged despite the two-quarter delay.

Jason Bednar asked for details on tariff mitigation efforts and their annualized impact, the drivers of recent weakness in the China market, and for a bridge explaining the updated full-year EPS guidance.

Answer

EVP and CFO Raul Parra explained that mitigation efforts are centered on existing Continued Growth Initiatives (CGI) and that the softness in China was macro-related, with the full-year outlook unchanged. Regarding the EPS guide, Parra confirmed the math on the tariff and convertible debt impacts, noting that the company's standard practice is not to raise underlying guidance after a Q1 beat, effectively holding the operational outperformance in reserve.

Jason Bednar of Piper Sandler questioned the 2025 EPS guidance, which appeared lighter than consensus, asking about factors beyond the convertible note accounting. He also inquired if the 2026 margin target of 20-22% remains appropriate given recent M&A and the Wrapsody launch.

Answer

Executive Raul Parra attributed the lighter EPS guidance to two primary headwinds: an approximate $0.08 impact from higher interest expense and a more significant $0.11 impact from the non-economic GAAP accounting for convertible debt dilution. Excluding these items, he noted EPS growth would be in the 9-12% range. Regarding long-term targets, Parra reaffirmed the company's commitment to a minimum of 20% operating margins and other goals from its CGI program, emphasizing a focus on 2025 execution.

Jason Bednar of Piper Sandler asked for guidance on how to model the potential revenue contribution from WRAPSODY in 2025, given the various reimbursement pathways being pursued. He also inquired about future SKU rationalization plans and other factors that could sustain the company's strong margin improvement.

Answer

Executive Fred Lampropoulos declined to provide a 2025 WRAPSODY forecast, stating the company will remain conservative and share details in a virtual meeting post-approval. Executive Raul Parra elaborated on margins, attributing the 108 basis point improvement to pricing, mix, and freight costs, all part of the CGI program. He clarified that future SKU rationalization will focus on internal product replacements in 2025, with no major business exits anticipated.

Jason Bednar of Piper Sandler Companies asked for a breakdown of the cases that did not materialize, distinguishing between patients delaying treatment entirely versus those being moved to traditional brackets and wires by doctors.

Answer

CFO John Morici confirmed that the weakness was a mix of both scenarios. He explained that some patients delay treatment due to the final price, while others, particularly teens, are guided into wires and brackets by doctors managing their own practice economics. He noted this mix varies by geography.

Jason Bednar inquired about financing dynamics, asking if the new preferred partner HFD was helping resolve consumer credit issues and seeking more detail on why favorable financing terms for practices were driving a significant increase in DSOs.

Answer

CFO John Morici explained that patient payment is a combination of direct pay, doctor-provided financing, and external financing like HFD. He noted that by offering favorable payment terms to doctors, Align helps them extend their own working capital to finance patients. He described seeing a good combination of these methods working to facilitate treatment acceptance, which is particularly impactful in the DSO channel.

Jason Bednar asked about initiatives to reduce friction in the teen channel and the business rationale for removing the processing fee, questioning if it was a point of contention with doctors.

Answer

CEO Joe Hogan attributed teen channel friction to challenging economics in ortho offices. He confirmed the processing fee was a source of pushback, especially in the U.S. and Europe. CFO John Morici added that removing the fee allows the sales team to focus on product value rather than debating minor administrative charges.

Jason Bednar asked for clarification on the margin impact of direct 3D printing, questioning if it would be dilutive in 2025, and the expected timeline for gross margin benefits. He also requested an assessment of the teen season performance both inside and outside the U.S.

Answer

CFO John Morici explained that while direct fabrication has higher initial costs, the company's restructuring will enable overall operating margin accretion in 2025. He reiterated a 2-3 year timeline to realize gross margin benefits as the technology scales. CEO Joe Hogan noted that while the international teen market is strong, the U.S. teen segment is challenged, with some orthodontists reverting to wires and brackets to protect practice profitability.

Jason Bednar from Piper Sandler Companies asked about strategies to accelerate the adoption of OptuneLua for lung cancer. He also inquired about the potential regulatory and payer pathway for the TRIDENT trial and the commercial impact of different NCCN guideline ratings.

Answer

Frank Leonard, EVP & President - Novocure Oncology, explained they are refining marketing messages to target patients post-platinum therapy, which they believe will drive growth. CEO Ashley Cordova stated that for the TRIDENT trial, the regulatory path would be easier than a de novo PMA, likely a supplement, but specifics depend on the data. She also noted that any NCCN guideline inclusion is helpful, with higher ratings being more beneficial.

Jason Bednar asked about the growth strategy for the NSCLC prescriber base, whether future growth would come from new prescribers or deeper penetration, and the status and importance of inclusion in NCCN guidelines.

Answer

Executive Frank Leonard stated the focus is on a controlled launch with the 'right physician, right patient, right time' to ensure positive first experiences. He confirmed future growth will be a mix of adding new prescribers and increasing depth with existing ones, citing an academic center that has already prescribed for six patients. He also confirmed that TTFields will be reviewed for NCCN guidelines in July.

Jason Bednar asked about the launch trajectory for Optune Lua in lung cancer, internal success metrics for 2025, early patient compliance, physician adoption trends, and the specifics of payer discussions, including whether new or existing codes would be used.

Answer

Executive Frank Leonard explained the launch strategy focuses on ensuring a positive initial experience for physicians and patients to build confidence and support payer negotiations. He noted early community acceptance is positive. CEO Ashley Cordova highlighted the ability to leverage the experienced GBM team for the lung cancer launch. Leonard confirmed they expect to utilize the same existing codes from GBM.

Jason Bednar from Piper Sandler asked for insights into Novocure's internal expectations for the LUNAR launch, including the pace of physician onboarding and patient uptake in the first year. He also inquired about the reimbursement strategy for lung cancer and how it might compare to the process previously undertaken for GBM.

Answer

An executive, Frank Leonard, outlined that the launch strategy prioritizes engaging highly motivated physicians and identifying appropriate patients early, focusing on strong execution rather than maximizing revenue in the initial year. On reimbursement, he stated that Novocure anticipates a one to two-year process to secure broad coverage, likely achieving success with private payers first before moving to Medicare, and will accept all on-label patients during this period.

Jason Bednar asked about the path to sustained profitability beyond Q2, including OpEx trends and gross margin sustainability, and also inquired about interest in non-M&A menu expansion like partnerships or licensing.

Answer

CFO Ron Kalfus stated that the company expects to keep OpEx relatively flat for the rest of the year, allowing revenue growth to drive adjusted EBITDA improvement. CEO Michael McGarrity added that they are not counting on 'margin heroics' but on continued OpEx discipline. Regarding menu expansion, McGarrity confirmed they are open to various structures, including partnerships and licensing, but will remain disciplined and focused on de-risking opportunities, citing bladder cancer as a potential area of interest.

Jason Bednar from Piper Sandler sought clarity on the expected phasing of revenue throughout 2025, whether additional sales force investments are needed, and what the next key performance indicator (KPI) investors should focus on after the company reaches adjusted EBITDA profitability.

Answer

CEO Michael McGarrity indicated no unusual revenue phasing beyond typical seasonality and confirmed that 2025 growth targets can be met without expanding the sales organization. He noted OpEx will scale with lab and RCM functions. He deferred naming a new primary KPI, emphasizing that value is built through consistent execution rather than a single future milestone.

Jason Bednar of Piper Sandler asked about the expected composition of the 20%+ revenue growth outlook for next year and the gross margin assumptions underlying the forecast for positive adjusted EBITDA in the first half of 2025.

Answer

CEO Michael McGarrity projected a 'pretty balanced' contribution to 2025 growth from both the tissue-based and liquid-based test portfolios, with Germline expected to become a more meaningful contributor. He clarified that the path to positive adjusted EBITDA relies primarily on continued revenue growth and operating expense discipline, rather than depending on 'significant margin accretion,' though gross margins are expected to trend positively.

Jason Bednar asked about the pace of volume activity during Q2, how it informs the outlook for the second half of the year, and whether the completed consolidation of GPS operations would create new efficiencies.

Answer

Executive Michael McGarrity responded that the financial impact of bringing GPS testing in-house is expected to be neutral to the P&L, as the costs were already modeled. For the forward outlook, he described the current growth trajectory as 'very sustainable' and does not expect a material downturn in H2, despite typical Q3 seasonality. He reiterated the company's internal goal of achieving 20% or greater annual revenue growth long-term.

Jason Bednar asked for clarification on whether the cautious U.S. dentist sentiment from surveys reflects actual changes in behavior or just mood, and questioned the sustainability of growth in the German market once favorable comps end.

Answer

CEO Simon Campion stated that customer surveys and direct visits indicate no material change in U.S. patient traffic or purchase intent, suggesting the sentiment is more about mood. For Germany, he expressed confidence in sustaining performance due to improved execution and stable market data, and noted plans to apply these turnaround efforts to other European markets.

Jason Bednar asked about the soft retail CAD/CAM demand in the U.S., questioning why the new Primescan 2 scanner wasn't resonating better and whether strained distributor relations were a factor. He also explored if the turnaround in Germany could serve as a model for the broader business.

Answer

CEO Simon Campion attributed the U.S. CAD/CAM softness to the challenging macro environment impacting capital equipment purchases, not to distributor relations. He explained that the success in Germany was a combination of reintroducing a mid-tier product (Orthophos SL) and a renewed focus on commercial execution and sales training, a lesson being applied in the U.S.

Jason Bednar asked about the Connected Technology Solutions (CTS) segment, questioning if lower retail demand was tied to the Primescan 2 launch and the balance of macro versus competitive pressures. He also asked why significant cost savings have not translated to bottom-line growth.

Answer

CEO Simon Campion responded that the gap between wholesale and retail demand was broad-based across the portfolio, not just scanners, though he noted Primescan 2 had a strong launch. Regarding profitability, he acknowledged it was a fair question, stating that investments in growth areas like sales and SureSmile are necessary to address the primary challenge of top-line performance. CFO Glenn Coleman added that while operating expenses are down year-over-year, revenue has declined faster.

Jason Bednar questioned if tariff mitigation efforts were a pull-forward of existing long-range plan (LRP) initiatives and how they affect the LRP. He also asked about any downstream impacts from administrative changes on the FDA and the Photon Counting CT submission timeline.

Answer

CEO Peter Arduini clarified that while the path to achieving their goals might differ, the medium-term financial views from the Investor Day have not changed, as the company has many levers to pull. He also stated they have not seen any material impact from administrative changes on their business or FDA interactions, confirming the Photon Counting CT submission remains on track.

Inquired about the timeline for the company's significant software investments to start generating returns and positively impacting the P&L. He also asked for an explanation for the deterioration in dental operating margins over the past two years, given that revenue has remained relatively flat.

Answer

The company expects to see a definite impact from its software investments starting in fiscal 2026. The decline in dental operating margins is attributed to two main factors: the disproportionate profit impact from the Change Healthcare disruption on the high-margin services business, and the increased OpEx and capital spending being invested into the software business. As the Change Healthcare issue is lapped and investments mature, margins are expected to benefit.

Asked for specifics on the new cost management actions, including whether they involve restructuring or headcount reductions, and requested a quantification of the expected savings. Also questioned the company's strategy regarding the contract nonrenewal notice from Dentsply Sirona and what investors should expect.

Answer

The company described the cost actions as broad measures like managing travel and open job requisitions, with possible 'people actions', but declined to quantify the savings. Regarding Dentsply Sirona, they refused to comment on specific vendor negotiations, stating such tactics are common. They expressed confidence in their overall value proposition and relationships with all vendor partners.

Questioned why strong consumables growth didn't lead to better margins, the outlook for operating expenses, and visibility into a recovery for the companion animal business.

Answer

The company explained that operating margins were impacted by planned investments in distribution and software, which are expected to normalize. They anticipate better OpEx leverage in Q4. They deferred detailed comments on the FY25 companion animal outlook until the next earnings call.

Jason Bednar of Piper Sandler asked for more precision on the full-year revenue guidance range and sought details on the drivers behind the significant reduction in the operating expense forecast.

Answer

CFO Mehul Joshi stated that the company is comfortable with the midpoint of the revenue guidance, representing 20% growth. He detailed that the OpEx reduction stems from leverage in SG&A, lower stock-based compensation expense, and reduced distributor operating expenses related to the new arrangement in China.

The analyst asked for more detail on the unchanged revenue guidance, specifically if management was more comfortable at one end of the range. He also inquired about the drivers behind the $5 million reduction in OpEx guidance and whether the new spending level is a good baseline for 2025.

Answer

The CFO confirmed they are comfortable with the midpoint of the revenue guidance (20% growth). The OpEx reduction was attributed to lower SG&A, specifically in non-revenue generating spend, reduced stock-based compensation, lower distributor expenses related to China, and disciplined headcount management.

Inquired about the 2024 outlook given the softer Q4 capital sales guidance, the cause of lengthening sales cycles, reasons for lighter procedure volumes, and the status of debt covenants.

Answer

Q4 guidance is conservative, and new programs like trials and DSO partnerships are expected to drive 2024 growth and shorten sales cycles. The volume slowdown is seen as a market-wide trend affecting elective procedures. The company is in active discussions with its lender regarding debt covenants.