John Stansel

John Stansel inquired about Alignment Healthcare's evolving distribution network and broker strategy, its plans for new state expansion in 2027 irrespective of rate changes, and the company's perspective on potential incremental changes from the recent CMS RFI.

Answer

CEO John Kao highlighted deepening relationships with brokers and providers in ex-California markets and confirmed serious consideration of new state entry, asserting that rate environments would not deter their plans. Regarding the CMS RFI, he mentioned submitted comments, expressed a TBD stance on reward factors and HEI, supported C-SNP choice, and endorsed documentation of HRAs and program integrity efforts.

John Stansel asked about Alignment Healthcare's evolving distribution network and broker community strategy, particularly for ex-California markets and potential new state entries in 2027, and whether such expansion is contingent on favorable rate environments. He also inquired about the company's perspective on potential incremental changes stemming from the recent CMS Request for Information (RFI).

Answer

Founder and CEO John Kao confirmed a focus on deepening broker and provider relationships in ex-California markets and exploring new state entries, emphasizing that expansion is not rate-dependent due to their ability to succeed in any environment. Regarding the CMS RFI, Mr. Kao stated that while comments were submitted, the outcome is TBD, but Alignment supports program integrity, documentation of HRAs, and believes C-SNPs should remain distinct for beneficiary choice, expecting to be advantaged by any rate adjustments.

John Stansel of JPMorgan Chase & Co. asked about the drivers of Part D favorability in the first half of the year and the reasons for the expected reversal in the second half. He also inquired about initial thoughts on the new national average monthly benchmarks for 2026.

Answer

CFO Jim Head explained that the first-half Part D favorability was partly due to prudent forecasting. The company is maintaining its full-year outlook, effectively shifting some of that favorability to the second half as a cushion against potential gross drug cost escalation and higher utilization in certain populations post-IRA. Head stated that the 2026 benchmarks were largely in line with industry expectations but declined to comment on their specific impact on bids.

John Stansel asked for early indicators regarding new membership behavior and trends observed at the beginning of the year, particularly in comparison to the previous year's progression.

Answer

CEO Seth Blackley stated that early indicators for exchange membership align with the assumed 40% reduction, largely driven by clients proactively reducing exposure to certain risk pools. He noted that Medicare Advantage (MA) membership was mixed, resulting in a net push, while Medicaid remained status quo.

John Stansel inquired about early indicators regarding new membership behavior this year, specifically if there are any differences compared to last year's trends.

Answer

CEO Seth Blackley stated that early indicators for exchange membership are consistent with a 40% reduction, largely due to clients proactively stepping away from risk pools. He noted mixed results for MA membership (some clients gained, some lost) and status quo for Medicaid.

John Stansel of JPMorgan Chase & Co. asked about the qualitative outlook for the ACA exchange business in 2026, considering expectations for increased morbidity in the risk pools and the nature of payer discussions in that specific market.

Answer

CFO John Johnson noted that the exchange business, about 20% of revenue, is split between tech/services and Performance Suite. He stated that the business mix trends toward lower margins and that even before demographic shifts, the Performance Suite portion was projected to be slightly below the 10% target margin. He emphasized the focus is on downside protection through contract structures.

John Stansel questioned the trend of manufacturer cost increases and inflation outpacing pricing growth, asking if it's concentrated in specific areas or a durable trend. He also asked for more detail on Accendra Health's balance sheet optimization levers following the divestiture.

Answer

Jonathan Leon, CFO, described manufacturer cost increases as an opportunity rather than a durable trend, not linked to a single supplier, and a key focus for 2026. Ed Pesicka, President and CEO, added that these increases are not across all categories and can be mitigated through mid-year contract adjustments, pricing models, and growth incentives with manufacturing partners. For balance sheet optimization, Ed Pesicka highlighted the opportunity to holistically reassess the capital structure for the new Accendra Health, which has different working capital needs, predictable CapEx, and stronger margins. Jonathan Leon noted the need to address 2027 debt maturities, with other actions being opportunistic.

John Stansel questioned the Adjusted EBITDA bridge, noting that manufacturer cost increases and inflation appear to be outpacing pricing growth, asking if this trend is concentrated in specific categories and if it's a durable trend. He also asked for more details on Accendra Health's balance sheet optimization levers and potential imminent changes.

Answer

Jonathan Leon, CFO, described manufacturer cost increases as an opportunity rather than a durable trend, not linked to a single supplier, and a focal point for 2026. Ed Pesicka, President and CEO, added that it's not across all categories but in major ones, and the company has opportunities to work with manufacturing partners on pricing models. Regarding the balance sheet, Ed Pesicka explained that the P&HS divestiture provides an opportunity to holistically reassess the capital structure, considering the new business's different working capital, predictable CapEx, and stronger margins. Jonathan Leon added that addressing 2017 maturities is a priority, with other actions being opportunistic.

John Stansel questioned the specialty products' operating profit, noting that it appeared flat to down year-over-year after stripping out the $28 million remeasurement gain, despite solid top-line trends in implants. He asked about the margin dynamics within the specialty products group and their drivers.

Answer

Ron South, Senior Vice President and Chief Financial Officer, attributed the margin dynamic to a strong prior-year comparable for U.S. implant business and a product mix shift, with low double-digit growth in lower-margin value implants versus low single-digit growth in higher-margin premium implants.

John Stansel asked about the operating profit trajectory of Henry Schein's specialty products group, specifically after excluding the $28 million remeasurement gain, and the factors influencing margin trends.

Answer

Ron South, Senior Vice President and Chief Financial Officer, explained that the flat to down trend (excluding the remeasurement gain) was due to a challenging prior-year comparable for U.S. implants and a product mix shift towards lower-margin value implants, despite strong growth in that segment.

John Stansel asked for the financial impact of the targeted sales initiatives in Q2 and the strategic reasoning behind them. He also questioned the current competitive dynamics with large DSO customers, particularly regarding RFPs, and how customer demands have evolved over time.

Answer

Executive Chairman & CEO Stanley Bergman described the sales initiative as a successful, time-limited effort to win back specific customers with an affinity-like program. Senior VP & CFO Ronald South noted it was difficult to isolate the financial impact from glove pricing pressure. Regarding DSOs, Bergman stated that RFPs are a normal part of business and that Henry Schein maintains strong partnerships due to its comprehensive offering, including supply chain, own brands, equipment service, and software, which helps mitigate tariff impacts collaboratively.

John Stansel asked about the mechanics and timeline for passing on tariff-related costs to dental customers. He also requested quantification of the sales tailwind from the respiratory season in the medical distribution business.

Answer

CEO Stanley Bergman detailed a multi-step strategy to manage tariff costs, including using existing inventory, offering alternate products, managing sourcing, and working with manufacturers, with direct price increases being a final step. CFO Ron South did not quantify the respiratory season's impact but confirmed it contributed to stronger medical sales in February and March and that the business has good momentum.

John Stansel from JPMorgan Chase & Co. asked for details on the KKR agreement's value creation plan and potential synergies. He also questioned the dynamic of having top-line growth weighted to H1 2025 while EPS growth is weighted to H2.

Answer

CEO Stanley Bergman described KKR as a strong strategic partner but noted deep engagement is pending regulatory clearance, and he doesn't expect synergies with KKR's portfolio companies due to a 'Chinese wall'. CFO Ron South explained the H2 EPS weighting is due to the timing of restructuring savings, new product momentum, and a difficult Q1 equipment sales comparison.

John Stansel asked about intra-quarter trends within the medical business and the competitive dynamics across different end markets like ASCs and doctors' offices. He also requested an explanation for the distortion in the Technology and Value-Added Services segment's internal sales growth.

Answer

Stanley Bergman, CEO, stated the core medical distribution business is stable, excluding flu season and glove price volatility, and that the company is regaining share lost to drug wholesalers. Ron South, CFO, explained the technology segment's LCI growth was distorted by the timing of the LPS acquisition, as one month of strong performance was counted as acquisition growth rather than internal growth.

John Stansel inquired about Molina Healthcare's M&A pipeline, particularly opportunities with smaller and regional players amidst potentially negative Medicaid margins, and how capital allocation priorities, capacity, and pipeline development are being managed.

Answer

CEO Joseph Zubretsky and CFO Mark Keim affirmed that capital priorities remain unchanged: organic growth, inorganic growth, and share repurchases. They highlighted ample capital capacity ($1.5 billion per year) even with compressed margins. Molina maintains discipline on acquisition pricing, aiming for revenue streams at or near book value from struggling local health plans, which they view as akin to winning new contracts without significant goodwill. The pipeline is full of actionable opportunities, and the company's financial ratios remain strong.

John Stansel asked about Molina's capital allocation priorities (M&A vs. share repurchase) given the M&A pipeline and Medicaid margin pressure, and the development of that pipeline in the coming quarters.

Answer

CEO Joseph Zubretsky stated that capital priorities (organic growth, inorganic growth, share repurchase) are unchanged. Molina has ample capital ($1.5 billion capacity/year) even with compressed margins. He emphasized disciplined pricing for M&A, aiming for book value for struggling local health plans, which is as good as winning new contracts without significant goodwill. The pipeline is full of actionable opportunities due to prolonged operating difficulties for smaller plans. CFO Mark Keim reiterated that M&A opportunities feel "almost organic" when acquired near book value, and Molina's strong financial ratios support capital deployment.

John Stansel from JPMorgan Chase & Co. asked how Molina balances its active M&A pipeline against other capital deployment options like share repurchases. He also inquired if the current guidance embeds a pull-forward of demand in Q4 for the Marketplace business ahead of subsidy changes.

Answer

CEO Joseph Zubretsky affirmed that M&A remains a higher priority than share repurchases and that the current environment is creating more opportunities. He stated that opportunistic buybacks would not impede their ability to execute on M&A. CFO Mark Keim noted they have placeholders for potential Q4 induced demand in their forecasts but do not consider it a particularly meaningful item, with CEO Zubretsky adding that the elevated trend assumption likely covers it.

John Stansel inquired about the G&A ratio's progression for the year, noting the strong Q1 result despite expectations of front-loaded costs, and how the company would achieve the improved full-year guidance.

Answer

CEO Joseph Zubretsky highlighted the long-term goal of leveraging scale to drive the G&A ratio into the mid-6% range. For the current year, CFO Mark Keim projected a relatively flat G&A trajectory, explaining that higher front-end implementation costs are balanced by back-end loaded marketing expenses for open enrollment.

John Stansel of JPMorgan asked for more detail on the drivers of Patient Direct revenue growth, noting a deceleration, and questioned the source of the year-over-year adjusted EBITDA improvement, highlighting the role of lower stranded costs.

Answer

EVP & CFO Jon Leon acknowledged a diabetes headwind but pointed to strong growth in sleep, ostomy, and urology, expecting a similar profile in the second half. President & CEO Edward A. Pesicka noted the DME-to-pharmacy shift impacts top-line but not necessarily profitability. Leon confirmed that while lower stranded costs were a factor, the core legacy Patient Direct business still achieved mid-single-digit EBITDA growth.

John Stansel inquired about the nature of discussions with customers regarding new tariffs, how customers might be changing their sourcing behavior, and the expected impact of foreign exchange volatility through the rest of the year.

Answer

Executive Edward Pesicka outlined the tariff exposure at $100-$150 million, primarily from China and Thailand, and emphasized that due to low margins, these costs must be passed on. He noted the company is helping customers find alternative products. Executive Jonathan Leon added that while FX was volatile in March, it has since stabilized, and the company is comfortable with its current full-year guidance regarding currency impacts.

John Stansel of JPMorgan Chase & Co. asked about the potential financial impact of tariffs on products from Mexico. He also inquired about the strategy behind the SG&A spending forecast for the upcoming year, noting it appeared relatively flat as a percentage of sales.

Answer

Executive Edward Pesicka explained that any tariff-related cost increases would be passed on to customers due to the P&HS segment's tight margins. Executive Jonathan Leon quantified the exposure, stating that products from Mexican facilities represent only about 1.5% of the P&HS segment's total revenue. Regarding SG&A, Pesicka confirmed the focus is on continued cost optimization without compromising customer service.

John Stansel asked for color on the contribution of global products to the Products and Healthcare Services (PHS) segment's growth and the outlook for 2025. He also questioned the reason for the sequential step-down in the PHS operating profit margin.

Answer

Executive Edward Pesicka noted that the Global Products business benefited from price stabilization in gloves and saw slow but steady growth from new product introductions. CFO Jonathan Leon explained the PHS operating margin decline from Q2 was due to unfavorable foreign exchange rates, increased transportation and storage costs, and the lower initial profitability of newly onboarded customers.

John Stansel of JPMorgan Chase & Co. asked for an update on the Medicare Part D business, noting the $700 million pretax favorability in the Medicare segment. He inquired about the drivers of this performance, margin expectations, and the outlook for 2026 bids.

Answer

EVP & CFO Drew Asher expressed satisfaction with PDP performance, confirming that margins are running north of the 1% budgeted target. He attributed the confidence to having six months of data post-IRA changes, which has provided better visibility into specialty trends. He also noted that membership has been stable and that he suspects competitors are bidding for 2026 assuming the current demo program does not continue.

John Stansel of JPMorgan Chase & Co. asked for details on the Part D business, given the $700 million pretax favorability in the Medicare segment. He questioned what was driving the confidence and if the Part D margin was now significantly above the 1% target.

Answer

EVP & CFO Drew Asher confirmed that the Part D business is performing well and is 'north of our 1% budget margin.' He attributed the confidence to having six months of performance data, which provides better visibility into the impact of the IRA on specialty drug trends. He also noted that membership has been stable and that they expect the Medicare segment HBR to slope upward through the year, influenced by PDP dynamics.

John Stansel asked if new Part D members have behaved consistently with the overall pool. He also inquired about the 2026 outlook, asking if the assumption that the demo risk corridors will be dialed back is an industry consensus and if there's a risk competitors might not bid that way.

Answer

EVP and CFO Andrew Asher did not comment on new member behavior but stated it would be 'foolish' for any competitor not to assume the protective demo risk corridor will be dialed back for 2026 bids, given the specialty trend pressure. He affirmed Centene will price prudently for 2026 and that the industry has historically been rational in adapting to PDP program changes.

John Stansell asked for more color on the drivers of the better-than-expected enrollment growth in the PDP business and the long-term outlook for the CMS demonstration component's contribution.

Answer

CFO Andrew Asher attributed the strong PDP growth to effective product positioning, which stems from an excellent underlying cost structure that allows Centene to offer significant value. Regarding the CMS demo, he expressed confidence that their efficient cost structure would enable them to sustain the business regardless of future modifications to the premium support level.

John Stansel inquired about the implied deceleration in the Pharmaceutical segment's operating profit growth for the second half of fiscal 2025, excluding M&A contributions.

Answer

CFO Aaron Alt clarified that the guidance reflects a prudent outlook. He noted that the first half benefited from exceptionally strong utilization, which the company assumes will normalize in the second half. Additionally, costs for significant new customer onboardings are factored into the updated guidance, and the company will begin lapping the Specialty Networks acquisition in March.

John Stansel of JPMorgan Chase & Co. inquired about the expected cadence of member enrollment and de novo center losses throughout fiscal 2025, and also asked about any potential impacts from the Inflation Reduction Act (IRA) on the Medicare Part D business.

Answer

CEO Patrick Blair stated that fiscal 2025 enrollment patterns are expected to be similar to fiscal 2024, driven primarily by California and Colorado, as newer centers in Florida and Crenshaw continue to ramp up. CFO Ben Adams advised that de novo losses should be modeled as being spread evenly throughout the year. Regarding the IRA, Adams indicated there was nothing to highlight beyond the guidance already provided.