Kevin Caliendo

Kevin Caliendo of UBS asked about the potential risk and financial impact of a rumored Medicare Part B Most Favored Nation (MFN) pricing model on McKesson's core distribution business and its specialty clinics.

Answer

CEO Brian Tyler responded that the MFN model is currently a rumor and would likely face legal challenges. He emphasized that community-based care is a critical, low-cost setting that must be fairly compensated for its services, either through drug pricing or service fees. For the distribution business, he expressed confidence in McKesson's historical ability to secure fair value for its services.

Kevin Caliendo of UBS sought clarification on the fiscal 2026 commentary, asking if the company was formally endorsing its long-term 12-14% earnings growth target for next year and whether that outlook includes the unclosed PRISM Vision acquisition.

Answer

CFO Britt Vitalone clarified that the company is reaffirming its long-term adjusted EPS growth target of 12-14% but is not providing specific fiscal 2026 guidance at this time. He confirmed the PRISM acquisition is not included in the current outlook as it has not closed, but provided initial accretion estimates for the first 12 months post-closing.

Kevin Caliendo asked about McKesson's differing retail pharmacy strategies—owning pharmacies internationally but not in the U.S.—and questioned whether the company would ever consider owning a virtual pharmacy in the United States.

Answer

CFO Britt Vitalone affirmed the strategic decision to not own pharmacies in the U.S., citing the desire to avoid channel conflict with its large retail and independent pharmacy customers. He stated that McKesson believes its best opportunity lies in supporting retail pharmacy through its core capabilities like sourcing and distribution, rather than operating them directly, a model it does not believe it would excel at in the U.S. market.

Kevin Caliendo inquired whether the decision to raise Cencora's guidance and long-range plan (LRP) was driven by changes in macro assumptions for its end markets or by the company's own mix and increased leverage to the specialty segment.

Answer

EVP and CFO Jim Cleary clarified that the decision was not due to a change in macro assumptions, as strong utilization trends and specialty strength have been ongoing. Instead, it's based on Cencora's historical results and future expectations. CEO Bob Mauch added that Cencora has carefully built capabilities and evolved its footprint over time to be well-positioned for the specialty market's growth, and has actively rebalanced its portfolio since 2015-2016 to ensure fair returns across all product categories.

Kevin Caliendo asked whether the decision to raise guidance and the long-range plan (LRP) was primarily driven by changes in macro assumptions for Cencora's end markets or by the company's internal mix and increased leverage to specialty.

Answer

CFO Jim Cleary clarified that the raised guidance is not due to a change in macro assumptions but rather based on strong historical results and future expectations. CEO Bob Mauch added that Cencora has strategically built capabilities and invested over time to be well-positioned for the growth in the specialty market, and has actively rebalanced its portfolio since 2015-2016 to ensure fair returns across all segments.

Kevin Caliendo of UBS Group AG asked about the fundamental factors that could cause the U.S. segment's exceptional growth to moderate back toward its long-range plan (LRP) targets, given its significant outperformance over the past two years. He pointed to biosimilars and a GLP-1 slowdown as potential drivers.

Answer

EVP & CFO James Cleary reiterated that a slowdown in GLP-1 growth would not have a major impact on profitability, as those products are minimally profitable. He acknowledged the recent period of exceptional growth and stated that while the company has confidence in its long-term guidance and current momentum, it would not assume the same level of rapid growth going forward, especially when comparing against such strong prior-year results. He affirmed confidence in the long-term guidance ranges.

Kevin Caliendo asked for a breakdown of the EPS guidance increase, specifically the COVID headwind impact, and whether the remaining upside was from better economics, cost leverage, or mix.

Answer

CFO Jim Cleary confirmed the COVID headwind was about $15 million, half of the $30 million expected. He attributed the remaining outperformance primarily to a favorable business mix, where faster-growing, higher-margin areas like specialty and biosimilars are driving operating income growth ahead of revenue growth.

Kevin Caliendo of UBS asked if the FY25 guidance includes any incremental customer losses beyond what was previously disclosed, and whether the Q1 COVID-related headwind was better or worse than initially expected.

Answer

CFO James Cleary confirmed the guidance assumes a normal level of customer wins and losses, with none being individually material. He stated the COVID headwinds were in line with expectations, detailing a $0.06 impact from exclusive therapies in the prior year and an expected vaccine headwind in Q2 similar in size to Q1's.

Kevin Caliendo asked if the RCA acquisition is a precursor to a larger ophthalmology roll-up, how the opportunity compares to oncology, and whether the move was driven by biosimilar or new drug innovation.

Answer

CEO Bob Mauch clarified that RCA is a market-leading platform expected to grow organically. He confirmed a key driver for the deal was a strong belief in the retina pharmaceutical pipeline, which includes both new innovations and upcoming biosimilars, highlighting RCA's important role in clinical research.

Kevin Caliendo inquired about the current status of the Heartland relationship, asking if it would continue at the same level, and how successful Henry Schein has been in passing through higher costs related to tariffs.

Answer

Stanley Bergman, Chairman and CEO, declined to comment on specific DSO relationships but emphasized Henry Schein's compelling offering, including a superb supply chain, value-added services, software, and implant business, which attracts DSOs. Regarding tariffs, he stated that the company has generally managed to mitigate impacts through local product movement, manufacturer negotiations, and alternative country sourcing, noting a slight inflation of about one percent, which customers understand.

Kevin Caliendo asked for an update on Henry Schein's relationship with Heartland Dental and its continuation level, as well as the company's success in passing through higher costs related to tariffs.

Answer

Stanley Bergman, Chairman and CEO, stated that Henry Schein does not discuss specific DSO relationships but generally maintains strong ties, with some regional DSOs shifting to Henry Schein due to its superior supply chain, value-added services, and integrated offerings. Regarding tariffs, he noted the company has mitigated costs through local sourcing, negotiations, and alternative countries, resulting in approximately 1% inflation that customers understand.

Kevin Caliendo from UBS requested a deeper analysis of 2025 margins, asking how the significant restructuring savings are being offset. He also asked whether the KKR partnership is viewed as more strategic or operational in nature.

Answer

CFO Ron South detailed margin pressures, including a customer shift to value products, pricing pressure on digital equipment, and a drag from the orthodontics business. CEO Stanley Bergman characterized the KKR relationship as a 'very strong strategic partner' focused on long-term value creation aligned with the company's BOLD+1 strategic plan.

Kevin Caliendo inquired about the magnitude of the expected $75-$100 million in restructuring savings relative to higher depreciation costs in 2025, and whether margins should improve. He also asked if the company expects a continued tailwind from market share recapture in the first half of 2025.

Answer

Ron South, SVP and CFO, confirmed that restructuring savings are expected to more than offset increased depreciation, which should benefit operating margins, contingent on revenue growth. He also noted that while the pace of market share recovery has been slower than hoped, the company does expect to enter 2025 with a higher market share than it had entering 2024, providing a tailwind.

Kevin Caliendo sought more detail on the drivers of the same-store generic unit growth, asking if specific categories, changing prescribing habits, or improved spreads contributed, and whether biosimilars played a role.

Answer

CFO Aaron Alt stated that consistent market dynamics and strong volume were the primary drivers of generic success. CEO Jason Hollar added that anticipated higher new loss of exclusivity on branded products and new item launches, along with the $7 billion in new customer revenue, were contributing factors.

Kevin Caliendo asked for a deeper understanding of the drivers behind the same-store generic unit growth, including specific categories, changes in prescribing habits, improved spreads, and any contribution from biosimilars.

Answer

CFO Aaron Alt explained that generic success was primarily driven by strong volume, consistent with overall demand, while maintaining consistent market dynamics in buy/sell spreads. CEO Jason Hollar added that higher new loss of exclusivity on branded products and new item launches, as discussed at Investor Day, were contributing factors, with biosimilars being a small component of this growth.

Kevin Caliendo of UBS Group AG asked for clarification on the accounting for the noncontrolling interest (NCI), specifically whether the change results in an add-back to operating income (AOI) or is a below-the-line adjustment.

Answer

CEO Jason Hollar and CFO Aaron Alt confirmed it is a liability classification and does not have a direct impact on the above-the-line operating income.

Kevin Caliendo asked about the potential impact of pharmaceutical tariffs, questioning the company's contractual ability to pass through costs and any associated risks or opportunities for the distribution business.

Answer

CEO Jason Hollar expressed high confidence in the pharma business model, stating that its value proposition is independent of drug prices, allowing for stable compensation. He cited insulin price changes as a historical precedent. He also emphasized that the other four operating segments, representing 95% of profit, are largely unimpacted due to their business structures.

Kevin Caliendo from UBS sought clarification on the company's expectation for utilization to normalize in the second half, asking if this trend is already visible and what specifically drove the higher, potentially higher-margin, utilization in the first half.

Answer

CEO Jason Hollar detailed that the strong first-half performance was driven by broad-based utilization strength. He noted that adjusted revenue growth (ex-customer nonrenewal and GLP-1s) was around 10-11%. The outperformance was driven by a favorable mix, with excess growth in higher-margin areas like specialty, consumer health, and retail independent generics. The company's guidance assumes this favorable mix and level of growth will moderate to more normalized levels going forward.

Kevin Caliendo asked for confirmation that GLP-1 economics have not changed and inquired how a significant brand drug price reduction, like a potential change for STELARA, would impact Cardinal Health's business model.

Answer

CEO Jason Hollar confirmed there has been no change to GLP-1 economics. Regarding brand price changes, he explained that Cardinal Health's model is largely a fixed-fee-for-service, which was tested and proven resilient during the recent insulin price reductions. He expressed confidence that this model would continue to hold for future biosimilar events or brand price adjustments.

Kevin Caliendo asked about the expectations for Medicare Advantage margin expansion within the Healthcare Benefits segment for 2026, inquiring if the business is projected to be profitable next year and for an early outlook on individual Medicare Advantage enrollment for the upcoming year.

Answer

Brian Newman, CFO, stated that for HCB in 2026, they expect another year of meaningful margin improvement, including progress in Medicare Advantage due to disciplined plan design and repricing opportunities. Steve Nelson, EVP and President of Aetna, emphasized Aetna's focus on returning to target margins and regaining industry leadership, confirming that early signs for Medicare Advantage open enrollment are in line with expectations for returning to target margins, with Q3 trends being "a little bit ahead." He expects to exit AEP roughly flat in individual Medicare Advantage membership.

Kevin Caliendo of UBS inquired about the Q3 margins, questioning why they weren't higher and if any discretionary spending impacted them. He also asked if Labcorp could still meet its long-range plan (LRP) for 2026, considering a potential $70-$75 million net impact from PAMA.

Answer

Chairman and CEO Adam Schechter clarified that the 100 basis point enterprise margin improvement (110 bps diagnostics, 20 bps BLS) was strong, with no unusual discretionary spend. He noted that hospital deals are typically dilutive initially. While it's too early for 2026 guidance, Labcorp is actively pursuing Launchpad and AI-driven savings to offset PAMA's $100 million top and bottom line impact.

Kevin Caliendo questioned why Q3 margins weren't better, asking about any discretionary spend, and whether Labcorp can still meet its long-range plan (LRP) in 2026 given a potential $70-75 million net PAMA impact and other factors.

Answer

Chairman and CEO Adam Schechter stated there was nothing unusual regarding margins, highlighting a strong 110 basis point improvement in diagnostics (partially from Invitae, with offsets from hospital deals) and a 20 basis point improvement in BLS, totaling 100 basis points enterprise. He noted Launchpad covers inflation. For 2026, it's too early for specifics, but efforts are underway (Launchpad, AI initiatives) to offset PAMA's top-line and bottom-line impact.

Kevin Caliendo of UBS Group requested details on the recently announced deal to acquire outreach assets from Community Health Systems (CHS), asking about its size, expected accretion, and business mix.

Answer

President, CEO, and Chairman Adam Schechter confirmed the $195 million cash deal meets LabCorp's high standards, expecting it to be accretive in the first year and return its cost of capital within a few years. He emphasized that the deal involves the higher-margin outreach business, which is a positive for the company's overall margin profile, distinguishing it from lower-margin hospital lab management agreements.

Kevin Caliendo of UBS Group requested details on the recently announced deal to acquire outreach assets from Community Health Systems (CHS), asking about its expected accretion, business mix, and profitability.

Answer

President, CEO, and Chairman Adam Schechter confirmed the $195 million CHS deal meets their high standards, expecting it to be accretive in the first year and to return its cost of capital within a few years. He noted that since the deal involves the outreach business, it is typically higher-margin than managing hospital labs. This acquisition supports LabCorp's increased target for inorganic growth.

Kevin Caliendo sought to clarify the components of the Q1 Diagnostics margin, asking if the weather impact was incremental and if the underlying 60 basis points of improvement could serve as a baseline for Q2.

Answer

Chairman and CEO Adam Schechter confirmed the weather impact was an incremental headwind compared to the prior year. CFO Julia Wang added that while the company does not provide quarterly guidance, the analyst's directional thinking was 'reasonable,' as Q2 is typically a strong quarter and the drag from the Invitae acquisition is expected to lessen.

Kevin Caliendo of UBS asked if the underlying 50 basis points of core margin expansion in Diagnostics, excluding one-time impacts, is sustainable into 2025. He also requested color on the expected quarterly cadence for EPS throughout the year.

Answer

CEO Adam Schechter expressed confidence in continued margin expansion for both Diagnostics and Biopharma in 2025, highlighting the Invitae acquisition as a tailwind as it becomes accretive in the second half. CFO Julia Wang added that the underlying Diagnostics margin was in the mid-to-high 20s in Q4, providing a strong base for expansion. Regarding cadence, Schechter declined to give quarterly guidance but reiterated the $0.10 weather impact in Q1.

Kevin Caliendo sought clarification on several points: whether the 80 bps of underlying Diagnostics margin expansion was net of a negative calendar day impact, if Invitae's 2025 accretion is in absolute dollars, and if LaunchPad savings are fully offsetting wage inflation.

Answer

CFO Glenn Eisenberg confirmed the 80 bps improvement was after accounting for negative impacts from calendar days, weather, and Invitae. He clarified that Invitae is expected to be accretive in absolute, fully burdened dollars in 2025. He also stated that the $100-$125 million in LaunchPad savings is tracking well to help offset merit-based wage increases, though overall personnel costs were higher due to the calendar day impact.

Kevin Caliendo asked about potential headwinds and tailwinds for 2026, beyond PAMA, considering planned investment spend and the incremental impact of Corewell, relative to the long-range plan (LRP).

Answer

CEO Jim Davis identified tailwinds including continued volume/utilization trends, growth in advanced diagnostics (autoimmune, brain health), early integration of Fresenius testing, expansion of Corewell Health's COLAB Solutions into 2026, and strong consumer health channel growth. Headwinds include PAMA uncertainty, expiration of healthcare exchange subsidies, challenging hospital reimbursement, and ramping Project Nova investments. CFO Sam Samad added that utilization, revenue per requisition, and the Invigorate program will drive margin expansion, and the pace of investments can be controlled to offset PAMA impacts.

Kevin Caliendo asked about potential headwinds and tailwinds for 2026, beyond PAMA, considering the current jump-off point and the long-range plan, including planned investment spend and the incremental impact of Corewell.

Answer

CEO Jim Davis identified tailwinds such as continued positive volume and utilization trends, growth in advanced diagnostics (autoimmune, brain health), the early stages of integrating Fresenius testing, and the expanding Corewell Health Co-Lab Solutions. Headwinds include PAMA uncertainty, the expiration of healthcare exchange subsidies, challenging hospital reimbursement, and the ramp-up of Project Nova investments. CFO Sam Samad reiterated that utilization, test mix, and the Invigorate program will drive margin expansion, and that the pace of investments can be controlled to offset PAMA impacts.

Kevin Caliendo from UBS Group AG asked about the timing and magnitude of the company's modernization investments, specifically if the previously mentioned $0.20 per share impact is still expected for the full year and if margins are still projected to expand in the second half.

Answer

CFO Sam Samad confirmed that the approximately $0.20 per share expense for modernization is still anticipated for the full year, with the majority of those costs expected to be incurred in the second half. He also reaffirmed the company's expectation for full-year operating margin expansion compared to the prior year.

Kevin Caliendo asked about Quest's potential exposure to U.S. tariffs on Chinese goods, seeking details on supply chain sourcing. He also followed up with a question about the reported labor strikes at LifeLabs in British Columbia.

Answer

James Davis, Chairman, CEO and President, stated that less than 1% of Quest's $2 billion in supply spend is sourced directly from China, and these are primarily pre-analytical supplies that are being moved to other regions. He added that 75-80% of reagent supplies are manufactured in the U.S. Regarding LifeLabs, he clarified the strike is limited to a small number of patient service centers in British Columbia, a mediator is involved, and a resolution is expected within 30-45 days.

Kevin Caliendo of UBS asked for clarity on the 2025 guidance, questioning the $20 million investment spend, the potential for other one-time items, the outlook for core margin expansion, and whether any Q1 weather impacts were included.

Answer

CFO Sam Samad confirmed the guidance bridge includes all one-timers and that reported operating margins are expected to expand in 2025, though no specific Q1 weather impact is assumed. CEO Jim Davis detailed that the $20 million investment is for FDA LDT readiness and a larger initiative to modernize IT infrastructure, which is expected to yield a good ROI.

Kevin Caliendo questioned the 2025 outlook, suggesting that with multiple tailwinds like maturing M&A and lower Haystack dilution, EPS growth should be faster than the company's long-term compound annual growth rate.

Answer

CFO Sam Samad acknowledged the positive drivers but cautioned that it is too early to assume cost headwinds will moderate significantly. While revenue growth will be faster, he stated that with current visibility, the company is comfortable reaffirming its high-single-digit EPS growth outlook for 2025 and will provide more detail on the Q4 call, confirming no undisclosed negatives.

Kevin Caliendo of UBS Group AG sought clarification on the fiscal 2026 free cash flow guidance, specifically how the cessation of Tax Receivable Agreement (TRA) payments is factored in. He also asked if the fear of tariffs spurred any services-related activity beyond inventory purchasing.

Answer

CFO & Chief Administrative Officer Glenn Coleman clarified that the ~$100 million benefit from ending TRA payments is included in the free cash flow guidance, but its impact is offset by one-time benefits received in fiscal 2025, resulting in relatively flat year-over-year FCF. President & CEO Michael Alkire explained that while tariffs create a focus on supply chain resilience, it hasn't translated into a direct services benefit, as Premier's member-led contracting process and firm-term contracts help mitigate direct price impacts.

Kevin Caliendo asked about the primary drivers for the strong Q3 results, questioning if it was due to market share gains, increased customer utilization, or actions taken in anticipation of tariffs. He also followed up on how tariff costs would ultimately impact customers and what role Premier plays in mitigating these costs.

Answer

President and CEO Michael Alkire explained that the outperformance is driven by broad pressure on health systems from labor shortages, reimbursement changes, and potential tariffs, which increases demand for Premier's cost-saving solutions. Chief Administrative and Financial Officer Glenn Coleman added that strong contract penetration, better-than-expected gross administrative fee growth, and a rebound in Performance Services were key factors. Regarding tariffs, Alkire noted that most contracts have 'firm for the term' pricing and that Premier uses advanced modeling and a member-led process to manage impacts.

Kevin Caliendo of UBS asked about the source of confidence for the projected fourth-quarter ramp in the Performance Services segment and requested a detailed explanation of how potential tariffs would impact the healthcare supply chain channel.

Answer

CFO Glenn Coleman cited a strong funnel in Applied Sciences, a shift to subscription-based revenue, and the timing of enterprise license deals as reasons for second-half optimism. CEO Michael Alkire added that new leadership is focused on building out collaboratives and advisory services. Regarding tariffs, Alkire explained that Premier's 'firm for term' contracts generally require the supplier to absorb the cost, protecting providers.

Kevin Caliendo asked if Premier saw any changes in customer purchasing behavior, such as inventory building, ahead of potential tariffs. He also inquired if an earlier COVID/flu season provided any undue benefit to the quarter's results.

Answer

CEO Michael Alkire responded that Premier has not seen a significant pull-forward of inventory related to tariff concerns, as the company's strategy has been to reduce dependence on Southeast Asia and build domestic and nearshore capabilities. He also noted that the flu season did not have a significant impact on supply demand. CFO Craig McKasson added that the IV bag shortage is not expected to have a material impact on Q2 performance.

Kevin Caliendo of UBS asked if the balance sheet figures for assets held for sale could provide insight into the divestiture price and questioned the company's ability to achieve growth in 2026 given the reported loss of the Kaiser contract.

Answer

EVP & CFO Jon Leon stated that the balance sheet figures are not indicative of a potential sale price, as the process is ongoing. President & CEO Edward A. Pesicka added that the impact from the contract loss would be minimal in 2025, with the bulk occurring in 2026. He emphasized that while top-line revenue may be affected, the company sees an opportunity to improve bottom-line results by redeploying the returned assets.

Kevin Caliendo asked about the Rotech acquisition, questioning why interest expense guidance is unchanged despite financing being in place and if accretion assumptions have changed due to higher debt costs. He also asked for an update on the full-year free cash flow outlook.

Answer

Executive Jonathan Leon explained that Rotech-related debt is not yet on the balance sheet and guidance will be updated post-closing. He confirmed debt costs are ~50 bps higher than expected but the accretion outlook remains neutral for year one. He also reaffirmed the full-year free cash flow outlook, stating that despite Q1 working capital usage, the company still expects to generate strong cash flow for debt reduction.

Kevin Caliendo of UBS inquired about the performance of Rotech since the acquisition announcement, asking if there were any surprises in its growth or margins. He also asked for clarity on capital deployment priorities between the new share repurchase program and ongoing debt reduction.

Answer

Jonathan Leon, an executive, stated there were no surprises with Rotech's performance, attributing recent trends to expected legislative impacts consistent with their deal model. Executive Edward Pesicka clarified that while debt repayment remains the primary objective, the company will be opportunistic with share buybacks if the stock continues to be significantly undervalued.

Kevin Caliendo asked for a breakdown of the impact from manufacturing supply chain issues, procedural volumes, and patient eligibility timing on the revised EBITDA guidance, and questioned what the guidance would have been without these headwinds.

Answer

CFO Jonathan Leon explained that unexpected costs from manufacturer supply chain problems affecting customer procedural volumes were the most significant factor in the guidance revision. Executive Edward Pesicka added that hurricane-related product shortages caused these procedural delays, impacting the seasonally strong fourth quarter. Leon confirmed that without these issues, the guidance would have been higher than what was issued.

Kevin Caliendo of UBS Group AG inquired about how conversations with potential clients have changed, what customers are now looking for, and how Evolent's newly structured contracts fit into the current ecosystem of higher medical trends.

Answer

CEO Seth Blackley explained that the challenging environment for payers has increased demand for Evolent's solutions, highlighting a countercyclical nature to the business. He confirmed that all new Performance Suite deals in the $1 billion weighted pipeline include enhanced contract terms, such as risk corridors and data protections, which trade some upside for greater downside protection.

Kevin Caliendo of UBS asked about the building blocks for a 2025 EBITDA forecast, the components of the rate increases, and the clinical drivers behind the spike in oncology costs.

Answer

John Johnson declined to provide 2025 guidance but confirmed the analyst's items were key inputs, clarifying the $100 million rate increase is separate from normal escalators. Both Johnson and CEO Seth Blackley attributed rising oncology costs to clinical factors like more combination therapies, longer treatment durations, and new innovations like CAR-T, which they believe reinforces the need for Evolent's specialty management solutions.

Kevin Caliendo of UBS Group AG requested an update on the company's M&A strategy, including the pipeline and valuation environment, and asked about the trajectory of long-term margin expansion.

Answer

CEO David Bourdon confirmed that Lifestance is actively exploring tuck-in M&A to expand geographically and has a robust pipeline, with no deals assumed in current guidance. CFO Ryan McGroarty added that the company is on a clear path toward its long-term 15-20% adjusted EBITDA margin target, driven by both center margin improvements and G&A operating leverage.

Dylan Finley, on behalf of Kevin Caliendo, asked for an update on the virtual visit mix and reimbursement parity, and also inquired about the company's M&A strategy, including target assets and geographies.

Answer

CEO Dave Bourdon reported that virtual visits were stable sequentially at 71% in Q1, with reimbursement generally at parity. On M&A, he emphasized that organic growth is the priority, with acquisitions being complementary and disciplined. He outlined two potential M&A categories: tuck-in practices for geographic expansion and capability acquisitions to accelerate strategy.

Kevin Caliendo asked for clarity on the core operating margin of the business exiting 2025, excluding one-time benefits, to establish a baseline for 2026. He also questioned the long-term tax rate outlook and the impact of recent tax law changes.

Answer

CFO Eric Hammes guided that the underlying margin is close to the 14% level previously discussed, after normalizing for Q2's favorable volume and unfavorable transactional FX. Regarding the tax rate, he explained the improvement to 33% was due to higher US profits improving interest deductibility. He noted the company is still assessing new tax laws but continues to work on projects to reduce the rate over time.

Kevin Caliendo asked CEO Paul Keel about any surprises during his first nine months and what investors should expect from the upcoming Analyst Day, particularly regarding long-term guidance.

Answer

CEO Paul Keel reported no major surprises, reaffirming his confidence in the dental market and Envista's portfolio. He announced the upcoming Analyst Day will cover four key areas: the long-term value creation plan, deep dives into the implant and ortho businesses, reinstated medium-term financial targets, and an introduction to the broader management team.

Kevin Caliendo from UBS requested a conceptual bridge for the adjusted EBITDA margin from Q3 to Q4, based on the components provided. He also asked about the long-term view of the product portfolio and potential M&A or divestiture activity.

Answer

CFO Eric Hammes identified the reduced impact from the Spark revenue deferral as the single biggest driver of margin improvement from Q3 to Q4. CEO Paul Keel added that while the current portfolio is strong with no near-term plans for major changes, the company is constantly evaluating it for the long term.

Kevin Caliendo of UBS Group asked if it would be strategically wise for Align to become more aggressive in the General Practitioner (GP) channel, where it has lower market share and less direct competition from traditional orthodontics.

Answer

President & CEO Joe Hogan detailed Align's existing strong focus on the GP channel, noting it constitutes over 40% of its U.S. business. He highlighted a dedicated GP salesforce, GP-specific products, and extensive training programs. He emphasized that GPs have a different business model than orthodontists, and Align has tailored its resources and strategy accordingly to capture opportunities in that segment.

Kevin Caliendo followed up on the significant year-over-year ASP decline, asking what factors would improve going forward to prevent this from being a long-term headwind, questioning the roles of product mix, discounting, and potential price increases.

Answer

CFO John Morici attributed the ASP pressure to two main factors: faster growth in emerging markets that have lower list prices, and a product mix shift towards lower-priced non-comprehensive products like DSP. He explained that new doctors often start with these products. To mitigate this, he pointed to premium-priced innovations like MAOB and emphasized the company's focus on maintaining accretive gross and operating margins despite the ASP dynamics.

A representative for Kevin Caliendo asked for an update on the commercialization of direct fabrication products, such as retainers, and their potential P&L impact.

Answer

CEO Joe Hogan announced that the next-generation direct fabrication process will begin with a limited release of an Invisalign First retainer in the first half of 2025, with a general release targeted for the second half. He highlighted the technology's potential for greater manufacturing efficiency and enhanced design freedom for orthodontists.

Kevin Caliendo asked if Align has analyzed a potential correlation between consumer spending on GLP-1 drugs and the weakness in the adult clear aligner market. He also asked if the Q4 revenue growth exit rate is a reasonable starting point for 2025 modeling.

Answer

CEO Joe Hogan acknowledged hearing about the potential GLP-1 impact but stated his belief that the market weakness is overwhelmingly driven by broader economic factors and consumer confidence, cautioning that correlation doesn't mean causation. CFO John Morici agreed that the Q4 exit rate is a good starting point for 2025 models, which can then be adjusted for economic shifts and new product launches.

Kevin Caliendo from UBS questioned the reason for the step-up in CapEx during the quarter, asking if it was related to tariffs or buying ahead of demand. He also probed into the disappointing Sleep segment numbers, asking about competitive dynamics and whether AdaptHealth lost market share.

Answer

Executive Jason Clemens attributed the higher CapEx to outperformance in the Respiratory segment, driven by a heavy flu season, which required more equipment for new patients. Regarding the Sleep segment, he reiterated that it's not a big-picture issue but a matter of execution in a handful of states where competitors have an edge, which the company has detailed plans to address.

Kevin Caliendo of UBS requested a deeper analysis of the issues in AdaptHealth's diabetes segment, questioning the role of manufacturers, market channel shifts, and the potential impact on 2025 performance.

Answer

Jason Clemens, CFO, clarified that the issues are not with manufacturers but are internal operational challenges in new patient starts and recurring orders. He noted the pharmacy channel shift is a steady headwind but not a new one. CEO Suzanne Foster added that the company's internal execution is the primary problem, which they believe is fixable. Regarding 2025, Clemens stated it's too early for formal guidance but acknowledged the current pressures will likely have an impact.

On behalf of Kevin Caliendo, Jack Sentan asked if Amwell is confident in achieving free cash flow breakeven in 2026 if the DHA contract is not renewed, and also requested an update on the current selling season.

Answer

CEO Ido Schoenberg expressed high confidence in the DHA contract extension, terming a non-renewal a 'theoretical situation.' CFO and COO Mark Hirschhorn added that while confident, the company would need to pivot its strategy to reach breakeven in 2026 if the contract did not materialize, viewing it as a potential 'existential threat.'

Kevin Caliendo asked about the approval process and potential risks for the DHA's funding vehicle and inquired about other specific government RFPs Amwell is targeting.

Answer

CEO Dr. Ido Schoenberg expressed high confidence in the DHA funding, noting the agency already shared its intent for a sole source grant to partner Leidos for fundamental infrastructure, making the risk of non-funding very low. While unable to name specific RFPs, he stated Amwell is well-positioned to win similar government contracts due to its proven track record, compliance, and strong partnership with Leidos.

Kevin Caliendo requested an update on the timing and visibility of the German tax situation. He also asked if the privatization of a primary wholesale distributor could cause any business disruption or create new opportunities.

Answer

CEO Simon Campion stated there was no meaningful update on the German tax situation, noting the company continues to cooperate with authorities and believes its position is sound, though a resolution is likely 'out a while'. He affirmed that the relationship with distribution partners remains strong and does not anticipate any change or disruption, emphasizing the value Dentsply Sirona's technology brings to them.

Kevin Caliendo asked for the size of Dentsply Sirona's business in Germany and questioned the company's broader strategy regarding investment versus cost savings amidst a challenging macroeconomic environment.

Answer

CEO Simon Campion stated that Germany represents about 10% of total company sales, with a significant portion in the Connected Technology segment. He emphasized that the company cannot solely rely on cost-cutting for growth and is strategically reallocating funds from non-customer-facing infrastructure to growth areas like implants, aligners, and improving e-commerce capabilities to strengthen the company for the long term.

Kevin Caliendo asked for clarification on what a recovery in the implant market entails, whether increased patient financing availability had a noticeable impact, and for an update on demand trends in the biomaterials segment.

Answer

CEO Vafa Jamali explained that a true market recovery would involve the return of high-value, multi-implant cases from specialist practitioners, which have not yet fully rebounded. He stated that current patient financing initiatives are too small to have a material impact, suggesting broader interest rate changes are needed. Regarding biomaterials, he confirmed the segment is performing well, which indicates steady implant volume, but noted the large, multi-implant procedures that drive significant growth have not yet returned robustly.

Asked about the financial impact of the footprint optimization over time and whether a competitor's move to a cost-plus model creates an advantageous market shift for Walgreens.

Answer

The company expects a $100 million AOI benefit in FY25 from closing 500 stores, and these benefits will scale over the 3-year plan. Regarding the competitor's cost-plus model, it is seen as a rational market direction that is very similar to what Walgreens is already doing by realigning brand/generic reimbursements to move away from cross-subsidization and toward a sustainable model.

Kevin Caliendo asked how the financial benefit from the footprint optimization will scale as store closures accelerate, and whether a competitor's move to a cost-plus model creates a positive market pivot for Walgreens.

Answer

CEO Tim Wentworth addressed the second question, stating that the competitor's (CVS) move toward a cost-plus model is similar to Walgreens' own efforts to realign brand and generic reimbursements to eliminate cross-subsidization. He sees it as a rational market direction and confirmed Walgreens is actively pursuing similar outcomes in its payer negotiations. CFO Manmohan Mahajan added that the company is on track for a $100 million AOI benefit from closing 500 stores in FY25, with cash flow benefits from working capital and asset sales outpacing closure costs, and that these benefits will scale over the three-year plan.

Kevin Caliendo asked about the assumed retention rate for prescriptions and foot traffic from the planned store closures and questioned the company's commitment to the dividend given the focus on deleveraging.

Answer

CEO Tim Wentworth explained that script recapture rates are calculated precisely on a store-by-store basis rather than using a single blended number. Regarding the dividend, he stated that WBA has adopted a "flexible and pragmatic capital allocation strategy" and will continually evaluate all options, including aligning the dividend with long-term earnings power, emphasizing that "everything's on the table."

Kevin Caliendo of UBS inquired about the assumptions for prescription and customer traffic retention from the planned store closures. He also asked for clarification on the company's commitment to its current dividend, noting its high yield and the focus on deleveraging.

Answer

CEO Tim Wentworth explained that script recapture rates are calculated precisely at the store level based on various factors and that the company has extensive experience in this area, though he did not provide a single aggregate number. Regarding the dividend, he stated that the company has adopted a 'flexible and pragmatic capital allocation strategy' and will continually evaluate all options, including aligning the dividend with long-term earnings power, but announced no change at this time.

Kevin Caliendo of UBS requested a pro forma financial impact of closing the 25% of underperforming stores and asked about the expected retention rate for prescriptions from those closed locations.

Answer

CEO Tim Wentworth stated that WBA has extensive experience with store closures and expects to retain nearly all scripts, a key factor in the economic analysis. CFO Manmohan Mahajan added that the decision to close a store is based on a cash flow analysis and typically results in accretion to both cash and adjusted EPS. He also clarified that not all 25% of the stores being evaluated will be closed.

Asked for the pro forma financial impact if the 25% of underperforming stores were closed today and inquired about the expected retention rate for prescriptions from those closed locations.

Answer

The company declined to provide a pro forma but stated that store closure decisions are based on a cash flow analysis and are typically accretive to cash and EPS. They also plan to reduce associated fixed costs. Based on extensive experience, they expect to retain 'nearly all' of the prescriptions from closed stores.

Kevin Caliendo asked for the pro forma financial impact of closing the 25% of underperforming stores and what the company's script retention expectations are for those locations.

Answer

CEO Tim Wentworth confirmed that based on extensive past experience, Walgreens expects to retain 'nearly all' of the scripts from closed stores. Global CFO Manmohan Mahajan clarified that not all 25% of stores will be closed and that decisions are based on a cash flow analysis, with closures expected to be accretive to both cash and adjusted EPS. Wentworth added that reducing associated fixed costs is a key part of the strategy.

Inquired about the motivation behind the strategic alternatives review, asking if it was driven by macro conditions or the company's market valuation. He also asked for clarification on the dental consumables market, questioning if the company's 1% growth implies the overall market is flat or down, and what the current trends are for pricing and mix.

Answer

The company declined to comment on the specifics of the strategic review, stating only that the board's focus is on maximizing shareholder value. For dental consumables, management views the end market as flat to slightly down, meaning they believe they are gaining share. The pricing headwind from deflation in PPE products has now stabilized, and they are entering a more normal pricing environment which should provide a slight tailwind.

Asked about the drivers of the strong dental consumables growth, market share gains, and the underlying assumptions for the fiscal 2025 revenue guidance, particularly for the consumables and equipment categories in both Dental and Animal Health.

Answer

The company confirmed strong, sustained market share gains in dental consumables driven by strategic initiatives, sales execution, and investments in servicing DSOs. For fiscal 2025, they expect continued strength in consumables and growth in Animal Health, but are cautious on the dental equipment market, leading to an overall low single-digit revenue growth forecast.

Inquired about controllable headwinds and tailwinds for FY25, such as investment spend and capital deployment, and the key drivers (price vs. macro) for dental equipment demand.

Answer

The company noted that share buybacks will be a tailwind for FY25 EPS. While some elevated CapEx may step down, they will continue to fund internal projects. They believe both price and macro factors have impacted equipment demand and expect improvement later in their fiscal year, aided by innovation cycles.