Henry Schein - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered non-GAAP EPS of $1.15, a beat vs Wall Street consensus of $1.11*, while revenue of $3.168B missed the $3.227B consensus*, amid a 1.5% FX headwind and softer dental equipment comps.
• GAAP operating margin expanded 81 bps YoY to 5.53% and non-GAAP operating margin rose 14 bps YoY to 7.25%, supported by restructuring savings; Adjusted EBITDA was $259M.
• Guidance reaffirmed: FY25 non-GAAP EPS $4.80–$4.94, sales +2–4%, Adjusted EBITDA mid-single-digit growth; management expects tariffs to be mitigated through sourcing and product alternatives.
• Cash flow was seasonally weak (CFO $37M) and Q1 revenue declined slightly (-0.1% reported) on FX; specialty and technology grew, medical remained solid; share repurchases of $161M signal capital return continuation.

What Went Well and What Went Wrong

What Went Well

• Specialty Products grew 4.3% in constant currency (as-reported +2.0%), led by implants/biomaterials and acquisitions; DACH region and Latin America strength noted.
• Technology posted sales +3.4% in constant currency (as-reported +2.9%), with strong cloud practice management (Dentrix Ascend/Dentally) and RCM; operating income grew 24% YoY as legacy products are sunset.
• Medical Distribution grew +3.0% in constant currency (+2.9% as-reported), aided by higher physician traffic, strong Home Solutions (+23% total, +9% internal) and acquisitions.
• Quote: “We are pleased with our first quarter financial results… and remain confident in the fundamentals of our business” — Stanley Bergman.

What Went Wrong

• Global Dental equipment declined 2.4% in constant currency (as-reported -4.5%); U.S. dental equipment down 8.9% (difficult comp due to Q4’23-to-Q1’24 deferrals).
• FX headwind impacted reported sales (-1.5% YoY); FX exposure (primarily euro) expected to be neutral for the balance of year but was a drag in Q1.
• Value-Added Services was pressured (practice transitions timing), and Q1 operating cash flow fell to $37M vs $197M in Q1 2024.

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Welcome to Henry Schein's first quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session. Please press the star key followed by one on your touchstone phone if you'd like to ask a question at the end of the call. If anyone should require operator assistance during the call, please press the star key followed by zero on your touchstone phone. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Officer. Please go ahead, Graham.

Graham Stanley (VP of Investor Relations)

Thank you, Alfredo. Thank you to each of you for joining us today to discuss Henry Schein's financial results for the first quarter of 2025. With me on today's call are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, and Ron South, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to state that certain comments made during this call will include information that's forward-looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and the company's performance may materially differ from those expressed in or indicated by such statements.

These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission and included in the risk factors section of those filings. In addition, all comments about the markets we serve, including end market growth rates and market share, are based upon the company's internal analyses and estimates. Today's remarks will include both GAAP and non-GAAP financial results.

We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures.

Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the financials and filings section of our Investor Relations website under the Supplemental Information heading, and in our quarterly earnings presentation also posted on our Investor Relations website. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 5th, 2025. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Lastly, during today's Q&A session, please limit yourself to a single question and a follow-up. With that, I'd like to turn the call over to Stanley Bergman.

Stanley Bergman (Chairman and CEO)

Thank you, Graham. Good morning, everyone. Thank you for joining us. Let me begin by saying that we are pleased with our first quarter financial results, as well as the momentum we are seeing heading into the second quarter, and remain confident in the fundamentals of our business. After a rather slow January, which was a result of weather-related events, February and March sales performance was good and within our full-year guidance range. As reported, sales growth was significantly impacted by the strong US dollar.

I would like to remind everyone that last year's US equipment business was impacted by a deferral of sales from the fourth quarter of 2023 into the first quarter of 2024, making for a difficult year-over-year comparison. Once we adjust for the effect of the strong dollar, as well as PPE and COVID test kit sales, our sales growth was approximately 2%, with sales growth accelerating throughout the quarter. We are advancing our Bold Plus One strategic plan, which has been refreshed for 2025 to 2027, with a team focused on growing the distribution business through increasing operational efficiency and enhancing customer experience.

Growing our dental and medical specialty businesses and corporate brand products, and further developing our digital footprint and digital solutions. We do remain committed to our long-term financial goal of high single-digit to low double-digit earnings growth by continuing to successfully execute against the strategy. Our last earnings call, during the call, we announced the establishment of two main Henry Schein business units, the Global Distribution and Value Added Service Group and the Global Technology Group, which is led by Andrea Albertini, and the Global Specialty Products Group, which is led by Tom Popeck.

This past quarter, we began to operate the company through these new business groups and are pleased with the leadership and the performance of both of these business groups. Here are some highlights from the first quarter with respect to advancing the Bold Plus One strategy. Continued to launch several new products and solutions in our specialty products and technology businesses. We broadened our home solutions platform with the acquisition of Accentus, a US national distributor of continuous glucose monitors to our own.

We expanded the sales of specialty products through our distribution businesses, those are the specialty products that are now being sold through the Henry Schein Distribution Sales Organization. We continue to implement restructuring initiatives to right-size expenses in our distribution businesses, corporate functions, and to consolidate manufacturing facilities. The global e-commerce platform, GEP, in the U.K. and Ireland is now fully operational, and we are on track to begin a phased launch in North America during the third quarter of this year.

After exceeding our strategic goal of achieving 40% of our operating income from high-growth, high-margin businesses in 2024, we expect operating income from high-growth, high-margin businesses to continue to grow steadily. We now expect these businesses to contribute over half of our total operating income by the end of our strategic planning cycle of 2027. These businesses include specialty products, value-added services, and technology. Additionally, operating income in excess of 10% of our total operating income is attributable to our corporate brand products.

Turning now to a review of our key businesses, we'll start with the Global Distribution and Value Added Services Group. During the quarter, we believe the U.S. and international dental merchandise and equipment markets, as well as the U.S. medical market, were overall stable and that we gained market share. Sales growth in our core dental and medical distribution businesses did accelerate following a slow start in January, which, as I noted, was primarily the result of weather-related events. Our growth in March was within our full-year guidance range of 2-4%. U.S. dental merchandise sales grew low single digits when excluding sales of PPE.

Product pricing was overall in line with last year, and our sales growth therefore reflected volume growth. We also recently implemented a new commission plan that we expect will drive sales and profitability growth. The US dental equipment sales growth was impacted by a deferral of sales from the fourth quarter of 2023 into the first quarter of 2024. Moving from the fourth quarter of 2023 into the first quarter of 2024 made for a difficult year-over-year comparison. We do see consistent demand for both traditional and digital equipment as practitioners continue to invest in their practices.

We are also seeing the number of new practice build-outs increasing. Our US medical business growth, sales growth was solid for the quarter, reflecting increased patient traffic to physician offices for respiratory illness, a strong performance by our home solutions business, and some acquisition growth. International dental merchandise sales were strong in Canada, Central Europe, and Brazil, offset by some softness in France. Similar to the rest of the company, sales accelerated throughout the quarter. We'd like to stress that when reviewing our international sales, that investors take into account the swings in foreign exchange.

International dental equipment sales grew well in Canada and across most of Europe. The focus on new product launches at this year's IDS, the International Dental Show in Cologne, included 3D printers and intraoral scanners to help improve dental office workflows, and we expect our sales to benefit in future quarters from orders taken at the show. Again, foreign exchange did impact our sales results in US dollars. On the value-added services sales side, the sales decreased in the quarter one as a result of lower sales in our practice transitions business. Sales in this business can fluctuate from quarter to quarter.

However, there is a strong pipeline of active transactions that we expect to close throughout the remainder of the year. Now, on the global specialty product side, the Global Specialty Products Group includes, of course, implants and biomaterials, as well as endodontics, orthodontics, and orthopedic products. Sales in the first quarter reflected continued growth in implant and biomaterials and some acquisition growth. Sales of implants grew mid-single digits in constant currency.

Again, big swings in foreign exchange here, with strong sales growth in the DACH region, as well as in Latin America, driven by both our premium brand, BioHorizons, as well as our SIN value brand. We estimate that the US domestic market for dental implants was slightly down in the quarter. Our US sales were in line with market growth and reflect continued rollout of the Biorizon Tapered Proconical Implant and SmartShape Healer Abutment, as well as growing sales of the SIN Implants in the United States. Overall, in the markets we serve, we believe we continue to gain market share this quarter, and that's for implants and biomaterials.

We continue to launch new internally developed products in our endodontics business and are pleased with our underlying growth. While orthodontics remains a small component of our specialty business, sales were down year over year as we continue working to restructure this business. Finally, our orthopedic products generated solid first-quarter sales growth in high single digits. Let me conclude my prepared remarks with a discussion on the Global Technology Group. We had rather strong growth in practice management systems, including Dentrix, Ascent, and Dentalli cloud-based solutions, as well as in revenue cycle management products.

These were partially offset by lower sales of certain legacy products that we are sunsetting. The consolidation of these products is having a short-term impact on this segment's sales growth, but has enabled us to reduce operating costs and achieve strong operating income growth while positioning the software portfolio for better customer experience going forward. Practice management software growth was driven by a 20% increase in cloud-based customers, and we now have 9,500 customers subscribed to Dentrix, Ascent, and Dentalli, and are making good progress in advancing these cloud-based systems into DSOs.

We also continue to enhance the functionality of our practice management software with a new dental imaging subscription plan that automatically attaches images directly to insurance claims for faster payments. Yeah. Here are some comments on the tariffs. Let me conclude my remarks with these comments. Several years ago, we began diversifying and moving the sourcing of corporate brand products to what we anticipated to be lower tariff countries. In addition, most of our specialty products are manufactured in their local markets.

We have been working closely with our suppliers and customers to address the impact of current tariffs. For our more price-sensitive customers, we'll continue to offer corporate brand alternatives. We believe our current and future actions with our suppliers and customers will be effective at mitigating this year's impact on our financial results from the current tariff situations. We are monitoring the situation carefully as, of course, we cannot predict where tariffs will change again. Of course, tariff changes have been quite volatile, and nor can we comment or anticipate if they will have a significant impact on the macroeconomic conditions.

Let me now turn the call over to Ron to review our first quarter financial results and discuss our 2025 financial guidance. Ron, please.

Ronald South (SVP & CFO)

Thank you, Stanley. Good morning, everyone. As usual today, I will review the financial highlights for the quarter, and we'd like to remind investors that on our investor relations website, we have also included a financial presentation containing additional detailed financial information. Starting with our first quarter sales results, I will provide details on total sales growth, as well as constant currency sales growth compared with the prior year. Global sales were $3.2 billion, with sales down 0.1% compared with the first quarter of 2024.

Sales growth reflected a 1.5% decrease attributable to foreign currency exchange and a 1.2% growth from acquisitions. As Stanley mentioned, excluding the impact of PPE and COVID test kits, constant currency sales growth was 2.0%. Our GAAP operating margin for the first quarter of 2025 was 5.53%, an 81 basis point improvement compared with the prior year GAAP operating margin. On a non-GAAP basis, operating margin for the first quarter was 7.25%, a 14 basis point improvement compared with the prior year non-GAAP operating margin, driven by lower operating expenses resulting from our restructuring program.

First quarter 2025 GAAP net income was $110 million, or $0.88 per diluted share. This compares with prior year GAAP net income of $93 million, or $0.72 per diluted share. First quarter 2025 non-GAAP net income was $143 million, or $1.15 per diluted share. This compares with prior year non-GAAP net income of $143 million, or $1.10 per diluted share. Adjusted EBITDA for the first quarter of 2025 was $259 million, compared with first quarter 2024 adjusted EBITDA of $255 million. Turning to our sales results, the components of sales growth for the first quarter are included in Exhibit A to this morning's earnings release.

I will provide the primary highlights of the main sales drivers for each reporting segment, starting with our Global Distribution and Value Added Services Group. The Global Distribution and Value Added Services Group benefited from acquisition growth of 0.9%, mainly from the acquisition of Ascent, our most recent acquisition in the home solution space. Constant currency sales, including acquisition growth, grew by 1.5% after excluding PPE and COVID test kits. US dental merchandise sales grew 0.7% when excluding PPE products, and US dental equipment sales declined 8.9%.

Our sales growth was impacted by a deferral of approximately $20 million in equipment sales from the fourth quarter of 2023 into the first quarter of 2024, making for a difficult year-over-year comparison. Adjusting for this, US dental equipment sales growth was flat versus the prior year. Regarding US medical distribution, after excluding sales of PPE products and COVID test kits, sales grew by 4.7%. Our home solutions business had another strong quarter with total sales growth of 23%, including 9% internal growth.

International dental merchandise constant currency sales grew 1.1%. PPE products did not have a meaningful impact on our international dental merchandise sales growth. International dental equipment constant currency sales grew 4.3%, driven by strong growth in Canada and solid growth across Central Europe. Finally, global value-added services sales growth was impacted by the timing of transactions within our practice transitions business. Turning to the Global Specialty Products Group, constant currency sales growth was 4.3%, benefiting from acquisition growth of 4.0%, primarily attributable to TriMed, the orthopedics products business we acquired last year.

Beginning in the second quarter, this business will be part of internal sales as our TriMed acquisition annualized in April. In addition, our implant and biomaterial business experienced good growth in the first quarter, especially in the DACH region of Europe, where sales increased high single digits. The Global Specialty Products Group also includes the endodontic business, which had slightly negative growth this quarter as a result of a supply chain issue with our Edge ProLaser product, which has now been resolved, as well as the orthodontic business, which has negative sales growth and, as I mentioned last quarter, is being reorganized to support future profitable growth.

Regarding the Global Technology Group, while total sales growth was 2.9%, operating income grew 24% versus the prior year, reflecting strong expense management. Restructuring expenses in the first quarter were $25 million, or $0.14 per diluted share. These expenses mainly related to severance benefits. We now believe we will achieve annual run rate savings at the high end of our $75 million-$100 million goal by the end of 2025. Our first quarter GAAP results include $20 million in pre-tax proceeds as part of our cyber insurance claim, which are excluded from our non-GAAP results.

We have now received all of the proceeds from this claim, which totaled approximately $60 million over the course of 2024 and the first quarter of this year. Regarding share repurchases, we repurchased approximately 2.3 million shares of common stock during the first quarter at an average price of $71.58 per share for a total of $161 million. At quarter end, we had approximately $718 million authorized and available for future stock repurchases. Turning to our cash flow, we generated operating cash flow of $37 million in the first quarter of 2025.

The first quarter typically has a lower cash flow than other quarters in the year, and we still expect operating cash flow to exceed net income for the full year. Let me conclude my remarks with a discussion of financial guidance. At this time, we are not able to provide, without unreasonable effort, an estimate of restructuring costs associated with the restructuring plan for 2025. Therefore, we are not providing GAAP guidance. Our 2025 guidance is for current continuing operations, as well as acquisitions that have closed, and does not include the impact of restructuring and integration expenses and other items detailed in our press release.

Regarding tariffs, as Stanley said, we believe our current and future actions with our suppliers and customers will be effective at mitigating this year's impact on our financial results from the current tariff situation. We have the widest selection of alternative products, including corporate brand products. Given the ongoing uncertainty, we continue to monitor the tariff situation closely, and we will provide updates to our guidance as appropriate. Today, we are maintaining our 2025 financial guidance. As a reminder, our 2025 guidance is as follows.

We expect non-GAAP diluted EPS attributable to Henry Schein to be in the range of $4.80-$4.94, and that it is expected to be more heavily weighted to the second half of the year. 2025 adjusted EBITDA is expected to grow in the mid-single digits versus 2024 adjusted EBITDA of $1.1 billion. 2025 total sales growth is expected to be 2-4% over 2024. Our 2025 guidance also assumes an estimated non-GAAP effective tax rate of 25% and that foreign currency exchange rates remain generally consistent with current levels. With that, I'll now turn the call back to Stanley.

Graham Stanley (VP of Investor Relations)

Thank you, Ron. Operator, do we have some questions?

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the Star keys. One moment, please, while we pull for questions. Thank you. Our first question is from the line of John Block with Stifel. Please proceed with your questions.

Jonathan Block (Md & Analyst)

Great. Thanks, guys. Good morning. Ron, I guess I'll just start at a high level. Can you talk about the dollar? I'm just guessing it's a decent tailwind to the initial reported revenue guidance of 2-4% year over year. Is there a figure or metric to provide? Similarly, how do we think about that when it flows down to the bottom line? I'm guessing somewhat accretive there, but any specifics would be appreciated, and then I'll just ask the follow-up.

Ronald South (SVP & CFO)

For the first quarter, John, we did have a headwind versus prior year of about 1.5% from foreign exchange. What we've seen happen in the rate since then would suggest that we should be fairly neutral versus prior year, more or less. As you can appreciate, very difficult to project the foreign exchange rates right now. Our sales guidance takes that into consideration at this point in time. We are not expecting any further significant variance and impact on growth going forward when looking at the foreign exchange rates versus last year.

We did have a significant headwind in the first quarter, primarily driven by the euro. Our biggest exposure foreign exchange-wise is to the euro, and it is primarily driven by the euro.

Jonathan Block (Md & Analyst)

Okay. I mean, I guess just a follow-up sort of clarity question there. I get one cue, but obviously, the dollar weakened meaningfully in March. Most companies with 35%, 40%, 45% international sales are saying that it has aided their reported revenue guidance by 100 to 200 basis points when we think about full year. I'm sorry, I was sort of asking more. When we think about the original guidance you gave of 2%-4%, is there a way to quantify dollar on top and bottom line? I don't know if there's follow-up, but color there. Just to pivot, Stanley, for the second question, would love more color on sort of the environment you called out. I know you said February and March improved.

Maybe that was not surprising, but the ongoing momentum that you cited in the PR implies April, and that would be to call it the spite liberation day volatility that we have seen in the markets and what that may or may not mean for dental. We would just love any clarity or color you are able to provide on what you are currently seeing and most specifically to April. Thanks, guys.

Graham Stanley (VP of Investor Relations)

Yeah. I think that is, again, a very good question. I can address what we are seeing now. Of course, we cannot address future sentiment, what the consumer is going to be thinking going forward. April was, again, a pretty decent month. Overall, we believe traffic for our dental distribution businesses continues to be stable globally. In the US, specifically, dental merchandise seems stable. We did not see much price adjustments this year, the beginning of the year. I'm sure they'll start coming through, of course, because of the tariffs. We saw some modest growth in volume.

Our medical sales reflect increased patient traffic to reflect an increase in traffic to patient offices for respiratory illness. If you look at the dental and medical markets in the US, they're pretty stable right now. We just had our Thrive customer meeting. It was well attended. I would say there were more practices than in the past, with fewer attendance per practice, which means dentists are watching the expenses. The mood was pretty good, and the sales were okay. I attended a leading DSO meeting on Saturday, and the mood was okay.

We are seeing on the equipment side some buildouts, new practices, buildouts, existing practices, buildouts. I would say there's strong evidence that the market in the US is stable. Likewise, in Canada, of course, when you go into Europe, it's very much dependent on the market per se. Australia was a little bit cautionary given the election period, but overall, in Brazil, it's stable. I think overall, the mood is okay, but this could change at a moment's notice if the macro environments change. I can give you more specifics if anyone has a request on the implant side, but that's sort of the general mood.

Operator (participant)

Thank you. Our next question is from the line of Jason Bednar with Piper Sandler. Please proceed with your questions.

Jason Bednar (Senior Research Analyst)

Thanks. Morning, everyone. Maybe I'll start with a quick follow-up, maybe to John Block's question. Ron, are there any adjustments to the inputs into your guidance that you're making today, even though the output isn't changing? I want to clarify on the tariff comments today. I think you said you're confident mitigating this year's impact. Is that an acknowledgment that there will be direct impacts on your business from tariffs, or is the mitigation comment more related to how you expect to navigate price adjustments from suppliers?

Ronald South (SVP & CFO)

I'll start with the first part of your question. Regarding our guidance, and I'm assuming, Jason, that you're referencing sales guidance, and then from that, the other outputs, whether it be EPS, EBITDA, etc. Our sales guidance assumes most of our sales growth is expected to be internally generated. With exchange rates where they are right now and taking into consideration the first quarter headwinds we had, we now expect foreign exchange to be largely neutral to the balance of the year. That's the 2-4% that we are expecting.

Acquisition growth is expected to provide less than one point of growth for us this year. Our sales growth is largely internally generated. With reference to the tariffs, when we say mitigate, we're really talking about mitigating financial impact. We have walked through several different scenarios internally in terms of what could happen from a tariff perspective. As Stanley mentioned before, we began diversifying and moving the sourcing of corporate brand products to lower tariff countries. We are in a unique situation where we are the importer of record for some products, for those products that we manufacture, for some products that we are selling under our private label or our corporate brands.

We also buy a lot of, as you're aware, buy a lot of products from third parties where we're not the importer of record. We have plans in place, and we're working very closely with our suppliers as well as with our customers to come up with various means of mitigating any kind of impact from the tariffs. We believe, based on what we know today, that we can mitigate those effects. Now, what we have to kind of wait and see is what kind of potential price increases will we get from our branded suppliers. I think they've even indicated in some public remarks that they're doing their best to not pass along those price increases.

The answer to your question is, by maintaining our guidance, what we're saying is that we believe there could be some effect of this, but we can mitigate the ultimate financial effect of it.

Jason Bednar (Senior Research Analyst)

All right. That's very helpful. For follow-up, Stanley, you've seen a lot of different macro situations in your career, odd fluctuations in the economy and/or the dental market. How does tariff uncertainty from the past couple of months stack up? Even if you're not seeing foot traffic changes in the office, I think a lot of us are anticipating that maybe that happens at some point. Right now, consumers don't seem to be changing. What about dentist behavior? Because dentists oftentimes are consumers themselves, and we've seen the ADA data around dentist sentiment tick lower here alongside broader consumer sentiment in the US. I guess, how are you thinking about dentist behavior in this market?

Graham Stanley (VP of Investor Relations)

Jason, as I indicated early on, at the moment, we don't see a huge negative impact. In fact, we don't see much at all. Our bookings on equipment are pretty steady, actually, a little bit robust, I would say, and in line with the kind of backlogs that we saw pre-COVID. I would say it's relatively stable. Dentists are investing in their practices. There's obviously quite a large investment on the digital side. Traditional equipment is pretty steady, and we're seeing new practices open. The DSOs, the DSOs that are well financed, are expanding with the DeNova site. At the moment, it's pretty stable.

I would say it's a little bit better. I can't give you specific data, but it feels a little bit better than the general consumer sentiment. The medical business is quite good. We did have periods where the early part of the year, the respiratory sensitive part of the year, were challenged. This year was, from a sales point of view, a bit better. This all leads us to conclude that the markets that we serve are stable. As I mentioned, actually, the color I just gave relates mostly to the U.S. As I mentioned earlier on, when you go outside of the U.S., it is very country-dependent. I would say the majority of the countries that we serve, it is okay.

From a tariff point of view, specifically as it relates to specialty products, most of the products that we sell are locally made. There is no real tariff impact. I think on the implant side, the U.S. market is a bit weaker than maybe a year or so ago. That is being made up by, in our case, strong sales in Europe, particularly Germany. We do not sell much in terms of specialty products in Asia. We do in Japan, but not in China. Those big variables that we see with maybe some of the other implant companies as it relates to Asia is not a factor at Henry Schein.

I would say we started out the prepared remarks with stability. I think my sense is that's still the case. Of course, no one knows where the broader economy will head, but right now, it seems okay.

Operator (participant)

Our next question comes from the line of Jeff Johnson with Baird. Please proceed with your questions.

Jeffrey Johnson (Senior Medical Technology Analyst)

Thank you. Good morning, guys. Just maybe a modeling question, Ron, for you if I could, guys. You talked about the high end of that $75 to $100 million in cost takeout now that you expect to hit for the year, which is an encouraging number to hear. What were you at run rate-wise coming out of one Q, just as I think about how to layer in maybe that $90 to $100 million in savings over the next three quarters? What's already been included in the one Q number? Thank you.

Operator (participant)

Ladies and gentlemen, please stand by. We're experiencing technical difficulties. We'll resume momentarily. Gentlemen, you may resume. Gentlemen, we may continue with your call. We're on a different line.

Jeffrey Johnson (Senior Medical Technology Analyst)

Hey, guys. Did you hear my question, or did I stun you into silence?

Ronald South (SVP & CFO)

You stunned us into silence, not Jeff. The main line went down. In fact.

Operator (participant)

Yes, we're stand by, ladies and gentlemen. We're working. We'll be resuming momentarily. Ladies and gentlemen, thank you for holding. Gentlemen, please continue.

Jeffrey Johnson (Senior Medical Technology Analyst)

All right. Can you hear me okay, guys?

Ronald South (SVP & CFO)

Yeah, we can. Thanks for that. Yeah, Jeff, main line went down. You're working on the backup now, so we can hear you.

Jeffrey Johnson (Senior Medical Technology Analyst)

All right. Great. I don't know if you heard my question or not, but I was basically just asking a simple question of how much of that $100 million in cost savings that you now expect to see in the P&L this year was in the first quarter, and how should we think about it run rating for the rest of this year? Does it kind of build throughout the year? Thank you.

Ronald South (SVP & CFO)

Yeah, Jeff. The $100 million in savings that we're referring to would be kind of on an annualized run rate basis. There won't be a full $100 million of savings in the 2025 results. We had achieved, coming into the year, we were in about a $60 million run rate as we came into the year. If you just take that piece of it and divide it out by the four quarters, you can get some feel for what the first quarter benefit may have been. Of course, on top of that, we continue to take measures and initiating certain cost saving opportunities over the course of the year as well.

Jeffrey Johnson (Senior Medical Technology Analyst)

Yeah. Understood. All right. Thank you. Just, we saw the 8-K on Friday. It looks like Max has now joined the board. I do not think I have seen if Dan has yet joined the board. Just one, can you confirm that? Maybe I missed an 8-K somewhere there. Two, any updated thoughts on kind of maybe strategies the board might take the company direction-wise as the new board members join and any kind of updated thoughts there? Thank you.

Graham Stanley (VP of Investor Relations)

Jeff, that is correct. Max joined the board on Friday. Dan will join the board when we get final approval in Europe for KKR's investment. As it relates to KKR's role, of course, we've said this in the past, KKR recognizes that Henry Schein is well managed as a great opportunity, recognizing the challenges we had with the pandemic, the cyber incident, some of the macro issues that we experienced. There are many opportunities that we are examining in general. KKR is working with us, supporting our opportunities to create value for shareholders, and particularly the Bold Plus One strategy and some related activities around that.

We are working with their internal group to create on the initiatives we believe will create additional profitability, sustainable profitability for the company. We will be able to provide further information in the quarters ahead. Overall, the level of collaboration, the ideas that are emerging, mostly to support our Bold Plus One strategy, have been very, very positive. It has been a good partnership. Max is just joining the board now, and Dan, hopefully, in the next few weeks.

Operator (participant)

Thank you. The next question is from the line of Mike Peletoski with Barrington Research. Please proceed with your question.

Michael Petusky (Md & Senior Investment Analyst)

Hey, good morning. I just wanted to ask a question around the internal growth in home solutions. The 9% seems kind of strong, and I was just curious. I mean, is that mostly getting deeper with existing accounts, or is there sort of new account growth there? I was just curious what the actual revenues were, if you would be willing to share that. Thanks.

Graham Stanley (VP of Investor Relations)

I didn't catch the last part of your question, but our momentum in the home solutions business has been very good. We're expanding our footprint. We're adding more referral sources and managing reimbursement quite well. We have a very good team. This is an area of growth that we expect to continue into the future. We're very pleased with our home solutions business. It's a natural fit with the Henry Schein Core Physician Referral business. I didn't catch the last part of your question.

The revenue base. Yeah. Okay. Ron, why don't you? Yeah. I mean, on an annualized basis, that business is now approaching something I believe it's around $360 million a year, but quickly growing and approaching $400 million soon.

Michael Petusky (Md & Senior Investment Analyst)

Okay. Great. Thanks, guys.

Operator (participant)

The next question is from the line of Allen Lutz with Bank of America. Please proceed with your question.

Allen Lutz (Analyst)

Good morning, and thanks for taking the questions. One for Stanley or Ron. Why do you think the US implant market is a little weaker in Q1 2025 versus a year ago? Can you talk about what you're seeing there and give us an update on the performance of some of the new launches here in the US? Thanks.

Graham Stanley (VP of Investor Relations)

I'm not sure we can give you anything specific as to why it's weaker other than to say that consumer sentiment for high-end dentistry may be a bit weaker. I think for the more price-sensitive procedures, it seems to be relatively stable. The basic products that are used, the implants used in lower-cost procedures, seem to be more stable than the higher-end. Our bone regeneration business is quite solid. As it relates to products, the Tapered Proconical product, we are focused right now on moving our existing customer base over to the new product, which has been well received.

We have the SmartShape Healer, which provides what we believe is an innovative advancement to supporting functions of healing abutments and impression taking. This is doing well. Overall, the U.S. market is slightly down. We believe we're keeping pace with that. Perhaps we're picking up a little bit more market share in our bone regeneration area. Overall, I think the high-end then is more linked to the elasticity of the consumer sentiment and that the lower end of the cost of a procedure, that part of the market seems to be rather stable.

Allen Lutz (Analyst)

Thanks, Stanley. You said in your prepared remarks, you said new dental practice build-out is increasing. Can you expand on that a little bit? Do you mean that it's accelerating from where it was maybe in the back half of 2024, or are you just saying that it's growing year over year? Thanks.

Graham Stanley (VP of Investor Relations)

I think in 2024, there were not that many build-outs, both DeNova and with existing practices. We are seeing an expansion of DeNova's, not only with DSOs, many DSOs. Many of our customers are expanding in the DSO world. This is also with the smaller practices, the mid-size practices, the group practices, the regional DSOs. There is more activity going on than a year ago. Maybe it paused for a while because people were taken aback with the higher interest rates. I think dentists have now come and the financial managers of these DSOs have come to realize that the interest rates are likely to stay at these levels and are adjusting their purchasing and investment criteria.

Of course, there are some larger DSOs that didn't have the quality of financing, and they may not be growing their businesses internally as rapidly. Those that have good financing, and there are a lot of those DSOs, are investing again. The sentiment on the investment side seems to be okay.

Operator (participant)

Our next question is from the line of John Stansell with JPMorgan. Please proceed with your questions.

John Stansell (VP & Research Analyst)

Great. Thanks for taking my question. Can you just walk through, in the case where you need to pass on cost to your customer base in the dental space, what are the mechanics of that, and how quickly can you pass on cost increases to customers, and how have the discussions with large practices gone to date?

Graham Stanley (VP of Investor Relations)

Right. Of course, at the moment, we still have quite a bit of inventory that we did not have to pay the tariffs. We are working with our customers on moving to alternate products if price is important. The alternate products could be manufactured, national manufacturers, products manufactured outside of the US that they could switch to US-manufactured products. There is a lot of activity on our national brand products, those products that we are not the importer of record. On our owned brands, the corporate brand side, we are advancing, and we have been doing this for a while, the sourcing of these products.

Quite a bit is actually manufactured in the US. Most of our specialty products are made in the US. There is a little bit that's not, but a large part of it is. We are managing the sourcing side. We are working with many manufacturers on cushioning the impact of the tariff. This is on a manufacturer-by-manufacturer, product-by-product basis. I think we have a pretty good database on sourcing of products. We invested in that database a few years ago in anticipation of this. Again, there is the switching from one brand to another. At the end of the day, if we can't cover it, the tariff with sourcing, country sourcing, switching of products, sourcing, moving to our own brand, moving to lower-cost brands, then we're going to have to pass this on to our customers.

At the moment, we haven't had a lot of price increases. We've had them in selected areas, for example, in our handpiece repair business, where the parts are all imported at the moment. There we've had to move it up, but not that much in that particular instance, about 5%. We're doing it at the moment on a product-by-product basis. The tariff increases have not been significant yet, and we're hoping that we'll be able to mitigate a lot of this through what I just outlined.

John Stansell (VP & Research Analyst)

Great. If I could just add one more on. On the medical distribution side, can you quantify the tailwind from the elevated or seasonally different respiratory season this year, given that you said the market was broadly stable?

Graham Stanley (VP of Investor Relations)

I don't know if we, Ron, do we have specific?

Ronald South (SVP & CFO)

I think what I can say is that we did see better sales in our medical business in February and March than we did in January. Quite frankly, that also holds true for our dental business. January was a very soft month, as we've emphasized in our prepared remarks. Some of that is the return to normalcy, but I think medical got a little bit of a better bump as well because of the timing of the respiratory illness season. Of course, as the year progresses, you see that go back to a more normal mode. Having said that, we were pleased with how the medical business did recover over the course of the quarter and the momentum going into the second quarter.

John Stansell (VP & Research Analyst)

Thank you.

Operator (participant)

Our next question is from the line of Vik Chopra with Wells Fargo. Please proceed with your questions.

Vikram Chopra (Executive Director & Equity Research Analyst)

Hey, good morning, and thanks so much for taking the question. Just two for me. Appreciate the comments on the tariff exposure so far, but I'm just curious if you can just talk about what % of your products are sourced from or manufactured in either Mexico, China, and the EU. I had a follow-up, please.

Graham Stanley (VP of Investor Relations)

Right. As it relates to Mexico, we have very little sourcing, but in our specialty area, and there's no impact on tariffs. A big part of our business, specifically the dental business, relates to anesthetic, which is primarily manufactured in Canada, and there is no tariff on that. As it relates to China, we started rebalancing our sourcing some time ago. You take something, a product like gloves, we used to source for the US. Gloves in China, we've moved that production capacity to Europe and have moved glove sourcing primarily for the US, primarily to Malaysia, as an example.

We are negotiating with our manufacturers in that area, like I assume our competitors will. I don't think it's going to be a dollar-for-dollar increase as it relates to 10%, but there will have to be an increase at some point. This is the kind of activity. As it relates to China, it's not significantly material. We have about $100 million of product where we are the importer of record. Some of that's coming from China, but in a 12 and a half, 13 billion dollar business, it's not that material. Of course, the consumer sentiment right now, in general, seems to be okay as it relates to dentists.

I think there is some elasticity as it relates to general consumer sentiment, but at the moment, it seems to be okay as it relates to dentists.

Vikram Chopra (Executive Director & Equity Research Analyst)

Thank you very much for that. My follow-up question is, I was wondering if you can comment on the dental capital equipment environment. Given the current trade environment and risk to the macro, have you seen consumers or, sorry, customers pause or extend timelines to purchase capital either in the US or internationally? Thank you.

Ronald South (SVP & CFO)

Certainly, Vic. I think that, and Stanley referred to this earlier, and I understand the purpose of your question because if we, that would be kind of the first indicator of perhaps a macroeconomic slowdown in the sector if we began to see significant declines in equipment orders. We've been tracking that very closely, and we've yet to see any kind of adverse reaction from the market. Our equipment orders are very much in line with our expectations when we look at them kind of on a year-over-year basis. There is still what I'll call healthy demand.

Is it super robust demand for equipment? Probably not, but it's healthy demand, both on the traditional equipment side as well as on the digital equipment side.

Operator (participant)

Thank you. The next question is from the line of Brandon Vasquez with William Blair. Please proceed with your questions.

Brandon Vazquez (Research Analyst)

Hey, everyone. Thanks for taking the question. Ron, maybe for you first as a modeling question, I think what everyone was trying to get around a little bit in the earlier questions in regards to FX and implied guidance. I'll ask it slightly different and just say, is there an organic growth number that was embedded into the full-year guidance that you guys had last quarter versus this quarter? Basically, did the organic growth expectations change embedded within the full-year guidance?

Ronald South (SVP & CFO)

No, I would say they're largely consistent with what our original expectations were, Brandon.

Brandon Vazquez (Research Analyst)

Okay. Perfect. And then just as my follow-up, many of the other dental manufacturers were calling out DSOs for kind of a notable strength in the quarter. Some of them maybe had been picking up at the start of the year in terms of advertising DTC spend or converting some of the backlog. Anything that you guys saw kind of notable strength out of DSOs? I know you touched on it a little bit, but just expectations from the DSOs of I know they do a lot of the volume and a lot of the build-outs. How are they feeling right now in this kind of uncertain macro environment going forward? Thanks, guys.

Graham Stanley (VP of Investor Relations)

I would say that the DSOs are stable to leaning positively in general. There are a few that are doing quite well. Not aware of too many that are doing badly. I mean, if you'd gone back maybe a year or two ago, there were some that we were worried about. Not really defaults, but that we were worried. I don't know of too many. Actually, I don't know of any really in that category. Maybe there's some small regional ones that may be unstable, but generally, DSOs are pretty stable and have adjusted to the higher interest rate, both in terms of servicing their debt and also in the investment in expansion. Generally, the DSOs are doing okay.

Operator (participant)

Thank you. We have time for one last question coming from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Elizabeth Anderson (Senior Managing Director & Analyst)

Hey, guys. Thanks so much for the question. Just on the back of IDS being so late in March this year, can you talk about how you sort of thought about that show and sort of the traditional maybe bump, and particularly in equipment that we generally see in that business, and sort of how you guys think about the likely impact for that for this year?

Graham Stanley (VP of Investor Relations)

Yeah. The IDS and the full exact timing of the Christmas holiday, of the Easter holiday in Europe, sort of kind of balance each other out. I don't think there's a huge impact. Having said that, what's happened with the IDS, it's become a significantly more focused show for trading amongst businesses rather than with customers. On the customer side, the only real momentum that we could expect from the show is on the German side, Austrian side maybe, and a lot of that is handled through our pre-show promotions. We have good momentum in Europe, I think, and what really came out of the show was the drive towards 3D printing, further digitalization of dentistry.

All of those are areas we focused on. As we indicated, the equipment market is stable to positive. Of course, it can be lumpy. Of course, this quarter, we had the flip between 2023, fourth quarter, and the first quarter of 2024. We were up against tough comparisons. Overall, I would say the equipment market is good. As it relates to Central Europe, I think it's okay.

Elizabeth Anderson (Senior Managing Director & Analyst)

That's helpful. Maybe just in terms of I know some of your private label, you obviously manufacture yourselves, and some you work with external partners. How do we think about that flexibility with potentially changing some of the sourcing countries, etc., in terms of how long that would take if the Chinese tariffs remain at their current elevated levels?

Graham Stanley (VP of Investor Relations)

Yeah. Just to recap a little bit. On our owned brands where we manufacture, that is primarily in the specialty areas. In those areas, particularly the implants and orthodontics, which is very small, and some endo, we are making in the markets that we actually sell, largely making the markets that we sell. We do not see much of an impact there. There are odd situations, like I described, the parts in, for example, with handpiece repairs that we have to take up our pricing a bit. It is not a huge amount. As it relates to our corporate brand, which we call private label, we are sourcing now from manufacturers, OEM manufacturers.

We have been moving products around the world for a while. There is a part that is coming out of China, but there are not too many products in that group where there are not alternate manufacturers if the tariff does not come down. If the tariff comes down a bit, I think we'll be able to work with some of our Chinese manufacturers. If it doesn't come down, they'll still work with us, but we'll have to consider alternate sourcing, and that's been in the pipeline for several years already. There is a piece that we will be challenged, maybe some of the commodities, but there are alternatives.

For example, gloves, the alternative is Malaysia. I doubt we'll be able to make a competitive priced glove in the United States. There is a factory or two in that field, but it's still very expensive. At the end of the day, there are products that we'll have to buy with tariffs, but I think our competitors and all of us will be in the same boat for those products. Generally, the movement has started to happen. There's some work that still has to go on. There could be some challenges for a couple of quarters, but in many of these product areas, we do have inventory.

We are working through this on a manufacturer, by manufacturer, product category, by product category. At the moment, assuming the economy remains more or less where it is, foreign exchange remains more or less where it is, I think we maintain our guidance.

Operator (participant)

Thank you. There are no further questions at this time. I would like to turn the floor back over to Stanley Bergman for closing comments.

Stanley Bergman (Chairman and CEO)

Thank you very much, Operator. Thank you all for calling in. We feel pretty good about the business. I think we had a very good quarter asking again analysts and investors to understand the impact of foreign exchange on sales. If you take that into account, there's good momentum. I think that good momentum at the moment is going nicely into the third quarter, the second quarter, the third month of the first quarter. March was okay. As we go into the beginning of the second quarter, it's looking okay, good momentum. Our equipment backlog remains strong.

There's some office build-outs. Of course, this can be lumpy. Thrive Live, which was our Las Vegas show with a reasonably good attendance. I'd say good attendance, as I mentioned, was good. Momentum coming out of IDS with Germany, or actually the preparatory work going into the IDS was quite good. I think that will result in equipment sales. Again, it's a stable market, lumpy to some extent on the equipment side. On the high growth, high margin, we've upped our plan to go from 40-50% over the next three years.

I think we'll feel pretty good at that. The profits coming out of our corporate brands are 10%, a little bit more than 10%. Looks good. Stable markets we have indicated. Of course, there are exceptions, some very good markets, some less good, but on balance, stable. Our implant biomaterials business globally is a good one at the moment, and we feel very good. Europe is doing good, and the US is not a growing market, but we think we'll continue to gain market share. Technology, we're very optimistic about that business, both in terms of the cloud-based systems, expense management, and we continue to be committed to the long-term EPS cash flow, EBITDA goals we outlined.

Of course, we had a bump in the road with our cyber incident, which is largely behind us. I would say the business is in good shape. Overall, it's good. We're happy with the management changes we made. We had to, of course, reduce expenses. We had to take out a line of management. It is not unique to Henry Schein. It is what businesses have to do. We did that. We think we will be delivering good numbers on the expense reduction side, perhaps a little better than we thought through in the early days. We remain optimistic about the business, and we think, yes, there is some elasticity as it relates to the economy in general, but it is not directly as elastic as perhaps consumer sentiment in general is.

Our medical business is okay, doing well. Our distribution businesses, from an efficiency point of view, are doing well. The management in general is doing the job that we asked the team to do going into the year. I thank investors. Of course, Ron, Susan, Graham are ready to answer questions. We'll have some group meetings, webinar meetings, where investors can call in, and we're happy to answer questions. Thank you all for participating.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.