10-Q: Henry Schein Q3 2025: Sales Up, KKR Stake Rises

Henry Schein, Inc. reports increased net sales and net income for Q3 2025, driven by growth across all segments, alongside an expanded KKR strategic investment.

Summary

• Net sales for the three months ended September 27, 2025, increased 5.2% to $3,339 million, compared to $3,174 million in the prior year period.
• Net income attributable to Henry Schein, Inc. for Q3 2025 was $101 million, up from $99 million in Q3 2024.
• Diluted earnings per share (EPS) for Q3 2025 was $0.84, an increase from $0.78 in Q3 2024.
• For the nine months ended September 27, 2025, net sales increased 2.8% to $9,747 million, with net income attributable to Henry Schein, Inc. at $297 million and diluted EPS at $2.42.
• Global Distribution and Value-Added Services net sales increased 4.8% in Q3 2025, driven by 2.8% internally generated local currency dental sales growth and 3.0% medical sales growth.
• Global Specialty Products net sales increased 5.9% in Q3 2025, with internally generated local currency sales up 2.8%.
• Global Technology net sales increased 9.7% in Q3 2025, primarily due to a 9.0% internally generated local currency increase from core practice management solutions and revenue cycle management.
• The company completed a $250 million accelerated share repurchase program in May and July 2025, acquiring 3,491,483 shares.
• KKR's beneficial ownership limit was increased from 14.9% to 19.9% of the outstanding common stock through an amendment to the Strategic Partnership Agreement.
• A new restructuring plan (2024 Plan) is in progress, incurring $34 million in charges in Q3 2025 and $82 million year-to-date, with expected completion by the end of 2027.

Sentiment

Score: 7

Explanation: The company demonstrated solid top-line and bottom-line growth for the quarter and year-to-date, with strong performance in the Global Technology segment. The KKR investment and increased ownership limit signal strategic confidence. However, the significant drop in operating cash flow, albeit explained by normalization post-cyber incident, and declining gross margins are areas of concern. Ongoing restructuring costs and potential adverse impacts from the OBBBA also temper the overall positive sentiment.

Positives

• Net sales increased across all segments for both the three and nine months ended September 27, 2025.
• Net income attributable to Henry Schein, Inc. increased to $101 million in Q3 2025 from $99 million in Q3 2024.
• Diluted EPS increased to $0.84 in Q3 2025 from $0.78 in Q3 2024.
• The Global Technology segment showed strong sales growth of 9.7% in Q3 2025, driven by cloud-based platforms and revenue cycle management solutions.
• The effective tax rate decreased to 21.3% in Q3 2025 from 24.7% in Q3 2024, partly due to tax treatment of an acquisition and the One Big Beautiful Bill Act (OBBBA).
• A $250 million accelerated share repurchase program was successfully completed.
• The strategic investment by KKR, with an increased beneficial ownership limit to 19.9%, indicates strong investor confidence.
• No expenses directly related to the October 2023 cyber incident were incurred in Q3 2025, and the remaining $20 million in insurance proceeds were received in Q1 2025.
• Remeasurement gains of $28 million and $4 million related to previously held equity investments were recognized in the Global Specialty Products and Global Distribution and Value-Added Services segments, respectively, for the nine months ended September 27, 2025.

Negatives

• Gross profit margin decreased to 30.7% in Q3 2025 from 31.3% in Q3 2024, primarily due to product mix in Global Distribution and Value-Added Services and Global Specialty Products, and increased customer service expense in Global Technology.
• Net cash provided by operating activities decreased significantly to $331 million for the nine months ended September 27, 2025, from $644 million in the prior year, primarily due to the normalization of cash collections after the 2023 cyber incident.
• Interest expense increased to $38 million in Q3 2025 from $34 million in Q3 2024, and to $111 million for the nine months from $96 million, primarily due to increased borrowings.
• Restructuring costs of $34 million in Q3 2025 and $82 million year-to-date for the 2024 Plan indicate ongoing operational adjustments and associated expenses.
• Sales of PPE products and COVID-19 test kits decreased by an estimated $9 million in Q3 2025 and $27 million year-to-date, primarily due to lower glove prices and reduced demand for COVID-19 test kits.
• A decline in orthodontic sales partially offset growth in the Global Specialty Products segment for the nine months ended September 27, 2025.
• Internally generated local currency value-added services sales decreased for the nine months, primarily due to lower sales in the practice transitions business.

Risks

• Dependence on third parties for the manufacture and supply of products and raw materials.
• Risks related to achieving strategic growth objectives, including anticipated results of restructuring and value-optimization initiatives.
• Transitional challenges associated with acquisitions and joint ventures, including failure to achieve anticipated synergies/benefits and significant demands on operational functions.
• Adverse changes in supplier rebates or other purchasing incentives.
• Security risks associated with information systems and technology products and services, such as cyberattacks or other privacy or data security breaches (including the October 2023 incident).
• Effects of a highly competitive and consolidating market, including competition from third-party online commerce sites.
• Political, economic, and regulatory influences on the health care industry, including cost containment trends, expansion of customer purchasing power, and multi-tiered costing structures.
• Increases in shipping costs, fuel and energy costs, and other service issues with third-party shippers.
• Changes in laws and policies governing manufacturing, development, investment, and foreign trade (tariffs, sanctions).
• General global and domestic macro-economic and political conditions, including inflation, deflation, recession, unemployment, consumer confidence, sovereign debt levels, and foreign currency fluctuations.
• Failure to comply with existing and future regulatory requirements, including health care fraud, anti-bribery, controlled substances handling, medical device regulations, and data privacy/security standards.
• Risks associated with the EU Medical Device Regulation and the European Health Data Space (EHDS).
• Potential adverse impact of the U.S. One Big Beautiful Bill Act (OBBBA) on utilization, Medicaid payment, and cost of production due to expected reductions in Medicaid enrollees and federal funding.
• Risks related to product liability, intellectual property, and other claims.
• Risks associated with customs policies or legislative import restrictions.
• Risks associated with disease outbreaks, epidemics, pandemics, or similar widespread public health concerns and other natural or man-made disasters.
• Risks associated with global operations and geopolitical conflicts (e.g., war in Ukraine, the Israel-Gaza war).
• Supply chain disruption.
• Litigation risks, including multiple opioid-related lawsuits consolidated in MultiDistrict Litigation.
• Dependence on senior management, employee hiring and retention, increases in labor or health care costs, and relationships with customers, suppliers, and manufacturers.
• Disruptions in financial markets.

Future Outlook

The company anticipates a reduction in current income tax liabilities and deferred tax assets due to the One Big Beautiful Bill Act (OBBBA), but expects the OBBBA, in combination with tariffs, to adversely impact utilization, Medicaid payment, and cost of production. Future tax reform from Pillar Two rules may also adversely impact the effective tax rate or result in higher cash tax liabilities. Additional restructuring charges associated with the 2024 Plan are expected through the end of 2027. The company believes its cash, access to private debt and public equity markets, and existing credit facilities provide sufficient liquidity for foreseeable short-term and long-term capital needs, and it intends to continue seeking opportunities for joint ventures or acquisitions to expand its role in the health care industry.

Management Comments

• We believe we are the world's largest provider of health care products and services primarily to office-based dental and medical practitioners, as well as alternate sites of care.
• We believe that we have a strong brand identity due to our more than 93 years of experience distributing health care products.
• We believe that the trend towards cost containment has the potential to favorably affect demand for technology solutions, including software, which can enhance the efficiency and facilitation of practice management.
• We believe that demand for our products and services will grow while continuing to be impacted by current and future operating, economic and industry conditions.
• We believe that we are positioned to capitalize on this trend [industry consolidation], as we believe we have the ability to support increased sales through our existing infrastructure, although there can be no assurances that we will be able to successfully accomplish this.
• We intend to defend ourselves vigorously against these [opioid-related] actions.
• We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets, and our available funds under existing credit facilities provide us with sufficient liquidity to meet our currently foreseeable short-term and long-term capital needs.

Industry Context

The health care industry is increasingly focused on cost containment, which benefits distributors offering broad product and service portfolios at competitive prices and accelerates the growth of large purchasing groups like DSOs and GPOs. This trend also drives demand for technology solutions that enhance practice management efficiency. The industry is fragmented but undergoing consolidation, with practitioners increasingly affiliating with larger entities. Growth is supported by an aging population, increased health care awareness, medical technology proliferation, and expanded insurance coverage. National health care spending is projected to reach $8.6 trillion by 2033. Regulatory changes, such as new EU regulations (e.g., European Health Data Space) and the U.S. One Big Beautiful Bill Act (OBBBA), along with global tax reforms like Pillar Two rules, are creating a complex and evolving operating environment for healthcare providers and distributors.

Comparison to Industry Standards

• Gross margins may not be directly comparable to other distribution companies due to varying practices in categorizing distribution network costs.

Management Changes

Corporate Governance

Legal Proceedings

• Named as a defendant in multiple (currently less than twenty) opioid-related lawsuits, consolidated within the MultiDistrict Litigation (MDL) proceeding In Re National Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804), which are currently stayed.
• Sales of opioids represented less than four-tenths of 1 percent of 2024 net sales, indicating a negligible part of the business.
• Accrued best estimate of potential losses for probable claims, which was not material to financial position, results of operations, or cash flows as of September 27, 2025.
• May become a party to other legal proceedings (product liability, employment, commercial disputes, governmental inquiries), but none are currently anticipated to have a material adverse effect.

Related Party Transactions

• Joint venture with Internet Brands to create Henry Schein One, LLC, where Internet Brands holds a 33.6% noncontrolling interest.
• A Memorandum of Understanding was signed on January 29, 2025, with Internet Brands to extend the time-based trigger for the call option to July 1, 2032, and pause Internet Brands' put option for four years, to January 29, 2029.
• Annual royalty payment of approximately $31 million to Internet Brands for intellectual property use, with $8 million recorded in Q3 2025 and $23 million year-to-date 2025.
• Net payable balance to Internet Brands of $1 million as of September 27, 2025 and December 28, 2024.
• Net sales of $14 million (Q3 2025) and $42 million (YTD 2025) to equity affiliates.
• Purchases of $3 million (Q3 2025) and $7 million (YTD 2025) from equity affiliates.
• Aggregate $32 million due from equity affiliates and $7 million due to equity affiliates as of September 27, 2025.
• Operating leases for facilities from employees and minority shareholders, with current liabilities of $5 million and non-current liabilities of $23 million as of September 27, 2025, representing 6.5% and 8.7% of total current and non-current operating lease liabilities, respectively.

Stakeholder Impact

• Shareholders are impacted by increased net income and EPS, ongoing share repurchase programs, and the strategic investment by KKR, which could influence future share price.
• Employees are affected by restructuring plans (2024 Plan) that include severance and employee-related costs, while also benefiting from stock-based compensation plans.
• Customers benefit from the 'One Schein' initiative for streamlined access to products and services, but may be impacted by potential changes in Medicaid coverage due to the OBBBA.
• Suppliers are critical to the company's operations, as there is a dependence on third parties for manufacturing and supply.
• Creditors are impacted by increased borrowings and amendments to credit agreements, which affect the company's debt profile.
• Regulatory bodies maintain oversight, as the company is subject to extensive local, state, federal, and foreign governmental laws and regulations, with increased enforcement activity.

Next Steps

• Completion of the 2024 restructuring plan by the end of 2027, with additional charges expected through this period.
• Evaluation of the impact of ASU 2025-06 (Internal-Use Software) on consolidated financial statements.
• Evaluation of the impact of ASU 2024-03 (Income Statement Expense Disaggregation) on consolidated financial statements.
• Continued defense against opioid-related lawsuits.
• Continued evaluation of possible candidates for joint venture or acquisition to expand its role in the health care industry.
• Monitoring the evolving implementation of new regulations (e.g., EU Medical Device Regulation, European Health Data Space) and tax reforms (e.g., OBBBA, Pillar Two rules).
• Quarterly payments of $5 million on the Term Credit Agreement beginning in June 2026 through June 2027, increasing to $9 million in September 2027 through June 2030.

Key Dates

Recommendation

While Henry Schein demonstrated growth in net sales and net income, and the KKR strategic investment is a positive signal, the significant decrease in operating cash flow, albeit explained by normalization post-cyber incident, and declining gross margins warrant caution. The ongoing restructuring and potential adverse impacts from the OBBBA introduce uncertainty. The stock repurchase programs provide some support, but a 'Hold' recommendation is appropriate given the mixed financial signals and ongoing operational adjustments.

Keywords

Dental distribution, Medical distribution, Healthcare products, Practice management software, Dental implants, Biomaterials, Orthodontics, Orthopedics, SEC filing, 10-Q, Financial results, Earnings, KKR, Share repurchase, Restructuring, Cyber incident, Supply chain, Regulatory compliance, Global sales