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hsic:number hsic:claims
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
☒
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
period ended
March 29, 2025
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The
Nasdaq
Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,”
“accelerated filer,”
“smaller reporting company,”
and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for
complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☒
As of April 28, 2025,
there were
121,719,546
shares of the registrant’s common stock outstanding.
HENRY SCHEIN, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
ITEM 1.
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 29, 2025 and December 28, 2024
3
Condensed Consolidated Statements of Income for the three months ended
March 29, 2025 and March 30, 2024
4
Condensed Consolidated Statements of Comprehensive Income for the
three months ended March 29, 2025 and March 30, 2024
5
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 29, 2025 and March 30, 2024
6
Condensed Consolidated Statements of Cash Flows for the
three months ended March 29, 2025 and March 30, 2024
7
Notes to Condensed Consolidated Financial Statements
8
Note 1 – Basis of Presentation
8
Note 2 – Significant Accounting Policies and Recently Issued Accounting Standards
9
Note 3 – Cyber Incident
9
Note 4 – Net Sales from Contracts with Customers
10
Note 5 – Segment Data
11
Note 6 – Business Acquisitions
13
Note 7 – Fair Value Measurements
16
Note 8 – Debt
19
Note 9 – Income Taxes
22
Note 10 – Plans of Restructuring
23
Note 11 – Legal Proceedings
24
Note 12 – Stock-Based Compensation
25
Note 13 – Redeemable Noncontrolling Interests
27
Note 14 – Comprehensive Income
28
Note 15 – Earnings Per Share
29
Note 16 – Supplemental Cash Flow Information
29
Note 17 – Related Party Transactions
30
Note 18 – KKR Investment
30
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
31
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
45
ITEM 4.
Controls and Procedures
45
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
46
ITEM 1A.
Risk Factors
46
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
46
ITEM 5.
Other Information
47
ITEM 6.
Exhibits
48
Signature
49
Table of Contents
See accompanying notes.
3
PART
I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions,
except share data)
March 29,
December 28,
2025
2024
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
127
$
122
Accounts receivable, net of allowance for credit losses of $
81
and $
78
(1)
1,578
1,482
Inventories, net
1,842
1,810
Prepaid expenses and other
490
569
Total current assets
4,037
3,983
Property and equipment, net
556
531
Operating lease right-of-use assets
294
293
Goodwill
3,956
3,887
Other intangibles, net
1,028
1,023
Investments and other
609
501
Total assets
$
10,480
$
10,218
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
908
$
962
Bank credit lines
867
650
Current maturities of long-term debt
56
56
Operating lease liabilities
77
75
Accrued expenses:
Payroll and related
243
303
Taxes
160
139
Other
606
618
Total current liabilities
2,917
2,803
Long-term debt (1)
1,968
1,830
Deferred income taxes
135
102
Operating lease liabilities
256
259
Other liabilities
485
387
Total liabilities
5,761
5,381
Redeemable noncontrolling interests
765
806
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
par value,
1,000,000
shares authorized,
none
outstanding
-
-
Common stock, $
0.01
par value,
480,000,000
shares authorized,
122,243,683
outstanding on March 29, 2025 and
124,155,884
outstanding on December 28, 2024
1
1
Additional paid-in capital
-
-
Retained earnings
3,626
3,771
Accumulated other comprehensive loss
(317)
(379)
Total Henry Schein, Inc. stockholders' equity
3,310
3,393
Noncontrolling interests
644
638
Total stockholders' equity
3,954
4,031
Total liabilities, redeemable noncontrolling
interests and stockholders' equity
$
10,480
$
10,218
(1)
Amounts presented include balances held by our consolidated variable interest entity (“VIE”).
At March 29, 2025 and December
28, 2024, includes trade accounts receivable of $
471
million and $
241
million, respectively, and long-term debt of $
300
million and
$
150
million, respectively.
See
Note 1 – Basis of Presentation
for further information.
Table of Contents
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
(in millions,
except share and per share data)
(unaudited)
Three Months Ended
March 29,
March 30,
2025
2024
Net sales
$
3,168
$
3,172
Cost of sales
2,168
2,160
Gross profit
1,000
1,012
Operating expenses:
Selling, general and administrative
738
791
Depreciation and amortization
62
61
Restructuring costs
25
10
Operating income
175
150
Other income (expense):
Interest income
6
5
Interest expense
(35)
(30)
Other, net
(1)
2
Income before taxes, equity in earnings of affiliates and noncontrolling interests
145
127
Income taxes
(35)
(32)
Equity in earnings of affiliates, net of tax
3
3
Net income
113
98
Less: Net income attributable to noncontrolling interests
(3)
(5)
Net income attributable to Henry Schein, Inc.
$
110
$
93
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
0.89
$
0.72
Diluted
$
0.88
$
0.72
Weighted-average common
shares outstanding:
Basic
123,776,073
128,720,661
Diluted
124,848,221
129,769,580
Table of Contents
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months Ended
March 29,
March 30,
2025
2024
Net income
$
113
$
98
Other comprehensive income, net of tax:
Foreign currency translation gain (loss)
76
(54)
Unrealized gain (loss) from hedging activities
(5)
11
Other comprehensive income (loss), net of tax
71
(43)
Comprehensive income
184
55
Comprehensive income attributable to noncontrolling interests:
Net income
(3)
(5)
Foreign currency translation loss (gain)
(9)
10
Comprehensive loss (income) attributable to noncontrolling interests
(12)
5
Comprehensive income attributable to Henry Schein, Inc.
$
172
$
60
Table of Contents
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN
STOCKHOLDERS’ EQUITY
(in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, December 28, 2024
124,155,884
$
1
$
-
$
3,771
$
(379)
$
638
$
4,031
Net income (excluding loss $
2
attributable to Redeemable
noncontrolling interests)
-
-
-
110
-
5
115
Foreign currency translation gain (excluding gain of $
8
attributable to Redeemable noncontrolling interests)
-
-
-
-
67
1
68
Unrealized loss from hedging activities,
net of tax benefit of $
1
-
-
-
-
(5)
-
(5)
Pension adjustment gain, net of tax of $
1
-
-
-
-
-
-
-
Change in fair value of redeemable securities
-
-
(28)
-
-
-
(28)
Noncontrolling interests and adjustments related to
business acquisitions and contingent consideration
-
-
(60)
-
-
-
(60)
Repurchase and retirement of common stock
(2,255,485)
-
(21)
(141)
-
-
(162)
Stock issued upon exercise of stock options
10,351
-
1
-
-
-
1
Stock-based compensation expense
520,385
-
5
-
-
-
5
Shares withheld for payroll taxes
(187,493)
-
(11)
-
-
-
(11)
Settlement of stock-based compensation awards
41
-
-
-
-
-
-
Transfer of charges in excess of
capital
-
-
114
(114)
-
-
-
Balance, March 29, 2025
122,243,683
$
1
$
-
$
3,626
$
(317)
$
644
$
3,954
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Interests
Equity
Balance, December 30, 2023
129,247,765
$
1
$
-
$
3,860
$
(206)
$
634
$
4,289
Net income (excluding $
2
attributable to Redeemable
noncontrolling interests)
-
-
-
93
-
3
96
Foreign currency translation loss (excluding loss of $
10
attributable to Redeemable noncontrolling interests)
-
-
-
-
(44)
-
(44)
Unrealized gain from hedging activities,
net of tax of $
4
-
-
-
-
11
-
11
Change in fair value of redeemable securities
-
-
(42)
-
-
-
(42)
Noncontrolling interests and adjustments related to
business acquisitions
-
-
1
-
-
-
1
Repurchase and retirement of common stock
(998,728)
-
(10)
(65)
-
-
(75)
Stock issued upon exercise of stock options
20,939
-
1
-
-
-
1
Stock-based compensation expense
314,759
-
8
-
-
-
8
Shares withheld for payroll taxes
(103,865)
-
(8)
-
-
-
(8)
Settlement of stock-based compensation awards
39
-
-
-
-
-
-
Transfer of charges in excess of
capital
-
-
50
(50)
-
-
-
Balance, March 30, 2024
128,480,909
$
1
$
-
$
3,838
$
(239)
$
637
$
4,237
Table of Contents
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
March 29,
March 30,
2025
2024
Cash flows from operating activities:
Net income
$
113
$
98
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
73
73
Impairment charge on intangible assets
1
-
Non-cash restructuring charges
1
1
Stock-based compensation expense
5
8
Provision for losses on trade and other accounts receivable
2
5
Provision for (benefit from) deferred income taxes
(7)
2
Equity in earnings of affiliates
(3)
(3)
Distributions from equity affiliates
2
2
Changes in unrecognized tax benefits
2
2
Other
(27)
(6)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(74)
190
Inventories
(14)
74
Other current assets
75
41
Accounts payable and accrued expenses
(112)
(290)
Net cash provided by operating activities
37
197
Cash flows from investing activities:
Purchases of property and equipment
(31)
(41)
Payments related to equity investments and business acquisitions,
net of cash acquired
(51)
(20)
Proceeds from loan to affiliate
-
1
Capitalized software costs
(12)
(9)
Other
(5)
(3)
Net cash used in investing activities
(99)
(72)
Cash flows from financing activities:
Net change in bank credit lines
215
-
Proceeds from issuance of long-term debt
150
90
Principal payments for long-term debt
(15)
(60)
Proceeds from issuance of stock upon exercise of stock options
1
1
Payments for repurchases and retirement of common stock
(161)
(75)
Payments for taxes related to shares withheld for employee taxes
(12)
(7)
Distributions to noncontrolling shareholders
(4)
(6)
Payments for contingent consideration
(12)
-
Acquisitions of noncontrolling interests in subsidiaries
(73)
(94)
Net cash provided by (used in) financing activities
89
(151)
Effect of exchange rate changes on cash and cash equivalents
(22)
14
Net change in cash and cash equivalents
5
(12)
Cash and cash equivalents, beginning of period
122
171
Cash and cash equivalents, end of period
$
127
$
159
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
8
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry
Schein, Inc., and all of our
controlled subsidiaries and VIE (“we”, “us” and “our”).
All intercompany accounts and transactions are eliminated
in consolidation.
Investments in unconsolidated affiliates for which we have the ability to influence
the operating
or financial decisions are accounted for under the equity method.
Certain prior period amounts have been
reclassified to conform to the current period presentation.
These reclassifications, individually and in the
aggregate, did not have a material impact on our condensed consolidated
financial condition, results of operations
or cash flows.
Our accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with
accounting principles generally accepted in the United States
(“U.S. GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the
information and footnote disclosures required by U.S. GAAP for complete
financial statements.
The unaudited interim condensed consolidated financial statements should be
read in conjunction with the audited
consolidated financial statements and notes to the consolidated financial
statements contained in our Annual Report
on Form 10-K for the year ended December 28, 2024 and with the information
contained in our other publicly-
available filings with the Securities and Exchange Commission.
The condensed consolidated financial statements
reflect all adjustments considered necessary for a fair presentation of
the consolidated results of operations and
financial position for the interim periods presented.
All such adjustments are of a normal recurring nature.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in
the United States requires us to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The results of operations for the three months ended March 29, 2025 are
not necessarily indicative of the results to
be expected for any other interim period or for the year ending December 27, 2025.
Our condensed consolidated financial statements reflect estimates and
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of
deferred income taxes and income
tax contingencies; the allowance for credit losses; hedging activity; supplier
rebates; measurement of compensation
cost for certain share-based performance awards and cash bonus plans; and
pension plan assumptions.
The primary beneficiary of a VIE is required to consolidate the assets and
liabilities of the VIE.
We are deemed to
be the primary beneficiary of the VIE when we have the power to direct activities
that most significantly affect its
economic performance and have the obligation to absorb the majority of
its losses or the right to receive benefits
that could potentially be significant to the VIE.
In determining whether we are the primary beneficiary, we
consider factors such as ownership interest, debt investments, management
representation, authority to control
decisions, and contractual and substantive participating rights of each party.
For this VIE, related to our U.S. trade
accounts receivable securitization as discussed in
Note 8 – Debt
,
the trade accounts receivable transferred to the
VIE are pledged as collateral to the related debt.
The VIE’s creditors have recourse to us for losses on these trade
accounts receivable.
At March 29, 2025 and December 28, 2024, certain trade accounts
receivable that can only be
used to settle obligations of this VIE were $
471
million and $
241
million, respectively, and the liabilities of this
VIE where the creditors have recourse to us were $
300
million and $
150
million, respectively.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
9
Note 2 – Significant Accounting Policies and Recently Issued Accounting
Standards
Significant Accounting Policies
There have been no material changes in our significant accounting policies during
the three months ended March
29, 2025, as compared to the significant accounting policies described in Item
8 of our Annual Report on Form 10-
K for the year ended December 28, 2024.
Recently Issued Accounting Standards
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2024-03, “
Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure
(Subtopic 220-40)
:
Disaggregation of Income Statement Expenses
,” which requires additional disclosure about the
specific expense categories in the notes to financial statements at interim and
annual reporting periods.
The
amendments in this ASU do not change or remove current expense
disclosure requirements but affect where this
information appears in the notes to financial statements.
This ASU is effective for annual reporting periods
beginning after December 15, 2026, and interim reporting periods beginning
after December 15, 2027, with early
adoption permitted.
Upon adoption, the guidance can be applied prospectively or
retrospectively.
We are currently
evaluating the impact that ASU 2024-03 will have on our condensed consolidated
financial statements.
In December 2023, the FASB issued ASU 2023-09, “
Income Taxes (Topic
740): Improvements to Income Tax
Disclosures
,” which requires public business entities to disclose additional
information in specified categories with
respect to the reconciliation of the effective tax rate to the statutory rate for federal, state and
foreign income taxes.
It also requires greater detail about individual reconciling items in
the rate reconciliation to the extent the impact of
those items exceeds a specified threshold.
In addition to new disclosures associated with the rate reconciliation,
the
ASU requires information pertaining to taxes paid (net of refunds received)
to be disaggregated for federal, state,
and foreign taxes and further disaggregated for specific jurisdictions
to the extent the related amounts exceed a
quantitative threshold.
The ASU also describes items that need to be disaggregated
based on their nature, which is
determined by reference to the item’s fundamental or essential characteristics, such as the transaction or event
that
triggered the establishment of the reconciling item and the activity with which
the reconciling item is associated.
The ASU eliminates the historic requirement that entities disclose information
concerning unrecognized tax
benefits having a reasonable possibility of significantly increasing
or decreasing in the 12 months following the
reporting date.
This ASU is effective for annual periods beginning after December 15, 2024.
We are currently
evaluating the impact that ASU 2023-09 will have on our consolidated
financial statements.
Note 3 – Cyber Incident
In October 2023 Henry Schein experienced a cyber incident that primarily
affected the operations of our North
American and European dental and medical distribution businesses.
Henry Schein One, our practice management
software, revenue cycle management and patient relationship management
solutions business, was not affected, and
our manufacturing businesses were mostly unaffected.
On November 22, 2023, we experienced a disruption of our
ecommerce platform and related applications, which was remediated.
With respect to the October 2023 cyber incident, we have a $
60
million insurance policy, following a $
5
million
retention.
During the three months ended March 30, 2024, we did
no
t receive any insurance proceeds.
During the
year ended December 28, 2024, we received insurance proceeds of $
40
million under this policy.
During the three
months ended March 29, 2025 we received insurance proceeds of $
20
million under this policy, representing the
remaining insurance recovery of losses related to the cyber incident.
During the three months ended March 29,
2025 and March 30, 2024, we incurred
zero
and $
5
million expenses, respectively, directly related to the cyber
incident, mostly consisting of professional fees.
The expenses and insurance recoveries related to the cyber
incident are included in the selling, general and administrative line in our
condensed consolidated statements of
income.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
10
Note 4 – Net Sales from Contracts with Customers
Net sales are recognized in accordance with policies disclosed in Item
8 of our Annual Report on Form 10-K for
the year ended December 28, 2024.
Disaggregation of Net Sales
As noted further in
Note 5 – Segment Data
,
during the fourth quarter of our fiscal year ended December 28,
2024, we revised our reportable segments to align with how the Chairman and
Chief Executive Officer manages
the business, assesses performance and allocates resources.
All prior comparative segment information has
been recast to reflect our new segment structure.
The following table disaggregates our net sales by reportable segment:
Three Months Ended
March 29,
March 30,
2025
2024
Net Sales:
Global Distribution and Value
-Added Services
Global Dental merchandise
$
1,185
$
1,210
Global Dental equipment
384
402
Global Value
-added services
52
56
Global Dental
1,621
1,668
Global Medical
1,055
1,025
Total Global Distribution
and Value
-Added Services
2,676
2,693
Global Specialty Products
367
360
Global Technology
162
157
Eliminations
(37)
(38)
Total
$
3,168
$
3,172
Contract Liabilities
The following table presents our contract liabilities:
As of
March 29,
December 28,
March 30,
December 30,
Description
2025
2024
2024
2023
Current contract liabilities
$
85
$
81
84
$
89
Non-current contract liabilities
7
8
8
9
Total contract
liabilities
$
92
$
89
92
$
98
During the three months ended March 29, 2025, we recognized, in net sales,
$
34
million of the amount that was
previously deferred at December 28, 2024.
During the three months ended March 30, 2024, we recognized
in net
sales $
36
million of the amount that was previously deferred at December 30, 2023.
Current contract liabilities are
included in accrued expenses: other and the non-current contract liabilities
are included in other liabilities within
our condensed consolidated balance sheets.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
11
Note 5
–
Segment Data
During the fourth quarter of our fiscal year ended December 28, 2024,
we revised our reportable segments to align
with how the Chairman and Chief Executive Officer manages the business, assesses
performance and allocates
resources.
Our revised reportable segments now consist of: (i) Global Distribution
and Value
-Added Services; (ii)
Global Specialty Products; and (iii) Global Technology.
These segments offer different products and services to
the same customer base.
All prior comparative segment information has been recast
to reflect our new segment
structure.
We aggregate operating segments into these reportable segments based on economic similarities, the nature of their
products, customer base, and methods of distribution.
Global Distribution and Value-Added Services includes distribution to the global dental and medical markets of
national brand and corporate brand merchandise, as well as equipment and related
technical services.
This segment
also includes value-added services such as financial services, continuing
education services, consulting and other
services.
This segment also markets and sells under our own corporate brand,
a portfolio of cost-effective, high-
quality consumable merchandise.
Global Specialty Products includes manufacturing, marketing
and sales of dental
implant and biomaterial products; and endodontic, orthodontic and orthopedic
products and other health care-
related products and services.
Global Technology includes development and distribution of practice management
software, e-services, and other products, which are distributed to health
care providers.
Our organizational structure also includes Corporate, which consists primarily of
income and expenses associated
with support functions and projects.
Our chief operating decision maker (“CODM”) is our Chairman
and Chief Executive Officer.
Our CODM uses
adjusted operating income as the profitability metric for purposes of making
decisions about allocation of resources
to each segment and assessing performance of each segment.
Adjusted operating income provides a measure of our
underlying segment results that is in line with our approach to risk and performance
management.
We define
adjusted operating income as operating income adjusted to exclude
(a) direct cybersecurity costs and related
insurance recovery proceeds, (b) amortization of acquisition intangibles,
(c) organizational restructuring expenses,
(d) impairment of intangible assets, (e) changes in fair value of contingent consideration,
and (f) costs associated
with shareholder advisory matters.
These adjustments are either: (i) non-cash or non-recurring in
nature; (ii) not
allocable or controlled by the segment; or (iii) not tied to the operational
performance of the segment.
Assets by
segment are not a measure used to assess the performance of the Company
by CODM and thus are not reported in
our disclosures.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
12
Segment adjusted operating income is presented in the following
table to reconcile to operating income as
presented on the condensed consolidated statement of operations.
The reconciliation from operating income to
income before taxes and equity in earnings of affiliates is presented on our condensed consolidated
statements of
income.
Three Months Ended
March 29,
March 30,
2025
2024
Gross Sales:
Global Distribution and Value
-Added Services
(1)
$
2,676
$
2,693
Global Specialty Products
(2)
367
360
Global Technology
(3)
162
157
Total Gross Sales
3,205
3,210
Less: Eliminations:
Global Distribution and Value
-Added Services
(4)
(8)
Global Specialty Products
(33)
(30)
Total eliminations
(37)
(38)
Net Sales
Global Distribution and Value
-Added Services
2,672
2,685
Global Specialty Products
334
330
Global Technology
162
157
Total Net Sales
$
3,168
$
3,172
Three Months Ended
March 29,
March 30,
2025
2024
Operating Income
Global Distribution and Value
-Added Services
$
167
$
171
Global Specialty Products
56
43
Global Technology
42
34
Total Segment Operating Income
265
248
Corporate
(35)
(22)
Adjustments
(4)
(55)
(76)
Total Operating Income
$
175
$
150
Depreciation and Amortization
Global Distribution and Value
-Added Services
$
35
$
36
Global Specialty Products
27
25
Global Technology
11
12
Total Depreciation and Amortization
$
73
$
73
(1)
Global Distribution and Value
-Added Services: Includes distribution of infection-control products, handpieces, preventatives,
impression materials, composites, anesthetics, teeth, gypsum, acrylics, articulators, abrasives, personal protective equipment
(“PPE”) products,
branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, dental chairs, delivery units
and lights, digital dental laboratories, X-ray supplies and equipment, high-tech and digital restoration equipment, equipment repair
services, financial services on a non-recourse basis, continuing education services for practitioners, consulting and other services.
This segment also markets and sells under our own corporate brand, a portfolio of cost-effective, high-quality consumable
merchandise.
(2)
Global Specialty Products: Includes manufacturing, marketing and sales of dental implant and biomaterial products; and
endodontic, orthodontic and orthopedic products and other health care-related products and services.
(3)
Global Technology: Includes development and distribution of practice management software, e-services, and other products, which
are distributed to health care providers.
(4)
Adjustments represent items excluded from segment operating income to enable comparison of financial results between periods.
The following table presents a breakdown of such adjustments:
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
13
Three Months Ended
March 29,
March 30,
2025
2024
Adjustments:
Restructuring costs
$
(25)
$
(10)
Acquisition intangible amortization
(43)
(46)
Cyber incident-third-party advisory expenses, net of insurance
20
(5)
Changes in contingent consideration
2
(15)
Impairment of intangible assets
(1)
-
Costs associated with shareholder advisory matters
(8)
-
Total adjustments
$
(55)
$
(76)
Note 6
–
Business Acquisitions
Our acquisition strategy is focused on investments in companies that
add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies.
2025 Acquisitions
During the three months ended March 29, 2025, we acquired companies
within the Global Distribution and Value-
Added Services segment.
We acquired a
100
% interest in these companies.
Total consideration for these
acquisitions was $
61
million (including cash paid of $
50
million, estimated fair value of contingent consideration
payable of $
10
million, and deferred consideration of $
1
million).
Net assets acquired primarily consisted of $
24
million of goodwill and $
36
million of intangible assets.
The intangible assets acquired consisted of customer
relationships and lists of $
31
million, trademarks and tradenames of $
4
million and non-compete agreements of $
1
million.
Weighted average useful lives for these acquired intangible assets were
11
years,
6
years and
5
years,
respectively.
The accounting for acquisitions in the three months ended March 29, 2025
has not been completed in several areas,
including, but not limited to, pending assessment of certain assets
and liabilities.
Goodwill is a result of the synergies and cross-selling opportunities that these acquisitions
are expected to provide
for us, as well as the expected growth potential.
The majority of the acquired goodwill is deductible for
tax
purposes.
The impact of these acquisitions, individually and in the aggregate, was
not considered material to our condensed
consolidated financial statements.
Pro forma financial information since the acquisition date has not been presented
because the impact of these
acquisitions was immaterial to our condensed consolidated
financial statements.
2024 Acquisitions
Acquisition of TriMed
On April 1, 2024, we acquired a
60
% voting equity interest in TriMed Inc. (“TriMed”), a global developer of
solutions for the orthopedic treatment of lower and upper extremities, headquartered
in California, for consideration
of $
315
million.
This acquisition is reported in our Global Specialty Products segment.
During the year ended
December 28, 2024, we completed the accounting for this acquisition.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
14
The following table aggregates the final fair value, as of the date of the acquisition,
of consideration paid and net
assets acquired in the TriMed acquisition:
Final Allocation
Acquisition consideration:
Cash
$
141
Deferred consideration
21
Redeemable noncontrolling interests
153
Total consideration
$
315
Identifiable assets acquired and liabilities assumed:
Current assets
$
35
Intangible assets
221
Other noncurrent assets
10
Current liabilities
(7)
Deferred income taxes
(62)
Other noncurrent liabilities
(6)
Total identifiable
net assets
191
Goodwill
124
Total net assets acquired
$
315
Goodwill is a result of synergies that are expected to originate from the acquisition as well as
the expected growth
potential of TriMed.
The acquired goodwill is not deductible for tax purposes.
The intangible assets acquired consisted of product development of $
204
million, trademarks and tradenames of $
9
million, and in-process research and development of $
8
million.
Weighted average useful lives for these acquired
intangible assets were
9
years,
7
years and indefinite-lived respectively.
Except for in-process research and
development (“IPR&D”), intangible assets acquired as a result of the
TriMed acquisition are being amortized over
their estimated useful lives using the straight-line method of amortization.
IPR&D is accounted for as an
indefinite-lived intangible asset and is not amortized until completion or
abandonment of the associated research
and development efforts.
IPR&D is tested for impairment annually or periodically if
an indicator of impairment
exists during the period until completion.
Pro forma financial information and TriMed’s revenue and earnings since the acquisition date have not been
presented because the impact of the TriMed acquisition was immaterial to our condensed consolidated
financial
statements.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
15
Other 2024 Acquisitions
During the year ended December 28, 2024, we acquired companies within
the Global Distribution and Value-
Added Services and Global Specialty Products segments.
Our acquired ownership interest in these companies
range from
51
% to
100
%.
Total consideration for these acquisitions was $
113
million (including cash paid of $
62
million, fair value of previously held equity investment of $
30
million, noncontrolling interest of $
18
million,
estimated fair value of contingent consideration payable of $
2
million, and deferred consideration of $
1
million).
Net assets acquired primarily consisted of $
60
million of goodwill and $
64
million of intangible assets.
The
intangible assets acquired consisted of customer relationships and lists of
$
33
million, trademarks and tradenames
of $
24
million, product development of $
5
million and non-compete agreements of $
2
million.
Weighted average
useful lives for these acquired intangible assets were
11
years,
7
years,
9
years and
5
years, respectively.
During the three months ended March 29, 2025 we completed the accounting
for certain acquisitions that occurred
in the year ended December 28, 2024.
We did not record material adjustments in our condensed consolidated
financial statements relating to changes in estimated values of assets
acquired, liabilities assumed or contingent
consideration assets and liabilities in respect to these acquisitions.
Goodwill is a result of the synergies and cross-selling opportunities that these acquisitions
are expected to provide
for us, as well as the expected growth potential.
The majority of the acquired goodwill is not deductible
for tax
purposes.
Pro forma financial information for our 2024 acquisitions has not been
presented because the impact of the
acquisitions was immaterial to our condensed consolidated
financial statements.
Acquisition Costs
During the three months ended March 29, 2025 and March 30, 2024, we incurred
$
2
million and $
2
million in
acquisition costs, respectively.
These costs are included in selling, general and administrative
in our condensed
consolidated statements of income.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
16
Note 7 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained
from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described as follows:
•
Level 1— Unadjusted quoted prices in active markets for identical assets
or liabilities that are accessible at the
measurement date.
•
Level 2— Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability,
either directly or indirectly.
Level 2 inputs include: quoted prices for similar assets or liabilities
in active markets;
quoted prices for identical or similar assets or liabilities in markets
that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
derived principally from or corroborated by
observable market data by correlation or other means.
•
Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments
and the methodologies that we used to
measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
affiliates and notes receivable.
Certain of our notes receivable contain variable interest rates.
We believe the carrying amounts of the notes
receivable are a reasonable estimate of fair value based on the interest rates
in the applicable markets.
Our notes
receivable fair value is based on Level 3 inputs within the fair value
hierarchy.
Debt
The fair value of our debt (including bank credit lines, current maturities
of long-term debt and long-term debt) is
based on Level 3 inputs within the fair value hierarchy, and as of March 29, 2025 and December 28, 2024 was
estimated at $
2,891
million and $
2,536
million, respectively.
Factors that we considered when estimating the fair
value of our debt include market conditions, such as interest rates and credit
spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and
significant other observable inputs.
Our derivative
instruments primarily include foreign currency forward contracts, interest
rate swaps,
and total return swaps.
The fair values for the majority of our foreign currency derivative contracts
are obtained by comparing our contract
rate to a published forward price of the underlying market rates, which
are based on market rates for comparable
transactions that are classified within Level 2 of the fair value hierarchy.
The fair value of the interest rate swap, which is classified within Level 2
of the fair value hierarchy, is determined
by comparing our contract rate to a forward market rate as of the
valuation date.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
17
The fair value of total return swaps is determined by valuing the underlying
exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation
date that are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for redeemable noncontrolling interests are based on recent
transactions and/or implied multiples of
earnings that are classified within Level 3 of the fair value hierarchy.
See
Note 13 – Redeemable Noncontrolling
Interests
for additional information.
Intangible Assets
Assets measured on a non-recurring basis at fair value include intangibles.
Inputs for measuring intangibles are
classified as Level 3 within the fair value hierarchy.
Defined Benefit Plans
Assets of our defined benefit plans are measured on a recurring basis
and are classified as Level 1 within the fair
value hierarchy.
Contingent Consideration
We estimate the fair value of contingent consideration payments as part of the acquisition price and record the
estimated fair value of contingent consideration as a liability on our
condensed consolidated balance sheet.
For
transactions accounted for as business combinations, subsequent changes
in the estimated fair value of contingent
consideration payments are included in selling, general, and administrative
expenses in our condensed consolidated
statements of income
(see
Note 6 – Business Acquisitions
)
.
For transactions involving changes in our ownership in
subsidiaries without a change in our control, subsequent changes
in the estimated fair value of contingent
consideration payments are recognized in additional paid-in capital in our
condensed consolidated balance sheet.
During the three months ended March 29, 2025, we recognized
contingent consideration related to the acquisition
of noncontrolling interest in a subsidiary of $
83
million and a change in fair value of $
3
million.
We measure contingent consideration at the fair value on a recurring basis using significant unobservable inputs
classified as Level 3 of the fair value hierarchy.
We use various valuation techniques, including the Monte Carlo
simulation and probability-weighted scenarios, to determine the fair value
of the contingent consideration liabilities
on the acquisition date and at each reporting period.
Our fair value measurement inputs include expected operating
performance, discount and risk-free rates, and credit spread.
The components of the change in the fair value of contingent consideration
for the three months ended March 29,
2025 and March 30, 2024 are presented in the following table:
March 29,
March 30,
2025
2024
Balance, beginning of period
$
30
$
6
Increase in contingent consideration due to business acquisitions and acquisitions of
noncontrolling interests in subsidiaries
93
-
Decrease in contingent consideration due to payments
(12)
-
Change in fair value of contingent consideration
1
15
Balance, end of period
$
112
$
21
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
18
The following table presents our assets and liabilities that are measured and
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
March 29, 2025 and December 28,
2024:
March 29, 2025
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
5
$
-
$
5
Derivative contracts undesignated
-
1
-
1
Total assets
$
-
$
6
$
-
$
6
Liabilities:
Derivative contracts designated as hedges
$
-
$
5
$
-
$
5
Derivative contracts undesignated
-
1
-
1
Total return
swap
-
5
-
5
Contingent consideration
-
-
112
112
Total liabilities
$
-
$
11
$
112
$
123
Redeemable noncontrolling interests
$
-
$
-
$
765
$
765
December 28, 2024
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
10
$
-
$
10
Derivative contracts undesignated
-
7
-
7
Total assets
$
-
$
17
$
-
$
17
Liabilities:
Derivative contracts designated as hedges
$
-
$
5
$
-
$
5
Derivative contracts undesignated
-
4
-
4
Total return
swap
-
3
-
3
Contingent consideration
-
-
30
30
Total liabilities
$
-
$
12
$
30
$
42
Redeemable noncontrolling interests
$
-
$
-
$
806
$
806
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
19
Note 8 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
March 29,
December 28,
2025
2024
Revolving credit agreement
$
200
$
-
Other short-term bank credit lines
667
650
Total
$
867
$
650
Revolving Credit Agreement
On
August 20, 2021
, we entered into a $
1.0
billion revolving credit agreement (the “Revolving Credit Agreement”)
which was subsequently amended and restated on
July 11, 2023
to extend the maturity date to
July 11, 2028
and
update the interest rate provisions to reflect the current market approach
for a multicurrency facility.
The interest
rate on this revolving credit facility is based on Term Secured Overnight Financing Rate (“
Term SOFR
”) plus a
spread based on our leverage ratio at the end of each financial reporting
quarter.
As of March 29, 2025 the interest
rate on this revolving credit facility was
4.25
% plus
1.17
% for a combined rate of
5.42
%.
As of December 28,
2024 the interest rate on this revolving credit facility was
4.45
% plus
1.18
% for a combined rate of
5.63
%.
The Revolving Credit Agreement requires, among other things, that we
maintain certain maximum leverage ratios.
Additionally, the Revolving Credit Agreement contains customary representations, warranties and affirmative
covenants as well as customary negative covenants, subject to negotiated
exceptions, on liens, indebtedness,
significant corporate changes (including mergers), dispositions and certain restrictive
agreements.
As of March 29,
2025 and December 28, 2024, we had $
200
million and $
0
million in borrowings, respectively, under this revolving
credit facility.
During the three months ended March 29, 2025, the average
outstanding balance under the
Revolving Credit Agreement was approximately $
67
million.
As of March 29, 2025 and December 28, 2024, there
were $
11
million and $
11
million of letters of credit, respectively, provided to third parties under the Revolving
Credit Agreement.
Other Short-Term Bank Credit
Lines
As of March 29, 2025 and December 28, 2024, we had various other short-term
bank credit lines available, in
various currencies, with a maximum borrowing capacity of $
786
million and $
790
million, respectively.
As of
March 29, 2025 and December 28, 2024, $
667
million and $
650
million, respectively, were outstanding.
During
the three months ended March 29, 2025, the average outstanding balances
under our various other short-term bank
credit lines was approximately $
666
million.
As of March 29, 2025 and December 28, 2024, borrowings under
other short-term bank credit lines had weighted average interest rates
of
5.17
% and
5.35
%, respectively.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
20
Long-term debt
Long-term debt consisted of the following:
March 29,
December 28,
2025
2024
Private placement facilities
$
975
$
975
Term loan
702
712
U.S. trade accounts receivable securitization
300
150
Various
collateralized and uncollateralized loans payable with interest,
in varying installments through 2031 at interest rates
from
0.00
% to
9.42
% at March 29, 2025 and
from
0.00
% to
9.42
% at December 28, 2024
41
43
Finance lease obligations
6
6
Total
2,024
1,886
Less current maturities
(56)
(56)
Total long-term debt
$
1,968
$
1,830
Private Placement Facilities
Our private placement facilities provided by
four
insurance companies have a total facility amount of $
1.5
billion,
and are available on an uncommitted basis at fixed rate economic terms
to be agreed upon at the time of issuance,
from time to time through
October 20, 2026
.
The facilities allow us to issue senior promissory notes to the
lenders
at a fixed rate based on an agreed upon spread over applicable treasury
notes at the time of issuance.
The term of
each possible issuance will be selected by us and can range from
five
to
15 years
(with an average life no longer
than
12 years
).
The proceeds of any issuances under the facilities will be used
for general corporate purposes,
including working capital and capital expenditures, to refinance existing
indebtedness, and/or to fund potential
acquisitions.
The agreements provide, among other things, that we maintain
certain maximum leverage ratios, and
contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions,
disposal of assets and certain
changes in ownership.
These facilities contain make-whole provisions in the event that we
pay off the facilities
prior to the applicable due dates.
The components of our private placement facility borrowings as of
March 29, 2025, which have a weighted average
interest rate of
3.70
% are presented in the following table:
Amount of
Date of
Borrowing
Borrowing
Borrowing
Outstanding
Rate
Due Date
June 16, 2017
$
100
3.42
%
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
May 4, 2023
75
4.79
May 4, 2028
May 4, 2023
75
4.84
May 4, 2030
May 4, 2023
75
4.96
May 4, 2033
May 4, 2023
150
4.94
May 4, 2033
Total
$
975
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
21
The components of our private placement facility borrowings as of December
28, 2024, which have a weighted
average interest rate of
3.70
% are presented in the following table:
Amount of
Date of
Borrowing
Borrowing
Borrowing
Outstanding
Rate
Due Date
June 16, 2017
$
100
3.42
%
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
May 4, 2023
75
4.79
May 4, 2028
May 4, 2023
75
4.84
May 4, 2030
May 4, 2023
75
4.96
May 4, 2033
May 4, 2023
150
4.94
May 4, 2033
Total
$
975
Term Loan
On July 11, 2023, we entered into a
three-year
$
750
million term loan credit agreement (the “Term Credit
Agreement”).
The interest rate on this term loan is based on the
Term SOFR
plus a spread based on our leverage
ratio at the end of each financial reporting quarter.
This term loan matures on
July 11, 2026
.
We are required to
make quarterly payments of $
9
million from September 2024 through June 2026, with the remaining
balance due in
July 2026.
Previously, we had been required to make quarterly payments of $
5
million from September 2023
through June 2024.
As of March 29, 2025, the borrowings outstanding under this
term loan were $
702
million.
At
March 29, 2025, the interest rate under the Term Credit Agreement was
4.20
% plus
1.60
% for a combined rate of
5.80
%.
As of December 28, 2024, the borrowings outstanding under
this term loan were $
712
million.
At
December 28, 2024, the interest rate under the Term Credit Agreement was
4.45
% plus
1.60
% for a combined rate
of
6.05
%.
However, we have a hedge in place that ultimately creates an effective fixed rate of
5.91
% and
6.04
% at
March 29, 2025 and December 28, 2024, respectively.
The Term Credit Agreement requires, among other things,
that we maintain certain maximum leverage ratios.
Additionally, the Term
Credit Agreement contains customary
representations, warranties and affirmative covenants as well as customary negative
covenants, subject to
negotiated exceptions, on liens, indebtedness, significant corporate changes
(including mergers), dispositions and
certain restrictive agreements.
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on our U.S. trade accounts receivable that is structured as an asset-backed
securitization program with pricing committed for up to
three years
.
On December 6, 2024, we extended the
expiration date of this facility agreement to
December 6, 2027
(the previous maturity date was
December 15, 2025
).
This facility agreement has a purchase limit of $
450
million with
two
banks as agents.
As of March 29, 2025 and December 28, 2024, the borrowings outstanding
under this securitization facility were
$
300
million and $
150
million, respectively.
At March 29, 2025, the interest rate on borrowings under
this facility
was based on the
asset-backed commercial paper rate
of
4.49
% plus
0.75
%, for a combined rate of
5.24
%.
At
December 28, 2024, the interest rate on borrowings under this facility was
based on the asset-backed commercial
paper rate of
4.73
% plus
0.75
%, for a combined rate of
5.48
%.
If our accounts receivable collection pattern changes due to customers
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
30
to
35
basis
points depending upon program utilization.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
22
Note 9 – Income Taxes
For the three months ended March 29, 2025, our effective tax rate was
24.9
% compared to
25.6
% for the prior year
period.
The difference between our effective tax rate and the federal statutory tax rate is primarily
due to state and
foreign income taxes and interest expense.
The Organization of Economic Co-Operation and Development (OECD) issued
technical and administrative
guidance on Pillar Two rules in December 2021, which provides for a global minimum tax rate on the earnings of
large multinational businesses on a country-by-country basis.
Effective January 1, 2024, the minimum global tax
rate is 15% for various jurisdictions pursuant to the Pillar Two rules.
Future tax reform resulting from these
developments may result in changes to long-standing tax principles, which
may adversely impact our effective tax
rate going forward or result in higher cash tax liabilities.
As of March 29, 2025, the impact of the Pillar Two rules
to our financial statements was immaterial.
The total amount of unrecognized tax benefits, which are included in
“other liabilities” within our condensed
consolidated balance sheets, as of March 29, 2025 and December 28, 2024
was $
109
million and $
108
million,
respectively, of which $
102
million and $
100
million, respectively, would affect the effective tax rate if recognized.
It is possible that the amount of unrecognized tax benefits will
change in the next 12 months, which may result in a
material impact on our condensed consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2020.
The tax years subject to examination by the
IRS include years 2021 and forward.
In addition, limited positions reported in the 2017 tax year are subject
to IRS
examination.
The amount of tax interest expense included as a component of the provision
for taxes was $
1
million and $
1
million for the three months ended March 29, 2025 and March 30, 2024,
respectively.
The total amount of accrued
interest is included in other liabilities within our consolidated balance sheets,
and was $
19
million as of March 29,
2025 and $
18
million as of December 28, 2024.
The amount of penalties accrued for during the periods presented
was not material to our condensed consolidated financial statements.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
23
Note 10 – Plans of Restructuring
On August 6, 2024, we committed to a new restructuring plan (the “2024
Plan”) to integrate recent acquisitions,
right-size operations and further increase efficiencies.
During the three months ended March 29, 2025, we recorded
restructuring charges associated with the 2024 Plan of $
25
million, which primarily related to severance and
employee-related costs.
We expect to record restructuring charges associated with the 2024 Plan through the end of
2025; however, an estimate of the amount of these charges has not yet been determined.
On August 1, 2022, we committed to a restructuring plan (the “2022
Plan”) focused on funding the priorities of the
BOLD+1 strategic plan, streamlining operations and other initiatives to
increase efficiency.
The 2022 Plan has
been completed as of July 31, 2024.
During the three months ended March 30, 2024, in connection
with our 2022
Plan, we recorded restructuring costs of $
10
million, which primarily related to severance and employee-related
costs, accelerated amortization of right-of-use assets and fixed assets,
and other exit costs.
Restructuring costs recorded for the three months ended March 29, 2025
and March 30, 2024, in connection with
the 2024
Plan and 2022 Plan,
respectively, consisted of the following:
Three Months Ended March 29, 2025
Global Distribution
and Value-Added
Services
Global
Specialty
Products
Global
Technology
Corporate
Total
2024 Plan
Severance and employee-related costs
$
10
$
5
$
1
$
6
$
22
Impairment and accelerated depreciation and amortization
of right-of-use lease assets and other long-lived assets
1
-
-
-
1
Exit and other related costs
1
-
1
-
2
Restructuring costs-2024 Plan
$
12
$
5
$
2
$
6
$
25
Three Months Ended March 30, 2024
Global Distribution
and Value-Added
Services
Global
Specialty
Products
Global
Technology
Corporate
Total
2022 Plan
Severance and employee-related costs
$
4
$
2
$
1
$
-
$
7
Accelerated depreciation and amortization
4
-
-
(3)
1
Exit and other related costs
-
-
-
2
2
Restructuring costs-2022 Plan
$
8
$
2
$
1
$
(1)
$
10
The following table summarizes,
by plan year the activity related to the liabilities associated with
our restructuring
initiatives under the 2022 Plan and the 2024 Plan for the three
months ended March 29, 2025.
The remaining
accrued balance of restructuring costs as of March 29, 2025, which primarily
relates to severance and employee-
related costs, is included in accrued expenses: other within our condensed consolidated
balance sheets.
Liabilities
related to exited leased facilities are recorded within our current and non-current
operating lease liabilities within
our condensed consolidated balance sheets.
2022 Plan
2024 Plan
Total
Balance, December 28, 2024
$
12
$
28
$
40
Restructuring costs
-
25
25
Non-cash accelerated depreciation and amortization
-
(1)
(1)
Cash payments and other adjustments
(6)
(16)
(22)
Balance, March 29, 2025
$
6
$
36
$
42
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
24
Note 11 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid
related lawsuits (currently less than one-
hundred (
100
); one or more of Henry Schein, Inc.’s subsidiaries is also named as a defendant in a number of
those
cases).
Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged in a false
advertising campaign to expand the market for such drugs and their own
market share and that the entities in the
supply chain (including Henry Schein, Inc. and its subsidiaries) reaped
financial rewards by refusing or otherwise
failing to monitor appropriately and restrict the improper distribution of those
drugs.
These actions consist of some
that have been consolidated within the MultiDistrict Litigation (“MDL”)
proceeding In Re National Prescription
Opiate Litigation (MDL No. 2804; Case No. 17-md-2804) and are currently
stayed, and others which remain
pending in state courts and are proceeding independently and outside of
the MDL.
On March 19, 2025, the court
granted our motion to dismiss the purported class action filed by San
Miguel Hospital Corporation d/b/a Alta Vista
Regional Hospital,
et al. in the United States District Court for the District of New
Mexico and dismissed all claims
against Henry Schein with prejudice.
Plaintiff has filed a motion to amend the judgment and for leave to file
a
second amended complaint, which is pending.
Twenty
other cases filed by legal guardians of children who were
allegedly exposed to opioids in utero have been voluntarily dismissed.
At this time, the following case is set for
trial: the action filed by Florida Health Sciences Center, Inc. (and
25
other hospitals located throughout the State of
Florida) in Florida state court, which is currently scheduled
for a jury trial in September 2025.
Of Henry Schein’s
2024 net sales of approximately $
12.7
billion, sales of opioids represented less than
four
-tenths of 1
percent.
Opioids represent a negligible part of our business.
We intend to defend ourselves vigorously against
these actions.
From time to time, we may become a party to other legal proceedings,
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent
decrees), and other matters arising out
of the ordinary course of our business.
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently
anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of March 29, 2025,
we had accrued our best estimate of potential losses relating
to claims that were probable to
result in liability and for which we were able to reasonably estimate a
loss.
This accrued amount, as well as related
expenses, was not material to our financial position, results of operations
or cash flows.
Our method for
determining estimated losses considers currently available
facts, presently enacted laws and regulations and other
factors, including probable recoveries from third parties.
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
25
Note 12 – Stock-Based Compensation
Stock-based awards are provided to certain employees under our 2024 Stock Incentive
Plan (formerly known as our
2020 Stock Incentive Plan) and to non-employee directors under our 2023 Non-Employee
Director Stock Incentive
Plan (together, the “Plans”).
The Plans are administered by the Compensation Committee of the Board
of Directors
(the “Compensation Committee”).
Historically, equity-based awards to our employees have been granted solely in
the form of time-based and performance-based restricted stock units (“RSUs”) with
the exception of our 2021 plan
year in which non-qualified stock options were issued in place of performance-based
RSUs and in 2022, when we
granted time-based and performance-based RSUs, as well as non-qualified
stock options.
Starting with our 2023 plan year, we returned to granting our employees equity-based awards solely
in the form of
time-based RSUs (which vest solely based on the recipient’s continued service over time) and performance-based
RSUs (which vest based on achieving specified performance
measurements and the recipient’s continued service
over time).
Our non-employee directors receive equity-based awards solely in
the form of time-based RSUs.
Starting with our 2025 plan year, we began granting only time-based RSU awards to our eligible director
level
employees.
Our director level time-based RSU awards will vest
50
% on the third anniversary of the grant date with
the remaining
50
% vesting on the fourth anniversary of the grant date.
Stock-based awards issued in the 2025 plan
year to our eligible vice-presidents will be allocated
80
% to time-based RSU awards and
20
% to performance-
based RSU awards.
Our vice-president level time-based awards will vest
50
% on the third anniversary of the grant
date with the remaining
50
% vesting on the fourth anniversary of the grant date.
Our vice-president level
performance-based awards will vest based on achieving specified performance
measurements and the recipient’s
continued service over time, primarily with
three-year
cliff vesting.
RSUs are stock-based awards granted to recipients with specified vesting provisions.
In the case of RSUs, common
stock is delivered on or following satisfaction of vesting conditions.
We issue RSUs to employees that primarily
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting for RSU
awards granted prior to 2025 and with vesting upon third and forth
anniversary of the grant date for RSU awards
granted in 2025 and/or (ii) based on achieving specified performance
measurements and the recipient’s continued
service over time, primarily with
three
-year cliff vesting.
RSUs granted to our non-employee directors primarily
include
12
-month cliff vesting.
For the performance-based RSUs and the time-based RSUs with cliff vesting
(issued in 2022-2024 plan years), we recognize the cost as compensation
expense on a straight-line basis.
For the
time-based RSUs with graded vesting (issued in the 2025 plan year), we recognize
the cost as compensation
expense on an accelerated basis.
For all RSUs, we estimate the fair value based on our closing stock
price on the grant date.
With respect to
performance-based RSUs, the number of shares that ultimately vest and
are received by the recipient is based upon
our performance as measured against specified targets over a specified period, as
determined by the Compensation
Committee.
Although there is no guarantee that performance targets will be achieved, we
estimate the fair value of
performance-based RSUs based on our closing stock price at time of grant.
Each of the Plans provide for certain adjustments to the performance
measurement in connection with awards under
the Plans.
With respect to the performance-based RSUs granted under our 2024 Stock Incentive Plan, such
performance measurement adjustments relate to significant events, including,
without limitation, acquisitions,
divestitures, new business ventures, changes in fair value of contingent
consideration (solely with respect to
performance-based RSUs granted in the 2024 and 2025 plan years),
certain capital transactions (including share
repurchases), differences in budgeted average outstanding shares (other
than those resulting from capital
transactions referred to above), restructuring costs, amortization
expense recorded for acquisition-related intangible
assets, certain litigation settlements or payments, changes in accounting
principles or in applicable laws or
regulations, changes in income tax rates in certain markets, foreign exchange
fluctuations, the financial impact
either positive or negative, of the difference in projected earnings generated by COVID-19
test kits (solely with
respect to performance-based RSUs granted in the 2023 plan year), intangibles
impairment charges, costs related to
Table of Contents
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
26
shareholder advisory matters (solely with respect to performance-based
RSUs granted in the 2025 plan year) and
unforeseen events or circumstances affecting us.
Over the performance period, the number of performance-based RSUs that will
ultimately vest and be issued and
the related compensation expense is adjusted upward or downward based upon
our estimation of achieving such
performance targets.
The ultimate number of shares delivered to recipients and
the related compensation cost
recognized as an expense is based on our actual performance against the
pre-determined performance metrics (in
each case as adjusted).
Stock options are awards that allow the recipient to purchase shares of our common
stock after vesting at a fixed
price set at the time of grant.
Stock options were granted at an exercise price equal to our
closing stock price on the
date of grant.
Stock options issued in 2021 and 2022 vest
one-third
per year based on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
are fully vested
three years
from the
grant date and have a contractual term of
ten years
from the grant date, subject to earlier termination of term and
term acceleration upon certain events.
Compensation expense for stock options is recognized on
an accelerated
basis.
We estimate grant date fair value of stock options using the Black-Scholes valuation model.
During the
three months ended March 29, 2025, we did
no
t grant any stock options.
Our condensed consolidated statements of income reflect pre-tax share-based compensation
expense of $
5
million
and $
8
million for the three months ended March 29, 2025 and March 30, 2024.
Total unrecognized compensation cost related to unvested awards as of March 29, 2025 was $
107
million, which is
expected to be recognized over a weighted-average period of approximately
3.2
years.
Our condensed consolidated statements of cash flows present our
stock-based compensation expense as a
reconciling adjustment between net income and net cash provided by operating
activities for all periods presented.
There were no cash benefits associated with tax deductions in excess of
recognized compensation for the three
months ended March 29, 2025 and March 30, 2024.
The following table summarizes the stock option activity for the three
months ended March 29, 2025:
Stock Options
Weighted Average
Weighted Average
Aggregate
Exercise
Remaining Contractual
Intrinsic
Shares
Price
Life (in years)
Value
Outstanding at beginning of period
963,491
$
72.16
Granted
-
-
Exercised
(10,587)
62.71
Forfeited
(4,755)
80.25
Outstanding at end of period
948,149
$
72.22
6.3
$
3
Options exercisable at end of period
942,256
$
72.19
Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Expected to vest
5,893
$
78.26
7.3
$
-
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HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
27
The following tables summarize the activity of our unvested RSUs for
the three months ended March 29, 2025:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted
Weighted
Average
Intrinsic
Average
Intrinsic
Grant Date Fair
Value
Grant Date Fair
Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
1,685,550
$
72.90
389,111
$
75.98
Granted
551,610
75.45
98,068
75.54
Vested
(507,463)
65.50
(13,541)
84.27
Forfeited
(34,518)
77.18
(18,634)
78.77
Outstanding at end of period
1,695,179
$
75.85
$
68.62
455,004
$
75.88
$
68.62
The fair value of time and performance RSUs that vested was $
33
million and $
1
million, respectively, for the three
months ended March 29, 2025; and $
19
million and $
0
million, respectively, for the three months ended March 30,
2024.
Note 13 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required
to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling
interest holder under the terms of a put
option contained in contractual agreements.
The components of the change in the redeemable noncontrolling
interests for the three months ended March 29, 2025 and March 30, 2024
are presented in the following table:
March 29,
March 30,
2025
2024
Balance, beginning of period
$
806
$
864
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(73)
(94)
Net income (loss) attributable to redeemable noncontrolling interests
(2)
2
Distributions declared, net of capital contributions
(2)
(6)
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
8
(10)
Change in fair value of redeemable securities
28
42
Balance, end of period
$
765
$
798
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HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
28
Note 14 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
GAAP,
are excluded from net income and
are recorded directly to stockholders’ equity.
The following table summarizes our Accumulated other comprehensive loss, net of
applicable taxes as of:
March 29,
December 28,
2025
2024
Attributable to redeemable noncontrolling interests:
Foreign currency translation adjustment
$
(48)
$
(56)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
-
$
(1)
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(304)
$
(371)
Unrealized loss from hedging activities
(5)
-
Pension adjustment loss
(8)
(8)
Accumulated other comprehensive loss
$
(317)
$
(379)
Total Accumulated
other comprehensive loss
$
(365)
$
(436)
The following table summarizes the components of comprehensive income, net
of applicable taxes as of:
Three Months Ended
March 29,
March 30,
2025
2024
Net income
$
113
$
98
Foreign currency translation gain (loss)
76
(54)
Tax effect
-
-
Foreign currency translation gain (loss)
76
(54)
Unrealized gain (loss) from hedging activities
(6)
15
Tax effect
1
(4)
Unrealized gain (loss) from hedging activities
(5)
11
Pension adjustment gain
1
-
Tax effect
(1)
-
Pension adjustment gain
-
-
Comprehensive income
$
184
$
55
Our financial statements are denominated in U.S. Dollars.
Fluctuations in the value of foreign currencies as
compared to the U.S. Dollar may have a significant impact on our
comprehensive income.
The foreign currency
translation gain (loss) during the three months ended March 29, 2025 and
three months ended March 30, 2024 was
primarily due to changes in foreign currency exchange rates of the Brazilian
Real, British Pound, Euro, New
Zealand Dollar, Australian Dollar, Swiss Franc, and Canadian Dollar.
The hedging gain (loss) during the three months ended March 29, 2025, and
March 30, 2024 was attributable to a
net investment hedge.
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HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
29
The following table summarizes our total comprehensive income, net of
applicable taxes as follows:
Three Months Ended
March 29,
March 30,
2025
2024
Comprehensive income attributable to
Henry Schein, Inc.
$
172
$
60
Comprehensive income attributable to
noncontrolling interests
6
3
Comprehensive income (loss) attributable to
Redeemable noncontrolling interests
6
(8)
Comprehensive income
$
184
$
55
Note 15
–
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period.
Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable
for unvested RSUs and upon
exercise of stock options using the treasury stock method in periods
in which they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and
diluted share follows:
Three Months Ended
March 29,
March 30,
2025
2024
Basic
123,776,073
128,720,661
Effect of dilutive securities:
Stock options and restricted stock units
1,072,148
1,048,919
Diluted
124,848,221
129,769,580
The number of antidilutive securities that were excluded from the calculation
of diluted weighted average common
shares outstanding are as follows:
Three Months Ended
March 29,
March 30,
2025
2024
Stock options
402,268
419,139
Restricted stock units
200,568
245,667
Total anti-dilutive
securities excluded from earnings per share computation
602,836
664,806
Note 16 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
March 29,
March 30,
2025
2024
Interest
$
32
$
26
Income taxes
18
21
For the three months ended March 29, 2025 and March 30, 2024, we
had $
(6)
million and $
15
million of non-cash
net unrealized gains (losses) related to hedging activities, respectively.
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HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
(unaudited
)
30
Note 17 – Related Party Transactions
During 2018, we entered into a joint venture with Internet Brands to create Henry
Schein One, LLC.
Internet
Brands initially held a
26
% noncontrolling interest, which has since increased to a
33.6
% noncontrolling interest in
Henry Schein One, LLC, and a freestanding and separately exercisable right
to put its noncontrolling interest to
Henry Schein, Inc. for fair value following the fifth anniversary of the effective date of the
formation of the joint
venture.
On January 29, 2025, Henry Schein, Inc. signed a Memorandum of Understanding
with Internet Brands to
extend the time-based trigger for the exercise of our call option to July 1, 2032
and to pause the exercise by Internet
Brands of its put option for a period of
four years
, to January 29, 2029.
In connection with the formation of Henry Schein One, LLC, we entered
into a
ten-year
royalty agreement with
Internet Brands whereby we will pay Internet Brands approximately $
31
million annually for the use of their
intellectual property.
During the three months ended March 29, 2025 and March
30, 2024, we recorded $
8
million
and $
8
million, respectively, within selling, general and administrative in our condensed consolidated statements of
income, in connection with costs related to this royalty agreement.
As of March 29, 2025 and December 28, 2024,
Henry Schein One, LLC had a net payable balance to Internet Brands of $
2
million and $
1
million, respectively,
comprised of amounts related to results of operations and the royalty agreement.
The components of this payable
are recorded within accrued expenses: other within our condensed consolidated
balance sheets.
We have interests in entities that we account for under the equity accounting method.
In our normal course of
business, during the three months ended March 29, 2025 and March 30, 2024, we
recorded net sales of $
13
million
and $
12
million respectively, to such entities.
During the three months ended March 29, 2025 and March 30,
2024,
we purchased $
2
million and $
3
million respectively, from such entities.
At March 29, 2025 and December 28,
2024, we had an aggregate $
30
million and $
31
million, respectively, due from our equity affiliates, and $
6
million
and $
6
million, respectively, due to our equity affiliates.
Certain of our facilities related to our acquisitions are leased from employees
and minority shareholders.
These
leases are classified as operating leases and have a remaining lease term
ranging from less than
a
year to
approximately
12 years
.
As of March 29, 2025, current and non-current liabilities
associated with related party
operating leases were $
5
million and $
20
million, respectively.
At March 29, 2025, related party leases represented
6.8
% and
7.8
% of the total current and non-current operating lease liabilities, respectively.
At December 28, 2024,
current and non-current liabilities associated with related party operating
leases were $
5
million and $
23
million,
respectively.
At December 28, 2024, related party leases represented
7.6
% and
7.8
% of the total current and non-
current operating lease liabilities, respectively.
Note 18 – KKR Investment
On January 29, 2025, Henry Schein, Inc. announced a strategic investment
by funds affiliated with KKR, a leading
global investment firm.
In addition to KKR’s current holdings, KKR will make an additional $
250
million
investment in the Company’s common stock.
As a result, KKR will own approximately
12
% of the Company’s
stock.
KKR will also have the ability to purchase additional shares via
open market purchases up to a total equity
stake of
14.9
% of the outstanding common shares of the Company.
In addition, under the agreement
between Henry Schein and KKR,
two
independent directors will join our Board of Directors.
Upon consummation
of this strategic investment, we will issue new shares of common stock
to funds affiliated with KKR for an
investment of $
250
million, at approximately $
76.10
per share.
Consummation of these transactions is subject to
customary closing conditions, including certain foreign regulatory approvals.
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31
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
expressed or implied
herein.
All forward-looking statements made by us are subject to
risks and uncertainties and are not guarantees of
future performance.
These forward-looking statements involve known and unknown
risks, uncertainties and other
factors that may cause our actual results, performance and achievements
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
forward-looking
statements.
These statements are generally identified by the use of such
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
“to be,” “to make” or other comparable
terms.
Factors that could cause or contribute to such differences include, but are not limited
to, those discussed in
the documents we file with the Securities and Exchange Commission
(SEC), including our Annual Report on Form
10-K.
Risk factors and uncertainties that could cause actual results to differ materially from
current and historical results
include, but are not limited to: our dependence on third parties for
the manufacture and supply of our products and
where we manufacture products, our dependence on third parties
for raw materials or purchased components; risks
relating to the achievement of our strategic growth objectives; risks
related to the Strategic Partnership Agreement
with KKR Hawaii Aggregator L.P. entered into in January 2025; our ability to develop or acquire and maintain and
protect new products (particularly technology products) and services
and utilize new technologies that achieve
market acceptance with acceptable margins; transitional challenges associated with
acquisitions, dispositions and
joint ventures, including the failure to achieve anticipated synergies/benefits, as well
as significant demands on our
operations, information systems, legal, regulatory, compliance, financial and human resources functions in
connection with acquisitions, dispositions and joint ventures; certain
provisions in our governing documents that
may discourage third-party acquisitions of us; adverse changes in supplier
rebates or other purchasing incentives;
risks related to the sale of corporate brand products; risks related to activist
investors; security risks associated with
our 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
(including, without
limitation, competition from third-party online commerce sites) and consolidating
market; changes in the health
care industry; risks from expansion of customer purchasing power
and multi-tiered costing structures; increases in
shipping costs for our products or other service issues with our third-party shippers,
and increases in fuel and
energy costs; changes in laws and policies governing manufacturing, development and investment
in territories and
countries where we do business; general global and domestic macro-economic
and political conditions, including
inflation, deflation, recession, unemployment (and corresponding
increase in under-insured populations), consumer
confidence, sovereign debt levels, ongoing wars, fluctuations in energy pricing and
the value of the U.S. dollar as
compared to foreign currencies, changes to other economic indicators
and international trade agreements; the threat
or outbreak of war, terrorism or public unrest (including, without limitation, the war in Ukraine,
the Israel-Gaza war
and other unrest and threats in the Middle East and the possibility of a wider
European or global conflict); changes
to laws and policies governing foreign trade, tariffs and sanctions, including
the current imposition of additional
new tariffs by the U.S. on numerous countries, retaliatory tariffs and potential for additional retaliatory
tariffs;
greater restrictions on imports and exports; supply chain disruption; geopolitical
wars; failure to comply with
existing and future regulatory requirements, including relating to health
care; risks associated with the EU Medical
Device Regulation; failure to comply with laws and regulations relating to
health care fraud or other laws and
regulations; failure to comply with laws and regulations relating to the
collection, storage and processing of
sensitive personal information or standards in electronic health records
or transmissions; changes in tax legislation,
changes in tax rates and availability of certain tax deductions; 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 (such as the COVID-19
pandemic), or similar wide-spread public health
concerns and other natural or man-made disasters; risks associated with our global
operations; litigation risks; new
or unanticipated litigation developments and the status of litigation matters;
our dependence on our senior
management, employee hiring and retention, increases in labor costs or
health care costs, and our relationships with
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32
customers, suppliers and manufacturers; and disruptions in financial markets.
The order in which these factors
appear should not be construed to indicate their relative importance or priority.
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
Where You
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
page of our website (www.henryschein.com)
and the social media channels identified on the About Media Center page
of our website.
Recent Developments
While the U.S. economy has experienced inflationary pressures and
strengthening of the U.S. dollar, their impacts
have not been material to our results of operations.
Though inflation impacts both our revenues and costs, the
depth
and breadth of our product portfolio often allows us to offer lower-cost national brand solutions
or corporate brand
alternatives to our more price-sensitive customers who are unwilling to
absorb price increases, thus positioning us
to protect our gross profit.
Segment Reporting
During the fourth quarter of our fiscal year ended December 28, 2024,
we revised our reportable segments to align
with how the Chairman and Chief Executive Officer manages the business, assesses
performance and allocates
resources.
Our revised reportable segments now consist of: (i) Global Distribution
and Value
-Added Services; (ii)
Global Specialty Products; and (iii) Global Technology.
Global Distribution and Value-Added Services includes distribution to the global dental and medical markets of
national brand and corporate brand merchandise, as well as equipment and related
technical services.
This segment
also includes value-added services such as financial services, continuing
education services, consulting and other
services.
This segment also markets and sells under our own corporate brand,
a portfolio of cost-effective, high-
quality consumable merchandise.
Global Specialty Products includes manufacturing, marketing
and sales of dental
implant and biomaterial products; and endodontic, orthodontic and orthopedic
products and other health care-
related products and services.
Global Technology includes development and distribution of practice management
software, e-services, and other products, which are distributed to health
care providers.
Cyber Incident
In October 2023 Henry Schein experienced a cyber incident that primarily
affected the operations of our North
American and European dental and medical distribution businesses.
Henry Schein One, our practice management
software, revenue cycle management and patient relationship management
solutions business, was not affected, and
our manufacturing businesses were mostly unaffected.
On November 22, 2023, we experienced a disruption of our
ecommerce platform and related applications, which was remediated.
During the three months ended March 30, 2024, we had a sales decrease
in our dental and medical distribution
businesses, which we believe was primarily a result of lower sales to episodic
customers following the cyber
incident.
During the three months ended March 29, 2025, we did not incur any
expenses directly related to the cyber
incident.
During the three months ended March 30, 2024, we incurred
$5 million of expenses directly related to the
cyber incident, mostly consisting of professional fees.
We maintain cyber insurance, subject to certain retentions
and policy limitations.
With respect to the October 2023 cyber incident, we have a $60 million insurance policy,
following a $5 million retention.
During the three months ended March 30, 2024, we did not
receive any insurance
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33
proceeds.
During the three months ended March 29, 2025 we received
insurance proceeds of $20 million under this
policy, representing the remaining insurance recovery of losses related to the cyber incident.
The expenses and
insurance recoveries related to the cyber incident are included in the selling, general
and administrative line in our
condensed consolidated statements of income.
Tariffs and Related Economic Conditions
The U.S. has adopted new and increased tariffs on imports from countries, subject
to evolving exemptions, with
additional tariff increases proposed but currently on pause.
Some countries have imposed retaliatory tariffs and
other restrictions on imports from the U.S.
These developments, and anticipated future developments, have
created
a volatile environment for global trade.
The tariffs did not have a material impact on our results of operations in the first quarter
of this fiscal year.
It is
unclear whether, or the extent to which, the proposed tariffs on numerous countries that are incrementally higher
than those in place today will take effect, the exceptions that may apply, and their timing.
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34
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered
by a network of people and
technology.
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
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices and
ambulatory surgery centers, as well
as government, institutional health care clinics, home health providers, and
other alternate care clinics.
We
believe
that we have a strong brand identity due to our more than 93 years of experience
distributing health care products.
We
are headquartered in Melville, New York, employ more than 25,000 people (of which approximately 13,000 are
based outside of the United States) and have operations or affiliates in 33 countries and
territories.
Our broad
global footprint has evolved over time through our organic growth as well as through
contribution from strategic
acquisitions.
We
have established strategically located distribution centers around
the world to enable us to better serve our
customers and increase our operating efficiency.
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
us to be a single source of
supply for our customers’ needs.
As a distributor, we market and sell branded products as well as our own corporate brand portfolio of
cost-effective,
high-quality consumable merchandise products.
We
also manufacture, source and sell a range of company-owned
manufactured products, primarily implants, biomaterial products, endodontics,
handpiece and small equipment,
hand instrument and repair, restoratives, orthodontics, wound care, orthopedics and dental lab products.
We
have
achieved scale in these global businesses primarily through acquisitions, as
manufacturers of these products
typically do not utilize a distribution channel to serve customers.
During the fourth quarter of our fiscal year ended December 28, 2024, we
revised our reportable segments to align
with how the Chairman and Chief Executive Officer manages the business, assesses performance
and allocates
resources.
Our revised reportable segments now consist of: (i) Global Distribution
and Value
-Added Services; (ii)
Global Specialty Products; and (iii) Global Technology.
Global Distribution and Value-Added Services includes distribution to the global dental and medical markets of
national brand and corporate brand merchandise, as well as equipment and related
technical services.
This segment
also includes value-added services such as financial services, continuing education
services, consulting and other
services.
This segment also markets and sells under our own corporate brand,
a portfolio of cost-effective, high-
quality consumable merchandise.
Global Specialty Products includes manufacturing, marketing
and sales of dental
implant and biomaterial products; and endodontic, orthodontic and orthopedic
products and other health care-
related products and services.
Global Technology includes development and distribution of practice management
software, e-services, and other products, which are distributed to health
care providers.
A key element to grow closer to our customers is our One Schein initiative, which
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
equipment sales and service and
other value-added services, allowing our customers to leverage the
combined value that we offer through a single
program.
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, corporate brand products and proprietary specialty products
and solutions (including
implant, orthodontic and endodontic products).
In addition, customers have access to a wide range of services,
including software and other value-added services.
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
This trend has benefited
distributors capable of providing a broad array of products and services at low
prices.
It also has accelerated the
growth of DSOs, GPOs, HMOs, group practices, other managed care
accounts and collective buying groups, which,
in addition to their emphasis on obtaining products at competitive prices,
tend to favor distributors capable of
providing specialized management information support.
We
believe that the trend towards cost containment has
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35
the potential to favorably affect demand for technology solutions, including software,
which can enhance the
efficiency and facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
The industry ranges from sole practitioners working out of
relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
reliable and substantially complete
order fulfillment.
The purchasing decisions within an office-based health care practice are typically
made by the
practitioner or an administrative assistant.
Supplies and small equipment are generally purchased from more
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
In many cases, purchasing decisions for consolidated groups
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We
believe that consolidation within the industry will continue to
result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to
combine with larger companies that can
provide growth opportunities.
This consolidation also may continue to result in distributors seeking
to acquire
companies that can enhance their current product and service offerings or provide
opportunities to serve a broader
customer base.
Our approach to acquisitions and joint ventures has been to expand our role as
a provider of products and services
to the health care industry.
This trend has resulted in our expansion into service areas that complement
our existing
operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned to
capitalize on this trend, 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
are focused on building relationships with decision makers
who do not reside in the office-based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
role as a provider of products and services to
the health care industry.
There can be no assurance that we will be able to successfully pursue
any such
opportunity or consummate any such transaction, if pursued.
If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and there
can be no assurance that the
integration efforts associated with any such transaction would be successful.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
due to the aging population,
increased health care awareness, the proliferation of medical technology
and testing, new pharmacological
treatments, and expanded third-party insurance coverage, partially offset by the effects of unemployment
on
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36
insurance coverage.
In addition, the physician market continues to benefit from the
shift of procedures and
diagnostic testing from acute care settings to alternate-care sites, particularly
physicians’ offices.
According to the U.S. Census Bureau’s International Database, between 2025 and 2035, the 45 and older
population is expected to grow by approximately 10%.
Between 2025 and 2045, this age group is expected to grow
by approximately 17%.
This compares with expected total U.S. population growth
rates of approximately 4%
between 2025 and 2035 and approximately 6% between 2025 and 2045.
According to the U.S. Census Bureau’s International Database, in 2025 there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
and elder-care
services.
By the year 2050, that number is projected to increase to approximately
17 million.
The population aged
65 to 84 years is projected to increase by approximately 15% during
the same period.
As a result of these market dynamics, annual expenditures for health care services
continue to increase in the
United States.
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.
The Centers for Medicare and Medicaid Services
or CMS published “National Health Expenditure Data” indicating that
total national health care spending reached
approximately $4.9 trillion in 2023, or 17.6% of the nation’s gross domestic product, the benchmark measure
for
annual production of goods and services in the United States.
Health care spending is projected to reach
approximately $7.7 trillion by 2032, or 19.7% of the nation’s projected gross domestic product.
We
believe similar demographic changes are also occurring in other
markets we serve outside the U.S.
Government
Certain of our businesses involve the distribution, manufacturing, importation,
exportation, marketing, sale and
promotion of pharmaceuticals and/or medical devices, and in this regard, we
are subject to extensive local, state,
federal and foreign governmental laws and regulations, including as applicable
to our wholesale distribution of
pharmaceuticals and medical devices, manufacturing activities, and as part of
our specialty home medical supplies
businesses that distribute and sell medical equipment and supplies directly
to patients.
Federal, state and certain
foreign governments have also increased enforcement activity in the health care
sector, particularly in areas of fraud
and abuse, anti-bribery and anti-corruption, controlled substances handling,
medical device regulations and data
privacy and security standards.
Certain of our businesses involve pharmaceuticals and/or medical devices,
including orthopaedic, in vitro
diagnostic devices, software regulated as a medical device, and sales of
medical equipment and supplies directly to
patients, that are paid for by third parties and/or patients and must operate in
compliance with a variety of
burdensome and complex coding, billing and record-keeping requirements in
order to substantiate claims for
payment under federal, state and commercial health care reimbursement programs.
Government and private insurance programs fund a large portion of the total cost of medical care,
and there have
been efforts to limit such private and government insurance programs, including efforts, thus far
unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010.
Certain of our businesses are subject to various additional federal, state,
local and foreign laws and regulations,
including with respect to the sale, transportation, importation, storage, handling
and disposal of hazardous or
potentially hazardous substances; “forever chemicals” such as per-and
polyfluoroalkyl substances; amalgam bans;
pricing disclosures; supply chain transparency around labor practices; and safe working
conditions.
In addition,
activities to control medical costs, including laws and regulations lowering
reimbursement rates for
pharmaceuticals, medical devices, medical supplies and/or medical treatments
or services, are ongoing.
Laws and
regulations are subject to change and their evolving implementation may impact
our operations and our financial
performance.
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37
Certain of our businesses also maintain contracts with governmental agencies
and are subject to certain regulatory
requirements specific to government contractors.
Our businesses are generally subject to numerous laws and regulations that could
impact our financial performance,
and failure to comply with such laws or regulations could have a material adverse
effect on our business.
A more detailed discussion of governmental laws and regulations
is included in Management’s Discussion &
Analysis of Financial Condition and Results of Operations, contained in our Annual
Report on Form 10-K for the
fiscal year ended December 28, 2024, filed with the SEC on February
25, 2025.
Results of Operations
The following tables summarize the significant components of our operating
results and cash flows for the three
months ended March 29, 2025 and March 30, 2024 (in millions):
Three Months Ended
March 29,
March 30,
2025
2024
Operating results:
Net sales
$
3,168
$
3,172
Cost of sales
2,168
2,160
Gross profit
1,000
1,012
Operating expenses:
Selling, general and administrative
738
791
Depreciation and amortization
62
61
Restructuring costs
25
10
Operating income
$
175
$
150
Other expense, net
$
(30)
$
(23)
Income taxes
(35)
(32)
Net income
113
98
Net income attributable to Henry Schein, Inc.
110
93
Three Months Ended
March 29,
March 30,
2025
2024
Cash flows:
Net cash provided by operating activities
$
37
$
197
Net cash used in investing activities
(99)
(72)
Net cash provided by (used in) financing activities
89
(151)
Plans of Restructuring
On August 6, 2024, we committed to a new restructuring plan (the “2024
Plan”) to integrate recent acquisitions,
right-size operations and further increase efficiencies.
During the three months ended March 29, 2025, we recorded
restructuring charges associated with the 2024 Plan of $25 million, which primarily
related to severance and
employee-related costs.
We expect to record restructuring charges associated with the 2024 Plan through the end of
2025; however, an estimate of the amount of these charges has not yet been determined.
On August 1, 2022, we committed to a restructuring plan (the “2022
Plan”) focused on funding the priorities of the
BOLD+1 strategic plan, streamlining operations and other initiatives to
increase efficiency.
The 2022 Plan has
been completed as of July 31, 2024.
During the three months ended March 30, 2024, in connection
with our 2022
Plan, we recorded restructuring costs of $10 million, which primarily
related to severance and employee-related
costs, accelerated amortization of right-of-use assets and
fixed assets, and other exit costs.
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38
Three Months Ended March 29, 2025 Compared to Three Months Ended March 30, 2024
Note: Percentages for Net Sales; Gross Profit; Operating Expenses; Other
Expense, Net; and Income Taxes are
based on actual values and may not recalculate due to rounding.
During the fourth quarter of our fiscal year ended December 28, 2024,
we revised our reportable segments to align
with how the Chairman and Chief Executive Officer manages the business, assesses
performance and allocates
resources.
Our revised reportable segments now consist of: (i) Global Distribution
and Value
-Added Services; (ii)
Global Specialty Products; and (iii) Global Technology.
All prior comparative segment information has been recast
to reflect our new segment structure.
Net Sales
Net sales by reportable segment and by major product or service type were
as follows:
March 29,
% of
March 30,
% of
Increase / (Decrease)
2025
Total
2024
Total
$
%
Global Distribution and Value
-Added Services
Global Dental merchandise
(1)
$
1,185
37.4
%
$
1,210
38.1
%
$
(25)
(2.1)
%
Global Dental equipment
(2)
384
12.1
402
12.7
(18)
(4.5)
Global Value
-added services
(3)
52
1.7
56
1.8
(4)
(8.1)
Global Dental
1,621
51.2
1,668
52.6
(47)
(2.9)
Global Medical
(4)
1,055
33.3
1,025
32.3
30
2.9
Total Global Distribution and Value
-Added Services
2,676
84.5
2,693
84.9
(17)
(0.7)
Global Specialty Products
(5)
367
11.6
360
11.3
7
2.0
Global Technology
(6)
162
5.1
157
5.0
5
2.9
Eliminations
(37)
(1.2)
(38)
(1.2)
1
n/a
Total
$
3,168
100.0
$
3,172
100.0
$
(4)
(0.1)
(1)
Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental
implants, gypsum, acrylics, articulators, abrasives, PPE products,
and our own corporate brand of consumable merchandise.
(2)
Includes dental chairs, delivery units and lights, digital dental laboratories, X-ray supplies and equipment, equipment repair and
high-tech and digital restoration equipment.
(3)
Consists of financial services on a non-recourse basis, continuing education services for practitioners, consulting and other services.
(4)
Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray
products, equipment, PPE products and vitamins.
(5)
Includes manufacturing, marketing and sales of dental implant and biomaterial products; and endodontic, orthodontic and
orthopedic products and other health care-related products and services.
(6)
Consists of practice management software, e-services, and other products, which are distributed to health care providers.
The components of our sales growth/(decline) were as follows:
Constant Currency
Growth/(Decline)
Total Constant
Currency
Growth/(Decline)
Foreign
Exchange
Impact
Total Sales
Growth/
(Decline)
Local Internal
Growth/(Decline)
Acquisition
Growth
Global Distribution and Value
-Added Services
Global Dental Merchandise
-
%
0.4
%
0.4
%
(2.5)
%
(2.1)
%
Global Dental Equipment
(3.2)
0.8
(2.4)
(2.1)
(4.5)
Global Value
-added services
(14.4)
7.2
(7.2)
(0.9)
(8.1)
Global Dental
(1.3)
0.8
(0.5)
(2.4)
(2.9)
Global Medical
1.8
1.2
3.0
(0.1)
2.9
Total Global Distribution and Value
-Added Services
(0.1)
0.9
0.8
(1.5)
(0.7)
Global Specialty Products
0.3
4.0
4.3
(2.3)
2.0
Global Technology
3.4
-
3.4
(0.5)
2.9
Total
0.2
1.2
1.4
(1.5)
(0.1)
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39
Global Sales
Global net sales for the three months ended March 29, 2025 decreased 0.1%.
Foreign exchange resulted in a 1.5%
decrease in sales growth,
partially offset by 1.2% acquisition sales growth.
The components of our sales decrease
are presented in the table above.
The 0.2% increase in our internally generated local currency sales was
primarily attributable to lower sales of PPE
products and COVID-19 test kits, and the impact of the deferral of sales of
U.S. dental equipment from the fourth
quarter of 2023 into the first quarter of 2024 as a result of the cyber incident,
partially offset by dental merchandise
and equipment sales growth in certain of our international markets,
and medical sales growth attributable to
increased patient traffic and growth of our Home Solutions business.
For the three months ended March 29, 2025,
the estimated increase in internally generated local currency sales, excluding
PPE products and COVID-19 test kits,
was 0.7%.
Global Distribution and Value-Added Services Sales
Global Distribution and Value-Added Services net sales for the three months ended March 29, 2025 decreased
0.7%.
The components of our sales decrease are presented in
the table above.
The 1.3% decrease in internally generated local currency dental sales was primarily
due to lower sales of PPE
products and the impact of the deferral of sales of U.S. dental equipment
from the fourth quarter of 2023 into the
first quarter of 2024 as a result of the cyber incident.
The decrease was partially offset by dental merchandise and
equipment sales growth in certain of our international markets.
The 1.8% increase in internally generated local currency medical sales was
attributable to increased patient traffic
and growth of our Home Solutions business,
partially offset by lower sales of PPE products and COVID-19 test
kits.
The decrease in internally generated local currency value-added services
sales was attributable primarily to lower
sales in our practice transitions business,
which can fluctuate from quarter to quarter.
We estimate that sales of PPE products and COVID-19 test kits were approximately $163
million for the three
months ended March 29, 2025,
as compared to $180 million for the three months ended March
30, 2024,
representing an estimated decrease of $17 million.
The estimated $17 million net decrease in sales of PPE products
and COVID-19 test kits represents 0.6% of Global Distribution and Value-Added Services
net sales for the three
months ended March 29, 2025, and was primarily due to lower glove
prices.
The estimated increase in the
segment’s internally generated local currency sales, excluding PPE products and COVID-19 test kits, was
0.5%.
Global Specialty Products
Global Specialty Products net sales for the three months ended March
29, 2025 increased 2.0%.
The components
of our sales increase are presented in the table above.
The 0.3% increase in internally generated local currency sales was attributable
to growth in our implant and
biomaterial businesses in certain of our international markets, partially
offset by a decline in endodontic and
orthodontic sales globally and implant sales in the United States.
The increase in constant currency Global
Specialty Products sales was also attributable to the acquisition of TriMed Inc. during the year ended
December 28,
2024.
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40
Global Technology
Global Technology net sales for the three months ended March 29, 2025 increased 2.9%.
The components of sales
growth are presented in the table above.
The internally generated local currency increase of 3.4% in Global Technology sales was primarily attributable to a
continued increase in the number of cloud-based users of our practice management
software and an increase in
revenue cycle management solutions, partially offset by lower revenues of certain legacy products.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
March 29,
Gross
March 30,
Gross
Increase / (Decrease)
2025
Margin %
2024
Margin %
$
%
Global Distribution and Value
-Added Services
$
681
25.4
%
$
707
26.2
%
$
(26)
(3.7)
%
Global Specialty Products
206
56.0
199
55.1
7
3.7
Global Technology
110
67.9
106
67.2
4
4.0
Corporate
3
n/a
-
n/a
3
n/a
Total
$
1,000
31.6
$
1,012
31.9
$
(12)
(1.2)
As a result of different practices of categorizing costs associated with distribution networks
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
Gross margin
percentages vary between our segments.
We realize substantially higher gross margin from sales of products that
we develop and manufacture within our Global Specialty Products segment
compared to gross margin from sales of
products that we distribute within our Global Distribution and Value-Added Services segment.
Within our Global
Technology segment, higher gross margins result from us being both the developer and seller of software products
and services.
Within our Global Distribution and Value
-Added Services segment,
gross profit margins may vary between the
periods as a result of the changes in the mix of products sold as well as
changes in our customer mix.
With respect
to customer mix, sales to our large-group customers are typically completed at lower gross
margins due to the
higher volumes sold as opposed to the gross margin on sales to office-based practitioners, who normally
purchase
lower volumes.
The decrease in Global Distribution and Value-Added Services gross profit for the three months ended March 29,
2025 compared to the prior-year-period is due to lower sales of dental equipment in the U.S.,
lower sales in our
practice transitions business and lower gross margins of our dental merchandise
products.
The increase in Global Specialty Products gross profit reflects increased
internally generated sales volume and
gross profit from acquisitions.
The increase in gross margin rates was due to product mix.
The increase in Global Technology gross profit is the result of higher internally generated sales, and improved
gross margin rates.
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41
Operating Expenses
Operating expenses (consisting of selling, general and administrative
expenses; depreciation and amortization; and
restructuring costs) by segment were as follows:
% of
% of
March 29,
Respective
March 30,
Respective
Increase / (Decrease)
2025
Net Sales
2024
Net Sales
$
%
Global Distribution and Value
-Added Services
$
514
19.2
%
$
536
19.9
%
$
(22)
(4.1)
%
Global Specialty Products
150
40.7
156
43.2
(6)
(3.9)
Global Technology
68
42.1
72
45.8
(4)
(5.4)
Corporate
38
n/a
22
n/a
16
n/a
770
24.3
786
24.8
(16)
(2.1)
Adjustments
(1)
55
n/a
76
n/a
(21)
n/a
Total operating expenses
$
825
26.0
$
862
27.2
$
(37)
(4.4)
(1)
Adjustments represent items excluded from segment operating income
to enable comparison of financial
results between periods.
These items may vary independently of business performance.
Please see
Note 5
– Segment Data
.
These adjustments (current quarter vs. prior quarter) consist of
(i) acquisition intangible
amortization ($43 million vs. $46 million), (ii) restructuring costs ($25 million
vs. $10 million), (iii)
changes in contingent consideration ($(2) million vs. $15 million),
(iv) cyber incident third-party advisory
expenses, net of insurance proceeds ($(20) million net proceeds vs. $5
million net expenses), (v)
impairment of intangible assets ($1 million vs. $0 million), and (vi)
costs associated with shareholder
advisory matters ($8 million vs. $0 million).
The net decrease in operating expenses is attributable to the following:
Operating Costs
(excluding
acquisitions)
Acquisitions
Adjustments
Total
Global Distribution and Value
-Added Services
$
(28)
$
6
$
-
$
(22)
Global Specialty Products
(4)
(2)
-
(6)
Global Technology
(4)
-
-
(4)
Corporate
16
-
-
16
(20)
4
-
(16)
Adjustments
-
-
(21)
(21)
Total operating expenses
$
(20)
$
4
$
(21)
$
(37)
The components of the net decrease in total operating expenses are presented
in the table above.
The decrease in
operating costs (excluding acquisitions) during the three months ended
March 29, 2025 included cost savings from
our restructuring activities, certain changes in estimates and other operating
cost efficiencies, partially offset by an
increase in Corporate costs related to investments in technology, higher corporate administrative fees, as well as a
return to historical levels of compensation.
Other Expense, Net
Other expense, net was as follows:
March 29,
March 30,
Variance
2025
2024
$
%
Interest income
$
6
$
5
$
1
13.6
%
Interest expense
(35)
(30)
(5)
(15.5)
Other, net
(1)
2
(3)
(146.1)
Other expense, net
$
(30)
$
(23)
$
(7)
(31.2)
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42
Interest income increased primarily due to increased late fee income.
Interest expense increased primarily due to
increased borrowings, partially offset by lower interest rates.
Income Taxes
Our effective tax rate was 24.9% for the three months ended March 29, 2025, compared
to 25.6%
for the prior year
period.
The difference between our effective and federal statutory tax rates primarily relates to state
and foreign
income taxes and interest expense.
The Organization of Economic Co-Operation and Development (OECD) issued
technical and administrative
guidance on Pillar Two rules in December 2021, which provides for a global minimum tax rate on the earnings of
large multinational businesses on a country-by-country basis.
Effective January 1, 2024, the minimum global tax
rate is 15% for various jurisdictions pursuant to the Pillar Two rules.
Future tax reform resulting from these
developments may result in changes to long-standing tax principles, which
may adversely impact our effective tax
rate going forward or result in higher cash tax liabilities.
As of March 29, 2025, the impact of the Pillar Two rules
to our financial statements was immaterial.
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43
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
purchases of fixed assets and
repurchases of common stock.
Working capital requirements generally result from increased sales, special
inventory forward buy-in opportunities and payment terms for receivables
and payables.
Historically, sales have
tended to be stronger during the second half of the year and special inventory
forward buy-in opportunities have
been most prevalent just before the end of the year, and have caused our working capital requirements
to be higher
from the end of the third quarter to the end of the first quarter of
the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
Please see
Note 8 – Debt
for further information.
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers
for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
We finance our business to provide adequate funding for at least 12 months.
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may
change.
Consequently, we may change
our funding structure to reflect any new requirements.
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.
Our acquisition strategy is focused on investments in companies that
add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies.
Net cash provided by operating activities was $37 million for the
three months ended March 29, 2025, compared to
net cash provided by operating activities of $197 million for the
prior year.
The net change of $160 million was
primarily attributable to changes in working capital accounts (primarily
accounts receivable, inventory, and
accounts payable and accrued expenses).
Our operating cash flows during the three months ended March
30, 2024
were affected by the residual impacts of the 2023 cyber incident and included a higher-than-normal
level of cash
collections.
Our cash collections normalized during the three months ended
March 29, 2025.
Net cash used in investing activities was $99 million for the three months
ended March 29, 2025, compared to net
cash used in investing activities of $72 million for the prior year.
The net change of $27 million was primarily
attributable to increased payments for equity investments and business
acquisitions.
Net cash provided by financing activities was $89 million for the
three months ended March 29, 2025, compared to
net cash used in financing activities of $151 million for the prior year.
The net change of $240 million was
primarily due to increased net borrowings from debt to finance our investments,
partially offset by increased
repurchases of common stock.
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44
The following table summarizes selected measures of liquidity and capital
resources:
March 29,
December 28,
2025
2024
Cash and cash equivalents
$
127
$
122
Working
capital
(1)
1,120
1,180
Debt:
Bank credit lines
$
867
$
650
Current maturities of long-term debt
56
56
Long-term debt
1,968
1,830
Total debt
$
2,891
$
2,536
Leases:
Current operating lease liabilities
$
77
$
75
Non-current operating lease liabilities
256
259
(1)
Includes $471 million and $241 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at March 29, 2025 and December 28, 2024, respectively.
Our cash and cash equivalents consist of bank balances and investments
in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations decreased
to 44.1 days as of March 29, 2025 from
50.4 days as of March 30, 2024, which was primarily attributable to
impact that the cyber incident had on the cash
collections during the three months ended March 30, 2024.
During the three months ended March 29, 2025, we
wrote off approximately $2 million of fully reserved accounts receivable against our trade
receivable reserve.
Our
inventory turns from operations decreased to 4.8 as of March 29, 2025
from 4.9 as of March 30, 2024.
Our
working capital accounts may be impacted by current and future economic
conditions.
Leases
We
have operating and finance leases for corporate offices, office space, distribution and other facilities,
vehicles
and certain equipment.
Our leases have remaining terms of less than one year to approximately
16 years, some of
which may include options to extend the leases for up to 15 years.
As of March 29, 2025, our right-of-use assets
related to operating leases were $294 million and our current and non-current
operating lease liabilities were $77
million and $256 million, respectively.
Stock Repurchases
On January 27, 2025, our Board of Directors authorized the repurchase
of up to an additional $500 million in shares
of our common stock.
From March 3, 2003 through March 29, 2025, we repurchased $5.3 billion,
or 98,069,939 shares, under our
common stock repurchase programs, with $718 million available
as of March 29, 2025 for future common stock
share repurchases.
Subject to market conditions and other factors, we plan to continue
to accelerate our share
repurchase activity.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required
to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling
interest holder under the terms of a put
option contained in contractual agreements.
As of March 29, 2025 and December 28, 2024, our balance
for
redeemable noncontrolling interests was $765 million and $806 million,
respectively.
Please see
Note 13 –
Redeemable Noncontrolling Interests
for further information.
Table of Contents
45
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and
estimates from those disclosed in Item
7 of our Annual Report on Form 10-K for the year ended December 28, 2024.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
or will be adopted, see
Note 2 - Significant
Accounting Policies and Recently Issued Accounting Standards
of the Notes to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 3.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk
from that disclosed in Item 7A of our Annual
Report on Form 10-K for the year ended December 28, 2024.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including
our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report
as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).
Based
on this evaluation, our management, including our principal executive
officer and principal financial officer,
concluded that our disclosure controls and procedures were effective as of March
29, 2025, to ensure that all
material information required to be disclosed by us in reports that we file
or submit under the Exchange Act is
accumulated and communicated to them as appropriate to allow timely
decisions regarding required disclosure and
that all such information is recorded, processed, summarized and reported
within the time periods specified in the
SEC’s rules and forms, and the rules of the Nasdaq stock exchange.
Changes in Internal Control over Financial Reporting
The combination of acquisitions and continued acquisition integrations undertaken
during the quarter ended March
29, 2025, and carried over from prior quarters when considered in the aggregate,
does not represent a material
change in our internal control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance
that the objectives of the internal control system are met.
Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company
have been detected.
Table of Contents
46
PART
II.
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
For a discussion of Legal Proceedings, see
Note 11–Legal Proceedings
of the Notes to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in
Part 1, Item 1A, of our Annual Report on
Form 10-K for the year ended December 28, 2024.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
Purchases of equity securities by the issuer
Our share repurchase program, announced on March 3, 2003, originally
allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
stock, which represented
approximately 2.3% of the shares outstanding at the commencement
of the program.
Subsequent additional
increases totaling $5.9 billion, authorized by our Board, to the repurchase
program provide for a total of $6.0 billion
(including $500 million authorized on January 27, 2025) of shares
of our common stock to be repurchased under
this program.
Subject to market conditions and other factors, we plan to
continue to accelerate our share repurchase
activity.
As of March 29, 2025, we had repurchased approximately $5.3 billion of
common stock (98,069,939 shares) under
these initiatives, with $718 million available for future common stock
share repurchases.
The following table summarizes repurchases of our common stock
under our stock repurchase program during the
fiscal quarter ended March 29, 2025:
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
12/29/2024 through 2/1/2025
-
$
-
-
10,999,064
2/2/2025 through 3/1/2025
450,000
72.99
450,000
11,737,257
3/2/2025 through 3/29/2025
1,805,485
71.23
1,805,485
10,470,368
2,255,485
2,255,485
(1)
All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.
This table excludes shares withheld from employees to satisfy minimum tax withholding
requirements for equity-based transactions.
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47
ITEM 5.
OTHER INFORMATION
On May 3, 2025, the Compensation Committee approved the amendment
and restatement of the Henry Schein, Inc.
Incentive Plan (the “HSIP”), effective as of January 1, 2025.
The HSIP is our annual incentive-based cash bonus
plan, which was amended and restated to incorporate the following key changes:
•
Administration of the HSIP
.
The HSIP was amended to clarify that administration of the HSIP
for
participants who are not executive officers will be overseen by the Chief Executive
Officer, Chief Financial
Officer or other appropriate member of the Executive Management Committee of
the Company (or in each
case, their designated delegates).
Administration of the HSIP for executive officers continues to be
overseen by the Compensation Committee.
The amendment and restatement also clarifies that the
administration of the HSIP for our affiliates will be overseen by such affiliate’s governance body, such as
its board of directors or compensation committee.
•
Participation in Multiple Bonus plans
.
The HSIP was amended to clarify that our employees may not
participate in more than one annual incentive-based cash bonus plan at
the same time, unless approved by
an authorized officer or, with respect to executive officers, by the Compensation Committee.
•
Conduct of Participants
.
The HSIP was amended to explicitly state that, in achieving goals under
the
HSIP,
participants are expected to conduct business ethically, with a high level of integrity and in
compliance with laws, regulations and our policies (including internal
controls over financial reporting).
In addition, we adopted certain other minor clarifying amendments to
the HSIP.
The foregoing summary of the amendment and restatement of the HSIP
does not purport to be complete and is
subject to, and qualified in its entirety by, the full text of the HSIP, which is attached as Exhibit 10.4 and
incorporated herein by reference.
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48
ITEM 6.
EXHIBITS
10.1
Letter Agreement on Voting Commitment by and between us and KKR Hawaii
Aggregator L.P. (Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed on April 9, 2025.)
10.2
Henry Schein, Inc. Executive Severance Plan (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on April 15, 2025.)**
10.3
Amended and Restated Henry Schein, Inc. Executive Change in Control Plan
(Ronald N. South) (Incorporated by reference to Exhibit 10.2 to our Current
Report on Form 8-K filed on April 15, 2025.)**
10.4
Henry Schein, Inc. Incentive Plan and Plan Summary, effective as of January 1,
2025**+
10.5
Letter Agreement to Remove Voting Commitment by and between us and KKR
Hawaii Aggregator L.P. (Incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K filed on May 2, 2025).
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+
99.1
Letter Agreement on Share Repurchases by and between us and KKR Hawaii
Aggregator L.P.+
99.2
Form of 2025 Restricted Stock Unit Agreement for time-based restricted stock
unit awards pursuant to the Henry Schein, Inc. 2024 Stock Incentive Plan (as
amended and restated on May 21, 2024).**+
99.3
Form of 2025 Restricted Stock Unit Agreement for performance-based
restricted stock unit awards pursuant to the Henry Schein, Inc. 2024 Stock
Incentive Plan (as amended and restated on May 21, 2024).**+
101.INS
Inline XBRL Instance Document - the instance document does not appear
in the
Interactive Data File because its XBRL tags are embedded within the
Inline
XBRL document+
101.SCH
Inline XBRL Taxonomy Extension Schema Document+
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document+
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document+
104
The cover page of Henry Schein, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended March 29, 2025, formatted in Inline XBRL (included within
Exhibit 101 attachments).+
+ Filed or furnished herewith.
** Indicates management contract or compensatory plan or agreement.
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49
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Henry Schein, Inc.
(Registrant)
By: /s/ RONALD N. SOUTH
Ronald N. South
Senior Vice President and
Chief Financial Officer
(Authorized Signatory and Principal Financial
and Accounting Officer)
Dated: May 5, 2025