All right, we're going to get started here. Good afternoon. My name is Jeff Johnson. I'm the Senior Medical Technology Analyst at Baird, and our next presentation this morning is from Henry Schein, the largest distributor of healthcare products and services to office-based practitioners in North America and Europe. With us today from Henry Schein, we're very happy and pleased to have Chairman and CEO Stanley Bergman. I think this is, if I'm counting right, the 22nd or 23rd conference you and I have done together. It's been a long road, and we'll talk maybe more about that down the road. We also have Chief Financial Officer Ron South, CEO of Global Distribution and Technologies, Andrea Albertini, and CEO of Henry Schein Products Group, Tom Popeck, with us today. Stanley, I don't know if there's a couple of comments you want to make to start off, which can be a dangerous thing, as we talked about, or I can go straight into Q&A. I made a commitment to you to be uncharacteristic and keep my remarks to under an hour. OK. You have 27 minutes before they kick us off the stage. There's so much published about Henry Schein, but I will say that the company is in pretty good shape today. We've advanced our BOLD+1 initiative quite extensively. We've moved towards environments of having high growth, high margin products being almost 60% of our operating income. We did have a cyber incident in October of 2023. I would say we pretty much recovered from that. The company is at high spirits. The motivation is good. I'd rather have our team answer specific questions. That's great. I promise you I will give them some questions here in a second. You have led this organization for 35 years. You've been with Schein for 45 years. You've transformed Schein from a catalog company, if that's not insulting. I hope it's not. Doing $200 million a year in revenue to $8 billion in dental revenue and $13 billion overall here in this past year. There is so much to be proud of there. At the end of the day, as you transition out of the CEO role at the end of this year, what are you most proud about? Pleased. Proud is a more egotistical word. OK, Pleased. Yeah. I would say I'm most pleased about the journey that we've been on with an incredible team, a team we've worked with over the years, from investors to our suppliers. I see one of our key suppliers is in the room. Very pleased. Turn around. You've done our customers. Today, we have over 1 million customers around the world that I think look to us to help them operate a more efficient practice and provide better clinical care. The overall team we've put together, the journey we've been on, the role we've played in public-private partnerships. Most recently, I think the key role we've played in the whole area of COVID, when I think we played an important role in ensuring that there were masks available in this country and abroad. We've had so many great periods in the history of the company. I would say in the 1980s, when Jimmy and I joined the company, we played a key role in getting Hatch- Waxman legislation passed. We owned the largest manufacturer of generic drugs, which we spun out, which was the first time we created real value. We were key in the 1980s also in going to the dentists and suggesting that the dentists wear masks, sterilize between patients, wear masks, gloves, creating what I think is the largest provider by far of these infection- control products to office-based practitioners. We went on to create the world's largest full-service dental distribution company, the world's largest provider of animal health products, which we spun off and created shareholder value. The medical side, the software leadership role we play today, all of these things I'm going on, Jeff, you know them. I know. It is all about the team and tremendous board support. We've had great leaders on the board, gone on to be President of one of the largest universities, prestigious universities, FDA Commissioner, or Secretary of Health. I just work with a great team. I do want to recognize one thing, that you and there's maybe one other or two other analysts that understand our business and our market in the detail that you do. Thank you, Stanley. That means a lot coming from you. I promised you I would ask other questions and not just focus on you during this 30-minute time period. Andrea, I'm going to move down to you. There's been some mixed signals over the last few quarters, maybe in the dental space, across the globe even. Just where do you see the current state of the dental markets U.S. and globally? Overall, the backdrop of the dental market is stable. We see some sign of recovery in Europe. Of course, we don't have some of the macroeconomic headwind, like energy price that we had in the past, and also inflation going down is helping, especially in Central Europe, with Germany at the top. We see some recovery. In the U.S., of course, there was a little bit of uncertainty driven by the tariff topic. We said that especially at the beginning of Q2, this impacted our equipment business. We saw a clear bounce back in June that makes us confident for the future. Again, in general, stable markets, some headwind and some tailwinds. Yeah. On the tailwind, I can mention the fact that technology continued to be adopted at a good rate, especially when it helps the efficiency of the practice. A decrease in interest rate will help, of course. That's helpful. Yeah. Yeah. No, I think that's good. Tom, maybe I'd even go to you then on the specialty side. What have you been seeing there? One of your larger competitors on the clear aligner side talked to some incremental slowdown in June, July. I know the ortho side of your business is very small, so I'm not asking you to necessarily comment on that specifically. Just, you know, where is the health of the consumer relative to the last year or two? We know that consumer has been under pressure over the last couple of years, if not a few years. Even in the last few months relative to the last couple of years, how would you feel the specialty demand is going, the pull-through demand from patients? Yeah. You know, specialty business has been relatively stable as well. Specialty business is growing a little bit faster than the general business. In our business, primarily dental implants, endodontics, I think we're taking some market share. Our implant business is doing well. We see some parts of the globe where it's stronger than others. Europe, Latin America doing very well. Our endodontic business has been very strong. The nice thing about endodontics is it's not as elective as some of the other procedures. Think back to the COVID days when we looked at our endodontic business. That was the one that was least affected through COVID because when your tooth breaks, it's not elective. You're in pain. You got to get it fixed. The markets have been relatively stable, I think increasing slightly we're seeing. I think we're doing well. All right. Ron, maybe I'll pull you in on a question. With some of the tariff issues over the last several months, we've heard some manufacturers starting to push some select price increases through. We tend to think of you guys as a pass-through on that and can pass those through. Is that true across the board? Do you feel comfortable that if manufacturers raise price, you can pass those through? Is there anything with DSO contracts or anything else where that's tougher to do? We do have a mitigation strategy as it relates to tariffs. That includes working with our supplier partners. We don't want to default to just automatically passing through price increases. Yeah. Our customers don't want to hear us say, sorry, we have no choice, just as we don't want to hear our suppliers tell us there's no choice. We want to work with them and find opportunities to mitigate that risk. In some cases, it may result in some price increases. There have already been some price increases in certain product categories, some because we have gotten cost increases from our suppliers. There are also situations where we are the importer of record. We've done a good job, I believe, of finding some strategies to mitigate the effect where we are the importer of record, whether it be on our private label products or certain components that we use. Most of our specialty products, for example, that are self-manufactured are manufactured in the country of origin. Some of the components that are part of that may be imported. We are exploring ways and have continued to find some ways to mitigate those effects. You could see a little bit of price increase come that way as well. Nothing that I think will stand out and actually create a lot of problems with our customers. OK. Let me ask you two more modeling questions, and I promise you I'll focus big picture the rest of the time. One of them, you are talking about another revaluation gain in the second half of this year. You've recognized those the last couple of years in your EPS. Should we just start thinking of every year there's going to be those kind of revaluation gains, or is that a headwind that we might have to take into account as we're modeling next year? Historically, it has been a fundamental part of our strategy. We do have a portfolio of equity investments that allow us to kind of dip our toe into a new geographic area or perhaps into a vertically integrated type of area without making the commitment to a controlling interest from the beginning. As it's turned out, over the last several years, we have gotten to a point where we felt it was beneficial to us to bring these companies into our portfolio, so to speak, but, you know, take them out of the portfolio, I should say, and bring them into our consolidated operations. I think if there's ever a given year that we believe that's not going to happen, we would probably bake that into our guidance and address it accordingly. OK. Keeping in mind, too, not all of these equity investments, you know, the exit strategy isn't always that we are going to buy up. Some we're just going to hold them for a longer period of time. In other cases, the best example I can think of was, you know, we had a minority interest in Hu- Freidy. As opposed to taking on a majority interest in Hu- Freidy, when they wanted to sell, we decided to participate in that sale. We made, I think, north of $200 million on that. That was cash that we were able to reinvest in the business. It is a very important part of how we approach the business. If there's ever a given year that we believe we could create a headwind, we'll be sure to call that out. OK. Fair enough. I know it's a short-term focus question. It'll be the last one. I got some questions last week. You were at a conference last week. On your second quarter call, you talked about 2025 being kind of your baseline year. Moving forward, you should be back to that kind of LRP growth of upper single to low double digits. I can't remember if it's 8%- 12% or upper single to low double digits, if you actually put a fine number on it or not. Is that how we think about 2026? The Street is kind of at the low end of that, but they're at 8% or 9% growth next year. It would probably take, I would think, better markets than we have right now for you to fully get there. Just how to think about kind of where the Street's at next year and those comments of 2026 being your first year of the LRP kind of, you know, off a 2025 base. Certainly. Jeff, as you can appreciate, we haven't provided 2026 guidance yet. Yeah. When we do develop that guidance, there'll be a number of things we take into consideration. The baseline of that will be how are the markets doing, whether they be the core dental markets, the specialty dental markets, the medical market, technology, et c. That'll be the foundation upon which we will build that guidance. It'll be things that are specific to us. What kind of run rates are we seeing in certain growth areas of the business? I think very importantly, we did announce that we initiated a couple of value creation projects that we are in the assessment phase on right now. While we don't expect all of the benefits to fall into 2026 from that, we did say we would expect to accrue some benefits beginning in 2026. What's our confidence level on our ability to deliver some value coming out of these value- creation projects? What's the timing of that? We'll factor that in as well. OK. There is going to be a number of moving parts that we're taking into consideration. Will that get us to the long-term goal? I'm hopeful it will. Those are the things that we will be assessing. All right. That's helpful. I guess since we started talking about kind of those cost savings and some of those efforts, obviously, KKR has taken a 15%, close to a 15% stake here. You're starting to work closely with their Capstone value creation team. I have a model that goes back, I think, to 1998 on you guys, 1999. I was looking at it the other day. Let me make sure I've got these numbers right. Your OpEx was just over 21% of revenue back in the day. It's now at 25%. Your gross margins have come up several hundred basis points, obviously, with the focus on specialty and what have you. 25% OpEx, where is going to be the focus with Capstone and on kind of some of this value creation? Is it on the OpEx side? Is it on the gross margin side? Where are you going to be focusing? I guess that's for Andrea, anybody who wants to answer on where that focus is going to be. I'll start, and you guys can jump in. Yes, please. It's on both. I mean, I think if you look at the P&L, you can cut the P&L in half. One project is the top half of the P&L, which is how do you optimize gross profit? The other project is the bottom half of the P&L, and that is how do we operate more efficiently and make that SG&A number something perhaps that is—I'm not committing to a percentage of revenue because the business has changed a lot since 1998 or 1999. Yeah. The P&L, the geography of the P&L is going to be a little different. It's really, you know, just how do we optimize that? There are two distinct projects. Obviously, all of us up here are very involved in those projects. I'll defer to these guys as well. Yes. We have two so-called value creation initiatives, very important initiatives inside the company that Tom and I serve as Executive Sponsor for. We work, of course, with the executive team on it. One is the gross profit optimization and our portfolio optimization. This is the one I'm working on. Tom can comment on the optimization of our cost. On the gross profit optimization, we are looking at how we price our services, our product to the customers. It's not about increasing prices. Please don't take it as this. It is about finding the right way to maximize, of course, our profit, pricing smarter. Some products will need to be probably cheaper to be more attractive, and some others can be more expensive. We need to do pricing based on customer behavior, on market data, on bundling, on positioning correctly our own products versus the brands. There are so many components. This is where we are focusing on. We are at the beginning of this effort, too early to give you more details. We believe it's an important transformational project for us. Yeah. I'll comment on the G&A optimization project. Look at the secret sauce of Henry Schein. It's always been doing a lot of small acquisitions, building competency, and building a bigger organization. That's led to a lot of different entities, not all of them being connected as well as they could have been, in good markets. As we were growing and building those competencies, that strategy worked really, really well. At some point, you got to look back in, look at those back office functions, and say, wow, there's a lot of opportunity here now. We have scale. Now we just got to bring them all together, create some better shared services, maybe do some offshoring, things like that. We see some good opportunity to drive some meaningful cost reductions. All right. That's helpful. Stanley, I'll come back to you. You know, we talked about you're going to be transitioning out of the CEO role into Chairman of the Board at the end of this year. You're already Chairman of the Board. Is it an executive? I can't remember what the title is. Whatever it is, it's going to be a big title, a big important title. What is the-- We have a very big title. Yes. Welcome, Andrea. What is the board and maybe even KKR involved here? What is the board and KKR looking for in the next leader of Schein? Is it somebody who knows Schein cold? Is it somebody who knows the dental industry cold? Somebody with a strong history of operating with cost discipline? Just what's the board looking for here? Yeah, Jeff, obviously, there's a spec. No one is possibly going to meet the criteria. Oh, sure. We have three businesses: a distribution business, a software and value-added services business, and a business that is involved in specialty products. I don't think there are too many people that have dental experience in those areas. Otherwise, a handful, very few. We are going to have to find somebody ideally from health care, somebody that has experience in a complex organization because our business looks relatively simple. We service dentists and physicians, but we service them with a breadth of our products, with all sorts of skills involved from manufacturing to distribution to software. I think what's going to happen is it'll have to be somebody that can, of course, lead. We are a very, very strong values-based company. Obviously, the culture has to change. When Jimmy and I joined the company, we put in the first fax machine. The culture, you know, when Henry Nestor was around, and the culture today has to be completely different. The values have to be consistent. We want to make sure that we keep this incredible team spirit, this entrepreneurship, entrepreneurship of a large business. Somebody obviously needs to be well aware of expense management. Somebody that takes this role has to understand technology, not be a software expert. I think it's really going to be significantly about leadership, track record, understanding the Street, understanding our constituents. I think we have a good process going on, very engaged boards. Of course, KKR are on the nominating governance committee, but they want to fight. OK. They've brought a lot of skills to the table. It's actually turned out to be a very good partnership. All right. So. Good. More to come. I want to know who it is as quickly as you do. Yes, all right. Of course, I will have input. All right. Let me move on to my next question. It may be a little awkward with one of your partners and the channel partners in the room here. Today, I will say we're very good partners. Yes, oh, absolutely. We're very good partners. I hear you. Maybe that's a good place to start. I mean, how have your manufacturing relationships been? As you referenced, there might have been some strain a couple of years ago with one that has improved. Maybe there's been one that's been a little strained here more recently. Just how are your manufacturing partner relationships at this point? No, I would say that our partnership relationships are very good. There's always, you know, some suppliers, maybe a 5% situation where we conflict, where we compete, maybe 5%, 10%. That co-competition is a word I don't remember the word. We have a good relationship. People understand that we have to work together to create mutual shareholder value, to grow our businesses together. I would say our relationships are good. My concern is innovation. Yeah. Bringing new products to market, you know, it's not always necessarily the one that has the biggest that's going to bring the new products to market. Here we're at IDS, I believe, and I am concerned there's not much going on in terms of new products. Yeah. If that's the case, we default to generics. If you default to generics, yeah, the sales go down. Maybe for us, the margins go up, but it's not good for our relationships with our suppliers. We need new innovation. I think we're seeing it already out of some of the manufacturers. There's some instability in one or two of them also. I would say that the relationships are very good. Andrea and Tom have good relationships. No, and my question when I—sorry, not to interrupt you. When I said maybe it was going to be a little awkward, that's kind of what I meant. I was going to go down the road of innovation. We have seen maybe a paucity of innovation, whether that's because of significant leadership turnover at some of the biggest companies over the last five to seven years, or some other struggles the companies have gone through. At this point, do you think there needs to be more R&D that your manufacturing partners are putting to work? Is it just we're hitting a just natural kind of pause in innovation now? What do you see as the path to getting back towards an innovative dental market? There's no question that there's a great demand for dental services, Jeff. There's also no doubt that there's pressure on the practice. Driving efficiency in the practice, both on the operational side and the clinical side, is what's needed. There are so many tools available. I don't want to use—I will use the word AI, the two initials. There is so much opportunity in that area. There are some companies that are doing this to some extent. We need to see much more activity going on in bringing, using the technology that is out there to drive operational efficiency and clinical optimization. Maybe it won't come out of the traditional suppliers. Maybe it'll come out of part of the traditional suppliers' businesses. To come up with the next great impression material is not what's needed. OK. You think it's more on the technology and software side? I think so. Yeah, yeah, that makes sense. There are some new materials. Yep. For 3D printing. Yeah. The technology is there, we need materials. Yep. Andrea, you are there at the end. Also, material, we need innovation, 3D printing, but in general, material that can improve the quality of care and improve efficiency. This is what our customers are looking for. On that material side for 3D printing, is it all about getting to a usable, long-lasting crown? Or are there other procedures beyond restorative work that you think could really help accelerate growth in this industry? The restorative topic is a big one. We go back to the concept of efficiency and cost of care. This is an area where I believe there is a lot of focus from manufacturers. There could be others. There are others. I mean, 3D printing is already strong in all the collateral areas. Labs are doing a lot through 3D printing. I believe we will see a change when the material for prosthetic solutions will become. All right. Ron, maybe a question for you quickly. You had some news today, $750 million repurchase authorization. I think you still had $400 and some million authorized at this point. Are you over a billion, or is that $450 million used up, I guess, maybe? I think the number you're citing was probably as of the second quarter. Yeah. We have been doing some repurchase activity this quarter. OK. I think, as we said in the release, our projections were that we would work through the previous authorization by the end of the first quarter of next year. The timing of the board meeting was such that it was somewhat opportunistic. We had some discussions around the levels. They were willing to authorize an additional $750 million. We're not committing to any timeline with that. It does give us, obviously, meaningful flexibility in terms of capital outlay going forward. OK. I did not read past the first paragraph. Thank you for the update there. Most investors don't read past my cover page of my notes. We'll leave it at that. All right, we have two minutes left. Stanley, I'm sure you have, everywhere you've been going, you've been getting lifetime achievement awards here recently and things like that. As I said, it's, I think, 20 some odd years that you've been doing this conference with us. Thank you for that. Thank you for just personally in my career, you've done a lot. I appreciate that. I wanted to give you a little something here to remember Baird by, and the time that we've spent together. Oh, wow. You don't need to open it here, but just a little something you have provided. I think I hear great stories about what a competitor you are, what a tough negotiator you are. Yet, you never lose track of your morals. You never lose track of your social responsibility. That's what I've appreciated about you. Thanks, Jeff. You have been very blatantly honest with us to our face, which is appreciated. You praised us when appropriate. I have always appreciated that because I have learned so much. Most CEOs say that the public company says that they do not like the street part, the quarterly earnings. I can tell you I thoroughly enjoyed being the CEO of a public company. Yeah, there were times when it was not perfect. I would have an argument with Ron. I would go to Steven and say, come on, Steven, how could this happen? Overall, it has been a great, great learning experience. You learn so much from investors if you just listen. As my partner generally says, you have two ears and one mouth. I am not a good student in that. It has been a great journey on the street. I really enjoyed every minute. Thank you for everything you've done for the industry and as a supporter of Baird. Thank you. Thank you. Thanks, Jeff. Thank you.