Henry Schein, Inc. (HSIC) Earnings

Management highlights

### Overall Financial Performance - Total global Q2 2026 sales reached $3.5 billion, growing 6.7% year-over-year, with 4.6% internal local currency sales growth (accelerated from Q1 2026). - Non-GAAP operating income grew 10.5% year-over-year, non-GAAP diluted EPS grew 15.5% to $1.27. - GAAP operating margin expanded 27 basis points to 4.94%, non-GAAP operating margin expanded 25 basis points to 7.21%, driven by gross margin expansion across all segments. - The company repurchased $200 million of common stock in Q2, with $455 million remaining in authorized repurchase capacity. - Operating cash flow was $242 million for the quarter, on track to exceed full-year net income. ### Strategic Priorities - Accelerate revenue growth by expanding high-margin offerings and deepening customer relationships, to drive sustainable shareholder value. - Simplify business operations by shifting from decentralized to integrated structures, eliminating internal silos, and aligning incentives with company-wide goals. - Drive operational rigor and value creation, targeting at least $200 million in cumulative operating income improvements over the next several years, with a $125 million run rate by end-2026. - Disciplined capital allocation focused on maximizing long-term value, with selective M&A targeted at strategic, growth-driving opportunities. ### Key Operational Progress - Henry Schein One technology platform (including AI-enabled workflow solutions) delivered sustained growth, with almost 13,000 total subscribers to Dentrix Ascend and Dentally cloud platforms. June 2026 was a record month for new Dentrix Ascend customers, with average monthly revenue per customer of $800 (well above the $500 segment average). A new AI-powered MCP data query layer is launching soon to further improve practice operational efficiency. - Own-brand and corporate brand products are growing at almost twice the rate of third-party merchandise, contributing to gross margin expansion. The Edge endodontics brand and Curadon exclusive product line delivered strong growth. - The company holds a leading position in the fast-growing DSO market segment, which is expected to drive outperformance relative to the broader dental market. - The home solutions medical business grew sales in the high single digits, in attractive high-growth end markets. - Value creation initiative progress: A global outsourcing provider for finance and customer service has been selected, with phase 1 implementation underway in the U.S. Initial labor cost efficiency benefits are expected in Q3, and this project alone will deliver more than half of the G&A savings for the $200 million total target. A centralized global procurement office for indirect spend has been established and is already yielding results. Data-driven dynamic pricing discipline is driving gross profit expansion. - High growth, high margin businesses now represent 50% of total operating income, on track to exceed 50% by the end of 2027.

Guidance

- Full year 2026 total sales guidance was raised to 4.5%-5.5% year-over-year growth, up from the prior guidance range of 3%-5%. Expected internal local currency sales growth for the second half of 2026 is 3.5%-4.5%, compared to 3.6% actual growth in the first half, despite tougher year-over-year comparables. - Full year 2026 non-GAAP diluted EPS guidance was raised to $5.29-$5.39, up from the prior range of $5.23-$5.37, representing 6%-8% growth over 2025 non-GAAP EPS of $4.97. The modest upward revision reflects stronger underlying sales partially offset by lower expected remeasurement gains than previously projected. - The $125 million end-2026 run rate for operating income improvements from value creation initiatives remains unchanged, with 40% of 2026 in-year improvements coming from gross profit initiatives and 60% from G&A savings. Total cumulative operating income improvements of $200 million by the early 2000s remains on track, supporting a target of double-digit earnings growth in 2027. - Fourth quarter 2026 earnings growth is expected to exceed third quarter growth, driven by continuing sales momentum and increasing benefits from value creation projects. - 2026 adjusted EBITDA is expected to grow in the mid-to-high single digits, off a 2025 base of $1.1 billion. - Full year 2026 non-GAAP effective tax rate is projected to be approximately 24%. No additional remeasurement gains are expected for the remainder of 2026, with full year 2026 total remeasurement gains of $11 million already recorded in the first quarter.

Segment performance

1. Global Distribution and Value-Added Services Group: Total sales grew 6.6% year-over-year. U.S. dental merchandise sales grew 8.3% (6.5% internal local currency growth), driven by pricing and volume gains with market share expansion. U.S. dental equipment sales declined 1.1% due to tough comps from large 2025 dental school orders, with modest growth in digital equipment. U.S. medical distribution sales grew 3.8% despite headwinds in point-of-care diagnostics, with strong growth in government-related and home solutions businesses. International dental merchandise sales grew 11.1% (5.4% internal local currency growth), led by Canada, France, Brazil, and Australia. International dental equipment sales grew 8.7% (5.4% internal local currency growth), with broad-based growth across multiple markets. Global value-added services sales grew 5.1% (3.7% internal local currency growth), driven by business solution services, partially offset by lower U.S. financial service revenues. This segment contributes the majority of total company revenue. 2. Global Specialty Products Group: Total sales grew 8.7% (3.2% internal local currency growth). Sales growth was driven by implants and biomaterials across both premium and value product lines. Premium implants delivered strong growth in Europe and modest growth in the U.S. Value implants grew driven by the recently launched SIN360 in the U.S. and established European brands. Endodontic product sales were also strong across all businesses. Profit growth for the segment reached 19.9% year-over-year, with the majority of growth organic. 3. Global Technology Group (Henry Schein One): Total sales grew 8.2% (9.1% internal local currency growth). Strong growth was driven by cloud-based practice management software: Dentrix Ascend in the U.S. and Dentally internationally. Approximately 90% of the segment's revenue is recurring, creating high predictability. High-margin, high-growth businesses like this segment now represent almost 50% of total company operating income, on track to exceed 50% by 2027.

Risks & headwinds

- Forward-looking statements are inherently subject to risks and uncertainties that could cause actual performance to differ materially from projections, with risks detailed in Henry Schein's SEC filings. - Higher macroeconomic pressure and changes in patient volumes could impact end market demand for dental and medical products and services, though management noted the company's served markets are resilient and no significant impact from recent economic changes has been seen to date. - The 2026 guidance does not account for potential unexpected restructuring costs or changes in foreign currency exchange rates, which could impact actual results. - Tough year-over-year comparables from large dental school orders in 2025 created a temporary headwind for U.S. dental equipment sales in Q2 2026.

Analyst Q&A

• Q: How is U.S. dental consumables growth split between price and volume, and what growth should be expected in the second half against tougher comps?

  A: Management notes growth has a larger contribution from price than volume, and expects the overall growth rate to remain in a similar range to the first half of the year. Recent successful promotions converted episodic, occasional buyers into consistently active, repeat customers, and this momentum is expected to continue offsetting tougher year-over-year comparables.

• Q: Why is consensus EBIT growth for the second half far lower than implied by the $125 million end-of-year value creation run rate target? Is the target still on track?

  A: Management reaffirms the $125 million end-of-2026 run rate target remains on track, with most benefits realized in the second half, particularly the fourth quarter. Most of the discrepancy from consensus models stems from the non-recurrence of a $28 million remeasurement gain in 2025 Q3 that is not repeated in 2026, which needs to be normalized for when comparing year-over-year results.

• Q: What does portfolio optimization entail, and what differences should investors expect in the business three years from now?

  A: Management is evaluating the full portfolio to focus on assets that align with priorities of accelerating growth and delivering higher returns, with no major portfolio changes expected, only minor pruning if needed. M&A will be disciplined and focused on highly strategic assets that strengthen the company's customer value creation platform. Three years from now, management expects the business will have accelerated, more profitable growth, and will be positioned as a full practice improvement platform rather than just a distribution business, helping customers optimize their operations and grow.

• Q: How does the company's AI technology drive cross-selling of merchandise, and what is the growth opportunity?

  A: AI capabilities are being added quickly to cloud practice management systems, driving higher adoption, upgrades to higher-value packages, and market share gains. The integration of practice management software and merchandise distribution creates a natural customer value proposition: customers using Henry Schein's PMS have a strong incentive to source all their merchandise from the company, creating a meaningful cross-selling opportunity that supports broader growth across the business.