Henry Schein (HSIC) FY2025 Earnings Quality Report

Grade: F — Cash Coverage and Goodwill Stress

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-24) + Yahoo Finance

Auditor: BDO USA, P.C. — Clean opinion (1 critical audit matter: valuation of acquired intangible assets)

One-line verdict: Henry Schein's F grade reflects two mechanical failures — $0.16B of cash against $3.44B of debt covers just 5%, and $5.23B of goodwill plus intangibles represents 161% of the $3.25B equity base. The underlying distribution business is steady but thin: 4.0% revenue growth, 31.1% gross margin, and net income of $0.40B on $13.18B of revenue. Cash conversion remains solid (CFFO/NI = 1.79, FCF/NI = 1.31) and the M-Score of -2.53 signals no manipulation. This is a leverage and integration story — driven by the acquisition-heavy growth strategy under the 2025-2027 BOLD+1 plan — not an earnings quality problem.

The Largest Healthcare Products Distributor

From the 10-K: "With 94 years of experience distributing health care products, we have built a vast base of small, mid-sized and large customers in the dental and medical markets, serving more than one million customers worldwide across dental practices, laboratories, physician practices, and ambulatory surgery centers, as well as government, institutional health care clinics, home health providers, and other alternate care clinics."

Henry Schein is the world's largest provider of health care products and services primarily to office-based dental and medical practitioners. The company employs more than 25,000 people, with approximately 48% of its workforce in the United States.

FY2025 revenue was $13.18B, up 4.0% from $12.67B in FY2024. The company reports three segments:

Growth is weighted toward the higher-margin Specialty Products (+6.7%) and Technology (+7.1%) segments — consistent with management's stated strategy to diversify away from commodity distribution. From the MD&A: "We have three reportable segments: (i) Global Distribution and Value-Added Services; (ii) Global Specialty Products; and (iii) Global Technology."

Net income attributable to Henry Schein was $398M in FY2025 on $13.18B in revenue — a 3.0% net margin that reflects the thin-margin distribution model. Operating income of $653M grew 5.1% on top of 4.0% revenue growth, showing modest operating leverage.

Restructuring Drag on Reported Results

From the MD&A: "On August 6, 2024, we committed to a restructuring plan (the 2024 Plan) to integrate our acquisitions, right-size operations and further increase efficiencies. We currently expect this plan to be completed at the end of 2027. During the years ended December 27, 2025 and December 28, 2024, we recorded restructuring and related charges associated with the 2024 Plan of $105 million and $73 million, respectively."

Restructuring charges of $105M in FY2025 compressed reported operating income. Excluding this charge, operating income would have been closer to $758M.

Cash Flow: CFFO Fell Despite Revenue Growth

From the 10-K: "Net cash provided by operating activities $ 712 $ 848 $ 500" — a decline from FY2024. The A3 check technically passes (CFFO -16% follows revenue +4% but remains positive), but the decline is worth flagging. Working capital absorbed more cash in FY2025 as inventory and receivables both grew.

Acquisition Activity Continues

From the 10-K critical audit matter: "the Company acquired entities within the Global Distribution and Value-Added Services, Global Specialty Products and Global Technology segments during the year ended December 27, 2025 for total consideration of $392 million."

These tuck-in acquisitions pushed goodwill from $3.89B to $4.21B (+$320M) and required BDO to scrutinize the valuation of acquired intangibles as the sole critical audit matter.

The 18-Point Screening

Revenue Quality

A2 is a watch flag: accounts receivable grew from $1.48B to $1.65B (+11.4%) while revenue grew only 4.0%. This is partly acquisition-driven — newly acquired businesses bring their AR balances onto the consolidated ledger — but warrants monitoring. DSO expanded slightly from 43 to 46 days.

Expense Quality

B3: SG&A at 75% of gross profit is high and reflects the cost-heavy nature of distribution. From the MD&A, SG&A was $3.08B on gross profit of $4.11B in FY2025. The thin gross margin leaves limited room for SG&A leverage.

Cash Flow Quality

C4 is the primary fail: cash of $0.16B versus total debt of $3.44B is a 5% coverage ratio. Long-term debt alone is $2.31B. The company depends heavily on ongoing operations and revolver availability to service this load.

Balance Sheet

D1: Goodwill plus intangibles of $5.23B against $3.25B of equity = 161%. This is the legacy of decades of acquisitions. Every dollar of tangible equity is offset by $1.61 of accounting-created soft assets. Debt/EBITDA of 3.6x is elevated but within the engine's threshold.

D3 watch: Other non-current assets grew 26%, far outpacing revenue growth. Some of this is acquisition-related goodwill allocation and some is capitalized software and right-of-use assets.

M&A Risk

Goodwill-plus-intangibles grew 7% YoY on $392M of acquisitions — below the 30% surge threshold. The M&A pace is steady but not accelerating.

Beneish M-Score

Key Risks from Item 1A

1. Supplier concentration risk. From the 10-K's first listed risk factor: "We are dependent upon third parties for the manufacture/supply of a significant volume of our products and where we manufacture products, we are dependent upon third parties for raw materials/purchased components." Critically: "In 2025, our top 10 Global Distribution and Value-Added Services suppliers and our single largest supplier accounted for approximately 24% and 4%, respectively, of our aggregate purchases." Any supply disruption — product recall, manufacturer failure, or regulatory halt — can immediately flow through to Henry Schein's revenue.

2. Acquisition integration risk. From the 10-K: "Risks inherent in acquisitions, dispositions and joint ventures could offset the anticipated benefits. One of our business strategies has been to expand in part through acquisitions and joint ventures and we expect to continue to make acquisitions and enter into joint ventures in the future. There is risk that one or more may not succeed." The 10-K lists specific integration risks including customer retention, management retention, and successful integration of "operations, systems, services, products and personnel."

3. BOLD+1 strategic execution. From the 10-K: "We may be unsuccessful in achieving our strategic growth objectives. Our 2025-2027 BOLD+1 Strategic Plan... In particular, we are focused on continuing to grow our Henry Schein specialty brands and technology and value-added services solutions both organically and inorganically, and to drive greater efficiencies. If we are unable to effectively implement our strategic plan, we may not achieve our desired return on our investments through our growth strategies."

4. KKR strategic partnership risk. From the 10-K: "Our business could be affected by the Strategic Partnership Agreement with KKR. On January 29, 2025, we announced..." The partnership with KKR introduces both opportunities and new obligations around governance and capital allocation.

5. AI and emerging technology investment risk. The 10-K cautions that AI investments may not pay off: "if investments in emerging technologies are less successful at attracting and retaining customers than similar investments by our competitors, or if we are otherwise unsuccessful at realizing the benefits of these technological investments generally, this could have a material adverse effect on our business, financial condition, or operating results." And: "widely accessible generative AI that rapidly surpasses our organizational ability to understand associated risks and opportunities... could endanger our intellectual property, lead to misuse or loss of data and cause reputational harm."

6. Acquired intangible asset valuation (the critical audit matter). BDO flagged the valuation of acquired intangible assets as its sole CAM: "the Company estimated the fair value of identifiable intangible assets using the relief-from-royalty method and the multi-period excess earnings method which required the Company to make significant estimates and assumptions, including discount rates and projected revenue growth rates. We identified the revenue growth rates for certain periods and the discount rates used in estimating the fair value of certain trade name and customer relationships as a critical audit matter."

Altman Z-Score and F-Score

The Z-Score of 2.62 sits right at the safe/grey boundary — consistent with a stable distribution business with meaningful leverage but healthy operations.

Summary

Grade: F. Two failing checks (Cash vs Debt, Goodwill+Intangibles) combined with three watches drive the grade.

The Henry Schein F grade is structural, not behavioral. The business is distribution — low margins, high asset turnover, and lots of acquired businesses layered on top of an organic core. That combination mechanically produces:

The mitigating signals are real: M-Score at -2.53 passes cleanly, CFFO/NI is 1.79, FCF of $0.52B exceeds net income, accruals are negative, and Debt/EBITDA of 3.6x is manageable. The restructuring charges that have weighed on reported earnings ($105M in FY2025) are temporary under the 2024 Plan that runs through 2027.

The real operational risks flagged by management are supplier concentration (single largest supplier at 4% of purchases), execution on the BOLD+1 strategic plan, and whether the KKR strategic partnership delivers on its promised value. Earnings-quality risk is contained; structural balance-sheet risk is where the F grade lives.

**Disclaimer**: This report is based on Henry Schein's FY2025 10-K (SEC EDGAR) and public financial data. This is NOT investment advice.

Data: SEC EDGAR 10-K (Filed 2026-02-24) + Yahoo Finance

Auditor: BDO USA, P.C. (Unqualified opinion, 1 critical audit matter)