Envista Holdings Corp Aktie

Hello. My name is Melissa, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's First Quarter 2026 Earnings Results Conference Call.

[Operator Instructions]

I will now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at Envista Holdings. Mr. Gustafson, you may begin your conference.

Good afternoon. Thanks for joining Envista's First Quarter 2026 Earnings Call. We appreciate your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer; and Eric Hammes, our Chief Financial Officer. Before we begin, I want to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are available on the Investors section of our website, www.envistaco.com. The audio portion of this call will be archived in the Investors section of our website later today under the heading Events and Presentations.

During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. Supplemental materials describe additional factors that impacted our results. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the first quarter of 2026 and references to period-to-period increases and decreases in financial metrics are year-over-year.

During the call, we may describe certain products and solutions that have applications submitted and pending certain regulatory approvals or are available only in certain markets. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events and developments that we believe, anticipate or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

With that, I'll turn the call over to Paul.

Thanks, Jim. Good afternoon, and welcome, everyone. On today's call, I'll kick us off with a summary of our Q1 performance. Eric will then take us through the numbers in more detail, and I'll wrap things up with some closing thoughts before opening the Q&A. As an overarching statement on the quarter, Q1 was a good start to 2026 for Envista, extending momentum we built across 2024 and '25. As you will have seen in the various market surveys and peer results, the dental market is again showing its characteristic resilience despite continued high macro volatility. We're naturally keeping a close eye on how the situation in the Middle East evolves. But thus far, we've seen minimal impact to the global dental market.

Specific to Envista, we posted 9.5% core growth in Q1. And for the fourth straight quarter now, all of our major businesses delivered positive growth. Ortho consumables and diagnostics were all up double digits and implants was up mid-single digits, excluding China. As a reminder, this quarter did benefit from 4 additional billing days which Eric will discuss in more detail. As we did across 2025, we reinvested a meaningful portion of our gains into continued future growth as sales and marketing and R&D investments were both up double digits. We also completed an accretive tuck-in acquisition in our implants platform, of which I'll say more in just a moment. Our improved execution and operating discipline continued in Q1, helping to convert good top line growth into even better adjusted EBITDA and EPS growth, up 25% and 50%, respectively.

This in turn gives us confidence in extending the share repurchase program that we initiated early last year. Our board recently authorized an incremental $300 million addition to the program. Finally, our continued momentum and strong start to the year give us confidence in reaffirming the 2026 guidance that we issued on our Q4 2025 call.

Let's now turn to progress we made in the quarter in support of our 3 core priorities of growth, operations and people. Starting with growth, we delivered strong broad-based performance across the portfolio. As mentioned, ortho, consumables, diagnostics and the implants all delivered good growth. In terms of segment performance, Specialty Products & Technologies grew core revenue by more than 8%, while equipment and consumables was up nearly 12%. Geographically, North America and Europe both grew double digits, developing markets grew high single digits with some specific exceptions like China due to VBP and the Middle East due to the conflict. New products again played a central role in our success, and I'll provide further detail on this on a later slide. Rounding out growth, volume contributed over 7 points in Q1 with price accounting for the remaining 2-plus percent.

Turning to operations. We continue to see widespread benefits from our Envista business system, improving manufacturing productivity helped drive 100 basis points of gross margin expansion. And when combined with sustained G&A productivity, adjusted EBITDA margin expanded by 120 basis points. On a prior call, we noted a legacy intercompany loan that impacted our interest deductibility in the U.S. With that loan now resolved, our Q1 effective tax rate declined contributing to the 50% year-on-year EPS growth that I mentioned earlier.

With respect to people, we remain focused on engagement, development and community impact. Last quarter, we noted wide ranging improvements in our 2025 employee survey. We built on this momentum in Q1 with further gains and colleague engagement. In addition to this, we launched an enterprise-wide talent development program last quarter with structured opportunities for career advancement and personal growth. We embraced our circle value of continuous improvement by conducting 60 kaizens across our company, and we extended our long-standing track record of investing in our communities by supporting close to 4,000 underserved patients through our charitable Envista Smile project. Highlights in Q1 included a mission trip to Antigua and 2 events in partnership with USC's Ostrow School of Dentistry, providing critical care to children and veterans through their mobile dental clinics.

Coming back to the central role that new product innovation is playing in our accelerating growth. Slide 6 covers 3 of several new product launches in Q1. In our implant business, we introduced Nobel S Series, which combines evidence-based designs and surface technologies with a common conical connection across all sizes of Nobel implants. This significantly reduces complexity for clinicians by improving inventory efficiency, planning and chairside workflows. Early market response to launch has been encouraging with over 1/4 of orders coming from competitive conversions.

In orthodontics, we achieved an important geographic milestone with the launch of Spark in Japan. We have long been a bracket and wire leader in this market, and the Spark launch allows us to leverage our strong position to also win in Japan's attractive clear aligner segment. Spark has captured share every year and in most geographic markets, and we expect to do the same in Japan. DEXIS continued its streak of market-leading innovations with the release of DTX Studio Clinic with enhanced AI. The platform includes algorithmic image management, AI-driven diagnostics, automated treatment planning and workflow enhancements.

DTX Studio automatically generates a series of diagnostic insights from intraoral radiographs, including new tools such as colored tooth segmentation and diagnostic findings such as carries, bone loss and root canals. Full mouth AI detection and intelligent layout create a digital twin of a patient's anatomy in less than 5 seconds. DEXIS has the largest installed base of imaging systems on the market with roughly 275,000 connected devices and workstations in operations.

Collectively, this network processes over 500 million images annually. And processing this vast data set, DEXIS' AI-powered digital ecosystem continually refined and advances the clinical benefits that we bring to customers. New product innovation has long been the lifeblood of Envista and this very much remains the case today.

In addition to the progress we're making with respect to organic growth, we also completed a small but clinically important acquisition in the quarter. Versah is a pioneer in a novel implant preparation technique called osseodensification. In the traditional osteotomy, the bone is excavated in order to make room for the endpoint. With osseodensification, however, the bone is compacted and autografted leading to improved osteo integration in certain clinical indications. This patent-protected solution offers a number of key benefits. For the clinician, Versah simplifies clinical workflows as its universal kit can be used with most implant systems.

For the patient, the procedure supports more immediate implant placement, reducing chair time as well as the number of visits. And for Envista, Versah adds yet another clinically differentiated offering to our implants portfolio and a synergistic growth opportunity as the system integrates seamlessly into our existing clinical education and go-to-market strength. The acquisition is expected to be accretive to Envista in terms of growth, margin, EPS and valuation multiple.

Summarizing Q1 before turning it over to Eric, we furthered the good momentum we built across 2025 and posted a solid start to 2026. There continues to be no shortage of exogenous factors demanding attention, but specific to what we can control, we're encouraged by our progress. With that, I'll ask Eric to walk us through the financials in more detail.

Thanks, Paul. In the first quarter, we delivered sales of $706 million. Core sales in the quarter increased 9.5% and FX added a bit over 400 basis points. Our Q1 growth benefited from additional calendar days and the Spark deferral benefit. Excluding these effects, core growth was around 4%, in line with our expectations. As Paul mentioned, this was another strong quarter of growth for Envista with positive growth in both segments and particular strength in developed markets. Q1 adjusted gross margin was 55.8%, an increase of 100 basis points versus the prior year. Volume, price, productivity and FX all contributed to the year-on-year improvement in gross margins. Our adjusted EBITDA increased by 25% year-on-year with margins for the quarter of 14%, increasing 120 basis points versus prior year.

Profit margins were helped by the previously mentioned gains in gross margins as well as continued strong G&A productivity while investing in the business. Adjusted EPS in the quarter was $0.36, up $0.12 compared to the same quarter of last year. Our non-GAAP tax rate for the quarter was 26.1%, slightly better than our expectations. The actions we delivered and communicated throughout 2025 have contributed significantly to the beneficial trend in our non-GAAP tax rate, and we still expect the 2026 full year rate to be around 28%.

Rounding out Slide 8. Our Q1 free cash flow was negative $16 million. The first quarter is historically our lowest cash flow quarter for the year, and we continue to expect our free cash conversion for 2026 to be approximately 100% of adjusted net income.

Now let's turn to 2 bridges to help break down our year-on-year results, beginning with sales. Core revenues grew 9.5% in the quarter, with positive growth in all major businesses. As outlined previously in our 2026 guidance assumptions, Q1 had 4 additional billing days compared to last year. Given the makeup of our businesses, the estimated impact was $28 million or 4.5% growth, consistent with what we outlined in the Q4 call. We expect a similar negative impact year-over-year from 4 fewer billing days in Q4 2026. The weaker U.S. dollar year-over-year contributed about $26 million in revenues. Underlying unit volume and price delivered another $22 million in growth, reflecting another strong performance for Envista. Spark deferral tailwinds contributed $9 million of year-on-year growth. And finally, we had a minor benefit from acquisitions completed over the past year, all 3 of which support a more competitive implants business.

Turning to the adjusted EBITDA bridge on Slide 10, we're now showing both the dollar and margin rate change year-over-year. This is consistent with the primary financial metrics that we laid out in our March 2025 Capital Markets Day and the specific focus that we placed on growing our profit dollars. I'll walk through the adjusted EBITDA dollar growth where we were up $20 million or 25% year-on-year. Volume and mix combined for a $27 million improvement, reflecting the strong gross margins across our business portfolio. Price contributed another $11 million. Foreign exchange rates contributed $7 million. This was driven by transactional FX losses in the first quarter of 2025.

As we outlined last year, we're now hedging our balance sheet, which is aimed at minimizing quarter-to-quarter volatility due to exchange rates. Productivity was a small tailwind in the quarter as we continue to drive both factory and G&A productivity, offsetting inflationary impacts. Year-on-year tariff costs increased $11 million in the quarter with a gross tariff cost similar to recent quarters and consistent with the guidance assumptions we outlined for 2026. As mentioned throughout 2025, we offset our gross tariff costs through supply chain, G&A and pricing actions. We expect quarterly tariff costs to be similar going forward in 2026 with the new global tariffs effectively replacing the prior IEEPA tariffs.

Finally, supported by our strong growth and productivity, we continue to invest in sales, marketing and R&D to drive future growth. All in, our margins in the quarter were 14%, up 120 basis points year-over-year.

Turning to segment performance. Revenue in Specialty Products & Technology grew more than 14% year-on-year with core sales up 8.4%. In our orthodontics business, Spark was up double digits even after adjusting for the net deferral change and Brackets & Wires also grew double digits. While the increased billing days in the quarter did benefit both orthodontic categories, the underlying growth remains strong as we continue to strengthen our competitive position globally.

Implant core growth was up low single digits in the quarter as solid growth in developed markets was offset by declines in China as our channel partners are reducing inventories in preparation for an expected VBP process. In Q1, Specialty Products & Technologies posted adjusted operating profit growth of $10 million year-on-year, up 18% with a 40-basis point improvement in margin rate. Both businesses had positive price capture, and we continue to see factory improvements in orthodontics, which allowed for increased investment in commercial and R&D.

Moving to our Equipment & Consumables segment, core sales in the quarter increased 11.5% versus prior year, with double-digit growth in both consumables and diagnostics. Our consumables business continues to deliver well across the portfolio in both Kerr and Metrex, while diagnostics were particularly strong in developed markets, posting its fourth straight quarter of positive growth. Adjusted operating profit increased 33% over last year, with operating margins up nearly 300 basis points driven by strong pricing and volume benefits, offsetting investment in sales, marketing and R&D. This segment also benefited disproportionately from the year-over-year FX tailwind that I mentioned previously.

Now I'll turn to cash flows and our balance sheet. Q1 free cash flow was negative $16 million, a reduction of about $11 million from the first quarter of last year, primarily driven by an increase in CapEx as we invest in new manufacturing facilities in China and Finland to support our growth objectives. Our balance sheet remains strong and stable with net debt to adjusted EBITDA of less than 1x. Our balance sheet continues to provide a strong flexibility during periods of macroeconomic uncertainty.

In Q1, we purchased approximately 1.6 million shares of our stock. At the end of the quarter, we had $41 million of remaining capacity in our stock repurchase program. As announced today, our Board recently authorized an incremental $300 million in repurchases through the end of 2029, assuming an even deployment of capital per year, this would allow for investment of approximately 1/3 of our annual free cash flow to repurchases, leaving capacity to invest in organic growth and M&A.

As Paul mentioned previously, we are reaffirming our 2026 guidance range of 2% to 4% core growth, 7% to 13% adjusted EBITDA growth, EPS of $1.35 to $1.45 and approximately 100% free cash flow conversion. With that, I'll turn the call back over to Paul.

Thanks, Eric. A few closing thoughts on the quarter before we open it up for your questions. The global dental market continued to demonstrate its characteristic resilience in Q1 even in the context of ongoing macro uncertainty. Specific to Envista, we again delivered balanced growth across our portfolio with strong performance in both reporting segments and most geographies. Our improved execution helped convert 10% core revenue growth into 25% adjusted EBITDA and 50% EPS growth, while also allowing us to invest in both organic and inorganic growth priorities. Behind this progress, our Board has authorized an incremental $300 million for share repurchases. While heightened macro volatility brings additional challenge, our continued momentum and strong start to the year gives us confidence to reaffirm our full year 2026 guidance.

Finally and most importantly, I'll close by noting that everything Eric and I shared today is made possible by the skill, effort and commitment of our global Envista team. We recognize and appreciate all you do in the service of our stakeholders. Similarly, we're grateful for the support we receive from our customers, partners and shareholders. And that completes our prepared remarks for today. We'll now open it up for Q&A.

[Operator Instructions]

The first question comes from Elizabeth with Evercore ISI.

Congrats on another good quarter. I mean, this really helps sort of extend some of the momentum that you built from '25. Maybe from a high level first, like what is it that sort of like clicking nicely for Envista? And then sort of what areas do you sort of view as having been more difficult to get traction in?

I'll take that one. Thanks for kicking us off, Elizabeth. As we talked about on previous calls, Eric and I came in just about 2 years ago now, having been in and around dental for a good portion of our careers. So we already knew that dental was an attractive industry and that Envista was well positioned within it. But for a variety of reasons, neither the performance of the market nor the business were consistently reflecting those advantages. So the plan that we laid out this time last year at the Capital Markets event centered on improved execution in 3 principal areas, those being growth, operations and people with the thought that they would help bring their performance better in line with the company's potential.

So now looking back, assessing our progress in that regard. On the growth front, I'd say that the investments we're making in areas like clinical education and customer support and new product development are all beginning to bear fruit. We saw that in the Q1 results as well as 6 quarters now of generally broad-based growth and market share gains.

Looking at it operationally, and this has always been a pretty strong business in this regard in large part because of our continuous improvement focus that comes through the Envista Business System. During COVID and the turbulence that followed it, though, in all candor, our focus did slip a bit, and that resulted in compression on the gross margin line as well as some overspending in G&A. So we trimmed overhead last year by about $35 million.

That has helped speed decision-making, and it's also improved earnings leverage as we just shared. And now we're starting to get similar traction on the manufacturing front with 100 basis points of COGS reduction in the quarter. And then we're really excited about the momentum that we're building on the people front. There were a few openings, as you know, in the management team when I joined, and that afforded the opportunity to bring in additional dental market expertise from outside the company, to supplement the strong team that was already in place when I arrived. And so the combination of the 2 has jelled nicely, and you see that in a lot of the metrics we shared on the call. Collaboration is up, internal promotions are up. Engagement is up. All of this is, I think, healthy and helpful.

And now in terms of the second half of your question, areas that have been less helpful. Of course, we'd have to start with macro uncertainty and in particular, the impact that has on our customers and patients. If we look back across the last 24 months or so, several of the, kind of, key market indicators for dental that many of us watch, things like interest rates and unemployment and consumer confidence, all of those were beginning to trend favorably across the back half of '24. Then of course, in Q1 of last year, we had tariffs, which caused an unexpected disturbance to that upward trend. Dental showed its resilience, conditions again started firming up in the back half of '25 and then we had the Gulf events heating up in Q1 of this year. So now we're all trying to assess how that might impact conditions moving forward.

But as this audience knows well, dental has proven its resilience. We saw solid evidence of that in Q1, both in our results and others. In addition to that, Envista, as we've shown, has a portfolio that's well balanced by segment, by geography, by go-to-market model. So that is all helpful. And I guess kind of bringing it to a close, net-net, we're confident that the dental market will weather the current uncertainty and that the continuous improvement you're seeing from Envista will continue. So thanks for the question.

Yes, that is helpful. And maybe as a follow-up, obviously, we saw a solid -- very good performance this quarter, and you pointed to the 4 extra days that changed in the back half of the year. But can you just talk about, is it really those sort of macro drivers that are causing you guys to not raise the guidance at this point for the outperformance? Is it just too early in the year? Obviously, you didn't do it 1Q last year either. So I'm just trying to sort of calibrate your expectations in terms of how things are faring versus when you originally set the guide.

Yes, it's a fair question. As part of our regular process in preparing for these calls, we give very careful thought to full year guidance. So we appreciate the spirit of your question. On the plus side, we are seeing stable to slightly upward trends in the dental market. We just walked through the many things that are going in favorably for Envista specifically. And then we're building, I think, a pretty good track record now of consistent performance. So all of these do give us confidence in continued performance moving forward.

But as you suggested in your question, you have to balance those with a recognition of the current macro climate. The frequency and amplitude of the geopolitical shifts over just the past 1.5 years has to be taken into account. And since we don't give a confidence interval along with our guidance, you need to capture that uncertainty in the guide, and it typically takes the form of a larger buffer reflecting a less certain environment. So net-net, Elizabeth, I'd say we're encouraged by our progress and feel that reaffirming 2026 guidance is the most appropriate outlook to provide at this point.

Your next question comes from Michael with Leerink Partners.

Maybe just one quick first point of clarification. You mentioned the implant performance in China in terms of VBP. Can you just remind us what's embedded in guidance on VBP timing?

I'll let Eric get in on this one.

Yes. So Michael, when we talked in the fourth quarter call, at that point in time, we were looking at ortho and implants and effectively a VBP process that would start for both of those in the Q2 and/or Q3 time frame. We don't have certainty on either of those, right? We have modestly updated information. But I would say, at this point in time, our best estimate and to your question, what's included in guidance is both of those VBPs starting the process in Q2 or Q3. So that's maybe the first point. And then what we always remind I think our sell-side analysts and investors on is we are relatively well prepared as we see the channel in both of those businesses.

We've been going through that process now for 18 months, particularly as we've seen some of the delays in VBP, but we will likely see a little bit of channel once the process begins, that will mean we'll have a slight compression of revenues in the short term. And then we'll see some benefits as our businesses particularly our good, strong global brands are able to leverage the important impact of VBP, which is bringing more customers to the market. So no change on the macro, I'd say, in line with our guidance, and we'll give you the best information we can as the market gives us the same.

It's helpful, Eric. And then just if I could stay on implants, if you don't mind, encouraging to see the mid-single-digit growth in the quarter ex China. Can you give us a sense on what component of the growth came from new product launches, I know you mentioned the S Series, but in terms of the vitality index contribution from implants, any way to characterize where the growth shook out?

Yes, I could just talk to that one, Michael. So I think it was in my prepared remarks, likely Paul's as well. So big picture, the number to hinge on is we grew low single digits in core growth in implants in first quarter. Very different trend as we look at China versus developed markets. I'll just take those 2.

We were down strong double digits in China. That's a nod to what we just talked about in terms of the start of the VBP process even though there's nothing formally confirmed in place. But nonetheless, the market is showing kind of the signals of that. So within that positive low single-digit growth, we were down significantly in China. We had strong mid-single-digit to even high single-digit growth in developed markets, roughly equal when we look at Europe as well as the United States.

Paul mentioned in his pre-read remarks, Nobel S Series. We're seeing good early signals from that. But I wouldn't say that at this point in time, new product launches are really significantly contributing to our implants growth overall. Most of what I think we've talked about in the past has been the return to growth based on the commercial investments we've put in, the same portfolio, if you will, that we've had as well as investments into clinical and then having also a strong portfolio around the entirety of implants.

So we had a very strong growing regenerative biomaterials business this quarter. That's been pretty consistent over the past many quarters. We had good growth in our prosthetics Procera business, and we continue to have a strong growth rate, albeit not a significant percent of the share of our business in the digital space. Good performance coming from some early new product launches, but certainly more to come there.

Michael, do you have a follow-up?

I am all set, thank you.

Your next question comes from Jeff with Baird.

I love the first name basis. Here we're all such good friends. Just wanted to ask a question -- a follow-up question on that implants business. Eric, would we think most of the impact of the VBP prep in China is now done? Do we get another quarter or so of the same kind of headwind before we stabilize for a quarter or 2 and then maybe get some tailwinds a quarter or 2 after that? Just how to think about that? And just what are you hearing on ortho VBP, that's the one that's been harder to get any kind of updates on, it seems like over the last quarter or 2?

Yes. So to your first question, Jeff, I would say the significant decrease that I mentioned, a double-digit decrease in Q1. We expect that to be the larger percent, if you will, of the year-on-year impact from VBP, but that also presupposes that VBP doesn't get pushed out, delayed or changed. There will be a little bit of a headwind from it in second quarter and then again, as plans get updated or remain the same, we expect to get more into the sort of the growth part of that.

Importantly, though, with prices reduced and volume up. And then we don't have great better information on the ortho side. Right now, Q3 is what our planning assumption is. That's effectively how we also went into the year. But I think as Paul talked about in the Q4 call, just be mindful that we've got an implants and an ortho business that's among dozens if you will, of other med tech businesses that are also being considered in and around the next couple of quarters, and I think that's creating some level of complexity. But right now, our planning assumption is third quarter and we hope we get some consistency out of that.

Yes, fair enough. And then just a follow-up on pricing, if I could. A 2-parter, I guess. One, it's -- you guys have taken some good price. I think we've been surprised that especially some of the price inelasticity, it seems like on the Wires & Brackets side, especially one of your larger distribution peers talking the other day about maybe seeing some additional price increases from manufacturers going through starting in 2Q of this year. Just how are you thinking about next round of potential price increases? I know you don't want to tip your hand on this call necessarily. But just generally, was it a one and done last year? Do you feel like there might be still some room in this environment.

And it looks like you have a new calculation for pricing for your 10-Q. Can you just kind of help us understand what pricing under the old calculation might have looked like versus what it looks like now, just so we can kind of understand in our model, how we could really think about this apples-to-apples growth this quarter coming from volume versus price at least as we modeled it?

Jeff, I'll take the pricing strategy part, and I'll let Eric weigh in on any disclosures in the queue. Our pricing algorithm has been the same since Eric and I joined. We've always thought of dental as a health care broadly, dental specifically, as less price elastic than the broader market. That's what's contributed to dental generally outgrowing the broader market both in times of economic expansion and contraction.

All of that got turned a little bit sideways in multiple categories during COVID. And I think Envista and our peers all lost sight a little bit of the importance of pricing from kind of the '22 to '23 period. So when Eric and I joined, we refocused Envista on this important component and it has both a strategic and an executional element to it. Strategically, our focus is always begins with our customers. We want to help them capture greater value in their offerings, and then we try to get a portion of that. So that's code for saying, we try to limit our price increases below procedure price increases so that as customers continue to do well, we get a portion of that.

And then executionally, you have to make price visible. You have to put it on the P&L. You have to put it in people's objectives. You have to show it on your dashboard. Of course, we have good capabilities in turning those targets into delivery through EBS. So we have focused kaizens on the execution of the pricing strategy that I just articulated.

So moving forward, Jeff, all that will remain the same. We were -- we got extra price last year because exogenous effects required it. And I think customers understood that. Again, we'll have to see what happens with inflation here in response to the situation in the Middle East. And if it required -- if we see inflation coming into the P&L, we'll have to take additional action on the pricing side. But the strategy here are high-level kind of algorithm remains the same.

Eric, do you want to talk about the Q?

Yes. Thanks for the question, Jeff. Good digging. We didn't expect you to get there that fast. But -- so what we disclosed in our Q for everybody on the call is that our price methodology changed -- I'd say, changed slightly. We now calculate price by looking at current quarter price versus prior year, full year. And the headline really is that's just to reduce volatility. We calculate price internally the way almost every company does by looking at the SKU and the customer.

And because we do that, we simply have a better base when we calculate it over the full year. If we have regular normal predictable cycles of price increases, which are traditionally in roughly the first quarter time frame. And we do that rhythmically over the years. There's no impact relative to this methodology and any other methodology. If we have any significant off-cycle price changes, that's where you may start to see some effect. This quarter, it was very nominal. It was immaterial in terms of kind of prior method versus current. But the headline is we're doing it for reasons of getting a better, stable price growth metric, just given how we calculate at the customer and SKU level.

Your next question comes from Michael with Jefferies.

I just wanted to ask about -- I believe you briefly mentioned in your prepared commentary, some headwinds around the Middle East tension. Just wanted to get a sense for what you're seeing in terms of input costs, freight costs around inflation and higher oil prices. And what's baked into the guide, if anything? And if you do see increases in input costs, do you have methods or ways to offset those.

Yes. Thanks, Michael. I'll take that. So maybe just at the highest level before I get into the operations side, 2 reinforcing points, our direct business, if you just look at it from a revenue perspective, the Middle East is less than 1% of our total revenues. And if you look at it through the operational lens, we have, I'd call it, nominal very small amount of operations in the Middle East. So that really has us primarily focusing on what we would consider kind of the core of your question, which is the second and third order impacts. That's code for what inflation may end up looking like.

I'd just say a couple of things on that. One, I would reflect back on last year's experience that we built through the -- kind of the whole tariff landscape. We learned a lot, right? We stood up task forces, we did scenario planning. We had teams that mobilized. So while I would wish -- not wish that on any company, I would say we feel stronger as a company having gone through that because it's sort of now a different version of being able to understand your situation. We have task forces that are in place, have been in place since the beginning of the conflict, and we're focused basically on 2 areas.

One is your question, which is fuel costs and logistics. Our supply chain overall is functioning well. The majority of our supply chain moves through ground transportation. We have like 5% of our total logistic costs and movement that's ocean and air. And that just simply means the disruption is very minimal. We estimate like a mid-single-digit million dollar type of risk from fuel increases and related surcharges.

And to your kind of opening question, we're working on mitigation to those. We don't consider those significant in our guidance and we will mitigate. Then we've also done some work on the second piece, which is the more complex piece. That's really just understanding how all of the oil and polypropylene and chemical feedstocks may create risk to an inflationary environment. I would just say, number one, we have it well understood. And secondly, we have mitigation plans that are in place. Again, drawing from sort of the same kind of agility that we had to go through last year with tariffs, right? It's looking at your supply chains and making sure that you're shifting sources of supply where possible.

It's looking at your own cost structure internally and then it's using the lever of price if that should need to be the case. So I'd say at this point in time, we haven't made changes to the guidance, but we have contemplated what the risks are and what the mitigations are and unless something goes significantly kind of off trend from where it's at, we feel we can mitigate.

Great. And just one other one on the Versah acquisition. I believe you mentioned the system can be used with a broad array of implant systems. From a strategic standpoint, do you have plans to kind of close that off and only make it usable with Envista's implants? Or will you keep it open?

No, we'll keep it open. It currently -- it's a key attribute to clinicians is the versatility of the system. And again, we start from what's best for the clinician. So we'll keep it open.

Your next question comes from Jon with Stifel.

Paul, you reviewed some new products that were recently introduced. But I believe the amount that you plowed back into the business in terms of growth investments via the bridge, if I'm reading that correctly, really was sort of a step function higher. It seems it was solidly higher than what the bridge suggested in 4Q '25 and 3Q '25. So maybe just talk about where the company is with the next wave of innovation. I don't know if you're going to tell us where it's focused, but maybe the timeline for some of those initiatives would be helpful.

Yes. Thanks for the question, John. So starting at the high level, the way the model here works is get the top line growing, good gross margins generate more gross margin dollars than you could reinvest but fund every accretive new product development and commercial program that you can and you're still going to have more drop to the bottom line until margins will continue to expand. That's a virtuous cycle as you invest more in growth, you get more of that top line, you get more of the gross margin dollars and it's a beautiful thing.

And I think if you look back, I know you look very closely across the last 8 quarters, you see that trend playing out. So you're exactly right. We did put more money into new product development and into front-end commercialization in Q1 because we had more money to invest and we think that those investments will generate continued strong growth. So hopefully, we'll be having this conversation in future quarters as well.

Okay. Fair enough. And maybe just as a second question. A lot of focus on implants. I'll take it over to E&C, and your performance has been very different than the industry in terms of, well, outperforming some of the other results. So just how do we think about maybe the durability and you're coming up on difficult comps. And I'm just trying to maybe vet that a little bit as you lap some of those numbers, and again, I don't think the consumable industry nor diagnostics is a high single digit, let alone low double-digit grower. Just thoughts on how you're performing in this industry and then any shout out in terms of how we should think about it, considering the comps going forward?

Yes. Let me take the 2 components of E&C in turn, starting with the consumables piece. Yes, I think you're right. We, over the past several quarters have clearly outgrown the consumables market. I think we benefit from a couple of things in that regard. The first is, remember, our Metrex business is part of our consumables. The antimicrobial infection prevention business, that has just done very well, have captured a lot of share and has had a couple meaningful high impact on new products. We talked about one in the last call. We have a hydrogen peroxide version of a surface disinfectant that's unique on the market. Customers really like it, and that has really captured a lot of share.

Second thing, in consumables, echoing a prior question, it's one of the categories that we have found tends to be less price elastic. It's such a small portion of total clinical spend that a couple percentage increase in the cost of consumables is a no percentage increase in the cost of a procedure.

So we probably benefit a little more from price in consumables. And to the extent that we focus on that more than others in the market, that would explain a bit of that delta. Coming to diagnostics. We've also outgrown the market. I think we talked about that on every quarter. That's principally driven by 3 things, Jon. The first is this very strong installed base and strong brand of DEXIS. As that market starts to turn back positive, whether we have 3 years of compression. We get more than our fair share because we have such a strong presence there.

The second piece related to diagnostics is that has been a very strong new product generator for us. And we had a couple of very big launches at the end of 2024, the new CBCT platform. And then last year, of course, we had the very big iOS launch with Imprevo that has made a big impact.

And then the third thing I would say in diagnostics, this is as much a market comment as is a DEXIS comment is software is really making an impact in diagnostics. This used to be principally a hardware game, but now differentiated software and the various AI-enabled solutions that I know you see when you walk through the booth at the trade show, that's really very exciting stuff because we have the largest installed base, we, I think, can have the biggest impact for customers on these sorts of digital add-ons. So I think all of that is the reason that we're outgrowing the market in E&C, both on the consumable side and on the diagnostics side.

Your next question comes from Erin with Morgan Stanley.

So on capital deployment, you did announce a buyback, $300 million or buyback program. I guess I want to ensure none of that's embedded in guidance today that would offer incremental upside to EPS. And then how are you weighing just M&A versus buybacks? You had a small tuck-in. Are there a lot of attractive dinks and dunks out there in certain markets? Like what are you looking at? What is the acquisition pipeline? I guess, how would you characterize it?

Yes. Thanks, Erin, for the question. Let me start with the first half with capital deployment. I'll just reiterate our priorities. Our highest priority clearly remains organic growth. As Jon asked about in the previous question, we've ramped both our commercial and new product investments over the past several quarters. And we still see the highest risk-adjusted return on any marginal dollar to be a good organic program. So that tops the list. We come on to the second half of your question, our second priority being accretive M&A. We have done 3 small deals in the last year or so. Maybe I'll say just a bit more about each in a minute here.

But all were accretive in terms of purchase multiple and financial contribution. So we like those. And then, again, embedded in your question, our third priority is returning surplus cash to shareholders that the incremental $300 million authorization that we announced today, and then we initiated Envista's first-ever repurchase program in Q1 of last year. So now specific to acquisitions, of course, we have a very experienced M&A team over the last 25 years as Envista has been put together that had a big M&A component to it.

And so we're well networked across the global dental space. And we continue to see a steady stream of opportunities across the portfolio. So for us, we're remaining highly disciplined. We're focused on those strategically aligned targets that offer the accretive economics that I just mentioned. So let me just kind of walk it through the 3 deals we did. We like bolt-on acquisitions in areas of existing strength. The Versah deal that we talked about previously is a great example of that.

We're working to better balance our overall implant weighting by increasing our challenger penetration. One of the small deals we did last year nicely fits that description. And then a third area that we're spending time on is further strengthening our presence in targeted international markets. So one of the small deals we did last year was in Turkey, and that's a good example of that third category.

In totality, you see plenty of additional runway for us on organically led value creation. But we do have a good M&A capability. And so we view acquisitions as a supplementary arrow in our quiver.

Okay. Great. And then on Spark on ortho, just can you talk about -- a little bit about kind of the strategy there where it stands today, Brackets & Wires and Spark. How -- what's the go-to-market strategy? How has it evolved? And any changes that you're seeing from a competitive landscape standpoint on that front?

Yes. So with ortho start at the highest level, it remains a highly underpenetrated category. Something like 5% of all clinically appropriate cases where the patient has the wherewithal to pay, get treated in any given year. So it's a hugely underpenetrated category. Kind of one click down, roughly 3/4 of all cases get treated with Brackets & Wires, about 1/4 get treated with clear aligners. That mix has been largely stable over the past couple of years. It moves a little bit quarter-by-quarter, but that mix is relatively stable.

And our competitive advantage is that we're the only scaled player who has a decent sized offering in both. We're clearly the market leader on the traditional fixed orthodontic side and now serving orthodontists. We're a strong #2 in the clear aligner segment. And having spent a lot of time in orthodontists offices, I know they value 2 things in particular, from Ormco. The first is that you've been there for 60 years, been a market leader. And the second is that we don't tell them how to treat. We know that they're the experts. We give them the tools, whether they be Brackets & Wires or clear aligners to treat a particular patient in a particular case in the way that they know how. And I think that is why we continually outgrow the market and have captured share certainly 6 straight years, if not 20-something straight quarters.

Your next question comes from Glen with Barclays.

Eric, I just had a quick sort of financial question. I was sort of hoping we could dig into that core growth number of 9.5%. And looking back to last year, obviously, you raised prices due to the tariffs. And I'm trying to parse out how meaningful of an impact that was on a year-over-year basis because sort of looking at the cadence of your guidance. I'm trying to figure out how big of a headwind that will be in 3Q this year. And then ultimately, in 4Q, you have that headwind as well as sort of the days issue that you're benefiting from this quarter. So I just want to make sure I understand the cadence of 2Q, 3Q and 4Q correctly.

Yes, perfect. Let me try to hit all that, Glen. So maybe just to start off with the growth in Q1, if you just look at the bridge that we provided. Effectively, what we're telling you is 9.5% reported core growth, take the billing days out, take a little bit of the deferral gain out, our normalized growth was about 4%. So that's just the piece on Q1. I think coincidentally, if you were to look at our same breakdown of growth last year, our published core growth results, 6.5%. We also said it normalized to about 4% and that was mostly with a little bit of distribution and channel in there and then Spark deferral.

So I think that's maybe the first way just to think about the business as we're on this relatively close normalized 4% core growth. As you think about the cadence for the next couple of quarters, I would say our guidance range, 2% to 4% for the year is a good way to think about Q2 and Q3. And then the data that we effectively gave you on the 4.5% impact in Q1 relative to billing days is something you should be taking out of Q4, if you will. That means Q4 could be low to mid-single-digit negative, with the underlying business still performing well.

And then if I caught it right on price, I mean, I wouldn't differentiate price in there. The prices that we put in place last year around mid-year, we're going to continue to see in our growth rate as we go through second quarter. And we've talked about, I think, in our Q4 call is that pricing would resume to be sort of more in the normal range ex the impact of China.

Okay. I appreciate all that. And I guess only one of the reasons I was asking because the way you worded the press release, you sort of suggested 2Q and 3Q should sort of be in that published range. But if you're anniversarying those price increases that you put in place in the middle of the year, wouldn't 3Q theoretically grow slower than 2Q, all other things being equal?

I mean, all other things being equal, yes. But of course, we've got a business portfolio and a bunch of other dynamics. So think about it as being midpoint of our guidance range within our guidance range as the right instructive view of Q2 and Q3.

Your next question comes from Jason with Piper Sandler.

Apologies for any background noise, I'm at the airport here. But I wanted to ask first on Spark. I think it's been a little while since you updated I think where you stand with the percentage of your Ormco accounts that are currently using Spark. Just any details you could provide there just to have a sense of kind of the runway in front of you?

You're testing my memory here, Jason, on what those figures are. I don't have them to mind, but the general takeaway is that there's still quite a bit of runway left in terms of our core Bracket & Wire users converting across and that's true both in individual clinics. It's especially true in DSOs. You heard one of our peers report. They do quite well with DSOs, and so we have a big opportunity there to gain share.

And then the second thing I would say is that now Spark is a big enough business that it's no longer focused just on the core Ormco users as it was when we first started out, and I was calling on all orthodontists. And although we had the leading market share in orthodontics, of course, we don't have 100% share. So the takeaway would be plenty of room to run still in orthodontics.

Okay. All right. Fair enough. Totally appreciate that. Now Paul, I'll ask a bigger picture follow-up. And look, you guys have navigated the last couple of years since you've been at Envista extremely, extremely well, taking some share, turned the business around, you deserve a lot of credit. Just maybe on a go-forward basis, trying to think about how do you still win with your pricing spread or how you think about your innovation and pricing strategy, knowing that these secular headwinds in dental aren't going away.

It seems like inflation and some of the things we're looking at with fuel or we're hearing more about driving the private label and lower priced equipment, lower price consumables. So I guess how do you think about, again, wrapping this all together with your innovation and pricing strategy, how do you think about Envista going forward in that landscape?

Yes. I mean that's what's great about dental. It's a global market. Unlike every other health care category on the planet, every single person is a potential patient, so there is no end to the opportunity in the category, and it has persistent excess demand over supply. So that's just what propels dental as a category to outgrow the broader market essentially every single year. So we're a beneficiary of that. As you know, our strategy is mostly to take advantage of that rising tide to execute well and to try to bring our performance up in line with the potential that the market and this collection of businesses offers. Over time, Eric and I have been in dental now for 20-something years if you take care of your customers, you take care of your colleagues, the rest pretty well takes care of itself over time.

Your next question comes from Daniel with Citi.

I want to focus a little bit on EBITDA margin cadence for the remainder of the year. Obviously, a good result this quarter, even with that step up in growth investments. As we think about the remainder of the year, how are you looking to pace growth investments, particularly given the headwind you'll face from fewer selling days in 4Q and I guess, in tandem with that, how are you thinking about realizing productivity benefits for the remainder of the year across both the manufacturing productivity and G&A productivity?

Yes, Excellent. Daniel, welcome to dental and Envista. Look forward to meeting you in the next couple of hours here. So I think a couple of questions within there. The first one I would say on the growth investment piece, you should think about our bridge that we provided this quarter and the significant margin impact from growth investments, which Paul well described as fueling our R&D and future growth as primarily being investments that we put in the business in 2025 and Q1 is really comping against a lower investment quarter last year. That just means that the ramp, if you will, isn't as significant as we see things moving sequentially.

So I think that's one important point to consider. To the point of your margin rate question, I would think about Q2 and Q3 being at a roughly similar margin rate than we just printed in Q1. And because we have better revenue dollars, little bit of cyclicality in Q4, that's where we'll see slightly better margin rates that get us to the roughly midpoint of our 7% to 13% adjusted EBITDA growth.

And then I think on the productivity side of the equation, I would just say our playbook and the contribution to margins is really pretty similar, right? We're going to cadence our growth investments to be sort of in line with how we're going to grow, but we will continue to use G&A as we have in the past to be able to help create margin opportunities and fund sales, marketing and R&D. So hopefully, that gets you a home. If you need more detail, we can get you offline.

Thank you so much, everyone. It is now time to the end of the meeting. There are no further questions that will be taken. I will move the call over to Paul Keel. Please go ahead.

All right. Hey, thanks, everybody, for tuning in and for the thoughtful questions. It really is a pleasure to work with a group of investors who know the market and the players so well, at least for a very kind of rich and helpful discussion. I'll briefly underline just a couple of thoughts by way of wrap up on the quarter. First, Q1 was another solid step forward for Envista. We had double-digit sales, adjusted EBITDA and EPS growth.

Secondly, our performance is broad-based. All our major businesses and most geographies posted strong performance. And we had good contribution again from volume, price and new products. Thirdly, we continue to focus on executing our value creation plan. And I think we have demonstrated ongoing progress on all 3 of our growth operations and people priorities. And then fourth, today, we announced an incremental $300 million share repurchase authorization and reaffirmed our 2026 full year guidance. So I think I'll leave it there for now. Have a good day and a great week, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Hello. My name is Vanessa, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's Fourth Quarter 2025 Earnings Results Conference Call. [Operator Instructions]

I will now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at Envista Holdings. Mr. Gustafson, you may begin your conference call.

Good afternoon. Thanks for joining Envista's Fourth Quarter 2025 Earnings Call. We appreciate your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer; and Eric Hammes, our Chief Financial Officer.

Before we begin, I want to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.envistaco.com.

The audio portion of this call will be archived in the Investors section of our website later today under the heading Events and Presentations. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our results. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the fourth quarter of 2025 and references to period-to-period increases and decreases in financial metrics are year-over-year.

During the call, we may describe certain products and solutions that have applications submitted and pending certain regulatory approvals or are available only in certain markets. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events and developments that we believe, anticipate or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

With that, I'll turn the call over to Paul.

Thanks, Jim. Good afternoon, and welcome, everyone. On today's call, I'll kick us off with some opening thoughts on our Q4 and 2025 performance, our progress implementing the value creation plan that we communicated in March of last year and our guidance for 2026. Eric will then take us through the numbers in more detail, and I'll wrap up with some closing thoughts before we open it up for Q&A.

Let's start with the value creation plan that we shared at our Capital Markets Day early last year. In our view, a good plan should be both achievable and aspirational, timely as well as timeless. A good plan should authentically describe who you are today and who you're striving to be tomorrow. Centered on the 4 foundational components that you see here, we think our plan does exactly this.

We're guided by our purpose of partnering with dental professionals to improve patient lives. We're centered on our circle values of customer centricity, innovation, respect, leadership and continuous improvement. We're focused on our 3 key priorities of growth, operations and people. And our plan is framed by our medium-term financial objectives of 2% to 4% core growth, driving 4% to 7% EBITDA and 7% to 10% EPS growth, all underpinned by free cash flow conversion of 100% or better.

Today, I'll focus on the strategic and operational progress that we're making in implementing this plan as well as our financial performance relative to our medium-term objectives. Let's begin with Q4 and 2025 progress on the next slide.

Slide 5 is organized by the 3 priorities that I just mentioned. Beginning with growth on the left side of the chart, ours was widespread. All businesses posted positive growth for the quarter and year and all outgrew their respective markets in Q4, resulting in continued share gains across the portfolio.

Consistent with what we've discussed on previous calls, increased new product activity and clinical training are contributing meaningfully to our accelerating growth. We trained 30% more customers in 2025, and we generated close to $100 million in revenues from products introduced in just the last 12 months. I'll touch on a few of these new products on the next slide. And looking to build on this momentum in 2026 and beyond, Q4 marked another quarter of double-digit increases in R&D investment.

On the operations front, we continue to enjoy strong contributions from EBS, our continuous improvement methodology that is central to how we deliver results, develop our people and advance our culture.

We reduced G&A spending by over $35 million last year or about 10% while maintaining our world-class safety, quality and customer service levels. We took action in 2025 that we expect will result in roughly a 4-point tax rate reduction in 2026. And supported by strong cash flows, we put in place a $250 million share repurchase program in early '25, a first for Envista and returned over $160 million to shareholders across the year.

Finally, with respect to people, we're working to advance our high-performing continuous improvement culture. We refreshed our management team in mid-2024, bringing in new leaders from the outside to supplement a strong core team that was already in place. 18 months in, we're working very well together and stability and collaboration at the senior ranks have cascaded across our organization.

We saw record participation in our 2025 employee survey with broad-based increases in employee engagement. We've redoubled our commitment to talent development with better than half of all management promotions going to existing employees last year, a 40-point increase over 2024.

And in addition to taking care of our customers, colleagues and shareholders, we've also stepped up support of our communities by reaching more than 19,000 underserved patients last year and donating over $2 million to charitable causes through our Envista Smile Project. New product innovation has long been the lifeblood of Envista.

Having served dentists now for over 130 years and with more than 1,500 patents to our name, we've had a hand in several of the most important dental innovations over time, including the invention of dental implants, the introduction of both self-ligated and conventional orthodontic bracket systems, the first panoramic radiograph and the now ubiquitous endodontic K-file.

We built on this strong heritage in 2025 with key new product launches in all major businesses, and you see some of those listed here. Four major new product introductions in Spark last year supported that business' robust growth. New platforms in both premium and challenger contributed to multiple consecutive quarters of growth for our implants franchise and our fastest full year performance since 2022.

In consumables, launches like OptiBond 360, SimpliCore Composite and CaviCide HP helped propel above-market growth for that business. And we enjoyed another strong year of new product launches in diagnostics with an entirely new intraoral scanning platform as well as novel cloud and AI features for our market-leading DTX Studio suite of solutions. We have another strong wave of launches lined up for 2026, and we look forward to sharing more about these as they come to market.

Now having given you a flavor for where we're investing our time, attention and resources, let's turn to the output from all this work. We'll begin with Q4 results on the left side of the slide. We posted another strong quarter, delivering good revenue, EBITDA and EPS growth. Core growth came in around 11% or something closer to the mid-single digits, excluding certain factors that Eric will explain shortly. Strong core growth converted to even stronger EBITDA growth of 22%, driven by Spark turning profitable in Q3 and continued good execution on price, tariff mitigation and G&A productivity. Adjusted EPS was $0.38, up more than 50% from Q4 '24, supported by strong operating profits, share repurchases and a lower tax rate.

Moving to full year performance in the center of the slide. Core growth for 2025 was 6.5%, again, broad-based across the portfolio. Adjusted EBITDA was up 26%, resulting in a margin of around 14% or a 2-point improvement over 2024. And EPS was up over 60%, aided by many of the same drivers as Q4. All of this contributed to strong free cash flow conversion for 2025 of 114%.

Rounding out the slide, you'll see our 2026 guidance in the column on the right. This year, we expect core revenue growth of 2% to 4% and free cash flow conversion around 100%, both directly in line with our value creation plan. We're guiding to adjusted EBITDA growth of 7% to 13% and adjusted EPS growth of 13% to 22%, both above our medium-term objectives.

To summarize my introductory comments, Q4 capped a strong year of progress and performance for Envista, positioning us well for continued improvement here in 2026.

And with that, I'll turn it over to Eric to cover the financials in more detail.

Thanks, Paul. In the fourth quarter, we delivered sales of $751 million. Core sales in the quarter increased 10.8% and FX added nearly 400 basis points.

As Paul mentioned, Q4 was another strong quarter for Envista with broad-based growth. It is worth noting upfront that our Q4 growth benefited from several items, which we do not expect to recur over the long term, namely Spark deferral and lower 2024 comparables, which I'll say more about in just a moment. Excluding some of these items, our Q4 core growth was closer to the mid-single-digit range.

Q4 adjusted gross margin was 55%, a decrease of 220 basis points versus the prior year due to a significant FX transaction benefit in Q4 of 2024. Our adjusted EBITDA margin for the quarter was 14.8%, which was 90 basis points better than the prior year as benefits from volume, price and productivity were partially offset by investments and the prior year FX impact just mentioned. Adjusted EPS for the quarter was $0.38, up $0.14 compared to the same quarter of last year.

Our non-GAAP tax rate for the quarter was 30.3%, slightly better than our expectations. We saw a beneficial trend throughout 2025 in our non-GAAP tax rate as a result of our strong business performance in the United States. As we've discussed previously, U.S. GAAP limits the amount of interest expense that companies can deduct to a portion of their taxable income.

Our U.S. earnings have improved on several fronts, namely growth, Spark profit and G&A, all enabling higher deductibility of our third-party and intercompany interest expense. This drove the lower effective tax rate in 2025.

Rounding out Slide 8. In Q4, we generated $92 million of free cash flow, down slightly from last year. The year-on-year cash flow decline in Q4 was primarily the result of a working capital improvement in Q4 of last year. Our absolute levels of free cash generation and conversion were strong in Q4 2025.

Now I'll take you through our full year financials. In 2025, we delivered sales of $2.7 billion with core sales for the year increasing 6.5% over 2024. Similar to our trends in Q4, the business performed well throughout 2025. Our core growth was aided in part by the Spark deferral change and softer 2024 comparables, all netting to an underlying core growth of around 4%, in line with both our revised 2025 guidance and the medium-term objectives Paul covered earlier.

2025 adjusted gross margin was 55.1%, a slight decline year-over-year due to the impact of transactional FX penalties in the first half.

Our adjusted EBITDA margin for the year was 13.7%, a 190 basis point improvement over 2024, with volume, price and productivity all delivering well throughout 2025.

Adjusted EPS for the year was $1.19, up $0.46 compared to the prior year as our growth and profit improvements were aided by a reduced tax rate and the share repurchase program we started in Q1 2025.

Now let's turn to 2 bridges to help break down our fourth quarter year-over-year results, beginning with sales. Core revenues grew 10.8% in the quarter with positive growth in all businesses. We had good performance in both volume and price with a small tailwind from the Spark deferral change.

Adding in the benefit of FX, a $25 million tailwind and 2 small acquisitions that contributed around $2 million, reported growth came in at 15%.

As I mentioned previously, Q4 growth did benefit from 2 notable items we do not expect to repeat over the long term. The tariff price increases of 2025 are the first. We generated about 3 points of price in Q4 with tariff-related increases accounting for approximately 2/3 of this amount.

Favorable comps are the second. As you recall, our China business experienced a high double-digit contraction in Q4 of 2024 due to VBP preparations and other market-specific factors. In addition, our Diagnostics business was down high single digits globally in Q4 2024. All in, prior year comps yielded about a 3-point benefit in Q4 2025.

Turning to the adjusted EBITDA margin bridge on Slide 11. Volume, mix and the Spark deferral benefit combined to deliver a 330 basis point improvement. The previously mentioned price actions helped margins by 260 basis points. We had a net gain of 100 basis points from improved productivity with continued strong performance within our supply chains as well as year-over-year reductions in G&A. Partially offsetting these gains, gross tariff expense was about $10 million in the quarter or roughly 160 basis points.

We continue to reinvest a portion of our productivity gains back into sales, marketing and R&D to support future growth, which amounted to 170 basis points in the quarter. And as mentioned before, year-on-year FX was a headwind to margins of 270 basis points as a result of the FX transaction gain in Q4 2024.

Turning to segment performance. Revenue in Specialty Products & Technologies grew nearly 16% year-on-year with core sales up 10.9%. In our orthodontics business, Spark was up high single digits before the additional benefit from the net deferral change. Brackets & Wires were up double digits year-on-year, aided by the low China comparable in Q4 last year that I mentioned previously. Excluding this, Brackets & Wires were up low single digits. Our ortho business continues to capture share as having leading offerings in both Brackets & Wires and clear aligners provides us a distinct portfolio advantage.

On the implant side, we grew mid-single digits globally, led by above-market performance in several geographies, including North America. Growth was especially strong in both the digital and regenerative segments of this business. Customers are looking for solutions that support both clinical efficacy as well as practice efficiency, and our products are helping meet these needs.

In Q4, Specialty Products & Technologies posted an adjusted operating margin of 16.2%, up 470 basis points, driven by good growth as well as the year-over-year impact of Spark profitability. Volume, price and net productivity were all positive in this segment and consistent with prior comments, a portion of the gains were reinvested into commercial and new product development activities.

Moving to our Equipment & Consumables segment. Core sales in the quarter increased 10.7% versus prior year, including high single-digit growth in consumables, where we delivered broad-based growth across the portfolio, including solid price performance.

Diagnostic core sales was up double digits globally with high single-digit growth in North America. While our Diagnostics business did benefit from a soft Q4 2024 comparable, Q4 of 2025 was our third consecutive quarter of Diagnostics growth, driven by strong commercial execution, new product introductions and improving trends in the North America market in the second half of 2025.

Adjusted operating profit margin for the segment was down 510 basis points, driven by continued investment for future growth and the prior year FX transaction benefit that I noted earlier.

Now let's turn to cash flow. Q4 free cash flow was $92 million, a decrease of about $32 million when compared to the fourth quarter of last year, driven by very strong working capital results at the end of 2024 and higher CapEx in Q4 of 2025. For the full year, we delivered $231 million of free cash flow with a conversion of 114%. Free cash flow dollars were down year-over-year, primarily as a result of lower incentive bonus payments in 2024 related to 2023 performance and higher CapEx in 2025.

Our balance sheet remains strong with net debt to adjusted EBITDA of approximately 0.6x, providing welcome stability in the current environment. In Q4, we deployed approximately $24 million in cash to repurchase 1.2 million shares of stock.

On a full year basis, we repurchased $166 million or a total of more than 9 million shares at an average price of around $18 per share, making strong progress against our $250 million 2-year repurchase authorization.

As Paul mentioned, today, we're providing guidance for 2026 using the same measures we introduced at the 2025 Capital Markets Day. Core sales growth of 2% to 4%, adjusted EBITDA dollar growth of 7% to 13%, adjusted EPS of $1.35 to $1.45 and free cash conversion of approximately 100%. Slide 16 provides additional detail on key assumptions underlying this guidance.

First, we expect the dental market in 2026 to be similar to what we've seen this past year, continued stability with the potential for modest improvement across the year. Quarterly sales in 2026 will cadence a bit differently than last year and that we have 4 more selling days in Q1 and 4 fewer in Q4 relative to 2025.

Specific to this effect, we expect stronger Q1 core growth and slower Q4 growth. The straight math on the days would imply a 6- to 7-point shift in growth, although with about 1/3 of our business going through distribution, we expect this to be closer to 4 to 5 points of additional growth in Q1 2026. We will update you throughout the year on how we see the progression playing out.

We're assuming December ending exchange rates for our guidance. With the dollar ending 2025 at EUR 1 to USD 1.17, this would imply a 1.5% revenue benefit from foreign exchange in full year 2026.

The impact of the 2024 change in the Spark deferral will continue to subside with about $15 million of remaining tailwind landing in the first half of 2026. We expect pricing to moderate across the year as we lap the tariff-related price increases implemented in Q2 of 2025. As the tariff environment has proven to be difficult to forecast, we have not modeled any material changes to tariffs in 2026.

We incurred about a $30 million tariff headwind in 2025, and we expect around $40 million from tariffs currently in effect in 2026 due to annualization. We were able to offset tariff impacts in 2025 from a combination of price increases, cost reductions and supply chain adjustments and expect to cover tariffs currently in effect again in 2026.

And finally, on the tax rate, as a result of improving U.S. profitability and the resolution of the intercompany loan that we discussed last quarter, we expect our 2026 non-GAAP tax rate to be approximately 28% of adjusted pretax income.

Now back to you, Paul, to wrap things up.

Thanks, Eric. I'll start by circling back to our value creation plan. While we're still in the early days of unlocking the vast potential of our company, our first year executing the plan has us pointed in the right direction as we delivered above-target performance on all 4 of our medium-term financial objectives in 2025. As noted earlier, we're guiding to continued progress in 2026 with core growth, EBITDA, EPS and free cash flow conversion all at or above medium-term targeted levels.

A few closing thoughts as we put a cap on 2025 and turn our full attention to 2026 and beyond. First, across most of last year, we described the dental market as slow but stable. On balance, that's still the best descriptor, although we are beginning to see some signs of market improvement. For example, the North American diagnostic market returned to growth in H2 and Q4 was the third straight quarter where all of our businesses posted positive growth. As we're a top 3 player in all of our categories, the breadth and consistency of our performance should be a positive signal for the broader market as well.

Second, we feel good about the progress we're making in implementing the value creation plan that we shared with all of you last year. Underlying growth in 2025 was consistent with our medium-term plan, converting to even stronger earnings and EPS gains.

Third, the full year guidance that we shared today reflects our confidence in building on this momentum here in 2026. Guidance for core growth and free cash flow conversion are right in line with our medium-term objectives, and EBITDA and EPS guidance are above the medium-term plan.

Importantly, I'll close by noting that all this progress is made possible by the commitment, collaboration and deep capability of our global Envista team. We accomplished a great deal together in 2025, and we've only scratched the surface of what's possible. We're excited to build on this momentum here in 2026.

That completes our prepared remarks for today, and we'll now open it up for Q&A.

[Operator Instructions] We have our first question from Brandon Vazquez with William Blair.

On a nice end of the year here. Can you -- maybe let's start at a high level, just talk to us a little bit about guidance. What are the potential upsides here? What are the risks to guidance, especially as we look at the top line and the bottom line, especially in the context of what is some pretty good momentum, I think, even when you back out some of these moving pieces exiting the year?

Thanks for the question, Brandon. Why don't I cover the growth part of your question, and then I'll ask Eric to cover the profitability component.

Maybe I'll just begin by reframing core guidance for the year, 2% to 4% for 2026. And a reminder that this range is directly in line with the medium-term financial objectives that we communicated last year. And the high end of the 2026 range maps well to the roughly 4% underlying growth that we just delivered.

I guess I would also say in terms of context that since we've not observed any material change in the underlying dental market, 2% to 4% feels like a good jumping off point for 2026. Again, noting that we expect relatively faster Q1 and slower Q4 growth due to the billing day effect that we just mentioned.

Now having set the frame, let me answer your question, a couple of upsides and then maybe a few risks. I'd say there's 3 upsides worth noting consistent with your question. I guess I'd have to start with our momentum. Not only did we have positive growth across all the businesses, we had accelerating sequential growth across the 4 quarters. So carrying that momentum into '26 is naturally helpful.

And related to this, with all of the businesses positive and generally accelerating, there's 2 businesses in particular that we don't typically say a lot about that I think do have upside this year. The first is diagnostics. The overall diagnostics market, as we mentioned, turned positive in the second half of '25 after 3 years of contraction. We're a large player both in North America and globally. And while it's still far too early to say with confidence that, that market has turned, if indeed it does, that would naturally be upside for us.

The second market that we don't say much about is our consumables franchise. It was up high single digits in '25 behind some really good work by the team on fundamental things like price, new product introductions, DSO penetration, et cetera. We have been intentionally investing more in our consumables business of late, which could yield some upside.

Let's see maybe the third upside I'd mention, Brandon, would be price. As we said in our prepared remarks, our guidance assumes that we return to more normal pricing levels, call it, 1 point or so per annum once we lap the tariff-related increases that we took mid last year. There's just too many moving pieces to put it in our guidance, but it's not hard to envision scenarios where inflation, both general to the economy and specific to dental, continue at elevated levels here in '26. We've been working hard at improving our price execution. And so if inflation stays at higher levels, I think we'd be positioned to take advantage of that.

Now giving you a balanced response on the growth side before I turn it over to Eric for profitability. I think 2 risks warrant mention. The first, of course, you'd have to start with macro volatility. No one gives a confidence interval along with their guidance. But if we did, you'd have to expect that it'd be unusually wide for this year for the reasons we all know well.

Factors like tariffs and interest rates, consumer confidence, et cetera, all impact dental demand. And as we saw pretty clearly in '25, there's a real possibility of some or all of those recurring here in '26, which brings me on to a second risk worth noting, that being China.

China now represents about 7% of our total sales. While VBP and ortho and implants are very likely in 2026, the specific timing is difficult to forecast. There's been a number of delays. Based on prior experience, we feel like we generally have our arms around the impact of VBP across a 12- or 18-month horizon, but the specific quarter-by-quarter effects can vary quite a bit depending upon government timing.

So in sum, 2% to 4% for the year. I would say -- I would shade the upsides a little bit above the risks, but there's plenty out in the world right now to keep us cautious.

Eric, do you want to say same on the EBITDA side?

Yes. Excellent. Thanks, Paul. Brandon, thanks for the question, a good forward lean for us to talk through.

So maybe just before the headwinds, tailwinds, what I would just start with is the fact that our profit improvement and our margin improvement in 2025 was pretty solid, double-digit growth in profit, almost 200 points in year-over-year improvement in margin. And I think if you just follow our bridges as we provided through each quarter and now fourth quarter, what you saw in 2025 is good growth in productivity, more than offsetting tariffs and FX, all while being able to invest for future growth, which you saw more predominantly in Q3 and Q4. So a good year for us, good equation in total.

Just as Paul said, just a reinforcement on guidance, we're guiding to 7% to 13% EBITDA growth in 2026, so slightly better than our Capital Markets Day guide or outlook, which was intended to be an average year.

We do think it's important to focus on the dollar growth versus the margin percentage, although, of course, we manage both. We think the dollar growth aligns better with value creation. We know our investors like to see that, and it allows us a little bit of flexibility on trade-offs between growth and margin. That said, if you take our guide and you back into margins, you'll get a guidance that implies about 50 to 100 bps in margin improvement in 2026.

Tailwinds, I would say, would be core growth. So margin improvement based on the strong gross margins that we get. Paul talked about the fact that we've got a good momentum right now in terms of growth heading into 2026, and we see that as a tailwind for margin rate.

Productivity, just like 2025, we'll continue to drive productivity. Factory productivity, G&A discipline, we'll just put another focus on that this year like we did last year. We've got good momentum in Spark, both in terms of growth and profitability. And I think we can expect more of that in 2026.

And then FX, while certainly less predictable as a forward projection, we do think FX is a year-on-year tailwind to our margins. That's mostly because we took losses on what we call transaction balance sheet revaluation in the first half of last year. We have a hedging program in place, and that's why you've seen sort of a settling and more of a neutral inter-quarter view of that in the second half.

And then if we just flip for a moment to headwinds, I think we gave a pretty instructive view of tariffs in our guide assumptions. About $10 million per quarter is the run rate that we've been at in second half. If you just annualize that, it means we've got about a $10 million headwind next year. We'll continue to offset that with the actions that we've had thus far.

China. Paul mentioned sort of the uncertainty of China. He mentioned the 7% of our revenues. But I think in general, you should see China as a margin rate headwind, maybe a slight profit dollar headwind just based on how we expect China to play out in terms of growth and profitability.

And then lastly, I would just say investments, just as we saw in 2025, we'll continue to invest in R&D, sales and marketing. That will certainly be at the pace of our business performance, right, how well we grow and how well we fund that investment by delivering on productivity. You kind of take all that together and the cadence for the year probably looks like slightly lower margins first half, slightly higher second half, most of that just being defined by the revenue profile of our business.

Got it. And that's super helpful, very comprehensive. So maybe I'll ask a quick modeling touch-up on so some others can get in the queue here. But Eric, as you think of the tax rate, you guys have clearly done some good work there. Is there more work to be done? What's kind of the expectations of tax rates to go lower?

Yes. Great question, Brandon. So I mean just kind of taking everybody back, we finished the year just under 32%. We put in our guidance assumptions, just to give you the sort of the answer on our EPS equation. We expect tax to be this year, 2026, around 28%. That's fully inclusive of the resolution of the intercompany loan that we've talked about. That is the majority of our 4-point tax rate reduction.

Future benefits, I would say, would primarily come from one of three things: continued U.S. profit improvement. We still pay third-party interest, that's interest on our debt, and we have a little bit of a deductibility cap that we still have there, which pressures our tax rate. Continued U.S. income improvement will just help to absorb that effectively.

The second would be any kind of paydown in debt. So if we choose to capitally deploy our balance sheet towards debt paydown, that may help our tax rate. That's also linked to that interest expense just mentioned.

And then the last would just be if we have any geo mix benefits and the ability to improve profits in lower tax jurisdictions. But I would say the 28% is a good view. It's obviously showing a lot of year-on-year improvement. And most of the mentioned items on favorability would be minor at this point in time.

We have our next question from John Block with Stifel.

Great color on '25 and the '26 outlook. I think the only thing that I was a little bit unclear on and sorry if I missed it, but just the detail or assumptions on VBP for ortho and/or implants. In other words, sort of what's embedded in the '26 guidance regarding those variables? Is it one? Is it the other? A stub? Again, I know it's a moving part -- or moving parts to it, but just curious on how you guys are thinking about that going into the year.

Jon, thanks for the question. Yes, we didn't say much about VBP because there's really not too much new news to report, but let me recap what we do know. We continue to expect a first round VBP for ortho and a second round VBP for implants sometime in 2026, but specific timing has proven to be difficult. In our guidance, we assume a second implant VBP to occur likely in Q2 and the most probable timing for the Ortho 1.0 VBP would be the second half.

Just to give you guys a little bit of a context for why the timing is so uncertain here. Recall that there are dozens of medical VBPs currently underway across China. To increase the complexity, some of these are specific to one province, some are cross provincial, some are national. And most of the large hospitals participate in multiple VBPs. All big hospitals have an orthopedic department, a urology department, cardiovascular, dental, et cetera. So it is a complex thing for Chinese authorities to manage and why continued shifts in timing are certainly possible. But hopefully, that gives you a flavor for the timing piece.

Just as a reminder, the way this typically plays out is we see a quarter or 2 of negative order growth in advance of a VBP go-live as the channel draws down inventory to avoid a restatement penalty. And then you get the opposite of that once the VBP gets announced, you get a quarter or 2 of order acceleration as the channel replaces that drawn down inventory at the new price level. Hopefully, that gets to what you're asking.

No, it certainly does, Paul. That was very helpful. And the second one, I don't know, I feel like you guys are almost being a little modest. I mean, look, I get the 10.8% core is not the new run rate. Hopefully, none of us are going to go ahead and plug that in the model and we get it. It had some benefits like you mentioned an easy comp. But you guys knew about the easy comp. Your '25 guidance was 4% top line and it implied, I believe, around 2% core for the fourth quarter of '25. And again, you knew the easy comp. You probably knew most of the stuff around price. So where I'm just going with this is like what deviated to the upside for you guys, for the company in the last 3 months of the quarter to put up that close to 11% versus the implied 2%. And again, I get the variables that you are calling out going forward. But it still seems like a notable step function from where your heads were at 3 months ago.

Well, Jon, both Eric and I grew up in Minnesota. So we think of modest as a complement. The 2% to 4%, I think you understand why we see that as the proper jumping off point for 2026, lines up exactly with the medium-term guidance that we gave roughly a year ago and lines up pretty well with the underlying growth.

Embedded in your question, we certainly wouldn't want anyone on this call coming off feeling like we're signaling that Envista expects a slowdown in our underlying performance or that we've come anywhere close to realizing the full potential of this business. We've now posted 5 consecutive quarters of generally accelerating growth. And today, we indicated that we expect to build on that momentum in 2026.

We're committed to rebuilding our track record of consistent delivery. I think this is now my seventh earnings call, and it's probably Eric sixth. And hopefully, you're seeing a pattern develop both of steadily improving performance but also credible transparent reporting. And that's what we're aiming to build on here in 2026.

Jon, I'd give you just a couple of other points maybe to consider. So we look at the full year 2025. So fourth quarter was good. I take your point fully. For the full year, our sort of normalized growth rate is about 4%. Any quarter could be a little bit more dynamic.

Two things did stand out in our fourth quarter growth, maybe differentiated from what we saw going into the quarter. One was the shift in the China ortho VBP. So remember, we were talking sort of going into that call about a December VBP implementation. That meant that the ortho bracket and wire market for us and generally the channel was just stronger, material enough to move our growth by a point or so.

And then we had a very good growth result in implants. We saw mid-single-digit plus growth, very, very strong in the sort of the broad digital portfolio that we have. That's everything from our prosthetic from treatment planning before that to some of our equipment and guided surgery. I wouldn't call it a surprise. Our teams have been out there. We've been investing in it, but it was certainly a better growth for us than we anticipated at least midway through the quarter.

Our next question is from Kevin Caliendo with UBS.

In the fourth quarter, implants were up mid-single digit in both premium and value. Do you think -- how do you think that was compared to the market? And just kind to get a sense of how much you think your new products actually contributed to your growth, meaning was it Envista's new products? Was it the market? Was it your positioning already, you're capturing more share? I'm just trying to get a sense because we have new products again coming next year, and I'm trying to also gauge how much of your top line growth might be coming -- or you think might be coming from your new product launches?

Yes. Thanks for the question, Kevin. We think that global implant market is growing mid-single digits, call it, 5%. We were a little bit north of that in Q4, which was good for us. that's the first quarter since I've been here where I think we did outgrow the market in implants in total. So that's also now 5 straight quarters for premium growth and generally accelerating quarter sequentially. So building good momentum in implants.

Maybe two parts of your question you asked, what do I think is going on with the -- what do we think is going on with the market and then how do new products play into that. The market, I would say we don't yet see any credible evidence that the market has changed. We'll learn more in the coming weeks as our peers report, but we don't think market acceleration was a driver of our acceleration.

We think a couple of things played into our advantage. The first is, again, we made a significant investment in this business in 2024. Put $25 million in to the commercial front end to customer training and then into new products. Now a year or so past that investment, we certainly see a return on the commercial front end of that and on the customer training. I made some mention of that in my prepared remarks. I don't think we yet see the new product impact of that. We have a number of products we've now advanced through our pipeline that will launch in 2026, and we'll tell you guys more about those as they come to market. But I don't think that new product piece was in the 2025 result.

The other piece I would point to, consistent with the broader Envista is that we did take price in 2025 and the tariff environment aided that. So I think we were advantaged in 2025 by a little bit of extra tariff price.

And that you don't expect to continue. Is that -- that's sort of what you're saying, right? There isn't necessarily any of that built into the 2% to 4%?

Correct. Our guidance for this year assumes that the midyear increases from last year carry forward for the first 2 quarters, then we lap them. And without any further information on tariffs, we've assumed that market dental inflation returns to kind of that what I consider more normal point to 1.5 points in the second half. So I think it was Brandon's question to kick us off. We do see pricing as an upside, but it's not in the guide.

Our next question is from Jeff Johnson with Baird.

Can you hear me okay?

Yes, Jeff.

All right. Sorry about that. I'm driving. So if you hear any crashes or anything, just ignore it, I'll put you on mute. But -- so just a question on Spark. This quarter, the high single-digit growth. Obviously, it's still going to be above market. But I think last quarter, pre-deferrals, you were up high teens. Just any change in competitive positioning and/or market trends in the quarter?

And then, Eric, maybe you can help us just understand, last quarter was the first quarter you swung the profitability on the Spark side. Did we see further improvements on top of that in Q4? And how should we think about the gating over the next 3 to 6 to 8 quarters or something like that on how we get to that fleet average that you've talked about someday getting to on the Spark side?

All right. I'll take growth. Eric will take profitability. Yes, we think we outgrew the market again, that's many, many consecutive quarters now that we've done that.

Now with the 2 biggest players on the ortho side having reported pretty decent numbers, maybe that suggests that the clear aligner market is getting a little bit of a boost. Maybe that helped a bit. And we did have a very big new product year in 2025, and we had 4 real new product introductions and several of those were completely incremental growth. So our retainer offering, for example, that's all incremental, no replacement. So I think all of those things really helped us.

I haven't seen or we haven't seen any material change in the competitive landscape. In the orthodontic segment where we compete, there's 3 main players. All of them are good. All of them are competing aggressively, and I think that's good for customers and ultimately good for the market.

Eric, do you want to talk about the profitability side?

Yes. Just a couple of points, Jeff. So I mean we talked last quarter about turning profitable. We won't give you kind of specifics on the call here, but we were certainly profitable again in fourth quarter at consistent levels with where we were in third quarter. So nothing of a dramatic departure.

And in part, it's because now we're sort of getting into this period where every quarter sequentially will depend really on underlying Spark profitability improvement, operations, unit costs, design and less, of course, about the roll-through of the deferral, although both have contributed to the profitability path over the last year.

We were down year-over-year in unit costs. So we've, I think, given sort of a view in past calls about how much did we have our cost per aligner down year-over-year. We were down mid-teens year-over-year. We were modestly down sequentially. So a little improvement quarter-to-quarter, but mostly year-over-year.

And then as we see the cadence for the business going forward, I'd say you can depend on 2 things. One would be just the annualization, if you will, into 2026. So the business sort of reaching profitability. We've told you that third quarter, fourth quarter was a good like absolute level of business to depend on. But that means that next year, we've got just a nice carryover from that improvement trend.

And then fleet average is still the best way to think about it on an operating level, and our improvement will come from really sort of the four things we've mentioned, right? Continued focus on automation and manufacturing cost out. Growth will be a portion of it, but it's not fully dependable on it or dependent on it. Portfolio, as Paul just talked about, we've been very focused on new products and making sure that we have the best play both for customers but also for profit levels.

And then design costs. We've been bringing our design costs down consistently. That's aided actually by one of the products that Paul mentioned or had on the slide rather in the earnings call, which we call StageRx. That simply helps us translate efficiencies from the front end at the clinician level into our treatment planning and design and then ultimately into manufacturing.

And Jeff, we'll send you a transcript. So hopefully, you're not taking notes driving.

Our next question is from Elizabeth Anderson with Evercore.

I was wondering if, Paul, as you said, this is your seventh call. And I think there are obviously a lot of immediately like fires that have to be put out and then you sort of -- and then you did a great job stabilizing the business and sort of getting it to where we are now. As we kind of think about the business and the market maybe being a little bit stable, I know you've talked about some new products and things that you're excited about rolling out as we think about 2026 and beyond. How do you kind of think about like where your focus areas are like heretofore? Is it sort of continuing to refine sort of things that you've talked about for? Is it new vectors of growth in terms of maybe either organic or M&A driven? Maybe just sort of at a high level, help us think through that as things are moving -- everything moving in the right direction and you're kind of thinking about the next leg.

Yes. Thanks, Elizabeth. Both Eric and I grew up in dental. We were pretty familiar with the Envista portfolio before we joined. We had bid against the assets when we were at 3M and then we competed against the business. And so we had a pretty good understanding of what a strong fundamental business it was.

And as I think we've talked about on previous calls, there were a couple of pieces that were disrupted in that kind of '23 and '24 time period. And I put them into 3 buckets. The first is I felt we had inappropriate guidance in the market. And being a highly accountable company, we did what good companies do when they miss, which is anything they can to not miss again. So we were chasing the quarter, which caused us to cut back on investments, which then gets you on that kind of downward spiral in a high-margin business like this. If you don't invest in growth, you lose growth and then you lose gross margin and then you lose ability to fund future growth.

So the first thing we needed to do was get the flywheel turning back in the right direction and the $25 million investment that we made in 2024 in retrospect looks like it did that.

The second thing related to that is we're a 130-year-old company. And if you go back over time, every period of sustained growth was because we had a heavy focus on new products, not just development but also commercialization. And so we've been very intentional, not just in Q4, not just in 2025, but I think every quarter that Eric and I have been here to make an aggressive but measured investment in new product development. Some of that has already hit. We talked about the Spark piece of that. Many of those programs were underway before we arrived. But we have more in the pipe that I think you guys are going to hear about in '26 and beyond that should be encouraging.

And then the third, Elizabeth, was organizationally. There was a lot of turnover at the higher ranks in the business, and that cascaded down through the organization. So at the same time that we're hopefully rebuilding confidence with the investors, job 1 for us is to rebuild confidence with our employees. Fortunately, these are good, high-quality products, and we never lost the confidence with our customers. So we had that stakeholder in decent shape. But I think over the last several quarters, we've rebuilt that confidence in our employee base. You can see engagement going up, and you can feel the energy around here.

And so looking forward to what are we focused on now, we just put out the new plan a year ago. So we're squarely focused on executing against that. The 3 priorities of growth, operations and people. And we now have a building sample set of when we deliver against those priorities, it's reflected in the financial output. So the plan seems to be working. And as they say, we'll keep working the plan.

We have our next question from Steven Valiquette with Mizuho Securities.

Sorry, on there. A couple of questions here. I guess, just first on really more of a geographic question. I guess really across kind of global dental orthodontic market, some of your competitors are highlighting better end markets in Europe and APAC, but still suggesting challenging end markets in North America and various product categories. But you guys seem to be posting pretty strong growth in North America really across all your key product categories.

So I guess I'm just curious, how you think about this way or not, but is there a key variable you can point to in your go-to-market strategy in North America that's leading to these results, whether it's DSO relationships or something else? Or is it just strong execution across each key product area that's just adding up to overall North American results? Just any color if you think about it that way might be helpful.

Yes. Steven, if I understood the question correctly, it's about any geographic differences. So let me answer the question for Q4 and for 2025.

In Q4, no, we did not see any major differences by geography. We had strong growth in North America, in West Europe and in emerging markets. And then I think Eric mentioned, we had extra high growth in China because of that comp from Ortho VBP preparation in Q4 '24. So 2025, Q4, we saw strength across all regions. The answer is about the same for 2025. We weren't as strong on a full year basis in China, but North America and Europe were very similar. And then a couple of emerging markets were double digits as well. You're on mute.

Our next question comes from Lily Lozada with JPMorgan.

One on margins, you showed a lot of SG&A leverage. So can you talk through some of the sources of leverage you saw there in the quarter and how you're thinking about SG&A as a driver of margin expansion in 2026? And on R&D, that's been pretty consistently increasing as a percentage of sales. And so should we think about that continuing to outpace revenue growth in 2026?

Yes, I can take that, Lily. Appreciate it. So the first part, if you look at our adjusted EBITDA margin bridge, I'll just give you the high points on that one again. So overall margins improving in the quarter. I would say the quarter was fairly indicative of what we've seen in each quarter this year or most quarters this year and then for full year 2025. So volume benefits, price benefits. We delivered good productivity across most of our businesses. Our Spark margin improvement year-over-year was significant for us.

And then as you mentioned, within kind of the bundling of SG&A, G&A, in particular, was strong for us in the quarter as it was for the full year, where for the full year 2025, we were down 11%. All of that effectively is helping us to offset tariffs and a little bit of FX penalty and then reinvest in the business. And I would say, if you sort of go back to the first question that was asked post-prepared remarks, our guide for next year is not too dissimilar. We'll continue to get margin expansion from growth and productivity. We'll continue to use that to invest in the business at the pace of our performance. And maybe the only difference into 2026 is that we expect FX to be a benefit just given the first half transaction costs that we had.

And then sort of the third part of your question on sales and marketing, R&D, I would say, expect us to continue to invest in R&D at a not too dissimilar pace, improving each year and likely improving at a rate higher than growth so long as we can generate productivity, obviously, to be able to do that.

Sales and marketing, probably more flat to maybe modestly increasing as an intensity. That's a nod to percent of sales, but certainly less so than R&D.

Great. That's really helpful. And then just another follow-up on VBP. I appreciate it's kind of tricky to call the timing, but I was hoping we could get a bit more color on how you're thinking about the impact when it does eventually come. I think last time you framed it as a net positive to revenues for implants. And so how would you characterize it this time around? Any color on the size of the business is being impacted, the magnitude of the potential impact and whether you're seeing it being a net headwind or tailwind after taking into account the potential volume impacts would be helpful.

Sure. Why don't I take that one? So again, there's 2 VBPs that we anticipate, the first VBP in ortho and then the second VBP in implants. So let me just comment on each in turn.

So for VBP ortho, we expect it to look a lot like VBP 1 for implant. What we saw there was kind of a 40% to 45% price decrease that was then met with an equal inverse volume increase. So 100% volume increase to offset the 40% to 45% price increase. And for us, it was a net benefit to total revenues.

So we expect something similar in ortho. Of course, there are nuances to ortho, and I'd mention two. The first is -- in implants, it's easier for the market to expand volume. It's a faster procedure and easier -- easy for me to say anyway, easier to train a dentist to do it. So we saw a more rapid expansion in the patient demand. I think we're going to see less of that on the orthodontic side. It's typically an 18-month procedure treatment, so a little bit harder to expand. And certainly, on the traditional bracket and wire side, harder to expand that available supply through orthodontists as quickly.

The other nuance worth mentioning is specific to us, there's both the traditional and the clear aligner VBP. We're a large player on the traditional side in China. We're smaller on the clear aligner side. So the clear aligner question is going to impact some of our peers greater in China.

Coming on to the anticipated second VBP for implants, it will be much smaller, we think, maybe in the 10% to 20% price decrease level. It benefited us greatly in VBP 1. Because those with large market shares going in tend to get even larger market shares coming out because in the case of premium to challenger implants, that price differential was compressed. And when the difference is smaller, we found more clinicians just trading up to premium. So we were a benefactor of that. Hopefully, that gives you a little flavor, Lily, of the 2 VBPs that should be coming here in '26.

Our next question is from Allen Lutz with Bank of America.

This is Dev on for Alan. I just want to maybe double-click on the diagnostic and equipment growth in the quarter and just looking at what that looks into next year. Granted this may be a tough one to parse out even in your seat. But just curious how you think about underlying growth for equipment, call it, versus more onetime-ish benefits. I'm thinking here sort of pent-up demand, maybe an impetus from the advantageous tax code recently or level of inventory in the channel. How do you see underlying equipment diagnostic market volume growth in '26 and then maybe Envista specifically?

So diagnostics, I'll talk in general. So equipment is a bigger category. Equipment includes chairs, handpieces, et cetera. We exited that part of the business previously. So we participate in 3 categories within diagnostics. We participate in 2D and 3D imaging. You're familiar with that. You sit in the chair, they take a picture of your anatomy. We participate in intraoral scanning, IOS, which is a different image capture technology.

And then we participate in the software piece, the treatment planning as well as the image management piece. Those 3 categories tend to be the faster-growing part of the broader equipment. We had double-digit growth in our Diagnostics business in Q4, but that was aided by the easy comp from Q4 '24 that Eric mentioned.

I think right now, I would call it a low single-digit growing category, and we have outpaced the market for the last couple of quarters. I would expect something similar in the first half of 2026, low single-digit growth, us doing a little bit better than that. And then we'll just have to see how that -- whether that growth catches and the market moves to more sustainable growth. So I'm going to hold off forecasting market growth in the second half for now.

That is all the time that we have for questions today. I will now turn the call over to Paul Keel, CEO, for closing remarks.

Okay. Thanks, Vanessa, and thanks, everyone, for tuning in. Maybe I'll just quickly underline a couple of quick thoughts to put a wrap around the quarter and the year. First, Q4 was another encouraging step forward for Envista with double-digit sales, adjusted EBITDA and EPS growth, and that capped off a strong 2025 with 6.5% core growth also converting to double-digit EBITDA and EPS growth for the full year.

Second comment is that our performance was broad-based with all major geographies and businesses once again in positive territory and a good contribution from volume, price and new products. We also drove 2 points of margin expansion and returned over $160 million to shareholders.

Third, we continue to focus on executing the value creation plan that we shared at our Capital Markets Day last March. And I think we are seeing encouraging progress on all 3 of our main priorities: growth, operations and people, which brings me to 2026. Our guidance for this year reflects our confidence in building on this momentum. Guidance for core growth and free cash flow conversion are right in line with our medium-term objectives and guidance for EBITDA and EPS are above that medium-term plan.

I think that pretty much covers it for today. Thanks, everyone. Have a great day and a great remainder of the week.

Thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation. You may now disconnect.

Great. Hi, everyone. Thanks for joining. I'm Lili Lozada. I'm part of the med tech team here at JPMorgan. Very happy to have the Investa management team with us here today. I'll pass it over to CEO, Paul Keel for our presentation, and then we'll do some Q&A.

Okay. Thanks, Loe. You know who I am because Lilly just told you sharing the stage with me is our CFO, Eric Hammes, Quick reminder that the presentation will be on our website later. You can find it in the Investor Relations section. It contains some forward-looking statements and some non-GAAP measures. Let's see, in terms of today's agenda, we'll cover 4 points. Many of you will be familiar with dental. So you'll know that it has a number of structurally attractive growth drivers related to it. .

Those of you who do follow our industry know that Envista has been a leader in it for better than 100 years now. But there are some new faces in the audience. So I'll start with a quick primer on the market and our company. We'll then get into the meat of the presentation. In Q1 of last year, we had a capital markets event, we laid out a new value creation plan for Envista. So I'll recap that plan for all of you. And then we'll give you an update on how progress is going. As a preview of all that, the plan centers on 3 priority areas: growth, operations and people.

With respect to growth, year-to-date through Q3 of '25, which is our last reported quarter, the company was growing organically 5%. And we had all of our major businesses reporting 2 consecutive quarters of positive growth. Our operations priority center around the Envista business system, that's our continuous improvement methodology. We focus on a number of operational priorities around safety, quality, customer service, also keep a keen eye on productivity and capital efficiency.

With respect to people, Eric and I joined the company in the summer of 2024 and our people priorities focus on talent development, employee engagement and building strong collaborative teams. All of this work has contributed to early but encouraging financial performance. In addition to the 5% organic growth that I mentioned through the first 3 quarters, we have strong double-digit growth in EBITDA and in EPS. Okay, with the agenda out of the way, let's talk a bit about the market. As I mentioned, Dental is structurally attractive across the full landscape from patients to clinicians to suppliers, it's about $400 billion in annual spend, making it one of the bigger health care categories. I'm going to highlight 3 things from this page. The first is that, curiously, in dental over time, demand is not the primary limiter of long-term market growth. dental demand is everywhere. Of course, every person on the planet is a potential patient and customer to bring that into maybe a little more focus, as you can tell from the left side of the page, Roughly 2/3 of the people on the planet suffer from some form of malocclusion or misaligned teeth. And to further illustrate the point for all of us in the room, on average, 1 of us will lose at least one tooth by the time we reach the age of 60 and an unlucky 20% of us will lose all our teeth. So you add to that, other drivers like aging populations, ever-increasing demand for aesthetics, rising middle class, et cetera. and you can understand why dental tends to be a very consistent grower over time.

Now I mentioned that demand wasn't the primary long-term constraint. Supply is, it's the number of licensed clinicians or registered products in any given market available to treat the various forms of patient needs. And that brings me on to our second point, like other med tech categories, the manufacturing community works with the clinicians to increase available supply.

You can do that through product innovation or digitization allowing clinicians to treat more patients with their available chair time. You can also do it through supplier-led education programs, teaching new procedures to clinicians. For example, today, maybe a 1/4 of all orthodontic cases are treated by general dentists. That's up from less than 5% 20 years ago. And about 1/3 of all general dentists today now place at least one dental implant. That's up from a little under 10% also 20 years ago. Third point to note on this slide is that unlike some other categories in health care, where there'll be structural pressures to various parts of the value chain than hospital systems on the medical side. In dental, all of the participants have the opportunity for pretty good economics. Dentist, as a group, do pretty well, specialists do even better. The well-run multisite operators, the DSOs, all do pretty well. Dental manufacturers as a group do pretty well. And in the 1/3 or so of the industry that goes through distribution relative to medical distributors, the dental distributors also do pretty well. All of this underpins that stable, long-term kind of prosperous nature of the category. For those of you who are newer to our story, Envista is a global leader in dental. We report through 2 segments: Specialty Products & Technologies represents about 2/3 of our revenue. Our equipment and consumables business is the remaining third. We have earned a top 3 position in every major category in which we compete. Some of our brands like Nobel, Ormco or Kur have nearly 100% awareness in their respective clinical segments. We operate in over 130 countries. Roughly half our sales come from the U.S., which is the world's largest dental market and the balance is pretty equally spread across Europe and developing markets. New products have long been central to Envista's growth strategy. And we've now served dentist for more than 130 years, and we have more than 1,500 patents to our name. Many of the more interesting inventions across all of dentistry Envista has had a hand in. We invented the endodontic file. We invented dental implants, invented panoramic x-rays, self-ligating brackets and custom orthodontics.

Now while all of Dental is a pretty good industry to participate in, there are some parts that are more attractive, and we try to focus on those. We've been in and out of different parts of dental over the years, and we like the 4 that you see on the left side of the slide for a couple of reasons. The first is that there is a continuum of care that exists across dental.

Nearly every dental procedure has the same 3 steps. There's an upfront diagnostic step where the anatomy is captured and the care is designed. There's a treatment planning step in the middle where you design the case. And then there's a therapeutic at the step at the end where you actually treat the patient. Now it's difficult to serve customers across that full continuum of care. But for the small handful of suppliers who can do it, there are certain clinical, financial and operational benefits that accrue. So we are 1 of just a small handful of folks who do this on a global scale. Second thing we like about specialty categories, in particular, is that they're typically sold directly to clinicians, meaning there isn't a distribution layer in between so the margins and growth rate for specialty categories tend to be a bit better. And we participate in consumables in diagnostics because while they do go through distribution in most cases, there are also products consumed by nearly all clinicians around the world. So if you want to serve that full continued move care, you have to be in consumables and diagnostics, and we're leaders in both and we think we generate competitive advantage because of that full portfolio. Okay. Last slide here on the market. You can pick pretty much any 5-, 10-, 15-year period that you like. You'll get the same CAGR for the global dental market. It's about 3% to 5%. And you'll notice a couple of things from the chart on the left. This is U.S. data. So dental spend is in orange and GDP is in blue. The first thing you'll note is that the orange line is above the blue line every year pre-Covid. Dental always outgrows the broader market. That's true in times of economic softness, the last 3 recessions are noted in gray. That's because about 2/3 of all dental is covered by insurance. So even in soft periods, dental still does relatively well and about 1/3 in the market has some consumer influence to it or it's a discretionary purpose -- discretionary purchase. And so in expansionary economic period, it also tends to outgrow. I think clear aligners as an example of that. Now as we all know, you see a big disruption in the right 1/3 of the chart, that's COVID.

The market had the largest ever 1-year contraction in 2020, followed by the largest 1-year expansion in 2021. And then in retrospect, very predictable couple of years of below trend growth while the market worked through that distribution. You'll note that while there's a pretty big gap between the orange in the blue line pre-COVID for the first couple of years post COVID, they're almost on top of each other. That's when dental and GDP grew about at the same rate and only recently now are the 2 lines beginning to diverge again with dental moving back out in front.

So most people who follow the industry believe that Dental will return to that decades long, consistent 3% to 5% growth. Nothing has structurally changed in dental in the 2 or 3 years post COVID. But there's quite a bit of debate on when the timing of that inflection will happen with all of the macro volatility remaining high. I don't pretend to know when that will happen myself, but I can point to a couple of green shoots that give leading indicators. Patient demand now has stabilized and clinics are once again opening new sites. Low unemployment and lowering interest rates are both supportive of dental market growth.

We saw a sharp increase in private equity interest in dental in the last 2 years. The last quarter of available market data had U.S. clinic revenues increasing mid-single digits in Q3. Nearly all the public players also reported positive growth in Q3. And you put all that together, and we think there's good reason to believe that the building momentum in Dental here will continue in 2026. Okay. Having covered the market and our position in it. Let me say a little bit about our value creation plan. This is a slide we showed in Q1 of last year that capital markets event that I mentioned. As you can see, the plan is grounded in 4 components. It's guided by our purpose. It's centered on our values.

We focus on those 3 priorities I mentioned, growth, operations and people. And then it's framed by our medium-term financial objectives, 2% to 4% organic revenue growth over time, what we call core growth, converting to 4% to 7% EBITDA growth and 7% to 10% EPS growth. And all of that is underpinned by a 100% or better free cash flow conversion. Now we're only going to have time today to go through the right side of the slide, so let me just say a bit more about our priorities here on the next slide. As mentioned, we're focused on the 3 areas you see here on the chart.

With respect to growth in blue, laser-focused on customers. We leverage our global reach to serve individual clinicians around the world, and then we also take advantage of that full portfolio to serve multisite operators like a DSO or a university, a hospital or a government network. Very focused on commercial execution, in particular for our 2 largest businesses, implants and orthodontics. And we keep innovation and portfolio highly visible and well resourced. With respect to operations, our attention and resources are centered on manufacturing and service excellence and capital efficiency. With respect to the former, we're committed to maintaining our industry-leading levels for safety, quality and customer service.

And with respect to capital efficiency, that's a pretty capital -- cash generative business, CAPEX in, our business runs a bit under 3% of sales and working capital turns typically run above [ 5% ]. Very proud of our people. They make all of this progress possible. We pay particular attention to talent development in order to drive employee engagement and high-performing teams. As you can see from the chart, all of these priorities are enabled through our Envista business system and everything we do is underpinned by our circle values.

Okay. That's the plan, let me say a little bit about how we're doing implementing it, beginning again with growth at the top. I already mentioned the 5% organic growth through the first 3 quarters of last year. All of that was propelled by double-digit increases in both R&D and sales and marketing investment to ensure that the good momentum continues and it accelerates further in '26 and beyond. All of our businesses, of course, benefit from that investment, but our implant business, in particular, has after contracting in 2023 and the first half of 2024, it's now had 4 straight quarters of positive growth.

Spark is the name we use for our clear aligner business. It has delivered many consecutive quarters of positive growth and market share gains. It's now at a scale, it's about a $300 million business that it also has turned profitable a lot of that profitability expansion has been driven by the use of AI and automation in our manufacturing. It's a material contributor now to earnings growth in Envista. It was a consumer of cash for the previous 5 years. Now turning profitable. It should be material at the enterprise level.

As I mentioned, we invest aggressively in R&D, starting to see good returns on that. We had major product launches in each of our key businesses last year. With respect to operations, we reduced G&A spending by 12% in the first quarter of last year. We fully offset all tariff impacts through our price actions and through supply chain agility. As I mentioned, it's a highly cash-generative business. It generates more cash than it consumes.

So our Board gave us authorization for a $250 million share purchase program that we started at the beginning of last year. We deployed just over half that amount in the first 3 quarters of last year. And we're making good progress on reducing our effective tax rate. In terms of people, we saw an uptick in employee engagement in 2025. We saw it against all major employee groups, the management ranks, the salaried group and the production employees.

With respect to talent development, we renewed our focus on promoting from within. Last year, a little better than half of the management promotions were given to existing colleagues that's up from just under 10% the year prior. In addition to taking care of our customers, colleagues and shareholders, we stepped up our investment in communities last year. We have a charitable arm called the Envista Smile project touch 19,000 underserved patients and donated a little over $2 million last year. That's a big part of what we try to do. Now as you would hope to find the impact of all this activity is also showing up in the financials, in addition to the 5% year-to-date growth. You can see there's 4 straight quarters of generally accelerating growth.

Below that, you have EPS strong double-digit growth in EPS, not shown as EBITDA but also double-digit growth on the EBITDA line. These are the four -- same four medium-term financial objectives that I showed on the value creation plan. Beneath each, you can see our year-to-date Q3 performance against it, the 5% core growth a bit above our 2% to 4% target range. The strong double-digit performance in both EBITDA and EPS that I just mentioned.

And then cash flow conversion right on plan at about 100%. And still early days, of course, but we're encouraged by our early progress. We'll announce full year 2025 results on our earnings call on February 5. So we hope you guys will tune in for that.

By way of wrap up, I'll quickly just touch on the same main themes that I've already shared. First, Envista is a leader in the structurally attractive global dental market. Second, after a couple of years of below trend growth, we think the dental market shows signs of returning to that long-term consistent 3% to 5% rate that I illustrated. We're making good progress against the value creation plan. We communicated at our Capital Markets Day at the beginning of last year. And our early financial performance in executing that plan is encouraging. With that, I will thank you for your kind attention and ask Lilly to take us through the Q&A. Thanks, everyone.

Maybe we can start with a state of the union on the dental market. I think the way that you've been characterizing it the past few quarters is soft, but stable. So is that still a fair way to characterize the market? And any color on what you saw exiting 2025?

Yes. I think that's still the right way to think about the market. Maybe I'd be a touch more optimistic than we were on our Q3 call for the reasons that I mentioned. If we spin through our portfolio, as I mentioned, we've had now 2 straight quarters of growth across all 4 of the businesses. We tend to have pretty good positions in these categories. So if we're growing consistently, chances are that the market is improving as well. So we see signs of momentum building. Interestingly, this time last year at this conference, most people thought 2025 was the year that dental was going to return to that 3% to 5%, many of the same trends we're observing now were evident. All of the publicly traded players had a good Q1.

We were kind of off to the races than we had Liberation Day and the disruption from that, but it seems the market has kind of digested that and we're back on that improving kind of trajectory, catching some traction.

Maybe we can dig a little bit deeper in the capital. This is where you've been most impacted. But do you think this is a segment where we could start to see things pick up even before we see a broader change in consumer sentiment, just given the fact that some of these products do need to be replaced eventually and have lowering interest rates had an impact at all on purchases?

Yes. So let me answer it by category, but also by geography. So true in the U.S., consumer confidence is low. But in other parts of the world, other than China, consumer confidence pretty good. Europe, Japan, Southeast Asia, in particular, consumer confidence is at a good level, and that seems to be helping the global dental market. Now specifically to the categories that we mentioned, you asked about interest rates. Interest rates impact dental in 3 ways. It impacts multisite operators. Typically, that's how they finance the expansion for DSO. It impacts an individual clinician in terms of equipment purchases, CVCT, call it, $50,000 to $60,000 that typically gets financed. And then for those elective categories that I mentioned like clear aligners, usually, there'll be consumer finance that plays in.

So yes, as rates continue to come down, it's supportive across all 3 categories and diagnostics, the equipment category has been kind of the hardest hit over the past couple of years. That category declined for 3 straight years and now in the second half of last year, the last available category data show that diagnostics was returning to growth. So another green shoot that maybe the market here recovering.

Aside from interest rates, any other leading indicators we should be keeping an eye on that could point to a broader turnaround?

Yes. I mean aside from GDP, of course, which all categories look at, there's 2 other macro indicators people follow for dental. They look at unemployment rates, look at interest rates and look at consumer confidence. We talked about consumer confidence and interest rates and of course, unemployment levels, although there's a lot of noise in the system, they're still at historically low rates. So all that is good news for dental.

Maybe I can shift gears a little bit and talk about Spark. Revenue recognition changes the last few years made it a bit tricky to get a pulse on what underlying trends look like. So revenue aside, can you talk a little bit about what you've been seeing on a volume basis for Spark there 2025 and how we should be thinking about this business this year.

Just Perkin you say revenue recognition I'll let him answer that one.

Yes. So let me hit the aligner, the underlying primary case growth piece first and then maybe just to settle everybody up on the impact of revenue recognition, which is materially important. So if you just strip everything away and look at primary case growth, that's our best underlying indicator of how we're performing.

And of course, how the market is performing. We have gained share for the last many, many years, probably since the inception of Spark, we've gained share far as we can tell for every quarter since the inception of Spark. And our underlying primary case start growth is around mid-single digits to high single digits. That's also how we see the business going forward. Back this year. So if you just listen back to a few of our last earnings calls, we've had a really, really good flow of new product introductions.

We can name many of them here today. That's part of the yield from us putting some of the benefits we're getting in areas like G&A into R&D in helping to launch a good pipeline of new products. And again, mid-single digit, high single-digit growth. It's how we see our Spark primary business going forward. That's sort of different from what we report on a revenue basis.

If we just talk revenue recognition and deferred revenue, we made a significant change back in Q2 of 2024. That was basically to defer a higher amount of our initial upfront revenue for our Spark business, cost us about $45 million in revenue in 2024. We've unwound about 2/3 of that in 2025, that leaves a small amount still to come in 2026. And that's why we're also seeing a little bit more robust growth as we see on a reported basis year-to-date.

And when do you think we can have that $15 million behind us and have revenues track more closely.

Yes. So first 2 quarters of 2026. So we're getting down to the -- maybe not immaterial, but let's say, smaller level of material by the time we're through Q2 of 2026, you won't likely hear us talking about it and putting in all of our quarterly breaches. .

Spark reaching profitability was a big milestone for you. How do we think about the trajectory of further profitability expansion from here? And what are the levers that continue to drive smart profitability?

Yes. So we've communicated that we expect Spark to continue to expand margins until it reaches about fleet average for Envista, which for this year, we've guided for '25, we guided to around 14%. The primary driver margin expansion for Spark has been factory automation.

We have factories in 3 different parts of the world, and we have a pilot plant near our headquarters in Southern California where we design all the lines and step-by-step in a very organized fashion, identify the next step in the process that would benefit the most from AI or automation. We implemented in 1 of the lines in our Mexico facility, migrated across the plant go to the Czech Republic, go to China. So that very consistent quarter-over-quarter reduction in our unit cost has been driven in a very price fashion. We expect that to continue.

How would you characterize the state of your implants business today. We've seen some nice traction in recent quarters as put more focus and investment on this segment. So how satisfied are you with what the implant business looks like today? And do you think there's any other gaps or room for improvement in this portfolio?

Yes. I mean, I guess, I'd say we're pleased with our progress, but far from satisfied after I think it was 6 quarters of contraction, job 1 was to get it back to positive growth. And we're now have 4 quarters of positive growth and are basically growing at the market. Now in that period of contraction, we donated a lot of share to Straumann until next job here is to grow a little bit quicker than the market or at least quicker than our peers and claw back some of that share.

Our focus on doing that basically sits in 3 buckets. First was around commercial execution. We put about $25 million into our implants business in 2024. About half of that went into sales coverage marketing programs. About 1/4 of it went into re-upping our customer education and about 1/4 of it went into new products. We saw an immediate benefit on the commercial execution side. We're starting to see traction from the customer education.

And then we have a number of launches lined up for 2026 that we're hopeful will make an impact.

And when we're talking specific products, I feel like implants and Spark get a lot of the attention. But is there anything else that you'd call out as a key driver for 2026 or anything that you think is underappreciated in the portfolio.

Yes. Well, the tallest man in the room, the tallest man in our company here is in the second row. He runs our Diagnostics business. So I'll take this opportunity to applaud Robert and his team, they had a full relaunch next generation of their industry-leading CBCT platform at the end of 2024. That's called OP3D, getting great traction in the market and then not to be outdone they launched a new version of their intraoral scanner called Dexus -- in Prebo in Q4 of last year. That has a different architecture for how it processes images. It's about a 4x increment in speed of capture, and that's off to a really good start.

So I would point to that. And then I would also say our consumables business is pretty active. They have an infection prevention business, that launched a hydrogen peroxide-based antimicrobial last year, and that's growing very, very quickly.

So as I mentioned in our prepared comments, we had big launches across all of the major businesses.

There's been some chatter around further rounds of VBP in 2026. So can you share the latest on if and when this is coming and how impactful this can be relative to pass routes.

Yes. I think most people will be familiar with VBP, value-based pricing, it's the health care reform in China. It's gone through many, many health care categories over the past couple of years. It started in dental 2 years ago with implants. And so it has 2 pricing steps to it. The first is the Chinese government lowers the price that the government hospitals can charge a patient for that procedure with the idea of expanding care in China. In the case of implants, they lowered the procedure price to patients about 50%, which led to a doubling of the number of patients in China who demanded or wanted a dental implant.

The second step in the process that is they let suppliers bid on that increased volume. And for the large market share players, like ourselves, that's a big opportunity to grow your unit volume meaningfully. We basically doubled the number of units we sold in China a result of that.

The government now is talking about the second category for VBP, which would be orthodontics. They had originally communicated that, that would take place last year, and it has gone through series of delays. The current communication is that it's likely to occur in the first half of this year and that they'll then do a second pricing round on implants, a smaller dramatic reduction in implant pricing. That is expected to happen later in '26. That's the latest on VBP.

I guess outside of VBP, price has been a tailwind for Envista in 2025, which is sort of in contrast to other parts of medtech where we've seen those pricing tailwinds start to moderate a bit. So what's your thinking on price as a contributor to growth in 2026? And is there more room for price taking given the still soft end market dynamics?

Yes. And the data we showed in our prepared remarks you saw that Dental always outgrow GDP. A portion of that is that dental historically has always been a pretty price accepting category. Clinicians on average, would raise procedure price about 3%, reimbursement from insurance always had been around 3%, and then the suppliers would come under that ceiling 1, 1.5 points would be typical for many years in dental. That changed in that period post COVID, where the market had below-trend growth, our clinicians were more reluctant to raise price suppliers. We're more reluctant, so when Eric and I joined 1.5 years ago, we started to rebuild that muscle for capturing price and Envista all the blocking and tackling, you'd expect to do that. You put price on the P&L, put pricing people's objectives, make sure your ERPs are configured to calculate price, et cetera, et cetera.

And we started to get price at the beginning of last year. Then with tariff activity picking up, we took another round of price increase in the middle of the year. And as far as we can tell, most of our peers have done the same. So right now, pricing is a tailwind for most of dental. The last numbers I saw in procedure price increases is that they've now returned to that same sort of 3% to 4% increase and so we'll see. I wouldn't expect 2026 to be as supportive to price as '25 unless the tariff activity heats up again, but I think it will above that lower pricing level that we saw in that kind of '23 to '24 period.

Be elsewhere in the P&L, R&D expense has increased pretty meaningfully in the last few years. So where have those dollars been going in the portfolio? And how should we be thinking about R&D spend moving forward, either on a growth rate basis or [indiscernible] sales?

Yes. I mean this is a kind of a classic medtech business, high gross margin business. And if you can accelerate the growth, you can't spend the extra gross margin dollars that get off. For us, across our careers, the 2 mechanisms to best accelerate growth in med tech businesses, our R&D and customer education. So we've had double-digit increases in both of those.

And we think that's probably the single biggest contributor to the accelerating growth that we showed on that chart. We'll continue to do that moving forward -- it's that kind of self-driving cycle let everybody wants. You get the growth, you get the extra gross margin dollars, you make the more investment, you have left over dollars for returning to shareholders, doing more investment, et cetera, et cetera. And that's kind of the momentum you want to get. We're early into that. But as you saw from the slides, there's some evidence that it's working.

Last year, you announced a restructuring program focused on cost savings. So can you tell us a little bit more about where you stand in that process? What changes have you made so far? And where still room to go?

Yes, I can take that. So fourth quarter 2024, I guess, we got to reorient ourselves of what last year means at this point. So fourth quarter 2024, we announced a restructuring. It was like a mid-teen charge that we took in the quarter. And at that point in time, we're committed to about $20 million on an annualized basis to get out of the business to help bottom line to help 2025 earnings.

I think at the time, we said about 3/4 of that would yield benefit in 2025 and that's what we've seen happen. If you just look at our third quarter year-to-date results were down about 12% in G&A.

That will continue to be a tailwind for us as we go through the of Q4. And we expect a little bit of benefit still to finish as we go into 2026. I think that's important because that showed sort of our first ability to be able to do multiple things. One was to be able to leverage our service centers around the world to sort of rebuild capability centers in part for our back office. Paul just mentioned R&D. It was 1 of the reasons we were able in 2025 to be able to invest in R&D. And as we were a little ahead of schedule on our program, we invested even a little bit more as we came through the fourth quarter of 2026.

And as you refer to sort of that cycle, that's something continue to work on basically turning continuous improvement in the reinvestment in the business for what we know will be increased organic growth.

Maybe just 1 last question in the minute that we have left, you've talked about line of sight to tax improving in 2026. You eliminated the intercompany loan that was putting some pressure on that tax rate and improved profitability. What are the pieces that get you to a more normalized tax rate moving forward? And what does a more normalized tax rate look like for Envista?

Yes. So we -- just kind of orient we talked about 2 things very specifically in our third quarter earnings relative to tax. One was that we gave an updated guide for full year 2025, a tax rate of around [ 32% ], that was about 4.5% from how we originally saw the year.

And most of that came from improved U.S. profits. And then the second that we talked about was the resolution of an intercompany loan. We had a very significant intercompany loan between Europe and the U.S.

We pay interest on that loan. And per U.S. GAAP, there's a deductibility cap relative to U.S. interest relative to U.S. earnings. So 2 things happened. We resolved that loan. That means we restructured and eliminated that position. But we've also got the improving U.S. earnings that's helping to improve it. We'll talk about it very specifically as we get into 2026 earnings, but it's a meaningful reduction for us next year and as we go forward.

And then we'll also talk about a little bit of the sort of finality to get back to a tax rate that's in sort of the mid-20-ish percentile.

Great. With that, I think we're out of time. So thanks, Paul and Eric, for joining, and thanks, everyone, for listening in.

Thanks, all.

We will get started. I'm Elizabeth Anderson. I'm Evercore's health care services and dental analyst. Very pleased to be joined by Eric Hammes and Jim Gustafson from Envista this morning, CFO and VP IR, respectively. As we sort of sit here in December of 2025, we've gotten different signals from different dental participants. And maybe that's a true -- maybe doesn't even -- that's not even true of December 2025, it's been true this whole year. So how do we think about the overall dental market and sort of the performance Envista has been seeing volume-wise?

Yes. I think let me maybe just start with the market, and I'll take it from the vantage point of like the whole dental market, a little bit by segment and then geo. And then let me try to kind of wrap it up by just giving a perspective on what we're seeing then internally in terms of Envista performance. So I would say for starters, we see the market in aggregate as being relatively similar to the way we've seen it maybe for the last 4 quarters or so. By our records according to our portfolio, the market has been growing. I think we sort of coined the term soft but stable. Maybe that's code for like low single-digit growth, but a relatively stable and predictable growth.

Sitting here in December, looking at fourth quarter, we see sort of that level of consistency. So I think that's probably point number one. If we look at it by portfolio, consumables for our business and the consumables market, I would say that's the one market that we've seen sort of the most amount of consistency over the last year or so, a low single-digit market generally across the broad portfolios of consumables.

Orthodontics, also a good growing market, a little bit of a slower aligner market growth trend as we've come through this year, but still, call it, a low to mid-single-digit growing market and brackets and wires performing well as a market segment within orthodontics.

Implants, I think, again, if you sort of divide implants a little bit into 2, a lot of excitement. We saw this week actually at the Greater New York Dental Show around the digitization of dental and the digitization within implants specifically. And I would say we see that in sort of our own patterns of equipment selling and just the setup of digitization in the dental offices and then to bring it back maybe to the core implant abutments, prosthetics, maybe a low single digit, but consistently growing market.

And then Diagnostics is the one that I think in the -- maybe the last few months to quarters is getting a little bit more attention. I think we'd characterize it as a negative low single-digit market this year, year-to-date, but things have been on a modestly improving trend, right? Signals that interest rate reductions are starting to create a little bit of maybe optimism or buying momentum. I think what's also true is that we are now many quarters, actually many years removed from sort of the heightened buying cycle of Diagnostics back in the 2022 time frame.

And that can only go along so long, especially as you have a relatively stable dental market and generally improving trends in some of the spaces of de novo and office builds. So maybe a little bit of optimism, albeit for Diagnostics, that's coming off of a high negative single-digit growing market last year.

And then if you were to cut it a little bit by geo, North America, we see as a positive growing market recovering a little more in the developed space. Europe continues to perform well. That's been a market based on having lower interest rates and higher reimbursement levels that didn't quite see some of the sort of the slowdown that we saw in North America. So Europe is a good growing market. China is still with a lot of questions mark -- question mark over it, I know we'll eventually get to the topic of VBP.

And then just if I could, on the kind of the Envista performance. So maybe 2 sort of buckets for Envista. So we've grown step way back about 5% on a year-to-date basis. If you strip out a few of the things that we talk about within our earnings calls, primarily Spark deferral gains and a little bit of consumable low comparables, slightly lower than 5%, but still really good growth.

And quarter-to-date, we're seeing those trends continue. So a lot of the trends that we've seen throughout the year, both in terms of portfolio and overall core growth trend, I would say we're seeing consistent on a quarter-to-date basis. December is a big month. It's always a big buying month, but we believe that we'll have a strong finish to the year.

Well, I think that's a good place to start. I think there's a lot to unpack there. Maybe starting with Spark. Where do you see as we like as we're going through '25, the market, as you pointed out, has been still growing, but maybe not from what we saw before. I don't know if you have any comments on sort of the dynamics there. And then how have you been able to drive Spark growth within this market in 2025? And then sort of how do you see that evolving as we get through the end of the year?

Yes. So I think stepping way back, I would say that we don't see the aligner market having changed dramatically throughout the year, mid-single-digit growing market, maybe within an individual quarter, you could argue it's a little lighter than that, a little heavier than that, just depending on where we've been within the year. But I would say kind of big picture, it's a relatively consistent global aligner market, following some of the dynamics that I mentioned geographically. Europe a little bit stronger. North America, maybe a little bit lighter, but also in a recovery mode.

In terms of performance for our business, I would start with the product itself and our digital treatment planning solution. We know we have a very solid product, product performance that's both clarity, fit, comfort and the treatment planning software of our business is a strong treatment planning software that we get good feedback on for clinicians. So I think kind of the -- like the solid foundation of product and portfolio is in good shape as it has since the launch of our Spark business.

Second point would be that we have focused a lot in the last 12 months on making sure that we're selling the full solution to orthodontists, right? So we are the largest player at global scale that has both an aligner business and a brackets and wires business and a combination treatment solution. That's important to us as we primarily focus on the orthodontists and the orthodontist market. It's where we built our brand over the last many decades, primarily with Ormco and Damon brackets and wires and self ligation.

It's where orthodontists know us and understand us, but it's also our selling philosophy, our go-to-market model philosophy, right, bring the full solution portfolio, allow orthodontists to think about treatment planning the way they know best, whether that's with a clear aligner or with a bracket and wire or with a combination of both. We think that's the best strategy and winning strategy overall.

If you kind of dig within our results this year and listen back just to our earnings calls in Q2 and Q3, we've had a good extension of new products. That's also helping us in our -- in the growth of our business. Last year, we announced the addition to our portfolio, which we call Spark on Demand. That's the ability of a clinician to choose the number of aligners without having a sort of a lengthy refinement process and procedure to be able to treat a case with less aligners at a slightly lower price.

And then this year, we've also announced the launch of retainers, so sort of the sustaining component to a clear aligner case. We announced the launch in Q2 of BiteSync. That's to be able to correct Class II malocclusions, call it the more difficult to correct aligner cases. StageRx. This quarter, we talked about StageRx, which is the next version, if you will, of our treatment planning software. That's to be able to make it easier for the clinician, but it also streamlines the design process for us. So you kind of take all those things combined, and I would just say that the full solution portfolio plus the significant introduction of new products this year is helping us to grow above market share, and we think that's a continued trend that we'll likely see in the business.

Got it. I like how it's also been sort of a driver of sort of like lots of little innovation. It's not reliant on sort of one strategy. I mean, I guess it's part of the whole same strategy, but it's not like a one-trick pony in terms of, oh, we just launched this, and therefore, we got a bump from this or something like that as well on a core basis.

Yes. I think -- I mean, in general, that's the goal of all of our portfolios, right, to make sure that we have continuous innovation. Within there, you might have something that feels and looks a little bit more like a line extension or a near adjacency of the current portfolio. And from time to time, of course, our goal is to also launch products that become either new products, new markets and can ultimately bring in a new client or in this case, clinician or end consumer.

That makes sense. And can we put one accounting issue to bed? I know you said this very clearly on the 3Q call, but I still feel like it's a little bit of a question in some people's minds. Is the deferral -- how is the deferral benefit from this year, not a headwind to next year's growth?

Yes. So let me just kind of step through the journey that we've taken investors and coverage analysts through. So I apologize for that upfront because I know we're now going on quarter #4. So last year, we talked about a larger upfront deferral of our Spark business. Importantly, it had no bearing on the cash flow of the business. So we still bill upfront, we still collect upfront. It's actually part of the reason why we have a very strong free cash flow generation as a business.

With that change, we had about a $45 million headwind to revenues last year. At the end of last year, we talked about having about 2/3 of that coming back. So let's just say, unwinding from the balance sheet as a deferral benefit this year, revenue and deferral benefit. And that leaves about, call it, 1/3 to go. That's going to happen over the course of the next 2 quarters. It's a small amount relative to kind of where we've come from the $45 million last year, the $30 million roughly to date this year. We'll keep it prominent and transparent in our bridges.

But importantly, because of the large deferral gain we've taken year-to-date this year and a lot of that in Q4, the way you can think about the Spark business, if you're modeling it, is the absolute revenue dollars and the absolute profit dollars are a good foundation, a good jumping off point to think about the business going forward, right?

Said another way, the deferral gain in Q3 this year, year-over-year, it doesn't create a headwind next year. That's kind of a common question that we got is, hey, is this benefit that you saw in Q3 2025 going to create a headwind next year? The answer to that is no, right? The jumping off point of the dollars for Spark are on a very good foundation, including now a business that's in a profitable state.

And just to maybe put a final bow on that, like you had that $45 million, $30 million, so sort of implies, as you just said, $15 million further go forward. But then you've also -- and maybe that had a little bit of a bolus in it because of the way it started up. But as we get in, you accrued more deferrals for the growth that you saw in '25 that should also manifest themselves in '26. Is that...

You can think about the deferral, which is now about 50% upfront, 50% to be recognized as we go throughout the case to not have a growth effect. So a revenue growth effect going forward. So it's just the remaining $15 million that we'll keep transparent externally and that you can think about as being a little bit of a tailwind as we go through the next few quarters.

Okay. That's helpful. Thinking through the margin opportunity, can you talk about, as we sit here in the fourth quarter, what are the main levers to continue to drive those Spark margins to the corporate average?

Yes. So I would say the playbook that we've had for the last 12 to 24 months is still largely the playbook, although maybe the impact, the kind of size and magnitude might be a little different going forward, but very similar playbook. So kind of most important point number one is we have a global manufacturing footprint. We manufacture in 3 continents around the world, and we have a relatively same, similar work cell focused factory operating lines globally.

And the work that we've been doing in the last 12 months has been rolling out automation in addition to having in-line changes in our factory to bring down the unit cost of the product, right, the cost per aligner. 20% year-over-year cost reduction. That's what we've seen in the recent quarters year-over-year. Obviously, that shows a good track record of the ability to take the fully automated lines that we have within our manufacturing technology center.

That's a pilot plant in Southern California. Moving that out, it means investment in CapEx, but it also means reduction in aligner cost and labor cost around the world. That's still very much a part of our playbook. We have automation rolling out, but we still have further to go in our Mexican operation, a little further to go in our Czech Republic operation and to a lesser degree, an opportunity in our China operation. So that's something that will continue to drive cost reduction.

The second would be design cost. So I mentioned in our new product introduction, not so much in the aligner, but in the treatment part of the process. We just launched something called StageRx. That's to give clinicians sort of a faster, more efficient persona-based way to design and create treatment planning for cases, but it's also more efficient for our design center.

Our design center sits effectively between treatment planning, that's at the clinician level and manufacturing. So the more automated we can get there, the more leverage we can use of artificial intelligence and the more efficient that StageRx platform is, that can also be a reduction in our design cycle time, which can help us to reduce design cost.

And then the third piece I would just say in general is growth. So as we continue to grow the business, we're very focused, whether it's in the orthodontist office with a combined sales force, with the NPIs that we talked about, all of that growth will naturally help us to leverage a fixed cost base to be able to improve our margins. I think we're on record a few times saying that the journey for Spark looks something like a fleet average margin over time, call it, the next couple of years after we got to the milestone that we communicated prospectively for now a year of being profitable in our Spark business at an operating level in Q3 of 2025.

Are there any -- are those sort of thoughts that you were just giving sort of net of any investments that you had to put in to continue to grow that?

Yes. I think you'll see us continue to invest in the front end. So sales, marketing, commercial, more of that is likely to go towards introduction of Spark into new markets. So kind of back on the growth theme this year, we received registration approval in Japan as an example, a big market globally, a big market in dental, a big oral care market, but a market that we hadn't been registered in and actively, of course, selling in. That will be an example of one where the investment cycle will be a little bit ahead of the revenue cycle. We're right in sort of the middle of that, but a good opportunity for us in a very mature market.

R&D, I would say R&D will continue to be as it is for Envista, the first place where we likely make investments to continue to drive organic growth. We aspire for most of that to come through our own productivity. So in the case of Spark, it's reducing unit cost and improving in design cost. Elsewhere in Envista, it's things like the G&A reduction that we've driven year-to-date that we're using to reinvest in the business.

Got it. Maybe switching over to implants a little bit. How do you think about the portfolio of product mix that Envista currently have? Do you have the right products within the implants? And sort of how do you think about the R&D focus there in the sort of short to medium term?

Yes. So I think for starters, I would say if you think about kind of the totality of an implant procedure and all of the product and treatment planning that it takes upfront to have a Premium brand or to be successful as an implant company, I would rate us with high marks on sort of the full breadth of that portfolio. So right upfront, that's diagnostics or imaging, that's our DEXIS brand, significant market share globally, a leader in North America. And if you look at sort of the recent trend of products and product launches and innovation, I think we've been a very strong player there.

Part of that solution is a treatment planning solution. We call it DTX Studio. That's what's used upfront between the image and ultimately the procedure for a practitioner. Then you get to implants, prosthetics, digital equipment, guided surgeries. Again, I would say across sort of the totality of that portfolio, we have a lot of strength. The breadth of our implants portfolio is where most of our R&D is going.

Last year, we invested about $25 million in implants. We invested most of that in Nobel in North America. That's our Premium business. A lot of that went to commercial, some of it went to clinical and some of it went to R&D. I think our 4-quarter positive growth trend in implants is showing the benefits of that, but we still expect to get benefit coming out of the R&D portion of that, which is primarily in that core implant portfolio, call it the implant and the abutment.

But I think importantly, the full breadth of either portfolio or solutioning that it takes to be successful in the implant business, we feel we have a very good broad portfolio, whether it's imaging, product or guided surgeries, including things like regenerative biomaterials.

That makes sense. And given the Nobel heritage, you've had a focus on improving the performance of the Premium portfolio. Where are you in this performance improvement process? And what are the next leg of opportunities?

Yes. So I think just kind of picking up on the last point. Last year, our investment to be able to improve the growth trajectory of Premium primarily, but I would say implants in total because it's true of both our Challenger business and our Premium business went into sort of those 3 phases. So again, commercial, clinical, which is primarily education and training and then R&D.

I think we're pretty well funded on the commercial side. We spent a lot of last year with the blocking and tackling, if you will, of filling sales territories, but also standing up, for example, a digital sales force that could help in that end-to-end solutioning of a clinician's office or a DSO to be able to create the digital foundation ultimately on top of just the implant solutioning.

The R&D portion, as mentioned, I think we still have a little ways to go. And then if you get a little bit on to the organic side of the equation, we know that we're a little bit light on the Challenger mix side of the equation. We're about $1 billion implant business, big numbers, about 15% of that roughly is Challenger. We have 2 strong brands. So we have ABT, that's Alpha-Bio Technologies manufactured out of Europe, selling in Europe, also servicing APAC and Latin America. We have Implant Direct out of the United States. But relative to the 50-50 share that is the global mix of Challenger businesses versus Premium businesses, we know we're a little under-indexed on the challenger side.

So maybe 2 follow-up questions from there. One, if you -- you pointed out sort of the under-indexing on the Challenger side. Is that something that you would look to do like an acquisition? Is this something you think you can sort of grow into organically? And then secondly, I think at Straumann's Capital Market Day, they actually said they're seeing Premium implants do a bit better of late versus some of their challenger brands. So that seemingly would offer you guys a nice opportunity as we get into 2026.

Yes. So I think if you maybe start with the inorganic, smaller, but this year, we announced 2 acquisitions, both -- which both were dinging the bell on both the Challenger implant or implant space in total as well as geographic penetration. So 2 acquisitions in Europe, both relative to distribution, being able to gain geographic -- a little bit of geographic scale. One in the Challenger space, the other in the Premium space.

I think that's just an example of how we can access accretive M&A, be able to expand geographically, be able to help pull through the portfolio that we have already on both sides, if you will, of the implant portfolio. But we'll also look at there's good local Challenger implant players to potentially help both in the mix of our business as well as the geographic penetration of the business.

Maybe just to the point on value or Challenger versus Premium, we'll see how it plays out. I think over a longer-term horizon, certainly the last few years, Challenger businesses have generally grown at a faster pace than Premium. We do see as interest rates eventually come down that some of the higher acuity procedures like a full arch implant or full arch case, which is typically done more in the Premium space, will likely benefit. And maybe for that reason, you'll see a little better growth in Premium over a shortened horizon. Long term, I would still say sort of odds on favor are that Challengers overall will grow at an equal or better rate than Premium.

Okay. And then sort of given how the market has shifted and maybe to a broader question related to what you just said, like we're seeing better growth maybe at GP practices and with DSOs. So how do you focus on those markets and the opportunity there versus what's been your historical sweet spot with some of the specialists?

Yes. I would say it primarily goes back to my mention of having the full solution portfolio on implants and importantly, everything from the image to guided surgery, right? Think through sort of the lens of a general practitioner. They're not as expert, if you will, as an oral surgeon is in the space of implants. That means there's a lean towards guided surgery or a digital offering.

And so our digital sales force approach, encouraging sort of the setup of the digital workflow from imaging all the way through guided surgery is part of our strategy to make sure that not only do we benefit from, as you said, the heritage of having high market share and brand awareness with specialists, but also building that same brand awareness with a general practitioner.

DSOs are interested in a very similar way, right? They're looking for scale. They're looking for efficiency. On some level, they're also looking for companies or a company that can help them with the sort of the thinking of that totality. And I think that's where the breadth of our portfolio, but also partnerships with other digital players is helping us in the go-to-market model to be able to be more relevant, if you will, than maybe what would have been known or understood as a selling philosophy in the past.

Okay. And does that also help you with sort of like the channel -- potential for channel conflicts between Premium and value as well?

Yes, I think it does. Maybe a couple of points of reinforcement. So one, our brands and our go-to-market model specific to field sales is still largely aligned with the 3 brands that I mentioned, right? Nobel, Premium, Alpha-Bio, Challenger and Implant Direct Challenger. But there's opportunities, think about a Venn diagram, right, maybe like 3 circles with some overlapping sort of concentric circle within there. There are opportunities. Our digital sales force in premium, Nobel that's had success over the last year can be used in a similar way without -- while being brand agnostic in the Challenger space, as an example.

Account leads. There are accounts globally that maybe lean towards being more challenger-based accounts. There are others that lean more towards being a premium-based account. As we run our sales teams and as we continue to find points of integration, naturally, you have a lead, but then you have a follow, right, in the case where a clinician wants to move from Premium to Challenger or Challenger to Premium, and you do a good job of having a lead organization and call it the second organization coming in, the more coordinated your effort there, the better. Implementation and leverage of things like CRM is helping us in that space.

Okay. That makes sense. And then how do we think -- if you have -- you've obviously been in the specialty segment, both orthodontics and generally, particularly Spark, implants, very, very nice growers. How do you think about the importance, given the sort of growth dynamics of that business? How do you think about the importance of having such a broad consumables portfolio under the same Envista umbrella?

Yes. So I think for starters, as you follow and it's sort of in the first question that you asked, Elizabeth, as you follow the dental market over the last, call it, 2 quarters to maybe half a year to 2 years, the stability of consumables has been at a higher rate and the stability of implants or certainly a market like Diagnostics. So for us, that's a positive, right? Having a business that has a level of stability, a level of consistency, operates maybe in a slightly lower growth profile, but nonetheless, is predictable. And our business happens to be one that runs slightly above market. I'll come to that in a moment and has a very attractive margin profile mix-wise as well.

Second point would be our portfolio in consumables. So we don't get into it in a lot of depth. A lot of questions go to Spark and ortho and implants.

So much to ask about.

So much to ask about. And when not, it's Diagnostics, right? But we have a nice portfolio in Resto Endo also within a very attractive business in infection prevention. Our business is named, Metrex, one of our strong brands is CaviWipes. We sell both into the medical channel as well as the dental channel. It's a business for us that's been growing above Envista average, above market average. It has pricing power. It has a good innovative platform. And so that's a good example for us of an outperforming business in sort of the broader spans of consumables and maybe as an example of where inorganically, there's opportunities out there even with sort of a slower growing part of the market space to outperform.

And then a business that we report in specialty and technologies, but we operate internally within consumables is a business we call Orascoptic. That's loupes, that's lenses. That's what you see on the kind of the dental professionals, primarily the specialists. And it's another example of a business for us that's got a strong NPI pipeline, very strong brand presence, has good pricing power and is growing well above market. So you kind of add all that up, and that's part of the reason why our consumables business this year has been performing as well as it is and gives us good confidence in a sort of a growth trend going forward.

That's good to hear. If we think about the Diagnostics business and the factors that are sort of driving growth there, how would you rank share gains, practice openings, AI-driven improvements and sort of product cycles in terms of contributors to the growth. And I know that the growth hasn't always been consistent. So maybe talk about how things sort of stand now or are shifting.

Yes. So I think hard to get away, number one, from market, the Diagnostics market being the sort of the #1 indicator of growth in the market. We're coming off of last year, the Diagnostics market being down, call it, high single digits globally. That's inclusive of everything that we see in Diagnostics, right? CBCTs, 2D, handheld scanners, sensors, et cetera. This year, I think I mentioned we estimate it's down low single digits. So the market is coming back, and we expect it to be a modestly growing market should interest rates and consumer confidence and the macro give it a little bit of a room to heal.

So I think singularly, that is the biggest driver of Diagnostics, at least as a market and our participation typically being a market overperformer growing. Then I would point to new products. So we just came -- Jim and I just came off of the Greater New York Dental Show. Last year at that same show, we were able to talk about 2 major new product launches. It's in our space of CBCT, that's cone beam scanning. We call them OP 3D EX and OP 3D LX. You can simply think about it as sort of a light version of a CBCT and a larger aperture, more specialist version of a CBCT.

That's been helping us certainly to be able to grow above market, good penetration in North America, good penetration in Europe. We just announced the launch in -- at IDS this year of our Imprevo iOS scanner. That's our first branded DEXIS scanner since the acquisition of Carestream, started selling it in September, and we see really good momentum here in fourth quarter. So good indication for us. I think the punchline here is that new products and new product pipeline is certainly how we think about growing an electronics business, maybe not unlike any broader consumer electronics space. you got to continue to innovate and you got to continue to find cost out. That's ultimately the best formula for success.

Got it. And maybe piggybacking off of that slightly. Where -- I mean, I would just say where are we in the AI adoption curve of diagnostics. But the answer is early, like I can almost answer that there. But who is adopting it now? Where are you seeing the interest? And sort of how do we think about the rollout of that globally across your diagnostics products?

Yes. Yes. So maybe similarly, the last 2 days, 3 days at Greater New York Dental, I think AI in diagnostics is probably the headline, if not one of the key headlines. We spent time with 8 different research analyst firms and probably 30 different investors, and we spent it primarily in our booth on DTX Studio. That's our treatment planning software that sits between imaging and product placement, and basically did a walk through all of our different AI algorithms that have helped the treatment planning process, in this case for, call it, like a general implant placement, go from something around 60 minutes to something closer to 5 minutes, right?

This has been a journey for us over the past couple of years. But much like a lot of software deployment, 2.0, 3.0, 4.0, 5.0, we're continuing to see major strides in that, both in accuracy that helps us move along that curve that you mentioned. So how do you go from being more focused on the specialist to enabling the general practitioner. That's certainly one of the helps. And then it also helps us to broaden how our imaging system, that is our DEXIS products and things like CBCTs can play a role in restorative and endodontics in addition to just implants. But ultimately, it's helping with prediction and efficiency in the clinician's office.

Got it. That makes sense. We've talked a lot about revenues, and that's obviously in products. That's obviously a very, very important part of the story. But how do we think about what the 2026 opportunities are that are not driven revenue driven in terms of expanding margins?

Yes. So I would say a large part, it's a continuation of the playbook we've been on. I think we talked about Spark. So I would sort of call that margin opportunity number one, right? This year, it's about growth. We're getting benefit from the deferral tailwind, but we also have good solid operational performance with the sort of the mentioned 20% cost down per aligner year-over-year. That will be a bit heavy going forward, right?

We don't expect to see 20% year-over-year every year. But we do expect to see, as mentioned, that automation rollout to our factories globally in addition to just everyday continuous improvement through our Envista business system, that's EBS continuing to play a role. G&A. This year, we're down 12% by memory, year-to-date on G&A. We expect G&A to be flat going forward. That takes productivity.

Well, on dollars or a percentage?

In dollars. That takes productivity because, of course, you've got merit and sort of general inflation in there. We're leveraging things like back-office consolidation, outsource and offshore in addition to just sort of classic EBS for process improvement. So that will be a continuation. And then to the degree that we can outgrow the market, I think we've talked about reinvestment in R&D and sales and marketing, but we'll try to get efficiency out of that as well.

Makes sense. The tax rate has obviously been something you inherited. So could you give us an update on where we are in that improvement plan?

Yes. So this year, we started the year with a guide of 37%. I know everybody is like looking up at me going, wow, 37%, that's a lot, right? So we just updated our guidance midyear to 33%. And then we talked about something I'll get on to in just a moment relative to the tax rate going forward. So 2 big factors in our tax rate. One is that we've talked openly publicly about having a large intercompany loan between international and the U.S. We pay interest on that loan. And based on your U.S. profits, you're allowed to deduct a certain amount of that interest.

Because of the high level of interest dollars and because of our lower U.S. profits historically, we've had a lack of deductibility. That's driven the tax rate higher. In addition to that, our profits as a company as they came down from 2023 created a lower level of deductibility. Two things have happened this year that are important. One is our profits as a company are improving and our U.S. profits have been improving. That's helped the tax rate to come down.

And then in third quarter, we talked in our preread remarks about the resolution of that intercompany loan. So the elimination of that loan, which will eliminate the interest, which will eliminate the tax deductibility sort of gap or cap. And by the time we get around to our 2026 guide, we'll give you sort of the full view of what that means. But it will be a tailwind to our tax rate in 2026, much below that 33%. We'll give you the detail on that as we go forward. And then as we continue to improve profits in the U.S., we still have a little bit of third-party interest expense that pressures our tax rate. That's sort of our last remaining item to get back to a more normalized tax rate.

Great. And then maybe in our last couple of minutes, what are you -- how are you thinking about capital deployment priorities? Obviously, you have a nice -- it's a nice problem to have in terms of your cash generation and cash positions. But how do we think about what the priorities are for that as we head into the next year?

Yes. So I think maybe 2 starting points. So one, at our Capital Markets Day, we brought forward, underscored, tried to elevate, if you will, the strength of the free cash flow of the business. Historically, we've ran at or around 100%. We believe we can be at or around 100%, maybe slightly better going forward. So I think point number one is it's a very capitally efficient business, good revenue growth, good margin, reasonably low CapEx, not very intense. And for that reason, generating good free cash flow.

Second point I think I would make is that the overall balance sheet strength of the business is good. We operate at slightly less than 1x net debt to EBITDA, about $1.4 billion in debt, slightly over $1 billion in cash. That's another good foundation for us. We have a strong capital structure. And should we be able to continue on this trend of growth and earnings, it gives us a lot of flexibility for capital deployment.

Organic will continue to be our #1 opportunity for capital deployment. I think that's embedded in our discussion today about growth, sales and marketing, R&D. M&A will be a priority for us, accretive M&A. So we'll continue to look for opportunities for geographic expansion in addition to portfolio sort of fillers like Challenger implants, maybe good growing aspects of consumables, et cetera.

And then we've recently added returning cash to shareholders as a third leg of our capital deployment playbook. This year -- early this year, we announced that our Board approved $250 million in share repurchase over 2 years. We got active on that in the first half of this year as our stock price was low, as the markets kind of were being a little dislocated from the Trump tariffs and sort of global geopolitics, and we'll continue on that trend as we go forward.

Nice. And maybe one last one to finish up on. As we're sitting on the stage in December 2026, what are you going to be most excited that you did across the course of the year and looking forward to for 2027?

Yes. I think probably it would be the changes embedded last year. So taking a swing last year at reestablishing what the right business growth external expectations were for the business, reinvesting in the business, right? Takes risk, right? It doesn't come without risk, but seeing a lot of the fruit sort of bear from that this year.

A good growing Spark business in R&D pipeline and new product commercialization coming out of Ormco, 4 consecutive quarters of implant growth, which is really on the back of that reinvestment last year and even some regeneration, if you will, in growth in businesses like consumables and diagnostics. So it's a continued story, right? It doesn't happen all in the course of one quarter. I think a lot of it came from the reinvestment in the business last year and then the sort of the rebuilding of some of our core business processes like EBS, people, culture, talent development. From my vantage point, 2025 is a good year where everything is sort of showing the benefits of good management over the course of the last 18 months.

Great. Well, that's a perfect place to leave it. Thank you so much.

Yes. Thank you.

Hello. My name is Sergio, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation Third Quarter 2025 Earnings Results Conference Call.

[Operator Instructions]

I will now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at Envista Holdings. Mr. Gustafson, you may begin your conference call.

Good afternoon. Thanks for joining Envista's Third Quarter 2025 Earnings Call.

We appreciate your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer; and Eric Hammes, our Chief Financial Officer.

Before we begin, I want to point out that our earnings release, the slide presentation supplementing today's call and reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.envistaco.com.

The audio portion of this call will be archived in the Investors section of our website later today under the heading Events and Presentations.

During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our results.

Unless otherwise noted, references to these remarks to company-specific financial metrics relate to the third quarter of 2025 and references to period-to-period increases and decreases in financial metrics are year-over-year.

During the call, we may describe certain products and solutions that have applications submitted and pending certain regulatory approvals or are available only in certain markets.

We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events and developments that we believe, anticipate or may occur in the future.

These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results may differ materially from any forward-looking statements that we make today.

These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

With that, I'll turn the call over to Paul.

Thank you, Jim. Good afternoon, and welcome, everyone. On today's call, I'll kick us off with some opening thoughts on our Q3 and year-to-date performance as well as a brief strategic and operational update.

Eric will then take us through the financials in more detail. I'll wrap things up with some closing thoughts. And then as always, we'll open it up for your questions.

Slide 4 summarizes 3 things. Q3 results; year-to-date performance; and another update to our full year 2025 guidance. Let's begin on the left with Q3 results.

We posted another solid quarter, delivering strong revenue and earnings growth and good margin expansion. Core growth came in at 9%, aided by the expected Spark deferral benefit. Excluding this, core growth in the quarter was around 5% with all major businesses once again in positive territory. Adjusted EBITDA margin was 14.5%, up more than 500 basis points from Q3 of '24, supported by good growth and productivity. Adjusted EPS was $0.32, more than twice the Q3 '24 result.

Moving to year-to-date performance. Core growth came in around 3% after normalizing for last year's changes in Spark deferral and dealer inventory levels. Year-to-date adjusted EBITDA margin is around 13%, showing progress in Q3 over H1. Rounding out the column, through 3 quarters, we've delivered $0.82 of adjusted EPS, a 67% increase over the same period last year.

Moving to the column on the right. Given our good year-to-date performance and strong momentum, we are again raising our full year 2025 guidance. We now expect core revenue growth of approximately 4%, up from 3% to 4% previously, and adjusted EPS of $1.10 to $1.15 versus $1.05 to $1.15 previously. EBITDA margin guidance for the year is unchanged at approximately 14%.

Let's now turn to progress we made in the quarter in support of our 3 core priorities of growth, operations and people. Beginning with growth on the left side of the chart, ours was well balanced between volume and price and broad-based across the portfolio as ortho, consumables, diagnostics and implants all delivered growth.

We again held share in implants while gaining share in all other major businesses. Our strong performance funded another quarter of double-digit increases in strategic R&D and sales and marketing investment.

We're seeing good returns from these investments, evidenced by several major new product launches in the quarter, including Spark Jr., a comprehensive aligner solution for younger patients; Spark StageRx, a digital workflow platform for enhanced clinician support; Orascoptic Ergo Zoom, a novel loupe system that combines superior ergonomics with adjustable magnification; and DEXIS Imprevo IOS, a significant leap forward in terms of intraoral scanning speed, precision and versatility.

We're also seeing good market traction from previously launched new products such as Spark on Demand, Spark Retainers and BiteSync Class II Corrector; as well as Nobel Biocare's new multiunit abutment, which integrates our novel surface treatment with a slimmer emergence profile.

The solution is designed to promote soft tissue healing and supports a stronger biologic seal for long-term stability.

In terms of customer education, this quarter, we trained more than 15,000 clinicians, including hosting several high-impact events, balanced across all geographies and businesses. Examples include well-attended Kerr and Ormco forums in Europe and a major Nobel and DEXIS symposium in Japan.

On the operations front, we continue to enjoy strong contributions from EBS, our continuous improvement methodology that is central to how we deliver results, develop our people and advance our culture. In addition, we delivered further year-on-year G&A reductions while maintaining high customer service levels.

Last quarter, we announced a new R&D and manufacturing facility in China. And in Q3, we broke ground on a new multipurpose diagnostic center just down the road from our existing facility in Finland, which has long been a hub for innovation in dental imaging.

Finally, with respect to people, we continue to advance our high-performing continuous improvement culture, seeing growing momentum in engagement and talent development.

This week, we published our 2024 sustainability report. Available on our website, the report details the many initiatives that are underway across key focus areas like expanding access to dental care for underserved populations, investing in our colleagues and communities, being good stewards of the environment and building on our century-plus rock-solid foundation of doing business the right way.

Before I turn the call over to Eric, I'll mention some important milestones for our Spark aligner business in Q3.

On the growth front, we shipped our 1 millionth case since launching the business in 2019. We're pleased to have gone from 0 to nearly $300 million in revenue in under 6 years, funded entirely by operating profits generated elsewhere in our portfolio.

We are the only orthodontic provider with leading positions in both fixed and aligner therapy, operating in all major geographies and with a global supply chain that allows us to respond seamlessly to macro and market conditions.

This global scale brings me to the second milestone we crossed in the quarter. Last year, we committed to positive operating profit for Spark sometime in the second half of this year, and we reached that level in Q3.

Behind this strong momentum, we expect continued margin and market share gains moving forward. These milestones were several years in the making, and we applaud the many contributions from our colleagues, partners and customers that both got us here and continue to propel us forward.

With that, I'll turn the call over to Eric to walk us through the numbers.

Thanks, Paul. In the third quarter, we delivered sales of $670 million. Core sales in the quarter increased 9.4%, and FX added another 200 basis points.

Our Q3 growth benefited from last year's change in Spark deferral, which I'll say more about in just a moment. Excluding this effect as well as dealer inventory realignment that we discussed on prior calls, year-to-date growth was around 3%.

Our underlying core growth in the quarter was another positive step for Envista. This reflects the changes we've made in 2024 and 2025 to improve our growth potential.

Q3 adjusted gross margin was 56.1%, an increase of 330 basis points versus the prior year. Volume, price, improvements in our global supply chain and the expanding Spark margins that Paul just mentioned, all contributed to the gains.

Our adjusted EBITDA margin for the quarter was 14.5%, which was 540 basis points better than the prior year. Margins were helped by the previously mentioned gains in gross margins as well as continued strong G&A productivity.

Adjusted EPS in the quarter was $0.32, up $0.20 compared to the same quarter of last year.

Our non-GAAP tax rate for the quarter was 31.2%, slightly better than our expectations. We continue to see a beneficial trend in our non-GAAP tax rate as a result of our strong business performance in the United States, which increases our level of interest deductibility related to third-party and intercompany interest expense.

Also, you'll notice in our Q3 filing a onetime GAAP charge related to a discrete tax adjustment. This relates to the elimination of a significant intercompany loan, which had been a headwind to our global tax rate.

While settling the loan resulted in a onetime charge in our Q3 GAAP results, this does not impact our full year 2025 non-GAAP rate.

And most importantly, there is a near 0 net cash impact from the restructuring. While our estimated non-GAAP tax rate for 2025 is unchanged, over time, we do anticipate future tax benefit as a result of this action, both on a reported and cash basis, and we'll provide more details on this in the coming quarters.

Rounding out Slide 7. In Q3, we generated $68 million of free cash flow, up slightly from last year, principally driven by our improved profitability.

Now let's turn to 2 bridges to help break down our year-over-year results, beginning with sales. Core revenues grew 9.4% in the quarter with positive growth in all major businesses.

Combined, volume and price contributed about 500 basis points. Q3 growth was also helped by Spark tailwinds, both primary case growth and deferral benefits as well as favorable prior year comparables.

Q3 was another solid quarter of growth for Envista.

Foreign exchange contributed roughly $11 million of sales or about 200 basis points, reflecting the weaker U.S. dollar.

And finally, we had a minor benefit from the 2 acquisitions mentioned on the Q2 call, both of which support implants growth in prioritized markets.

Turning to the adjusted EBITDA margin bridge on Slide 9. The change in Spark deferrals delivered about 390 basis points of growth this quarter. It's worth noting that while the change has resulted in a year-over-year benefit, absolute revenues and profit delivered in Q3 are a good baseline for modeling the business going forward.

Volume, mix and price combined to deliver a 240 basis point improvement. As mentioned, we saw broad-based performance across the portfolio on these dimensions.

We had a net gain of 80 basis points from improved productivity with G&A down more than 12% year-to-date.

As Paul noted earlier, we continue to reinvest a portion of our productivity gains back into sales, marketing and R&D to support future growth, which amounted to 130 basis points in the quarter. Increased tariff costs compressed margins by about 140 basis points.

On the Q2 call, we committed to offsetting full year tariff costs, and we're still tracking to do so. It goes without saying that the tariff landscape remains fluid, and we'll continue to update you as matters evolve.

Turning to segment performance. Revenue in Specialty Products and Technology grew 13% year-on-year with core sales up 10.6%. In our orthodontics business, Spark was up high teens before the additional benefit from the net deferral change.

The strong pipeline of product launches that Paul touched on earlier are all adding to our momentum. Brackets & Wires was flat year-on-year as underlying growth in several markets was offset by continued VBP preparations in China.

The Q2 buy ahead that we discussed last quarter also played a role. On the implant side, we delivered a fourth consecutive quarter of positive growth globally, led by above-market performance in North America.

Our prosthetics and digital solutions portfolio had another strong quarter as did our regenerative biomaterials business.

In Q3, Specialty Products and Technologies posted an adjusted operating margin of 15.5%, up 850 basis points, driven by good growth as well as the year-over-year impact of Spark turning profitable.

Volume, price and net productivity were all positive in this segment. And consistent with prior comments, a portion of the gains were reinvested in commercial and new product development activities.

Moving to our Equipment and Consumables segment. Core sales in the quarter increased 7.3% versus prior year, including double-digit growth in consumables, where we delivered broad-based growth across the portfolio, including solid price performance.

Diagnostics core sales growth was up modestly for a second consecutive quarter, with North America and Europe, both delivering a positive result.

Similar to SP&T, new products are an important part of our Diagnostics playbook. Innovative launches like a new CBCT platform last year and a new IOS last quarter are striking a chord with customers.

Adjusted operating profit margin was roughly flat year-over-year at around 20%, while profit dollars were up about 9%.

Let's now turn to cash flow. Q3 free cash flow was $68 million, an increase of about $5 million when compared to the third quarter of last year as improved sales and margins were partially offset by increases in inventory and increased growth CapEx.

Year-to-date free cash conversion of 100% is in line with the outlook we provided at our March Capital Markets Day.

Free cash flow dollars are down year-to-date as relative performance in 2023 warranted a lower incentive bonus payment in 2024. Our balance sheet remains strong and stable with a net debt to adjusted EBITDA of approximately 1x, providing welcome stability in the current environment.

In Q3, we deployed approximately $40 million in cash to repurchase 2.1 million shares of stock. On a year-to-date basis, we repurchased over $140 million or a total of 8 million shares as we continue to execute our $250 million 2-year repurchase authorization.

I'll now say a few more words about the updated guidance that Paul introduced earlier. Slide 13 summarizes the changes. A core sales growth of approximately 4% versus 3% to 4% previously, building on the 3% year-to-date underlying performance that Paul mentioned earlier.

We estimate EPS of $1.10 to $1.15 versus $1.05 to $1.15 previously. Finally, our full year adjusted EBITDA margin estimate is unchanged at approximately 14% as we expect Q4 to build on the year-to-date performance levels while reflecting continued investment in the business.

Back to you, Paul, to wrap things up.

Thanks, Eric. A few closing thoughts on the quarter. First, we haven't said much about the dental market on this call because things really haven't changed much from Q2.

On balance, underlying patient demand remains stable, albeit still below typical longer-term levels for the market. Macro uncertainty remains high, which continues to impact some of the more discretionary procedure segments.

Second, our momentum continues to build with core growth of roughly 5% in the quarter and 3% year-to-date after adjusting for Spark deferral and dealer inventory realignment.

This growth converted well to cash, margins and EPS. We are again updating full year guidance with core growth and EPS, both moving to the top end of the ranges that we shared on our Q2 call.

Importantly, I'll close by noting that this progress is made possible by the wonderful talent and commitment of our global Envista team.

Please know how much we appreciate all you do in the service of our stakeholders. In the same way, we're grateful for the support we receive from our customers, partners and shareholders.

And that completes our prepared remarks. We'll now open it up for Q&A.

[Operator Instructions]

Your first question comes from Allen Lutz from Bank of America.

Congrats on a really nice quarter. Paul, one for you. It's nice to see Spark turn profitable in the third quarter. And so now that, that business is profitable, how should we think about the trajectory of margins from here?

And then separately, can you talk a little bit about the market share of that business? Where are we today? And where do you think that business can go?

Allen, thanks for the question. Yes, getting Spark profitable is an important milestone for us. It was 6 years in the making and grounded in a lot of really good work on both the cost and the growth front. So maybe I'll take the 2 parts of your question in turn.

With respect to the margin part of your question, we said previously that we expect Spark margins to eventually reach fleet average.

And based on the steady progression that we've seen now over the past many quarters, we continue to believe that's an appropriate objective.

Maybe a bit more color on that. In addition to the consistent unit cost progress that we've spoken about previously, our margins are also helped by improvements that we're making in setup and design times as well as changes to the portfolio mix and the commercial efficiencies that come from providing, both a fixed and aligner solution to customers.

So of course, we get scale economies from this, one sales force selling both solutions. But equally important, it's also, we think, a much more credible position from which to approach customers.

The doctors, of course, know how to best treat patients. We simply provide a full portfolio to help them do that.

Now in the same way, we also get broader efficiencies with DSOs. So in that case, we not only provide a full ortho portfolio, but we also provide complete implant consumables and diagnostics offerings as well. So that also helps on the economics.

Now with respect to market share, Spark has outgrown the global aligner category every year and essentially every quarter since it launched.

And even now that it's at a much larger scale, we mentioned it's approaching $300 million in sales, Spark still grew high teens in Q3 before deferral. And we think that's quite a bit better than the market, which we think was probably low single digits in Q3.

And all that is because we feel we have a compelling competitive business here.

Like the full portfolio I mentioned, we also have deep, in some cases, 50-plus year positions in key geographies around the world. And very important today, we have a global supply chain with flexible manufacturing on 3 continents. So as you can pick up from my voice, we're pretty excited about the future for this business.

Thanks Paul. And then one for Eric. If we go to Slide 9 on the volume mix price added 2.4% to EBITDA, based on our math, it looks like price is a good portion of that.

Is there any way you can unpack the contributions within volume, mix and price? And then how should we think about what's embedded within that into 4Q?

Yes. Yes, I'll take that, Allen. So I mean, just in terms of unpacking, I think you're on -- let me just repeat, Slide 9, the 240 bps between volume, mix and price, we grew price in the quarter by a little over 200 basis points.

And the majority, of course, of the rest of our revenue growth was volume-based. And so you can sort of back into the impact of that from a margin standpoint.

That means slightly better margin accretion in that box from price and slightly less from volume. And then we had a little bit of an offset in mix as we have good gross margin portfolios, but some of them are slightly dilutive to the Envista average.

And then the way you should think about margins going forward, I'll just sort of take it from the guidance frame. And so we have stuck with our adjusted EBITDA margin guide for the year, that's 14%. That's within the revised guidance that Paul and I both mentioned in the preread remarks.

And if you do the back math on that, that means that Q4 will be, I would say, on the level of that same 14%. Admittedly, we're probably rounding up to 14% margin for the full year. And the best way to really work the P&L, I would say, is to anchor on the EPS range that we gave, which is the $1.10 to $1.15.

Your next question comes from Elizabeth Anderson from Evercore.

Congrats on the quarter. Paul, I appreciate your comments on the stability of the dental market overall. I was wondering if you could just maybe comment a little bit more about China. We've heard from some competitors that there's been an impact from VBP of people pausing buying. The consumer environment obviously remains choppy there. So it'd just be helpful if maybe you could unpack that a little bit more.

Sure. Thanks, Elizabeth. So as you all know, there are 2 VBPs that have been discussed in China. One is underway, that's for orthodontics. That's well progressed.

We still expect to hear something here in calendar 2025. But as we've seen from other VBPs, both in dental and health care more broadly, those things do slip on occasion. So if that rolled into Q1 or the first half of '26, I don't think any of us should be too surprised.

But that's proceeding generally according to expectations. And then the second one that people are now starting to talk more about is VBP 2.0 for implants.

We're in pretty close contact our government affairs team in China with the provincial leaders. And we're also, of course, in regular conversations with the clinicians and department chairs at the public hospitals.

So we expect that is coming, although we don't have any official communication from either the provincial or the central government on the details.

And maybe one for you, Eric, as well. Obviously, you had sort of a very nice margin expansion this quarter despite the fact that tariffs were a bigger headwind. I mean obviously, this is a fluctuating situation, but do you think that the sort of level of tariffs you experienced in the third quarter is sort of the way to think about maybe the fourth quarter as well and sort of going forward? Or would you call out any notable differences there?

Yes. Let me just give you a little bit of the -- by the numbers, Elizabeth. So last quarter, within the margin bridge, if you did sort of the back math on our margin rate, we had about $4 million in tariff costs within the quarter. This quarter, it's a number, call it, $8 million to $9 million.

And I would say that's a good basis, both as we think about Q4 and then a little bit cloudy, but our view of full year 2026 on a run rate basis.

So let's call it, $10 million in tariffs per quarter as we look forward. Obviously, that can be impacted by either tariff rate reductions or maybe a little bit of better execution on our end on the supply chain mitigation. But right now, that's the best view that we have.

And then I'll just reinforce something that we said in our pre-read remarks, which is our objective going now back 2 quarters was to offset this on a dollar basis for the full year.

We're on track to do that, and we were there as we sort of cross the finish line in Q3. So all in all, I'd say tariffs are sort of a minimal amount of noise for us going forward using Q3 as a base on a dollar basis of tariffs.

Your next question comes from Michael Cherny from Leerink Partners.

Maybe if we can dig a little bit more into implants, and this has obviously been an improving trajectory, Paul, since you came in. As you think...

Michael, we're having a little trouble hearing you. Are you able to turn up the volume?

Is this any better?

Yes, at the end there, you were coming in.

I just want to -- I'll ask it quickly. Where do you feel best about your positioning on implants right now? And as you think about your R&D and sales expansion efforts, where are the biggest opportunities you have to potentially push harder?

So I would say, in total, we feel good about our implants position. We've had now, in total, 4 straight quarters of positive growth. We think we were above market growth in North America in the last quarter.

And we have good growth balance for the most part across Premium and Challenger, albeit our Premium business being significantly larger.

In terms of new product activity, we've also had a couple of good launches recently. We have a new multiunit abutment that launched earlier this year, which is having good impact.

And we have a new zirconia highly translucent bridge that came out of our Procera business. So we think we're making headway there on the new products front as well.

Maybe balancing my comments. Like everyone, we're keeping a close eye on China. We had a good result in VBP 1, albeit there was a margin impact traded off by an increase in volume. We'll have to see how that plays out here with VBP 2. But on balance, we're clearly making headway on our implants business here.

Your next question comes from Jeff Johnson from Baird.

Eric, I wanted to just focus on the organic growth adjustments in 3Q is my first question here.

You're talking about 5% if we adjust for the Spark deferred. And that, I think, is pretty easy math to get to and makes sense. The $10 million pull forward that was mostly in Brackets & Wires last quarter that helped in 2Q, did that $10 million fully reverse mostly in Brackets & Wires this quarter?

And would that 5% core growth that you're saying on an adjusted basis this quarter then be closer to maybe 6%, 6.5%, if I adjust for that? Just anything else that I should adjust for to get to kind of a cleaner core number for the quarter?

Yes. No, Jeff, I think you got the numbers. So the Spark deferral obviously is pretty easy to pick up off of the year-on-year revenue bridge. And then I would just confirm that we believe, to the best of our data, and our data is pretty solid, that we're not exiting.

We did not exit Q3 with any kind of price buy ahead sort of still in the system, that's to say that it all reversed out in Q3. And for the most part, I think we talked about it on the last quarter call as well as follow-ups that about half of that was in our Specialty and Technologies segment, and quite a bit of that was in Brackets & Wires.

I think we said it within our pre-read remarks, Brackets & Wires was flat. That's part of the reason for that. So you're correct.

And then back to sort of your question on underlying growth, I would just say that our underlying growth in Q3 was in that 5% to 6% range, if you want to take the buy ahead reversal out.

And I simply range it because I do think there's a little bit of variation around how much of that $10 million was in Q2 or Q3. It's our best estimate, but it's not precise.

All right. Fair enough. And then, Paul, just on the VBP comments you had, one of your competitors is talking about starting to see in 3Q a little bit of inventory drawdown on the implant side, expecting a larger drawdown in Q4 and Q1 before then benefits start to flow in later in the year.

I mean that's a pretty standard pattern of 2 or 3 quarters of inventory reductions, then you pause and you start to get the volume recovery and maybe even demand recovery a quarter or 2 after the VBP.

Should we be modeling -- I think you're at about $100 million annualized in implant revenue in China. Should we take that same kind of pattern into account as we model even if we don't yet know full details on implant VBP there? Just any guidance you would give us over the next few quarters on that $100 million business line?

Yes. I guess I'd say 3 things about the expected implant VBP 2.0. The first thing I'd say again is it's expected, but hasn't been communicated. The second thing I would say is your general expectation in regards to the de-stocking followed by the new price level and then a restocking impact, which magnifies the growth in the bounce back quarters is what we expect. So I think you're right on with that.

The third reminder I would give is we expect VBP 2 to be smaller than VBP 1. So smaller in terms of the price decline and smaller in terms of the inventory impact.

The market also is smarter this time around having gone through it first with implants and now currently with ortho. But I think you've described the general trends correctly, Jeff.

Your next question comes from Erin Wright from Morgan Stanley.

This is Linda Bolduc on for Erin Wright. So given the latest quarterly results in SP&T, what are you seeing in terms of the balance around Brackets & Wires and clear aligners? Do you think clear aligners are back to taking share?

Yes. We got this question on the Q2 call as well. We don't see a material shift between use of Brackets & Wires and clear aligners. We focus on the Orthodontic segment for our clear aligner business. And of course, we focus exclusively on the Orthodontic segment for Brackets & Wires.

And our communications with doctors, they make a judgment on which therapy is best for a particular case based on the age of the patient, the expected compliance of the patient, the severity of the case, et cetera.

And then we just provide them what we think are 2 very good solutions, either for fixed appliance treatment or clear aligners. But we don't see any structural shift between the 2.

Your next question comes from Jonathan Block from Stifel.

Maybe I'll just start on the consumables side. And hope I didn't miss anything, but Paul, I thought you said think about it as a stable market, but consumables were up double digits.

So if you can talk to what drove the outperformance, clearly above market, I would think. And then any thoughts on, call it, sustainable share gains there going forward?

Yes, it's a good question, John. Our consumables business has 4 pieces to it. It has the composites, the restorative business. It has an endo piece. It has an infection prevention piece and then let's call it all other. And we're seeing decent growth across all those components. We had particularly strong growth in the infection prevention piece. So that might be playing a role.

We also had very good performance with DSOs in the first half and in particular, Q3. So maybe that's also playing a role.

In general, having followed the category for so long, in times where consumer confidence is impacted, like it is right now in the U.S. in particular, the consumables business tends to do relatively better because it's typically covered by insurance and typically isn't impacted as much by any changes in consumer confidence.

So I think that's going on. There's this ongoing refrain for decades in the industry that the branded consumables players would be displaced by private label. We just don't see that in our results.

Very helpful. And I'll sort of shift gears for the second one. This is a little bit of a tedious one. But Eric, if you can just help us the Spark deferral, like what's left in 4Q, if anything? I thought you might have said $30 million, 2H and then $27 million.

So is it that stub? But also, if you can remind us maybe like full year '25, full year '26, where that may land? And then anything that we should take into account from a margin perspective because obviously, this is a pretty high drop-through when we start to shape and inform our EBITDA margins for '26.

Yes. Excellent, John, thanks for the question. So let me just walk from our original guide, which obviously gives you the numbers going all the way back to '24 to '25 and then just bring it forward to 2026. So bear with me.

So we entered the year during our guidance, we talked about the fact that for 2025, we expected 2/3 of the 2024 headwind to turn into a tailwind. And that tailwind in 2024 was about $45 million. So call it, $30 million for this year.

First half was a very small net number. It was a little bit of a tailwind because Q1 was a little heavy. You guys saw the big number, obviously, in Q3. We've been estimating and projecting and forecasting that, telegraphing it for the full year. And so that leaves, call it, a small impact, low to mid-single digits in Q4 that will be a remaining tailwind year-over-year to get us to around $30 million for the full year.

You can then do the math on the balance that we would expect to get for 2026. So there is a little tailwind still left. It's certainly not as material as what we saw in Q3, and it's certainly not as material as the full year 2025.

And then the other thing I just want to communicate because I know several of our sell-side analysts are kind of tussling with this. I think the best way to think about Envista going forward and the Spark business going forward is that the absolute revenues and the absolute profit that we just reached in Q3, and I know you're sort of modeling it, that is the right basis for taking the business going forward.

Said another way, the tailwind that we got this quarter is not a headwind as we get into 2026. We don't have a comparable problem, right? And I mentioned that because I know there's a few analysts that are out there sort of dealing with that.

And then in terms of profitability, I'll just go back to what Paul mentioned right at the top, whether it's continued growth in the business, continued case start improvements, a trend, a good trend that we have going on in terms of unit cost down and then portfolio and even some of the design cost changes, we do expect to make further improvements on the profitability of the business.

But this is also a business that is becoming more and more integrated, if you will, around the Ormco platform and with Brackets & Wires. And so we probably won't talk as much about sort of the pure profitability as we roll forward. But I think an important point in all of that is the dollars of revenue and the dollars of profit in Q3 are a good basis going forward given the fact that the vast majority of our deferral tailwind is now behind us.

Your next question comes from Steve Valiquette from Mizuho Securities.

I guess somewhat building off your comments from just a second ago. We've seen just around clear aligners, 1 or 2 of your competitors this quarter actually talking about getting better ROI on Clear Aligner marketing spend, both towards practitioners and consumers to drive better clear aligner volume trends.

So I guess, in your journey on getting to this positive operating profit, just remind us whether or not you think your current level of marketing spend related to Spark franchise is adequate in that context? And is there any color just on where does annual marketing spend directionally go from here for Spark either on an absolute dollar basis or a percent of revenue basis, if you think about it in that context?

Yes. I think short answer is we do feel like the business is appropriately supported at present. There are a few markets left to enter, geographic markets. So that would be a marginal increase in spend as we enter those. But for the most part, it's a $300 million business right now. It's at scale.

Your next question comes from Michael Sarcone from Jefferies.

I guess maybe just on diagnostics, can you elaborate on what you're seeing in the recent trends and maybe give us some color on your outlook for growth going forward?

Yes. Good question. I mean it's good to get a diagnostics and a consumables question in the quarter. So grateful for that. So diagnostics, maybe to set the table, it's been a couple of year contraction for the category.

And most of the players have reported something similar. For us, it's been several quarters of contraction until Q2 of this year, where it turned positive.

And then we were pleased to see a second successive quarter of positive growth for our diagnostics business here in Q3.

And that was helped by an important launch we had in our IOS business, which sits in our diagnostics platform. That's our Imprevo IOS.

When people think about what has caused the preceding contraction of the category, they report to -- or they point to a couple of macro factors.

One is directly related to interest rates, and interest rates impact the business in 2 ways. First, interest rates impact how fast either individual clinicians or DSOs open new sites. When you open new sites, you have to add diagnostic equipment.

We have the largest installed base globally and are the market leader in North America. So when site additions slow, that impacts us.

The second way that interest rates play out, of course, is for an individual clinician, they finance the purchase. So higher interest rates make them less likely to update their equipment.

As interest rates start to come down, that's helpful. And we're starting to see DSOs and individual clinicians on the margin start to open new sites again. So both of those are supportive for the diagnostic category. Far too early to call a change here. We're, like you, excited to hear how other participants in the market performed in Q3. But for us, at least, we have 2 positive data points now and the underlying what we can control investment and performance of the business is pretty good.

Your next question comes from Brandon Vazquez from William Blair & Company.

This is Russell on for Brandon. Just one for me. You guys touched on it a little earlier, but an interesting topic right now is DSOs. Could you maybe comment more on any particular strength in the DSO market today given the current environment and maybe your competitive positioning and key drivers of opportunity in the market?

Sure. As is the case for most of the bigger suppliers, DSOs are a very important segment for us. When I joined Envista, maybe 1.5 years ago, I moved our North American key account team to report directly to me, reflecting the importance of that customer segment.

And I think the increased focus is starting to yield benefits. In North America, we had double-digit growth for our imaging business across our top 20 or so partnerships. Our CBCT platform, for example, is now installed in all 1,000-plus locations of one of the largest U.S. DSOs.

We had high single-digit growth for both Nobel and Ormco in Q3, again, in North America. We had double-digit growth in our consumables business. In Europe, we're also seeing good performance for DSOs. Ormco was up double digits, and we had high single digits in Brackets & Wires, strong double-digit growth in Spark.

And then even in China, DSOs are a bright spot for us. Our Nobel business had high single-digit growth in Q3. Ormco had positive growth despite the destocking in preparation for VBP that was mentioned in an earlier question. So we're focused on DSOs, and that focus is paying off.

Your next question comes from David Saxon from Needham.

Paul and Eric, congrats on the quarter. So maybe I'll start with Eric. So in a couple of earlier questions, you talked about guidance is kind of rounding up to 14% for the EBITDA margin.

I think the Capital Markets Day targets kind of implied around 50 basis points of improvement per year.

You also talked about offsetting tariffs, I believe, earlier in the call. So if we kind of take those comments, it seems like you're tracking to where consensus is in the low 14% range for next year.

But then you just talked about how third quarter's margin performance is a good basis for going forward, which would, I think, puts you closer to 15%.

So can you just help kind of parse through all that? Like where do you think margins could go high level at this point for next year?

Yes. Yes, absolutely, David. I appreciate it. So I mean, I would just start with second half 2025, inclusive of the kind of the calculated margins for Q4 based on our approximate 14%, that's a good way to think about our margins as we go forward. And then much too early for 2026, but we still very much see next year being a proxy, if you will, of the algorithm or the financial framework that we laid out in Capital Markets Day, right, which was having a core growth rate kind of midpoint of our range around 3% and then leverage, right?

So think adjusted EBITDA growth, adjusted EPS growth. And what basically that formulary said is that we have the ability to get leverage as we work from growth down through the bottom lines of the P&L.

Some of that is going to come from a few of the trends that we're seeing, and I would just say, improvements that are happening in 2025.

So continued good core growth with good gross margins; continued improvements in Spark based on, again, some of the earlier comments.

We put a lot of focus this year into G&A. We'll make progress next year, probably not at the same rate, but we have levers to use to really operate within that Capital Markets Day framework where we do expect to get leverage on top of the growth.

So all in all, I think aligned with what we said not just 9 months ago.

Your next question comes from Kevin Caliendo from UBS.

This is Dylan Finley on for Kevin. Congrats on the results, guys. If I could just circle back to Spark. If we could break down the high teens core growth that you guys saw, how would you compartmentalize that between same-store sales versus new geographies or new offices that you've kind of gotten into?

And one of your competitors recently called out some pressure in U.S. of the retail doc segment, the non-DSO part of the market. Curious about your experience there. Any divergence in behavior or order patterns between types of docs here in the U.S.

Yes. So let's see, 2 parts to your question, trying to break down the Spark growth, does it differ by geography? And then does it differ between individual clinicians or what some people call retail and DSOs. I can talk about our business specifically.

We had high single-digit growth in North America. We had double-digit growth in all other major geographies, except for China. So we have good growth pretty much across all geographies.

With respect to DSOs versus individual clinicians for our Spark business, we tend to do, on a relative basis, even better with individual clinicians. And that's because, again, remember, we focus on orthodontists, and DSOs typically over-index to GPs. So when we call on a pure-play orthodontist, we are, we think, competitively advantaged. We don't go as aggressively to DSOs with Spark, again, because we focus on specialists, and they tend to be mostly GPs. So maybe that gives some useful color.

That's very helpful. And then just one clarification question. One of my colleagues asked about China VBP, China implants maybe being around $100 million annually in sales. That's kind of what where we got around to.

Does your current year guidance contemplate any fourth quarter destocking phenomena similar to what you saw in VBP 1.0? Or do you think at this stage, it's not necessarily likely that that's even going to happen?

Yes. Good question. So short answer is yes. Our guidance does contemplate what we believe will happen with VBP. And for us, it's a little bit of a 2-part scenario.

So because we have an orthodontic bracket and wire business, there's still some remaining question on how things play out in Q4, but that will likely be a good grower for us in fourth quarter because 1 year ago, we were seeing the preparation for VBP happening, which is to say that our business was a slightly lower base.

And we also believe there will be some impact, as you're alluding to, in implants where whether it's channel or whether it's broader market, we'll see a little bit of contraction. And our estimates, as you mentioned, do contemplate that. So we think it's likely, and it's within our guidance we gave.

Your next question comes from Jason Bednar from Piper Sandler.

Sorry if I missed it, busy afternoon. I've been bouncing around some calls. And apologies if this has been asked, you can tell me just to go check the transcript.

It was good to see the growth durability in implants, I think low single digits. Can you break out the growth between Challenger and Premium during the quarter within that total LSD growth? And then can you speak to the confidence of taking a step forward with implant growth from where you're at, knowing that comps turn a bit tougher and the broader market still is fairly stable here?

Yes. Yes, sounds good, Jason. So within the quarter, you mentioned low single digits for implants. I would just say we had a strong premium result within there, and then Challenger was closer to flat within the quarter.

We have a little bit of variability in our Challenger results just based on it being, number one, a small business and then some of the geos that we participate in.

We expect our Challenger business to grow on a full year basis. And we think that our print, if you will, or level of performance for premium in the quarter is a good baseline for us, at least in the near term.

It's been a solid performing business for us this year. Total implants grew for the fourth straight consecutive quarter. And I would say, in total, that's a good way to think about the business, at least in the near-term forward view.

Thank you. There are no further questions at this time. I will now turn the call over to Paul Keel for closing remarks. Please go ahead.

All right. Thanks, everyone, for tuning in. I'll just quickly underline a couple of thoughts to put a wrap around the quarter.

First, as you saw from the results, Q3 was another step forward for Envista. We had good core revenue growth converting into double-digit adjusted EBITDA and EPS growth.

Similarly encouraging, our performance was generally broad-based with all major businesses again delivering positive growth. And underlying all that, we continue to focus on executing the plan that we shared at our Capital Markets Day in March, showing ongoing progress in our growth, operations and people priorities.

So I think that well covers it for the day. Thank you again for tuning in and wish everyone a good afternoon and remainder of the week. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.

Hello. My name is Ina, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's Second Quarter 2025 Earnings Results Conference Call. [Operator Instructions]

I'll now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations of Envista Holdings. Mr. Gustafson, you may begin your conference call.

Good afternoon. Thanks for joining Envista's Second Quarter 2025 Earnings Call. We appreciate your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer; and Eric Hammes, our Chief Financial Officer.

Before we begin, I want to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.envistaco.com. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations.

During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our results. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the second quarter of 2025 and references to period increases and decreases in financial metrics are year-over-year. During the call, we may describe certain products and solutions that have applications submitted and pending certain regulatory approvals or are available only in certain markets.

We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events and developments that we believe, anticipate or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results may differ materially from any forward-looking statements that we may make today. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

With that, I will turn the call over to Paul.

Thank you, Jim. Good afternoon, and welcome, everyone. We appreciate you taking the time to join us today. On today's call, I'll kick us off with some opening thoughts on our Q2 and first half performance as well as a brief strategic and operational update. Eric will then take us through the financials in more detail, and I'll wrap things up with some closing thoughts. As always, we'll then open it up for your questions.

Slide 4 summarizes 3 things: year-to-date results, progress executing the value creation plan that we laid out at our March Capital Markets Day and an update to our 2025 full year guidance.

Let's begin on the left with Q2 and H1 performance. Q2 was another solid quarter for Envista with strong revenue and EPS growth and good margin expansion. Core growth came in at 5.6%, aided by some customer buying in advance of expected price and tariff increases. Adjusted EBITDA margin was 12.4%, up 240 basis points from Q2 of '24, supported by good growth and G&A productivity and offset in part by transactional FX losses related to the softer dollar.

Adjusted EPS was $0.26, the result of the EBITDA growth that I just mentioned coupled with a lower tax rate, which Eric will say more about in just a moment.

Moving to the middle of the slide. We delivered broad-based growth across our portfolio with both reporting segments and all major geographies in positive territory. Equipment & Consumables was up roughly 7% and Specialty Products grew just shy of 5%. In the same way, we're continuing to make progress on the operations front. In addition to continued reductions in Spark unit cost and design cycle times, we're off to a good start on implementing the tariff mitigation plan that we outlined on our Q1 call. And we continue to move forward as well on our people priorities with sustained improvements in employee engagement and development.

Moving to the final column. Given our performance and good momentum, we are updating our 2025 full year guidance. We now expect core revenue growth of 3% to 4%, up from 1% to 3% previously and adjusted EPS of $1.05 to $1.15, up $0.10 from earlier guidance. Adjusted EBITDA margin is unchanged at approximately 14%, although EBITDA dollar expectations increased as a result of the stronger growth guidance.

At our Capital Markets Day in March, we laid out a value creation plan consisting of 4 components: guided by our purpose, centered on our values, focused on our priorities and framed by our 2025 guidance and medium-term outlook. Let's turn now to progress made in the first half in support of this plan.

Beginning with growth on the left side of the slide, we're working to [indiscernible] through the 4 pillars we discussed in March: better accessing untapped growth in our core markets, extending our rich history of new product innovation, penetrating a prioritized group of attractive adjacencies and amplifying our organic growth with accretive M&A. In terms of better accessing market growth, we saw further gains in H1 on the price work that we began last summer. This helped support a meaningful increase in sales and marketing investment to accelerate activities like our various brand campaigns and global customer education programs. For example, we held several high-impact customer events, including a highly successful Nobel Biocare symposium in late May. With more than 75 globally renowned speakers, close to 50 master classes, 2 live surgeries and nearly 1,700 attendees, the symposium celebrated the 60th anniversary of the invention of dental implants by Dr. Branemark and Nobel Biocare while also looking to the future by unveiling several of the latest innovations in digital dentistry.

We also hosted several other global customer events, including ortho and implant events in China with close to 1,000 clinicians participating in each.

In addition to ramping sales and marketing, we increased R&D by 14% in the half. This enabled a number of important new product launches, including Spark retainers, Spark, BiteSync Class II corrector, scanning solution from Implant DIRECT and the next release of DTX Studio Clinic with additional AI features, enabling doctors to go from image review to implant planning in less than 90 seconds.

On the adjacency front, we drove further penetration in both DSOs and emerging markets. With respect to the former, we have now installed DEXIS CDCTs and DTX AI implant planning in all 1,000-plus sites of one of the largest DSOs in America. This milestone represents a significant advancement in digital dentistry, enhancing diagnostic accuracy, supporting clinical collaboration and greatly improving the patient experience.

With respect to emerging markets, we delivered double-digit growth in the second quarter across our Latin America, Indo Pacific and Middle East and Africa regions. Rounding out our growth update, we closed 2 small acquisitions in the first half, both at attractive EBITDA multiples to further accelerate the organic efforts we have underway.

On the operations front, we continue to enjoy strong contributions from EBS, our continuous improvement methodology that is central to how we deliver results, develop our people and advance our culture. By way of example, we reduced G&A spending by 15% in the first half, while maintaining customer service levels above 95%. We also announced plans to expand our manufacturing footprint in China with a new site in Suzhou that will produce aligners, implants, brackets and wires and some diagnostic equipment. Consistent with our local-for-local supply chain strategy, the primary focus of this site will be to support growing China demand.

Finally, with respect to people. We continue to advance our high-performing continuous improvement culture as engagement and talent development continue to climb along with our growing momentum.

Having now covered the high points of the quarter and the first half, I'll turn it over to Eric to walk us through the details.

Thanks, Paul. In the second quarter, we delivered sales of $682 million. Core sales in the quarter increased 5.6% and currency exchange rates added about 200 basis points. Our Q2 adjusted gross margin was 54.4%, an increase of 20 basis points versus the prior year despite foreign exchange rates being a headwind to margins. We'll cover more on the FX in detail, specifically in our margin walk, but the weaker dollar trend from Q1 to Q2 resulted in a net FX transaction loss from balance sheet remeasurement.

From an operational perspective, we performed in line with our expectations, with good performance across our global supply chain, including another strong quarter of Spark unit cost reduction.

Our adjusted EBITDA margin for the quarter was 12.4%, which was 240 basis points better than the prior year. Overall, margins were hurt by the net FX impact already mentioned, but helped by strong performance in volume, price and continued G&A productivity.

Adjusted EPS in the second quarter was $0.26, up $0.15 compared to the same quarter of last year and above our expectations.

Our non-GAAP tax rate for the quarter was 33.3%, better than our expectations due to strong income generation in the United States.

As I'll cover in the assumptions underpinning our 2025 guidance, we anticipate our full year tax rate to be similar to the Q2 tax rate.

Finally, we generated $76 million of free cash flow in the quarter, down from last year due to higher working capital.

Let's now turn to 2 bridges to help break down our year-over-year results, beginning with sales. Core revenues grew 5.6% in the quarter, with positive growth in all major businesses and geographies. Volume growth in Q2 was up about 400 basis points and ahead of our expectations. We saw improved volume growth in several businesses, notably brackets and wires, diagnostics and implants. Our growth in Q2 was also helped by a favorable prior year comparable as well as some customer buy ahead. We estimate this buy ahead at approximately $10 million, which we expect to unwind in the second half.

Foreign exchange was a tailwind of approximately $12 million or about 200 basis points. At our March Capital Markets Day, we noted an opportunity for improved price execution at Envista, which is even more important today with the increased tariff activity. Our Q2 results reflect these efforts with price up $9 million year-over-year, contributing about 1.5 points of growth.

Spark Deferral was roughly neutral in Q2, although we expect the year-over-year benefit to ramp meaningfully in Q3. And finally, we had a minor benefit from the 2 small acquisitions that Paul mentioned earlier.

Turning to the adjusted EBITDA margin bridge. Volume and mix delivered 160 basis point improvement, reflecting particularly strong growth in the quarter from high-margin businesses like consumables and brackets and wires. Improved pricing delivered 130 basis point improvement in margin compared to last year.

We had a net gain of 20 basis points from the combination of productivity and investments. This was driven by year-over-year reductions in G&A as well as Spark unit costs, offset by increased investment in sales and marketing and R&D to support future growth. Increased tariff costs compressed margins by 60 basis points in the quarter. I'll cover more on our full year net impact of tariffs when I discuss our 2025 guidance.

Transactional FX losses brought a 240 basis point headwind in the quarter. With the structural diversity of our global business, there is not typically a need for financial hedging. However, with currency volatility higher of late, we did increase our hedging positions in Q2 in order to decrease balance sheet transaction exposure on a go-forward basis.

Lastly, we benefited from a 230 basis point margin improvement from the absence of onetime costs that occurred in Q2 of last year.

Turning to segment performance. Core revenue in our Specialty Products & Technologies segment grew 7.2% year-on-year with core sales growth of 4.7%. In our orthodontics business, Spark was up low double digits and brackets and wires was up high single digits, helped by the customer buy ahead, but offset in part by continued declines in China related to preparation for VBP.

On the implant side, premium delivered another quarter of positive growth globally, including North America and Challenger returned to growth as expected.

In Q2, our Specialty Products & Technologies business had an adjusted operating margin of 13.5%, up over 400 basis points year-over-year despite a 200 basis point headwind from transactional FX losses. Volume, price and net productivity were all positive in this segment in addition to the benefit from prior year onetime items.

Moving to our Equipment & Consumables segment, core sales in the quarter increased 7.3% versus prior year, including double-digit growth in consumables against a soft comparable last year. Diagnostics core sales growth was also positive, including mid-single-digit growth in our largest market, North America. Adjusted operating margin for this segment improved 140 basis points versus Q2 2024, driven by volume growth and price capture. FX transaction losses were a 300 basis point headwind in E&C in Q2.

Let's now turn to cash flow. Q2 free cash flow was $76 million, a decline of about $10 million when compared to the second quarter of last year as improved sales and margins were offset by increases in working capital, which were driven by our faster growth. First half free cash flow was also down from last year, primarily driven by the low incentive compensation payout of Q1 2024. Our first half free cash conversion was 84%, which is typical of a normal first half. As discussed at Capital Markets Day, we expect free cash flow conversion over time to be around 100%.

Our balance sheet remains strong and stable with a net debt to adjusted EBITDA of approximately 1x, providing welcome stability and flexibility, especially in periods of heightened macro uncertainty.

Finally, we deployed $82 million in Q2 to repurchase 4.8 million shares of stock. On a year-to-date basis, we've repurchased $100 million or a total of 5.9 million shares as we continue to execute our $250 million 2-year repurchase authorization.

I'll now say a few more words about our updated guidance that Paul noted earlier. Slide 13 summarizes the changes. A core sales growth range of 3% to 4% versus 1% to 3% previously. EPS of $1.05 to $1.15 and versus $0.95 to $1.05 previously. And adjusted EBITDA margin unchanged at around 14%.

Slide 15 details some of the assumptions underlying the updated guidance. First, we continue to expect the dental market to remain stable with no significant improvement or deterioration in the second half. For exchange rates, we now expect a benefit of approximately 150 basis points to reported sales for the year. This is based on June ending FX rates. We anticipate the adjusted EBITDA impact from the weaker dollar to be neutral with no benefit as the translation benefits for the full year are roughly offset by the transactional losses incurred in the first half.

For the full year, we continue to expect our supply chain, pricing and cost savings actions to offset the impact of increased tariffs. Recognizing that the tariff landscape continues to be dynamic, this is based on tariffs that have been announced to date.

As noted previously, we expect the 2024 change in our Spark Deferral to generate a $30 million year-on-year revenue benefit in the second half with a significant majority in Q3. There is no change to our expectations regarding the previously implemented restructuring. Savings are tracking well as reflected in our recent G&A improvements. Our tax rate estimate has improved, as I mentioned earlier, and we now forecast an adjusted rate of 33% for the year. This is the result of improved U.S. profits, which increases the basis of our interest expense deduction. We are still assessing the impact of the recently enacted changes in U.S. federal tax law. In addition, we have a project underway to further reduce our global tax rate over time. We will update you regularly as things progress.

As we've already covered our stock buyback program, I'll turn it back over to Paul to wrap things up.

Thank you, Eric. A few closing thoughts on the quarter. First, underlying dental market conditions in Q2 were pretty similar to what we see in recent quarters. While macro uncertainty continues to be high, the underlying dental market remains stable.

Second, our Q2 results were positive, including core growth of roughly 5.5%. We posted just shy of 3% core growth for the first half. Reflecting this good start, we've raised full year growth guidance to 3% to 4%, along with an updated EPS range of $1.05 to $1.15. I'll close by noting that this progress is made possible by the wonderful talent and commitment of our global Envista team. We appreciate all you do in the service of our stakeholders. In the same way, we're grateful for the support we receive from our customers, partners and shareholders.

That completes our prepared remarks, and we'll now open it up for Q&A.

[Operator Instructions] And your first question comes from the line of Elizabeth Anderson from Evercore ISI.

Congrats on a really nice quarter. I think there's been a lot of confusion about the sort of state of the dental market. Were you surprised by sort of the strength that you saw across the portfolio and your different businesses this quarter. Like was it turnaround driven? Do you think it was -- the main drivers were market driven? And sort of how are you thinking about the broader dental macro at this point?

Elizabeth, thanks for kicking us off. Maybe a couple more thoughts on the market and then a few comments on our specific performance in addition to what we just covered. Starting with the market, we continue to see green macro shoots. So I would say Q2 macro was incrementally better to Q1. Unemployment still very low. Interest rates in many markets, notably Europe, continue to come down. And then the big change Q2 from Q1 was the tick back up and consumer confidence. Both the June and the preliminary July numbers were pointed northward, which helps.

Having said that about the macro, I think in fairness, the preponderance of dental-specific data that you guys get and that we get, things like the recent ADA survey or some of the third-party research, they all continue to point to a slow but stable market. So I think that captures the market conditions.

Specific to us, in addition to what we said earlier, we had particularly strong growth in our orthodontics business, both the brackets and wires side as well as the clear aligner side were strong. We also had very good growth on both sides of our consumables business, core dental as well as infection prevention. We had similarly balanced growth in implants with both Premium and Challenger in positive territory. And then it was nice to see Diagnostics return to growth, especially with the mid-single-digit performance in both North America and Europe.

Maybe I'd also note that the growth was steady across the quarter. You'll recall that we released Q1 earnings on May 1. And I think in one of the Q&A, someone asked us how April was coming in. We mentioned that it was coming in consistent with our expectations. And that, that momentum now as we have the full quarter behind us, did continue across May and June. Anticipating a similar question on this call. July is almost in the books for us. So we have a good first look there. And again, July was very consistent with our steady performance and expectations.

So on balance, as we put all of this together, I'd say this is a positive step forward for Envista. Our plan is generally working, and we'll just keep working the plan. So thanks for the question.

Can I just double click maybe once more on the brackets and wires comments? That was certainly one area of outsized growth versus what we traditionally see in that market. Could you tell us a little bit more about the drivers of that outsized growth in the quarter?

Yes. For Brackets and wires specifically, I would say it's -- there's 2 big contributors to that. The first is although we talk more about our investment in sales and marketing on the implant side, we have been increasing our activity on the ortho side as well. And investment there tends to return nicely, especially because of our very strong position on the bracket and wire side.

The second is there's some question of whether there's a shift from clear aligners to brackets and wires. We'll probably get another question on that as we go through the Q&A. I think maybe on the margin that helped a little bit, although the kind of mix globally in case starts between brackets and wires and aligners have been generally stable now for about a decade. Three quarters to brackets and wires in a quarter to aligners. But kind of consistent with all of our businesses that we talked through in the prepared remarks, consistent intentional progress on the brackets and wires side.

Congrats on the quarter.

And your next question comes from the line of Jeff Johnson from Baird.

Paul, I was wondering if I could just ask another question on the brackets and wires business, not so much about the clear aligners versus brackets and wires. But I think you said China was still down year-over-year kind of ahead of VBP. The last 2 quarters, I think your China brackets and wires business has been down 50%, 5-0 percent. Any way to put us in a range of how much it was down this quarter? And are we at the point now where inventory levels have been adjusted and we could look to China VBP on the ortho side to be growth additive as opposed to dilutive moving forward into the back half of this year? And then maybe one other VBP question, if I could.

Sure. So maybe just the context on what's driving the pre-VBP decline in the bracket and wire segment as well as us. And then I'm looking at Eric, see if you can dig out the number for China specifically. But we learned -- all of us learned this from the implant VBP, both ortho and implants are direct businesses, of course. But in China, we rely on the channel for logistics because it's such a vast and fragmented market. And so anticipating that prices will come down with VBP, we don't want to have a lot in the channel. So we're careful of how much we put into inventory there.

And then some customers, the more sophisticated customers, anticipate a reduction in the procedure price, so they might be delaying treatment in anticipation of that. So we -- again, having gone through it with implants, we very much anticipated negative growth for brackets and wires in the first half. Now when the procedure price gets announced and then the product pricing follows that, we expect the converse that there'll be an increased step-up in both patient demand, but also putting a little bit more into the -- use the word channel, although it doesn't behave the same way as the channel would in the U.S., but a little bit more into inventory to satisfy that demand.

Eric is still big, and I see if he's got the number.

Yes, Jeff, just on your question about the movement of the growth rates, I'll just talk it through by quarter and give a little bit of color. So in the first quarter, we talked about ortho. Mindful that our business in China in ortho is almost all brackets and wires, 95-plus percent. It was down almost 50% year-over-year in Q1. We were up modestly in Q2. Part of that was our own team strategy out of the implants playbook to make sure that we're driving penetration pre-VBP, which we think ultimately just helps us out post VBP. But put the 2 together, I mean, it was still down 20% to 30% on a year-over-year basis first half.

We anticipate Q3 to be, call it, in the ballpark of flat, and then we're going to have estimated robust growth in Q4. But there's a lot of uncertainty around that, right? The only thing we know today is what's come through the service VBP and then prospectively, the timing of the product VBP, but I think we also know that VBP timing is a little bit elusive. But it's going to be -- should be robust growth in the second half. It is dependent on how VBP ultimately gets implemented.

All right. That's helpful. And then maybe the follow-up on VBP. Just obviously, a lot of chatter about a second round of VBP for dental implants starting next year. You guys are putting some China infrastructure in place. One, that added infrastructure, how much does that cushion or kind of protect your likely ability to participate in that VBP, number one?

And number two, just a lot of chatter about it, not a lot of specifics. Just any detail you can provide us? Do we think it's going to happen early in the year? Historically, we've seen second rounds maybe be less price declines than maybe what you see in the first round, things like that? Just any idea kind of how that second round of implant-based VBP might play out next year in China?

All right. Let me take both parts of the question and turn here, Jeff. So first, with respect to local manufacturing and VBP, local manufacturing did not appear to play a role in the first implant VBP, nor have we received any communication that will be a factor in the ortho VBP. That's currently underway.

Market share, customer satisfaction and, of course, price have been and we expect will continue to be the most important VBP criteria. Now as local manufacturing indirectly supports all 3 of those, our investment in China should be on the margin helpful in strengthening what we consider to be an already pretty good VBP position. So that was your first question.

Second, with respect to VBP 2 timing for implants, we have not received any communication on that. So I'm afraid at this stage, I don't have any better information than you do.

And your next question comes from the line of Jon Block from Stifel.

Maybe just to kick it off for Spark. I think in the slides, you mentioned improving gross margins. So can you talk about -- is the thought that Spark turns EBIT positive in the back part of this year, to age '25? If so, any thoughts on the trajectory going forward? And then maybe just a quick tack on that one. Were there any recent changes to Spark pricing in the marketplace? And then I've just got a tighter follow-up.

Yes. Thanks, Jon. I'll just take that. So our plan for Spark, and I think it's really in most of our pre-red remarks as well is that our performance trend to profitability remains unchanged. So second half 2025 is when we believe it will turn to profitability. That's still our view. Along that trend, we're now on multiple quarters. I don't even remember the track record, but probably 8 to 10 quarters of consistent consecutive quarter-on-quarter unit cost down. This quarter, we were down year-over-year, almost 20-plus percent in unit costs, which means our Spark gross margins are improving. So the plan remains the same. Our profitability trend, I would say, is on track. And importantly, beneath that, the key pieces of that trend remain on track, right?

The business in terms of primary case start growth, volume growth overall for revenues, unit costs. And then Paul mentioned as well, design, so design lead times for us, which are maybe less important on a profitability basis, but very important for us on a competitive basis. All of that remains in good standing. So we'll give you our update as we go through the second half in terms of the numbers, but we do expect to be profitable in the second half.

And then on your last -- or second comment around price, very moderate changes for us year-over-year in price. So not really material. I don't think for the purpose of the call here today, we had low, low single-digit price growth year-over-year in Spark, which effectively means we're flat. So that's where we're at today.

Fair enough. And then, Eric, maybe I'll just stick with you. Anything to call out? I mean you got half a year and you got half the year down, but anything to call out with the phasing 3Q, 4Q top line by division or maybe even more importantly, on the EBITDA margin side. Maybe that was the only -- I don't know, just relative to our estimates, the only blemish on what was a really, really strong quarter was the EBITDA margin. You explained that in the bridge, some of that was FX related. But when we think about for the balance of the year and your actions to offset some of the tariffs, how should we be phased or weighted between 3Q or 4Q? Or any color you can provide.

Yes. Yes. Excellent. So let me do that in 2 shots, Jon. Let me just talk first on core growth and then on margins and fully understand the spirit of the question, too. So if you just look at the -- our guidance, I'll just talk midpoint of our guide, which is where we see our full year. We should be about 1 point better in terms of core growth in the second half. And I'd say there's really 3 big moving pieces within there. One is our Spark Deferral. So effectively flat year-on-year in terms of the deferral change that we've been laying all the breadcrumbs for every quarter. That will be about a $30 million benefit in the second half year-over-year, with a significant majority, call it, 80% in Q3, which ultimately yields about a 2-point benefit in terms of growth. So that's, call it, a tailwind for us.

We talked in the pre-read remarks about buy ahead. We estimate that our Q2 buy ahead of our announced price increases, which were earlier in the quarter. We're about a $10 million benefit. We think that comes back largely in Q3, maybe a bit in Q4. So that's a point of growth going in the other direction.

And then just be mindful that our first half growth was held up by about 1 point in dental consumables' favorable comp. That was based on us really bringing the dealer inventory channel last year to a point of health, which all happened in the first half of last year. So those are kind of the big 3 points on the growth. If you do all that math, you'll find that the rest of our business is stable to call it, slightly improving in the second half.

And then on margins, our margin guide at approximately 14%. What that means is we're about 2 points better in the second half. We would expect as we typically do seasonally that volumes are a tailwind for that. We're going to continue to drive good productivity. So as we just talked about, Spark gross margins, Spark unit costs will be on the plus side of the ledger. G&A will continue to deliver year-over-year and we expect to get a good amount of price.

On a full year basis, of course, what we're really seeing here is upside versus our original margin guide on what we would call just core operations, volume, price, productivity, but FX is dilutive for us. And that's a favorable translation benefit, but it's offset fully by the first half transaction losses. And versus our original guide, that's about a 50 to 70 basis point headwind. We saw a lot of that, of course, in the first half, but it's factored into our full year guidance.

And your next question comes from the line of Steven Valiquette from Mizuho Securities.

I guess on clear aligners, one of your competitors also talked about seeing some decent levels of patient scans and practitioner case submissions in the second quarter, but then they called out that some patients were not following through with case conversion in treatment. So does that seem like that was happening for Envista, given your strong growth. But guess I'm just curious, historically, is this a phenomenon that has been noteworthy enough to impact your results in various quarters historically? Just wondering just how prevalent this is really across the industry regardless of whether you were seeing that this quarter or not.

For us, our Spark business has had pretty consistent growth. Again, Eric couldn't remember the number of quarters that the unit cost is sequentially reduced. I can't remember the number of successive quarters that we outgrew the market. So for us, we expected to outgrow the market again in Spark, and that's what we did see. So specific to weather our doctors are having slower patient conversions, anecdotally, 10,000 orthodontists, you get a lot of anecdotes. But for us, no, I don't think I would point to that as a meaningful impact in our Q2.

And your next question comes from the line of Brandon Vazquez from William Blair.

This is Russell on for Brandon. Last quarter, you mentioned that you were able to broadly offset the impact of tariffs and continue to believe so given things are always bound to change. But could you give any updates as to the mitigants and implementations and future time lines you mentioned previously?

Yes, I can take that, Russell. So maybe just a point of bearing just to get everybody calibrated. In our second quarter margin walk, we did show what our Q2 impact was from tariff costs. So that would be net of supply chain actions, of course, but just the cost that we expensed in the P&L. That was about $4 million. It was roughly 60 basis points of margin dilution. And then as we look out to the second half of this year based on the timing of tariffs and then also just how the expense rolls through our balance sheet gets capitalized and then hits expense. We would expect, call it, $15 million to $20 million of tariff cost in the second half, roughly even by quarter. At this point in time, we feel like the tariff landscape is at least reasonably stable to predictable for now.

And then our playbook remains unchanged. So in the first quarter call, we talked about, number one, mitigation is actions that we're taking within our supply chain. That's with suppliers, that's with our own distribution network. That's also with source of supply -- shifting sources of supply around the world to our multi-geo sites. The second would be costs, and I think we see good momentum on that already when we've reduced costs like G&A, as Paul mentioned, 15% in the first half year-over-year. And then the third, to a lesser degree, is price. And we would see all 3 of those being able to offset the, call it, $15 million to $20 million in tariff cost headwind in the second half equal by quarter, if you would.

That's helpful. And I saw on the quarter, Challenger turned back to growth after a slight decline in the previous quarter and Premium implants continue to grow well. Could you talk about what changes you saw in Challenger and any commentary you have on the overall implant market?

Yes. On the Q1 call, we you're correct. We had negative growth for the first time in a number of quarters in our Challenger business. We posited that, that was because we had 2 fewer billing days in Q1. In a direct business that does have an impact. On the call, we said we expected Challenger -- nothing has changed fundamentally in our Challenger business, and we expected Q2 to then return to that normal low single-digit positive trajectory. And that's what happened. So it played out pretty well as we expected. I don't think there's much more to say on that.

Your next question comes from the line of Jason Bednar from Piper Sandler.

I just wonder if you can talk about maybe how dental practices are behaving here. You talked a lot about stability. But maybe talk about private practices, especially they're small business owners. They've got operating uncertainties, they're going to notify of tariff-related price increases. What are you seeing in terms of the behavioral response from the dental community in the last few months? Are we seeing brand substitution? Any buying changes in response to where you guys have taken price? Are you seeing equipment purchase decisions elongating anything like that?

Yes. Maybe so 2 parts that you touched on, Jason, the price piece and then equipment purchases. We put the word price a couple of times, I guess, in our prepared remarks and now in our questions. But the Quanta 5 piece of price is very small, 1.5 points in Q2. I think it was 1 point in Q1. So our price increases are modest, certainly less than CPI. And by certainly less than what we're seeing in input inflation in our own P&L. So I would say our price increases have been well received by the market. They would rather have no price than very modest price. But we're careful not to push things there. So that's on the price front.

With respect to equipment purchases, yes, for sure, we've seen across the last many quarters, a delay in equipment purchases. You've seen that across the Diagnostics segment. We did, as we mentioned, have a positive quarter for Diagnostics, which was encouraging to see. As interest rates come -- continue to come down, that will be supportive. But at some point, technology upgrades, new sites, DSO expansion, all of those things require equipment. So at some point, we're going to -- the diagnostic market, we believe, has to pick up.

That's helpful. And then Eric, just if I could squeeze in one on maybe just a quick bridge on EPS guidance. I'm seeing the net of $0.10 in the raise, a couple of pennies maybe from buybacks, a little over $0.05 on the tax rate. I think the balance is coming from the core revenue upside. Any other factors you'd call out as influencing EPS raise? Anything working against you that you're absorbing? It sounds like maybe tariffs are kind of lapping through here, and maybe that's part of the factor here of why the EBITDA margins remaining the same. But just anything else you'd call out in that EPS bridge, my numbers are accurate there.

No. Let me just repeat maybe to make sure we're on the same page and then maybe just a confirming point. So I mean our core growth, I think, is self-explanatory by our range and the drop-down at gross margins, I think, is pretty obvious. Tax rate, flat versus where it's been for the first half of the year. Shares, we did have $100 million in share repurchase in the first half of the year. We would expect that to moderate. Obviously, the global equities market was pretty favorable in the first half and if you just look at our share buyback authorization, we'll likely be something of a metered level in the second half.

And then I think it really gets back to your core question, the 2 big trade-offs, which I mentioned in a previous answer, are the better operational performance versus our original guide, that's volume dropping down at gross margin. It's a little bit of price. It's the work that we're doing in G&A, and it's the improvement that we're seeing in Spark gross margins. But unfortunately, a lot of that or all of that is washed by the better FX on the top line falling down at effectively 0 adjusted EBITDA, which is this first half transaction loss, offset by a little bit better translation. And we're upbeat, if you will, on minimizing the transaction exposure going forward because we've entered into hedges against our largest exposure. That's euro to dollar and euro to RMB. So I think you've got the rest.

So just to make sure I'm clear, like relative to your prior guide and then to today's guide update, you do have some EPS benefit coming in though from share buyback activity that you've done to date and the drop in the tax rate assumptions. Correct?

Correct. Yes. Small amount from share buyback and then basically the difference between our original guide, which was a 37% tax rate. And today, year-to-date and for the full year, we're projecting 33%.

And your next question comes from the line of Allen Lutz from Bank of America.

The most recent ADA survey flagged that there could be some price increases. Our dentists are at least expecting more price increases going to come. So as you think about -- you kind of talked a little bit about maybe there weren't as many that you've observed. Can you talk a little bit about the market acceptance of price increases today versus -- and whether that's coming from tariffs? And how that compares versus prior quarters and prior years across both of your segments? And whether or not any of that's new?

Yes. I mean, generally speaking, you can get a good read of it by looking at volume growth relative to price growth. That's a good kind of objective measure of acceptance. We were, whatever, 5.5% in the quarter, 1.5% from price, 4% from volume. That would suggest it was favorably received.

And I would say the current environment helped. One, as somebody asked earlier, dentists are consumers as well. And the price of everything they're buying is going up. So they're used to CPI kind of level price increases in their practice and their life. And again, what we took, the 1.5% is well below that. So I don't want to say that our customers are happy to get 1.5 points price increase, but relative to a 3% price increase plus 3% price increase on everything else they're buying, I think they understand it. They know we're not making money on the price increase that doesn't quite cover our own input inflation.

And your next question comes from the line of Kevin Caliendo from UBS.

When we think about -- I'm just trying to maybe calculate or understand what the core margin of the business looks like when we take out all of the Spark benefit later this year and we think about exiting the year. I know that was the number you'd like to talk about last year. But as we get into the second half of this year and the exiting of this year, is -- are we -- if I'm doing the math right? Are we close to like 14%. Is it a little bit higher than that? How should we think about that? And is it a good way to think about going into '26 off that kind of baseline?

Yes, Kevin, I can take that. I think the easiest baseline, if you will, to work from is the margin bridge that we provided in our Q2 results, not the second quarter stand-alone as sort of the be all end all for a full year. But I would just say, if you look at that, our volume, price, productivity, the elements of the walk, most of those are pretty sustainable levels of margin improvement. Maybe save a little bit from our mention that we've got about $10 million in Q2 relative to price buy ahead, which obviously helped our margins. But we would not consider the transactional FX, which is mostly that 240 bps to be really part of an ongoing, call it, forward sustained rate. And if you take that into account, we're at 15%. I would back that down for the reason I already mentioned, back it down for the slightly better volume growth in Q2 due to price pull ahead. And then I think it gets you back pretty close to the, call it, the 14% that you were mentioning.

And then just maybe as a kind of a forewarning, even though we get a large Spark Deferral gain year-over-year in the second half, on a sequential basis, it's really not meaningful. We're already in the environment in terms of revenue dollars in the first half that's effectively at the same basis of what we will recognize in the second half. So big year-over-year gain, but not really much on a sequential movement basis. And I think all that kind of ties back to the 14% margin that last year we were helping everybody to understand on an underlying basis.

Got it. That's helpful. And you mentioned in your release that the BBB would have an impact on your tax rate, 33% for the full year, reflecting the higher U.S. profits, but you're assessing the impact of the BBB. I know part of the story is here that the tax rate over time should go down. Is there any change to that or any sort of long-term targets on the tax rate? And does the BBB affect that either positively or negatively?

Yes. I mean we're still assessing, as you can imagine, every company is. So first order of business is to get into the legislation. Second order of business is to see what else comes as a second order impact to the legislation. So there's a shoot a drop typically that we wouldn't even be aware of yet. I would just really go back to the core work that we're doing to improve our tax rate. And that's the intercompany loan that we have. So we have a large intercompany loan between the U.S. and Europe that comes with interest expense that we pay on an intercompany basis. And the deductibility of that interest is capped by the size of our U.S. profits. And that's mainly the reason why our rate came from the originally expected 37% to now 33%.

The more we can do in either eliminating that entity, which is the work we're doing or in improving U.S. profits, which is some of the work we're seeing when we grow products like brackets and wires, consumables. We improve our Spark profitability, all of that will help, and it will get us back to something of a normalized tax rate.

At this point in time, I wouldn't say the Federal Act is significantly helpful to our tax rate. For sure, not on a normalized ongoing basis. There might be a onetime shot that helps, but not on an ongoing basis. So for the most part, we're just working the same way we were in first quarter.

And your next question comes from the line of Wright, Erin from Morgan Stanley.

There were a couple of deals, I think, that you did like smaller deals. I don't think it was anything material from an M&A perspective. But can you just remind us like what are you looking for in terms of just bigger picture from an M&A perspective and external kind of inorganic opportunities, your willingness to kind of execute on those and just how you're thinking about kind of M&A across your business?

Yes. Maybe I'll just reiterate our capital allocation priorities that we talked about in the March Capital Markets Day. The high-margin business like ours with good core positions, the highest risk-adjusted return of any available dollar is going to be organic. That's our highest priority for capital investment.

Second for us is accretive M&A. We grew up [indiscernible] Danaher. We think we have pretty good M&A capabilities, and Dental is a pretty active M&A market. So we look at a lot of things. In our first year, Eric and I, we intentionally didn't do any M&A because we thought that there was higher return on effort just in core operations and execution. But now that we feel that the business is getting some momentum and pointing in the right direction, we have been spending a little more time on M&A.

The 2 deals we did in the first half were very small. From memory, they were single-digit millions investment and all at accretive multiples, which fit our accretive M&A target. Would we do something bigger as we continue to get momentum? Yes. I think if we have the available capital, and we have something that fits in a segment we know well, a prioritized adjacency or in the core. And there's good consolidating or growth synergies Yes, we'd like to do more.

And your next question comes from the line of Vik Chopra from Wells Fargo.

Congrats on a nice quarter. All you think this already been asked have been bouncing around a little bit. But maybe just sort of talk about the different variables behind your 2025 guidance range. And what gets you to the low end versus the high end of your guidance?

Yes. Let me just hit that then, Vik. I appreciate the question. So core growth, we delivered about 3 points of growth first half. Our guidance is 3% to 4%. It implies second half at around 4%. I would say if you just go back to our original guidance, just think through our Q4 call and what we laid out as opportunities for better growth. I think those opportunities for better growth are largely the same today. its continued strong growth in our Spark business. It's probably accessing now some of the growth that we're seeing from better new products. Paul talked in his preread remarks about some of the performance we're seeing in Ormco, brackets and wires or even our DEXIS portfolio.

So for the most part, our growth upside is not dissimilar to the to the upside that we saw at the early outset of the year. For the most part, it's going to be macro that stable -- soft and stable dental market turning in a different direction. We don't expect that to be the case, but that could define the downside, if you will, of our growth in the second half and, therefore, the low end of the range.

And then I would say, for the most part, it's a similar narrative relative to the profit. So the upside that we originally saw entering the year were things like Spark gross margin automation of our factory, improving design cycle time, reducing our G&A costs, as those things continue to perform, that is baked into our guide and roughly the midpoint, but to the degree that we can outstrip that and/or outstrip on the volume side, there's upside there. And I think likewise, it's the macro that largely defines the downside for us.

If we were not able to mitigate the tariff range that I mentioned, that would be potential downside for us. We think our guidance is pretty reasonably footed. And at this point in time, the midpoint is a good place to be thinking about it.

That ends our question-and-answer session. I will now turn the call back to Mr. Paul Keel for any closing remarks.

Okay. Thanks, everyone, for tuning in. Maybe I'll just quickly underline a couple of thoughts to put a wrapper on the quarter. First thought would be that Q2 was another step forward for Envista, and we had good revenue and profit growth converting into double-digit EPS growth. We talked quite a bit about our performance being generally broad-based with all of our major businesses and geographies delivering positive growth. We're, of course, pleased by that incrementally so because it's in response to intentional plan that we're executing.

We're focused on executing that plan that we laid out at the Capital Markets Day in March. And in addition to the growth, we think we see progress across operations and people as well, the 3 categories of priorities we're focused on. In support of all that, we invested some of the gains in Q2 back into continued momentum and growth in the form of increased R&D, sales and marketing. And as the last -- or 2 questions ago touched on a bit of M&A. I think that covers it well for today. Thanks again for listening in, and I wish everybody a good day and a good week.

This concludes today's call. Thank you for participating. You may all disconnect.