Envista Holdings Corp (NVST) Q2 2026 Earnings Report, Transcript and Summary

Hello. My name is Chloe, 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 2026 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations of Envista Holdings. Mr. Gustafson, you may begin your conference.

Good afternoon. Thanks for joining Envista's Second 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 I 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. 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 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 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 a summary of our Q2 performance. Eric will then take us through the numbers in more detail, and I'll wrap things up with some closing thoughts before opening it up for Q&A. In the second quarter, we continued our momentum in executing on our growth and operational plans, delivering a strong first half to the year with core growth of just over 7%. The dental market continued to show its characteristic resilience as patient demand for dental care remained stable despite macro pressures. For the second quarter, Envista posted a 5% core growth, delivering balanced growth across both reporting segments and all major geographies. Spark once again grew double digits. Consumables and diagnostics were up high single digits, and implants in total ortho were up low single digits. Our continued growth and focus on operational excellence led to another quarter of both gross and EBITDA margin expansion, up 70 and 230 basis points, respectively, a strong top line converted to even stronger earnings growth, with adjusted EBITDA up 28% and EPS growing 58%. We also had strong free cash flow conversion in the quarter, coming in at 158%. Alongside this, we purchased 2.4 million additional shares in Q2. And rounding out Slide 4, based on our strong first half performance and continued momentum, we're raising our full year guidance. Our updated 2026 expectations are now for core growth to grow 3.5% to 4.5%, adjusted EBITDA to grow 11% to 14% and adjusted EPS of $1.50 to $1.55. 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 continued broad-based performance across the portfolio with balanced contributions coming from both reporting segments, all major geographies and volume and price. In terms of segment performance, core growth in Equipment & Consumables was 8.5% as both diagnostics and consumables were up high single digits. Core growth in Specialty Products & Technologies was up over 3%, with Spark again growing double digits but brackets and wires down high single digits, impacted by a strong prior year comp that benefited from customers buying ahead of announced tariff and price activity. Implants grew low single digits, in line with the market. Geographically, North America, Europe, APAC and Latin America all grew nicely, with new products continuing to play an important role, and I'll provide further detail on this in just a moment. Turning to operations. We continue to see widespread benefits from our Envista Business System. Improving manufacturing productivity helped drive our gross margin expansion; and when combined with sustained G&A productivity, adjusted EBITDA margin expanded by 230 basis points. We further reduced our effective tax rate in Q2, contributing to the very strong EPS growth that I mentioned earlier. And with respect to people, we continue to advance our high-performing continuous improvement culture through numerous customer, employee and charitable events around the world. I had the good fortune to participate in several of these, including an Envista Smile Project mission to the Dominican Republic, where we treated approximately 1,500 patients, continuing to live our long-standing purpose of partnering with clinicians around the world to improve patients' lives. Now coming back to the central role that new product innovation is playing in our growth, Slide 6 touches on 3 of the new product launches we had during the quarter. We covered some implants and diagnostics new products on the Q1 call, so we'll focus on consumables and ortho today. We had 2 important launches in our consumables business, 1 in endodontics and 1 in general dentistry. ZenSeal Pro is an all-in-one bioceramic endodontic sealer. The product category is used in most root canal procedures, which is the largest segment within the $1 billion-plus endodontic category. This solution is used to close gaps between filling material and the canal wall, and this particular product is novel in 2 respects. First, the flowable bioceramic formulation creates an alkaline environment that helps block bacterial formation, a central objective of the procedure. Second, the product is delivered through specially engineered tips that improve access in complex anatomies while also reducing material waste by roughly 1/3, resulting in improvements in both clinical efficacy as well as efficiency. DemiPro is a lightweight cordless curing light. Curing lights are broadly used across many restorative dental procedures. This solution is ergonomically designed to reduce fatigue while also improving access by way of a 360-degree rotatable tip. Our consumables business has been consistently gaining share across the last several quarters, and we expect these 2 innovations to further build on that momentum. In our orthodontics business, we've spoken a fair bit about how we've been leveraging our digital capabilities to consistently take share in clear aligners. Ormco Digital Bonding, or ODB, uses much of the same technology but on the brackets and wires side. When we first launched this platform in 2023, we did so with our market-leading Damon Ultima System. In Q2 of this year, we expanded coverage of ODB to all of our bracket systems, further solidifying our position as the only scaled player in the market offering complete solutions in both aligners and fixed orthodontics. New product innovation has long been a hallmark of Envista, having created numerous important categories in dentistry across the years such as dental implants, passive self-ligating brackets and digital treatment planning. Over the last 2 years, we've materially ramped investments in new product development and commercialization. It's exciting to see the positive impact that these investments are making for all our stakeholders, customers, colleagues, our communities and our shareholders. Having provided an overview of the quarter, I'll now turn the call over to Eric to walk us through the numbers in more detail.

Thanks, Paul. In the second quarter, we delivered sales of $731 million. Core sales in the quarter increased 5%, with FX and recent acquisitions combining to add an additional 200 basis points. As Paul noted, we delivered positive growth in both reporting segments with well-balanced performance across our businesses and geographies and strong contribution from both volume and price. Q2 adjusted gross margin was 55.1%, an increase of 70 basis points versus the prior year. Volume, price, productivity and FX all contributed to the year-on-year improvement. We continued to increase investments in sales and marketing as well as R&D in the quarter. At the same time, adjusted EBITDA increased by 28% year-over-year with margins for the quarter of 14.7%, up 230 basis points year-on-year. As we've talked about on previous calls, the healthy gross margins of our business enable our ability to invest for the future while delivering profitable growth. Working further down the table, adjusted EPS in the quarter was $0.41, growing 58% compared to the same quarter of last year. Our non-GAAP tax rate was 25% in Q2, better than the expectations we had entering the year. We've executed on a number of important initiatives over the past many quarters to reduce our tax rate, which are reflected in our year-to-date results. We now expect the 2026 full year rate to be around 26%, about 2 points lower than our initial guidance for the year and significantly below prior year. Rounding out Slide 7. Q2 free cash flow was $105 million, a $29 million increase over the second quarter of last year. This increase was driven by improved profitability as well as the $13 million recovery related to IEEPA tariffs paid in 2025. We continue to expect free cash conversion for 2026 to be approximately 100% of adjusted net income. As noted in our Q2 release, while the IEEPA tariff refunds do benefit free cash flow, they're excluded from Q2 adjusted earnings as the refunds are not part of regular operations. Now let's turn to 2 bridges to help break down our year-on-year results, beginning with sales. Core revenue grew 5% in the quarter, and total revenues grew just over 7%. Increased sales volume was the largest single contributor, driving $17 million of the sales increase and reflecting a return on our investments over the past 2 years. Net pricing added $12 million, balanced well across our businesses and geographies. The weaker U.S. dollar year-over-year contributed about $11 million. Note, on a sequential basis, foreign exchange rates have recently stabilized. Spark deferral tailwinds contributed $5 million of year-on-year growth. This is the final quarter that we expect any meaningful impact from the Spark deferral changes made back in mid-2024. And finally, acquisitions completed over the past year contributed $4 million in sales. Our acquisition of Versah, the osseodensification technology we discussed last quarter, represents the largest driver of acquisition-related growth. Slide 9 shows the components of the $24 million year-on-year increase in adjusted EBITDA. Price contributed $12 million. Foreign exchange rates also contributed $12 million. This reflects a small benefit from translation and a larger impact from reduced year-on-year transactional FX losses. As you'll recall, in mid-2025, we began hedging our balance sheet to reduce the net impact from quarter-to-quarter exchange rate changes. Volume and mix combined for an $11 million improvement, reflecting the strong gross margins across our portfolio. Net productivity delivered a $5 million benefit, with EBS and other initiatives more than offsetting input cost inflation. Q2 tariff costs were similar to recent quarters, with an increase of $5 million versus Q2 of 2025. As we've communicated over the past year, we continue to more than offset growth tariff costs through supply chain, G&A and pricing actions. We expect quarterly tariff costs to be similar in the second half, with recently announced Section 301 levies effectively replacing the prior tariffs. Finally, as Paul mentioned, we continue to invest in sales, marketing and R&D to drive future growth, an amount of $11 million in Q2. All in, our adjusted EBITDA margin in the quarter was 14.7%, up 230 basis points over last year. Turning to segment performance. Revenue in Specialty Products & Technology grew nearly 6% year-on-year with core sales up 3.1%. In orthodontics, Spark again delivered double-digit growth or high single digits after adjusting for the net deferral change, while brackets and wires was down high single digits against Q2 2025 comparable noted previously. Implant core growth was up low single digits, consistent with recent quarters and well balanced across geographic markets. In Q2, Specialty Products & Technologies posted adjusted operating profit growth of $9 million year-on-year, up 15%, with a 120 basis point improvement in margin rate. Both businesses had positive price capture. Moving to Equipment & Consumables. Core sales in the quarter increased 8.5% versus prior year with high single-digit growth in both consumables and diagnostics. Our consumables business continues to deliver well across the portfolio, driven both by innovation and good price performance, while diagnostics was particularly strong in North America, posting yet another quarter of above-market growth. Here again, growth was broad-based across the business as consistent innovation in equipment and software is combined with growth in services to meet customer needs for comprehensive solutions. Adjusted operating profits increased 25% year-on-year, with operating margins up 250 basis points, driven by strong pricing and volume benefits as well as the FX tailwind that I mentioned previously. Now I'll turn to cash flow and our balance sheet. Q2 free cash flow was $105 million, an increase of about $29 million from the second quarter of last year, primarily as a result of improved profitability. This, in turn, resulted in strong free cash flow conversion of 158%, including $14 million of invested CapEx during the quarter. Our balance sheet remains strong and stable with net debt to adjusted EBITDA of 0.7x. Our balance sheet continues to provide welcome flexibility as macroeconomic uncertainty remains high. In Q2, we continued to return cash to shareholders as we purchased approximately 2.4 million shares of our stock at an average price of $24 per share. As Paul mentioned previously, we are both raising and narrowing our guidance ranges. Our new guidance for the full year 2026 is 3.5% to 4.5% core growth, 11% to 14% adjusted EBITDA growth, adjusted EPS of $1.50 to $1.55 and free cash flow conversion of approximately 100%. Let me provide a couple of details underlying this guidance. You'll notice that we expect second half revenue growth to be lower than the first half. This reflects the calendar impact that we discussed on the Q1 call, where our first quarter had 4 extra selling days over Q1 2025 and Q4 will have 4 fewer. As a result, we expect Q4 core growth to be flat to slightly down. Absent the billing day effect, we expect Q4 core growth to be in line with our full year guidance range. Excluding China VBP, we expect price capture to remain strong in the second half. With respect to China VBP, our revised guidance assumes both VBP 1 for ortho and VBP 2 for implants to take place in the second half. The process is now underway for both ortho and implants. As for the earnings cadence, we expect EBITDA growth across both Q3 and Q4 to be roughly in line with sales growth for each quarter. As noted previously, we expect our full year tax rate to be approximately 26% of adjusted pretax income. Overall, we performed well in the first half of the year, and our continued momentum gives us confidence that we expect to drive solid top line growth in 2026 and even faster profit growth. With that, I'll turn the call back over to Paul.

Thank you, Eric. Now before I wrap up our prepared remarks, I'll note that we recently announced an Investor Day coming up in about 6 weeks on Thursday, September 17. The event will include an update on our progress executing the value creation plan that we laid out in March of 2025 as well as some insights into innovation priorities for our 4 main businesses. We will provide an opportunity for you to hear from several members of our leadership team, including Eric and myself, and details can be found on our investor website. We hope you'll be able to join us. A few closing thoughts on the quarter before we open it up for your questions. The global dental market continues to demonstrate its characteristic resilience 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 all major geographies. Our improved execution helped convert 5% core revenue growth into 28% adjusted EBITDA and 58% EPS growth while also allowing us to continue investing for the future. Behind strong first half performance and continued momentum, we're raising our full year outlook for core sales growth, adjusted EBITDA and adjusted EPS. And finally and most importantly, I'll close by recognizing the skill, effort and commitment of the global Envista team. Well done, everyone. That completes our prepared remarks for today. We'll now open it up for your questions.

[Operator Instructions] Our first question comes from the line of Jon Block from Stifel.

I'll start with maybe the E&C segment. This was Envista's fifth straight quarter of high single-digit, low double-digit growth for E&C. It's certainly a step-up from the past performance for this segment. So Paul or Eric, I'm just curious if you could speak to, is this faster growth driven by a market upturn? Or is it more specific to Envista factors like share gains, new products, et cetera?

Jon, thanks for the question. I'll start it off, and I'm sure Eric will jump in with whatever I miss. To start, you're absolutely right. Our E&C segment is delivering consistently faster growth. And I think I would point to at least 3 contributors that are supporting the trend. First, with respect to the market, we are benefiting from some tailwinds in these businesses. As consumable products support procedures that are typically covered by insurance, this segment tends to be better insulated from macro volatility. And so on a relative basis, it outperforms. And since we have a strong position in consumables, we benefit along with that. A little bit different with respect to diagnostics. After the post-COVID downturn, that market was in contraction for a couple of years and has now returned to growth. As we're a leader in this category, we benefit from that rising tide. Now on top of the underlying market support, we're also clearly gaining share in both consumables and diagnostics, and that has been the case now for several quarters. We estimate that the markets grew sort of mid-single digits in the first half. And as you noted in your question, our business has been growing more like high single-digit to low double-digit rates. Now there's, of course, a number of commercial and operational initiatives that underpin this, but I would again underline new product activity as a particular contributor. Maybe thirdly, I'd also note that the broader benefit we get from having a well-balanced portfolio. Macro uncertainty, of course, has a bigger impact on more elective categories like implants, and we feel that. But for us, the impact is offset by our similarly strong positions in less sensitive categories like surgical loops, restoratives, infection prevention and the like. And we expect that as consumer confidence rebuilds, particularly here in the U.S., that we'll benefit from our commensurately strong positions in ortho and implants. So both of those businesses are growing for us at or above market rates, but as conditions improve from a market perspective, we expect to get a helpful sort of incremental tailwind. I should probably also note that a similar diversification plays out geographically. On a relative basis, the North American market is a bit softer today, and so we experienced that. But we also have good positions in Europe, APAC and Latin America, and these markets are currently healthier on a relative basis. So just as we expect consumer confidence to improve, helping implants and ortho, we expect the North American dental market to rebound as it always has, and we'll benefit from that. So let me pause there to see if Eric has anything more to add, but we appreciate the question. We understandably get a lot of interest in our ortho and implants businesses due to their size and strategic importance, but consumables and diagnostics are also central to our broader portfolio strength. So it's important that we underline their continued progress. Eric, anything more to add?

No, nothing more. I think that's comprehensive. It was a great quarter for E&C.

Yes, certainly was comprehensive. I'll try to ask maybe a quicker or tighter second one. For VBP 1 and VBP 2, I just want to think about this at a really high level for '26 headwind and maybe '27 tailwind. In other words, if the timing holds for 2H, I understand that's probably a big if, but if that timing holds, at a high level, is this a dilutive event for both ortho and implants specific to '26 and an accretive event, or call it, tailwind in '27? Just at a high level, any way to size that or think about that?

Let's tag team this one. First, I'll just start with what the new news is on VBP, and then Eric can have specific thoughts on how that will play out moving forward. So first, again, the new news, we have heard now that both the ortho 1.0 and implants 2.0 processes are underway. We expect them to complete in the second half. You'll remember on the Q1 call, there was still uncertainty around that. As Eric noted in his prepared comments, we have incorporated that new news into our updated guidance. On previous calls, we've talked about VBP, and on balance, it has been a positive for Envista. In the first VBP for implants, we did see a material price decrease. It was around 45-ish percent. And gross margins also compressed as a consequence, but volumes more than doubled. So net-net, total gross margin dollars increased and our market position improved. So now as we look forward to the 2 VBPs here in the second half, they're similar but a little bit different. Starting with orthodontics, this is VBP 1. So we think we'll have a similar price compression as what we saw in VBP 1 for implants, and then we expect market share gains. The way these things work is that the large market share players going in, if you're willing to accept the price concessions, you tend to get even stronger position coming out. With respect to implants, though, it's a little bit different. Because this is a VBP 2, the price compression will be much smaller. We're expecting around 10% to 15%. So let me pause there and see if Eric has thoughts on how that plays out across the second half and into '27.

Yes. I think a couple of points, Jon, at a high level on the growth. So in the first half -- it's probably easier to go by quarters, but let's just take it by half to make it a little simpler. We were down in China year-over-year. More of that compression came in Q1 and less so in Q2. With what Paul mentioned, with the expected VBP timing, which is roughly the same in our sort of calculus for ortho and for implants, we expect China to grow moderately in the second half with slightly better growth in the fourth quarter. And I think the main reason for that last piece is really twofold. So one would be we have had a well-prepared channel, so we've talked, I think, in the last many quarters about the fact that we've kept our channel as small and lean and tight as possible. That just means that it can respond a little bit more quickly post VBP. And then the second piece, I think, is really important that as a strong global player and the #1 brand in these markets, we do expect to get share from that. And likewise, if our supply chain is healthy, we expect that our volumes will rebound as well. So down slightly in the first half, growing in the second half. And then because we're likely facing slightly easier comps in the first half of next year, we would expect to see some growth as well in the business.

Our next question comes from the line of Elizabeth Anderson from Evercore.

I was wondering if you could talk a little bit more about the implant performance. Obviously, maybe -- and focusing outside of China since you just did such a good job on that. But how are you seeing that? Is that mostly a macro phenomenon? And can you sort of remind us about sort of how you're thinking about like new product cadence and sort of the commercial execution and sort of how to think about this besides just sort of the tough comps in the back half of the year, but like more broadly into '27 and beyond?

Sure. I'll take that, Elizabeth. Thanks for the question. I would say our implants outperformance in Q2 has been very similar to recent quarters, balanced performance by geography and pretty balanced across the 2 main categories of Challenger and Premium. I'd also remind the audience that, for us, implants is much more than just the screw. We also have a very strong position in regenerative biomaterials, and we have a very good digital workflow business. Those latter 2 categories tend to be accretive to overall implants growth. You'll remember in 2024, we made an important sizable investment into restarting the new product engine in implants. We talked a lot about the gestation period for those programs, and they are now just starting to come to market. We had the S series launch in Q1. That's off to a very good start, running ahead of our launch plan. And about 1/4 of the sales for that program are coming from competitive conversion. We feel good about that. We have another important launch in the abutment category. It's currently available in Europe, and we hope that will launch in the second half of '26 here in North America, provided regulatory approvals are gained. And then, of course, we talked about the Versah acquisition on the Q1 call. You can probably think about that as outsourced R&D. In that case, we bought a product that had already been developed and had gained registration in many markets. And our strategy has been to commercialize it globally through our very strong worldwide presence. That one is also off to a good start, running ahead of the acquisition plan. So I think for implants, very consistent performance, and we expect additional sort of returns on those investments that we've made.

Our next question is from Jeff Johnson from Baird.

Paul, maybe if I could follow up on your implant comments there because you have been getting that strong biomaterials growth and some of the other non-screw part of the business, I guess, I'd call it, how do you think your performance is shaping up on the Premium side and on the Challenger side relative to market these last few quarters? And then you've done a couple of acquisitions, small acquisitions, Versah being one, as you just mentioned, a couple of other small ones. It seems like you're building some muscle there, really good balance sheet, good cash flow here. Talk to me maybe about your M&A strategy going forward and what would be some boxes you would have to check on, growth accretion, earnings dilution, risk, things like that.

Let's see, a lot in the question. Let me start with kind of the balance of the implants outperformance. I'll start geographically. For us, our largest businesses are in the U.S. and -- or North America and in Europe. I would say they're growing at market rates. We already touched on China and the impact that VBP had for us there. I would say we're stronger in China as a consequence of VBP than we were previous to that. We're working hard now to try to increase our developing markets implants business. So maybe that's a spin through the world from the -- through a geographic lens. In terms of the categories, for us, the 2 businesses grow about the same. Challenger outpaced Premium last quarter, consistent with the market trend. The Challenger category outgrew Premium. And we under-index, as you know, in Challenger. So we'd like to have a bigger Challenger business, and right now, our primary focus is to do that organically. We have 2 good brands. We have Implant Direct and we have Alpha-Bio Tec, investing in both the same sorts of growth levers that we talk about for Premium. So activity on both the commercial and the new product front. And then to the third part of your question, we do have good M&A capabilities at Envista, and implant is a category we look at. We did 3 acquisitions over the past 18 months. All of them were in that implant platform. All of them were small, but I think they are representative of the types of deals we'd like to do, strategically aligned and financially accretive deals where we are the logical owner, where we can cause the business to perform better than the previous owners. So that's what we're trying to do in implants.

Appreciate that. Maybe one quick follow-up for Eric, if I could, just to clarify. I think you talked, Eric, in your prepared remarks about EBITDA growing in line with core revenue growth in the back half of this year. Just remind me or any high-level details maybe, one, did I hear that correctly; and two, why EBITDA won't grow faster than revenue in the back half?

Yes. For starters, Jeff, you got it correctly. I think the first sort of element to the equation here is what we expect for core growth in the second half. We talked -- I think we've talked actually all year long about the fact that we would have slower core growth in the back half, primarily because of our billing day effect, which will be minus 4 days year-on-year in fourth quarter. And that just simply means that, on an adjusted basis, we'll be growing within the guidance range, so nothing significantly different with the business as a trend. But the billing day phenomenon is going to slow our revenues, and that's specific to fourth quarter. That also is part of the reason why we're going to have slower adjusted EBITDA growth. My prepared comments basically said we expect adjusted EBITDA growth to be roughly in line with what our revenue performance will be. So that makes it kind of low single-digit growth year-on-year. Part of that is also just how we're thinking about investing in the business as we look specifically at the back half of the year and the success, I'd say, of the totality of the year. So we expect R&D to be up high single digits year-over-year in the second half, relatively consistent with how we've invested in the business year-to-date. And we expect sales and marketing to be up, call it, mid-single digits year-over-year, again, reasonably consistent with what we've invested year-to-date, so first half but just on a slightly lower revenue growth basis.

Your next question is from Allen Lutz from Bank of America.

One for either Paul or Eric. You talked about 3% volume growth and 2% pricing growth in the quarter. How should we think about how that evolves over the course of the rest of the year? And I guess, as we think about exiting 2026, how do you think about the contributions from volume and price growth at that portfolio level heading into 2027?

Yes, I can start with that one, Allen. So I think first off, I would just say half to date, this year-to-date, we have had a very good mix through our lens of price performance and volume performance. I think the quarter was actually a very clean view of that. You mentioned it, about 2 points from price, about 3 points from volume. And of course, that's certainly an equation that we would love to continue to take forward. I won't repeat what I just mentioned on the back half relative to billing days, but that particular effect will impact our volume in the second half, specifically the fourth quarter. But if we normalize that, we would expect it to be growing in line with our normalized volume year-to-date and consistent with our guidance range. And then there are 2 pieces, I think, that are relevant in the kind of price equation for us globally. We expect price growth in the second half to be consistent with how we grew price in the first half ex China. That's all of our businesses around the world, developed and developing markets. But we expect China to be down roughly an equal amount, and that's really just the VBP implementation that Paul talked about, significant price down in ortho. We expect volumes to be up. And then implant price down to be slightly, we expect volumes to be up there, but it will play out on the price line for roughly a neutral price for Envista in the second half. I think it is important to understand that outside of China, however, we've got price growth which is coming on the back of price increases that we implemented last year and then targeted price increases by portfolio and geography this year.

Our next question is from Lily Lozada from JPMorgan.

Great. Hoping you can talk about your guidance ethos and how you're thinking about the rest of the year. You've done mid-single-digit underlying growth a few quarters in a row now, and guidance implies a slight step-down over the back half of the year, even ex selling days on a true organic basis. So is that just conservatism? Or are there other dynamics to be keeping in mind for the back half of 2026? And then I have a follow-up.

Yes. So I think maybe the big number as we look at it is 4% to 5% billing day impact in Q4. If we adjust for that, our guidance assumes we're growing roughly in line with how we grew year-to-date on a normalized basis. When we say normalized year-to-date, that includes really one significant factor. That is the Spark deferral benefit that we've had year-to-date. And then, of course, we have the opposite beneficial impact on billing days. So squiggly line, approximately 4% year-to-date, and that's reasonably in line with what we're expecting in the back half of the year. So we see our growth being actually pretty consistent half 1 to half 2.

Got it. That's helpful. And then just on EPS, you're raising guidance by almost double the beat. So what gives you confidence in that? And what's better in the second half than The Street was forecasting?

Yes. I think there's really 2 pieces outside of growth, which I think we've just talked through. We will have obviously a very solid growth year. We continue to see very good profit leverage. That's thanks to our volume benefits. That's thanks to our price equation. We've also had very good productivity in the first half and I think particularly in second quarter. We expect basically our fundamentals continue to deliver in the second half in that same range. And then we talked about a tax rate benefit. Most of this is really just carryforward of the strategies that we executed last year and then what we're seeing in terms of U.S. income performance, which is really helping to absorb that interest rate deduction penalty that we've had in the past. So our rate guidance, if you didn't catch it, is 26%. It's 2 points less than what we expected entering the year. It's reasonably consistent with where we are on a year-to-date basis. And I think really importantly, we see that as a good, sustainable, predictable rate going forward. We know that we've implemented a lot of strategies in addition to just better business performance that's making that tax rate sustainable.

Our next question is from Brandon Vazquez from William Collier (sic) [ William Blair ].

I want to start with kind of wrapping up a couple of questions that have been asked already and just ask a little more clearly. Like are you able to quantify some of the moving pieces in the back half or at least like shore us up on what is an underlying growth rate in the second half of the year? Is it in the low single-digit range? Because what we're trying to figure out is, essentially, what is the jumping rate or what's the exit rate on an underlying basis into 2027. So like what is the growth when you normalize for things like selling days, deferrals, VBP? There's just a bunch of moving pieces, so curious if you can talk about that a little bit.

Yes. So I think at a high level, when you do the normalization, it would be about 3.5% core growth in the second half. That same math, Spark deferral and billing days was about 4% in the first half. So I think big picture, it's a very similar underlying growth rate first half to second half. Just as a reminder, we will not have any more effect from our Spark deferral benefit. I think we've telegraphed as we've gone throughout entering this year through the first couple of quarters that we basically lapped that final piece, which is about $5 million in the quarter itself. And then I think if you get really to the pieces of the business, there's not a lot of significant moving parts, Brandon, underneath that. We will have slightly better growth, as mentioned I think earlier in the call, from China. That's a slight accretive benefit. We'll have slightly less price benefit. We talked about that as we entered the year just based on sort of the roll-off of what we see from tariff-related price actions last year into this year. But you put, I think, everything sort of in the basket. And it will be a very consistent underlying first half, second half performance as we see it, 3.5%, call it, core growth.

Our next question is from Kevin Caliendo from UBS.

Just getting back to China really quick to understand the meaningful price down in ortho, down 10%, 15% in implants. You're still expecting growth. I'm guessing that's based on just a huge amount of pent-up demand ahead of or waiting for VBP. And if that's the case, how should we think about China into '27? Like how much of that carries forward? Will China be a growth tailwind in '27 or a headwind? I'm just trying to figure out the sizing of this sort of bolus that you're expecting to get in volumes in the second half and how that runs through going forward.

Yes, Kevin, I'll take that one. Thanks for the question. Maybe 3 components will help clarify it. So first, yes, we do expect an acceleration of growth. That comes from 3 things. The first is, as Eric mentioned, we've been keeping the channel tight. Product in channel, of course, gets revalued when the price changes, and so it's neither helpful to us nor our channel partners for that revaluation. So we keep that tight. It will expand back to more normal levels post VBP, so you get a short-term effect from that. The second effect you get is related to market shares. The way that VBP works is there's 2 bidding processes, 1 for the setting the procedure price and the second for the supplies price. The clinicians give a forecast. The hospitals give a forecast of the volume demand for each of the players. And so the larger market share players going in tend to get more coming out, and you get growth from that. And then the third piece, which was very evident with implants, was the underlying patient demand. When you reduce the procedure price, demand by patients went way up. Now specific to ortho VBP 1, I think you'll see less of a patient impact to volume. And that's for 2 reasons. It's still unclear if procedure price will be changed on ortho, so we'll have to see whether that happens. And then the second, all things equal, it's easier to expand supply for implants than it is for ortho. Ortho is an 18-month to 24-month procedure. And it's more difficult to train a clinician to do orthodontics than it is to do implants, particularly in fixed wire orthodontics, which is still the largest category in China. So hopefully, that unpacks for you a little bit where the growth will come in the second half. Moving forward, we're -- continue to be long on China. It's currently the second biggest dental market in the world. We expect it to become the largest at some point. And so in the same way that we are continually making investments in other big dental markets, U.S., Germany, Japan are good examples, we're investing long term in China. A good example of that is the new Suzhou plant that we announced about this time last year. Envista has been doing this now for 130-something years. So we're pretty comfortable navigating short-term uncertainty to support longer-term growth, and China lines up well against that long-term strategy.

That's helpful. Really helpful. Can I ask a quick accounting follow-up? Because I'm...

If you ask it of Eric, yes.

You had an $11 million revenue good guy from FX and -- on the revenue side. But on the bridge for the EBITDA, it was a $12 million good guy. Is that just the delta there hedges unwinding or something like that? I'm just trying to understand how that works.

Yes, Kevin. If you go back to last year, so the answer to your question really lies in our prior year comp. Last year, in the first half, we did not have an active hedging program for our balance sheet. And the dollar was weakening pretty substantially, if you might recall, from late 2024 through first half 2025. We had losses last year against that weakening U.S. dollar for balance sheet revaluation. Starting third quarter of last year, we started hedging our balance sheet. And so you're not -- we're not seeing -- you're not seeing any intra-quarter significant losses or gains because we're hedging appropriately. And so the better profit impact, which is, I think, the core of your question, is just coming from not having that prior year Q2 loss.

Our next question is from Jason Bednar from Piper Sandler.

I wanted to come back quick first on the pricing discussion. Eric, could you maybe unpack the volume versus price contribution within consumables? I'm assuming there isn't a ton of pricing that you're capturing in that high single-digit growth in diagnostics, but correct me if I'm wrong. And then in SP&T, you referenced capturing price there. Can you talk about the regional or portfolio variations in price capture for implants?

Yes. So let me just catch the first one. I think it was a comment really on E&C price capture. So we did get better price capture, just call it, above average, 100 basis points or so above the Envista average of almost 2% in E&C. We tend to get more in consumables. We see it as a less elastic market, and we also have extremely strong brands. But we did also get price capture in our diagnostics business. That also means that our volume growth, as Paul laid out, the 8% growth in E&C was very solid. So I think we're seeing good performance on multiple fronts there. Obviously, that means we got less price capture in SP&T. We're very select in terms of the portfolios that we're looking at there for price, and then it's sensitive as well to geographies. So hopefully, that gives you a little bit of a dip down, Jason.

Yes, it does. That's helpful. I wanted to come back also then maybe to follow up on the VBP discussion. We have the analog here for ortho on how volumes may respond to price declines. We don't really have a good analog here for VBP 2 in implants. I guess, what are you -- sorry if I missed it. But what are you assuming with respect to the volume growth response in VBP 2? Assuming we do have a 10% to 15% decline in price like you're expecting, what do you expect in volumes in response to that?

Yes, Jason, let me take that one. So first, we're not sure we'll see the same volume effect from ortho VBP 1 as we saw from implants VBP 1. As we mentioned on a previous call, it's not as easy to expand supply on an orthodontic procedure as it is to implant. So we'll have to see how that plays out. We think the market share effect will be very similar, but the patient response, time will need to tell. With respect to VBP 2 on implants, we think that the volume growth there will come from additional market share gain. We think the patient demand response will be muted, one, because the price isn't going to change much; and two, because, there, we're also not sure that the procedure price will change. We think we'll get more share as a result of VBP because that's how that bidding process works, but the patient component of it for VBP 2 will be less pronounced.

Okay. Paul, I mean, just real quick, net positive, net neutral on VBP 2 for implants? Or is it too early to say?

I think I'll hold on that one. I'm not sure. Eric, do you have a view on whether the 10% price increase will be net beneficial?

I mean, our view is that we're now getting down sort of to this rate and range where it's less impactful, right? It's less impactful from a price and an economics perspective. I think there's also an open question as to whether or not that will, through procedure price, drive demand. But we also look to a lot of previous med tech VBPs. And I would say that the Chinese government has done a good job in getting it right, meaning getting this equation right of sort of the price down, volume up. And as a leader in terms of brand market global presence, we think it's going to bode well for us in terms of volume. Obviously, there's variability around that. And it comes down a lot to how we're prepared with customers and how we're prepared with channel and our own supply chain, and we feel strong about that.

Our next question is from Michael Cherny from Leerink Partners.

I think we've beaten a lot of these topics to death, so I'll ask kind of a big picture one. What should we expect at the Investor Day? And how are you thinking about positioning, obviously, either there or at various different conferences, the product portfolio and the R&D engine?

Yes, happy to take that one. It's been about 1.5 years since our last Investor Day, so it feels about like the right time to give you guys an update. In terms of the agenda, our current thinking is that I will kick things off with a deeper dive into the strategic and operational progress against the original plan, the value creation plan we unveiled in March of 2025. Eric will then do a similar kind of update but through a more financial lens, quantifying those sort of strategic levers I'll talk about. Then, we'll have each of the leaders of our 4 main businesses walk you guys through the main drivers that they're prioritizing. And then we expect to have an extended Q&A session. We're going to host this event and webcast it from our Procera facility, which is just outside of New York City. It's about an hour outside. We make custom prosthetics there. The presentation and supporting materials will be, of course, available on our website. And for those who are able to attend in person, we'll provide a tour of that facility. It's pretty interesting. And then we'll also showcase some of our higher-impact new products that have recently launched. So whether you're able to join us in person or online, we certainly hope you can make it on September 17.

Our next question is from David Saxon from Needham.

Maybe I'll just keep it to one given the time, so -- and higher level, too. So just when you're thinking about Envista's overall margin improvement potential, just curious where you see the most opportunity across SP&T and E&C. I think E&C has generally seen a higher op margin, but I'm not sure how significant you're thinking Spark could be longer term for SP&T.

Yes. Let me answer the question along 2 vectors: first, by reporting segment, as you asked; and then secondly, maybe a look across the P&L. Yes, you're correct that Spark remains a very important margin expansion lever. We've had, I don't know, how many consistent quarters of year-over-year unit cost reduction. We still see progress ahead of us. There's a multiyear improvement -- unit cost improvement plan that the teams put together in a very organized sequential way that they go about introducing that and then spreading it across the 3 factories we have. So plenty of work left to do there. We think a similar sort of opportunity is available to us in implants. The businesses are similar, implants and ortho. And seeing what is possible through our Spark experience has motivated us in other parts of the company. I would say, though, on the E&C side, there's still room to grow as well in our diagnostics business. As you know, that's a comprehensive solution. That's a hardware business, but it also has software and services. And the software and services parts right now are growing even more quickly than the hardware part, and they have better margins. So as those sides of that business grow, there's a natural margin expander that comes with it. If we look at it across the P&L, last year, we had a particular focus on G&A. We took out $35 million. I think that not only helped the economics of the business, but it also helped the speed and decision-making. We're continuing to work on G&A productivity, but the bigger opportunity for us is on the COGS line. We have a number of programs that we're working to drive increased COGS productivity. And the last 2 quarters, you've started to see that manifest itself in our gross margin line. We had gross margin expansion in both Q1 and Q2, and we're hopeful that there's more room to go there. That's kind of a thought on margins cut both by business and by line to the P&L.

Our next question is Michael Sarcone from Jefferies.

Just a quick one on the model. Eric, any update on what you're expecting for the FX impact for the back half of the year on sales?

Yes. I think it's a pretty straightforward perspective. So we do not expect FX, if you think about translation on revenues, to be material at all in the next 2 quarters. In fact, our model has got it almost dead flat, so call it 0% growth year-over-year in Q3 and Q4. And if you just look at how rates have moved sequentially in the last several months, a little bit of a weakening euro but a strengthening of a few of the other currencies. And effectively, if that environment doesn't change, we'll be in a near 0, if you will, foreign exchange impact, top line and bottom line. And we've largely worked through what we talked about, I think, midway through the Q&A, in terms of just these benefits that we had from losses last year, which were all in the first half. So you add all that up, and there should be a very nominal to near 0 impact unless rates move forward on the second half.

There are no more questions at this time. I would now like to turn the conference back to Mr. Paul Keel.

Okay. Thanks, everyone. Let me just briefly underline a couple of thoughts by way of wrapping up the quarter. First, our second quarter results supported a strong first half performance for Envista. Compared to the first half of 2025, we delivered 7% core growth, 27% adjusted EBITDA growth and over 50% EPS growth. Secondly, our Q2 performance was once again broad-based, with both reporting segments and all major geographies posting strong results. Third, we continue to focus on executing our value creation plan with ongoing progress against all 3 of our priorities: growth, operations and people. And fourth, this performance gives us confidence to increase our full year 2026 guidance. We look forward to the upcoming Investor Day that we referenced in a previous question. Again, that's on September 17, where we'll take a longer look at our strategy and execution. I think that covers it for now. Have a great day, everyone, and a terrific week.

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