Envista (NVST) Q1 2026 Earnings Transcript

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DATE

Thursday, May 7, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Paul Keel
• Chief Financial Officer — Eric Hammes

TAKEAWAYS

• Revenue -- $706 million, including a core sales increase of 9.5% and FX tailwind of over 400 basis points.
• Adjusted Gross Margin -- 55.8%, marking a 100 basis point increase year over year, driven by volume, price, productivity, and FX.
• Adjusted EBITDA -- Up 25% year over year, with a margin of 14%, representing a 120 basis point expansion.
• Adjusted Earnings Per Share (EPS) -- $0.36, rising by $0.12 versus last year, supported by a drop in the effective tax rate to 26.1% (non-GAAP).
• Free Cash Flow -- Negative $16 million, reflecting increased capital expenditures for new manufacturing facilities in China and Finland.
• Share Repurchase Authorization -- Board approved an incremental $300 million through 2029 for share repurchases, in addition to $41 million remaining under the prior program.
• Segment Revenue Growth -- Specialty Products & Technologies core up over 8%, Equipment & Consumables core up nearly 12%.
• Geographic Revenue Performance -- Double-digit growth in North America and Europe; high single-digit growth in developing markets except China and the Middle East.
• Implant Segment -- Core growth was low single digits globally, with developed markets achieving mid- to high-single-digit increases, offset by significant double-digit declines in China.
• Key Volume and Price Drivers -- Over 7 percentage points of growth from volume and 2+ percentage points from price improvement.
• Days Impact -- Q1 benefited from four additional billing days ($28 million or 4.5% growth); Q4 expected to see a similar negative effect from four fewer billing days.
• Tariff Costs -- Tariffs added $11 million year over year, offset by supply chain, G&A, and pricing actions.
• New Product Launches -- Nobel S Series (implants), Spark (aligners) in Japan, and DEXIS DTX Studio Clinic with AI were launched; early Nobel S Series orders saw over one quarter from competitive conversions.
• Acquisitions -- Completed Versah acquisition for implant preparation, expected to be accretive to growth, margins, EPS, and valuation.
• 2026 Guidance Reaffirmed -- 2%-4% core growth, 7%-13% adjusted EBITDA growth, $1.35-$1.45 EPS, and approximately 100% free cash flow conversion.

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RISKS

• Management explicitly stated, "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."
• Eric Hammes said, "channel partners are reducing inventories in preparation for an expected VBP process," leading to a double-digit decline in implant segment revenues in China.
• Paul Keel highlighted macroeconomic and geopolitical headwinds: "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."
• Eric Hammes warned, "We expect a similar negative impact year over year from 4 fewer billing days in Q4 2026," which may drive Q4 core growth into negative territory.

SUMMARY

Envista Holdings (NYSE:NVST) reported a quarter with top line and bottom line growth, supported by core revenue increases and margin expansion attributed largely to business productivity and improved price realization. Management completed a tuck-in Versah acquisition and outlined several new product launches, with early adoption of key innovations such as Nobel S Series and DEXIS AI augmenting competitive positioning. The company reaffirmed full-year 2026 guidance, underlining sustained investment in both organic growth and productivity, while also expanding its share repurchase authorization. Management noted specific headwinds in China from inventory reductions linked to the upcoming VBP process and signaled Q4 2026 will face a negative revenue impact due to fewer billing days.

• Management's pricing strategy emphasizes "limit our price increases below procedure price increases," focusing on margin while supporting customers.
• Adjusted gross margin improvement was driven by manufacturing productivity, price capture, and foreign exchange, not solely by sales growth.
• The Versah acquisition remains open-platform for clinicians, reflecting a customer-centric approach rather than exclusivity with Envista systems.
• Sales and marketing, as well as R&D investments, grew by double digits, sustained by improved earnings leverage and operational discipline.
• Organic growth remained the top capital allocation priority; recent M&A activity focused on bolt-on deals offering accretive economics and strategic fit by geography and product line.

INDUSTRY GLOSSARY

• VBP (Volume-Based Procurement): Chinese government policy to reduce prices in high-cost medical supply sectors via centralized, volume-driven tenders, affecting segment revenues and channel inventory cycles.
• Kaizen: Continuous improvement practice involving targeted, team-based initiatives to boost efficiency, productivity, or quality within operations.
• DSO (Dental Support Organization): Corporate entities providing business management and support to dental practices, often key buyers for large dental supply manufacturers.
• EBS (Envista Business System): Envista's proprietary operating and productivity system focused on continuous operational and financial improvement.

Full Conference Call Transcript

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.

Paul Keel: 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.

Eric Hammes: 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.

Paul Keel: 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: [Operator Instructions] The first question comes from Elizabeth with Evercore ISI.

Elizabeth Anderson: 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?

Paul Keel: 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.

Elizabeth Anderson: 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.

Paul Keel: 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.

Operator: Your next question comes from Michael with Leerink Partners.

Michael Cherny: 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?

Paul Keel: I'll let Eric get in on this one.

Eric Hammes: 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.

Michael Cherny: 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?

Eric Hammes: 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.

Operator: Michael, do you have a follow-up?

Michael Cherny: I am all set, thank you.

Operator: Your next question comes from Jeff with Baird.

Jeffrey Johnson: 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?

Eric Hammes: 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.

Jeffrey Johnson: 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?

Paul Keel: 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?

Eric Hammes: 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.

Operator: Your next question comes from Michael with Jefferies.

Michael Sarcone: 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.

Paul Keel: 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.

Michael Sarcone: 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?

Paul Keel: 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.

Operator: Your next question comes from Jon with Stifel.

Jonathan Block: 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.

Paul Keel: 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.

Jonathan Block: 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?

Paul Keel: 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.

Operator: Your next question comes from Erin with Morgan Stanley.

Erin Wilson Wright: 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?

Paul Keel: 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.

Erin Wilson Wright: 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?

Paul Keel: 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.

Operator: Your next question comes from Glen with Barclays.

Glen Santangelo: 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.

Paul Keel: 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.

Glen Santangelo: 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?

Eric Hammes: 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.

Operator: Your next question comes from Jason with Piper Sandler.

Jason Bednar: 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?

Paul Keel: 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.

Jason Bednar: 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?

Paul Keel: 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.

Operator: Your next question comes from Daniel with Citi.

Daniel Grosslight: 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?

Eric Hammes: 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.

Operator: 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.

Paul Keel: 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.

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

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