Management Commentary

Jim Gustafson
VP of Investor Relations, Envista Holdings

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 investor 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. 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. 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
President and CEO, Envista

Thank you, Jim. Good afternoon and welcome, everyone. On today's call, I will kick us off with a summary of our Q2 performance. Eric will then take us through the numbers in more detail, and I will 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 and total ortho were up low single digits.

Our continued growth and focus on operational excellence led to another quarter of both growth 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. Rounding out Slide 4, based on our strong first half performance and continued momentum, we are 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 three 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 and Consumables was 8.5%, as both diagnostics and consumables were up high single digits. Core growth in Specialty Products and 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 will 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. 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 longstanding 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 three of the new products 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 two important launches in our consumables business, one in endodontics and one 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. This particular product is novel in two 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 a third, resulting in improvements in both clinical efficacy as well as efficiency.

Demi Pro 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. We expect these two 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, on the bracket and wire 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 two 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.

Eric Hammes
CFO, Envista

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 growth 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 two 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. Let's turn to two 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 two 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. 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 growth 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, but 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 & Technologies 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 rates. 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 will 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 0.7 times. 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 details underlying this guidance. You will 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 four extra selling days over Q1 2025 and Q4 will have four fewer. As a result, we expect Q4 core growth to be flat to slightly down. Absent a 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 VBP1 for ortho and VBP2 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 pre-tax income. Overall, we performed well in the first half of the year, 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.

Paul Keel
President and CEO, Envista

Thank you, Eric. Before I wrap up our prepared remarks, I'll note that we recently announced an investor date coming up in about six weeks on Thursday, September 17th. 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 four main businesses. It will provide an opportunity for you to hear from several members of our leadership team, including Eric and myself, 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 in 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. 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 to your questions.

Analyst Q&A

Jon Block — Analyst, Stifel
Great, thanks guys, and good afternoon. 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. 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? Thanks.
Paul Keel — President and CEO, Envista
Hey, 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 three contributors that are supporting the trend. First, with respect to the market, we are benefiting from some tailwinds in these businesses. As consumable product 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.
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 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. 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. For us, the impact is offset by our similarly strong positions in less sensitive categories like surgical loops, restoratives, infection prevention, and the like.
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. Both of those businesses are growing for us at or above market rates. 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 experience that. We also have good positions in Europe, APAC, and Latin America, and these markets are currently healthier on a relative basis. Just as we expect consumer confidence to improve, helping implants in ortho, we expect the North American dental market to rebound, as it always has, and we'll benefit from that.
Let me pause there to see if Eric has anything more to add. 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. It's important that we underline their continued progress. Eric, anything more to add?
Eric Hammes — CFO, Envista
No, nothing more. I think that's comprehensive. It was a great quarter for E&C.
Jon Block — Analyst, Stifel
Certainly, was comprehensive. I'll try to ask maybe a quicker or tighter second one. For VBP1 and VBP2, I just want to think about this at a really high level for 2026 headwind and maybe 2027 tailwind. In other words, if the timing holds for 2H, and I understand that that's probably a big if, but if that timing holds, at a high level, is this a dilutive event for both ortho and implant specific to 2026 and an accretive event or called tailwind in 2027? Just at a high level, any way to size that or think about that? Thanks, guys.
Paul Keel — President and CEO, Envista
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'll play out moving forward. 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%. Gross margins also compressed as a consequence, but volumes more than doubled.
Net-net, total gross margin dollars increased, and our market position improved. Now as we look forward to the two VBPs here in the second half, they're similar but a little bit different. Starting with orthodontics, this is VBP1. We think we'll have a similar price compression as what we saw in VBP1 for implant. 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 that 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 VBP2. The price compression will be much smaller. We're expecting around 10% to 15%. Let me pause there and see if Eric has thoughts on how that plays out across second half and into 2027.
Eric Hammes — CFO, Envista
Yeah, I think a couple points, Jon, at a high level on the growth. 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. I think the main reason for that last piece is really twofold. One would be we have had a well-prepared channel. 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. Then the second piece I think is really important, and that's that as a strong global player and a number 1 brand in these markets, we do expect to get share from that. Likewise, if our supply chain is healthy, we expect that our volumes will rebound as well. Down slightly in the first half, growing in the second half. 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.
Jon Block — Analyst, Stifel
Thank you.
Elizabeth Anderson — Analyst, Evercore
Hi, guys. Good afternoon. Thanks so much for the question. I was just wondering if you could talk a little bit more about the implant performance. Obviously, maybe in focusing outside of China, since you just did such a good job on that. How are you seeing that? Is that mostly a macro phenomenon? Can you sort of remind us about how you're thinking about new product cadence and the commercial execution and how to think about this, besides just the tough comps in the back half of the year, but more broadly into 2027 and beyond? Thank you.
Paul Keel — President and CEO, Envista
Sure. I'll take that, Elizabeth. Thanks for the question. I would say our implants performance in Q2 has been very similar to recent quarters. Balanced performance by geography and pretty balanced across the two 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. We have a very good digital workflow business. Those latter two 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, about a quarter of the sales for that program are coming from competitive conversion. We feel good about that. We have another important launch in the abutments category. It's currently available in Europe, and we hope that will launch in the second half of 2026 here in North America, provided regulatory approvals are gained. 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 is then 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.
I think for implants, very consistent performance, and we expect additional sort of returns on those investments that we've made.
Elizabeth Anderson — Analyst, Evercore
Got it. Thank you so much.
Jeff Johnson — Analyst, Baird
Thank you, 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. Thanks.
Paul Keel — President and CEO, Envista
Let's see. A lot in the question. Let me start with kind of the balance of the implant's performance. I'll start geographically. For us, our largest businesses are in the U.S. or in 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 implant business. So maybe that's a spin through the world through a geographic lens. In terms of the categories, for us, the two businesses grow about the same. Challenger outpaced premium last quarter, consistent with the market trend. The challenger category outgrew premium. We under-index, as you know, in Challenger. We'd like to have a bigger Challenger business.
Right now, our primary focus is to do that organically. We have two 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. 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 three 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. That's what we're trying to do in implants.
Jeff Johnson — Analyst, Baird
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 give me high-level details maybe, one, did I hear that correctly, and two, why EBITDA won't grow faster than revenue in the back half? Thanks.
Eric Hammes — CFO, Envista
For starters, Jeff, you got it correctly. I think the first element to the equation here is what we expect for core growth in the second half. 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 four days year-on-year in fourth quarter. That just simply means that on an adjusted basis, we'll be growing within the guidance range. 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, that makes it low single-digit growth year-over-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. 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. 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, first half, but just on a slightly lower revenue growth basis.
Allen Lutz — Analyst, Bank of America
Good afternoon, and thanks for taking the questions. One for either Paul or Eric. You talk 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? Thanks.
Eric Hammes — CFO, Envista
Yeah, I can start with that one, Allen. 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 two points from price, about three points from volume. 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. 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.
There are two pieces, I think, that are relevant in the 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. 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. Implant price down to be slightly, we expect volumes to be up there. 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, targeted price increases by portfolio and geography this year.
Allen Lutz — Analyst, Bank of America
Great. Thank you very much.
Lily Lozada — Analyst, J.P. Morgan
Great. Thanks so much for taking the question. I'm 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. Is that just conservatism or are there other dynamics to be keeping in mind for the back half of 2026? I have a follow-up.
Eric Hammes — CFO, Envista
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. Of course, we had the opposite beneficial impact on billing days. 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. We see our growth being actually pretty consistent, half one to half two.
Lily Lozada — Analyst, J.P. Morgan
Got it. That's helpful. Just on EPS, you're raising guidance by almost double the beat. What gives you confidence in that, and what's better in the second half than the Street was forecasting? Thanks so much.
Eric Hammes — CFO, Envista
I think there's really two 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 benefit; 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. We talked about a tax rate benefit. Most of this is really just carry forward of the strategies that we executed last year, and 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. Our rate guidance, if you didn't catch it, is 26%.
It's two points less than what we expected entering the year. It's reasonably consistent with where we are on a year-to-date basis. 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.
Brandon Vazquez — Analyst, William Blair
Hey, guys. Thanks for taking the question. 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, are you able to quantify some of the moving pieces in the back half? Or at least 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. What is the growth when you normalize for things like selling days, deferrals, VBP? There's just a bunch of moving pieces. Curious if you can talk about that a little bit.
Eric Hammes — CFO, Envista
Yeah. 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. 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 quarters, that we basically lapped that final piece, which is about $5 million in the quarter itself. 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. You put, I think, everything sort of in a basket, and it'll be a very consistent underlying first half, second half performance as we see it. 3.5%, call it core growth.
Brandon Vazquez — Analyst, William Blair
Okay, great. That's super helpful. I'll leave it at that. Thank you.
Kevin Caliendo — Analyst, UBS
Thanks. Thanks for taking my question. Just getting back to China really quick. To understand that 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. If that's the case, how should we think about China into 2027? How much of that carries forward? Will China be a growth tailwind in 2027 or a headwind? I'm just trying to figure out the sizing of this sort of bullish that you're expecting to get in volumes in the second half and how that runs through going forward.
Paul Keel — President and CEO, Envista
Kevin, I'll take that one. Thanks for the question. Maybe three components will help clarify it. First, yes, we do expect an acceleration of growth. That comes from three 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. We keep that tight. It'll expand back to more normal levels post-VBP. You get a short-term effect from that. The second effect you get is related to market share. The way that VBP works is there's two bidding processes, one 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.
The larger market share players going in tend to get more coming out, and you get growth from that.
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. Specific to ortho VBP1, I think you'll see less of a patient impact to volume, and that's for two reasons. It's still unclear if procedure price will be changed on ortho. We'll have to see whether that happens. The second, all things equal, it's easier to expand supply for implants than it is for ortho. Ortho is a 18 months 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. Hopefully that unpacks for you a little bit where the growth will come in the second half.
Moving forward, we're continued 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. In the same way that we're 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's been doing this now for 130 something years. We're pretty comfortable navigating short-term uncertainty to support longer-term growth, and China lines up well against that long-term strategy.
Kevin Caliendo — Analyst, UBS
That's helpful. Really helpful. Can I ask a quick accounting follow-up? If I'm looking at this correctly-
Paul Keel — President and CEO, Envista
If you ask it of Eric, yeah.
Kevin Caliendo — Analyst, UBS
You had an $11 million revenue good guy from FX 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.
Eric Hammes — CFO, Envista
Yeah. Kevin, if you go back to last year, 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. You're not seeing any inter-quarter significant losses or gains because we're hedging appropriately. The better profit impact, which is, I think, the core of your question, is just coming from not having that prior year Q2 loss.
Kevin Caliendo — Analyst, UBS
Makes total sense. I just wanted to make sure I understood. Thanks so much.
Eric Hammes — CFO, Envista
Yeah. You bet.
Jason Bednar — Analyst, Piper Sandler
Hey, good afternoon. Thanks for taking the questions. 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. Then in SP&T, you referenced capturing price there. Can you talk about the regional or portfolio variations in price capture for implants?
Eric Hammes — CFO, Envista
Yeah. Let me just catch the first one. I think it was a comment really on E&C, price capture. 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. We also have extremely strong brands. 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. 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. It's sensitive as well to geography.
Hopefully that gives you a little bit of a dip down, Jason.
Jason Bednar — Analyst, Piper Sandler
Yeah, it does. No, it's helpful. I wanted to come back also 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 VBP2 in implants. I guess, sorry if I missed it, but what are you assuming with respect to the volume growth response in VBP2? Assuming we do have a 10% to 15% decline in price like you're expecting, what are you expecting volumes in response to that?
Paul Keel — President and CEO, Envista
Yeah, Jason, let me take that one. First, we're not sure we'll see the same volume effect from ortho VBP1 as we saw from implants VBP1. As we mentioned on a previous call, it's not as easy to expand supply on an orthodontic procedure as it is to implant. I will 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 VBP2 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, 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 VBP2 will be less pronounced.
Jason Bednar — Analyst, Piper Sandler
Okay, Paul, just real quick, net positive, net neutral on VBP2 for implants, or it's too early to say?
Paul Keel — President and CEO, Envista
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?
Eric Hammes — CFO, Envista
Our view is that we're now getting down 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. 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've prepared with customers and how we're prepared with channel and our own supply chain, and we feel strong about that.
Jason Bednar — Analyst, Piper Sandler
Got it. Very helpful. Thank you.
Mike Cherny — Analyst, Leerink Partners
Thanks for squeezing me in. I think we've beaten a lot of these topics to death. 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?
Paul Keel — President and CEO, Envista
Happy to take that one. It's been about a year and a half since our last Investor Day. It feels about 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 do a similar kind of update, but through a more financial lens, quantifying those sorts of strategic levers I'll talk about. We'll have each of the leaders of our four main businesses walk you guys through the main drivers that they're prioritizing. 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. For those who are able to attend in person, we'll provide a tour of that facility. It's pretty interesting. Then we'll also showcase some of our higher impact new products that have recently launched. Whether you're able to join us in person or online, we certainly hope you can make it on September 17th.
David Saxon — Analyst, Needham
Great. Thanks for taking the question. Good afternoon. Maybe I'll just keep it to one, given the time, and higher level, too. 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 not sure how significant you're thinking Spark could be longer term for SP&T. Thanks so much.
Paul Keel — President and CEO, Envista
Let me answer the question along two vectors. First, by reporting segment, as you asked, 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 multi-year unit cost improvement plan that the team's put together and a very organized, sequential way that they go about introducing that and then spreading it across the three factories we have. Plenty of work left to do there. We think a similar sort of opportunity is available to us in implant. 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. 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.
The last two 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.
David Saxon — Analyst, Needham
Great. Thanks so much for that.
Michael Sarcone — Analyst, Jefferies
Hey, good afternoon. Thanks for taking the question and squeezing me in. 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?
Eric Hammes — CFO, Envista
Yeah, I think it's a pretty straightforward perspective. We do not expect FX, if you think about translation on revenues, to be material at all in the next two quarters. In fact, our model's got it almost dead flat. Call it 0% growth year-over-year in Q3 and Q4. 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. Effectively, if that environment doesn't change, we'll be in a near zero, if you will, foreign exchange impact top line and bottom line. 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.
You add all that up, there should be a very nominal to near zero impact unless rates move forward on the second half.
Michael Sarcone — Analyst, Jefferies
Got it. Thank you.
Paul Keel — President and CEO, Envista
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 in all major geographies posting strong results. Third, we continue to focus on executing our value creation plan with ongoing progress against all three of our priorities: growth, operations, and people. 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 17th, 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.
Source: Envista Holdings Corp earnings call transcript (2026-08-05). Management commentary and analyst Q&A are reproduced as delivered; speaker roles as stated on the call.

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