Envista Holdings Corporation Common stock, $0.01 par value per share 2026 Q2 Earnings Call

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.

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 four, 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%-4.5%, adjusted EBITDA to grow 11%-14%, and adjusted EPS of $1.50-$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 six touches on three of the new product launches we had during the quarter.

We covered some implants and diagnostics new products on the Q1 call, so we'll focus on consumables and ortho today. We had 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.

DemiPro is a lightweight cordless curing light. Curing lights are broadly used across many restorative dental procedures. This solution is ergonomically designed to reduce fatigue while also improving access by way of a 360-degree rotatable tip. Our consumables business has been consistently gaining share across the last several quarters. 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.

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 seven, 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.