Q1 2025 Envista Holdings Corp Earnings Call

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Hello, My name is Madison and I will be your conference call facilitator of the softer demand.

Madison: Hello, my name is Madison, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's first quarter 2025 earnings results conference call. All lines have been placed on mute to prevent any background noise.

At this time I would like to welcome everyone to remember that the holdings Corporation's first quarter 2025 earnings results Conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Madison: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press the star, then number 1 on your keypad.

I would like to ask a question during that time. Please press the star and the number one on your key part.

Madison: If you would like to withdraw your question, please press the star, and then number 2, and I will now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at Envista Holdings. Mr. Gustafson, you may begin your conference call.

Speaker Change: If you would like to withdraw your question. Please press the star and the number two and I will now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations, Adam Vista Holdings. Mr. Gustafson, you May begin your conference call.

Speaker Change: Good afternoon. Thanks for joining in Vista's first quarter 2025 earnings call. We appreciate your interest in our company with me today are Paul keel.

Jim Gustafson: Good afternoon. Thanks for joining Envista's first quarter 2025 earnings call. We appreciate your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer, and Eric Hammes, our Chief Financial Officer.

Speaker Change: Our president and Chief Executive Officer, and Eric <unk>, Our Chief Financial Officer.

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

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

Speaker Change: Got it and just to go Dot com.

Jim Gustafson: The audio portion of this call will be archived in the investor section of our website later today under the heading events and presentation. 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 year-over-year performance. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the first quarter of 2025, and references to period-to-period increases and decreases in financial metrics are year-over-year.

Speaker Change: 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 year over year performance unless other.

Speaker Change: As noted references in these remarks to company specific financial metrics relate to the first quarter of 2025 and references to period to period increases and decreases in financial metrics are year over year. During the call. We may describe certain products and devices that have applications submitted and pending certain regulatory approvals or.

Jim Gustafson: During the call, we may describe certain products and devices 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.

Speaker Change: 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 fine.

Speaker Change: 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.

Jim Gustafson: 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.

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

Paul Keel: With that I will turn the call over to Paul.

Paul Keel: Thank you, Jim. Good afternoon and welcome, everyone. We appreciate you taking the time to join us today. We'll cover four items on today's call.

Speaker Change: Thank you Jim Good afternoon, and welcome everyone. We appreciate you taking the time to join us today.

Paul Keel: We'll cover four items on today's call.

Paul Keel: I'll kick us off with some opening thoughts on our first quarter results. Next, Eric will take us through the numbers in more detail. Third, I'll close with an update on our strategic and operational progress, including how we're navigating the current environment. And then as always, we'll open it up for your questions.

Speaker Change: Kick us off with some opening thoughts on our first quarter result.

Eric: Next Eric will take us through the numbers in more detail.

Speaker Change: Third I'll close with an update on our strategic and operational progress, including how we're navigating the current environment and then as always we'll open it up for your questions.

Speaker Change: Slide four summarizes three things first quarter results progress on the plan, we laid out at our capital markets day, and the actions that we're taking to navigate the current environment.

Paul Keel: Slide four summarizes three things. First quarter results, progress on the plan we laid out at our Capital Markets Day and the actions that we're taking to navigate the current environment. Let's begin on the left with Q1 Performance. In short, it was a solid start to the year for Envista. We delivered core growth of 0.2% and adjusted EBITDA margin around 13%, both in line with our expectations, as well as adjusted EPS of $0.24, a bit ahead of our expectations. In addition to this, we made good progress on the $250 million share repurchase program that we announced under Q4 call.

Speaker Change: Let's begin on the left with Q1 performance.

Speaker Change: In short it was a solid start to the year Foreign Vista, we delivered core growth of 2% and adjusted EBITDA margin around 13% both in line with our expectations as well as adjusted EPS up 24 cents a bit ahead of our expectations.

Speaker Change: In addition to this we made good progress on the $250 million share repurchase program that we announced on our Q4 call.

Speaker Change: Moving to the middle of the slide we delivered growth across most of the portfolio, including consumables and Nobel bio care as well as armco, excluding China, where ortho P. P. P preparations are underway.

Paul Keel: Moving to the middle of the slide, we delivered growth across most of the portfolio, including consumables and Nobel BioCare, as well as ORMCO, excluding China, where ortho VBP preparations are underway. We saw broad-based progress on the operations front, with gains in areas like customer service, price, G&A productivity, and SPARC margins. And we made progress across multiple people priorities, including a four-point jump in employee engagement as we benefit from the momentum we've been building across the past few quarters.

Speaker Change: We saw broad based progress on the operations front with gains in areas like customer service price G&A productivity and spark margins.

Speaker Change: And we made progress across multiple people priorities, including a four point jump in employee engagement as we benefit from the momentum we've been building across the past few quarters.

Speaker Change: Turning to the macro environment, the global dental market, which generally stable in Q1 with underlying demand similar to what we saw in the second half of 2024.

Paul Keel: Turning to the macro environment, the global dental market was generally stable in Q1, with underlying demand similar to what we saw in the second half of 2024. As we know, dental tends to be more resilient than the overall economy. While U.S. consumer confidence indices have deteriorated since the start of the year, we did not see this manifest in our Q1 results. Geopolitical uncertainty has continued to moan, of course. As a consequence, we are ramping mitigating actions to further increase our resiliency moving forward. For example, the restructuring we announced on our last call, as well as additional cost controls throughout the quarter, is contributing to good G&A productivity across Envista.

Speaker Change: As we know dental tends to be more resilient than the overall economy, while U S consumer confidence indices have deteriorated since we started the year, we did not see this manifest in our Q1 results.

Speaker Change: Geopolitical uncertainty has continued amount of course as a consequence, we are ramping mitigating actions to further increase our resiliency moving forward.

Speaker Change: For example, the restructuring we announced on our last call as well as additional cost controls throughout the quarter is contributing to good G&A productivity across in Vista.

Paul Keel: We captured price across most geographies and businesses in Q1, furthering the momentum we built in 2024. We took advantage of the flexibility embedded in our global supply chain to activate changes in source supply in response to announced or anticipated tariff activity. And as Eric will say more about shortly, we benefit from a strong balance. I'll say more specifically about the tariff landscape later in the presentation, but like many global players, we launched a tariff task force early in Q1. Tightly coordinated communications, coupled with strong operational capabilities, have allowed us to move nimbly in response to the shifting environment.

Speaker Change: We captured price across most geographies and businesses in Q1, furthering the momentum we built in 2024.

Speaker Change: We took advantage of the flexibility embedded in our global supply chain to activate changes in source of supply in response to announced or anticipated tariff activity.

Speaker Change: And as Eric will say more about shortly we benefit from a strong balance sheet.

Speaker Change: I'll say more specifically about the tariff landscape later in the presentation, but like many global players we launched a tariff task force early in Q1.

Speaker Change: Tightly coordinated communications, coupled with strong operational capabilities have allowed us to move nimbly in response to the shifting environment.

Speaker Change: Taking into account tariff announcements made to date balanced against the good momentum we're building and the solid start in Q1, we are maintaining our 2025 guidance of 1% to 3% core growth roughly 14% adjusted EBITDA margins and adjusted EPS of <unk> 95 to a dollar.

Paul Keel: Taking into account tariff announcements made to date, balanced against the good momentum we're building, and the solid start in Q1, we are maintaining our 2025 guidance of 1-3% core growth, roughly 14% adjusted EBITDA margins, and adjusted EPS of $0.95 to $1.05.

Speaker Change: Five.

Eric Hammes: And now I'll turn it over to Eric to walk us through the numbers. Thanks, Paul. In the first quarter, we delivered sales of $617 million. Currency exchange rates negatively impacted sales year over year by about 140 basis points, while core sales in the quarter increased 20 basis points. Our specialty products and technology segment declined about a point and the equipment and consumable segment increased about two points. As a reminder, Q1 2025 had two fewer billing days versus Q1 2024, which generated a modest non-operational headwind, the impact of which you will see more in our specialty products and technology segment, given the direct nature of the business.

Speaker Change: I'll now turn it over to Eric to walk us through the numbers.

Eric: Thanks, Paul in the first quarter, we delivered sales of $617 million.

Eric: Currency exchange rates negatively impacted sales year over year by about 140 basis points.

Eric: Core sales in the quarter increased 20 basis points are.

Eric: Our specialty products and technology segment declined about a point and.

Eric: And the equipment and consumables segment increased about two points.

Eric: As a reminder, Q1 2025 had two fewer billing days versus Q1 2024.

Eric: Which generated a modest non operational headwind.

Eric: Impact, which you will see more in our specialty products and technologies segment, given the direct nature of the business.

Eric Hammes: As Paul mentioned, we posted positive growth in consumables, premium implants, and in orthodontics outside China. Consumables was strong across most categories and geographies. We posted a second consecutive quarter of growth and premium, including North America, which is an area of particular focus for us. Ortho was positive, both in SPARC and brackets and wires, again excluding the effects of BVP preparation in China. Our Q1 Adjusted Gross Margin was 54.8%, a decrease of 260 basis points versus the prior year, with foreign exchange rates being the primary headwind. We'll cover in detail specifically in our margin walk, but the weaker dollar trend from Q4 to Q1 resulted in a net FX transaction loss from balance sheet remeasuring.

Paul Keel: As Paul mentioned, we posted positive growth in consumables premium implants, and orthodontics outside China consumables was strong across most categories and geographies.

Paul Keel: We posted a second consecutive quarter of growth in premium, including North America, which is an area of particular focus for us.

Paul Keel: Ortho is positive both in sparked and brackets and wires again, excluding the effects of edp preparation in China.

Paul Keel: Our Q1 adjusted gross margin was 54, 8% a decrease of 260 basis points versus the prior year with foreign exchange rates being the primary headwind.

Paul Keel: We'll cover in detail specifically in our margin walk, but the weaker dollar trend from Q4 to Q1 resulted in a net FX transaction loss from balance sheet re measurements.

Eric Hammes: From an operational perspective, though, our supply chain performed in line with our expectations, including another quarter of strong SPARC unit cost reduction. Our adjusted EBITDA margin for the quarter was 12.8%, which was 120 basis points lower than the prior year. Overall, margins were hurt by the net FX impact already mentioned, but helped by G&A productivity, price, and further improvements in SPARC margins. Adjusted EPS in the first quarter was $0.24, down $0.02 compared to the same quarter of last year, but slightly above our expectations. Our non-GAAP tax rate for the quarter was 31.5%, favorable to our expectations, although we are still forecasting a full year figure of approximately 37%.

Paul Keel: From an operational perspective, though our supply chain performed in line with our expectations, including another quarter of strong spark unit cost reduction.

Paul Keel: Our adjusted EBITDA margin for the quarter was 12, 8%, which was 120 basis points lower than the prior year.

Paul Keel: Overall margins were hurt by the net FX impact already mentioned, but helped by G&A productivity price and further improvements in spark margins.

Paul Keel: Adjusted EPS in the first quarter was 24 cents.

Paul Keel: <unk> <unk> compared to the same quarter of last year, but slightly above our expectations.

Paul Keel: Our non-GAAP tax rate for the quarter was 31, 5% favorable to our expectations. Although we are still forecasting our full year figure of approximately 37%.

Paul Keel: Finally free cash was an outflow of $5 million in Q1. The first quarter is typically a low cash flow quarter for us due to the timing of incentive compensation and working capital.

Eric Hammes: Finally, free cash was an outflow of $5 million in Q1. The first quarter is typically a low cash flow quarter for us due to the timing of incentive compensation and working capital. The year-over-year reduction was the result of a low incentive compensation payout in the comparable period last year.

Paul Keel: The year over year reduction was the result of a low incentive compensation payout in the comparable period last year.

Eric Hammes: Let's now turn to two bridges to help us break down our year-over-year results, beginning with the sales bridge. For year-over-year revenue, foreign exchange was a headwind of approximately $8 million due to the dollar, on average, being stronger in Q1 2025 than it was in Q1 2024, moderated a bit by the fact that the dollar weakened notably during the quarter. Sales volume was roughly flat in Q1. This is the net of growth in consumables, premium implants, and orthodontics offset by declines in diagnostics globally and brackets and wires in China. The SPARC revenue deferral change accounted for an approximate $4 million headwind in Q1.

Paul Keel: Let's now turn to two bridges to help us breakdown our year over year results beginning with the sales bridge.

Paul Keel: Our year over year revenue foreign exchange was a headwind of approximately $8 million due to the dollar on average being stronger in Q1 2025 than it was in Q1 2024 moderated a bit by the fact that the dollar weakened notably during the quarter.

Paul Keel: Sales volume was roughly flat in Q1.

Paul Keel: This is the net of growth in consumables premium implants, and orthodontics offset by declines in diagnostics globally, and brackets and wires in China.

Paul Keel: The Sparc revenue deferral change accounted for an approximate 4 million dollar headwind in Q1. This is consistent with the guidance we provided last quarter we.

Eric Hammes: This is consistent with the guidance we provided last quarter. we expect Q2 to be roughly neutral year-on-year, and in the second half, we expect year-over-year benefits from the unwinding of our higher revenue deferral. Price was a benefit of $6 million over the prior year, as we delivered approximately one point of growth through price expansion. We have been working for the past several quarters leveraging EBS in order to increase our yield on price changes globally. In Q1, we saw improved price performance across many of our businesses and jobs.

Paul Keel: We expect Q2 to be roughly neutral year on year and in the second half, we expect year over year benefits from the unwinding of our higher revenue deferral.

Paul Keel: Price was a benefit of $6 million over the prior year as we delivered approximately one point of growth through price execution.

Paul Keel: We have been working for the past several quarters leveraging Etfs in order to increase our yield on price changes globally. In Q1, we saw improved price performance across many of our businesses and geographies.

Paul Keel: Turning to the adjusted EBITDA margin bridge Foreign exchange rates were a net headwind of 170 basis points, principally due to the transactional effect mentioned earlier related to the U S dollar weakening within the quarter.

Eric Hammes: Turning to the adjusted EBITDA margin bridge, foreign exchange rates were a net headwind of 170 basis points, principally due to the transactional effect mentioned earlier related to the U.S. dollar weakening within the quarter. Volume and mix represented 120 basis point decline connected to the negative growth of high margin brackets and wires in China. and relatively fast growth in select portfolios within Nobel and consumables, which carry margins below fleet average. Spark deferrals represented about 60 basis points of headwind versus the prior year. Similar to my comments on revenue, we estimate the Q2 margin impact from SPARC deferral to be roughly neutral year-on-year before turning to a tailwind in Q3 and Q4.

Paul Keel: Volume and mix represented 120 basis point decline connected to the negative growth of high margin brackets and wires in China.

Paul Keel: And relatively fast growth in select portfolios within Nobel and consumables, which carry margins below fleet average.

Paul Keel: Spark deferrals represented about 60 basis points of headwind versus the prior year.

Paul Keel: Similar to my comments on revenue, we estimate the Q2 margin impact from spark deferral to be roughly neutral year on year before turning to a tailwind in Q3 and Q4.

Eric Hammes: On the positive side, we had a net productivity gain of 150 basis points in the quarter. As Paul mentioned, we reached another record low on SPARC unit costs and delivered year-over-year reductions in G&A, including corporate spending. And rounding out the walk, our previously mentioned progress on pricing contributed 80 basis points of margin expansion in Q1. Turning to segment performance, poor revenue in the specialty products and technology segment declined 70 basis points year on year. In our orthodontics business, as Paul mentioned, we saw growth in both spark and brackets and wires outside. On the implant side, Premium delivered another quarter of positive growth, although Challenger contracted slightly after consistent growth across 2024.

Paul Keel: On the positive side, we had a net productivity gain of 150 basis points in the quarter.

Paul Keel: As Paul mentioned, we reached another record low on spark unit costs and delivered year over year reductions in G&A, including corporate spending.

Paul Keel: And rounding out the walk our previously mentioned progress on pricing contributed 80 basis points of margin expansion in Q1.

Paul Keel: Okay.

Paul Keel: Turning to segment performance for revenue in the specialty products and technology segment declined 70 basis points year on year.

Speaker Change: And our orthodontics business as Paul mentioned, we saw growth in both spark and brackets and wires outside China.

Speaker Change: On the implant side premium delivered another quarter of positive growth, although challenger contracted slightly after consistent growth across 2024.

Eric Hammes: In Q1, our specialty products and technologies business had an adjusted operating margin of 14.1% down about 100 basis points year over year. This decline was driven by FX transaction losses within the quarter, the net impact from our SPARC deferral change, and a decline in ortho China volume. Moving to our equipment and consumables segment, core sales in the quarter increased by 170 basis points versus prior year as mid-single-digit growth in consumables was partially offset by a high single-digit contraction in DAGNAF. Our adjusted operating margin for this segment declined 360 basis points versus Q1 2024, mainly driven by FX transaction losses within the quarter and partially offset by the previously mentioned volume and price growth in consumption.

Speaker Change: In Q1, our specialty products and technologies business had an adjusted operating margin of 14, 1% down about 100 basis points year over year.

Speaker Change: This decline was driven by FX transaction losses within the quarter, the net impact from our spark deferral change and a decline in ortho China volumes.

Speaker Change: Moving to our equipment and consumables segment core sales in the quarter increased by 170 basis points versus prior year as mid single digit growth in consumables was partially offset by a high single digit contraction in diagnostics.

Speaker Change: Our adjusted operating margin for this segment declined 360 basis points versus Q1 2024.

Speaker Change: Mainly driven by FX transaction losses within the quarter and partially offset by the previously mentioned volume and price growth in consumables.

Speaker Change: Next I'll turn to cash flows and our balance sheet.

Eric Hammes: Next, I'll turn to cash flows and our balance. Q1 free cash flow was minus $5 million, a reduction of $34 million year-on-year, primarily driven by the low-incentive compensation payout in 2024 that I mentioned earlier. Our balance sheet remains strong and stable, with net debt to adjusted EBITDA of approximately one time. As we outlined at our Capital Markets Day, Envista has an excellent balance sheet and good underlying financial strength. This provides a strong flexibility during periods of macroeconomic uncertainty, much like we see today. Given this financial position, three months ago we announced a $250 million share repurchase program.

Speaker Change: Q1 free cash flow was minus $5 million, a reduction of $34 million year on year, primarily driven by the low incentive compensation payout in 2024 that I mentioned earlier our.

Speaker Change: Our balance sheet remains strong and stable with net debt to adjusted EBITDA of approximately one times.

Speaker Change: As we outlined at our capital markets day in Vista has an excellent balance sheet and good underlying financial strength. This provides a strong flexibility during periods of macroeconomic uncertainty much like we see today.

Speaker Change: Given this financial position three months ago, we announced the $250 million share repurchase program in Q1, we purchased $19 million of our stock or just over one 1 million shares.

Eric Hammes: In Q1, we purchased $19 million of our stock, or just over 1.1 million shares.

Eric Hammes: That covers our Q1 financial review.

Paul Keel: That covers our Q1 financial review I will now turn the call back over to Paul for our strategy and operations update.

Paul Keel: I'll now turn the call back over to Paul for a strategy and operations update. Thanks, Eric. At our Capital Markets Day in March, we laid out a value creation plan consisting of four components, guided by our purpose, centered on our values, focused on our priorities, and framed by our guidelines. By way of update, I'll outline Q1 progress on priorities on the following slide, next provide a bit more detail on the tariff landscape, and then wrap up with some closing thoughts. As Eric detailed, we had a strong start to 2025 from a financial perspective. The same is true in terms of our strategic and operational progress.

Paul Keel: Thanks, Eric.

Paul Keel: At our capital markets day in March we laid out a value creation plan consisting of four component guided by our purpose centered on our values focused on our priorities and framed by our guidance.

Paul Keel: By way of update I'll outline Q1 progress on priorities on the following slide next provide a bit more detail on the tariff landscape and then wrap up with some closing thoughts.

Speaker Change: As Eric detailed we had a strong start to 2025 from a financial perspective. The same is true in terms of our strategic and operational progress.

Paul Keel: With respect to growth, we already covered our headway in consumables, Nobel and Ortho, as well as price capture across most of the portfolio. We also posted good performance across most geographies, positive growth in North America, Japan, and emerging markets, excluding China, and flat in Europe. In addition to these, we're continuing to make good progress on the commercial and clinical front, having trained more than 15,000 customers in the quarter. Many of you will have read the positive reports covering this year's International Dental Show in Cologne. I hadn't been there myself since before COVID, but the spirit of innovation and optimism that is characteristic of the event was as strong as ever.

Speaker Change: With respect to growth, we already covered our headway in consumables Nobel in ortho as well as price capture across most of the portfolio. We also posted good performance across most geographies positive growth in North America, Japan, and emerging markets, excluding China and flat in Europe.

Speaker Change: In addition to these were continuing to make good progress on the commercial and clinical front, having trained more than 15000 customers in the quarter.

Speaker Change: Many of you will have read the positive reports covering this year's international dental show in Cologne.

Speaker Change: I haven't been there myself since before COVID-19, but the spirit of innovation and optimism that is characteristic of the event was as strong as ever.

Paul Keel: Some 135,000 visitors from more than 150 countries were in attendance, along with over 2,000 exhibitors. While there is plenty of near-term macro uncertainty, as I'll come on to in just a moment, long-term confidence in the dental market remains high. On the operational front, we continue to enjoy strong contributions from EBS, our continuous improvement methodology that is central to how we deliver results, develop our people, and advance our culture. By way of example, we continue to serve customers at very high service levels, with on-time delivery around 95 percent. Dependable customer service is always important, but particularly so in times of heightened uncertainty.

Speaker Change: 135000 visitors for more than a 150 countries were in attendance along with over 2000 exhibitors.

Speaker Change: There is plenty of near term macro uncertainty as I'll come on to in just a moment long term confidence in the dental market remained tight.

Speaker Change: On the operational front, we continue to enjoy strong contributions from ebs or continuous improvement methodology that is central to how we deliver results develop our people and advance our culture.

Speaker Change: By way of example, we continue to serve customers at very high service levels with on time delivery around 95% dependable customer service is always important but particularly so in times of heightened uncertainty.

Speaker Change: We're seeing improved G&A productivity supported by the actions we took in recent quarters to address redundancies and streamline processes.

Paul Keel: We're seeing improved GNA productivity supported by the actions we took in recent quarters to address redundancies and streamline processes. And as mentioned earlier, Spark posted another successive quarter of gross margin improvement, and we remain on track for this business to turn operating profit positive in the second half. Finally, with respect to people, we saw a nice uptick in employee engagement in Q1, with broad-based improvement in important areas like communication, collaboration, and advancing an energizing work environment. We also saw year-on-year improvement in employee retention across both our professional and production teams. And a refreshed leadership team is working well together, benefiting from a nice balance of experienced Envista leaders with deep market knowledge and customer relationships, supplemented with fresh perspectives brought in from other high-performing companies and cultures.

Speaker Change: And as mentioned earlier spark posted another successive quarter of gross margin improvement and we remain on track for this business to turn operating profit positive in the second half.

Speaker Change: Finally with respect to people, we saw a nice uptick in employee engagement in Q1 with broad based improvement in important areas like communication collaboration and advancing an energizing work environment.

Speaker Change: We also saw year on year improvement in employee retention across both our professional and production teams.

Speaker Change: And our refreshed leadership team is working well together benefiting from a nice balance of experienced in this the leaders with deep market knowledge and customer relationships supplemented with fresh perspectives brought in from other high performing companies and cultures.

Speaker Change: Yes.

Paul Keel: Three thoughts on today's highly fluid tariff plans. First, one of Envista's fundamental strengths is our exceptional global reach. We have 2400 commercial leaders working with customers across 130 plus countries. We serve these customers from a manufacturing footprint spanning three continents. Our worldwide reach is clearly a competitive advantage, but by definition, it also exposes us to macro shifts in areas like raw material supply, currency fluctuations, and yes, tariffs. Specific to current tensions between the U.S. and China, we have strong positions in both markets. This has served us well over time and will continue to be a benefit moving forward, but it does come with heightened uncertainty in the current context.

Speaker Change: Three thoughts on today's highly fluid tariff landscape first one or invest as fundamental strengths is our exceptional global reach we have 2400 commercial leaders working with customers across 130 plus countries. We.

Speaker Change: We serve these customers from a manufacturing footprint spanning three continents.

Speaker Change: Our worldwide reach is clearly a competitive advantage, but by definition. It also exposes us to macro shifts in areas like raw material supply currency fluctuations and yes tariffs.

Speaker Change: Specific to current tensions between the U S and China, we have strong positions in both markets.

Speaker Change: It has served us well over time, and we will continue to be a benefit moving forward, but it does come with heightened uncertainty in the current context.

Paul Keel: As we have detailed in other investor communications, our supply chain is well architected to respond to shifts of this sort. Most of our large businesses have sources of supply in two or more countries, and the vast majority of our product registrations cover multiple supply locations. While any change takes some time to implement, the takeaway for stakeholders is that we have good, albeit not complete, flexibility to navigate the current environment. Let me give you a feel for some of the actions currently underway. Our Tariff Task Force has been meeting daily, and our senior management team meets weekly to understand the latest developments, to agree on appropriate actions, and to ensure effective execution.

Speaker Change: As we have detailed in other investor communications, our supply chain as well architected to respond to shifts of this sort most.

Speaker Change: Most of our large businesses have sources of supply into more countries and the vast majority of our product registrations cover multiple supply locations.

Speaker Change: While any change takes some time to implement the takeaway for stakeholders is that we have good, albeit not complete flexibility to navigate the current environment.

Speaker Change: Let me give you a feel for some of the actions currently underway.

Speaker Change: Our tariff task force has been meeting daily and our senior management team meets weekly to understand the latest developments to agree on appropriate actions and to ensure effective execution.

Speaker Change: We have already transitioned some sources of supply and further moves are underway.

Paul Keel: We have already transitioned some sources of supply and further moves are underway. We're working closely with suppliers and partners to ensure clear communication and good execution across our broader connected supply chain. All sides understand that costs could increase either directly from specific tariffs or indirectly from downstream inflation effects. Collaboratively optimizing how these costs are managed through price and other levers makes a big difference for impacted stakeholders. And as Eric detailed in his comments, we're managing costs wherever we can to help offset increases that are outside our control.

Speaker Change: We're working closely with suppliers and partners to ensure clear communication and good execution across our broader connected supply chain.

Speaker Change: All sides understand that cost could increase either directly from specific tariffs are indirectly from downstream inflation effects.

Speaker Change: Collaboratively optimizing how these costs are manage price and other levers it makes a big difference for impacted stakeholders.

Speaker Change: And as Eric detailed in his comments, we're managing costs wherever we can to help offset increases that are outside our control.

Paul Keel: And third, let me frame the tariff impact to our business. Beginning with Q1, the impact was negligible. Looking forward to the balance of 2025, we expect to broadly offset the impact from the tariffs currently in effect through the range of mitigating actions that I just described. Each of these efforts has a different implementation timeline, so we anticipate net headwinds in Q2 with offsetting tailwinds in the second half.

Speaker Change: And third let me frame the tariff impact to our business.

Speaker Change: Beginning with Q1, the impact was negligible.

Speaker Change: Looking forward to the balance of 2025, we expect to broadly offset the impact from the tariffs currently in effect through the range of mitigating actions that I just described.

Speaker Change: Each of these efforts has a different implementation timeline. So we anticipate that headwinds in Q2 with offsetting tailwind in the second half.

Speaker Change: I'll close my tariff comments with the most obvious but also the most important point. This is naturally a highly fluid environment.

Paul Keel: I'll close my tariff comments with the most obvious, but also the most important point. This is naturally a highly fluid environment. While I feel good about the flexibility embedded in our global footprint, as well as the execution orientation of our organization, things have, and most likely will, continue to change.

Speaker Change: So you feel good about the flexibility embedded in our global footprint as well as the execution orientation of our organization things have and most likely will continue to change.

Speaker Change: I'll wrap things up with some closing thoughts on the quarter.

Paul Keel: I'll wrap things up with some closing thoughts on the quarter. First, general market performance in Q1 was pretty similar to what we saw in the second half of 2024. Second, our Q1 performance was in line with our expectations and a good start to the year. We continue to build strong momentum as reflected in the results we shared today. With respect to the macro, dental is most responsive to three or four economic indicators with a mix of pluses and minuses at present. On the downside, consumer confidence is clearly trending the wrong way. After five consecutive months of gains across the back half of 2024, the University of Michigan Consumer Confidence Index declined every month this year and is now back to the lows of 2022.

Speaker Change: First.

Speaker Change: <unk> market performance in Q1 was pretty similar to what we saw in the second half of 2024.

Speaker Change: Second our Q1 performance was in line with our expectations and a good start to the year.

Speaker Change: We continue to build strong momentum as reflected in the results we shared today.

Speaker Change: With respect to the macro dental is most responsive to three or four economic indicators with a mix of pluses and minuses at present.

Speaker Change: On the downside consumer confidence is clearly trending the wrong way after five consecutive months of gains across the back half of 2020 for the University of Michigan consumer confidence index declined every month. This year and is now back to the lows of 2022.

Paul Keel: While dental is empirically more stable than the broader economy and has lower regulatory or reimbursement risk than other health care categories, the flip side is that higher out-of-pocket pay means increased consumer sensitivity. Unemployment, on the other hand, is a positive at present. People with jobs tend to also have dental insurance, which underpins the stability of dental, especially in non-elective categories. Employment levels are currently good across most major economies. Interest rates are probably somewhere in the middle. On the one hand, most central banks lowered rates across the fall, and several continued to do so in Q1.

Speaker Change: While dental is empirically more stable than the broader economy and has lower regulatory or reimbursement risk and other health care categories. The flip side is that higher out of pocket pay means increased consumer sensitivity.

Speaker Change: Unemployment on the other hand as a positive at present.

Speaker Change: With jobs tend to also have dental insurance, which underpins the stability of dental, especially in non elective categories employment levels are currently good across most major economies.

Speaker Change: Interest rates are probably somewhere in the middle on the one hand, most central banks lowered rates across the fall and several continued to do so in Q1.

Paul Keel: On the other hand, absolute levels are still above where they were pre-COVID, and the go-forward forecast for further loosening is less certain today than it was a few months ago.

Speaker Change: On the other hand absolute levels are still above where they were pre COVID-19 and the go forward forecast for further loosening is less certain today than it was a few months ago.

Paul Keel: Which brings us on to tariffs. As I walked through a moment ago, we have good plans in place to offset the levies currently in effect. As our initiatives ramp, any gap in Q2 should be recovered in the second half. While well understood by this audience, I'll nonetheless again underline the fluidity of the situation. Today's news could well be out of date by tomorrow. Netting all this out, we are maintaining the 2025 guidance that we put forth on our Q4 call, albeit with a wider confidence interval for the reasons just mentioned.

Speaker Change: Which brings us on to tariffs as I walk through a moment ago. We have good plans in place to offset the levees currently in effect.

Speaker Change: As our initiatives ramp any gap in Q2 should be recovered in the second half.

Speaker Change: While well understood by this audience Nonetheless, again underlying the fluidity of the situation today's news could well be out of date by tomorrow.

Speaker Change: Netting all of this out we're maintaining the 2025 guidance that we put forth on our Q4 call.

Speaker Change: Be it with a wider confidence interval for the reasons just mentioned.

Speaker Change: I'll close by noting that navigating todays shifting environment, while challenging also showcases the commitment and expertise of our global team.

Paul Keel: I'll close by noting that navigating today's shifting environment, while challenging, also showcases the commitment and expertise of our global community. We have talented and dedicated people here at Envista, and I am grateful for all you do in the service of our stakeholders.

Speaker Change: We have talented and dedicated people here. It is in Vista and I am Grateful for all you do and the service of our stakeholders.

Paul Keel: That completes our prepared remarks and we'll now open it up for your questions. Thank you.

Speaker Change: That completes our prepared remarks, and we'll now open it up for your questions. Thank.

Speaker Change: Thank you.

Speaker Change: Thank you and at this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to you. Once again that is star one to ask a question and your first question comes from the line of Jon Block with Stifel. Please go ahead. Your line is open.

Madison: And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question.

John Block: And your first question comes from the line of John Block with Stiefel. Please go ahead. Your line is open. Thanks guys. Paul and Eric, thanks for the questions.

Jon Block: Thanks, guys.

Paul Keel: Paul Thanks for the question I'll push.

Paul Keel: a little more on tariffs as it's top of mind for many investors right now. So given the constantly changing environment, can you just say a little bit more about your current tariff exposure and maybe just provide some specifics on what you're doing to mitigate the impact? Thanks. Yeah, thanks for the question, John. That is a good place to start. The lion's share of our tariff exposure sits in three areas. As you might expect, our two largest categories are US goods imported into China, and then Chinese goods imported the other way into the US. Now, with respect to the former, most of our exposure here comes from our own facilities, in particular premium implants that we sell in China, but make in one of our plants in the US.

Speaker Change: A little more on Terra says, it's top of mind for many investors right now.

Speaker Change: Given the constantly changing environment can you just say a little bit more about your current tariff exposure and maybe just provide some specifics on what you're doing to mitigate the impact. Thanks.

Speaker Change: Yes. Thanks for the question John that is a good place to start.

Speaker Change: The lion's share of our tariff exposure sits in three areas as you might expect our two largest categories are U S goods imported into China, and then Chinese goods imported the other way into the U S.

Speaker Change: Now with respect to the former most of our exposure here comes from.

Speaker Change: Our own facilities in particular premium implants that we sell in China, but making one of our plants in the U S.

Paul Keel: So in terms of mitigation, we have two major implant manufacturing locations, one in the US and one in Sweden. They have similar capabilities and product registrations. So while, as I mentioned in our prepared remarks, it does take a bit of time to implement, we're in the process of shifting a portion of the China supply from the US to Sweden.

Speaker Change: So in terms of mitigation, we have two major implant manufacturing locations one in the U S and one in Sweden.

Speaker Change: They have similar capabilities and product registrations.

Speaker Change: Now as I mentioned in our prepared remarks, it does take a bit of time to implement we are in the process of shifting a portion of the China supply from the U S test Sweden.

Paul Keel: Now, secondly, with respect to the Chinese imports into the U.S., these are a little bit different. They're principally raw materials and semi-finished goods that come from our suppliers. So, a different array of activities are underway to mitigate the impact here. For example, we expect our suppliers to mitigate the tariff impacts themselves rather than passing it on to Envista. And like Envista, many of them have manufacturing locations in multiple countries, so they have supply changes underway, you know, in their own networks. We're also qualifying additional suppliers to build further resilience and optionality in our supply base.

Speaker Change: Now secondly, with respect to the Chinese imports into the U S. These are a little bit different there principally raw materials and semi finished goods that come from our suppliers.

Speaker Change: So a different array of activities are under way to mitigate the impact here. For example, now we expect our suppliers to mitigate the tariff impacts themselves rather than passing it on to in Vista.

Speaker Change: And like in Vista, and many of them have manufacturing locations in multiple countries.

Speaker Change: They have supply.

Speaker Change: Change is underway in their own networks.

We're also qualifying additional suppliers to build further resilience and optionality in our supply base.

Paul Keel: That then brings us on to the third, the smallest category of tariff exposure, that's European imports into the U.S. These are similar to the first category. Most of this is finished goods that we produce in an Envista site, but sell to customers in the U.S. So a couple of examples to flesh it out. We produce some of our imaging equipment for U.S. and the Czech Republic. Now, as with premium, we have US manufacturing for both of these businesses. And so again, we're rebalancing the supply chain to take advantage of that. We don't have complete flexibility in this regard, but overall, we're in pretty good shape.

Speaker Change: That brings us on to the third the smallest category.

Speaker Change: Tariff exposure, that's European imports into the U S. These are similar to the first category.

Speaker Change: This is finished goods that we produce in an investor site, but sell to customers in the U S.

Speaker Change: So a couple of examples to flush it out we produce some of our imaging equipment for U S customers in Finland, and we produced some of our consumables implants in Italy, and the Czech Republic.

Speaker Change: Now as with premium we have U S manufacturing for both of these businesses.

Speaker Change: Until again, we're rebalancing the supply chain to take advantage of that we don't have complete flexibility in this regard, but overall, we're in pretty good shape.

Speaker Change: Finally to round out the tariff situation.

Paul Keel: Finally, to round out the tariff situation, in addition to the supply chain specific actions, we're also taking more general countermeasures that include things like COGS and G&A productivity and further gains in price capture. Actions of this sort further mitigate the impact of tariffs where our supplier management or manufacturing activities don't fully offset the cost. Let me pause there and see if that gets at the heart of it, John. No, that certainly does, Paul. That was great. Thanks very much. A lot of good detail there.

Speaker Change: In addition to the supply chain specific actions and we're also taking more general counter measures.

Speaker Change: That include things like Cogs in G&A productivity and further gains in price capture.

Speaker Change: The actions of this sort further mitigate the impact of tariffs, where our supplier management or our manufacturing activities don't fully offset.

Speaker Change: The cost let.

Speaker Change: Let me pause there and see if that gets at the heart of it John.

Speaker Change: It certainly does Paul that was great. Thanks very much.

Speaker Change: A lot of good detail there I'll pivot for the second question and.

Paul Keel: I'll pivot for the second question. I feel like this is going to come up on a handful of demo calls over the next week or so, but I'd just love to hear a little bit about April trends. Maybe just call it general trends, just volume-based, and your thoughts there, and what it does or doesn't mean when we think about conversion. to hire ASP procedures, you know, such as implants and clear aligners where you guys have a good chunk of business and thanks for your time.

Speaker Change: This is going to come up on a handful of dental calls over the next week or so, but I'd just love to hear a little bit about April trends.

Speaker Change: Maybe just call it general trend just volume based and your thoughts there.

Speaker Change: What it does or doesn't mean, when we think about conversion to higher asps procedures, such as implants and clear liners, where you guys have a good chunk of business and thanks for your time.

Speaker Change: Yes, maybe I'll come at it from three levels, what are we seeing broadly in the market.

Paul Keel: Yeah, maybe I'll come at it from from three levels. You know, what are we seeing broadly in the market? Has there been any change from Q1 now rolling into Q2? And then, you know, the specifics, what we can share about the beginning of the quarter? The macro market trend is very similar. So Q1 was similar to the second half of 2024, and the start of April looks a lot like March. So, of course, we're aware of some of the macro indicators deteriorating, but again, we don't see that yet manifesting in our results. So maybe the second part of it is April for us is off to a pretty good start.

Speaker Change: Has there been any change from Q1 and now rolling into Q2 and then.

Speaker Change: The specifics of what we can share about the beginning of the quarter.

Speaker Change: The macro market market trend is very similar so Q1 was similar to the second half of 2000.

Speaker Change: 24, and the start of April looks a lot like March so of course, we're aware of that.

Speaker Change: Some of the macro indicators deteriorating.

Speaker Change: But again, we don't see that yet manifesting in our result.

Speaker Change: So maybe the second part of it is April for US is off to a pretty good start.

Paul Keel: You know, you can't read too much into a first month of a quarter. But, you know, we're encouraged by the by the early start. And then thirdly, you know, sort of specifics across the portfolio, we don't see any major shifts from, you know, say a lower ticket procedure, like a single tooth restoration versus all on four. And we don't see any major shifts between another one that we get asked about is brackets and wires to clear aligners. So I think the takeaway here is in general, relative to what we all remember pre-COVID, the market still is slow, but it's pretty stable so far this year.

Speaker Change: You can't read too much into it.

Speaker Change: First month of a quarter.

Speaker Change: But.

Speaker Change: We're encouraged by that by the early start.

Speaker Change: And then thirdly.

Speaker Change: Sort of specifics across the portfolio, we don't see any major shifts from.

Speaker Change: Say, a lower ticket procedure.

Speaker Change: Like a single tooth restoration versus all on four.

Speaker Change: And we don't see any major shifts between another one that we get asked about is brackets and wires to take clear liners. So I think the takeaway here is in general relative to what we all remember pre COVID-19 the market still is slow.

Speaker Change: But it's pretty stable so far this year.

Speaker Change: Great color thanks, guys.

Paul Keel: Great color. Thanks, guys. Thank you.

Speaker Change: Thank you and your next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead. Your line is open.

Jason Bednar: And your next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead. Your line is open. Hey, good afternoon, guys. I want to follow up on John's question there on the tariff side, maybe just hoping for maybe a little bit more of a prescriptive look on what you're seeing with growth and net impacts from tariffs in the business this year. And that obviously seems zero, but just if you can talk about kind of what you're assuming in the guide. And, you know, trying to understand, like, do you have line of sight to that mitigation fully benefiting or offsetting in the second half of the year?

Speaker Change: Hey, good afternoon guys.

Speaker Change: Follow up on Jon's question, there on the on the tariff side.

Speaker Change: Maybe just hoping for maybe a little bit more.

Speaker Change: I have a prescriptive walk on what Youre seeing with gross and net impact from tariffs in the business this year and that obviously it seems zero, but just.

Speaker Change: Just if you can talk about kind of what your what youre assuming in the guide.

Speaker Change: And.

Speaker Change: Trying to understand do you.

Speaker Change: You have line of sight to that mitigation fully benefiting our offsetting in the second half of the year.

Paul Keel: And, you know, final, I guess, third part of this question is, do you have, you know, some assumptions built in here around the tariff pause remaining in place or that tariff pause being lifted? I don't think I heard that in the prepared remarks. Let's see, there's a couple of things in there, Jason. Let me see if I can remember them and remind me if I miss one. First, what is in our guide? Our guide includes tariff activity in effect today. We don't take a position on what might happen tomorrow. Similar comment regarding FX. Our guide includes spot rates as of the end of Q1.

Speaker Change: And final.

Speaker Change: Third part of this question is do you have.

Speaker Change: Some assumptions built in here around the tariff pause remaining in place or that tariff pause being lifted I don't think I heard that in the prepared remarks.

Speaker Change: Let's see.

Speaker Change: Couple of things in there, Jason let me see if I can remember them and remind me if I if I Miss one.

Speaker Change: First what is in our guide.

Speaker Change: Our guide includes tariff activity in effect today, we don't take a position on what might happen tomorrow.

Speaker Change: Similar comment regarding FX.

Speaker Change: Our guide includes spot rates as of the end of Q1, we don't take any position I might might happen with currency moving forward.

Paul Keel: We don't take any position on what might happen with currency moving forward. I asked about, I guess, how confident are we that we can mitigate those tariffs already in effect across the back half. I would say our confidence is less certain than we were at the end of Q4 when we gave the guide. The error bars here are wider, but I would say the expected outcome is the same. That's why we're maintaining guidance. Maybe a bit more color on that. You know, it's entirely conceivable that there could be benefits to the guide. So, if inflation, for instance, heats up more, that would be a more pricing supportive environment.

Speaker Change: You asked about.

Speaker Change: I guess, how confident are we that we can mitigate those tariffs already in effect across the back half.

Speaker Change: I would say our confidence is less certain than we were at the end of Q4. When we gave the guide the error bars here are.

Speaker Change: Later, but I would say the expected outcome is the same that's why we're maintaining guidance.

Speaker Change: Maybe a bit more color on that.

Speaker Change: It's entirely conceivable that there could be.

Speaker Change: Benefits to the guide so if inflation for instance, heats up more that would be a more.

Speaker Change: Pricing supportive environment and that would that would help to the upside on our core growth guide.

Paul Keel: And that would help to the upside on our core growth guide. The other side of that, of course, is also true. An inflationary environment will pressure COGS and margins, and that would be a potential downside. But as we look across the different scenarios, again, we think that the guide we gave at the end of Q4 that we're maintaining today is still the most appropriate guide for the full year.

Speaker Change: The other side of that of course is also true in inflationary environmental pressure Cogs.

Speaker Change: And margins and that would be a potential downside, but as we look across the different scenarios.

Speaker Change: Again, we think that the guide we gave at the end of Q4 that we're maintaining today is still the most appropriate guide for the full year.

Speaker Change: Okay.

Paul Keel: Okay, just one, I think the first part, if we can come back to it on the gross impact, if you could quantify that for us. And then there's a follow-up question, also similar to John's follow-up question, I guess, but, you know, different tactics. How are dentists responding here real-time to uncertainty, just in March and April? Can you talk about what you're seeing with respect to capital purchase decisions, shifts in supply purchase priorities, inventory that offices are holding? I just would love to, you know, just get a, again, a kind of a current, real-time, or fresh look at, you know, some of those dynamics.

Speaker Change: I think the first part if we can come back to it on the gross impact that you could quantify that for US and then as a follow up question.

Speaker Change: I'll also similar to John follow up question, I guess, it but different tack just Howard Dennis responding here real time to uncertainty just in March and April or can.

Speaker Change: Can you talk about what Youre seeing with respect to capital purchase decisions you have shifts in supply purchase priorities inventory that offices are holding.

Speaker Change: Just would love to just get a kind of a current real time refresh look at.

Speaker Change: Some of those dynamics.

Speaker Change: Yeah.

Paul Keel: Yeah. Let's see, in terms of the gross impact, if I can give you a bit more color, we are a net exporter from the U.S. into China. So the piece I talked about, premium implants made in the U.S. going into China, that's a bigger number than the raw materials and the semi-finished goods that we purchase from suppliers that come back into U.S. plants. That's the biggest chunk of the exposure, those two buckets. The European piece that I talked about with John's question is smaller. And I would say the mitigation plans we have in place, although there's some variability on how quickly we get implemented, our ability to do so is pretty clear.

Speaker Change: Let's see in terms of the gross impact if I can give you a bit more more color we are a net.

Speaker Change: Exporter from the U S into China. So the piece I talked about premium implants made in the U S going into China. That's.

Speaker Change: That's a bigger number than the raw materials and semi finished goods that we purchase from suppliers that come back into U S plant.

Speaker Change: That's the biggest chunk of the <unk>.

Speaker Change: Exposure of those two buckets the European piece that I talked about with John's question is smaller.

Speaker Change: And I would say the mitigation plans we have in place. Although there is some variability on how quickly we get implemented.

Speaker Change: Our ability to do so.

Speaker Change: It's pretty clear.

Paul Keel: We have multiple factories and we can move and rebalance supply across that. Let's see, you had a second question regarding tariff impact on customers. You know, probably easiest to think of it in two, let's say, three broad categories. Let's think of it, DSOs versus, you know, sort of individual proprietors of a doctor who might have a clinic or two. And then let's think about it, US versus different parts of the world. You know, the DSOs I've spoken with across Q1, we're pretty, in pretty good shape. We're in pretty, pretty confident. You know, some of them have been at some of the dental shows, so I know that the cell side has spoken with them.

Speaker Change: Multiple factories, and we can move and rebalanced supply across that.

Speaker Change: He had a second question regarding tariff impact on customers.

Speaker Change: Probably easiest to think of it in two.

Well, let's say three broad categories, let's think of it dsos versus.

Speaker Change: Sort of individual proprietor or is that a doctor who might have a clinic or two.

Speaker Change: And then let's think about it U S versus different parts of the world.

Speaker Change: The Dsos I have spoken with the Cros.

Speaker Change: Q1, we're.

Speaker Change: Pretty in pretty good shape, we are in pretty pretty confident some of them have been at.

Speaker Change: Some of the dental show so I know that the sell side has spoken with them.

Paul Keel: And I think they're continuing to see, you know, good activity. Some of the smaller customers of ours, you know, they're closer to the consumer end of the spectrum. So some of the uncertainties that a normal consumer would feel in the current environment, they feel as well. I added that the category U.S. versus international, it's pretty different. You know, I would say that the uncertainty is higher here in the U.S. than it is in other developed markets. I think there's a noticeable difference in sort of attitude U.S. versus Europe. And then I was in China earlier in Q2 before the tariff activity really heated up.

Speaker Change: And I think they are continuing to see good activity.

Speaker Change: Some of the smaller.

Customers of ours, they are closer to the consumer end of the spectrum. So some of the uncertainties that are normal consumer would feel in the current environment they feel as well.

Speaker Change: Yeah.

Speaker Change: I added that category U S versus international it's pretty different I would say that the uncertainty is higher here in the U S than it is in.

Speaker Change: Other developed markets.

Speaker Change: There is a noticeable difference in sort of attitude U S versus Europe.

Speaker Change: And then I was in China earlier in Q2 before the tariff activity really heated up.

Paul Keel: And there I would say that I went to a couple large DSOs and things were feeling pretty good, to give you a feel for it.

Speaker Change: And there I would say that I went to a couple of large dsos and.

Speaker Change: Things were feeling pretty good.

Speaker Change: To give you a feel for it.

Speaker Change: Alright, it's helpful. Thank you.

Paul Keel: All right. Helpful. Thank you.

Speaker Change: Thank you and your next question comes from the line of Elizabeth Anderson with Evercore ISI. Please go ahead. Your line is open.

Elizabeth Anderson: And your next question comes from the line of Elizabeth Anderson with Evercore ISI. Please go ahead. Your line is open. Hi guys, thanks so much for the question. I had a question about VBP. What are your current expectations in terms of the timing and extent of VBP this year? And then also perhaps, what have you sort of embedded in your guidance for that as we think about that? Let's see, VVP, ortho VVP, the kind of soundbite here, Elizabeth, is that it's progressing, you know, pretty in line with what we expected. The Chinese government is getting good at this, having gone through multiple categories.

Elizabeth Anderson: Hi, guys. Thanks, so much for that question.

Speaker Change: Had a question about.

Speaker Change: What are your current expectations in terms of the.

Speaker Change: Timing and extent of GBP this year.

Speaker Change: And then also perhaps what have you sort of embedded in your guidance for that as we think about the next couple of quarters.

Speaker Change: Let's see CDP ortho Pvp.

Speaker Change: Kind of sounds like <unk> is that it is progressing.

Speaker Change: In line with what we expected.

Speaker Change: The Chinese government is getting good at this having gone through multiple categories.

Paul Keel: To give you a little detail on that, we expected... that they would break ortho VBP into two distinct but related processes, one for the procedure cost and then one for the supply cost. That's exactly what we're seeing. The procedure cost VBP is currently underway across multiple provinces. We expect that to complete in the first half, and then if they follow past precedent, the supply VBP would follow shortly after that. Second thing we expect. Um... You know, a major goal of these VDTs is to consolidate supply in order to maximize purchasing power. So as we saw with implants, the larger market share players going in tend to get even stronger coming out, provided they have the capabilities to, you know, to compete in the new environment.

Speaker Change: To give you a little detail on that we expected.

Speaker Change: And that they would break ortho BBT into two.

Speaker Change: Distinct but related processes, one for the procedure cost and then one for the supply cost that's exactly what we're seeing now.

Speaker Change: Procedure cost Pvp is currently underway across multiple provinces, we expect that to complete in the first half and then if they follow past precedent the supply Edp will follow shortly after that.

Speaker Change: Second thing we expect.

A major goal of <unk> is to consolidate supply in order to maximize purchasing power. So as we saw with implants.

Speaker Change: The larger market share players going in tend to get even stronger coming out provided they have the capabilities to compete.

Speaker Change: Pete.

Speaker Change: <unk> environment.

Paul Keel: We saw that in our implants business. While there was certainly a material impact to price, you know, down in the 40 plus percent range, there was a larger increase in volume to us. So net-net, it was a benefit. We have a very strong position in brackets and wires in China, so we expect a similar, you know, net benefit in that regard.

Speaker Change: Saw that in our implant business.

Speaker Change: It was certainly.

Speaker Change: A material impact of price down in the 40 plus percent range. There was a larger increase in volume to us. So net net it was a benefit but we have a very strong position in brackets and wires in China. So we expect a similar.

Speaker Change: Yes.

Speaker Change: Net benefit in that regard.

Paul Keel: And then third, you asked about what is included in our guide, we expected to see a soft first quarter, maybe a soft first half in brackets and wires in China, that was in our original guide. We saw exactly that in Q1. We expect to see a benefit now in the second half when that product BVP completes, and hopefully we navigate the process correctly. Got it, that's helpful.

Speaker Change: And then third you asked about what is included in our guide.

Speaker Change: Expected to see a soft first quarter, maybe a soft first half and brackets and wires in China that was in our original guide we saw exactly that in Q1, we expect to see a benefit now in the second half when that.

Speaker Change: Product EVP complete.

Speaker Change: Hopefully, we navigate the process correctly.

Speaker Change: Got it that's helpful and maybe just as a follow up we obviously saw some nice consumable sales.

Paul Keel: And maybe just as a follow-up, you know, we obviously saw some nice consumable sales in the quarter. And I know you had previously mentioned that that's not as impacted by the selling day's Is there anything in terms of that we should think about in terms of distributor restocking or would you say that that had pretty good, like, sell-through dynamics, any color there would be helpful? So, yeah, consumables was a good quarter for us. I would say a couple of things, Elizabeth. First, consumables and other covered or non-elective categories tend to always do better relative to the elective categories when confidence drops or when the market slows.

Speaker Change: And I know you had previously mentioned that that's not as impacted by the selling days impact is there anything in terms of that we should think about in terms of distributor restocking or would you say that that had pretty good like sell through dynamics any color there would be helpful.

Speaker Change: So yes consumables.

Elizabeth Anderson: Good quarter for Us I would say a couple of things Elizabeth.

Speaker Change: First.

Speaker Change: Consumables and other covered or non elective categories.

Speaker Change: We can always do better relative to elective categories, when confidence drops or when the market's lows. So I guess I'm not surprised that our consumable business, which was stronger we would expect that.

Paul Keel: So, I guess I'm not surprised that our consumables business was stronger. We'd expect that to continue. Pretty stable business. And that'd be the first thing I'd say. The second thing is we've worked hard last year, as you guys will remember, to try to diminish the inventory impacts through consumables, which of course is a distributed category for us. Our operational capabilities are high. I talked about our customer service levels being consistently strong. Our partners understand they don't need a lot of inventory to serve their customers. So, if you take more of the inventory out of the channel, you take out some of that variability in the buy forward, etc.

Speaker Change: Pretty stable business for us.

Speaker Change: Would be the first thing I'd say.

Speaker Change: The second thing is we worked hard last year as you guys will remember to try that.

Speaker Change: Diminish the inventory impact.

Speaker Change: Through our consumables, which of course is a distributed category.

Speaker Change: Our operational capabilities are high and talked about R.

Speaker Change: Our customer service levels.

Speaker Change: Currently strong.

Speaker Change: Our partners understand they don't need a lot of inventory to serve their customers. So.

Speaker Change: So if you take.

Speaker Change: You take more of the inventory out of the channel you take out some of that variability in the buy forward etcetera. So I think that just further.

Paul Keel: So, I think that just further increases the stability of the business for us. So, consumables, you know, good stable category. We have a good position in it, and we're off to a good start in 2025.

Speaker Change: Increases the stability of the business for us.

Speaker Change: So.

Speaker Change: Consumables good stable category, we have a good position and we're off.

Speaker Change: After a good start and not 2025.

Speaker Change: Super helpful. Thank you.

Paul Keel: Super helpful, thank you. Thank you.

Speaker Change: Thank you and your next question comes from the line of Jeff Johnson with Baird. Please go ahead. Your line is open.

Jeff Johnson: And your next question comes from the line of Jeff Johnson with Baird. Please go ahead, your line is open. Yeah, thanks. Good afternoon, guys. So, Paul, you know, you mentioned a couple times during the call, a one point price benefit in the quarter. I remain surprised, pleasantly surprised by that. Just, you know, my view has been that pricing power is tougher and tougher in dentistry, especially in this environment. But I guess my question is, you also talk about that as potentially a tariff mitigation strategy. You know, as I talked to some of the dealers, I think what I'm hearing is especially those who are making in China, bringing into the US, those low cost guys, if they really jack prices up, you know, you may see dentists start to just move their purchasing decisions to other companies that don't raise prices so much.

Jeff Johnson: Yes. Thanks, good afternoon, guys. So Paul.

Jeff Johnson: During the call are one point price benefit in the quarter I remain surprised pleasantly surprised by that just my view has been that pricing power is tougher and tougher in dentistry.

Jeff Johnson: Especially in this environment, but I guess my question is you also talk about that as potentially a tariff mitigation strategy.

As I talk to some of the dealers I think what I'm hearing is especially those who are making in China, bringing into the U S. Those low cost guys. If they really jacked prices up.

Speaker Change: AC Denis start to just move their purchasing decisions to other companies that don't raise prices so much so.

Paul Keel: So the question, I guess, is more, what do you think your pricing power is in a tariff environment? Can you raise prices multiple points here on some products and get away with it without having to worry about customers shifting purchase preferences to other companies?

Speaker Change: Question I guess is more what do you think your pricing power is in a tariff environment can you raise prices multiple points here on some products you can get away with it without having to worry about customers shifting purchase preferences to other companies. Just how are you thinking about that maybe over the next few quarters.

Paul Keel: Just how are you thinking about that maybe over the next few quarters? Yeah, let me answer it in general terms and then it's specific, country by country, category by category, and type of customer by type of customer, and I'll say more about what I mean by that. But in general, a couple of things have been true across my career in dental, that clinicians in particular, sort of the higher, Thanks! I don't wanna say higher quality, but the clinicians who play at the higher end of the pyramid, they value innovation. So they are willing to pay more for a better solution that improves either a clinical outcome for their patients or for clinical efficiency in their practice.

Speaker Change: Yes, let me ask you are answering in general terms and then some.

Speaker Change: Country by country.

Speaker Change: Category by category and type of customer and by type of.

Speaker Change: Customer and I'll say more about what I mean by that.

Speaker Change: But in general a couple of things that have been true across my career in dental that.

Speaker Change: Clinicians in particular sort of the.

Speaker Change: The higher.

Speaker Change: I don't want to say higher quality, but the clinicians who play at the higher end of the pyramid.

Speaker Change: Our new innovation. So they are willing to pay more for a better solution that improves either a clinical outcome for their patients for clinical efficiency in their practice.

Paul Keel: In those cases, you can capture price. I think the second part of it, what was implied in your question is for pure commodities where you don't bring anything in particular to the customer other than the product. You're right. Those can be very price-sensitive circumstances. Which brings me on to the second half of the answer, country by country, category by category, and type of customer by type of customer is important. Right now, I would say the U.S., yes, is more price sensitive than some of the other markets. Some of our emerging markets, for instance, where there's a bigger differentiation between sort of the top of the pyramid provider and more of the lower tier provider.

Speaker Change: In those cases, you can capture it Brian I think the second part of it what was implied in your question is for pure commodities, where you don't bring anything in particular to the customer other than the product youre right that those can be very price sensitive circumstances.

Speaker Change: Which brings me onto the second half of the answer.

Speaker Change: Country by country.

Speaker Change: Customer category by category and type of customers by type of customer is important.

Speaker Change: Right now I would say the U S. Yes is more price sensitive than some of the other.

Market some of our emerging markets for instance, where there is a bigger differentiation between sort of the top of the pyramid provider and more of that.

Speaker Change: Lower tier provider.

Paul Keel: They tend to be less price sensitive than a similar volume customer in the U.S. You've got to go category by category, of course. Those where we have a stronger market position and those where we bring more innovation, of course, we have greater ability to capture price. And then type of customer here is important. The DSOs, of course, are much harder to capture price in that category than it would be with a. individual clinician who might have a say. All right, that's helpful.

Speaker Change: They tend to be less price sensitive than a similar volume customer in the U S.

Speaker Change: You Gotta go category by category for Us.

Speaker Change: Those where we have a stronger market position.

Speaker Change: And those.

Speaker Change: Where.

Speaker Change: Where we bring more innovation of course, we have greater.

Speaker Change: The ability to capture price and then tyco customer here is important on the Dsos of course.

Speaker Change: Much harder to capture price in that category that would be with that.

Speaker Change: And individual explanation you might have a staggered.

Speaker Change: Thanks, that's helpful. Thank you and then maybe just a real quick one for Eric just to make sure he still with us here.

Paul Keel: Thank you.

Eric Hammes: And then maybe just a real quick one for Eric, just to make sure he's still with us here. You know, I think two of the biggest swing factors in the second half of 2025, in my model anyway, on the margin side, are you still expecting to get two-thirds of that $45 million or so SPARC deferral from last year, two-thirds of that flowing back through the P&L in the back half of this year, and then I would assume that $4 million stub and the other whatever $15 million stub flows through early next year. So one is that two-thirds of the $45 million flow through is still expected in the second half this year.

Speaker Change: I think two of the biggest swing factors in the second half of 'twenty five in my model anyway on the margin side are you still expecting to get two thirds of that $45 million or so start deferral from last year, two thirds of that flowing back through the P&L in the first sorry in the back half of this year and then I would assume that 4 million starve any other whatever.

Speaker Change: 10 million stub flows through early next year. So one is that two thirds of the $45 million flow through still expected in the second half this year and two.

Eric Hammes: And two, I think you had quantified it at about $20 million of savings from cost takeout and other restructurings this year. Is that still the right number to be thinking about as far as restructuring savings or have those gone up, I guess, as you try to mitigate some of the tariffs? Thanks. Yeah, great question, Jeff. Appreciate it.

Speaker Change: Thank you had quantified it at about $20 million of savings from.

Speaker Change: Cost takeout and other restructurings. This year is that still the right number to be thinking about as far as restructuring savings are those gone up I guess as you try to mitigate some of the tariffs. Thanks.

Speaker Change: Yeah, great questions I appreciate it so I think the headline for spark is no change in terms of.

Eric Hammes: So I think the headline for Spark is no change in terms of What we communicated in the last call, so let me just remind you, maybe remind everybody of the details. So last year, we talked about the net headwind being about $45 million for the full year on a revenue basis from the SPARC deferral change that we made. We indicated also on our Q4 call that we expected about two-thirds of that to come back as a tailwind this year. The charts that we provide indicate about a $4 million headwind in Q1. We expect that to be roughly neutral year-on-year in Q2, which means, you know, the balance of it, really all of the two-thirds of the $45 million will be in the second half.

Speaker Change: What we've communicated in the last call. So let me just remind you maybe remind everybody of the details. So last year, we talked about the net headwind being about $45 million for the full year on a revenue basis from the spark deferral change that we made we.

Speaker Change: We indicated also on our Q4 call that we expected about two thirds of that to come back as a tailwind.

Speaker Change: This year.

Speaker Change: The charts that we provided indicate about a 4 million dollar headwind in Q1, we expect that to be roughly neutral year on year in Q2.

Speaker Change: Which means the balance of it really all of the two thirds of the $45 million will be in the second half.

Eric Hammes: Most of that is going to be in Q3, and when we get into the Q2 call, we'll probably give you even more specifics on that. So, no real change to that algorithm, that formula. And as you can already figure out, that's part of the reason that we'll have a, call it an outperformance, at least on a relative basis, for core growth in the second half of next, of this year. And then restructuring, yeah, so what we said on the Q4 call was $20 million. We're very much in line as we executed that coming even through first quarter.

Speaker Change: Most of that is going to be in Q3, and when we get into the Q2 call. We'll probably give you more specifics on that so no no real change to that that algorithm that formula.

Speaker Change: And as you can already figure out that's part of the reason that we will have a call. It an outperformance at least on a relative basis for core growth in the second half of next of this year.

Speaker Change: And then restructuring yes, so what we said on the Q4 call was $20 million.

Speaker Change: Very much in line as we.

Speaker Change: Executed that coming even through first quarter. The majority of that benefit is going to hit in 2025, we will have a little bit of investment you saw for example, we increased R&D this quarter year on year quarter on quarter about 8%, but most of that is going to hit in 2025, and I would say no no.

Eric Hammes: The majority of that benefit is going to hit in 2025. We'll have a little bit of investment. You saw, for example, we increased R&D this quarter, year-on-year, quarter-on-quarter, about 8%. But most of that is going to hit in 2025, and I would say no change to what we committed to, how we're executing, and how we see it. We do see G&A performing better. That's outside of a restructuring comment. This quarter was a very good G&A reduction, as you heard from Paul, both year-on-year and sequentially, and as we move forward. So, without us having, you know, a specific next-level action to your question about restructuring, we do see good initiatives yielding good results, and that's part of the playbook we've got for making sure that we can mitigate as much as possible on the tariff front.

Speaker Change: <unk> two.

Paul Keel: What we committed to how we're executing and how we see it we do see G&A performing better that's outside of our restructuring comment this quarter was a very good G&A reduction as you heard from Paul.

Paul Keel: Both year on year and sequentially and as we move forward so without us having a specific next level action to your question about restructuring we do see good initiatives, yielding good results and Thats part of the playbook, we've got for making sure that we can mitigate as much as possible on the <unk>.

Paul Keel: Here from.

Paul Keel: Thank you.

Eric Hammes: Thank you.

Speaker Change: Thank you and your next question comes from the line of Allen Lutz with Bank of America. Please go ahead. Your line is open.

Allen Lutz: And your next question comes from the line of Allen Lutz with Bank of America. Please go ahead. Your line is open. Good afternoon and thanks for taking the questions. One for Paul or Eric here on implants. Premium implants grew globally. Challenger looks like was a little weak this quarter.

Allen Lutz: Good afternoon, and thanks for taking the questions one for Paul or Eric here on <unk>.

Allen Lutz: Implants premium implants grew globally challenge there it looks like it was a little weak this quarter what drove the softness in challenger in <unk> and what are the expectations embedded in the guide for the rest of the year between those two I think you have some product launches coming in the second half trying to get a sense of what.

Paul Keel: What drove the softness in Challenger in one cue and where are the expectations embedded in the guide for the rest of the year between those two? I think you have some product launches coming in the second half, trying to get a sense of what the expectations are for those two pieces for the rest of the year. Thanks.

Allen Lutz: The expectations are for those two pieces for the rest of the year.

Speaker Change: Yeah, Let me take that one and then if I Miss something there jump in.

Paul Keel: I'm going to take that one. So Challenger had four straight quarters of growth in 2024 dip into the negative in Q1. You might remember at the beginning of Eric's comments, he mentioned that we had two fewer billing days in Q1 and that that would create a modest non-operational headwind. Thank you very much. So, I think that played a little bit of a part of it. You know, more importantly, the second half of your question, what do we expect across the year? We don't see this as signaling a change in trajectory for our challenger business. It's an important category for us.

Speaker Change: So chapter head fourth street corners of growth.

Speaker Change: In 2024.

Speaker Change: The negative in Q1.

Speaker Change: Remember at the beginning of Eric's comments, he mentioned that we had two fewer billing days in.

Speaker Change: In Q1.

Speaker Change: And then that would create a modest non operational headwinds.

Speaker Change: Particularly for our direct businesses.

Speaker Change: Challenger as a good example, there.

Speaker Change: I think that played a little bit of a part of it.

Speaker Change: More importantly, the second half of your question, what do we expect across the year.

Speaker Change: We don't see this as signaling a change in trajectory for our challenger business.

Speaker Change: The important category for us.

Paul Keel: As you know, we under-index in Challenger relative to premium, so we're very focused on growing our Challenger business both organically, and if the opportunity comes up, it tends to be one of the more active M&A categories. we'd look there as well.

Speaker Change: You know, we under index in challenger relative to premium.

Speaker Change: So.

Speaker Change: Very focused on growing our challenger business, both organically and if the opportunity comes up it tends to be one of the more active.

Speaker Change: M&A categories.

Speaker Change: We've looked varies as well.

Eric Hammes: Specific to what's included in the guide, You know, I'll look to Eric on this, but we're not anticipating a change to the trajectory on either premium or challenger. Steady, slow progress, again, continuing to move towards, you know, market rates grow.

Speaker Change: Specific to what's included in the guide.

Speaker Change: I'll look to Eric on this but we're not anticipating.

Speaker Change: Change to the trajectory either premium or challengers steady slow progress again, continuing to move towards market rates of growth.

Eric Hammes: Yeah, Allen, just a couple points. So just to reinforce what Paul mentioned in terms of you know, billing days, first quarter. We didn't get deep into it. We did just want to make everybody aware, you know, two billing days quite a bit and for a direct business, you know, we saw it coming into the quarter. We felt it to some degree, even exiting the quarter. I'll just underscore Paul's comment. You know, nothing of a sort of a dramatic core growth. trend as we go through the year for premium, likely slightly better in the next couple of quarters, but that business has been on a relatively consistent upticking trend, and we expect it to be similar in that same vein.

Speaker Change: Yes, Alan just a couple of points. So just to reinforce what Paul mentioned in terms of.

Speaker Change: Billing days first quarter, we didn't get deep into it we did just want to make everybody aware two billing days quite a bit and for a direct business.

Speaker Change: We saw it coming into the quarter, we felt that to some degree even exiting the quarter I'll just underscores Paul Paul's comment nothing of a sort of a dramatic.

Speaker Change: Core growth trend.

Speaker Change: Trend as we go through the year for premium likely slightly better in the next couple of quarters.

Speaker Change: But that business has been on a relatively consistent uptick in trend and we expect it to be similar in that in that same vein.

Eric Hammes: And then maybe a little bit better back cap challenger growth. That's because one of the products that we manufacture does come out of Europe, and we saw a softer business there in the back cap of last year, even though we had four quarters of good core growth in the business globally. Thank you very much. Thank you.

Speaker Change: And then maybe a little bit better back half challenger growth.

Speaker Change: That's because one of the products that we manufacture does come out of Europe.

Speaker Change: We saw softer business there in the in the back half of last year, even though we had four quarters of good core growth in the business globally.

Speaker Change: Thank you very much.

Speaker Change: Thank you.

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

Speaker Change: Your next question comes from the line of Steven Valiquette with Mizuho Securities. Please go ahead. Your line is open.

Steven Valiquette: Please go ahead. Your line is open. Hi, thanks.

Speaker Change: Hi, Thanks, Steve Valiquette from Mizuho.

Eric Hammes: Steve Valiquette from Mizzou. I guess, separate from the SPARC deferral accounting distortions, are you able to disclose whether the SPARC ASP just moved directionally up or down sequentially in 1Q25 versus 4Q24, and what are the key drivers within that? And also, are you seeing any other major clear liner competitors raising prices, either in relation to tariffs or really for anything? Yeah, Steve, so just to hit on the first piece, so no major change in our SPARC average selling price. I would just go back to a comment Paul made just previously in terms of innovation in the market space and the ability to capture price or value.

Speaker Change: Yes, I guess separate from the spark deferral accounting distortions are you able to disclose whether the spark AOSP just move directionally up or down sequentially.

Speaker Change: <unk> 25 versus <unk> 24, and what are the key drivers within that and also are you seeing any other major clear aligner competitors raising prices either in relation to tariffs or really for really for any reason I guess thanks.

Speaker Change: Yes, Steve So just to just to hit on the on the first piece so no major change.

Speaker Change: Our spark average selling price.

Speaker Change: I would just go back to a comment Paul made just previously in terms of.

Speaker Change: Innovation in the market space.

Speaker Change: And the ability to capture.

Eric Hammes: For us in our SPARC business, that means a consistent level of price, a consistent level of value capture, and of course, backed by the fact that we've been performing well in terms of primary case growth, revenue growth, and of course, if we strip out the deferral, we had another quarter of good high single-digit net revenue growth in our SPARC business. And then the second part of your question, for sure, the competitive landscape is challenging. I would just say as a reminder, we do the same, I think, for everybody, you know, just to remind everybody that we focus very specifically on the orthodontic segment.

Speaker Change: Price or value for us and our spark business that means.

Speaker Change: Consistent level of price a consistent level of value capture.

Speaker Change: And of course backed by the fact that we've been performing well in terms of primary case growth.

Speaker Change: Revenue growth and of course, if we strip out the deferral, we had another quarter of good high single digit.

Speaker Change: Net revenue growth in our and our spark business and then the second part of your question.

Speaker Change: For sure the competitive landscape is.

Challenging I.

Speaker Change: I would just say as a reminder, we do the same I think for everybody just to remind everybody that we focused very specifically on the orthodontic segment.

Eric Hammes: It is a segment that we have good brand presence in, we have good brand power in. Of course, the business has penetrated very well over the last many years and quarters, still has a lot of untapped market potential. And that's why we see ourselves best positioned in that place, you know, both from a value standpoint, as well as what we're doing, of course, on the back end in terms of improving the gross margin of the business. at it.

It is a segment that we have good brand presence in we have good brand power and of course, the business is penetrated very well over the over the last many years and quarters still has a lot of untapped market potential.

Speaker Change: That's why we see ourselves best positioned in that place.

Speaker Change: Both of them.

Speaker Change: <unk> standpoint, as well as what we're doing of course on the on the backend in terms of improving the gross margin of the business.

Speaker Change: Got it okay. Thanks.

Eric Hammes: Okay, thanks.

Speaker Change: Thank you and your next question comes from the line of Brandon Basquez with William Blair. Please go ahead. Your line is open.

Eric Hammes: Thank you.

Brandon Vazquez: And your next question comes from the line of Brandon Vazquez. With William Blair, please go ahead. Your line is open. Hey, everyone. Thanks for taking the question.

Brandon Basquez: Hey, everyone. Thanks for taking the question.

Paul Keel: Can I go back to China and tariffs for a second? Are you guys able to right-size this to any degree, whether it's your entire China business or what would be really helpful is your premium implants, because it sounds like that's what's most impacted by importing to China, how big that business is these days. And part of the question here is also trying to understand, like, is there inventory being held in China, or are you having to ship currently under, I believe, 125% tariffs? Are you having to ship some of the Nobel implants into China today, incurring those higher costs?

Brandon Basquez: Can I go back to China and tariffs for a second are you guys able to right size. This to any degree whether it's your entire China business or would be really helpful to your premium implants, because it sounds like thats whats most impacted by importing to China, how big that business These days and.

Brandon Basquez: Part of the question here is also trying to understand like is there inventory being held in China or are you having to shift currently under I believe 125% tariffs are you having to shift some of the Nobel implants into China today, incurring those higher costs.

Brandon Basquez: Okay.

Paul Keel: Yeah, let me take that. So we have a large business in China, I think we've disclosed before it's in the high single digits, it's a percent of our total revenue. And our implants business is the biggest part of that, of which premium is the biggest part of our implants business. So that was the first part of your question. Second, do we hold inventory in China? Yes. While it is a direct business in most parts of the world in China, just because of the logistical complexity, a lot of the premium business still goes through distribution. So yes, there is inventory, premium inventory in China.

Brandon Basquez: Yeah, let me take that so.

Brandon Basquez: Okay.

Speaker Change: We have a large business in China, I think we've disclosed before it's in the <unk>.

Speaker Change: High single digits as a percent of our total revenue and our implant business is the biggest part of that.

Speaker Change: Which premium into the biggest part of our implant business that was the first part of your question.

Speaker Change: Second do we hold inventory in China.

Speaker Change: Yes.

Speaker Change: Well it is a direct business in most parts of the world in China, just because of the logistical complexity a lot of the premium business still goes through distribution. So yes, there is inventory by premium inventory in China.

Paul Keel: Third part of your question, are we currently shipping into to China and incurring tariffs? The answer is yes, we are. And we're in the process of shifting, as I mentioned, under John's call, supply for China from the US to our site in Sweden.

Speaker Change: Third part of your question are we currently.

Speaker Change: Shipping into two China and incurring tariffs. The answer is yes, we are and we're in the process of shifting as I mentioned.

Speaker Change: Johns call.

Speaker Change: Supply for China from the U S to our site in Sweden, we expect that to take a couple of months to get fully implemented.

Eric Hammes: We expect that to take a couple of months to get fully implemented. Okay, perfect, that's super helpful.

Speaker Change: Okay perfect. That's Super helpful. One last quick modeling one.

Eric Hammes: One last quick modeling one, any updates on kind of shifting or finding some new structure for the tax? on a go-forward base. Thanks for the question. Yeah, great. Excellent. I'll take that. So maybe just as a reminder on a couple data points, so our guide for the year that we put out in fourth quarter was 37%. If you go back to the pre-read remarks, you may have heard me mention that we still expect the tax rate this year to be at 37%. We did have a lower non-GAAP tax rate in Q1, around 31.5%. That's primarily because we saw better U.S.

Speaker Change: Any updates on kind of shifting or finding some new structure for the tax entities.

Speaker Change: On a go forward basis, thanks for the question.

Speaker Change: Yes, great excellent I'll take that.

Speaker Change: So maybe just as a reminder, on a couple data points. So our guide for the year that we put out in the fourth quarter was 37%.

Speaker Change: If you go back to the pre read remarks, you may have heard me mention that we still expect the tax rate this year to be at 37%. We did have a lower non-GAAP tax rate in Q1 around 30 31, 5%.

Speaker Change: That's primarily because we saw better U S income or U S income improvement.

Eric Hammes: income or U.S. income improvement. Because of the high interest deductibility cap, anything we can do to generate better U.S. income is incrementally favorable to our U.S. tax rate. That being said, as we look outwards, we see the tariff environment being a little bit challenging on U.S. income. And that's the reason why we're holding to a guide right now of 37%. Making good progress on the point you mentioned in terms of just the high interest deductibility cap. I won't say much more on that.

Speaker Change: Because of the high interest deductibility cap anything we can do to generate better U S income is incrementally favorable to our U S tax rate.

Speaker Change: That being said as we look outwards, we see the tariff environment being a little bit.

Speaker Change: <unk> on U S income.

Speaker Change: And Thats. The reason why we are holding to our guide right now a 37%.

Speaker Change: Good progress on the point you mentioned in terms of just the high <unk>.

Speaker Change: Interest deductibility cap.

Speaker Change: Don't say much more on that I do expect that we'll be able to give some updates on that as we get into middle of this year, but we have a good path.

Eric Hammes: I do expect that we'll be able to get some updates on that as we get into the middle of this year. But we have a good path. I mentioned, I think on the last call, it's something that takes time. And we'll certainly keep everybody updated as we get further into it. Thank you.

Speaker Change: Mentioned I think on the last call. It's something that takes time and we will certainly keep everybody updated as we get further into it.

Speaker Change: Thank you and your next question comes from the line of Erin Wright with Morgan Stanley. Please go ahead. Your line is open.

Erin Wright: And your next question comes from the line of Erin Wright with Morgan Stanley. Please go ahead. Your line is open. Great.

Erin Wright: Great I'm curious if you think you're benefiting at all I've seen any sort of disruption around your cost are around your competitors.

Paul Keel: I'm curious if you think you're benefiting at all or seeing any sort of other disruption around your competitors across the various businesses. And then on the flip side of that, from a supplier standpoint, I guess any disruption there in terms of your distributor partners, just with recent transactions on that? So, let's see. Are we seeing any change in our behavior with respect to our competitors or with respect to our suppliers? The second one's easier. Yeah, we are seeing responsiveness from our suppliers. The same sort of tenor of the conversation on this call takes place with our suppliers.

Erin Wright: Across the various businesses and then on the flip side of that from the supplier standpoint, I guess any disruptions.

Erin Wright: And in terms of your distributor partners just with recent transactions on that thanks.

Erin Wright: So let's see how are we seeing any change in our behavior with respect to our competitors or with respect to our suppliers. So that the second one is easier yeah. We are seeing responsiveness from our suppliers at the same sort of tenor of the conversation on this call.

Erin Wright: <unk> placed with their suppliers.

Paul Keel: We've been working with many of these folks for many years, and they're very much committed to our success. So, they're moving quickly and responsibly to support those sort of Category 2 impacts in particular that I mentioned, raw materials or semi-finished goods that are tariff impacted. The first part, with respect to our competitors, they're a capable, nimble bunch, so they're always moving. Whether they're doing that in response to tariffs or not, a little bit more difficult to discern. But, you know, a couple of things are true about dental, you know, it's an attractive market. People know it.

Erin Wright: We've been working with many of these folks for for many years.

Erin Wright: They are very much committed to our success, so they're moving quickly and responsibly to support.

Erin Wright: Those are the category two impacts in particular that I mentioned raw materials or semi finished goods that are tariff impacted.

Erin Wright: The first part with respect to our competitors.

Erin Wright: There are capable nimble nimble bunch, so they're always moving whether they're doing that in response to tariffs or not a little bit more difficult to discern.

Erin Wright: <unk>.

Erin Wright: But.

Erin Wright: A couple of things are true about dental it's.

Erin Wright: It's an attractive market people know it.

Paul Keel: Second, although it tends to have a few strong players in each category, they're all relatively capable. And three, it's that, you know, kind of intersection between capabilities and competition that keeps propelling the industry forward. So I don't know if tariff change is that much, Erin, to tell you the truth.

Erin Wright: Second.

Erin Wright: It tends to have a few.

Erin Wright: Strong players in each category, they're all relatively capable.

Erin Wright: And three I expect kind of intersection between capabilities and competition that keeps propelling the industry forward. So I don't know if tariffs change it that much Aaron to tell you the truth.

Eric Hammes: And how much does guidance now assume in terms of price realization for the year relative to what you were anticipating previously? Erin, your question was, let me just make sure I caught it, was price realization for the year versus prior guidance, was that it? Correct. Okay. Yeah. So what we mentioned when we issued the guidance is that we expected price growth for the year to be roughly in line with what we did last year. Last year we had about 60 basis points of growth as a reminder. So that's how we were seeing our price reasonably equal, I would say, throughout the quarters for the full year with a bit of a nuance between first half, second half, China VBP, right?

Erin Wright: How much this guidance now assume in terms of price realization for the year relative to what you were anticipating previously.

Erin Wright: Aaron Your question was let me just make sure I caught it was price realization for the year versus prior guidance without it.

Erin Wright: Correct Okay.

Erin Wright: Okay, Yes, so what we what we mentioned when we issued the guidance that we expected price growth for the year to be roughly in line with what we did last year last year, we had about 60 basis points of growth as a reminder, so that's how we were seeing our price reasonably equal I would say throughout the quarters.

Erin Wright: For the full year with a bit of a <unk>.

Erin Wright: <unk> between first half second half.

Erin Wright: China <unk> right that is the one single element, that's not playing a big factor in our price today or in the first half.

Eric Hammes: That is the one single element that's not playing a big factor in our price today or in the first half. But we'll play a little bit more heavily in the second half on a weighted basis. And then we're not giving a sort of a re-guide on price, but I'll just go back to how Paul opened the call relative to John's question around our tariff actions. So they are in the space of distribution network, manufacturing, as he just mentioned, working with suppliers. But then we do expect cost and price also to play a role in that mitigation.

Erin Wright: Play a little bit more heavily in the second half on a on a weighted basis.

Erin Wright: And then we're not giving a sort of a re guide on price, but I will just go back to how Paul opened the call relative to Jon's question around our tariff actions.

Erin Wright: So they are in the space of distribution network.

Erin Wright: Manufacturing as he just mentioned working with suppliers, but then we do expect cost and price also to play a role in that and that mitigation. So net net we should have a little better pricing than we originally thinking in our guide.

Eric Hammes: So net-net, we should have a little better pricing than we were originally thinking in our guide. As we get further into our plan and the execution of that, we'll get some updates.

Erin Wright: As we get further into our plan and the execution of that we'll give some updates.

Speaker Change: Okay. Thank you.

Eric Hammes: Okay. Thank you.

Speaker Change: Thank you and your next question comes from the line of Michael Cherny with Leerink Partners. Please go ahead. Your line is open.

Michael Cherny: And your next question comes from the line of Michael Cherny. With Learig Partners, please go ahead. Your line is open. Good afternoon. Thanks for taking the question. I guess just a quick one at the end here. We've talked a lot about the macro concerns for your customers, macro concerns regarding various different end markets.

Michael Cherny: Hi, good afternoon. Thanks for taking the question I guess, just a quick one at the end here.

Michael Cherny: We've talked a lot about the macro concerns for your customers and macro concerns.

Michael Cherny: Regarding various different end markets.

Paul Keel: As you think through your strength, your broadness, and you talked about the balance sheet, what does the potential for the M&A environment look like on your front? You're managing through the macro concerns as best as possible, but clearly there's a number of small vendors that might be seeing bigger worries because of lack of scale, supply-side issues. Is there anything you can update us on relative to your appetite and the potential opportunities that you have to potentially consolidate lower-capitalized other players in the market?

Michael Cherny: As you think through your strength, you're broadness and you've talked about the balance sheet, what's the potential for the M&A environment looks like on your front.

Michael Cherny: If you're sure you're managing to the macro concerns as best as possible, but clearly there's a number of small vendors that might be seeing bigger worries because of lack of scale supply side issues anything you can update us on relative to your appetite and the potential opportunities that you have to potentially consolidate lower capitalized.

Michael Cherny: Other players in the market.

Paul Keel: So, I'd come at it a couple ways, Michael. I mean, first, I would begin with just a reminder, as a cash generative business tends to generate more cash than it consumes, which then takes us to our capital allocation priorities, starts with funding organic growth, high margin business, high return on investment business like this, the highest risk-adjusted return for any marginal dollar is going to be in R&D, commercialization, clinical training, etc. The second, though, on the list is accretive M&A, and I underline the accretive piece, which I think brings us on to the sentiment of your question.

Michael Cherny: So I'd come at a couple of ways, Michael I mean first I would begin with.

Michael Cherny: Just a reminder is a cash generative business tends to generate more cash than it consumes, which then takes us to our capital allocation priorities starts with.

Michael Cherny: Funding our organic growth.

Michael Cherny: High margin business high return on investment business like this.

Michael Cherny: The highest risk adjusted return for any marginal dollar is going to be an R&D commercialization clinical training et cetera.

Michael Cherny: The second though on the list is accretive M&A and I underline the accretive piece, which I think brings us on to the sentiment of your question in the same way that public market dental multiples are down we're seeing the same in private transactions.

Paul Keel: In the same way that public market dental multiples are down, we're seeing the same in private transactions. We, of course, believe in the long-term attractiveness of dental. So generally speaking, yeah, we think this is an opportunity to take advantage of our strength, both in terms of market position and balance sheet. And as attractive assets come up available at lower multiples, yeah, we'd take a good look at them. Did that cover it? It does. Thank you. All right. Thanks for the question, Michael.

Michael Cherny: We of course believe in the long term.

Michael Cherny: <unk> of dental so generally speaking yes. We think this is an opportunity to take advantage of our strength both in terms of market position and balance sheet and as attractive assets come up are available at at lower multiples.

Michael Cherny: Yes, we'd take a take a good look at them.

Michael Cherny: Does that cover it.

Michael Cherny: It does thank you.

Michael Cherny: Alright, Thanks for the question Michael.

Paul Keel: I think that's it for the queue.

Michael Cherny: I think thats it for the queue.

Paul Keel: Maybe I'll just wrap up by thanking everybody for tuning in today and close with just a couple of wrap-up comments. The first would be that Q1 was a solid start for Envista. As we mentioned a couple of times, market conditions were similar to what we saw in the back half of 2024. Our growth and margins were broadly in line with what we expected, and EPS was a bit ahead. Our performance, I would say, was generally broad-based. Most of our businesses and geographies delivered positive growth, and the performance was also broad-based in terms of the work we're doing to deliver those results.

Michael Cherny: Maybe I'll just wrap up by thanking everybody for tuning in today and close with just a couple of rap up comment.

Michael Cherny: First would be the Q1 was a solid start for <unk> as we <unk>.

Michael Cherny: Mentioned, a couple of times market conditions were similar to what we saw in the back half of 2024, our growth in margins were broadly in line with what we expected and EPS was it was a bit ahead.

Michael Cherny: Our performance I would tell you, which was generally broad based most of our businesses and geographies delivered positive growth.

Michael Cherny: And the performance was also broad based in terms of the work we're doing.

Michael Cherny: Two to deliver those resolved.

Paul Keel: So, we saw good continued progress on operations and execution, and we saw good progress on our people and culture priorities.

Michael Cherny: So we saw good continued progress on operations and execution and we saw good progress on our people and culture priorities.

Paul Keel: Naturally, we talked a lot about tariffs on today's call. I think that the takeaway from all that is probably threefold. First, like all global players, we do have exposure. Second, the same global exposure or the same global reach that causes that exposure also gives us the footprint and flexibility to respond to it. And so net-net across 2025, we expect to cover the tariff impacts that we know of today. Finally, I guess it would be appropriate to close by saying that while macro uncertainty is certainly elevated, and the distribution of potential outcomes here has widened, dental has historically been more resilient than the broader economy.

Michael Cherny: Naturally we talked a lot about tariffs on today's call.

Michael Cherny: I think the takeaway from all of that is probably threefold.

Michael Cherny: First like all global players, we do have exposure.

Michael Cherny: Second the same global exposure.

Michael Cherny: Or the same global reach that causes that exposure also gives us the footprint and flexibility to respond to it.

Michael Cherny: And so net net across 2025, we expect to cover the tariff impacts that we know of today.

Michael Cherny: Finally, I guess it would be appropriate to close by saying that while macro uncertainty.

Michael Cherny: Certainly elevated.

Michael Cherny: And the distribution of potential outcomes here has widened our dental has historically been more resilient than the broader economy.

Paul Keel: So for this and the many other reasons that we discussed on today's call, we maintain our 2025 guidance that we issued on the Q4 call.

Michael Cherny: For this and many other reasons that we discussed on today's call. We maintain our 2025 guidance that we issued on the Q4 call.

Paul Keel: And I think that probably covers it for today. I'll thank you all for tuning in and wish everyone a great day and a great week. Thanks. Thank you.

Michael Cherny: And I think that that probably covers it for today. Thank you all for tuning in and wish everyone, a great great day, and a great week. Thanks.

Michael Cherny: Thank you.

Madison: This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.

Michael Cherny: This does conclude today's presentation. Thank you for your participation you may disconnect at any time.

Michael Cherny: Okay.

Michael Cherny: Yes.

Michael Cherny: [music].

Madison: and colourists and artists. Thanks for watching.

Michael Cherny: Oh.

Michael Cherny: Uh-huh.

Michael Cherny: [music].

Michael Cherny: Okay.

Michael Cherny: Yes.