Envista Holdings Corp Q4 FY2025 earnings call

Paul Keel started by discussing the value creation plan with 4 foundational components: purpose, circle values, key priorities, and medium-term financial objectives. In 2025, all businesses posted positive growth, with widespread growth across segments. R&D investment increased in Q4. EBS contributed to operations, with G&A spending reduced by over $35 million. People initiatives included refreshed management, increased employee engagement, and community support. New product launches were strong in all major businesses. Q4 and full-year 2025 financial results showed good revenue, EBITDA, and EPS growth, with free cash flow conversion strong.

Specialty Products & Technologies: Revenue grew nearly 16% year-on-year with core sales up 10.9%. Adjusted operating margin was 16.2%, up 470 basis points. Equipment & Consumables: Core sales in the quarter increased 10.7% versus prior year. Adjusted operating profit margin for the segment was down 510 basis points, driven by continued investment for future growth and prior year FX transaction benefit.

2026 guidance: core sales growth 2% to 4%, adjusted EBITDA growth 7% to 13%, adjusted EPS $1.35 to $1.45, and free cash flow conversion around 100%. Factors include billing day effect (stronger Q1, slower Q4), FX benefit, lap of tariff-related price increases, and uncertainty around China VBP timing.

Macro volatility including tariffs, interest rates, consumer confidence. Uncertainty around China VBP timing and its impact on performance, including potential quarter-to-quarter effects due to complex regulatory landscape.

Q: Congrats on a nice end of the year here. Can you -- maybe let's start at a high level, just talk to us a little bit about guidance. What are the potential upsides here? What are the risks to guidance, especially as we look at the top line and the bottom line, especially in the context of what is some pretty good momentum, I think, even when you back out some of these moving pieces exiting the year?

A: Thanks for the question, Brandon. Why don't I cover the growth part of your question, and then I'll ask Eric to cover the profitability component. Maybe I'll just begin by reframing core guidance for the year, 2% to 4% for 2026. And a reminder that this range is directly in line with the medium-term financial objectives that we communicated last year. And the high end of the 2026 range maps well to the roughly 4% underlying growth that we just delivered. I guess I would also say in terms of context that since we've not observed any material change in the underlying dental market, 2% to 4% feels like a good jumping off point for 2026. Again, noting that we expect relatively faster Q1 and slower Q4 growth due to the billing day effect that we just mentioned. Now having set the frame, let me answer your question, a couple of upsides and then maybe a few risks. I'd say there's 3 upsides worth noting consistent with your question. I guess I'd have to start with our momentum. Not only did we have positive growth across all the businesses, we had accelerating sequential growth across the 4 quarters. So carrying that momentum into '26 is naturally helpful. And related to this, with all of the businesses positive and generally accelerating, there's 2 businesses in particular that we don't typically say a lot about that I think do have upside this year. The first is Diagnostics. The overall diagnostics market, as we mentioned, turned positive in the second half of '25 after 3 years of contraction. We're a large player both in North America and globally. And while it's still far too early to say with confidence that, that market has turned, if indeed it does, that would naturally be upside for us. The second market that we don't say much about is our consumables franchise. It was up high single digits in '25 behind some really good work by the team on fundamental things like price, new product introductions, DSO penetration, et cetera. We have been intentionally investing more in our consumables business of late, which could yield some upside. Let's see maybe the third upside I'd mention, Brandon, would be price. As we said in our prepared remarks, our guidance assumes that we return to more normal pricing levels, call it, 1 point or so per annum once we lap the tariff-related increases that we took mid last year. There's just too many moving pieces to put it in our guidance, but it's not hard to envision scenarios where inflation, both general to the economy and specific to dental, continue at elevated levels here in '26. We've been working hard at improving our price execution. And so if inflation stays at higher levels, I think we'd be positioned to take advantage of that. Now giving you a balanced response on the growth side before I turn it over to Eric for profitability. I think 2 risks warrant mention. The first, of course, you'd have to start with macro volatility. No one gives a confidence interval along with their guidance. But if we did, you'd have to expect that it'd be unusually wide for this year for the reasons we all know well. Factors like tariffs and interest rates, consumer confidence, et cetera, all impact dental demand. And as we saw pretty clearly in '25, there's a real possibility of some or all of those recurring here in '26, which brings me on to a second risk worth noting, that being China. China now represents about 7% of our total sales. While VBP and ortho and implants are very likely in 2026, the specific timing is difficult to forecast. There's been a number of delays. Based on prior experience, we feel like we generally have our arms around the impact of VBP across a 12- or 18-month horizon, but the specific quarter-by-quarter effects can vary quite a bit depending upon government timing. So in sum, 2% to 4% for the year. I would say -- I would shade the upsides a little bit above the risks, but there's plenty out in the world right now to keep us cautious. Eric, do you want to say same on the EBITDA side?

Q: In the fourth quarter, implants were up mid-single digit in both premium and value. Do you think -- how do you think that was compared to the market? And just kind to get a sense of how much you think your new products actually contributed to your growth, meaning was it Envista's new products? Was it the market? Was it your positioning already, you're capturing more share? I'm just trying to get a sense because we have new products again coming next year, and I'm trying to also gauge how much of your top line growth might be coming -- or you think might be coming from your new product launches?

A: Yes. Thanks for the question, Kevin. We think that global implant market is growing mid-single digits, call it 5%. We were a little bit north of that in Q4, which was good for us. That's the first quarter since I've been here where I think we did outgrow the market in implants in total. So that's also now 5 straight quarters for premium growth and generally accelerating quarter sequentially. So building good momentum in implants. Maybe 2 parts of your question you asked, what do I think is going on with the -- what do we think is going on with the market and then how do new products play into that. The market, I would say we don't yet see any credible evidence that the market has changed. We'll learn more in the coming weeks as our peers report, but we don't think market acceleration was a driver of our acceleration. We think a couple of things played into our advantage. The first is, again, we made a significant investment in this business in 2024. Put $25 million in to the commercial front end to customer training and then into new products. Now a year or so past that investment, we certainly see a return on the commercial front end of that and on the customer training. I made some mention of that in my prepared remarks. I don't think we yet see the new product impact of that. We have a number of products we've now advanced through our pipeline that will launch in 2026, and we'll tell you guys more about those as they come to market. But I don't think that new product piece was in the 2025 result. The other piece I would point to, consistent with the broader Envista is that we did take price in 2025 and the tariff environment aided that. So I think we were advantaged in 2025 by a little bit of extra tariff price.