Lilly Quezada

Lilly Quezada asked about the sources of SG&A leverage observed in Q4 2025 and its expected contribution to margin expansion in 2026. She also inquired about the pace of R&D investment relative to revenue growth and sought more color on the anticipated impact (magnitude and net effect on revenues) of the upcoming VBP for orthodontics and the second VBP for implants in China.

Answer

Eric Hammes, Chief Financial Officer, highlighted strong G&A discipline, with G&A down 11% for the full year 2025, contributing to margin improvement. He expects continued margin expansion from growth and productivity in 2026, which will fund R&D investments that are likely to outpace revenue growth, while sales and marketing intensity will be flat to modestly increasing. Paul Keel, President and Chief Executive Officer, explained that ortho VBP 1.0 is expected to mirror implant VBP 1.0 (40-45% price decrease, 100% volume increase, net revenue benefit), with nuances like slower volume expansion for ortho. Implant VBP 2.0 is anticipated to be smaller (10-20% price decrease) and is expected to benefit Envista due to market share dynamics.

Lilly Quezada asked about the sources of SG&A leverage in Q4 and its expected role in margin expansion for 2026, and whether R&D investment would continue to outpace revenue growth in 2026. She also sought more color on the anticipated impact of the ortho and second implant VBPs in China, specifically regarding their characterization as net headwinds or tailwinds to revenue after volume impacts.

Answer

CFO Eric Hammes attributed Q4 margin improvement to volume, price, productivity, Spark profitability, and strong G&A discipline, which offset tariffs and FX. He expects a similar pattern in 2026, with R&D continuing to outpace revenue growth, while sales and marketing intensity remains flat to modestly increasing. CEO Paul Keel characterized the ortho VBP as likely a net benefit to revenues, similar to the first implant VBP (40-45% price decrease offset by 100% volume increase), but with nuances due to the nature of orthodontic treatment. He expects the second implant VBP to be smaller (10-20% price decrease) and to benefit Envista by compressing price differentials, leading to clinicians trading up to premium products.

Lilly Quezada of JPMorgan Chase & Co. asked for rationale behind the updated guidance, which implies a top-line deceleration and flat-to-down EBITDA despite a strong Q2, and questioned the trends in the MIS business.

Answer

CFO Angela Wirick attributed the guidance to a consistent "beat and raise" strategy, where strong performance from new products is expected to offset increased pressure on the hybrid business. President and CEO Michael Carrel added that the strength of the broader portfolio allows the company to set conservative expectations for the MIS franchise while still delivering robust overall growth.