Envista (NVST) 2026年第三季度业绩电话会：上调每股收益指引

Envista Holdings Corporation（纽交所代码：NVST）公布了均衡的2026年第三季度业绩，营收保持增长，盈利能力增强，且持续创造现金流。管理层上调并收窄了全财年盈利预期，同时指出中国集中带量采购（VBP）是2027年利润率面临的主要阻力。

核心要点

• 第三季度销售额达6.91亿美元，同比增加2100万美元。核心销售额增长2.7%，总营收增长3.2%。
• 调整后EBITDA增长9%至约1.06亿美元。调整后EBITDA利润率提升80个基点至15.3%。
• 得益于营业利润增长和有效税率降低，调整后每股收益增长25%至0.40美元。
• Envista将2026年全财年调整后每股收益指引从1.50-1.55美元上调至1.54-1.58美元，目前预计调整后EBITDA增速为12.5%-14%。
• 由于正畸分销商在集采落地前削减库存，中国区销售额出现低双位数降幅。第三季度营收受到的净阻力约为700万美元。
• 自由现金流为6300万美元，相当于调整后净利润的97%。净负债对调整后EBITDA的比率约为0.6倍。

关键财务数据

产品价格因素对营收增长和调整后EBITDA的贡献均约为1200万美元。净生产率提升为EBITDA贡献了约200万美元，剔除产品结构影响后的销量贡献了100万美元。此外，Envista在产品研发和商业化能力上的投入同比增加了600万美元。

由于一家国际法律实体解散，该公司在其通用会计准则（GAAP）业绩中确认了一笔大额非现金外汇收益。该收益已从调整后净利润和调整后每股收益中剔除。

业务与经营业绩

专业产品与技术

该部门营收为4.44亿美元，增长近3%，核心增幅为2%。调整后营业利润为6700万美元，利润率为15%，上年同期为15.5%。

管理层表示，Spark隐形矫治器销售额实现高个位数增长，且市场份额持续扩大。托槽和弓丝销售额出现高个位数下滑，主要因应对中国带量采购进行的准备工作所致。种植体销售额录得中个位数增长，各区域均实现增长，并得益于新产品、再生生物材料以及收购Versah带来的贡献。

管理层表示，Spark已于1月在日本上市，并预计该国隐形矫治器市场规模约为2亿美元。

设备与耗材

设备与耗材业务实现核心增长超过4%。其中耗材实现低个位数增长，影像诊断业务实现中个位数增长。

影像诊断业务的增长涵盖硬件、软件和服务。管理层将市场份额的提升归功于Envista庞大的装机量、近期更新的CBCT（锥形束CT）、口内扫描和手持2D平台，以及其软硬件与服务一体化的解决方案。

在销量、定价和运营效率的支撑下，该部门调整后营业利润增长超过15%。管理层表示，本季度的利润率表现强劲，但与对该业务的多个季度整体预期基本一致。

各地区表现趋势

除中国以外的发展中市场录得高个位数增长，欧洲实现中个位数增长，北美实现低个位数增长。管理层指出美国牙科市场较为疲软，原因是宏观经济不确定性持续对患者和医生的信心造成拖累。

中国区销售额出现低双位数降幅。Envista此前曾预计正畸渠道去库存影响约为1000万美元，部分被种植体业务增长所抵消，最终造成的净营收阻力约为700万美元。

创新与资本配置

第三季度推出的新产品包括NOMAD Pro 3手持式X射线系统、Ultra HDL棱镜放大镜以及AI辅助的DTX Studio牙髓模块。

Envista回购了约40万股股票，耗资约1000万美元，交易均于本季度内完成。管理层重申，内生性投资是其首要的资本配置重点，其次是并购。股东回报预计约占年度自由现金流的三分之一，不过并购时机可能会对资金部署产生影响。

管理层业绩指引

Envista上调并收窄了2026年全财年业绩预期：

按中值计算，该指引意味着第四季度核心销售额增长略有转负。管理层将此主要归因于销售天数较上年同期减少四天。若剔除该日历因素影响，第四季度隐含的核心增长率将与全财年指引区间一致。

对于第四季度，管理层预计汇率因素将使报告营收增速降低约1个百分点，而并购预计将贡献约0.5个百分点。全财年调整后税率预计约为25.5%。

管理层预计中国带量采购将于2027年上半年开始落地实施，并预计第四季度不会受到集采相关的重大影响。据其测算，带量采购可能会使中国市场的正畸价格下降约50%，种植体价格下降10%-15%。

尽管面临这一压力，管理层仍预计Envista的综合毛利率和调整后EBITDA利润率将在2027年继续提升，因为中国以外地区的生产率和业务改善将足以抵消集采的影响。这仅代表管理层的评论，并非正式的2027财年业绩指引。

风险与关注重点

• 中国集中带量采购（VBP）：具体时间仍具不确定性，且实施进程可能超出当前预期。即使销量和市场份额有所提升，价格下降预计仍将对中国区利润率水平造成压力。
• 美国牙科市场疲软：管理层表示，宏观经济不确定性继续对患者和医生的信心造成拖累。
• 自费可选医疗品类：正畸和种植体业务增速仍低于其历史较高水平，而预防、影像诊断和修复等有保险覆盖的品类表现则更具韧性。
• 产品定价回归常态：在经历了关税和通胀驱动的高幅提价之后，管理层预计牙科制造商的提价幅度将放缓，逐步回归约1%-1.5%的历史区间。
• 汇率与日历效应：美元走强以及销售天数减少四天预计将对第四季度报告的增长构成压力。

分析师问答亮点

管理层指出，产品商业化和更广泛的营业成本生产率提升是2027年的重中之重。涵盖种植体、影像诊断、正畸和耗材的新产品目前仍未达到其预估的长期潜力，因此销售执行、监管审批、客户服务和生产规模将成为关键的增长驱动力。

在中国市场方面，管理层对第三季度的渠道去库存与未来的集采降价效应进行了区分。第三季度的不利影响主要反映了分销商在新价格落地前削减库存；而预计2027年的影响则将来自更低的中标价格。管理层认为，带量采购有望通过以量换价和提升市场份额来支撑营收增长，但预计中国区的利润率将有所下降。

Envista还预计中国以外地区的定价将逐步回归牙科行业1%-1.5%的历史区间。管理层表示，中国集采单年度的价格降幅可能会在合并报表层面基本抵消这部分提价贡献。

关于2027年的利润率，管理层表示公司的中期框架依然适用。工厂生产率的持续提升、采购成本节约、严格的定价纪律以及管理费用（G&A）效率的改善，预计将在全公司层面抵消中国集采带来的压力。

财报电话会议完整实录

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完整财报电话会议逐字稿

管理层陈述

Operator

Hello. My name is Angeline, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's Third Quarter 2026 Earnings Results Conference Call. [Operator Instructions] 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.

Jim Gustafson

Good afternoon. Thank you for joining Envista's Third Quarter 2026 Earnings Call. We appreciate your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer; and Eric Hammes, our Chief Financial Officer.

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 available in the Investors section of our website, www.envistaco.com. The audio portion of this call will be archived in the Investors section of our website later today under the heading Events and Presentations.

During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our results. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the third quarter of 2026, and references to period-to-period increases and decreases in financial metrics are year-over-year. During the call, we may describe certain products and solutions that have applications submitted and pending certain regulatory approvals or are available only in certain markets.

We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events and developments that we believe or anticipate 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. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

With that, I'll turn the call over to Paul.

Paul Keel

Thanks, Jim, and hello to everyone joining us today. I'll start with an overview of the quarter, including strategic and operational progress made in support of our longer-term value creation plan. Eric will then take us through the numbers in more detail. I will wrap things up with a few closing thoughts before we take your questions.

As shown on Slide 4, we delivered core sales growth of 2.7% in Q3 with adjusted EBITDA growth of 9% and adjusted EPS growth of 25%. On a global scale, we did not observe any material shifts in the dental market in Q3 relative to the first half of the year. From a sector perspective, insurance-covered categories like prevention, diagnostics and restoration displayed their characteristic resilience, while more elective categories like ortho and implants continued to run below their higher historical trends.

From a geographic perspective, developing markets, excluding China, continued to grow most quickly followed by Europe. As indicated in the latest ADA survey, on a relative basis, the U.S. market remains soft as macro uncertainty is impacting both patient and clinician confidence. China was also slow in Q3 as it is now in the middle of 2 dental VBP processes, of which I'll say more shortly. Specific to our business, we continue to generate growth across the portfolio with both reporting segments in all major geographies aside from China once again in positive territory.

As has been the case now for the past several quarters, we converted good top line performance into even stronger earnings growth. Behind continued factory and G&A productivity, gross and EBITDA margins grew 20 and 80 basis points, respectively. EPS grew 25% in Q3 and is up more than 40% year-to-date. Free cash flow conversion remained strong in the quarter, supporting continued share repurchases. Net debt to adjusted EBITDA now stands at 0.6x.

Based on our strong momentum and year-to-date performance, we are once again raising our full year profit and EPS guidance. Our updated 2026 expectations call for core growth of 3.75% to 4.25%, adjusted EBITDA growth of 12.5% to 14% and adjusted EPS of $1.54 to $1.58, up more than 10% at the midpoint from our initial 2026 guide. Eric will say a bit more about the assumptions underlying our revised guidance in his section.

Let's now turn to the progress we're making in support of our priorities of growth, operations and people. Starting with growth, Spark was up high single. Diagnostics and implants were both up mid-single digits and consumables grew low single digits against a high 2025 comp and following a strong H1.

Geographically, developing markets ex China were up high single digits. Europe grew in the mid-single digits and consistent with my earlier comments, North America was up low single digits. Coming back to China, as expected, our business contracted at a low double-digit rate in Q3, principally driven by preparations for VBP, which is now underway. We expected a roughly $10 million impact from VBP in Q3, and that is about how things played out. The latest government communications point to mid-December timing for results to be announced. Although as we know, due to the complexity of these processes, VBP time lines often run long. We expect VBP implementation most likely to commence in the first half of 2027.

Turning now to operations. We continue to make progress on multiple fronts, underpinned by our Envista Business System. Our price, procurement and factory productivity efforts once again offset inflationary pressures and helped to deliver gross and EBITDA margin expansion that I noted earlier.

And we continue to make good progress on the tax front as well, with our effective tax rate down in the quarter almost 6 points versus Q3 of 2025. With respect to people, progress also remains strong. Last quarter, we opened a new European design center for Spark in Madrid, complementing facilities already operating in North America and Asia. We conducted more than 40 Kaizen events in Q3, including a CEO Kaizen that I was honored to host, covering a half dozen projects across 3 continents.

We also published our 2025 sustainability report, detailing the work we're doing to expand access to dental care, reduce environmental impact and further increase investment in our colleagues and communities. Specific highlights include a 17% year-over-year reduction in lost time injuries, a 19% reduction in water consumption and a 40% reduction in waste generation. The report also outlines the important work we're doing through the Envista Smile Project, serving close to 20,000 patients last year alone. We further built on this momentum in Q3 of this year, delivering care across multiple U.S. locations as well as internationally in Ghana, Mexico, Honduras and Costa Rica.

As we covered in some detail at our Capital Markets event in September, innovation is foundational to Envista's long-term growth strategy. We launched a number of new products across the first half of this year, and the momentum continued in Q3 with several additional high-impact introductions. Slide 6 highlights just 3 of these.

On the far left, NOMAD Pro 3 is the next generation of our handheld X-ray system that created the category, bringing high-quality imaging directly to the chairside. Pro 3 delivers improved image quality with optimized exposure presets designed to support faster, more consistent workflows. As safety is fundamental in imaging, Nomad Pro 3 is engineered with multiple layers of protection and delivers 10x less rear-directed radiation than the leading competitor.

In the middle of the page is our new Ultra HDL prismatic loupe, the latest innovation from Orascoptic. Prismatic loupes are used by clinicians for more specialized procedures to achieve superior image clarity at higher magnification. And the new Ultra HDL platform delivers this performance with a significantly lighter design, resulting in better ergonomics and greater comfort.

Finally, the frame on the right provides an overview of our new Endo Module for DTX Studio. This module uses AI-assisted canal segmentation to identify and characterize precise tooth anatomy. Resulting insights help customers with clinical decision-making, treatment planning and patient communications. Root canal treatment is amongst the most common of endodontic procedures with over 15 million performed last year in the U.S. alone. While general AI diagnostics are increasingly common in competitive systems, the depth and specificity of our latest Endo Module is unique and compelling. Early feedback from clinicians has been encouraging.

Consistent with innovation's central role in our growth agenda, we have meaningfully increased new product investment each of the last 2 years. The returns from these investments in terms of growth, brand and share gains are becoming increasingly clear. Our new product pipeline has never been richer, and we'll continue to share our progress as programs develop.

Having now provided an overview of the quarter, I'll turn the call over to Eric to walk us through the numbers.

Eric Hammes

Thanks, Paul. Third quarter sales were $691 million, up $21 million from the prior year. Core sales grew 2.7%. Total growth was 3.2% with neutral FX and a slight tailwind from acquisitions. As Paul noted, growth was well balanced across the portfolio by business, by geography and between volume and price.

Developed markets grew mid-single digits, while emerging markets grew low single digits all in or high single digits, excluding China. China declined double digits, driven by the orthodontics channel reducing inventories in preparation for VBP. Adjusted gross margin expanded, reaching 56.3% in Q3, a 20 basis point increase over last year that was driven primarily by price and factory productivity. Adjusted EBITDA increased 9% to approximately $106 million with a margin of 15.3%, up 80 basis points. Volume, price and productivity each contributed to our profit growth and margin expansion, more than offsetting the headwinds from China as well as our continued investment for growth.

Adjusted EPS was $0.40, up 25% from Q3 of last year, driven by both improved operating profitability and a lower tax rate. You may have noticed that the GAAP financials in our earnings release reflect the realization of a large foreign currency gain in net income and EPS. This gain is a result of an international legal entity dissolution, which relates to the significant intercompany loan resolution announced in Q3 of last year. Overall, this change aligns with our strategy of simplifying our legal entity structures. Important to note, the GAAP gain was a noncash event and is not reflected in our adjusted net income or adjusted EPS. Free cash flow was $63 million, representing 97% conversion of adjusted net income.

Now let's turn to our bridges, starting with growth. Core sales grew 2.7% in the quarter and total revenues grew by more than 3%. Volume was the largest single contributor to growth, adding approximately $13 million before the separately shown impact of decreasing China sales. Price was positive again in Q3, delivering $12 million of sales increase year-over-year. Acquisitions contributed approximately $3 million over the prior year. The integration of our Versah acquisition continues to go well with growth and profitability both ahead of plan. FX was neutral to revenue in the third quarter.

Finally, China was a revenue headwind of approximately $7 million as implant sales growth in the quarter was more than offset by brackets and wires destocking in preparation for VBP, consistent with the expectations that we communicated back in September.

Slide 9 shows the drivers of approximately $9 million increase in adjusted EBITDA. Price contributed approximately $12 million. Net productivity added approximately $2 million, while volume net of mix added $1 million. Note, the volume impact year-over-year includes the positive impact from strong growth in developed markets and the majority of emerging markets, offsetting the headwinds in China.

As with revenue, FX was roughly neutral to EBITDA in the quarter. We continue to invest in new product and commercial capabilities to support future growth, a year-over-year incremental outlay of approximately $6 million in Q3. Overall, our adjusted EBITDA margin was 15.3% in the quarter, an improvement of 80 basis points over last year, reflecting solid price growth and productivity while investing in the business.

Turning to segment performance. In the third quarter, Specialty Products & Technologies revenue was $444 million, up nearly 3% year-on-year with core growth of 2%. In orthodontics, Spark sales again grew high single digits. Conversely, brackets and wires were down high single digits, principally due to VBP preparations in China. Implants grew mid-single digits with growth across all geographies and positive growth trends from new product introductions, regenerative biomaterials and the Versah acquisition.

Adjusted operating profit was $67 million, a margin of 15% compared to 15.5% a year ago. Contributions from price, volume and Spark factory productivity were offset by growth investments globally and VBP preparations in China.

Moving to Equipment & Consumables third quarter performance. We delivered over 4% core growth with consumables growing low single digits and diagnostics up mid-single digits. Diagnostics growth was solid across geographies and the portfolio with growth in hardware, software and services. We once again gained share in the diagnostics category as our integrated offering supports both quality of care and practice productivity for clinicians. Adjusted operating profit in this reporting segment increased more than 15% over the prior year, supported by volume, price and operating efficiency.

Now I'll turn to cash flow and our balance sheet. Q3 free cash flow was $63 million, including roughly $16 million in tariff refunds offset by $14 million of net CapEx. We have now received refunds for essentially all IEEPA tariffs paid in 2025. And as a reminder, we do not include these amounts in our adjusted P&L results.

We repurchased around 400,000 shares of stock in the quarter, returning roughly $10 million of cash to shareholders. Our balance sheet remains strong with net debt to EBITDA of approximately 0.6x, providing both stability and capital deployment flexibility.

As Paul mentioned, we are raising and narrowing our full year guidance. We now expect core sales growth of 3.75% to 4.25% compared with our prior range of 3.5% to 4.5%. We expect adjusted EBITDA growth of 12.5% to 14%, moving to the upper half of the range we provided last quarter. Our updated adjusted EPS range is $1.54 to $1.58 compared with our prior range of $1.50 to $1.55. And we continue to expect free cash flow conversion of approximately 100% for the full year.

A few thoughts underpinning this revised guide. At the midpoint, our guidance implies slightly negative core sales growth in the fourth quarter. As we outlined at the start of the year, Q1 had 4 more selling days than in the prior year period, while the fourth quarter will have 4 fewer. Excluding this impact, implied fourth quarter core growth would be consistent with our full year range.

As we now anticipate VBP implementation in the first half of 2027, we expect no significant VBP-related impact in the fourth quarter. With the recent strengthening of the U.S. dollar, we expect foreign exchange to reduce reported fourth quarter revenue growth by approximately 1 percentage point. Acquisitions should contribute approximately 0.5 percentage point, about the same as Q3. And we expect our full year tax rate of around 25.5% of adjusted pretax income, consistent with Q3 and the year-to-date average.

Summarizing our Q3 financials, we once again delivered good all-around performance. With that, I'll turn the call back over to Paul.

Paul Keel

Thanks, Eric. A few closing thoughts before we open it up for your questions. Market conditions in Q3 were largely unchanged from H1. Macro uncertainty remains high, and we expect this to continue in Q4. As was the case in Q1 and Q2, we delivered solid top line performance this quarter with even stronger EBITDA and EPS growth. We expanded gross and operating margins while continuing to invest in future growth. And behind good momentum and year-to-date performance, we are again raising our full year 2026 earnings guidance. Our plan is working, grow our impact with customers, continually improve operations and actively support our people who make all this progress possible.

That completes our prepared remarks for today. We'll now open it up for your questions.

Operator

[Operator Instructions] The first question comes from Brandon Vazquez with William Blair.

分析师问答

Brandon Vazquez

I wanted to start a little high level. I appreciate you guys aren't giving '27 guide at this point. So maybe we won't get too many specifics. But can you at least talk a little bit about puts and takes and going into 2027 and what kind of opportunities you have here to kind of keep the momentum you've been building over the past couple of years?

Paul Keel

Sure. Thanks for kicking us off. Let's see, maybe to start at the highest level, our value creation plan is working pretty well. So as they say, we'll keep working the plan. Maybe just to recap progress since we first introduced the plan about 2 years ago, year-to-date 2026 core growth is up over 6 points from where we were the same period in '24 and year-to-date EBITDA dollars have grown over 50%. Now to be fair, 2024 was a fairly modest starting point, but nonetheless, our progress has been steady. Momentum is good and Q3 provided further evidence that our plan is working.

With that as a backdrop, I'd point to a couple of things we need to accomplish in '27 to keep the momentum going. Let's see, first, on the growth front, in addition to maintaining our improved new product development cadence, we also need to deliver on the commercialization side of the equation. As we covered during the Capital Markets event back in September, we've launched a good number of new products over the past couple of years.

For example, in implants, we launched S series, EmPro and SmileGrid. In diagnostics, we have all new platforms for CBCT, IOS and 2D handheld plus a number of new AI software offerings. In ortho, there's a half dozen or so additions to Spark plus a novel new adhesive platform. And in consumables, we've launched new solutions in resto, endo, lights and loupes. So that's a lot of new product introductions.

And while we're encouraged by early market uptake, to be honest, most of these programs are still well below their full long-term potential. So in 2027, in order to scale these platforms, we really need to commercialize well, and that's a team sport. Sales, marketing, regulatory, customer service, manufacturing, everyone plays a role here.

In terms of operations, I think I'd give our teams high marks on driving G&A productivity. As you know, that's down as a percent of sales almost 3 points in 2 years. So that's helped us deliver predictable earnings growth, but it's also helped fund the double-digit increases in R&D and sales and marketing that we've talked about, which in turn, of course, is key to growth acceleration.

But as important as G&A productivity is COGS productivity. And we allowed our gross margins to compress about 3 points from 2022 to 2024. We were able to stem that decline last year. And then as we talked about in our prepared remarks, we've now posted 3 consecutive quarters of gross margin expansion. So we've been able to do this in parts of our portfolio, Spark, for instance, being a particularly good example. And in 2027, we have to do it more broadly across our portfolio.

We have good enterprise-wide efforts underway in price, in procurement and in factory productivity. So I'd say we have good line of sight to further progress in 2027. But of course, we got to make it happen.

And then finally, with respect to people, this is another area of strong focus for us. Many of our peer dental participants are now in the early innings of leadership transitions. We went through ours a few years back, and the stability that we now have is really helpful in terms of speed, in terms of execution, engagement, et cetera.

So maybe to illustrate the point, our employee scores have increased for 3 consecutive years. We put in place a number of new talent development programs to deepen our bench. And we have further stepped up investment in our communities through the Envista Smile project. In short, I guess, we have a lot of work to do in 2027.

To be clear, we're mindful of the headwinds that we all face, macro volatility, the relative U.S. dental market softness, inflationary pressures, et cetera. And we'll cover the details of our 2027 outlook on the Q4 call. But momentum is pretty good for us, and the fundamentals are generally moving in the right direction. So thanks again for the question.

Operator

The next question comes from Vik Chopra with BMO Capital Markets.

Vikramjeet Chopra

Congrats on a nice quarter and all the progress you made here. Paul, with -- or I'm not sure who this question is for. But with net leverage at 0.6x EBITDA, just help us understand how you prioritize additional repurchases, both on M&A, debt reduction and internal investments. And I'm just curious why repurchasing stock is currently more attractive at these levels.

Eric Hammes

Yes. Thanks for the question, Vik. So listen, first off, I would say we're tracking with the spirit of your question. I mean, as you know, we've been working the last few years very much internally, getting our growth consistently in a positive direction. I think we've shown many, many quarters and a few years of that, getting our profitability up, generating cash flow. So admittedly, our focus while having capital allocation priorities has been building the fundamentals of the business to be able to then support an advancement, if you will, of those allocation priorities.

As a reminder, we've been pretty consistent. The 3 priorities we have are investing organically in the business. That clearly won't consume all of our capital. And you've seen, I think, a proof point and a track record of that as we've doubled or put, let's say, double-digit increases in our R&D year-over-year the last few years and then continue to invest in commercial.

M&A is our second priority. We've been rebuilding the pipeline there, 3 good acquisitions but bolt-on acquisitions, primarily in the implant space the last year, all of those performing well. And as we build that capability, right, as we understand better the market, where we want to acquire, how to integrate well and how to make sure that we're sharp in where we look to acquire, portfolio complements and geographic expansion has been the 2 places we've talked about. We'll continue to roll out more there. But we will be careful with how far, how fast we go.

I think we've prudently added a return of capital or return of shareholder to our capital allocation playbook. We want, of course, to be able to return cash to shareholders. We have a strong balance sheet. But we've told, I think, the Street and yourselves that we'll probably do that at a rate of around 1/3 of our annual free cash flow. And I think that suggests as well that our capital allocation priorities will lean towards organic and M&A.

And the M&A side of the house, as you all know, takes time, right? So maybe there's a slightly larger acquisition we can do. We've talked about the Challenger implant space. We'll continue to be active in good geographic expansion opportunities, but that will come over a period of time as we lean into buying back our shares, but we do that at a pace and a rate that keeps us still, I think, consistent with our organic and M&A priorities for capital allocation.

Vikramjeet Chopra

Can I ask one more then? I'm going to ask one more if you don't mind. So you said that price contributed about $12 million in Q3. I'm just curious how sustainable that pricing contribution is heading into 2027. And then what happens to margins if pricing moderates?

Paul Keel

So I mean, many of us on the leadership team have been in dental for a long time. And prior to COVID, kind of the stable algorithm was that dental pricing would run 100 to 150 basis points. For people newer to the category, that was disrupted in COVID, disrupted in a lot of different categories. And it wasn't really until mid-2024 that at Envista, we again started to focus on price.

And we've built all kind of the basic fundamentals of how you have a good price strategy and execution in the company. We configured our ERPs to capture it. We put price on all the P&Ls. We put it in everyone's objectives, et cetera. And then that price activity accelerated in 2025 as tariff activity picked up.

Across 2025, pretty much every dental participant raised price, starting with the providers. And so the stable sort of model is that the manufacturers raised price at maybe half the rate of what procedure prices go up. And procedure prices in turn are informed by reimbursement increases.

But writ large, think of that as about 3% year-on-year. So a stable dental market, insurers are reimbursing at about a 3% rate -- increased rate. Procedure prices are going up by about 3 points and manufacturers are raising by about 1 point to 1.5 points. Of course, you saw much bigger numbers than that, Vik, over the last year or 1.5 years, first because of tariffs then, because of inflation. But I think the market will settle back into that 1 to 1.5 points.

Specific to us, take out China, and you should expect about the same thing, but China represents 7%, 8% of our sales. Half of that is in ortho, and we think ortho VBP is going to cut price by about 50%. So if you run the algebra on that, we'll have a 1-year price offset in China that will be basically equal to the 1 point, 1.5 points increase everywhere else. Let me pause there and see if that gets at your question.

Operator

The next question comes from Jeff Johnson with Baird.

Jeffrey Johnson

Paul, maybe I'll just follow up on that last question, and then I have one other follow-up as well. But you just talked about China, 7%, 8% of your revenue; price cut maybe 40%, 50% in ortho, so offsets kind of other pricing actions next year. Is that price headwind from China VBP not being realized in the $7 million figure you recognized here in 3Q? Was that just an inventory drawdown and we expect a price then headwind from China VBP next year? Just help level set us on exactly where the pricing dynamics and/or just overall China VBP headwinds come in and go out of the model maybe over the next 4 quarters or so?

Paul Keel

Yes. It's a good question, Jeff. They are related but distinct effects. So what happened in Q3 is the government formally started the 2 VBP processes. It begins with the government asking the manufacturers to submit what portfolios they want to participate in VBP.

The second step is then they ask the public hospitals and participating private clinics to submit their historic usage and their future demand forecast. That's where we're currently sitting in the process. But when you kick it off, it formally begins the destocking of the channel. Neither manufacturers nor distributors want to have excess inventory in the channel because it all gets revalued once that new price comes out, in this case, 50% less. And then there's a negotiation between supplier and distributor who pays for that revaluation. That is the $7 million net that we talked about in Q3. We expected it to be a $10 million reduction in channel inventory in Q3 specific to ortho. We had a little bit of growth on our implant side and the net was $7 million.

The second effect here is going to happen once the third step in the VBP process happens. That's when the government invites the manufacturers to formally bid and they announce the winners at that new price. We think, again, that's going to be 50% lower for ortho, 10% to 15% lower for implants, and that will be the price impact next year that I referenced in the prior question.

Jeffrey Johnson

Do you still expect in implants that 10% to 15% price down to be made up by incremental share? And then in ortho, probably can't make up 50 points of share. And I know in past conversations, maybe not expecting end markets to accelerate dramatically if patient pricing doesn't change. So just how do we think about that 50% price down in ortho and the 10% to 15% in implants? What's your latest thinking? I know we've talked about this 8 million times, but what's your latest thinking on how that flows through to overall China revenue, for example, in 2027? At one point, I think you had talked about China being up in 2027 year-over-year. It sounds like now maybe China down year-over-year in '27, at least in the early phases. So just help us with the updated comments there.

Paul Keel

Yes. I mean, Jeff, you'll know this, but maybe in the interest of completeness, the health care reform that the Chinese government executes basically has 3 upsides for participating manufacturers in exchange for the reduction in price. In some cases, some VBPs, they lower the total procedure price. That's what happened in VBP 1, which leads to a big increase in patient demand. In the case of the first implants VBP, it essentially doubled patient demand. And so the suppliers who prevailed in the process got twice as much volume. That's the first upside.

The second upside is that the government reduces the number of suppliers who are allowed to sell to the public hospitals. And that the excluded share from those who don't prevail is redistributed across the winners. So you get extra volume from that.

And then the third, in this particular case, the government isn't reducing the procedure price, but they are breaking the materials cost and the procedure cost out on the patient invoice. So they will reduce the material cost and the patient will see that, which will lead to a reduction in total cost, but it won't be as significant as VBP 1 where the procedure cost was also cut in half.

So that's kind of the bargain for those who want to participate in VBP. Typically, a high share player comes out with more share at the end. And then the net of those 3 effects that I just described indicates what the volume change to the winning bidders are.

Jeffrey Johnson

Any response on just China being neutral next year, good guy, bad guy to growth overall?

Paul Keel

We think our ortho business will grow. This is the first VBP. We think we will benefit from that. We think we're going to grow on the implant side as well. So net-net, in terms of growth, we think of VBP as a good guy. In terms of margin, we think of it as a bad guy.

Operator

The next question comes from Elizabeth Anderson with Evercore.

Unknown Analyst

Paul and Eric, this is [ Oli ] on for Elizabeth. Looking back at pricing again, I'm curious on if customers are understanding of the impact of the inflationary environment. And are you seeing a greater degree of product switching as a result?

Paul Keel

I guess I'd say 2 things. So yes, customers are very aware of what's happening in the different pricing environment. They're very aware of changes in insurer reimbursement to them. They're very aware of the procedure price changes that they initiate. And depending upon the category, they're more attuned to price increases by suppliers.

In most procedures, the material cost is a small percentage. In some, it is a negligible percentage. So if you have a category that is in a covered procedure where materials costs are a very small percentage of the total procedure costs, think a basic restoration, getting a cavity filled, that would be a relatively price inelastic category. The procedure is reimbursed. The doctor has an increase in reimbursement, and the materials are a tiny fraction of the cost.

The other end of the spectrum would be an uncovered procedure where the material costs are not insignificant, say, you're doing a full arch restoration 4 to 6 implants across an entire prosthetic and the procedure is probably not -- likely not reimbursed in full. In that case, price sensitivity would be greater to a doctor.

The net of all that is in most of '25 and heretofore, for the first 3 quarters of '26, inflation, dental inflation has been running above its historic trend, consistent with Vik's earlier question. We think that's going to moderate to more kind of traditional levels here rolling into '27 and beyond.

Operator

The next question comes from Jon Block with Stifel.

Jonathan Block

Maybe 2 for me and I'll break them apart. Just first, Paul, Spark, high single-digit growth now for a handful of quarters once we ex out the deferred, so solid, taking share, going north of market. But can you remind us of where the Japan opportunity sits, the timing? And how do we think about that? Like is that something that can take that division and reaccelerate it back to low double digits? Or is that something that maybe allows you to sustain that high single-digit growth once you open up that incremental opportunity? And then I'll ask a follow-up.

Paul Keel

Yes. Spark, you're correct, consistent high single-digit grower. We think the category for clear aligners is probably more like mid-single-digit growth. So yes, we continue to capture share there.

Specific to Spark, it is a big clear aligner market. I wouldn't know exactly where it would stack up in terms of specific country market size for clear aligners but certainly top 10, probably top 5. Our rough number is it's probably a $200 million clear aligner market. So we started with 0 share, launched in January. It's growing very, very quickly. And we expect to compete for as much of that $200 million as we can get.

Jonathan Block

Okay. Fair enough. And then you might have answered my second question earlier, but I'll sort of ask it anyway. So I was going to ask for 2027 moving parts, there's been a lot of talk on the revenue impact from VBP. But I was going to ask what about on the margin side of things? Do we have to be aware of any headwinds there as a function of VBP? Or do you think margin expansion can continue?

And maybe I'll ask a question and then almost answer my own one based on your earlier color. Is the thought that VBP '27 is a tailwind relative to where it was in '26 on the top line, but it's a headwind in '27 relative to '26 on margins. Is that sort of what shook out earlier? And just asking for clarity there.

Paul Keel

Yes. Let me do my best and then maybe I'll bail and have Eric give you the details. But you're asking about the margin impact in 2027 from VBP. First, just to kind of set the frame, again, China, think of it as 7% of sales, of which 40% of that is ortho. So 3% of sales is impacted by VBP. We think the price is going to drop 50% on that 3% of sales, and all of that will come out of gross margin.

So yes, it is a headwind clearly for ortho in China. It's a headwind for margins in China, and it's a small headwind for total Envista. Offsetting that, we expect to continue getting margin expansion outside of China. And so I would expect our total margin expansion to more than offset the impact of ortho VBP in China.

Said another way, you should expect continued gross and EBITDA margin expansion from total Envista in 2027. And I'm just looking at Eric to see if that's close enough.

Eric Hammes

Yes, Jon, I think Paul got it right. So maybe one just piece of data. We've talked about this before on prior calls and conferences, recognizing that all VBPs are not exactly the same. But our implant 1.0 experience, if you will, was a version of what Paul just described.

So we got price down through the VBP. We were able to get volume and share capture. That maintained the operating profit levels of our implants business in China at roughly the same dollars with a margin rate degradation within there. Okay? We expect something not dissimilar for the basket of ortho and implants in 2027.

And I would even point to just an example of what Paul just described playing out. So in third quarter, we had good margin expansion on relatively good growth while absorbing another version of what we're just talking about here. So we did have profits in China reduced as a result of the slower growth. That put a little bit of pressure on our margin rate. But we've had programs, right, whether it's other core growth categories, factory productivity, G&A, procurement, the things that we talked about externally that are helping us to get profit growth across Envista and a bit of margin rate expansion.

So I think our experience in China leads us to believe the confidence level to do that is high. We'll get some growth. We'll maintain profits roughly neutral, and we'll probably see a rate reduction in China alone from that.

Operator

The next question comes from Lily Lozada with JPMorgan.

Lilia-Celine Lozada

Not to beat a dead horse but another clarifying on VBP. With the headwind in the third quarter, I think the guide now implies a step-up in growth ex selling days in the fourth quarter on organic basis. And I know a lot of that rests on some of those VBP revenues starting to come back. So can you just speak to your visibility and confidence in those revenues coming back in the fourth quarter? I think the prior commentary was some in fourth quarter, some in early 2027. So what's the latest there? And is all of that step-up in growth explained by VBP? Or is there anything else to keep in mind as we think about organic growth in the fourth quarter?

Eric Hammes

Yes, Lily, I can just give you a couple of points on that. So earlier in the call, if you didn't catch it in the pre-read remarks, Paul basically reinforced what we expected to see in Q3 relative to ortho VBP. We talked about roughly a $10 million number in mid-September in a couple of public investor conferences. That did happen. So that part of the equation played out like we said.

During those same conferences, we said, based on the timing of VBP, we felt like the majority of that would come back in Q4. That's probably shifted a little, right? Also in the pre-read remarks, what we confirmed is we think VBP in China is likely in late Q4, but that means that the impacts on price and channel sort of going here through the end of the quarter are likely to be kind of insignificant, right? So things kind of moving sideways just because of the likelihood of a late VBP Q4 implementation and/or the possibility of it moving into 2027.

So I'd say no significant sequential impact moving from Q3 to Q4 in terms of channel or pricing or volumes. Maybe that means there's a little bit of that kind of benefit that we were projecting into 2027, but you got to put a question mark around it just based on the timing of things.

Lilia-Celine Lozada

Got it. And then a separate question on margins. You had a pretty sizable step-up in equipment and consumables operating margin this quarter. So hoping you can unpack that a little bit more. What's step up? And what's the right level to be thinking about for this business moving forward?

Eric Hammes

Yes. So the first thing I think I would say is the margins in the quarter, if you're thinking about margin rates going forward for E&C, I would say it was a very strong margin quarter, but it's not inconsistent with how we see the E&C business going forward, right? A couple of reasons for that.

We do still continue to see stability in the dental market in consumables. That means that we see our consumables business as being a, call it, a solid low single-digit grower. That's what we said in our Investor Day in September. And we're also relatively upbeat about our diagnostics business and the comprehensive solutions, right, the combination of hardware, services and software giving us the ability to grow.

I would also just add to that, that in third quarter and really just year-to-date through E&C, some of the things that drove our margin performance, price, volume, some really good work in terms of new products and the cost structure of those new products, primarily in diagnostics, right, those are all sustaining profit levers and/or margin rate levers. So I wouldn't judge a quarter sort of individually as the new benchmark, but we don't see a significantly different trend as we look at E&C over the, call it, the next multi-quarter horizon.

Operator

The next question comes from Michael Cherny with Leerink Partners.

Ahmed Muhammad Rahat

This is Ahmed on for Mike. Congrats on the great quarter. You mentioned that you are gaining share in the diagnostics space. Can you speak more towards what's driving that? And what is your expectation for the category in 2027? And specifically as it relates to the innovation, especially with new AI functionality, has that also been a meaningful helper in getting better growth at better profitability?

Paul Keel

Yes. You are correct. In diagnostics, I guess I'd bifurcate the world into 2 geographic groups, developed markets and developing markets. We're particularly strong in developed markets. And the biggest diagnostic market is North America, where we are particularly, particularly strong. We're the #1 player.

We have the largest installed base globally. So that's the first advantage. In some cases, a clinic will actually be architected and built around the imaging equipment. And so if you're the installed base when it comes time to update equipment, just the engineering of it, you have an advantage.

Second is we are the most active from a new product perspective. Our kind of role in the market is as the innovator. So I mentioned in the prepared remarks or maybe it was actually Brandon's first question, we updated all of the major platforms in our portfolio over the last 2 years, CBCT, IOS and handheld 2D. So doctors are interested in increased functionality in devices, and that helps.

A third advantage we have is a full sort of integrated portfolio. We don't just do the hardware. We also do the service and the software that integrates the workflow. So as dentistry becomes increasingly digitized and workflows become increasingly digital, if you're hardware, you're the software and the service, you get a wider and wider moat. So our diagnostics business, again, in North America started out as #1 but has actually been gaining share for those 3 reasons that I just described.

Ahmed Muhammad Rahat

Great. And we -- thinking about 2027 again, can you speak towards the efforts you're making on the commercialization front, especially as it relates to DSOs or other channel partners? Anything to call out on the positive end or things that you're working to improve for the next year?

Paul Keel

Yes. Maybe think of commercialization along 3 axes. Think of it geographically. Think of it as customer type, and then think about it as go-to-market model. So geographically, every new product launch has a built-in series of commercialization opportunities. As you get the product registered in more countries, the registration time lines are different country by country. So you just have a built-in opportunity. If you have the global reach and the capabilities to get it registered in every country and you have market access to scale it, that is a gift that keeps on giving.

The second you referenced in your question is customer type. Different products are more attractive to different customer types. Some are very attractive to multi-clinic players like a DSO. Some are more designed for an individual stand-alone clinic. Going back to that workflow component. That typically is even more attractive to a DSO that manages a network of clinics, whereas the individual device features would be the first thing an individual clinician would look at.

And then the third element is whether you sell it direct or whether you go through distribution and then that informs how you scale up the product. If you're selling it direct, you have complete control, your marketing strategy, your sales training, et cetera. If it goes through distribution, the programs would be done in collaboration with your distribution partner.

Operator

The next question comes from Jason Bednar with Piper Sandler.

Jason Bednar

Paul, since you opened the door here on margins for '27, I'm going to walk through it if you don't mind. The expected margin offsets to VBP that you referenced for next year, does that come from harvesting some of the investments that you and Eric made over the last couple of years? And can you speak to maybe the sensitivity of that expected margin improvement to the dental macros just still being somewhat sluggish here?

Paul Keel

Yes. At the Envista level, as you're thinking about modeling margin next year, just take our medium-term outlook and the math that it describes. That will get you to the right place. The VBP margin impact from the ortho price down will not interrupt that overall algorithm.

Jason Bednar

Okay. All right. Maybe we can follow up offline. I got a couple of follow-ups to that. But I did want to ask on consumables as well. Low single-digit growth in the third quarter. Can you talk about how volumes performed across your major geographies? I think you said growth across all of them, but I think you're also probably picking up some price as well. So correct me if I'm wrong on that. I'm just trying to understand more on a volume level, not just a revenue level, how consumables are performing across your major end markets.

Paul Keel

Yes. Let me start with the Envista answer because that -- those numbers are more readily in my head. It is true that Envista grew in every major geography with the exception of China. In some cases, like India, it was double-digit growth or in Latin America. In some cases, like North America, it was low single-digit growth.

Now specific to consumables, I don't have at my fingertips consumables every country, but it was broad-based growth for consumables. You are correct that it slowed in Q3 relative to the high single-digit rate in H1 and the very strong performance in 2025. That was principally driven by a couple of factors. The first is the high comp.

The second is just category performance. Consumables as a category tend to be low single-digit market growth. The trade-off there is that it's a much more stable low single-digit grower. So you get more stability, but you get kind of less of the upside.

The third reason, coming back to an earlier question, is that category pricing was above trend over the last 18 months for the reasons that we've discussed on a number of calls, and that is now beginning to moderate. In particular, the tariff-related price increases of early 2025 have now been fully lapped. So those come out of the base.

Operator

I will now transfer the call over to Paul for closing remarks. Please go ahead, sir.

Paul Keel

Okay. Thanks, everybody, for your questions today. Now let me just underline a couple of thoughts, and we'll wrap it up. First, we delivered another quarter of core sales growth with contributions from both reporting segments and most major geographies. Second, our strong operations helped convert that growth into even higher adjusted EBITDA and EPS growth, and we continue to invest in innovation, commercialization and talent development. Third, we maintain focused on our growth, operations and people priorities. The product launches and operational improvements that we discussed on today's call are all good examples of that progress. And finally, our performance and momentum support an increase again in our full year earnings outlook.

So I think we'll leave it there for today. Thanks again for your interest in Envista. Have a good day and a great week, everyone.

Operator

Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.