Hello. My name is Ina, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's Second Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I'll now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations of Envista Holdings. Mr. Gustafson, you may begin your conference call.

Good afternoon. Thanks for joining Envista's Second 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. Before we begin, I want to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.envistaco.com. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our results. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the second quarter of 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 solutions that have applications submitted and pending certain regulatory approvals or are available only in certain markets. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events and developments that we believe, anticipate or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results may differ materially from any forward-looking statements that we may 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. With that, I will turn the call over to Paul.

Thank you, Jim. Good afternoon, and welcome, everyone. We appreciate you taking the time to join us today. On today's call, I'll kick us off with some opening thoughts on our Q2 and first half performance as well as a brief strategic and operational update. Eric will then take us through the financials in more detail, and I'll wrap things up with some closing thoughts. As always, we'll then open it up for your questions. Slide 4 summarizes 3 things: year-to-date results, progress executing the value creation plan that we laid out at our March Capital Markets Day and an update to our 2025 full year guidance. Let's begin on the left with Q2 and H1 performance. Q2 was another solid quarter for Envista with strong revenue and EPS growth and good margin expansion. Core growth came in at 5.6%, aided by some customer buying in advance of expected price and tariff increases. Adjusted EBITDA margin was 12.4%, up 240 basis points from Q2 of '24, supported by good growth and G&A productivity and offset in part by transactional FX losses related to the softer dollar. Adjusted EPS was $0.26, the result of the EBITDA growth that I just mentioned coupled with a lower tax rate, which Eric will say more about in just a moment. Moving to the middle of the slide. We delivered broad-based growth across our portfolio with both reporting segments and all major geographies in positive territory. Equipment & Consumables was up roughly 7% and Specialty Products grew just shy of 5%. In the same way, we're continuing to make progress on the operations front. In addition to continued reductions in Spark unit cost and design cycle times, we're off to a good start on implementing the tariff mitigation plan that we outlined on our Q1…

Thanks, Paul. In the second quarter, we delivered sales of $682 million. Core sales in the quarter increased 5.6% and currency exchange rates added about 200 basis points. Our Q2 adjusted gross margin was 54.4%, an increase of 20 basis points versus the prior year despite foreign exchange rates being a headwind to margins. We'll cover more on the FX in detail, specifically in our margin walk, but the weaker dollar trend from Q1 to Q2 resulted in a net FX transaction loss from balance sheet remeasurement. From an operational perspective, we performed in line with our expectations, with good performance across our global supply chain, including another strong quarter of Spark unit cost reduction. Our adjusted EBITDA margin for the quarter was 12.4%, which was 240 basis points better than the prior year. Overall, margins were hurt by the net FX impact already mentioned, but helped by strong performance in volume, price and continued G&A productivity. Adjusted EPS in the second quarter was $0.26, up $0.15 compared to the same quarter of last year and above our expectations. Our non-GAAP tax rate for the quarter was 33.3%, better than our expectations due to strong income generation in the United States. As I'll cover in the assumptions underpinning our 2025 guidance, we anticipate our full year tax rate to be similar to the Q2 tax rate. Finally, we generated $76 million of free cash flow in the quarter, down from last year due to higher working capital. Let's now turn to 2 bridges to help break down our year-over-year results, beginning with sales. Core revenues grew 5.6% in the quarter with positive growth in all major businesses and geographies. Volume growth in Q2 was up about 400 basis points and ahead of our expectations. We saw improved volume growth in…

Thank you, Eric. A few closing thoughts on the quarter. First, underlying dental market conditions in Q2 were pretty similar to what we've seen in recent quarters. While macro uncertainty continues to be high, the underlying dental market remains stable. Second, our Q2 results were positive, including core growth of roughly 5.5%. We posted just shy of 3% core growth for the first half. Reflecting this good start, we've raised full year growth guidance to 3% to 4%, along with an updated EPS range of $1.05 to $1.15. I'll close by noting that this progress is made possible by the wonderful talent and commitment of our global Envista team. We appreciate all you do in the service of our stakeholders. In the same way, we're grateful for the support we receive from our customers, partners and shareholders. That completes our prepared remarks, and we'll now open it up for Q&A.

[Operator Instructions] And your first question comes from the line of Elizabeth Anderson from Evercore ISI.

Congrats on a really nice quarter. I think there's been a lot of confusion about the sort of state of the dental market. Were you surprised by sort of the strength that you saw across the portfolio and your different businesses this quarter? Like was it turnaround driven? Do you think it was -- the main drivers were market driven? And sort of how are you thinking about the broader dental macro at this point?

Elizabeth, thanks for kicking us off. Maybe a couple more thoughts on the market and then a few comments on our specific performance in addition to what we just covered. Starting with the market, we continue to see green macro shoots. So I would say Q2 macro was incrementally better to Q1. Unemployment still very low. Interest rates in many markets, notably Europe, continue to come down. And then the big change Q2 from Q1 was the tick back up and consumer confidence. Both the June and the preliminary July numbers were pointed northward, which helps. Having said that about the macro, I think in fairness, the preponderance of dental-specific data that you guys get and that we get, things like the recent ADA survey or some of the third-party research, they all continue to point to a slow but stable market. So I think that captures the market conditions. Specific to us, in addition to what we said earlier, we had particularly strong growth in our orthodontics business, both the Brackets & Wires side as well as the Clear Aligner side were strong. We also had very good growth on both sides of our Consumables business, Core Dental as well as Infection Prevention. We had similarly balanced growth in Implants with both Premium and Challenger in positive territory. And then it was nice to see Diagnostics return to growth, especially with the mid-single-digit performance in both North America and Europe. Maybe I'd also note that the growth was steady across the quarter. You'll recall that we released Q1 earnings on May 1. And I think in one of the Q&A, someone asked us how April was coming in. We mentioned that it was coming in consistent with our expectations. And that, that momentum now as we have the full quarter behind us, did continue across May and June. Anticipating a similar question on this call. July is almost in the books for us. So we have a good first look there. And again, July was very consistent with our steady performance and expectations. So on balance, as we put all of this together, I'd say this is a positive step forward for Envista. Our plan is generally working, and we'll just keep working the plan. So thanks for the question.

Can I just double-click maybe once more on the Brackets & Wires comments? That was certainly one area of outsized growth versus what we traditionally see in that market. Could you tell us a little bit more about the drivers of that outsized growth in the quarter?

Yes. For Brackets & Wires specifically, I would say it's -- there's 2 big contributors to that. The first is although we talk more about our investment in sales and marketing on the Implant side, we have been increasing our activity on the Ortho side as well. And investment there tends to return nicely, especially because of our very strong position on the Bracket & Wire side. The second is there's some question of whether there's a shift from Clear Aligners to Brackets & Wires. We'll probably get another question on that as we go through the Q&A. I think maybe on the margin that helped a little bit, although the kind of mix globally in case starts between Brackets & Wires and Aligners have been generally stable now for about a decade, 3 quarters to Brackets & Wires and a quarter to Aligners. But kind of consistent with all of our businesses that we talked through in the prepared remarks, consistent intentional progress on the Brackets & Wires side.

Congrats on the quarter.

And your next question comes from the line of Jeff Johnson from Baird.

Paul, I was wondering if I could just ask another question on the Brackets & Wires business, not so much about the Clear Aligners versus Brackets & Wires. But I think you said China was still down year-over-year kind of ahead of VBP. The last 2 quarters, I think your China Brackets & Wires business has been down 50%, 5-0 percent. Any way to put us in a range of how much it was down this quarter? And are we at the point now where inventory levels have been adjusted and we could look to China VBP on the Ortho side to be growth additive as opposed to dilutive moving forward into the back half of this year? And then maybe one other VBP question, if I could.

Sure. So maybe just the context on what's driving the pre-VBP decline in the Bracket & Wire segment as well as us. And then I'm looking at Eric to see if he can dig out the number for China specifically. But we learned -- all of us learned this from the implant VBP, both Ortho and Implants are direct businesses, of course. But in China, we rely on the channel for logistics because it's such a vast and fragmented market. And so anticipating that prices will come down with VBP, we don't want to have a lot in the channel. So we're careful of how much we put into inventory there. And then some customers, the more sophisticated customers, anticipate a reduction in the procedure price, so they might be delaying treatment in anticipation of that. So we -- again, having gone through it with Implants, we very much anticipated negative growth for Brackets & Wires in the first half. Now when the procedure price gets announced and then the product pricing follows that, we expect the converse that there will be an increased step-up in both patient demand, but also putting a little bit more into the -- use the word channel, although it doesn't behave the same way as the channel would in the U.S., but a little bit more into inventory to satisfy that demand. Eric is still digging, and I see if he's got the number.

Yes, Jeff, just on your question about the movement of the growth rate, so I'll just talk it through by quarter and give a little bit of color. So in the first quarter, we talked about Ortho. Mindful that our business in China in Ortho is almost all Brackets & Wires, 95- plus percent. It was down almost 50% year-over-year in Q1. We were up modestly in Q2. Part of that was our own team strategy out of the Implants playbook to make sure that we're driving penetration pre-VBP, which we think ultimately just helps us out post VBP. But put the 2 together, I mean, it was still down 20% to 30% on a year-over-year basis first half. We anticipate Q3 to be, call it, in the ballpark of flat, and then we're going to have estimated robust growth in Q4. But there's a lot of uncertainty around that, right? The only thing we know today is what's come through the service VBP and then prospectively, the timing of the product VBP, but I think we also know that VBP timing is a little bit elusive. But it's going to be -- should be robust growth in the second half. It is dependent on how VBP ultimately gets implemented.

All right. That's helpful. And then maybe the follow-up on VBP. Just obviously, a lot of chatter about a second round of VBP for dental implants starting next year. You guys are putting some China infrastructure in place. One, that added infrastructure, how much does that cushion or kind of protect your likely ability to participate in that VBP, number one? And number two, just a lot of chatter about it, not a lot of specifics. Just any detail you can provide us? Do we think it's going to happen early in the year? Historically, we've seen second rounds maybe be less price declines than maybe what you see in the first round, things like that. Just any idea kind of how that second round of implant-based VBP might play out next year in China?

All right. Let me take both parts of the question and turn here, Jeff. So first, with respect to local manufacturing and VBP, local manufacturing did not appear to play a role in the first implant VBP, nor have we received any communication that will be a factor in the Ortho VBP. That's currently underway. Market share, customer satisfaction and, of course, price have been and we expect will continue to be the most important VBP criteria. Now as local manufacturing indirectly supports all 3 of those, our investment in China should be on the margin helpful in strengthening what we consider to be an already pretty good VBP position. So that was your first question. Second, with respect to VBP 2 timing for implants, we have not received any communication on that. So I'm afraid at this stage, I don't have any better information than you do.

And your next question comes from the line of Jon Block from Stifel.

Maybe just to kick it off for Spark. I think in the slides, you mentioned improving gross margins. So can you talk about -- is the thought that Spark turns EBIT positive in the back part of this year 2H '25? If so, any thoughts on the trajectory going forward? And then maybe just a quick tack on that one. Were there any recent changes to Spark pricing in the marketplace? And then I've just got a tighter follow-up.

Yes. Thanks, Jon. I'll just take that. So our plan for Spark, and I think it's really in most of our preread remarks as well is that our performance trend to profitability remains unchanged. So second half 2025 is when we believe it will turn to profitability. That's still our view. Along that trend, we're now on multiple quarters. I don't even remember the track record, but probably 8 to 10 quarters of consistent consecutive quarter-on-quarter unit cost down. This quarter, we were down year-over-year, almost 20-plus percent in unit costs, which means our Spark gross margins are improving. So the plan remains the same. Our profitability trend, I would say, is on track. And importantly, beneath that, the key pieces of that trend remain on track, right? The business in terms of primary case start growth, volume growth overall for revenues, unit costs. And then Paul mentioned as well, design. So design lead times for us, which are maybe less important on a profitability basis, but very important for us on a competitive basis. All of that remains in good standing. So we'll give you our update as we go through the second half in terms of the numbers, but we do expect to be profitable in the second half. And then on your last -- or second comment around price, very moderate changes for us year-over-year in price. So not really material. I don't think for the purpose of the call here today, we had low, low single-digit price growth year-over-year in Spark, which effectively means we're flat. So that's where we're at today.

Fair enough. And then, Eric, maybe I'll just stick with you. Anything to call out? I mean you got half the year and -- you got half the year down, but anything to call out with the phasing 3Q, 4Q top line by division or maybe even more importantly, on the EBITDA margin side. Maybe that was the only -- I don't know, just relative to our estimates, the only blemish in what was a really, really strong quarter was the EBITDA margin. You explained that in the bridge. Some of that was FX related. But when we think about for the balance of the year and your actions to offset some of the tariffs, how should we be phased or weighted between 3Q or 4Q? Or any color you can provide?

Yes. Yes. Excellent. So let me do that in 2 shots, Jon. Let me just talk first on core growth and then on margins and fully understand the spirit of the question, too. So if you just look at the -- our guidance, I'll just talk midpoint of our guide, which is where we see our full year. We should be about 1 point better in terms of core growth in the second half. And I'd say there's really 3 big moving pieces within there. One is our Spark Deferral. So effectively flat year-on-year in terms of the deferral change that we've been laying all the breadcrumbs for every quarter. That will be about a $30 million benefit in the second half year-over-year, with a significant majority, call it, 80% in Q3, which ultimately yields about a 2-point benefit in terms of growth. So that's, call it, a tailwind for us. We talked in the preread remarks about buy ahead. We estimate that our Q2 buy ahead of our announced price increases, which were earlier in the quarter. We're about a $10 million benefit. We think that comes back largely in Q3, maybe a bit in Q4. So that's a point of growth going in the other direction. And then just be mindful that our first half growth was held up by about 1 point in Dental Consumables' favorable comp. That was based on us really bringing the dealer inventory channel last year to a point of health, which all happened in the first half of last year. So those are kind of the big 3 points on the growth. If you do all that math, you'll find that the rest of our business is stable to call it, slightly improving in the second half. And then on margins, our margin guide at approximately 14%. What that means is we're about 2 points better in the second half. We would expect as we typically do seasonally that volumes are a tailwind for that. We're going to continue to drive good productivity. So as we just talked about, Spark gross margins, Spark unit costs will be on the plus side of the ledger. G&A will continue to deliver year-over-year and we expect to get a good amount of price. On a full year basis, of course, what we're really seeing here is upside versus our original margin guide on what we would call just core operations, volume, price, productivity, but FX is dilutive for us. And that's a favorable translation benefit, but it's offset fully by the first half transaction losses. And versus our original guide, that's about a 50 to 70 basis point headwind. We saw a lot of that, of course, in the first half, but it's factored into our full year guidance.

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

I guess on Clear Aligners, one of your competitors also talked about seeing some decent levels of patient scans and practitioner case submissions in the second quarter, but then they called out that some patients were not following through with case conversion and treatment. So it does that seem like that was happening for Envista, given your strong growth. But I guess I'm just curious, historically, is this a phenomenon that has been noteworthy enough to impact your results in various quarters historically? Just wondering just how prevalent this is really across the industry regardless of whether you were seeing that this quarter or not?

For us, our Spark business has had pretty consistent growth. Again, Eric couldn't remember the number of quarters that the unit cost has sequentially reduced. I can't remember the number of successive quarters that we outgrew the market. So for us, we expected to outgrow the market again in Spark, and that's what we did see. So specific to whether our doctors are having slower patient conversions, anecdotally, 10,000 orthodontists, you get a lot of anecdotes. But for us, no, I don't think I would point to that as a meaningful impact in our Q2.

And your next question comes from the line of Brandon Vazquez from William Blair.

This is Russell on for Brandon. Last quarter, you mentioned that you were able to broadly offset the impact of tariffs and continue to believe so given things are always bound to change. But could you give any updates as to the mitigants and implementations and future time lines you mentioned previously?

Yes, I can take that, Russell. So maybe just a point of bearing just to get everybody calibrated. In our second quarter margin walk, we did show what our Q2 impact was from tariff costs. So that would be net of supply chain actions, of course, but just the cost that we expensed in the P&L. That was about $4 million. It was roughly 60 basis points of margin dilution. And then as we look out to the second half of this year based on the timing of tariffs and then also just how the expense rolls through our balance sheet gets capitalized and then hits expense, we would expect, call it, $15 million to $20 million of tariff cost in the second half, roughly even by quarter. At this point in time, we feel like the tariff landscape is at least reasonably stable to predictable for now. And then our playbook remains unchanged. So in the first quarter call, we talked about, number one, mitigation is actions that we're taking within our supply chain. That's with suppliers, that's with our own distribution network. That's also with source of supply -- shifting sources of supply around the world to our multi-geo sites. The second would be costs, and I think we see good momentum on that already when we've reduced costs like G&A, as Paul mentioned, 15% in the first half year-over-year. And then the third, to a lesser degree, is price. And we would see all 3 of those being able to offset the, call it, $15 million to $20 million in tariff cost headwind in the second half, equal by quarter, if you would.

That's helpful. And I saw on the quarter, Challenger turned back to growth after a slight decline in the previous quarter and Premium implants continue to grow well. Could you talk about what changes you saw in Challenger and any commentary you have on the overall implant market?

Yes. On the Q1 call, you're correct. We had negative growth for the first time in a number of quarters in our Challenger business. We posited that, that was because we had 2 fewer billing days in Q1. In a direct business, that does have an impact. On the call, we said we expected Challenger -- nothing had changed fundamentally in our Challenger business, and we expected Q2 to then return to that normal low single-digit positive trajectory. And that's what happened. So it played out pretty well as we expected. I don't think there's much more to say on that.

Your next question comes from the line of Jason Bednar from Piper Sandler.

Just wondering if we can talk about maybe how dental practices are behaving here. You talked a lot about stability. But maybe talk about private practices, especially they're small business owners. They've got operating uncertainties. They're getting notified of tariff- related price increases. What are you seeing in terms of the behavioral response from the dental community in the last few months? Are we seeing brand substitution? Any buying changes in response to where you guys have taken price? Are you seeing equipment purchase decisions elongating anything like that?

Yes. Maybe so 2 parts that you touched on, Jason, the price piece and then equipment purchases. We put the word price a couple of times, I guess, in our prepared remarks and now in our questions. But the quantified piece of price is very small, 1.5 points in Q2. I think it was 1 point in Q1. So our price increases are modest, certainly less than CPI. And oh boy, certainly less than what we're seeing in input inflation in our own P&L. So I would say our price increases have been well received by the market. They would rather have no price than very modest price. But we're careful not to push things there. So that's on the price front. With respect to equipment purchases, yes, for sure, we've seen across the last many quarters, a delay in equipment purchases. You've seen that across the Diagnostics segment. We did, as we mentioned, have a positive quarter for Diagnostics, which was encouraging to see. As interest rates come -- continue to come down, that will be supportive. But at some point, technology upgrades, new sites, DSO expansion, all of those things require equipment. So at some point, we're going to -- the diagnostic market, we believe, has to pick up.

That's helpful. And then Eric, just if I could squeeze in one on maybe just a quick bridge on EPS guidance. I'm seeing the net of $0.10 in the raise, a couple of pennies maybe from buybacks, a little over $0.05 on the tax rate. I think the balance is coming from the core revenue upside. Any other factors you'd call out as influencing EPS raise? Anything working against you that you're absorbing? It sounds like maybe tariffs are kind of lapping through here, and maybe that's part of the factor here of why the EBITDA margins remaining the same. But just anything else you'd call out in that EPS bridge, my numbers are accurate there?

No. Let me just repeat maybe to make sure we're on the same page and then maybe just a confirming point. So I mean our core growth, I think, is self-explanatory by our range and the drop-down at gross margins, I think, is pretty obvious. Tax rate, flat versus where it's been for the first half of the year. Shares, we did have $100 million in share repurchase in the first half of the year. We would expect that to moderate. Obviously, the global equities market was pretty favorable in the first half. And if you just look at our share buyback authorization, we'll likely be something of a metered level in the second half. And then I think it really gets back to your core question, the 2 big trade-offs, which I mentioned in a previous answer, are the better operational performance versus our original guide, that's volume dropping down at gross margin. It's a little bit of price. It's the work that we're doing in G&A, and it's the improvement that we're seeing in Spark gross margins. But unfortunately, a lot of that or all of that is washed by the better FX on the top line falling down at effectively 0 adjusted EBITDA, which is this first half transaction loss offset by a little bit better translation. And we're upbeat, if you will, on minimizing the transaction exposure going forward because we've entered into hedges against our largest exposure. That's euro to dollar and euro to RMB. So I think you've got the rest.

Sorry, just to make sure I'm clear, like relative to your prior guide and then to today's guide update, you do have some EPS benefit coming in though from share buyback activity that you've done to date and the drop in the tax rate assumptions. Correct?

Correct. Yes. Small amount from share buyback and then basically the difference between our original guide, which was a 37% tax rate. And today, year-to-date and for the full year, we're projecting 33%.

And your next question comes from the line of Allen Lutz from Bank of America.

The most recent ADA survey flagged that there could be some price increases. Our dentists are at least expecting more price increases going to come. So as you think about -- you kind of talked, Paul, a little bit about maybe there weren't as many that you've observed. Can you talk a little bit about the market acceptance of price increases today versus -- and whether that's coming from tariffs? And how that compares versus prior quarters and prior years across both of your segments? And whether or not any of that's new?

Yes. I mean, generally speaking, you can get a good read of it by looking at volume growth relative to price growth. That's a good kind of objective measure of acceptance. We were, whatever, 5.5% in the quarter, 1.5% from price, 4% from volume. That would suggest it was favorably received. And I would say the current environment helps. One, as somebody asked earlier, dentists are consumers as well. And the price of everything they're buying is going up. So they're used to CPI kind of level price increases in their practice and their life. And again, what we took, the 1.5% is well below that. So I don't want to say that our customers are happy to get 1.5 points price increase, but relative to a 3% price increase -- plus 3% price increase on everything else they're buying, I think they understand it. They know we're not making money on the price increase. That doesn't quite cover our own input inflation.

And your next question comes from the line of Kevin Caliendo from UBS.

When we think about -- I'm just trying to maybe calculate or understand what the core margin of the business looks like when we take out all of the Spark benefit later this year when we think about exiting the year. I know that was the number you'd like to talk about last year. But as we get into the second half of this year and the exiting of this year, are we -- if I'm doing the math right, are we close to like 14%? Is it a little bit higher than that? How should we think about that? And is it a good way to think about going into '26 off that kind of baseline?

Yes, Kevin, I can take that. I think the easiest baseline, if you will, to work from is the margin bridge that we provided in our Q2 results, not the second quarter stand-alone is sort of the be-all, end-all for a full year. But I would just say, if you look at that, our volume, price, productivity, the elements of the walk, most of those are pretty sustainable levels of margin improvement. Maybe save a little bit from our mention that we've got about $10 million in Q2 relative to price buy ahead, which obviously helped our margins. But we would not consider the transactional FX, which is mostly that 240 bps to be really part of an ongoing, call it, forward sustained rate. And if you take that into account, we're at 15%. I would back that down for the reason I already mentioned, back it down for the slightly better volume growth in Q2 due to price pull ahead. And then I think it gets you back pretty close to the, call it, the 14% that you were mentioning. And then just maybe as a kind of a forewarning, even though we get a large Spark Deferral gain year-over-year in the second half, on a sequential basis, it's really not meaningful. We're already in the environment in terms of revenue dollars in the first half that's effectively at the same basis of what we will recognize in the second half. So big year-over-year gain, but not really much on a sequential movement basis. And I think all that kind of ties back to the 14% margin that last year we were helping everybody to understand on an underlying basis.

Got it. That's helpful. And you mentioned in your release that the VBP would have an impact on your tax rate, 33% for the full year is reflecting the higher U.S. profits, but you're assessing the impact of the VBP. I know part of the story is here that the tax rate over time should go down. Is there any change to that or any sort of long-term targets on the tax rate? And does the VBP affect that either positively or negatively?

Yes. I mean we're still assessing, as you can imagine, every company is. So first order of business is to get into the legislation. Second order of business is to see what else comes as a second order impact to the legislation. So there's a shoe to drop typically that we wouldn't even be aware of yet. I would just really go back to the core work that we're doing to improve our tax rate. And that's the intercompany loan that we have. So we have a large intercompany loan between the U.S. and Europe. That comes with interest expense that we pay on an intercompany basis. And the deductibility of that interest is capped by the size of our U.S. profits. And that's mainly the reason why our rate came from the originally expected 37% to now 33%. The more we can do in either eliminating that entity, which is the work we're doing or in improving U.S. profits, which is some of the work we're seeing when we grow products like Brackets & Wires, Consumables, we improve our Spark profitability. All of that will help, and it will get us back to something of a normalized tax rate. At this point in time, I wouldn't say the Federal Act is significantly helpful to our tax rate. For sure, not on a normalized ongoing basis. There might be a onetime shot that helps, but not on an ongoing basis. So for the most part, we're just working the same way we were in first quarter.

And your next question comes from the line of Wright, Erin from Morgan Stanley.

There were a couple of deals, I think, that you did like smaller deals. I don't think it was anything material from an M&A perspective. But can you just remind us like what are you looking for in terms of just bigger picture from an M&A perspective and external kind of inorganic opportunities, your willingness to kind of execute on those and just how you're thinking about kind of M&A across your business?

Yes. Maybe I'll just reiterate our capital allocation priorities that we talked about in the March Capital Markets Day. The high-margin business like ours with good core positions, the highest risk-adjusted return of any available dollar is going to be organic. That's our highest priority for capital investment. Second for us is accretive M&A. We grew up inside Danaher. We think we have pretty good M&A capabilities, and dental is a pretty active M&A market. So we look at a lot of things. In our first year, Eric and I, we intentionally didn't do any M&A because we thought that there was higher return on effort just in core operations and execution. But now that we feel that the business is getting some momentum and pointed in the right direction, we have been spending a little more time on M&A. The 2 deals we did in the first half were very small. From memory, they were single-digit millions investment and all at accretive multiples, which fit our accretive M&A target. Would we do something bigger as we continue to get momentum? Yes, I think if we have the available capital, and we have something that fits in a segment we know well, a prioritized adjacency or in the core. And there's good consolidating or growth synergies, yes, we'd like to do more.

And your next question comes from the line of Vik Chopra from Wells Fargo.

Congrats on a nice quarter. Apologies if this has already been asked. I've been bouncing around a little bit. But maybe just sort of talk about the different variables behind your 2025 guidance range. And what gets you to the low end versus the high end of your guidance?

Yes. Let me just hit that then, Vik. Appreciate the question. So core growth, we delivered about 3 points of growth first half. Our guidance is 3% to 4%. It implies second half at around 4%. I would say if you just go back to our original guidance, just think through our Q4 call and what we laid out as opportunities for better growth, I think those opportunities for better growth are largely the same today. It's continued strong growth in our Spark business. It's probably accessing now some of the growth that we're seeing from better new products. Paul talked in his preread remarks about some of the performance we're seeing in Ormco, Brackets & Wires or even our DEXIS portfolio. So for the most part, our growth upside is not dissimilar to the to the upside that we saw at the early outset of the year. For the most part, it's going to be macro that stable -- soft and stable dental market turning in a different direction. We don't expect that to be the case, but that could define the downside, if you will, of our growth in the second half and, therefore, the low end of the range. And then I would say, for the most part, it's a similar narrative relative to the profit. So the upside that we originally saw entering the year were things like Spark gross margin, automation of our factory, improving design cycle time, reducing our G&A costs. As those things continue to perform, that is baked into our guide and roughly the midpoint, but to the degree that we can outstrip that and/or outstrip on the volume side, there's upside there. And I think likewise, it's the macro that largely defines the downside for us. If we were not able to mitigate the tariff range that I mentioned, that would be potential downside for us. We think our guidance is pretty reasonably footed. And at this point in time, the midpoint is a good place to be thinking about it.

That ends our question-and-answer session. I will now turn the call back to Mr. Paul Keel for any closing remarks.

Okay. Thanks, everyone, for tuning in. Maybe I'll just quickly underline a couple of thoughts to put a wrapper on the quarter. First thought would be that Q2 was another step forward for Envista. And we had good revenue and profit growth converting into double- digit EPS growth. We talked quite a bit about our performance being generally broad-based with all of our major businesses and geographies delivering positive growth. We're, of course, pleased by that incrementally so because it's in response to intentional plan that we're executing. We're focused on executing that plan that we laid out at the Capital Markets Day in March. And in addition to the growth, we think we see progress across operations and people as well, the 3 categories of priorities we're focused on. In support of all that, we invested some of the gains in Q2 back into continued momentum and growth in the form of increased R&D, sales and marketing. And as the last -- or 2 questions ago touched on a bit of M&A. I think that covers it well for today. Thanks again for listening in, and I wish everybody a good day and a good week.

This concludes today's call. Thank you for participating. You may all disconnect.