Envista Holdings Corporation (NVST) Earnings Call Transcript & Summary

We will get started. I'm Elizabeth Anderson. I'm Evercore's health care services and dental analyst. Very pleased to be joined by Eric Hammes and Jim Gustafson from Envista this morning, CFO and VP IR, respectively. As we sort of sit here in December of 2025, we've gotten different signals from different dental participants. And maybe that's a true -- maybe doesn't even -- that's not even true of December 2025, it's been true this whole year. So how do we think about the overall dental market and sort of the performance Envista has been seeing volume-wise?

Yes. I think let me maybe just start with the market, and I'll take it from the vantage point of like the whole dental market, a little bit by segment and then geo. And then let me try to kind of wrap it up by just giving a perspective on what we're seeing then internally in terms of Envista performance. So I would say for starters, we see the market in aggregate as being relatively similar to the way we've seen it maybe for the last 4 quarters or so. By our records according to our portfolio, the market has been growing. I think we sort of coined the term soft but stable. Maybe that's code for like low single-digit growth, but a relatively stable and predictable growth. Sitting here in December, looking at fourth quarter, we see sort of that level of consistency. So I think that's probably point number one. If we look at it by portfolio, consumables for our business and the consumables market, I would say that's the one market that we've seen sort of the most amount of consistency over the last year or so, a low single-digit market generally across the broad portfolios of consumables. Orthodontics, also a good growing market, a little bit of a slower aligner market growth trend as we've come through this year, but still, call it, a low to mid-single-digit growing market and brackets and wires performing well as a market segment within orthodontics. Implants, I think, again, if you sort of divide implants a little bit into 2, a lot of excitement. We saw this week actually at the Greater New York Dental Show around the digitization of dental and the digitization within implants specifically. And I would say we see that in sort of our own patterns of equipment selling and just the setup of digitization in the dental offices and then to bring it back maybe to the core implant abutments, prosthetics, maybe a low single digit, but consistently growing market. And then Diagnostics is the one that I think in the -- maybe the last few months to quarters is getting a little bit more attention. I think we'd characterize it as a negative low single-digit market this year, year-to-date, but things have been on a modestly improving trend, right? Signals that interest rate reductions are starting to create a little bit of maybe optimism or buying momentum. I think what's also true is that we are now many quarters, actually many years removed from sort of the heightened buying cycle of Diagnostics back in the 2022 time frame. And that can only go along so long, especially as you have a relatively stable dental market and generally improving trends in some of the spaces of de novo and office builds. So maybe a little bit of optimism, albeit for Diagnostics, that's coming off of a high negative single-digit growing market last year. And then if you were to cut it a little bit by geo, North America, we see as a positive growing market recovering a little more in the developed space. Europe continues to perform well. That's been a market based on having lower interest rates and higher reimbursement levels that didn't quite see some of the sort of the slowdown that we saw in North America. So Europe is a good growing market. China is still with a lot of questions mark -- question mark over it, I know we'll eventually get to the topic of VBP. And then just if I could, on the kind of the Envista performance. So maybe 2 sort of buckets for Envista. So we've grown step way back about 5% on a year-to-date basis. If you strip out a few of the things that we talk about within our earnings calls, primarily Spark deferral gains and a little bit of consumable low comparables, slightly lower than 5%, but still really good growth. And quarter-to-date, we're seeing those trends continue. So a lot of the trends that we've seen throughout the year, both in terms of portfolio and overall core growth trend, I would say we're seeing consistent on a quarter-to-date basis. December is a big month. It's always a big buying month, but we believe that we'll have a strong finish to the year.

Well, I think that's a good place to start. I think there's a lot to unpack there. Maybe starting with Spark. Where do you see as we like as we're going through '25, the market, as you pointed out, has been still growing, but maybe not from what we saw before. I don't know if you have any comments on sort of the dynamics there. And then how have you been able to drive Spark growth within this market in 2025? And then sort of how do you see that evolving as we get through the end of the year?

Yes. So I think stepping way back, I would say that we don't see the aligner market having changed dramatically throughout the year, mid-single-digit growing market, maybe within an individual quarter, you could argue it's a little lighter than that, a little heavier than that, just depending on where we've been within the year. But I would say kind of big picture, it's a relatively consistent global aligner market, following some of the dynamics that I mentioned geographically. Europe a little bit stronger. North America, maybe a little bit lighter, but also in a recovery mode. In terms of performance for our business, I would start with the product itself and our digital treatment planning solution. We know we have a very solid product, product performance that's both clarity, fit, comfort and the treatment planning software of our business is a strong treatment planning software that we get good feedback on for clinicians. So I think kind of the -- like the solid foundation of product and portfolio is in good shape as it has since the launch of our Spark business. Second point would be that we have focused a lot in the last 12 months on making sure that we're selling the full solution to orthodontists, right? So we are the largest player at global scale that has both an aligner business and a brackets and wires business and a combination treatment solution. That's important to us as we primarily focus on the orthodontists and the orthodontist market. It's where we built our brand over the last many decades, primarily with Ormco and Damon brackets and wires and self ligation. It's where orthodontists know us and understand us, but it's also our selling philosophy, our go-to-market model philosophy, right, bring the full solution portfolio, allow orthodontists to think about treatment planning the way they know best, whether that's with a clear aligner or with a bracket and wire or with a combination of both. We think that's the best strategy and winning strategy overall. If you kind of dig within our results this year and listen back just to our earnings calls in Q2 and Q3, we've had a good extension of new products. That's also helping us in our -- in the growth of our business. Last year, we announced the addition to our portfolio, which we call Spark on Demand. That's the ability of a clinician to choose the number of aligners without having a sort of a lengthy refinement process and procedure to be able to treat a case with less aligners at a slightly lower price. And then this year, we've also announced the launch of retainers, so sort of the sustaining component to a clear aligner case. We announced the launch in Q2 of BiteSync. That's to be able to correct Class II malocclusions, call it the more difficult to correct aligner cases. StageRx. This quarter, we talked about StageRx, which is the next version, if you will, of our treatment planning software. That's to be able to make it easier for the clinician, but it also streamlines the design process for us. So you kind of take all those things combined, and I would just say that the full solution portfolio plus the significant introduction of new products this year is helping us to grow above market share, and we think that's a continued trend that we'll likely see in the business.

Got it. I like how it's also been sort of a driver of sort of like lots of little innovation. It's not reliant on sort of one strategy. I mean, I guess it's part of the whole same strategy, but it's not like a one-trick pony in terms of, oh, we just launched this, and therefore, we got a bump from this or something like that as well on a core basis.

Yes. I think -- I mean, in general, that's the goal of all of our portfolios, right, to make sure that we have continuous innovation. Within there, you might have something that feels and looks a little bit more like a line extension or a near adjacency of the current portfolio. And from time to time, of course, our goal is to also launch products that become either new products, new markets and can ultimately bring in a new client or in this case, clinician or end consumer.

That makes sense. And can we put one accounting issue to bed? I know you said this very clearly on the 3Q call, but I still feel like it's a little bit of a question in some people's minds. Is the deferral -- how is the deferral benefit from this year, not a headwind to next year's growth?

Yes. So let me just kind of step through the journey that we've taken investors and coverage analysts through. So I apologize for that upfront because I know we're now going on quarter #4. So last year, we talked about a larger upfront deferral of our Spark business. Importantly, it had no bearing on the cash flow of the business. So we still bill upfront, we still collect upfront. It's actually part of the reason why we have a very strong free cash flow generation as a business. With that change, we had about a $45 million headwind to revenues last year. At the end of last year, we talked about having about 2/3 of that coming back. So let's just say, unwinding from the balance sheet as a deferral benefit this year, revenue and deferral benefit. And that leaves about, call it, 1/3 to go. That's going to happen over the course of the next 2 quarters. It's a small amount relative to kind of where we've come from the $45 million last year, the $30 million roughly to date this year. We'll keep it prominent and transparent in our bridges. But importantly, because of the large deferral gain we've taken year-to-date this year and a lot of that in Q4, the way you can think about the Spark business, if you're modeling it, is the absolute revenue dollars and the absolute profit dollars are a good foundation, a good jumping off point to think about the business going forward, right? Said another way, the deferral gain in Q3 this year, year-over-year, it doesn't create a headwind next year. That's kind of a common question that we got is, hey, is this benefit that you saw in Q3 2025 going to create a headwind next year? The answer to that is no, right? The jumping off point of the dollars for Spark are on a very good foundation, including now a business that's in a profitable state.

And just to maybe put a final bow on that, like you had that $45 million, $30 million, so sort of implies, as you just said, $15 million further go forward. But then you've also -- and maybe that had a little bit of a bolus in it because of the way it started up. But as we get in, you accrued more deferrals for the growth that you saw in '25 that should also manifest themselves in '26. Is that...

You can think about the deferral, which is now about 50% upfront, 50% to be recognized as we go throughout the case to not have a growth effect. So a revenue growth effect going forward. So it's just the remaining $15 million that we'll keep transparent externally and that you can think about as being a little bit of a tailwind as we go through the next few quarters.

Okay. That's helpful. Thinking through the margin opportunity, can you talk about, as we sit here in the fourth quarter, what are the main levers to continue to drive those Spark margins to the corporate average?

Yes. So I would say the playbook that we've had for the last 12 to 24 months is still largely the playbook, although maybe the impact, the kind of size and magnitude might be a little different going forward, but very similar playbook. So kind of most important point number one is we have a global manufacturing footprint. We manufacture in 3 continents around the world, and we have a relatively same, similar work cell focused factory operating lines globally. And the work that we've been doing in the last 12 months has been rolling out automation in addition to having in-line changes in our factory to bring down the unit cost of the product, right, the cost per aligner. 20% year-over-year cost reduction. That's what we've seen in the recent quarters year-over-year. Obviously, that shows a good track record of the ability to take the fully automated lines that we have within our manufacturing technology center. That's a pilot plant in Southern California. Moving that out, it means investment in CapEx, but it also means reduction in aligner cost and labor cost around the world. That's still very much a part of our playbook. We have automation rolling out, but we still have further to go in our Mexican operation, a little further to go in our Czech Republic operation and to a lesser degree, an opportunity in our China operation. So that's something that will continue to drive cost reduction. The second would be design cost. So I mentioned in our new product introduction, not so much in the aligner, but in the treatment part of the process. We just launched something called StageRx. That's to give clinicians sort of a faster, more efficient persona-based way to design and create treatment planning for cases, but it's also more efficient for our design center. Our design center sits effectively between treatment planning, that's at the clinician level and manufacturing. So the more automated we can get there, the more leverage we can use of artificial intelligence and the more efficient that StageRx platform is, that can also be a reduction in our design cycle time, which can help us to reduce design cost. And then the third piece I would just say in general is growth. So as we continue to grow the business, we're very focused, whether it's in the orthodontist office with a combined sales force, with the NPIs that we talked about, all of that growth will naturally help us to leverage a fixed cost base to be able to improve our margins. I think we're on record a few times saying that the journey for Spark looks something like a fleet average margin over time, call it, the next couple of years after we got to the milestone that we communicated prospectively for now a year of being profitable in our Spark business at an operating level in Q3 of 2025.

Are there any -- are those sort of thoughts that you were just giving sort of net of any investments that you had to put in to continue to grow that?

Yes. I think you'll see us continue to invest in the front end. So sales, marketing, commercial, more of that is likely to go towards introduction of Spark into new markets. So kind of back on the growth theme this year, we received registration approval in Japan as an example, a big market globally, a big market in dental, a big oral care market, but a market that we hadn't been registered in and actively, of course, selling in. That will be an example of one where the investment cycle will be a little bit ahead of the revenue cycle. We're right in sort of the middle of that, but a good opportunity for us in a very mature market. R&D, I would say R&D will continue to be as it is for Envista, the first place where we likely make investments to continue to drive organic growth. We aspire for most of that to come through our own productivity. So in the case of Spark, it's reducing unit cost and improving in design cost. Elsewhere in Envista, it's things like the G&A reduction that we've driven year-to-date that we're using to reinvest in the business.

Got it. Maybe switching over to implants a little bit. How do you think about the portfolio of product mix that Envista currently have? Do you have the right products within the implants? And sort of how do you think about the R&D focus there in the sort of short to medium term?

Yes. So I think for starters, I would say if you think about kind of the totality of an implant procedure and all of the product and treatment planning that it takes upfront to have a Premium brand or to be successful as an implant company, I would rate us with high marks on sort of the full breadth of that portfolio. So right upfront, that's diagnostics or imaging, that's our DEXIS brand, significant market share globally, a leader in North America. And if you look at sort of the recent trend of products and product launches and innovation, I think we've been a very strong player there. Part of that solution is a treatment planning solution. We call it DTX Studio. That's what's used upfront between the image and ultimately the procedure for a practitioner. Then you get to implants, prosthetics, digital equipment, guided surgeries. Again, I would say across sort of the totality of that portfolio, we have a lot of strength. The breadth of our implants portfolio is where most of our R&D is going. Last year, we invested about $25 million in implants. We invested most of that in Nobel in North America. That's our Premium business. A lot of that went to commercial, some of it went to clinical and some of it went to R&D. I think our 4-quarter positive growth trend in implants is showing the benefits of that, but we still expect to get benefit coming out of the R&D portion of that, which is primarily in that core implant portfolio, call it the implant and the abutment. But I think importantly, the full breadth of either portfolio or solutioning that it takes to be successful in the implant business, we feel we have a very good broad portfolio, whether it's imaging, product or guided surgeries, including things like regenerative biomaterials.

That makes sense. And given the Nobel heritage, you've had a focus on improving the performance of the Premium portfolio. Where are you in this performance improvement process? And what are the next leg of opportunities?

Yes. So I think just kind of picking up on the last point. Last year, our investment to be able to improve the growth trajectory of Premium primarily, but I would say implants in total because it's true of both our Challenger business and our Premium business went into sort of those 3 phases. So again, commercial, clinical, which is primarily education and training and then R&D. I think we're pretty well funded on the commercial side. We spent a lot of last year with the blocking and tackling, if you will, of filling sales territories, but also standing up, for example, a digital sales force that could help in that end-to-end solutioning of a clinician's office or a DSO to be able to create the digital foundation ultimately on top of just the implant solutioning. The R&D portion, as mentioned, I think we still have a little ways to go. And then if you get a little bit on to the organic side of the equation, we know that we're a little bit light on the Challenger mix side of the equation. We're about $1 billion implant business, big numbers, about 15% of that roughly is Challenger. We have 2 strong brands. So we have ABT, that's Alpha-Bio Technologies manufactured out of Europe, selling in Europe, also servicing APAC and Latin America. We have Implant Direct out of the United States. But relative to the 50-50 share that is the global mix of Challenger businesses versus Premium businesses, we know we're a little under-indexed on the challenger side.

So maybe 2 follow-up questions from there. One, if you -- you pointed out sort of the under-indexing on the Challenger side. Is that something that you would look to do like an acquisition? Is this something you think you can sort of grow into organically? And then secondly, I think at Straumann's Capital Market Day, they actually said they're seeing Premium implants do a bit better of late versus some of their challenger brands. So that seemingly would offer you guys a nice opportunity as we get into 2026.

Yes. So I think if you maybe start with the inorganic, smaller, but this year, we announced 2 acquisitions, both -- which both were dinging the bell on both the Challenger implant or implant space in total as well as geographic penetration. So 2 acquisitions in Europe, both relative to distribution, being able to gain geographic -- a little bit of geographic scale. One in the Challenger space, the other in the Premium space. I think that's just an example of how we can access accretive M&A, be able to expand geographically, be able to help pull through the portfolio that we have already on both sides, if you will, of the implant portfolio. But we'll also look at there's good local Challenger implant players to potentially help both in the mix of our business as well as the geographic penetration of the business. Maybe just to the point on value or Challenger versus Premium, we'll see how it plays out. I think over a longer-term horizon, certainly the last few years, Challenger businesses have generally grown at a faster pace than Premium. We do see as interest rates eventually come down that some of the higher acuity procedures like a full arch implant or full arch case, which is typically done more in the Premium space, will likely benefit. And maybe for that reason, you'll see a little better growth in Premium over a shortened horizon. Long term, I would still say sort of odds on favor are that Challengers overall will grow at an equal or better rate than Premium.

Okay. And then sort of given how the market has shifted and maybe to a broader question related to what you just said, like we're seeing better growth maybe at GP practices and with DSOs. So how do you focus on those markets and the opportunity there versus what's been your historical sweet spot with some of the specialists?

Yes. I would say it primarily goes back to my mention of having the full solution portfolio on implants and importantly, everything from the image to guided surgery, right? Think through sort of the lens of a general practitioner. They're not as expert, if you will, as an oral surgeon is in the space of implants. That means there's a lean towards guided surgery or a digital offering. And so our digital sales force approach, encouraging sort of the setup of the digital workflow from imaging all the way through guided surgery is part of our strategy to make sure that not only do we benefit from, as you said, the heritage of having high market share and brand awareness with specialists, but also building that same brand awareness with a general practitioner. DSOs are interested in a very similar way, right? They're looking for scale. They're looking for efficiency. On some level, they're also looking for companies or a company that can help them with the sort of the thinking of that totality. And I think that's where the breadth of our portfolio, but also partnerships with other digital players is helping us in the go-to-market model to be able to be more relevant, if you will, than maybe what would have been known or understood as a selling philosophy in the past.

Okay. And does that also help you with sort of like the channel -- potential for channel conflicts between Premium and value as well?

Yes, I think it does. Maybe a couple of points of reinforcement. So one, our brands and our go-to-market model specific to field sales is still largely aligned with the 3 brands that I mentioned, right? Nobel, Premium, Alpha-Bio, Challenger and Implant Direct Challenger. But there's opportunities, think about a Venn diagram, right, maybe like 3 circles with some overlapping sort of concentric circle within there. There are opportunities. Our digital sales force in premium, Nobel that's had success over the last year can be used in a similar way without -- while being brand agnostic in the Challenger space, as an example. Account leads. There are accounts globally that maybe lean towards being more challenger-based accounts. There are others that lean more towards being a premium-based account. As we run our sales teams and as we continue to find points of integration, naturally, you have a lead, but then you have a follow, right, in the case where a clinician wants to move from Premium to Challenger or Challenger to Premium, and you do a good job of having a lead organization and call it the second organization coming in, the more coordinated your effort there, the better. Implementation and leverage of things like CRM is helping us in that space.

Okay. That makes sense. And then how do we think -- if you have -- you've obviously been in the specialty segment, both orthodontics and generally, particularly Spark, implants, very, very nice growers. How do you think about the importance, given the sort of growth dynamics of that business? How do you think about the importance of having such a broad consumables portfolio under the same Envista umbrella?

Yes. So I think for starters, as you follow and it's sort of in the first question that you asked, Elizabeth, as you follow the dental market over the last, call it, 2 quarters to maybe half a year to 2 years, the stability of consumables has been at a higher rate and the stability of implants or certainly a market like Diagnostics. So for us, that's a positive, right? Having a business that has a level of stability, a level of consistency, operates maybe in a slightly lower growth profile, but nonetheless, is predictable. And our business happens to be one that runs slightly above market. I'll come to that in a moment and has a very attractive margin profile mix-wise as well. Second point would be our portfolio in consumables. So we don't get into it in a lot of depth. A lot of questions go to Spark and ortho and implants.

So much to ask about.

So much to ask about. And when not, it's Diagnostics, right? But we have a nice portfolio in Resto Endo also within a very attractive business in infection prevention. Our business is named, Metrex, one of our strong brands is CaviWipes. We sell both into the medical channel as well as the dental channel. It's a business for us that's been growing above Envista average, above market average. It has pricing power. It has a good innovative platform. And so that's a good example for us of an outperforming business in sort of the broader spans of consumables and maybe as an example of where inorganically, there's opportunities out there even with sort of a slower growing part of the market space to outperform. And then a business that we report in specialty and technologies, but we operate internally within consumables is a business we call Orascoptic. That's loupes, that's lenses. That's what you see on the kind of the dental professionals, primarily the specialists. And it's another example of a business for us that's got a strong NPI pipeline, very strong brand presence, has good pricing power and is growing well above market. So you kind of add all that up, and that's part of the reason why our consumables business this year has been performing as well as it is and gives us good confidence in a sort of a growth trend going forward.

That's good to hear. If we think about the Diagnostics business and the factors that are sort of driving growth there, how would you rank share gains, practice openings, AI-driven improvements and sort of product cycles in terms of contributors to the growth. And I know that the growth hasn't always been consistent. So maybe talk about how things sort of stand now or are shifting.

Yes. So I think hard to get away, number one, from market, the Diagnostics market being the sort of the #1 indicator of growth in the market. We're coming off of last year, the Diagnostics market being down, call it, high single digits globally. That's inclusive of everything that we see in Diagnostics, right? CBCTs, 2D, handheld scanners, sensors, et cetera. This year, I think I mentioned we estimate it's down low single digits. So the market is coming back, and we expect it to be a modestly growing market should interest rates and consumer confidence and the macro give it a little bit of a room to heal. So I think singularly, that is the biggest driver of Diagnostics, at least as a market and our participation typically being a market overperformer growing. Then I would point to new products. So we just came -- Jim and I just came off of the Greater New York Dental Show. Last year at that same show, we were able to talk about 2 major new product launches. It's in our space of CBCT, that's cone beam scanning. We call them OP 3D EX and OP 3D LX. You can simply think about it as sort of a light version of a CBCT and a larger aperture, more specialist version of a CBCT. That's been helping us certainly to be able to grow above market, good penetration in North America, good penetration in Europe. We just announced the launch in -- at IDS this year of our Imprevo iOS scanner. That's our first branded DEXIS scanner since the acquisition of Carestream, started selling it in September, and we see really good momentum here in fourth quarter. So good indication for us. I think the punchline here is that new products and new product pipeline is certainly how we think about growing an electronics business, maybe not unlike any broader consumer electronics space. you got to continue to innovate and you got to continue to find cost out. That's ultimately the best formula for success.

Got it. And maybe piggybacking off of that slightly. Where -- I mean, I would just say where are we in the AI adoption curve of diagnostics. But the answer is early, like I can almost answer that there. But who is adopting it now? Where are you seeing the interest? And sort of how do we think about the rollout of that globally across your diagnostics products?

Yes. Yes. So maybe similarly, the last 2 days, 3 days at Greater New York Dental, I think AI in diagnostics is probably the headline, if not one of the key headlines. We spent time with 8 different research analyst firms and probably 30 different investors, and we spent it primarily in our booth on DTX Studio. That's our treatment planning software that sits between imaging and product placement, and basically did a walk through all of our different AI algorithms that have helped the treatment planning process, in this case for, call it, like a general implant placement, go from something around 60 minutes to something closer to 5 minutes, right? This has been a journey for us over the past couple of years. But much like a lot of software deployment, 2.0, 3.0, 4.0, 5.0, we're continuing to see major strides in that, both in accuracy that helps us move along that curve that you mentioned. So how do you go from being more focused on the specialist to enabling the general practitioner. That's certainly one of the helps. And then it also helps us to broaden how our imaging system, that is our DEXIS products and things like CBCTs can play a role in restorative and endodontics in addition to just implants. But ultimately, it's helping with prediction and efficiency in the clinician's office.

Got it. That makes sense. We've talked a lot about revenues, and that's obviously in products. That's obviously a very, very important part of the story. But how do we think about what the 2026 opportunities are that are not driven revenue driven in terms of expanding margins?

Yes. So I would say a large part, it's a continuation of the playbook we've been on. I think we talked about Spark. So I would sort of call that margin opportunity number one, right? This year, it's about growth. We're getting benefit from the deferral tailwind, but we also have good solid operational performance with the sort of the mentioned 20% cost down per aligner year-over-year. That will be a bit heavy going forward, right? We don't expect to see 20% year-over-year every year. But we do expect to see, as mentioned, that automation rollout to our factories globally in addition to just everyday continuous improvement through our Envista business system, that's EBS continuing to play a role. G&A. This year, we're down 12% by memory, year-to-date on G&A. We expect G&A to be flat going forward. That takes productivity.

Well, on dollars or a percentage?

In dollars. That takes productivity because, of course, you've got merit and sort of general inflation in there. We're leveraging things like back-office consolidation, outsource and offshore in addition to just sort of classic EBS for process improvement. So that will be a continuation. And then to the degree that we can outgrow the market, I think we've talked about reinvestment in R&D and sales and marketing, but we'll try to get efficiency out of that as well.

Makes sense. The tax rate has obviously been something you inherited. So could you give us an update on where we are in that improvement plan?

Yes. So this year, we started the year with a guide of 37%. I know everybody is like looking up at me going, wow, 37%, that's a lot, right? So we just updated our guidance midyear to 33%. And then we talked about something I'll get on to in just a moment relative to the tax rate going forward. So 2 big factors in our tax rate. One is that we've talked openly publicly about having a large intercompany loan between international and the U.S. We pay interest on that loan. And based on your U.S. profits, you're allowed to deduct a certain amount of that interest. Because of the high level of interest dollars and because of our lower U.S. profits historically, we've had a lack of deductibility. That's driven the tax rate higher. In addition to that, our profits as a company as they came down from 2023 created a lower level of deductibility. Two things have happened this year that are important. One is our profits as a company are improving and our U.S. profits have been improving. That's helped the tax rate to come down. And then in third quarter, we talked in our preread remarks about the resolution of that intercompany loan. So the elimination of that loan, which will eliminate the interest, which will eliminate the tax deductibility sort of gap or cap. And by the time we get around to our 2026 guide, we'll give you sort of the full view of what that means. But it will be a tailwind to our tax rate in 2026, much below that 33%. We'll give you the detail on that as we go forward. And then as we continue to improve profits in the U.S., we still have a little bit of third-party interest expense that pressures our tax rate. That's sort of our last remaining item to get back to a more normalized tax rate.

Great. And then maybe in our last couple of minutes, what are you -- how are you thinking about capital deployment priorities? Obviously, you have a nice -- it's a nice problem to have in terms of your cash generation and cash positions. But how do we think about what the priorities are for that as we head into the next year?

Yes. So I think maybe 2 starting points. So one, at our Capital Markets Day, we brought forward, underscored, tried to elevate, if you will, the strength of the free cash flow of the business. Historically, we've ran at or around 100%. We believe we can be at or around 100%, maybe slightly better going forward. So I think point number one is it's a very capitally efficient business, good revenue growth, good margin, reasonably low CapEx, not very intense. And for that reason, generating good free cash flow. Second point I think I would make is that the overall balance sheet strength of the business is good. We operate at slightly less than 1x net debt to EBITDA, about $1.4 billion in debt, slightly over $1 billion in cash. That's another good foundation for us. We have a strong capital structure. And should we be able to continue on this trend of growth and earnings, it gives us a lot of flexibility for capital deployment. Organic will continue to be our #1 opportunity for capital deployment. I think that's embedded in our discussion today about growth, sales and marketing, R&D. M&A will be a priority for us, accretive M&A. So we'll continue to look for opportunities for geographic expansion in addition to portfolio sort of fillers like Challenger implants, maybe good growing aspects of consumables, et cetera. And then we've recently added returning cash to shareholders as a third leg of our capital deployment playbook. This year -- early this year, we announced that our Board approved $250 million in share repurchase over 2 years. We got active on that in the first half of this year as our stock price was low, as the markets kind of were being a little dislocated from the Trump tariffs and sort of global geopolitics, and we'll continue on that trend as we go forward.

Nice. And maybe one last one to finish up on. As we're sitting on the stage in December 2026, what are you going to be most excited that you did across the course of the year and looking forward to for 2027?

Yes. I think probably it would be the changes embedded last year. So taking a swing last year at reestablishing what the right business growth external expectations were for the business, reinvesting in the business, right? Takes risk, right? It doesn't come without risk, but seeing a lot of the fruit sort of bear from that this year. A good growing Spark business in R&D pipeline and new product commercialization coming out of Ormco, 4 consecutive quarters of implant growth, which is really on the back of that reinvestment last year and even some regeneration, if you will, in growth in businesses like consumables and diagnostics. So it's a continued story, right? It doesn't happen all in the course of one quarter. I think a lot of it came from the reinvestment in the business last year and then the sort of the rebuilding of some of our core business processes like EBS, people, culture, talent development. From my vantage point, 2025 is a good year where everything is sort of showing the benefits of good management over the course of the last 18 months.

Great. Well, that's a perfect place to leave it. Thank you so much.

Yes. Thank you.