管理層發言
Good day. Thank you for standing by. Welcome to Dentsply Sirona's Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Wade Moody, Investor Relations. Please go ahead.
Thank you, operator, and good afternoon, everyone. Welcome to the Dentsply Sirona second quarter 2026 earnings call. Joining me for today's call are Daniel T. Scavilla, President and Chief Executive Officer, and John C. Fortson, Executive Vice President and Chief Financial Officer. I would like to remind you that an earnings press release and slide presentation related to the call are available on the Investors section of our website at www.dentsplysirona.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we may make certain forward-looking statements that reflect our current views about future performance and financial results. We base these statements on certain assumptions and expectations about future events that are subject to risks and uncertainties. Our most recently filed Form 10-K and any updated information in subsequent Form 10-Q or other SEC filings list some of the most important risk factors that could cause actual results to differ from our predictions. On today's call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures offer investors valuable additional insights into our business' financial performance, enable comparison of financial results between periods where certain items may vary independently of business performance, and enhance transparency regarding key metrics utilized by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons provided are to the prior year quarter unless otherwise noted. A webcast replay of today's call will be available on the Investors section of the company's website following the call. And with that, I will now turn the call over to Dane.
Thanks, Wade, and good afternoon, everyone. Before we discuss the quarter, I would like to welcome John C. Fortson to his first earnings call as Executive Vice President and Chief Financial Officer of Dentsply Sirona. John joined us on July 20th, and we are excited to have him on board. He is a proven finance and business leader who has worked closely with CEOs and boards through periods of transformation, strengthening operations, allocating capital with discipline, and creating long-term shareholder value. Having served both as a public company CFO and CEO, his experience is well aligned both with where Dentsply Sirona is today and where we are headed in the future. I am glad he is on our team. I would also like to thank Mike Pomeroy for his leadership as interim CFO. I sincerely appreciate his contributions. With that, I will turn the call over to John to review our second quarter 2026 financial results.
Thanks, Dane, and good afternoon, everyone. First off, I would like to say it is a privilege to join Dentsply Sirona. Having followed the company for many years, I am familiar with the strength of the portfolio and energized by the opportunity to help restore the business to its full potential. What ultimately drew me here was the clear commitment from the board and the leadership team to execute the disciplined turnaround. There is a strong focus on operational excellence and long-term value creation. Although I have only been with the company for a few weeks, I am hitting the ground running and ready to execute the return-to-growth action plan with the team. Let's move to Q2 results on Slide 4. Our second quarter 2026 revenue was $898 million, representing a decrease of 4.1% as reported or 6.3% on a constant currency basis. Adjusting for the impact from Byte and the planned dealer inventory reduction of approximately $8 million in the quarter, revenue declined 3.6% on a constant currency basis. Adjusted EBITDA margins were approximately flat year over year with the benefit from $44 million in tariff refunds offset by a decline in gross profit driven by lower volumes, sales mix, and incremental tariff impacts. OpEx was up $12 million year over year, including an FX headwind of approximately $8 million. A decrease in G&A was offset by investments made into sales, marketing, and R&D as was planned in support of the return-to-growth action plan. Adjusted EPS in the second quarter was flat versus last year at $0.52. The tariff refunds translated into a positive $0.17 per share impact. Operating cash flow in the quarter was $99 million compared to $48 million in the prior year quarter. The year-over-year increase is primarily attributable to the receipt of the tariff refunds in addition to improvements in working capital with better management of accounts payable and inventory. We continue to remain diligent on improving our working capital. This will be a key focus area of mine going forward. In the second quarter, we opportunistically repurchased 1.3 million shares at an average price below $10 per share. This represents the first time Dentsply Sirona has repurchased shares since the third quarter of 2024. We finished the quarter with cash and cash equivalents of $239 million and our Q2 net debt to EBITDA ratio was 3.2x, consistent with where we ended Q1 of this year. We continue to prioritize debt reduction. Now let us turn to Q2 segment performance on Slide 5. Starting with the CTS segment, sales were $239 million, an as-reported decline of 1.5%. Equipment and instruments revenue was $137 million, flat year over year with declines in treatment centers. This was partially offset by growth in imaging equipment, particularly in EMEA where we saw increased demand for our ORTHOPHOS line of imaging products. CAD/CAM revenue was $102 million, down mid-single digits driven by lower volumes in the Americas and unfavorable price mix in EMEA, partially offset by double-digit growth in APAC. EMEA saw a slight softening of demand for select areas of capital equipment as providers preferred to delay some investment decisions due to uncertainties from the Middle East conflict. Turning to EDS, which includes endo, resto, and preventative products, sales of $376 million declined 2.7% as reported, primarily driven by lower volumes in the Americas and EMEA. As we shared in Q1, the impact of inventory changes for our EDS products held by our distributor partners in the EMEA region had a negative impact on results. We saw a sequential improvement in Q2 as we obtained greater visibility into the dynamics within various markets and distributors across the region. Overall, sell-out in the region was in the low single digits, consistent with expectations for dental consumables. The sell-in is lower year over year as certain distributors reduce their inventory levels. We do not believe this reduction in wholesale inventory is demand-driven. Moving to OIS, revenue of $197 million declined 13.2% as reported. When adjusting for the year-over-year impact from Byte, OIS declined 5.7% as reported, consistent with last quarter. IPS revenue of $157 million declined mid-single digits, driven by lower volumes of premium implants in the Americas and APAC. EMEA implants grew mid-single digits as reported, led by improved performance for MIS, our value implant brand. For Ortho, SureSmile revenue of $40 million declined double digits, primarily attributable to the Americas region. Wrapping up with Wellspect Healthcare, revenue of $86 million increased 7.1% as reported, driven by the continued strength of new product sales and execution by the business, partially offset by lower inventory levels in the U.S. market. Let's move to Slide 6 to discuss our outlook for 2026. We are maintaining our 2026 outlook for net sales of $3.5 billion to $3.6 billion and adjusted EPS in the range of $1.40 to $1.50. This EPS range excludes the benefit from tariff refunds and impact of incremental tariffs. Our decision to maintain our outlook is based on expectations as of today including our current expectation regarding tariffs and trade policies. Looking to the third quarter of 2026, we expect revenue to decline sequentially due to normal seasonality. As we continue to execute our return-to-growth priorities, we also expect Q3 earnings to be below Q2 2026 levels, excluding the $0.17 benefit from tariff refunds. We remain committed to investing in our sales force, clinical education programs, and R&D, with the benefit of these investments expected to become increasingly visible beginning in Q4. With that, I will turn the call back to Dane.
Thanks, John. As we wrap up the second quarter since beginning our 24-month return-to-growth action plan, our priorities have not changed: focused on putting customers at the center of every decision, improving execution, investing where we see the greatest opportunity for long-term growth, and strengthening the financial foundation of the company. We are making progress, but this is still a turnaround. Some parts of the business are improving faster than others, and there is still a lot of work ahead. As John mentioned, we expect more of the improvement to be weighted towards the fourth quarter given investment timing and macroeconomic conditions. What gives me confidence is that we are beginning to see evidence that the work we are doing is gaining traction. Everything starts with the customer. Over the last six months, we have been rebuilding how we engage with our customers. We are investing in clinical education, strengthening our commercial organization, expanding customer access through our dealer network, and making it easier to do business with Dentsply Sirona. In the second quarter, clinical education was at the forefront. We brought together more than 1,000 clinicians at our Global Implant Summit, hosted endo KOLs at our 2026 Endodontic Forum, and convened leading experts across restorative, multidisciplinary dentistry to help shape the next generation of clinical solutions. These opportunities enable us to learn directly from clinicians, strengthen relationships, and ensure our innovation pipeline reflects what customers need most. At the same time, we are investing in our own commercial capabilities. Every U.S. implant sales rep recently completed the most comprehensive implant certification program we have ever delivered. Our most experienced team members told us they have learned more in those four days than they had in years. This initiative is not only encouraging, but also just the start of an ongoing investment in education. We are also seeing momentum internationally. In APAC, we are expanding education programs, advancing implant sales training, and seeing continued adoption of our connected technology solutions, including double-digit growth in milling systems. On the digital side, DS Core continues to gain traction. During the quarter, four European DSO groups began to implement the platform, reinforcing the value of an integrated digital workflow that connects diagnosis, treatment planning, and clinical execution. We have also continued to strengthen our U.S. distribution footprint by growing our dealer network. During the quarter, we announced the expansion of our partnership with Atlanta Dental and Nashville Dental, and we advanced our long-standing relationship with Medline Sinclair in Canada. These partnerships are important building blocks for sustainable commercial growth, extending our reach and giving more customers access to our connected technology portfolio. Wellspect continues to perform exceptionally well. The business delivered another strong quarter supported by new product launches, geographic expansion, and continued adoption of our newest products. That is a good example of what consistent execution looks like and we intend to apply those same principles across other areas of the company. We also established a small strategic advisory board to provide guidance on Wellspect's long-term priorities, innovation, and growth opportunities. Execution also means improving how we operate internally. We are simplifying the organization, enforcing accountability, standardizing processes, embedding lean operating principles and AI to eliminate routine work and accelerate decision making so our teams can spend more time serving customers and bring innovation to market faster. Financial discipline remains equally important. We are improving cash generation, strengthening the balance sheet, and continuing to deploy capital in a disciplined way. As John previously mentioned, we repurchased 1.3 million shares for approximately $12 million using a portion of the tariff refund proceeds, consistent with the capital allocation framework we introduced earlier this year. We continue balancing investments in innovation, commercial capabilities, and shareholder returns to support long-term value creation. Six months into the return-to-growth action plan, I believe we are going deeper, moving faster, taking bolder steps to improve our business. We are recalibrating customer relationships. We are strengthening our commercial organization. We are expanding access to our products. We are simplifying the company, and we are creating a stronger financial foundation. The path will not be linear, but we are seeing encouraging signs that our actions are beginning to translate into improved execution and stronger customer engagement. Thank you to our employees around the world for their continued hard work and dedication to our customers. I continue to believe the potential for Dentsply Sirona has never been greater, and we have at our fingertips everything we need to achieve our plan. With that, let me turn the call over to the operator so we can start the Q&A session.
分析師問答
Thank you. A question-and-answer session will now begin. As mentioned, at this time, we will conduct the Q&A session. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. Please limit to one question and, if you wish, a follow-up. To withdraw your question, please press *11 again. Please stand by while we compile our Q&A roster. Your first question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is now open.
Hi, guys. Good afternoon, and thanks so much for the question. I guess my first question is, John, maybe you could talk a little bit about why Dentsply Sirona was the right next step in your career and also, do you guys now think you have the full team in place to go forward with what you need to do to help get the company on the right footing? And can you also, maybe as my follow-up, talk through how you see the drivers that increase EPS from Q3 to Q4 like you were just laying out, John? Thank you very much.
Sure. I will start. Dane can talk a little bit about the team. But I followed this company for a long time. I have been in the Carolinas really for 15-plus years and have followed the story. I really feel like the board and the current leadership team under Dane are ready to do what needs to be done to take this company to the next level. Having studied for a number of months, the return-to-growth action plan and in conversations with Dane and the other leaders, I feel like they have the right plan at the right time, and I am pretty excited about being here. You know, I look at the prioritizations. They are pretty straightforward: we return to growth, we maximize profitability, and we maximize cash generation. And I think we have the opportunity to do all three. Thanks.
And I will take the rest of that, Elizabeth. We have a great executive committee, my direct reports. If you look through it, a vast amount of that was rebuilt, and those that remained were really strong bases to go from. So I feel very bullish about that team. The rate of engagement we have around the world when it comes to our directors continues to impress me. To answer the question, yeah, we have what we need to make the changes that we need to make. I feel very strong about that. As far as the progression and heaviness perhaps in the fourth quarter, given the turnaround and very similar to what we may have spoken to in the past, a lot of that really banks on the timing of when those structural changes take place; you will see it bear more in the fourth quarter than you would previously. In addition, if you remember, we have added a lot of the dealers in the first or second quarter. I always mentioned it is about nine months before you can really produce there to sell capital. You are bringing them onboard, training them, getting their reps out there, building a pipeline, then closing. While we are positive and seeing positive results from who we brought on, I think that will be heavier in the fourth quarter than perhaps what we have seen in the first or second. Super helpful. Thank you. Welcome, John.
Thank you. Your next question comes from the line of Allen Lutz with Bank of America. Your line is now open.
Good afternoon, and thanks for taking the question. Really a follow-up on my question from last quarter around the return-to-growth action plan here. Dane, you talked about a lot of the same things that you talked about last quarter: some new distribution partners, which you executed against in the quarter; investing in clinical education; and R&D continues to trend up nicely. Would love to get a sense in terms of where you are most excited. You sort of answered it a little bit with the last question around maybe some of the contributions from dealers coming in the fourth quarter. But would love to get a sense of the parts of the return-to-growth action plan as you go through it now that you are six months in. Love to get a sense where you are most excited and what you think the first part of that is to hit the P&L. Thanks.
Thanks, Allen. I appreciate that question. Honestly, what I am most excited about is the level of engagement we have with our dentists and seeing that accelerate at different levels of the company. It is a re-engagement, and the feedback from dentists coming back to the clinical education programs or interacting with executives or attending events has been very positive. They see our recommitment. That excites me because, as we say, it is all about the customer first. If we are going to turn this around, it is about supporting the customer and then earning the right to grow and take share from there. Second, with John joining the team and filling out an already strong executive council, that is exciting. And you are right: I like the partnership expansion in the U.S. with the dealers, and I think that is still yet to prove out more in the second half of the year, but all three of those rank up for me.
Your next question comes from the line of Michael Cherny with Leerink Partners. Your line is now open.
Thanks for taking the question. This is Dylan Finley on for Mike. Just wanted to start briefly on the tariff refund. Just a clarification point: was that refund assumption embedded in the initial guide? And does the maintenance of the guide account for the contribution of that refund? And then secondly, if you could just broadly comment on your quarterly run rate into COGS, what you are seeing today with the 21 twos and now the 301s—where do you see your quarterly spend on tariffs from here?
So Dylan, I will answer that. The first thing is we did not build a refund into our initial guidance. That was something that we decided not to do because it was uncertain when it would occur or what it would be. So that is in addition. As we maintain our base guidance, as John called out, we are saying we are not changing that. And certainly, in addition, we would layer in some semblance of the tariffs that we are calling out earlier in the presentation. It is something totally unrelated to the operations of the business and done. We do not disclose the rate of tariffs per quarter, so I will refrain from answering the run-rate question.
And then as a brief follow-up here, you showed some gross margin improvement. Backing out the tariff benefit, on SG&A in the past you talked about targeted annual savings. Any updated thoughts on the magnitude of that and timing of when we should see some improvement in SG&A? Thanks.
It is a bit of a put-and-take. We are reorganizing a lot of the company, whether through headcount or indirect spending, but I am also redeploying that into increasing the field, clinical education, rep education, and accelerating innovation. So it is not an anticipated drop through to the bottom line so much as repositioning for long-term growth. That repositioning is occurring now.
Kathy, do we have Vik on the line? Pardon me. Yes. Vikramjeet Chopra with BMO. Your line is now open.
Hi, Dane and John. It is Anton on for Vic. Thanks for taking our questions. Maybe first I will start on the U.S. commercial expansion. Dane, you have repeatedly said the U.S. business recovery is your top priority and have been building out the U.S. commercial team with senior leadership and competitive hires. I would be curious to hear where we stand in the U.S. commercial team buildout. Do you have all the people you need or are there more seats to fill? And does the guide contemplate accelerating productivity from these hires throughout the year, or is that more of a 2027 phenomenon?
Thanks, Anton. First, I would say I will probably never have as many people as I need, because there is no finite answer—I want to add as many reps in the field representing us as we can. That said, in the first quarter we made a significant verticalization of our commercial organization and those leaders are dental experts with a lot of competitive experience, and they did a great job. We are retraining the reps we have, recertifying them, and expanding through new hires and competitive hires. I think those efficiencies will continue sequentially through the quarters, but will be more impactful in 2027 because a lot of that training and clinical education and getting everybody into the field will take time. I'm happy with the progress being made with that team.
And maybe one more follow-up on China. Last night, one of your peers shared updated perspectives on the China environment and VBP timing. Can you give your perspectives on China VBP 2.0 in 2026 and how to think about the impact for Dentsply Sirona?
Great question. It has been delayed and cast out there; I know it was pushed off several months. We do not have a significant impact baked into that for this year nor do I expect one. China is an area of significant long-term growth for us right now and it is one we are keeping our eye on. The VBP is simply one step along the way for us to get deeper into that market, but at this point it is a smaller piece and we are focused on building the business over time.
Your next question comes from the line of Jonathan Block with Stifel. Your line is now open.
Hey, everyone. This is Joe Federico on for Jonathan. Thanks for taking the question. Maybe just to zoom in on implants a little bit. Is there any further detail you can provide on the performance in the quarter? I think you said EMEA was mid-single digits led by value, but maybe any other color between value and premium? How did the U.S. perform? And then just how do you view the market growth there in the quarter and in Q3 to date? Thanks.
We tend not to break down implants by product in a lot of detail. What I would tell you is that our value products in EMEA had a very strong quarter. In the U.S., as part of the turnaround, we lag behind. We have strong products and we have recertified our team to focus on workflow and dentist needs rather than just selling a single product. It is still a continued investment in our turnaround plan focused primarily on the U.S., while still investing in EMEA and APAC. When you look at the competitors, we are lagging and we need to change that. We have the right products and the right approach; we have to execute to get up to market and beyond.
Your next question comes from the line of Michael Sarcone with Jefferies. Your line is now open.
Hey, good afternoon, and thanks for taking the question. Two for me. Can you just give us an update on capital equipment demand? I think you mentioned some uncertainties in Europe related to Mideast tensions, so maybe give us an around-the-world view. And then second, Dane, you talked about the salesforce ramping. How are you thinking about growth in implants as we look to 2027? Thanks.
On capital equipment, it is seasonal. In EMEA, because we are one of the leaders in dental, some of the rural regions are a little bigger for us and perhaps our competitors, and we are seeing delays because of uncertainty related to the Middle East situation. We are not calling it down specifically; it is an uncertainty we are monitoring. It could clear in Q3 or Q4, we hope so, but we have our eyes on it. On the salesforce productivity and the lift for implants into 2027, I am going to refrain for now—I need to focus on this year and the turnaround to finish that, and we will provide more guidance early next year.
Your next question comes from the line of Lilia-Celine Lozada with JPMorgan. Your line is now open.
Great. Thanks for taking the question. Following up on the prior question about implants, when I look at the results across the segments, one area that was really softer this quarter was OIS. I am hoping you can unpack that a little bit. To what extent was that a function of headwinds from a weaker consumer environment given the price point and more elective nature of the procedures, or was there something else at play?
Thanks, Lilia. A couple of things with OIS. Remember that you have the Byte impact that John called out; that still carries through and is a significant part of the decline. SureSmile is more of a U.S. impact, and I think it is about us re-entering orthodontics, hiring that sales force, modernizing the software, and executing. So the Byte removal is still a carry-through. SureSmile in the U.S. is the next focus area. The rest of OIS I was generally happy with.
And then on macro, it sounded like you did see some pockets of lower demand due to the macro environment. Previously you suggested market ebbs and flows do not impact much given the operational improvements you are making. Can you clarify your latest views on macro and how much that could impact you in 2026?
Great question. I will clarify: in the past I have said we shouldn't count on market ups or downs to drive our growth—we have things to do ourselves. That remains true. When I called out macro, I was referring to keeping an eye on tensions in the Middle East which are somewhat disruptive, not just to procedures or capital, but also to freight and costs. To date we have absorbed impacts. I anticipate those pressures to settle back to normal, and I have not backed off the return-to-growth investments in the salesforce, clinical education, or innovation. If pressures remain high, there may be a point where I choose not to absorb them and adjust accordingly on the bottom line, but I do not see that yet. That is what I meant.
Your next question comes from the line of Jeff Johnson with R.W. Baird. Your line is now open.
Thank you. Good afternoon, guys. I wanted to start on EDS if I could. You pointed to volume declines both in EMEA and in the Americas. Any way you can qualitatively help us understand which of those might have been better or worse and how to play one off the other? And on distributor changes in Europe, any clarity there? Second, you had mentioned in the past you did not think you had room to increase price on EDS, but our channel conversations suggest you may have pushed some price recently on consumables in the U.S. Any truth to that and did that impact the quarter or your go-forward thinking?
In EDS, most of the pressure remains in Europe. We have seen some of our bigger dealers make significant orders in Q2 that were positive and double-digit growth, but multiple dealers—many private equity-owned—have taken historic inventory levels from about 12 or more weeks down to possibly eight weeks. We are seeing sell-through occur and we feel positive about those activities; it's multiple dealers, not one. This has come through in restorative and endodontics more than anything else. In the U.S., there are things we need to do with portfolio, pricing, and positioning to be more competitive. As we educate the team and refocus in endodontics and restorative, there is opportunity. Regarding pricing, there is always a price tweak here or there. We have not taken anything significant in pricing; we have not implemented a price increase since September 2025. Some channel signals you hear could be cleanup of price, SKU shifts, or mix impacts, but no major price action in the quarter.
Your next question comes from the line of Kevin Caliendo with UBS. Your line is now open.
Hey, guys. Thank you for taking my question. I want to understand what is embedded in the current guide from the market perspective. What do you expect the markets to do over the second half of the year, and how do you feel you are going to do against that? In other words, do you feel you will be in line with the market, lose share, or gain share against that? Also, regarding distributor inventories and the new distributor relationships, were you saying inventory levels are broadly lower, or on a same-store basis? If you sign a new distributor relationship, would you be putting inventory to them as well? I'm trying to understand what that meant and how to think about that.
On the distributor comment: when we sign up U.S. dealers for capital expansion, they are not buying and holding capital inventory; we work with them to move it differently, so you would not see a lift from that. The prior comments about inventories were focused on EDS dealer models in Europe. Regarding market expectations, when you hear reports about market stabilization, I agree—there may be a market growth of around 3% generally. However, what is embedded in our guidance is different: we are calling out a turnaround and trying to go from negative into flat into growth over time, which is not something we expect to fully achieve within 2026. Our guidance is more about executing clinical programs, rep education, and commercial execution. I would expect negative Q1 and Q2, somewhat less negative Q3, and I am looking for the U.S. to exit the year with a plus sign. Market share gains and broader market dynamics will be more of a 2027 story as we execute the plan.
Your next question comes from the line of Steven Valiquette with Mizuho Securities. Your line is now open.
Hi. Thanks. Steven Valiquette from Mizuho. With ongoing discussion this quarter among digital equipment manufacturers, customers continue to move to lower price points on intraoral scanners. We heard more about some movement to leasing arrangements for digital equipment instead of straight sales, at least from some manufacturers. Was just curious to get your updated thoughts on the competitive landscape in IOS, any inflection on leasing versus purchasing for higher-priced items from your perspective, and also remind us of your philosophy on leasing options for practitioners for your own digital equipment offerings. Thanks.
Great question. You should always offer many options to the customer: buy outright, finance over time, or lease. All are valid and we are open to them and have been doing them. There is growth in lower-cost intraoral scanners and quality has improved over time. There is room for premium, but you also need flexibility to get devices into customers' hands. We need offerings at different price and capability levels depending on the customer's needs. That is part of our innovation program—we are looking at high-end, mid, and low options for next-generation intraoral scanners. Those financing and leasing options are things we have in place.
Your next question comes from the line of Erin Wilson Wright with Morgan Stanley. Your line is now open.
A couple of modeling questions. One, on organic constant top-line growth: did you provide a true underlying organic metric that you anticipate for the second half, and what is embedded from a currency perspective? And on the tariff refund, does the guidance reflect share buybacks associated with the tariff refund or future buybacks? I want to be clear on what is embedded in the EPS number and what is not, especially regarding buybacks.
Erin, earlier in the year we saw a favorable FX tailwind that will taper down over the quarters. The $3.5 billion to $3.6 billion sales guidance is what we expect to hit for the year; we did not provide a detailed split between constant currency and reported for the guide. The favorability of Q1 will diminish in subsequent quarters and we expect currencies to be roughly neutral or potentially slightly negative by year-end, so FX is not a major driver. On tariffs, we are distinguishing the refund as an oddity and have not baked the refund into the base guidance. We are not changing the base and are calling tariffs separately for modeling purposes. Regarding buybacks tied to tariff refunds, we have used a portion of the tariff refund proceeds opportunistically, but the guidance does not assume ongoing buybacks tied to refunds; capital allocation will continue to balance investments and shareholder returns per our framework.
You spoke about distributor relationships and expanding with Medline Sinclair in Canada. How is that relationship different or unique, and how are North America distributor relationships progressing overall?
In Canada, Medline Sinclair has great reach and field presence; the expansion gives us capital presence we didn't have before and allows us to get products in front of more customers faster in a strong market for us. In the U.S., a couple of the new dealers have grown double digits so far; these are smaller numbers today but they can grow and become more significant over time. I am cautious and want to get through Q3 and look at Q4 results, but I am encouraged by early progress.
Your next question comes from the line of Daniel Grosslight with Citi. Your line is now open.
On CTS in the Americas, I think we were down around nearly 10% constant currency. Can you help us understand whether this is primarily being driven by CapEx deferral given the macro and rate environment? Are you seeing competitive displacement in CAD/CAM and imaging, particularly from lower-ASP offerings?
We are not seeing a huge competitive bleed at this point. I think it is more about timing; capital is always bumpy and that is what we attribute it to. It is mostly in the CAD/CAM area that we called out, but I do not see anything that would indicate a competitive disadvantage. It is largely a matter of closing deals that are in the pipeline.
Got it. And just an accounting question on the tariff impact or the tariff benefit this quarter: I think I heard this, but I wanted to double-check. Did the full $44 million hit the P&L? If I normalize for that, would I subtract $44 million from gross profit and adjusted EBITDA, or is there some other dynamic?
You are exactly right. The $44 million impacted the P&L, and you would normalize by subtracting that amount from gross profit and adjusted EBITDA for comparative purposes.
Your next question comes from the line of Michael Petusky with Barrington Research. Your line is now open.
Good evening. Dane, you called out the formula for how Wellspect is winning, which has a lot to do with new product launches and innovation. You come from a space where innovation was key to winning. I'm curious about the incremental R&D spend you are doing now: is the mandate to take bigger swings, or hit more singles? And in terms of timeframe for impact, could any of the work you are doing now impact mid- to late-2027, or is 2028–2029 more realistic?
With Wellspect, we invested to fuel product launches and market penetration; they are responding well and that business can largely fund its own growth. On the dental side, the increase in innovation this year is intended to accelerate products and platform capabilities. DS Core is a platform, and putting more functionality into the digital dentistry flow—like implants on Core or ortho on Core—should move those forward meaningfully. We have to file and get regulatory approval; goals are to have filings in late 2027 and commercialization potentially in 2028. Had we not accelerated investment, timelines would have been further out by at least a year. Our R&D portfolio is a mix of home runs and singles: a blend of organic and inorganic opportunities, so timing varies by product. Some things will meaningfully impact 2027, but broader platform rollouts will likely be more visible in 2028.
Quick follow-up: historically, Germany has been a key market. Can you give an update on Germany performance?
Germany is doing okay; it's moving around market pace right now. Nothing material to call out—it remains one of our top markets but not driving a large amount of growth this quarter.
Your next question comes from the line of Joseph Downing with Jason Bednar from PSC. Your line is now open.
Hey, guys. Thanks for taking the question. When you look at segment performance, it looks pretty different depending on geography this quarter: CTS down high singles in the Americas but up double-digits in APAC, while OIS fell in the Americas and was closer to flat in EMEA. How do you run one return-to-growth playbook when each unit's soft points sit in different geographies, and which regions within each segment get priority for resources?
Everything matters, but the U.S. is top priority for returning to growth. Getting implants and CTS up through dealer expansions and education is critical while maintaining the lead in EDS. EMEA leadership is funded but does not need as intense a turnaround plan; their focus is on addressing EDS dealer inventories and driving through. APAC requires tailored programs for China, Australia, and Japan. The model—customer first, innovative products, clinical education, and strong reps—applies globally; you just adapt it to each market's maturity curve.
Your next question comes from the line of Brandon Vazquez with Morningstar. Your line is now open.
Hey, Dane. I recall you highlighted investing beyond education, especially in implantology, as a main source for return to growth. As you sit today and assess ROI on that front, how do you feel about it? Does the long-term picture look improved or neutral?
Clinical education is an investment that pays over multiple years. Spending this year may show some uptake in Q4, but the sustained benefit comes from building awareness and continuous use across general dentists, specialists, and referral networks. I've seen what happens when clinical education is trimmed, and getting it back on track is important. In Q3 we'll make a bolus of investment without immediate revenue; the returns will come in later quarters. The return-to-growth plan is about spending at the right time for sustained long-term growth.
One more on CTS: CTS in APAC has had two quarters of sequential improvement. Is there anything specific going on there that we are not seeing elsewhere? Any one-timers or inventory stocking, or do you feel the market condition has improved since the beginning of the year?
We implemented a specific execution program in two key markets in APAC designed in Q4 last year and executed starting in Q1; we are seeing positive uptake from that program. It is applicable globally but we're piloting it in certain APAC markets and the execution is driving the sequential improvement.
This concludes the question-and-answer session. Thank you for your participation in today's conference. This concludes the program and you may now disconnect.