Align Technology, Inc.

Greetings and welcome to the Align Technology second quarter earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shirley Stacey, Vice President, Corporate and Investor Communications. Thank you. You may begin.

Thank you, everyone, and thank you for joining us. Joining me today is Joe Hogan, President and CEO, and John Marici, CFO. We issued second quarter 2020 financial results today via Globe Newswire, which is available on our website at investor.aligntech.com. On April 1, 2020, we completed the acquisition of privately held Exocad Global Holdings GMVH, Exocad, To reflect this edition of ExoCAD into our operations as of Q220, we have renamed the scanner and services segment to imaging systems and CAD CAM services, or systems and services. Today's conference call is being audio webcast and will be archived on our website for approximately one month. A telephone replay will be available today by approximately 5.30 p.m. Eastern time through 5.30 p.m. Eastern time on August 5th. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13705887, followed by pound. International callers should dial 201-612-7415 with the same conference number. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events and product outlook. These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission, available on our website and at sec.gov. Actual results may vary significantly, and a line expressly assumes no obligation to update any forward-looking statement. We have posted historical financials, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation as applicable. and our second quarter 2020 conference call slides are on our website under quarterly results. Please refer to these files for more detailed information. With that, I'd like to turn the call over to Align Technologies President and CEO, Joe Hogan. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us. I'm pleased to report Q2 results and continued progress across all regions and customer channels that reflect our COVID-19 recovery efforts and those of our customers. Practices across every region have reopened and are seeing patients, and many of those practices are embracing digital treatment in new ways and more purposefully than ever before. In particular, Invisalign providers are using the virtual tools we expedited over the last few months to minimize in-office appointments and deliver doctor-directed, personalized treatment that meets the needs of the moment, trusted, safe, convenient, and reflecting the digital option. Initiatives we have prioritized globally over the last few months, including support for doctors to ensure treatment and business continuity, a shift to online education and training, ramping availability of virtual tools to keep doctors and patients connected throughout the treatment, and continued investment in consumer marketing, concierge programs, and personal protective equipment, or PPE, are helping doctors navigate this evolving environment and come back stronger as their practices have reopened. We've received consistently positive reactions and feedback from doctors in support of our efforts over the last few months. While it's too early to know for sure how extensive and sustainable the digital transition will be, interest in digital solutions is building, even among doctors who were not early adopters or advocates prior to the pandemic. The positive feedback and momentum is not just around Invisalign treatment. It includes digital workflow around iTero scanners and general dentistry. Doctors are telling us that iTero is central to their practice and to their practice workflows, and it's key to driving digital treatment. With that, let me turn to results. For Q2, total revenues were $352 million, down 36% sequentially, and down 41% year over year, reflecting significantly lower sales of Invisalign clear aligners and iTero scanners due to a full quarter's effect of COVID-19 pandemic on practice closures. Revenues from clear aligners were 298 million, and imaging systems and CAD CAM services were 54 million. On a year-over-year basis, while clear aligner shipments were 222,000 cases down 41% year-over-year, we are pleased with the continued progress we've seen from our recovery efforts throughout the quarter. For the quarter, we shipped Invisalign cases to approximately 48,000 doctors, of which 3,000 were first-time customers, reflecting lower doctor activity due to practice closures, primarily in America's GP channel. We also trained approximately 3,500 new doctors in Q2, including 2,350 international doctors. While our inability to hold in-person courses due to COVID-19 resulted in fewer trained doctors in the second quarter, we continued with a significantly larger number of Invisalign doctors through online virtual education courses, summits, and forums. For the teen market in Q2, 71,000 teens and preteens started treatment with Invisalign clear aligners, representing 32% of total cases shipped, reflecting growth from APAC across comprehensive products. By the end of the quarter, we started to see recovery in the ortho channel with increases in Invisalign comprehensive treatments in the teens and preteens segment across most regions, with positive growth predominantly in APAC in the teen segment. Invisalign First continues to accelerate among young patients as well and reflects greater resiliency as parents continue to prioritize orthodontic treatment for their kids. Overall, both non-comprehensive and comprehensive shipments were down, but with increased adoption of our moderate product among the ortho channel. Last week, we held our teen form virtual edition, taking what was a popular teen intensive program for orthodontists launched last year and recreating it as a virtual experience. In order to facilitate broader attendance among our customer doctors, we scheduled two teen forums, virtual events. The first took place on July 17th, and the second will be held this Friday. The program is designed to help doctors understand the highly visual online and on-demand world of today's teens and provide the know-how, tools, and confidence to differentiate and grow their Invisalign teen practices. Approximately 800 customers have registered for this full-day session that combines live and on-demand sessions, clinical and practice integration presentations, panel discussions, and invaluable insights from experts with successful team practices. Now let's turn to the specifics around our second quarter results, starting with the Americas. For the Americas region, Q2 Invisalign case volume was down 53% sequentially and down 52% year over year, reflecting significantly fewer Invisalign case shipments due to the impact of COVID-19. For Q2, reported utilization was down for NA orthos and GPs both quarter over quarter and year over year. However, utilization increased in June, especially among certain orthodontists doing more Invisalign treatments with teen shipments, recovering faster in North America in late May and through June. As part of our recovery programs, we enabled doctors to switch their braces patients into Invisalign treatment by buying their wires and brackets. This program was well-received, and as a result, doctors converted approximately 2,500 wires and bracket cases to Invisalign clear aligner patients. In the GP segment, the timing of office reopenings in case prioritization slowed the recovery in this key segment as compared to the orthodontic segment, but the GP segment is catching up. In terms of timing of the recovery in the Americas, the U.S. continues to lead, followed by Canada and then Latam, corresponding to the timing of the pandemic-related shutdowns and reopenings in each region. For international business, Q2 Invisalign case volumes were down 17.2% sequentially, reflecting a significant decrease in EMEA, again due to the impact of COVID-19, partially offset by growth from APAC, which was ahead in the recovery curve in China, Taiwan, Hong Kong, and South Korea. On a year-over-year basis, international shipments were down 27.1%, reflecting a decline in EMEA, partially offset by slight growth in APAC. For EMEA, Q2 volumes were down sequentially 44% and down 46% on a year-over-year basis across all markets, with more softness in the GP channel compared to ortho. We continued to see momentum with Invisalign first for Invisalign treatment in young patients. Overall, we saw slower deceleration in teen shipment growth than adults driven by Germany and France. The expansion markets had less decline and only accounted for five points of decline in EMEA. We also rolled out a Recovery 360 program in EMEA with over 3,700 orthodontists enrolled, resulting in a stronger partnership perception by our customers, including an increase in our Net Promoter Score, or NPS. Using a combination of our ADAPT consultants, which I'll be describing more later, and territory managers, we helped practices with their workflow and scheduling, increased our doctors' engagement with their patients through the use of education and communication tools, and provided business viability access to sustainability materials to the doctors. In May, over 1,400 attendees from three regions, 75 countries, participated in our virtual Invisalign scientific forum in EMEA. At the end of June, we held a virtual GP growth summit with over 1,300 doctors from over 42 countries who signed up to gain insights on business, dentistry, health, and change management. During the summit, we launched our GP recovery program and received great feedback on the tools and approach we provide to support business recovery. During the quarter, we also offered over 150 online and on-demand education events, which reached over 20,000 GPs cumulatively. In July, we launched the Invisalign Go Plus system in the UK, Nordic, and Benelux, which offers wider treatment options, enables dentists to treat more patients with confidence, and can be easily integrated into a wide range of restorative treatments in their practice. For APAC, Q2 volumes were up sequentially 41%, reflecting improving trends as practices reopened and got back to business, as well as COVID-19 recovery measures we implemented in China. On a year-over-year basis, APAC was up 3.4% compared to the prior year and was the only region up year-on-year. As mentioned earlier, we saw positive growth in APAC in teen shipments led by China, reflecting a strong uptick of recovery programs. In the GP segment, we saw growth in the non-comprehensive cases with Invisalign Go and the launch of moderate in China in March, continuing to further demonstrate doctor confidence in treating young patients with Invisalign. Throughout the region, Japan, Taiwan, South Korea successfully managed recovery efforts and performed better than expected. During the quarter, we reached another major milestone with our one millionth Invisalign patient in APAC, an athlete in modern pentathlon and fencing who is being treated by Dr. Yogat in Tokyo, Japan. Earlier this month, we held the Invisalign Teen Forum in China in a virtual forum broadcast to four venues in Beijing, Chengdu, Wuhan, and Yangzhou to approximately 8,000 participants. The forum focused on the innovations and applications of digital technology and clear aligners, as well as theories and clinical practices for teen patients. The forum brought together outstanding orthodontists from leading dental colleges from approximately 30 academic institutions. We believe that our global clinical education programs are the best in the industry, and we've been even more valuable to doctors throughout the pandemic. We launched a new improved digital learning environment for our doctors this year, offering a comprehensive learning platform with role-specific content for orthos, GPs, and their teams. The improved functionality enables more online learning opportunities with spotlight features for what's trending now, recommending learning paths based on doctors' experiences, and expanded categories including digital treatment planning, comprehensive dentistry, and team education. To date, over 85,000 doctors have accessed recorded lectures and completed self-paced learning modules and watched how-to videos in over 3 million sessions. Among the ortho channel, over 30,000 unique users have engaged with a digital learning site with an additional 50,000 unique users from the GP channel. We are encouraged by the digital training utilization rates among our doctors, which has helped them continue their Invisalign treatment learning journey during the pandemic. Feedback from the participants describes the courses as engaging, providing broader reach to online events and a strong desire that Align continue to provide these virtually. They also acknowledge Align's agility in providing relevant tools and content to help them during the lockdowns. We see this as an ongoing opportunity to enhance doctor learning through direct feedback and continuous improvement. Building on the benefit of critical education and training, today we announced a global launch of the Align Digital and Practice Transformation, or ADAPT, service. This is our first customized consulting service and support offering for doctors and was developed based on years of learnings from practices that solve strong growth and practice transformation when changing their practice to digital. Initially available to Invisalign and iTero doctors in select segments of the EMEA market and then in the U.S., the global program is now generally available in EMEA and APAC regions and will be available in the U.S. in the second half of this year. The ADAPT program is an expert and independent fee-based business consulting service offered by Align to optimize clinics, operational workflow, and processes to enhance patient experience and customer and staff satisfaction, which will in turn translate into higher growth and greater efficiencies for orthodontic practices. The goal of the ADAPT program is to support digital practice transformation for doctors and their staff. ADAPT is designed for orthodontists with approximately 200 total case starts per year who are seeking to build their future business. Driven by a team of independent business consultants, analysts, and program support specialists, ADAPT offers a customized onsite consulting service to each participating practice. The program combines a review of business operations and practice workflow data with aligned expertise in digital workflow optimization, practice support, business transformation, marketing, and clinical education support. The pilot version of the program has been successfully developed across the EMEA, the United States, Asia Pacific region over the last 12 months. As a result of the ADAPT service, participating practices improved profitability up to 15% within six months of implementation and increased practice revenue up to 20%. Our consumer marketing is focused on building the clear aligner category and driving demand for Invisalign treatment through a doctor's office. In Q2, we saw strong digital engagement globally with more than 70% increase in unique visitors as well on leads. Other key metrics showed increased activity engagement with the Invisalign brand and are included in our Q2 quarterly presentation slides available on our website. We're pleased with the strong engagement and activity we've seen on our customer platforms over the last few months and believe it speaks to the strength of the brand and consumer interest in treatment even during the challenges of the last few months. In Q3, we are coming into what is typically the strongest part of the team season. with teens and younger kids are home from the summer break and likely to start treatment before heading back to school. And while back to school looks very different this year in many countries, including the United States, this is still a time when practices, especially orthodontic practices, are focusing on younger patients. Teens are the biggest and most critical part of orthodontic practices and are huge influencers and drivers of practice growth. That matters now more than ever as we partner with practices in this recovery. One of the most important ways we partner with customers is by creating demand for Invisalign treatment and to drive teens and parents to their practices for great outcomes and great treatment experiences. We have just launched a new teen and mom-focused consumer campaign designed to do this just that by reaching teens and moms where they are most engaged on digital platforms, social channels, and later this year, national and cable TV channels where they spend the most time like Instagram, Twitch for teens, Instagram, Facebook, and people.com for moms. We're going to leverage influencers that teens and kids follow and trust, like Charlie D'Amelio. We recently established a new partnership with Charlie, who is a really dynamic kid and accomplished dancer who has a combined following of over 90 million fans on TikTok and Instagram. She's about to become a new Invisalign patient and ambassador for our brand. She'll be sharing her treatment journey in a way that is relevant to teens across social platforms. And our new campaign will get to the heart of what Invisalign is and what it isn't, using straightforward language that teens respond to. Our goal is to tell teens why parents, Invisalign is more advanced and more comfortable than traditional braces, emphasizing that this is not your parents' braces. We also want to ensure that they know that doctors are front and center in the Invisalign treatment, because it's time to be very candid about the benefits of digital orthodontics and Invisalign treatment specifically. For our systems and services business, which now includes ExoCAD, Q2 revenues were down 22% sequentially. We were pleased to see the momentum with Element 5D imaging systems in North America and APAC, along with sales of iTera Element 1 scanner model in China and significant sales of the Flex scanner model in EMEA. On a year-over-year basis, systems and services revenues were down 48%, were slightly offset by the inclusion of ExoCAD CAD-CAM services. Cumulatively, over 24 million orthodontic scans and 5.5 million restorative scans have been performed with iTero scanners. For Q2, total Invisalign cases submitted with a digital scanner in the Americas increased to 86% from 77% in Q2 last year. International scans increased to 72%, up from 61% in the same quarter last year. We're pleased to see that within the Americas, 96% of cases submitted by North American orthodontists were submitted digitally. We also recently announced that the iTero Element 5D imaging system was awarded Best New Technology Solution for Dentistry in the 2020 MedTech Breakthrough Awards. The annual program honors outstanding health and medical technology products and companies. We also received an award from Dentistry IQ naming the iTero Element 5D imaging system as number 10 of 14 products and services to help dentists rebound from COVID-19. With that, I'll turn the call over to John.