Align Technology, Inc.

Greetings, and welcome to Align Technology's third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A 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. Thank you for joining us, everyone. Joining me on today's call is Joe Hogan, President and CEO, and John Marucci, CFO. We issued third quarter 2020 financial results today via Globe Newswire, which is available on our website at investor.aligntech.com. 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 November 4th. To access a telephone replay, domestic dollars should dial 877-660-6853 with conference number 13710706, 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 Align expressly assumes no obligation to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP and non-GAAP reconciliation, if applicable. and our third quarter 2020 conference call slides on our website under quarterly results. Please refer to these files for more detailed information. With that, I'll 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 stronger than expected results with record third quarter revenues up 21% year over year, reflecting strong momentum across all regions and customer channels for both Invisalign Clear Aligners and iTero scanners and services. During the quarter, we continued to support doctor recovery efforts with products, programs, and virtual tools, and training that helped more docs transition their practices to digital technologies and drove record utilization across the Invisalign portfolio. Capping off a record quarter is an achievement of our ninth millionth Invisalign patient milestone. We also saw a strong response to our new teen and mom-focused consumer campaign with 118% year-over-year increase in total leads, garnered 3.3 billion impressions and uptick in consumer engagement from new social media influencers like Charli D'Amelio and Marshall Martin, a 26% increase year-over-year in teenagers using Invisalign clear aligners. Our overall revenue momentum has continued into October, and we are encouraged by positive feedback from Invisalign practices regarding the benefits of digital orthodontics, starting with an iTero scanner for Invisalign treatment, especially in this COVID environment. For Q3, total revenues were $733 million, up 108% sequentially, and up 21% year-over-year, reflecting a sharp rebound in sales for both Invisalign clear aligners and iTero imaging systems as practices around the world reopened and got back to work treating existing and new patients. Q3 revenues for clear aligners were 621 million, up 20 percent year-over-year, and imaging systems and CAD CAM services were 113.4 million, up 24.5 percent year-over-year. QC and this line shipments were a record of 496,000 cases, up 28.7 percent versus prior year, and up 124 percent versus prior quarter, reflecting strong recovery across all regions. During the quarter, we saw increased demand for new cases as restrictions eased and doctors ramped up their practices. This is in contrast to Q2, where doctors' primary focus was to maintain continuity of patient care for their existing patients through additional aligner shipments and replacement aligners. John mentioned this in his comments last quarter, and we'll touch on it again today. For the quarter, we shipped Invisalign cases to a record 70,000 doctors of which 5,800 were first-time customers, reflecting increased doctor activity as practices have reopened. We have also trained approximately 6,500 new doctors in Q3, including 3,200 international doctors, reflecting increased doctor engagement through our online virtual education courses, summits, and forums. Across the business, we believe there are several factors contributing to our strong performance, starting with pent-up demand. Many of our doctors indicate that they are making good progress in working the backlog of patients from office shutdowns. Penn-up disposable income remains a key factor as consumers focus on feel-good investments, while many other quality-of-life options are low. In our new normal, there are far fewer trips abroad, fewer flights, less money spent on gas, dry cleaning, et cetera. More people can afford to allocate that spending to Invisalign treatment, especially when they're working remotely and critiquing themselves on camera so much of the time. That's the Zoom effect we've heard about across multiple sectors. As we look at our customer channels, we feel the strategy to dedicate sales representatives by specialty alignment is bearing fruit, particularly in the GP dental segment. Sales reps were able to partner with a wider range of providers within their designated specialty during the downturn and assess mindset and specific needs during the recovery and tailor plans to thrive beyond COVID. A digital mindset has been key, and we believe this is the largest influence in the ortho market and the one we've been laying the foundation for over the last several years. For many doctors, they are still down from normal years in terms of overall production and weekly patient flow. But they have prioritized Invisalign clear aligners as their preferred modality, expanded to the first age group, and leveraged programs that help to make the transition from analog to digital treatments. We see this both in teen and adult treatment growing with the same provider, increased use of iTero scanners, our virtual care, our high overlap of bracket buybacks, which as part of our recovery programs, we offer doctors two programs. Either switch their braces and patients into Invisalign treatment by buying their wires and brackets or just buy back their existing inventory. We took out the equivalent of 10,000 cases. providers actively reduced their analog footprints by proactively switching their patients to sustainable digital care with Invisalign. And for GPs who already demonstrate a momentum with digital, an active choice was made to position Invisalign as a priority. Scanning every patient with iTero is generating more opportunity from recall patients, even if overall practice capacity is still down. Because doctors in both channels are trying to anticipate what may come in terms of additional waves and office shutdowns, They are hyper-focused on ensuring that they have the best plan for continuity of care and business continuity, which is digital. To support them in this digital journey, we've rolled out My Invisalign app in virtual care to 40 plus countries. These tools have been received very positively by our doctors and are quickly becoming part of their practice workflow. Our commitment to continuous innovation is key. We've recently announced our treatment planning evolution and global availability of our next generation ClinCheck Pro 6.0 proprietary treatment planning software. ClinCheck Pro 6.0 moves Invisalign digital treatment planning to the cloud, making its robust treatment planning tools and features available to doctors anytime, anywhere, on any laptop, personal computer, tablet, or phone. The release includes a new ClinCheck in-face visualization tool, an enhanced doctor-facing digital clinical tool that combines a photo of the patient's face, with their 3D Invisalign treatment plan, creating a personalized view of how their new smile will look. In addition, we also announced today Invisalign G8 predictability improvement with SmartForce aligner activation for both orthodontists and general dentists starting in Q1 2021. Invisalign G8 with SmartForce aligner activation is our newest biomechanical innovation and the latest in our long history of Invisalign predictability improvements. We continue to focus on building partnership with doctors. Our data shows that providers who had or quickly developed momentum around digital orthodontics leaned into our comprehensive platform and a variety of our programs and resources to accelerate a digital shift. It's a compelling story of how engagement may be the first step that transformation is achieved through the breadth of product and services only Align can provide. Transformation and support programs like ADAPT, virtual tools development of teens, awesomeness centers, GP accelerator, teen conversion, aligner intensive fellowship, iPro, and doctor-led coaching programs that support GP growth. Building on the teen market in Q3, 163,000 teens and preteens started treatment with Invisalign clear aligners, representing 33% of total cases shipped, reflecting growth predominantly from North American orthos and EMEA regions. In parts of the market, we saw an initial rush for teen treatments earlier in the quarter with a slight change in demand profile compared to what we normally see in a typical season, which may be the result of a different type of back-to-school season as most kids return to school late or through virtual learning. Invisalign First continues to accelerate among young patients as well. In terms of product performance, we saw strong growth across the portfolio and non-comprehensive outpaced comprehensive even with the record adult shipments for the quarter. Growth of the Invisalign Go product also increased among GPs, driven by North America and EMEA, and there was an increase in our express package shipments, with North America contributing to the majority of that growth. Overall, both non-comprehensive and comprehensive shipments were up, with continued increased adoption of our moderate product among the ortho and GP channels. Now let's turn to the specifics around our third quarter results, starting with the Americas. For the Americas region, Q3 Invisalign case volume was up 166% sequentially and 25% year over year, reflecting an increase in shipments due in large part to the digital programs and tools implemented during the pandemic to help our doctors as well as our continued investments in targeted marketing and sales efforts. The Q3 utilization was up for North American orthos and GPs both quarter over quarter and year over year. We saw continued utilization increases during the quarter, especially among our orthodontic customers in the teen segment. The strongest teen quarter in the last six quarters. As we mentioned previously, in Q2, we started the bracket buyback program to enable doctors to switch their braces patients into Invisalign treatment by buying back their wires and brackets inventory. We also saw stronger growth in the adult segment. We believe that some of the increase in adult shipments is reflective of how circumstances have changed today. with adults in our target demographic having more disposable income directed at getting their smiles fixed. In Latin America, volume was also up year over year, led by strong growth in Mexico and Brazil. When you consider the timing of the pandemic and the shutdowns occurring later in Q2 for LATAM, we were encouraged by the growth this quarter. We also saw increased utilization in the GP channel with Invisalign Go and adoption of Moderate. DSO utilization also increased and continues to be strong, both driven by Heartland and also Aspen. For our international business, Q3 Invisalign case volume was up a sequential 88%, led by a significant increase in EMEA. On a year-over-year basis, international shipments were up 34%, reflecting increases through both EMEA and APAC. For EMEA, Q3 volumes were up sequentially 104% and up 38%, on a year-over-year basis across all markets with strong performances from the ortho channel as well as the GP channel as many doctors kept their offices open during their typical summer holiday season. Both core and expansion markets accelerated with growth in our core markets led by Iberia, the UK, Germany, and growth in our expansion markets led by Central and Eastern Europe and the Benelux. We introduced the Ortho Recovery 360 program in May of last quarter to support our orthodontists as they started reopening their businesses. As of Q3, over 4,000 orthodontists have enrolled in the program, with over 13,000 touchpoints with sales team members providing a dedicated support in July and August alone. As a result, we continue to see an increase in Net Promoter Score, or MPS, with qualitative feedback from doctors showing that they appreciate Align for their support during this difficult time. We also rolled out Your Billing, Your Brilliance Enhanced, marketing campaign to select EMEA markets that highlights the skills of our orthodontists and illustrates how partnering with Align and using Invisalign Clear Aligners and ITERO systems and services can help further enhance the brilliance of these specialists. To support our GP doctors, we also launched our GP Recovery 360 program during the quarter with over 2,900 GPs enrolled so far. At the beginning of the quarter, we also launched an Invisalign Go Plus system in the UK in Benelux, and had 2,500 GPs attend the event. During the quarter, we continued to offer virtual and hybrid education events for our doctors with online and on-demand education events, which reached over 2,000 GPs cumulatively. For APAC and Q3, volumes were up sequentially 74%, reflecting continued improvement within the region. On a year-over-year basis, APAC was up 30% compared to the prior year. During the quarter, We're pleased to see a record number of unique doctors submitting cases and positive growth in the adult segment with growth in GP channels and non-comprehensive cases with moderate product. In the teen segment, shipments were at an all-time high as doctors' offices continued to recover. We also saw acceleration from Japan and ANZ. During the quarter, we celebrated the grand opening of our China manufacturing facility in Xiong. The event was attended by key partners and doctors in China. The state-of-the-art facility replaces our original temporary facility, further establishing our commitment and capacity to manufacturing Visalign aligners and iTero imaging systems in China. Align was also one of the sponsors of APAC Med Virtual Forum 2020, which attracted over 1,000 attendees from the med tech industry. The forum consisted of panel discussions and live video chat sessions at the Align virtual booth as we continue to establish Align as a global medical company that aims to transform smiles and change lives in the APAC region. Last week, we also hosted the Align APAC Virtual Symposium, a fully digital event that showcased digital treatment technologies and featured practitioners from across the Asia-Pacific region with over 800 participants. Our consumer marketing is focused on building the clear aligner category and driving demand for Invisalign treatment through a doctor's office. In Q3, we saw strong digital engagement globally with more than 78% increase in unique visitors, as well as on leads created driven by our new campaign, revamped social media strategy, and our new Invisalign.com website that has rolled out to 15-plus countries. Several key metrics show increased activity and engagement with the Invisalign brand and are included in our Q3 quarterly presentation slides available on our website. We're pleased with the strong engagement and activity we've seen on our consumer 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. As you recall from last quarter, we launched our Mom Multi-Touch Campaign with incremental support to drive reach, awareness, and foot traffic to practices during the key teething seasons. We also launched a new multimillion-dollar TV campaign designed to reach mom and teens across a broad range of networks nationwide, including cable and connected TV networks. Line is always looking for new opportunities to reach consumers and be relevant to potential patients wherever they work, live, and play. During the quarter, we announced that the Invisalign brand is the official clear-liner sponsor of the NFL Football League, with 11 NFL teams working with great sports brands like the NFL, as another way to connect with consumers by leveraging the power of the NFL brand and its existing brand platforms. The NFL League partnership will help build awareness in Invisalign clear aligner treatment at a national level, while the team agreement will help us engage with key markets and connect consumers with doctors in those markets. During the quarter, we also extended our innovation to drive engagement with new Invisalign stickables designed to personalize Invisalign clear aligners, especially for younger patients. The innovative sticker accessories designed exclusively for use with SmartTrack material are available in a variety of designs, colors, shapes, and themes and reflect patients' desire to show their personal flair during Invisalign treatment. For our systems and services business, Q3 revenues were up 110% sequentially due to higher shipments and service revenues. We continue to see momentum with Element 5D imaging system gaining traction in North America and APAC regions. On a year-over-year basis, assistance and services revenues were up 24.5% due to higher shipments and service. Cumulatively, over 27.4 million orthodontic scans and 6 million restorative scans had been performed with iTero scanners. For Q3, total Invisalign cases submitted with a digital scanner in the Americas increased to 83% from 79% in Q3 last year. International scans increased to 72%, up from 63% in the same quarter last year. We're pleased to see that within the Americas, 95% of cases submitted by North American orthodontists were submitted digitally. Our Q3 systems and services revenue also includes ExoCAD CAD CAM products and services. ExoCAD's expertise in restorative dentistry, implantology, guided surgery, and smile design extends our digital dental solutions and broadens Alliance digital platform toward a fully integrated interdisciplinary end-to-end workflows. And we're excited about our continued integration progress and product plans. In September, ExoCAD celebrated its 10th anniversary in conjunction with ExoCAD Insights 2020, an annual event for manufacturers and users of dental CAD CAM technologies entitled A Decade of Digital Innovation. The event attracted over 300 dental technicians, dentists, and over 40 partner companies, as well as 1,600 users of digital technologies and laboratories and practices from 55 countries. With that, I'll turn the call over to John.