Align Technology, Inc.

Greetings and welcome to the Align 4Q and Fiscal Year Earnings 2020 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. Thank you, Shirley. You may begin.

Good afternoon. Thank you for joining us. I'm Shirley Stacey, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO, and John Marici, CFO. We issued fourth quarter and full year 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 February 17th. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13714292 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 statements. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our fourth quarter and full-year 2020 conference call slides 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. On our call today, I'll provide some highlights from the fourth quarter and full year, then briefly discuss the performance of our two operating segments, clear aligners and systems and services. John will provide more detail on our financial results and share additional color on business trends. Following that, I'll come back and summarize a few key points and open the call to questions. Our fourth quarter was a strong finish to the year with record revenues and volumes from both Invisalign aligners and iTero scanners, as well as increased gross margins, operating margins, EPS, and cash flow. Our fourth quarter performance was driven by strong year-over-year growth across customer channels and regions and continued momentum sequentially. During the quarter, we achieved a major milestone in EMEA, with the shipment to our two millionth Invisalign patient that will be amplified with the EMEA-wide campaign that will launch next month. This milestone for EMEA reflects strong acceleration in Invisalign adoption and growth. For Q4, total revenues were $834.5 million, up 13.7% sequentially, and up 28.4% year over year. Q4-20 clear line of revenues of $700.7 million, were up 12.9% sequentially and increased 28.9% year-over-year. In Q4, we shipped a record 568,000 Invisalign cases, an increase of 14.5% sequentially and 37.3% year-over-year. Q4 reflects increased Invisalign adoption from both adults and teenagers, which are up 36.7% and 38.7% year-over-year, respectively. Our teen and mom-focused consumer campaign generated 77% year-over-year increase in unique visitors to our website and 76% increase in leads generation. In addition, Invisalign social media influencers like Charlie D'Amelio, Marseille Martin, Christina Milana, Tisha Campbell-Martin, Rachel Zhou, Tiffany Ma, and TASMARI continue to deliver exciting new content and increased engagement for the Invisalign brand with consumers and among their millions of followers. Our digital platform continues to gain traction as doctors' usage of iTero scanners increase. Our consumer and patient app was rolled out to more than 50 markets, resulting in more than a 2.5x increase in apps download and monthly active users in 2020 versus a year ago. Our patient feature uses continues to increase. For example, Invisalign virtual appointment was used 68,000 times. Our insurance verification feature was used 26,000 times and more than 30,000 patients enrolled in Invisalign virtual care in 2020. Our new consumer website was rolled out to more than 40 markets around the world and is driving increased effectiveness and lead generation. We also launched an improved new doctor recruitment website in the US and Canada to support our digital conversion journey. This will be expanded to other markets in the next few months. From a product perspective, growth was strong across Invisalign portfolio, especially for non-comprehensive cases, including Invisalign Go and Invisalign Moderate. There are also more doctors engaging with us through the Aligned Digital and Practice Transformation, or ADAPT program, as more practices are moving towards digital practice optimization. As you'll recall, ADAPT was piloted over two years ago and is being commercialized as a standalone service providing the relevant workforce, clinical, and marketing support to enable doctors to digitally transform their practices. In Q4, we shipped a record 77,000 Invisalign doctors worldwide, of which a record 7.3 thousand were first-time customers. We also trained over 6,400 new docs in Q4, including over 3,900 international doctors. Q4 20 system and services revenues of $133.8 million were up 18% sequentially, driven by momentum in the Americas and EMEA, and up 26% year-over-year, reflecting strong growth in EMEA and Asia Pacific. Our results reflect continued strong uptake of the iTero Element 5D, the only inter-world scanner with CARES detection, which is scaling rapidly across each region and represented approximately a third of iTero volumes in Q4. Innovation remains a cornerstone of our business. Today we announce the availability of the iTero Element Plus series, which expands our portfolio of iTero Element scanners and imaging systems to include new solutions that serve a broader range of the dental marketplace. The new iTero Element Plus series of scanners and imaging systems builds on the success of the award-winning iTero Element family and offers all the existing orthodontic and restorative digital capabilities doctors have come to rely on. plus faster processing time and advanced visualization capabilities for a seamless scanning experience in a new sleek, ergonomically designed package. We announced the launch of our NextGen ClinCheck Pro 6.0 proprietary treatment planning software with in-phase visualization and our Invisalign G8 improved predictability in our last earnings call we announced. Their availability is being expanded across all regions. Further, we launched several enhancements to our treatment planning including improved final teeth position and auto segmentation. We also added several new features to our virtual care tool. For the full year 2020, total revenues were a record $2.5 billion, up 2.7% year over year. Clear aligner revenues of $2.1 billion were up 3.7%, reflecting a record 1.6 million Invisalign shipments and growth of 7.9%. During the year, 30.3% of total Invisalign cases, or nearly one half a million teens or younger, started Invisalign treatment. This is up 11.5% from 2019. System and services revenues were down slightly compared to 2019. 2020 was a year unlike any other we've experienced. The COVID-19 pandemic and its impact have been life-changing, marked by loss and separation, recovery and renewal, record highs and lows, and significant milestones and accomplishments. Even in a time of huge disruption, we all had to adapt, evaluate priorities, and develop new ways of doing things, both personally and professionally. Through it all, Align's priority has been the health and well-being of our employees and their families and our doctor customers and their staff, and that remains a constant. Despite the swift onset of the pandemic and the uncertainty through 2020, we didn't hold our plans or change our strategy for continued growth. We completed the acquisition of Exocad, accelerated our investments in marketing to create Invisalign brand awareness and drive consumer demand for our doctors' offices, accelerated new technology to market with virtual tools that enabled our doctors to stay connected with their patients, provided PPE to those in need, and supported doctors and their teams with online education and digital forums that went beyond products to help them navigate the uncertainties of the pandemic. As a result of our continued strategic focus and investments, we exited the year stronger than we started, and 2021 is off to a great start. Now let's turn to the specifics around our fourth quarter, starting with the Americas. For the Americas region, Q4 Invisalign case volume was up 12.7% sequentially and up 34.1% year-over-year, reflecting increased utilization of Invisalign treatment for both orthodontic and GP channels. Our continued investments in digital marketing and sales programs and focus on market segmentation are helping drive strong growth of Invisalign clear aligners and iTero products. During the quarter, we continued offering sales initiatives to our doctor partners to help drive adoption of Invisalign and iTero products. The bracket buyback switch program, which we launched in North America in Q2 2020, continues to drive conversions from wires and brackets to Invisalign clear aligners. During Q4, this program resulted in about 10,000 new cases similar to Q3. We believe it is also causing a halo effect with patients switching from wires and brackets to Invisalign clear aligners with increased awareness of the benefits of Invisalign treatment and how it is less disruptive to their lives with the outcome of a beautiful smile through an Invisalign trained doctor. The Teen Awesomeness Centers programs direct patients to Invisalign doctors who are experts at treating teens, and are seen as the go-to docs for treatment. We continue to see growth with Invisalign first for treatment in younger kids, driving increased comprehensive treatments within North America ortho channel. Latin American volume was also up year over year, led by strong growth in Brazil and Mexico. We believe the market for orthodontic treatment is huge in Latin America, as we continue to grow our presence across the region. We saw increased utilization in the GP channel with Invisalign Go and the continued adoption of Moderate. The GP Accelerator program, designed exclusively for general practitioner dentists, provides an all-encompassing support plan based on practice needs that is centered around maximizing iTero integration, clinical support needs, and implementing new marketing strategies. We also see increased utilization with GP dentists that have enrolled in the iPRO program, as well as with doctors that have installed the iTero scanner. DSO utilization also increased and continues to be a strong growth driver led by Heartland and SmileDocs. For the full year, American Invisalign volume was up 3.6%. For international business, Q4 Invisalign case volume was up sequentially 6.7%, led by strong growth in EMEA, as doctors returned from summer holiday season, offset somewhat by seasonally slower period in China. On a year-over-year basis, international shipments were up 41.1%, reflecting increases throughout both EMEA and APAC. For the full year, international Invisalign volume was up 13.3%. For EMEA, Q4 volumes were up sequentially 47.9% and 48.3% on a year-over-year basis across all markets, with strong performance across both ortho and GP channels. Within the GP channel specifically, we saw acceleration in both utilization and shipments with Invisalign Go. We also saw acceleration of both core and expansion markets, with growth in our core markets led by Iberia, UK, and France, along with continued growth in our expansion markets led by Central and Eastern Europe and the Benelux. We introduced the Ortho Recovery 360 program in EMEA last quarter to support our orthodontists as they started reopening their businesses. As of Q4, 3,200 orthodontists have enrolled in the program. During the quarter, we launched a Recovery 2 program with a refreshed website featuring all digital tools, growth programs, and education events for EMEA doctors to support their relief efforts during COVID-19. We also held our Digital Innovation Forum at the beginning of December, where approximately 900 doctors, both ortho and GP, attended the two-day forum event with keynotes on the digitization of dental practices. We also continued our Digital Excellence series of webinars launched by the iTero team. Throughout the quarter, the following digital innovations were also launched across the MEA, Invisalign G8, ClinCheck Pro 6.0, and Invisalign Go Plus to help drive Invisalign Clear aligner utilization. To support our GP doctors, we launched our GP Recovery 360 program last quarter with over 2,700 GPs enrolled so far. We continue to offer online and on-demand education events which reached over 15,000 GPs cumulatively. For the full year, the May Invisalign volume was up 12.6%. For APAC, Q4 volumes were down sequentially 14.7%, notwithstanding typical Q4 seasonality in China following a strong Q3. We had strong growth in Japan and ANZ and Southeast Asia. On a year-over-year basis, APAC was up 30% compared to the prior year, reflecting continued strong growth across the region. We were pleased to see the growth in the adult segment with non-comprehensive cases with the Invisalign moderate product and the GP channel. In the teen segment, we also saw an increase in utilization amongst Invisalign doctors, and we saw continued acceleration from Japan and ANZ. For the full year, APAC Invisalign volume was up 14.3%. Last year, we launched a new and improved digital learning environment for our doctors, 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, recommended learning path based on doctors' experiences, and expanded categories, including digital treatment planning, comprehensive dentistry, and team education. For the year, over 127,000 doctors have accessed recorded lectures completed self-paced learning modules, and watched how-to videos with new certified doctors viewing more than 1.4 million pages of content. Among the ortho channel, over 47,000 unique users have engaged with a digital learning site, with an additional 80,000 unique users from the GP channel. As we've mentioned, we are seeing good adoption of the ADAPT program, which is an expert and independent fee-based business consulting service opera by a line to optimize clinic's operational workflow and processes to enhance the patient's experience and customer and staff satisfaction, which will in turn translate into higher growth and greater efficiencies for orthodontic practices. As a result, the ADAPT service participating process in Q4 improved profitability significantly after implementation. Our consumer marketing is focused on capitalizing on the massive market opportunity to transform 500 million smiles, educating consumers about the Invisalign system and driving that demand to our Invisalign doctor offices. In Q4, we saw strong digital engagement globally with more than a 77% increase in unique visitors, 108% increase in doc locator searches, and 76% increase in leads created, driven by our global adult and mom-focused campaigns and teen-focused influencer content. Our U.S. mom-teen multi-touch, multi-million dollar campaign with influencer-led YouTube videos, a mom-focused TV spot, a custom Twitch activation, and mega-teen sensation Charlie D'Amelio continued to perform very well and garnered 2.7 billion impressions in Q4. The statistics I shared previously speak to the successful reach of this marketing campaign as having to not only drive demand with consumers but also in educating them on the benefits of Invisalign treatment through a doctor's office. In Q4, we also launched media tests in the EMEA region, in the UK, Germany, and France, and in the APAC region in Australia and Japan. These have worked very well and resulted in more than a 6x increase in leads in EMEA and a 3x increase in leads in APAC. Several key metrics that show increased activity and engagement with the Invisalign brand are included in our Q4 quarterly presentation slides available on our website. Align is always looking for new opportunities to reach consumers and be relevant to potential patients wherever they work, live, and play, which is why we announced the Invisalign brand as the official clear aligner sponsor of the National Football League, the NFL, and 11 NFL teams, including the Tampa Bay Buccaneers and Kansas City Chiefs. The NFL League partnership, designed to expand our reach with consumers, generated over 150 million impressions in 2020, helping to drive awareness of Invisalign clear aligner treatment at a national level, while the team agreements are designed to help us engage within key markets and connect consumers with doctors in those markets. For our systems and services business, Q4 revenues were up 18% sequentially due to higher shipments and services revenue. We continue to see momentum with the iTero Element 5D imaging system gaining traction in all regions with significant Element Flex sales in EMEA. On a year-over-year basis, systems and services revenues were up 26% due to higher shipments and services. For the year, our system and services total revenues were down 2.8% year-over-year, cumulatively over 31.4 million orthodontic scans and 6.7 million restorative scans had been performed with iTero scanners. For Q4, total Invisalign cases submitted with a digital scanner in the Americas increased to 84% from 79.5% in Q4 of last year. International scans increased to 73.7% up 64.7 in the same quarter last year. We're pleased to see that within the Americas, 94.8% of cases submitted by North American orthodontists were submitted digitally. We're also proud to share that iTero Element Intramural Scanners are the winners of the 2020 Dentaltown Townie Choice Award for Digital Impressing Category. Also during the quarter, the National Association of Dental Laboratories judging panel selected the iTero Element 5D as the winner of the 2020 Journal of Dental Technology Weill Award. The award represents a recognition of our commitment to enhancing patient engagement and communications that support efficient laboratory production. For ExoCAD during the quarter, we launched two of the largest software releases in history, DentalCAD and Exoplan. DentalCAD 3.0 Galway includes over 90 new features and over 80 enhanced functionalities with significant improvements to reduce design time, such as instant and atomic morphing. Exoplan 3.0 Galway includes over 40 new features and over 60 enhanced functionalities that support planning of indentureless cases, including the design of surgical guides. During the quarter, ExoCat also added two new large implant manufacturers as OEMs for Exoplan in Brazil. With that, I'll now turn it over to John.