Align Technology, Inc.

Greetings and welcome to the Align Q1 21 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Shirley Stacey, Vice President, Corporate Communications and Investor Relations. Please go ahead.

Good afternoon, and 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 Marucci, CFO. We issued first quarter 2021 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 May 12th. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13718065 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 FCC.gov. Actual results may vary significantly, and a line expressly assumes no obligation to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable. and our first quarter 2021 conference call slides on our website under quarterly results. Please refer to these files for more detailed information. Please note, as of Q1 2021, we are no longer including number of doctors trained, clear aligner shipment volume by region, and total worldwide average selling price. We will continue to share information management uses to evaluate the business and metrics to help investors and analysts assess our financial performance. 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. On our call today, I'll provide some highlights from the first quarter, 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 discuss our outlook for the full year. Following that, I'll come back and summarize a few key points and open the call to questions. I'm pleased to report another strong quarter with record revenues and volumes reflecting strong growth for both Invisalign clear aligners and iTero systems and services, across products and customer channels worldwide. Q1 sequential Invisalign clear aligner growth was driven by strength in both adult and teen market segments across products, customer channels, especially in North America and the EMEA region. The year is off to a great start, and Q1 reflects increasing momentum and the benefit from continued investments in our strategic initiatives focusing on expanding our operations globally in existing and emerging international markets, increasing ortho adoption, and utilization of Invisalign treatment, especially with teens, training and education GP dentists, and increasing conversion to clear aligners, and building Invisalign brand preference with millions of consumers through advertising, PR, digital, social media, and influencer marketing to drive demand and conversion through Invisalign-trained doctors. For Q1, total revenues were $89.4 million, up 72% sequentially, and 62.4% year-over-year. Q1 system and services were $141.5 million, up 5.8% sequentially, and up 104% year-over-year. Q1-21 clear line of revenues of $753.3 million were up 7.5% sequentially and increased 56.4% year-over-year. In Q1, we shipped a record 595.8 thousand Invisalign cases. an increase of 4.9% sequentially, and 65.8% year-over-year. In addition, we shipped to a record 78.6 thousand Invisalign doctors worldwide, of which approximately 6.6 thousand were first-time customers. During the quarter, we reached a significant milestone with our 10 millionth Invisalign patient, Gabriela Silva, who recently began her treatment with Dr. Eunice Blind, an Invisalign-trained orthodontist in Sao Paulo, Brazil. one of our fastest-growing country markets. It's remarkable to think about the pace of growth and adoption that we are experiencing worldwide, especially when considering it took 10 years to achieve our one millionth Invisalign patient milestone, and now we're adding one million new Invisalign patients in less than six months. We're grateful to our doctor partners and their patients and to our 20,000 employees around the world who have helped us reach this milestone. In recognition of our 10 millionth Invisalign milestone, we've donated 10 million to the Invisalign Foundation Donor Advised Fund and are kicking off a campaign called 10 Million Smiles. 10 million thanks centered around the transformative power of Invisalign treatment through the eyes of Invisalign patients. From a product perspective, Q1 clear line of revenues reflects strong growth across the Invisalign portfolio for both comprehensive and non-comprehensive products. Q1 comp volume increased 4.9% sequentially and 62.3% year-over-year, and Q1 non-comp or non-comprehensive volume increased 5.0% sequentially and 74.4% year-over-year. Invisalign clear aligners address a wide range of case complexity and can treat approximately 90% of case starts for adults and teens, and phase one treatment for kids as young as six years old. Q1 adult patients increased 5.8% sequentially and 68.5% year-over-year. Q1 teens or younger patients increased 2.7% sequentially, 58.9% year-over-year. Teenage cases made up nearly 75% of the 15 million ortho starts each year, and despite our rapid growth in adoption, Invisalign treatment is still only single digits worldwide, so we continue to see significant runway here. Our strong Q1 results also reflect our multimillion-dollar consumer marketing investment across key media channels with broad reach to drive consumers to Invisalign doctor practices. Our teen and mom-focused consumer campaign generated 138% year-over-year increase in unique visitors to our website and 35% increase in leads generated. In addition, Invisalign social media influencers like Charlie D'Amelio, Ivana Gregg, and Tawn Franz and many others, content creators, influencers, enabled a delivery of 4.2 billion impressions in Q121, delivering exciting new content and increased engagement for the Invisalign brand among their millions of followers. The consumer insights and data we receive from our programs suggest adults are also continuing to invest more in themselves for their overall health and well-being and have more disposable income to do so. They are seeking Invisalign clear line of treatment from our Invisalign doctors and sharing their positive experiences with their friends, family, and social networks, becoming influencers themselves. Now let's turn to the specifics around our first quarter results, starting with the Americas. For the Americas region, Q1 was another strong quarter, with Invisalign case volume up 8.4% sequentially and 53.8% year-over-year, reflecting increased Invisalign submitters and utilization growth for both orthodontic and GP channels. Q1 results also reflect continued investment in digital marketing, sales programs, our channel focus around GPs, orthos and DSOs, and other initiatives to help drive utilization. In the GP channel, Invisalign Moderate and Invisalign Go continue to gain traction. This is especially true for GP dentists that enrolled in the iPro program, as well as doctors that have installed iTero scanners. The GP Accelerator program, designed exclusively for GPs, 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. DSO utilization also increased and continues to be a strong growth driver in outpaced non-DSO practices. Today we announced that we have extended our relationship with DECA Dental Group and have signed a new multi-year agreement for the Invisalign system through early 2025. In addition, DECA Dental Group is extending utilization of iTero Element 5D imaging system across its affiliate practices in the United States. This provides DECA dental doctors and clinical support team members with access to align customized clinical education for the Invisalign system and the iTero Element 5D imaging system to support practices in adopting new workflows for restorative dentistry and for digital orthodontics. In the ortho channel, the Teen Awesomeness Centers program directs patients to Invisalign doctors who are experts at treating teens and are seen as the go-to doctors in their markets, helping to drive increased comprehensive treatments within the North American Ortho Channel. Tomorrow, registration opens for the 2021 Teen Forum, virtual edition, to be held on June 10th and 11th, which combines two days of all-new dynamic sessions focused on the Invisalign teen patient journey. Sessions will focus on building clinical confidence, efficient workflows, teen and parent conversion, and the overall digital treatment experience that teens expect. The timing of the form is designed as a strong lead to the busy teen season, and attendees will have the option after post-form mentoring by Invisalign teen experts to help orthos and their staff apply the tools from the teen form to their practices and get additional support through their busy summer. For our international business, Q1 Invisalign case volume was up sequentially 0.9%. On a year-over-year basis, international shipments were up 83.2%. In EMEA, Q1 volumes were sequentially 3.7%, up 74.9% year-over-year, with strong broad-based growth across all markets, led by the UK, France, and Italy, along with continued growth in our expansion markets led by Turkey, Russia, CIS, and Benelux. We also saw strong performance from both ortho and GP channels, with momentum in the GP channels with adults reflected in strong utilization and shipments from Invisalign Go. EMEA growth programs are customized by market and customers type to encourage Invisalign utilization, such as professional 360 ortho and advanced 360 ortho programs with over 2,000 orthodontists enrolled. We also have GP Move 360, a program designed to be able to help move doctors along their developmental journeys. with an increase in GP cohorts of over 117% compared to a prior year. We'll also continue to offer online and on-demand education events, which have reached over 15,000 GPs cumulatively. In the region, we hosted several successful summits and forums for Invisalign doctors this quarter. In all virtual formats, the UK GP Forum and OrthoSummit, French OrthoSummit, and the iTero Element Plus launch media event In addition, we just held the Italian and doc or German ortho summits last week. International expansion remains one of our key strategic pillars. Last week, we announced plans to open a new manufacturing facility in Poland, which would be our first aligner plant in the EMEA region. And our third plant worldwide joining whereas Mexico is young China. The new facility expected to be supplying customers in the EMEA region in early 2022. helping address the large and relatively untapped market of more than 5 million annual orthodontic case starts and more than 150 million EMEA customers who could benefit from treatment. The investment is part of our strategy to bring operational facilities closer to our customers and reflects our commitment to Invisalign-trained doctors and their patients in the EMEA region and extends our local operations in the region. The state-of-the-art EMEA plan and work law is expected to add more than 2,500 jobs by the end of 2025, making it the company's largest investment in Maya to date and the largest 3D printing operation in the region. For APAC, Q1 volumes were down sequentially, 3.9% as expected, reflecting seasonality. On a year-over-year basis, APAC was up 101.3% compared to the prior year, reflecting continued strong growth across the region, led by China, Japan, and ANZ. Invisalign volume growth drivers were young adults with young kids ramping faster than any other age group. In the teen segment, Invisalign volumes accelerated during the quarter and were driven by increased Invisalign utilization and case submissions from Invisalign doctors. We also continue to see good adoption of the Invisalign modern product for non-comprehensive treatment in the GP channel. During the quarter, we continue to offer online and on-demand education events, which reached over 14,000 GPs cumulatively. Invisalign volumes in China were flat sequentially and up over 200% year-over-year. In Q1, China volumes gained momentum throughout the quarter. The Align Clinical Education site is the go-to digital hub for Invisalign doctors in team education and training. The digital learning environment was relaunched in February 2020 for Invisalign doctors, offering a comprehensive learning platform with role-specific content for orthos, GPs, and their teams. The site enables more online learning opportunities with spotlight features for what's trending now, recommended learning paths based on doctors' experiences, and expanded categories, including digital treatment planning, comprehensive dentistry, and team education. During the quarter, over 102,000 unique users have assessed the records lecture, completed self-paced learning modules, and watched how-to videos, viewing more than 3 million pages of learned content. From the ortho channel, over 38,000 unique users have engaged with the digital learning site, an additional 63,000 unique users from the GP channel. We also continue to see good adoption of the ADAPT program, which is an expert and independent fee-based business consulting service offered by Align to optimize clinics' operational workflow and processes to enhance patient experience, customer and staff satisfaction. As a result of the ADAPT service, practices experience higher growth and greater efficiencies for orthodontic practices, as well as improved profitability after implementation. To date, we've seen a 50% increase in Invisalign cases among doctors cohorts within six months of participation in the ADAPT program. In addition, while still early in the program, we're also seeing a strong correlation or halo effect on team utilization among ADAPT doctor cohorts. On consumer marketing, this focuses on educating consumers about the Invisalign system and driving that demand to our Invisalign doctor offices, ultimately capitalizing on the massive market opportunity to transform 500 million smiles. In Q1, we continue to see strong digital engagement globally with more than 138% increase in unique visitors, 95% increase in doctor locator searches, and 35% increase in leads created on a year-over-year basis. 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 sensations such as Charli D'Amelio and Yvonne Gregg continue to perform well and garnered 4.2 billion impressions in Q1. The statistics I shared previously speak to the continued success this marketing campaign is having to not only drive demand with consumers, but also educate them on the benefits of Invisalign treatment through a doctor's office. The Align Digital platform continues to gain traction globally. Our consumer and patient app, My Invisalign, is now available in 58 markets, resulting in a more than 4x increase in app downloads and 3x increase in patients actively using our app in Q1 2021 versus the same period a year ago. Our consumer and patient feature usage continues to increase. For example, Invisalign virtual appointment tool was used 86,000 times, and our insurance verification feature was used 27,000 times in Q1. Further, we received more than 575,000 patient photos in our virtual care feature to date globally, providing us rich data to leverage our AI capabilities to improve our services for doctors and patients. Lastly, our new consumer website has been rolled out to more than 50 markets and continues to drive increased effectiveness in lead creation. In the EMEA region, we built on the tremendous success we saw with the consumer marketing pilot in Q4 in the UK and expanded our media investments across the UK, Germany, and France to drive engagements, resulting in more than 335% increase in unique visitors and a 95% increase in leads. We also expanded our consumer advertising in the APAC region in Australia, Japan, and China, and saw more than a 2,000% increase in consumer engagement and a 298% increase in leads. Several key metrics that show increased activity engagement with Invisalign brand are included in our Q1 quarterly presentation slides available on our website. Our NFL partnership continues to do well, generating over 23.5 million impressions during the quarter. It continues to be another major integral channel to reach adults considering clear line of treatment through an Invisalign-trained doctor. During the quarter, we expanded our sports partnership marketing strategy with the Invisalign brand, named the official smile partner of the Golden State Warriors. As part of the agreement with the six-times NBA champion Golden State Warriors, the Invisalign brand also the official smile partner of the Santa Cruz Warriors, the Golden State's G League affiliate, and the Golden Guardians, its eSport affiliates. The sponsorship includes an omnichannel activation across TV, digital media, social, a Jersey partnership with the Golden Guardians, and the Santa Cruz Warriors. Finally, on the consumer marketing front, we also launched our first-ever social purpose initiative in Q1 called Invisalign Changemakers. An award program we developed in partnership with the National 4-H Council to celebrate and highlight teens in making an impact in their communities. We were blown away by the number of recommendations and stories we received about teens, from redistributing excess food to combat hunger in their communities, to donating weighted blankets to those in the autism spectrum. Overall, it's been heartwarming to learn about each of these amazing teenagers who bring a unique approach to positively impacting their communities and following their passions to create change. In total, we received nearly 800 Changemaker applications. On June 28th, we will announce 100 winners each of whom will receive $5,000 to help them continue their goodwill efforts. We'll also celebrate these young forces of change with a virtual ceremony currently slated for mid-July. We are continuing to invest in creating consumer demand for Invisalign aligners in markets around the world. Our global campaigns include a multi-channel media strategy using digital video, social media, influencer marketing, and TV. For our systems and services business, Q1 revenues were up 5.8% sequentially, reflecting slightly lower scanner volume following a record fourth quarter. This is primarily due to the seasonality of capital equipment sales at year end and higher services revenue. On a year-over-year basis, systems and services revenues were up 104%, reflecting strong scanner shipments and services. The ITERRA Element 5D imaging system continues to gain traction across all regions. Element 5D is the first integrated dental imaging system that simultaneously records 3D interaural optical impressions 2D color images in near-infrared technology or NERI technology. Full-arch scans can be completed in as little as 60 seconds. And NERI technology scans the structure of the tooth in real time without harmful radiation, acting as digital aid for detection of interproximal caries or cavities above the gingival line. In APAC, the element FLEX is doing well with its wand-only configuration that provides needed mobility so doctors can see patients anywhere they choose and also will perform full arch scans in even the smallest office. During the quarter, we announced availability of the iTero Element Plus series, which expands the iTero portfolio to serve a broad range of the dental market. The new Element Plus series offers faster processing time, advanced visualization capabilities for a seamless scanning experience, and a new sleek ergonomically designed package. It's also engineered with the latest computing power, a dedicated AI chip and new AI-based features, as well as an easy upgrade path for future innovation. In terms of digital scans used for Invisalign case submissions in Q1, total digital scans increased to 80.9% from 75.8% in Q1 last year. International scans increased to 75.1%, up from 68.7% in the same quarter last year. For the Americas, 85.5% of the cases submitted digitally compared to 80.5% a year ago. Cumulatively, over 35.4 million orthodontic scans and 7.5 million restorative scans have been performed with iTero scanners. Turning to ExoCAD, a year ago in April, we welcomed ExoCAD into the Align family. I want to thank the entire team for their continued progress on integration and roadmap development. Together, we are working to extend ExoCAD's position as a key technology provider for the dental CAD CAM industry and to drive continuous innovation with the open and integrated approach that is the foundation of ExoCAD. During Q1, the new release of ExoCAD's DentalCAD 3D Galway was successfully rolled out globally with very positive customer feedback. A record number of over 70,000 verified prosthetic components were created in DentalCAD Galway, one of the largest prosthetic libraries in the industry. ExoCAD also reached a new milestone for the Exoplan database, which now supports nearly 10,000 implants from over 90 manufacturers. The new release also includes a unique and highly innovative dental CAD feature, instant anatomic morphing, that reduces design time by up to 30% compared to previous version. It also includes new AI technology for ExoCAD Smile Creator, which enables time-saving automatic detection of facial features. In addition, the new My iTero connector was launched directly to ExoCAD Labs. The My iTero connector creates an easy and integrated way to receive inter-oral scan cases from thousands of iTero doctors worldwide. New cases are downloaded automatically and will show up directly in the DentalDB case list. ExoCAD also co-hosted a joint dentistry event in the UK to showcase full workflow with Chairside titled Digital Dentistry Hands-On, a virtual roadshow aimed at general dentists showcases a full digital workflow for the clinical environment with Chairside CAD, ExoCAD's complete Open Architecture CAD software platform for single-visit dentistry. Hosted by Dr. Gilshan Murgari, the participants of the Roadshow series learned how to use the software for single-visit restorations and implant planning in a dental practice along the entire digital dentistry workflow. These are just a few milestones, and we're excited about the opportunities ahead to shape the dental industry with technology and expertise that benefits all customers, labs, partners, and users. We look forward to sharing more about ongoing EXOCAD developments. With that, I'll now turn it over to John.