Align Technology, Inc.

Greetings. Welcome to the Align Q2 22 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Shirley Stacey, with Align Technology. You may begin.

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 Marici, CFO. We issued second quarter 2022 financial results today via Business Wire, 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. The telephone replay will be available today by approximately 5.30 p.m. Eastern Time through 5.30 p.m. Eastern Time on August 10th. To access the telephone replay, domestic callers should dial 866-813-9403 with access code 137829. International callers should dial 929-458-6194 using the same access code. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events and product outlooks. 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 to non-GAAP reconciliation, if applicable. and our second quarter 2022 conference call slides on our website under quarterly results. Please refer to these files for more detailed information. And 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 an overview of our Q2 results and discuss the performance of our two operating segments, systems and services, and clear aligners. John will provide more detail on our financial performance on our view for the remainder of the year. Following that, I'll come back and summarize a few key points and open the call to questions. I'm pleased to report solid second quarter results with top line revenues relatively unchanged from Q1, an operating margin of approximately 20% despite unfavorable foreign exchange. The underlying market for orthodontics continues to be impacted by macroeconomic environment factors and lingering effects of COVID-19 variants in certain markets. Notwithstanding these headwinds, we've remained focused on achieving our strategic initiatives, including opening new offices in the Middle East and Africa, and our new manufacturing facility in Poland, launching new solutions to better support the way our customers want to do business, such as a doctor subscription program, and team case packs, and announcing new products and innovation to help our doctors and their patients. These new innovations are revolutionizing the digital treatment planning, and helping to drive the evolution of digital orthodontics and comprehensive dentistry. Align is well positioned to withstand the current market conditions to lead to digital revolution in orthodontics and dentistry as the environment and growth trends improve. For systems and services, Q2 revenues were up 4.7% sequentially and up slightly year over year compared to Q2 21, year over year growth of 215%. Q2 services, And systems revenues increased sequentially, driven by scanner volume growth in the Americas and APAC, partially offset by lower volume in EMEA and unfavorable impact of foreign exchange. The iTero Element 5D imaging system continues to represent the majority of our scanner volume, as doctors recognize the benefits of going digital. In APAC, the iTero entry-level FlexScanner offering was up sequentially in Q2, reflecting increased adoption. I'm also pleased with sequentially increasing services revenues in Q2, reflecting growth from the installed base. Services revenues represent approximately 40% of our systems and services business. For our clear aligner segment, Q2 revenues were down slightly sequentially and down 5.1% year over year, compared to our Q2 21 record year over year revenue growth of 182%. For the quarter, Q2 clear aligner volumes reflect sequential growth across the Americas, and parts of EMEA, partially offset by China and the UK. Q2 Invisalign case starts for teens and younger patients was 177.3 thousand up slightly sequentially and down 2.1% year over year compared to Q2 last year when our teen case shipments growth rate was at an all-time high. For Q2 Invisalign first for kids as young as six years old grew year over year and was strong across all regions. During Q2 we introduced Invisalign Teen Packs in the US and Canada and France. Teen Packs are a new subscription program which enables orthodontists to buy clear aligners and packs in advance, similar to the way they buy wires and brackets today. Our Teen Case Packs simplify the ordering process and make the billing more predictable for doctors. Teen Case Packs also include exclusive practice development benefits with the Invisalign brand and requires an incremental volume commitment from doctors. To date, enrollment has been encouraging, with early adoptions highest among doctors who have not historically used Invisalign aligners to treat their teen patients. For other non-case revenues, which include retention products such as Vivera retainers, clinical training and education, accessories, e-commerce, and our new subscription programs such as our DSP revenues, we're up both sequentially and year over year. For retainers, Q2 shipments had strong momentum, with sequential and year-over-year growth across all regions, driven by both submitters and utilization. Momentum in our doctor subscription program continued, and Q2 revenues increased over 60% sequentially. Now let's turn to the specifics around our second quarter results, starting with the Americas. For the Americas region, Q2 Invisalign case volumes were up sequentially, reflecting increased submissions from the orthodontic channel and increased utilization from the GP channel. From a product standpoint, Q2 sequential Invisalign case growth reflects increases in both comprehensive and non-comprehensive products, including Invisalign First and Invisalign Moderate. Q2 also benefited from increased utilization in the DSO channel. For our international clear aligners, Q2 Invisalign case volumes were down 1.7% sequentially, primarily as a result of the headwinds described previously. For EMEA, Q2 Invisalign case volumes were down slightly, primarily reflecting a slight increase in Iberia and Italy, offset primarily by slightly lower sequential volumes in the UK and France. For Q2, expansion market shipments declined sequentially. Q2 Invisalign team patients increased sequentially, driven by an increase in the number of doctors submitting team cases. Turning to APAC, Invisalign case volumes were down slightly, reflecting a full quarter effect of continued lockdowns in China. For Q2, Taiwan, Hong Kong, Japan, and India performed well during the quarter. On a year-over-year basis, Invisalign case shipments growth was strong in Japan, India, Taiwan, Thailand, and Korea. The APAC team case volume increased year-over-year, primarily driven by increased doctor submitters. Turning to new innovations, the Align Digital Platform is an integrated suite of proprietary technologies and services delivered as a seamless end-to-end solution to customers that connects all users, doctors, labs, patients, and consumers to transform smiles and change lives. Our technology advancements help our doctor customers deliver superior clinical outcomes, treatment efficiency, and also superior patient experience. In Q2, we introduced Invisalign Outcome Simulator Pro and comb beam computed tomography systems integration for ClinCheck software, building on several new innovations announced last quarter that will begin rolling out across the regions in August. Invisalign Outcome Simulator Pro, the next generation patient communication tool that empowers doctors to help patients visualize their potential new smile after Invisalign treatment, use in-face visualization in 3D dentition view all done chair-side in minutes. ConeBeam computer tomography systems, or what we call CBCT, integration for ClinCheck software, is designed to deliver a complete view of a patient's roots, crown, and jawbone. CBCT integration for ClinCheck software enables doctors to confidently deliver a more informed Invisalign clear aligner treatment plan for a wide range of cases. The user-friendly interface makes it easy for doctors to see their patient's root, crown, and jawbone, and one automatically digitally fused 3D model. This allows doctors to tailor their treatment plan based on their experience and their patients' needs. CBCT integration for ClinCheck software gives doctors the control and confidence to expand treatment planning to a broad range of malinclusions, including surgical, restorative, expansion, extraction, as well as teen cases with impacted or uninterrupted teeth. While it is still early in the commercialization of these new products, initial feedback from doctors is encouraging. We are excited to begin scaling them across our customer base in the second half of 2022. Also during the quarter, we awarded 11 new research grants, totaling $275,000 to universities around the world. Through our annual research awards program, we help advance orthodontic and dental research, furthering our commitment to the future of digital orthodontics and restorative dentistry. Our consumer marketing focused on educating consumers about the Invisalign system and driving that demand to Invisalign doctor's offices, ultimately capitalizing on the massive market opportunity to transform 500 million smiles. For Q2, we had over 16.2 million visits to our websites, a 15% year-over-year increase, and delivered over 6.3 billion impressions. Both metrics were lower versus Q1. as we chose to right-size our size and media spending Q2, given the macroeconomic environment. During the quarter, we built on our successful Invis-Is multimedia campaign and launched in the U.S. the next evolution with two new campaigns, Invis-Is Drama Free, targeted at teens, and Invis-Is When Everything Clicks, targeted at adults. Our Invis-Is Drama Free campaign highlights the benefits of Invisalign treatment while humorously juxtaposing teens with the significant hassles involved with using braces. Our Invis is when everything clicks campaign showcases Invisalign treatment, transforming smiles, and the resulting confidence it gives to young adults. Both campaigns will be rolled out to markets around the world in Q3. Adoption of our consumer patient app, My Invisalign, continued to increase with 1.8 million downloads to date. Usage of our four digital tools continues to increase, for example, Invisalign virtual appointment tool was used over 12,000 times, and our insurance verification feature was used 36,000 times in Q2. Further, we received more than 91,000 patient photos in our virtual care feature globally, which continues to provide us with rich data to leverage our artificial intelligence capabilities and improve our services for doctors and patients. Additional consumer demand metrics are included in our Q2 earnings slides posted on our website. We are pleased with our Q2 systems and services revenues, which are up 5% sequentially and up 1% year over year. Q2 sequential growth primarily reflects higher scanner volumes in the Americas and APAC and increased subscriptions. Year over year, results primarily reflect increased scanner revenues in the Americas, offset by lower volume in APAC and EMEA. Growth of our iTero scanner installed base is driving an increase in services revenue. On a year-over-year basis, systems and services growth reflects increased service revenues from our largest scanner installed base, higher subscription revenues, and increased sales of scanner wand sleeves. The number of inter-world digital scans used for Invisalign case submissions in Q2 reflect continued adoption of our digital scanners and our larger installed base. Total worldwide inter-world digital scans submitted to start an Invisalign case in Q2 increased 88.4% from 82.2% in Q2 of last year. International interaural digital scans for Invisalign case submissions increased 84.4% up from 76.2% in Q2 of last year. For the Americas, 91.4% of Invisalign cases were submitted using an interaural digital scan compared to 87% in Q2 last year. Cumulatively, over 60.4 million orthodontic scans, and over 12.6 million restorative scans have been performed with iTero scanners. Our Q2 ExoCAD CAD-CAM products and services, which include restorative dentistry, implantology, guided surgery, and smile design offerings, are included in our systems and services revenue. ExoCAD products and services are helping extend our digital dental solutions and broaden the aligned digital platform towards fully integrated interdisciplinary end-to-end workflows. During the quarter, ExoCAD released DentalCAD 3.1 Recova in a new powerful lab software which saves design time and offers more intuitive workflows along the design journey from CAD to CAM. In addition, the ExoCAD release launched a new MyExoCAD portal introducing mandatory end-user software use registration that for the first time allows ExoCAD to collect information about who and how customers are using the software. This expands the opportunities for future product improvements. Also during the quarter, we signed a new long-term contract with ExoCAD's largest customer, Armin Gierbach, further strengthening our relationship. Finally, we continue to execute our strategy of geographic expansion. In June, our European manufacturing facility in Wrocław, Poland, began manufacturing clear aligners for the EMEA region. locally for the first time. We also continued our operational expansion in Poland with our latest treatment planning facility. Our expanded operation in Poland supports Invisalign doctors in local languages, increases our flexibility and timeliness in supporting our doctor customers across the region, and we expect will positively influence the quality and time of preparation of ClinCheck treatment plans and provide our doctor customers with benefits of digital orthodontics with the Invisalign system. We are uniquely positioned with manufacturing and treatment planning in all three regions, and no other clear aligner manufacturer has our global footprint and capabilities. With that, I'll now turn the call over to John.