Align Technology, Inc.

Greetings. Welcome to the Align fourth quarter and 2022 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.

Thank you. 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 2022 financial results today via BusinessWire, 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 by approximately 5.30 p.m. Eastern Time. through 5.30 p.m. Eastern Time on February 15th. To access the telephone replay, domestic callers should dial 866-813-9403 with access code 328900. 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 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 2022 conference call slides on our website under Align 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 an overview of our fourth quarter results and discuss a few highlights from our two operating segments, systems and services, and clear aligners. John will provide more detail on our Q4 financial performance and comment on our views for 2023. Following that, I'll come back and summarize a few key points and open the call to questions. You'll note that we have shortened our formal remarks in order to leave more time for Q&A. Overall, I'm pleased to report fourth quarter results that reflect a more stable environment for doctors and their patients in the recent quarters, especially in the Americas and EMEA regions, as well as parts of APAC. For Q4, Trends in consumer interest for orthodontic treatment, patient traffic and doctor's practices, and itero scanner demos improved. However, the unfavorable effect of foreign exchange on our fourth quarter and full year 2022 results reduced our revenues and margins significantly. Despite the large impact of unfavorable foreign exchange, Q4 revenues of $901.5 million increased sequentially from Q3, reflecting growth in systems and services, as well as slight increase in clear aligner shipments. This is the first quarter in a year that our total revenues and clear aligner volumes increase sequentially. As we move through 2023, I'm hopeful that we'll see continued stability and an improving operating environment, but remind everyone that the macroeconomic situation remains fragile. Regardless, we are confident in our large untapped market opportunity for digital orthodontics and restorative dentistry. We anticipate 2023 will be an exciting year for new innovation at Align, and will begin to commercialize one of the largest new product and technology cycles in our 25-year history. The Q4 assistance and services revenue of $169.9 million were up 7.8% sequentially and down 21.3% year over year. On a constant currency basis, Q4 assistance and services revenues were impacted by unfavorable foreign exchange of approximately $2.7 million or 1.5% sequentially and approximately $11.2 million or 6.2% year-over-year. For Q4, assistance and services revenues increased sequentially, driven by growth in the Americas and EMEA regions, reflecting continued sales of inter-oral scanners, especially the iTero 5D. Q4 sequential growth also reflects continued growth of our Scanner rental programs, as well as initial deployment of a certified pre-owned, what we call CPO scanner leasing, rental program with desktop metal that I'll describe in more detail shortly. We continue to develop new capital equipment opportunities to meet the digital transformation needs of our customers and DSO partners, which is a natural progression for our equipment business with a large and growing base of scanners sold. As our scanner portfolio expands and we introduce new products, we increase the opportunities for customers to upgrade, to make trade-ins and provide refurbished scanners for emerging markets. We expect to continue rolling out programs such as leasing and rental offerings that help customers in the current macroeconomic environment by leveraging our balance sheet and selling the way our customers want to buy. On a year-over-year basis, Q4 services revenues increased primarily due to increased subscription revenue, resulting in a larger number of field scanners. We also had higher non-case systems revenues related to our scanner leasing rental programs previously mentioned. To help accelerate the adoption of digital orthodontics and restorative dentistry, in Q4 we announced a strategic cooperation with Desktop Metal to supply iTero Element Flex scanners to desktop labs, one of the largest lab networks in the US serving general dentists. The iTero Element Flex is now the preferred restorative scanner for desktop labs and will connect dentists directly to a suite of offerings from desktop labs that simplifies the digital design and manufacture of restorations with both traditional and digital technologies. Our collaboration with Desktop Metal reflects our commitment to a relationship we expect will evolve and expand to being advanced restorative workflows to market. We see significant opportunities to enable dentists to use scan data to directly order restorative services or printed ready digital files from desktop labs that can be used for 3D printing in their offices. In addition to iTero scanners, we're also excited about extending the benefits of the Align digital platform, including the Invisalign system and ExoCAD software to desktop labs customers as well. For Q4, total clear-liner revenues of $731.7 million were down slightly, 0.2% sequentially, and down 10.3% year-over-year. On a constant currency basis for Q4, clear-liner revenues were impacted by unfavorable foreign exchange of $13.4 million, or 1.8% sequentially, and $56.4 million, or 7.2% year-over-year. Q4 total clear-liner volumes of $583,000 was up slightly sequentially, reflecting growth from the Americas and EMEA regions, offset by lower APAC volumes, primarily in China. For the Americas, Q4 clear aligner volumes were down slightly sequentially, reflecting lower ortho cases, especially teen starts, as compared to the typical higher teen season in Q3, offset primarily by an increase in adult patients from the GP-dentist channel. For Q4, clear aligner volume from DSO customers continue to outpace non-DSO customers. For EMEA, Q4 clear aligner volume increased sequentially in all markets and across products, especially recently launched Invisalign Moderate, iGo Plus, and iGo Express, which enable GP dentists to treat a broader range of cases, mild to moderate types of malinclusions, and can easily be integrated in a wide range of restorative treatments in a dental practice. EMEA had a strong sequential growth in the teen market segment with continued demand for Invisalign teen case packs, which are available in France and Iberia, as well as Invisalign first treatment for kids as young as six years old. APAC, Q4 clear liner volumes were lower sequentially due primarily to China, which continues to be impacted by COVID. In Q4, ongoing COVID restrictions and lockdowns in China persisted throughout the quarters. Outside of China, APAC volumes increased sequentially, led by Japan, Taiwan, India, and Southeast Asian markets. On a year-over-year basis, Q4 clear aligner case volumes reflected increased shipments led by Korea, India, Japan, Taiwan, and Vietnam. While the easing of COVID restrictions in China and the more recent downward trend in COVID infection rates are encouraging, many uncertainties remain, including the lingering impacts from COVID across the population and the time and effort needed to restore consumer confidence. For the other non-case revenues, which include retention products such as our Vivera retainers, clinical training and education, accessories, e-commerce, and new subscription programs such as our DSP, fourth quarter revenues were down slightly sequentially and up double digits year over year. For retention and e-commerce products, Q4 revenues were relatively unchanged from Q3. We are pleased with our subscription-based programs like DSP, which increased sequentially and year-over-year, and expected to continue expanding DSP offerings in other regions. For Q4, the total number of new Invisalign-trained doctors decreased sequentially, due primarily to fourth quarter being a seasonally slower period for clinical education with holidays, et cetera, as well as fewer trainings in China and Brazil. This was offset by somewhat significantly higher numbers of new Invisalign doctors trained in the Mayas. Teen orthodontic treatment is the largest segment of the orthodontic market worldwide and represents our largest opportunity for clear aligner sales to orthos. We continue to focus on gaining share from traditional metal braces through teen-specific sales and marketing programs and product features, including Invisalign First for kids as young as six, which is up sequentially across all markets. For Q4, total clear aligner teen cases were down sequentially due primarily to the impact of COVID in China. as well as seasonally fewer teen starts in North America as compared to Q3. According to the December Gage Report, which tracks approximately 1,000 orthos in the United States and Canada, new patient exams for teens slowed in Q4, while new patient exams for adults improved slightly. A smaller pool of potential teen patients may put pressure on traditional orthos and cause them to go between clear aligners and wires and brackets, especially those practices that have failed to understand the significant benefits of adopting more efficient digital workflows, believing metal braces are more profitable. In EMEA, Q4 was a record quarter for teen case starts. On a year-over-year basis, Q4 teen case starts were relatively unchanged. For Q4, Invisalign First increased year-over-year and was strong across all regions. Invisalign First's clear line of treatment is designed for predictive results and a positive experience while addressing the unique needs of growing children from as young as six to treat phase one. For the full year, Invisalign clear aligner shipments for teens and young kids was approximately 733,000 cases. Our teen case mix overall was a record 31% of Invisalign cases shipped for the year. Finally, in Q4, the total number of doctors shipped was 82.9 thousand doctors, a slight decrease due primarily to the impact of COVID in China. And off our Q3 22 high point, which included a major DSO onboarding in North America. For the full year of 2023, we also shipped to the highest cumulative number of Invisalign-trained doctors, over 124,000 doctors, reinforcing our commitment to doctor-directed care for clear-liner treatment to achieve the safest and best possible clinical treatment outcomes for patients. With that, I'll now turn the call over to John.