Align Technology, Inc.

Welcome to the Align second quarter 2023 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, 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 2023 financial results today via Business Wire, which is available on our website at investor.alignetech.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 9th. To access the telephone replay, domestic callers should dial 929-458-6194 with access code 342791. International callers should dial 44204-5250658 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, products, and 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've posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our second quarter 2023 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 an overview of our second quarter results and discuss a few highlights from our two operating segments, system services and clear aligners. John will provide more detail on our Q2 financial performance and comment on our views for the third quarter and 2023 overall. Following that, I'll come back and summarize a few key points, and we'll open the call to questions. Overall, I'm pleased to report another better than expected quarter with Q2 revenues and operating margins that exceeded our guidance. Q2 results reflect improving trends across regions, strength in teen and younger patient volumes driven by momentum in both submitters and utilization, as well as continued growth from Invisalign First. In the teen segment, which represents the largest portion of the 21 million annual orthodontic case starts, 195,000 teens and kids started treatment with Invisalign clear aligners during the second quarter. An increase of 7% sequentially and 10% year over year, reflecting the highest annual growth rate in the teen segment since 2021. For assistance and services, second quarter revenues of $169.5 million were up 10.5% sequentially and down very slightly 1% year over year. For Q2, sequential increases in systems and services revenues reflect increased scanner volumes across the regions and higher services and non-system revenues reflecting increased sales of certified pre-owned or what we call CPO scanners and higher subscription revenues. On a year over year basis, Q2 services revenues increased primarily due to higher subscription revenues from a large number of iTero scanners in the field. We also had higher non-system scanner revenues related to our certified pre-owned, again, CPOs, and our scanner leasing and rental programs. For Q2, total clear line of revenues of $832.7 million, up 5.4% sequentially and 4.3% year-over-year. Q2 sequential revenue growth rate is consistent with our historical three-year average and reflects growth across all regions. Q2 non-case revenues at $80 million, We're up 6.2% sequentially and 18% year-over-year, reflecting continued growth from Vivera retainers and Invisalign Doctor Subscription Program, or DSP, our monthly subscription-based clear aligner program, and commerce sales for aligner-related consumables like aligner cases and whitening and cleaning products. DSP has been successful in addressing an important and growing opportunity for experienced Invisalign doctors. It is our first subscription-based clear aligner program that enables doctors to reach new patients and provide them with a better overall experience. DSP enables doctors' flexibilities to treat simple touch-up cases or offer their patients a superior, flexible, and convenient retention solution. We introduced DSP in the United States and Canada in 2021. We expanded it to Spain and the Nordic countries in Q2 2023, and we'll launch DSP in France and the United Kingdom the second half of this year we have also extended dsp to dso partners who recognize the value of our invisalign subscription aligner model over the past two years our dsp subscription program has continued to ramp and in q2 drove strong volume growth in touch-up cases typically five to ten stage cases of aligners for q2 23 we shipped over 18 000 dsp touch-up cases in north america up from 15.5 in Q1-23 and more than double the case volume in Q2-22 last year. Given its continued success and contribution to our growth this year, DSP touch-up cases are included in my overall commentary for clear aligners. Otherwise, as specified in my remarks, our case volumes and metrics do not include DSP and touch-up cases. For Q2, total clear aligner volumes were up 5% sequentially and up 1% year-over-year. Q2 clear aligner volumes, including DSP touch-up cases, were up 5.4% sequentially and up 2.4% year-over-year. For the Americas, Q2 clear aligner volumes reflect sequential growth across the region from both ortho and GP dentist channels, an increase in teen case starts driven by momentum from Invisalign first and increased adult patients from the GP dentist channel. In North America, adoption of the Invisalign Comprehensive 3-in-3 product drove sequential volume growth. For Q2, North American ortho utilization was up sequentially and down a fraction year-over-year, including DSP touch-up cases. Q2 North American ortho utilization was up both sequentially and year-over-year, as noted in our Q2 23 earnings slides. For EMEA, Q2 clear liner volumes were up sequentially and year-over-year, reflecting growth across the region. continued adoption of Invisalign moderate Invisalign comprehensive three and three product as well as an increase in teen case starts which grew sequentially in year over year driven by Invisalign first and our new Invisalign teen case packs on a sequential basis clear liner growth was led by Iberia Italy DOCS and Turkey for APAC Q2 clear liner volumes were up sequentially and up year over year reflecting improving trends in China as well as other team markets like Japan, Taiwan, Korea, and India. Q2 APAC results also reflect increased Invisalign submitters and higher utilization, especially for teen patients driven by growth from Invisalign first in the orthodontic channel, which is especially important as we enter the China teen season in Q3. Q2 APAC results also reflect growth in the GP channel with increased Invisalign submitters and higher utilization sequentially and year over year. During Q2, we continued to roll out the Invisalign comprehensive 3-in-3 product in APAC, where it is now available in Hong Kong, Korea, Taiwan, and India. We plan to launch Invisalign 3-in-3 in China in Q3. We are also pleased with the additional adoption of 3-in-3 product in APAC, where the majority of cases treated are comprehensive, allowing our doctor customers more flexibility within the Invisalign product portfolio. In June, we hosted 2023 Invisalign APAC Summit in Singapore, and brought together nearly 1,000 orthodontists and general practitioners, dentists, and clinic staff from 18 countries across the Asia Pacific region. The summit showcased Invisalign and iTero products, the Align digital platform, and the recent and upcoming innovations, while also highlighting our doctors' experience with digital transformation and how it improves the patient treatment journey. Attendees joined expert sessions focused on enhancing treatment planning efficiency, optimizing digital workflows, addressing the unique needs of teens and younger patients and exploring the essential aspect shaping today's digitally driven orthodontic practices. 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 unique to the Invisalign system. For Q2, Total clear aligner cases for teenagers were up 7% sequentially and 9.7% year-over-year, reflecting improving trends across the regions. On a sequential basis, growth was driven by increased submitters in the APAC and EMEA regions. On a year-over-year basis, teen case starts were in the APAC region driven by increased submitters and in the EMEA region driven by increased submitters and utilization, both in the orthodontic channels. Last year, we introduced teen case packs in the United States and Canada. And in Q1, Q2, we launched them in France, Scandinavia, and Iberia. For the quarter, teen case packs increased sequentially and year over year, driven by strength in a man. Invisalign First also was up sequentially in year over year across all regions and continues to drive adoption of Invisalign treatment among young patients. Invisalign First aligners are designed for phase one treatment, typically in growing children six to 10 years old, making up about 20% of orthodontic case starts. For the dental service organizations, or DSO customers, Q2 clear aligner volumes increased sequentially, primarily from the Americas region. Overall clear aligner growth rate from DSO doctors continues to outpace non-DSO doctors, and our DSP touch-up cases are ramping nicely up as DSO doctors understand the value the subscription program brings regarding pricing and flexibility for their patients. Invisalign is one of the most trusted brands in the orthodontic industry globally among both doctors and patients. On the consumer marketing front, we delivered 10.3 billion impressions and had 30.9 million visits to our website in Q223. To increase awareness and educate young adults, parents, teens about the benefits of Invisalign brand, we continue to invest in top media platforms such as TikTok, YouTube, Snapchat, Instagram across all markets, as well as key social media influencers and brand ambassadors. In the Americas, we focused on reaching young adults as well as teens and their parents through our influencer and creator-centric campaigns, partnering with leading Smile Squad creators, including Marshall Martin, Raleigh Shaw, and Jeremy Lin. Each of these creators shared their personal experiences with Invisalign treatment and why they chose to transform their smile with Invisalign aligners. Additionally, in the United States, we work closely with athletes over time, a high school sports social media platform that showcases the benefits of Invisalign treatment. Brand interest remains strong throughout the quarter, with 9.2 million consumers visiting our websites in America's region, representing 17% growth year-on-year. In the Maya region, we partner with new influencers to reach consumers across social media platforms, including TikTok and Meta. In Germany, we launched new testimonial campaigns highlighting the stories of seven young adults and teens who share why they chose Invisalign treatment and how it impacted their lives. Our consumer campaigns delivered more than 1.7 billion media impressions and 9.7 million visitors to our website. We continue to invest in consumer advertising across the APAC region, resulting in more than 12 million visitors to our websites and over 4.8 billion impressions. We expanded our reach in Japan and India via TikTok, Meta, and YouTube. We partnered with key influencers like Remy Killingall and Kamai Yain. We saw increased brand interest in consumers as evidenced by a 270% year-over-year increase in unique visitors to our website in India and a 46% year-over-year increase in Japan. Adoption of my Invisalign consumer and patient app continued to increase with 3.1 million downloads to date and over 350,000 monthly active users, a 28% year-over-year growth. Usage of other digital tools also continued to increase. ClinCheck Live Update was used by 40,000 doctors on more than 580,000 cases, reducing time spent in modifying treatment by 20%. Invisalign Practice App is increasing in adoption with 88,000 doctors who are actively using this app and 5.1 million photos were uploaded in Q2 via the Invisalign practice app. With that, I'll turn the call over to John.