Align Technology, Inc.

Welcome to Align Technologies' third quarter 2023 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your phone. To remove yourself from the queue, simply press star 1-1 again. Please note that this conference call is being recorded. I would now like to turn the conference over to your host, Shirley Stacey, with Align Technologies. 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 Marucci, CFO. We issued third quarter 2023 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. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events, products, and 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 fbc.gov. Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statements. have posted historical financial statements including the corresponding reconciliations including our gap to non-gap reconciliation if applicable and our third quarter 2023 conference call slides on our website under quarterly results please refer to these files for more detail note as of q3 invisalign dsp touch-up cases and associated revenues have been reclassified to the non-comprehensive clear aligner segment and are now reflected in our reported clear aligner case volumes revenues and business metrics prior to this quarter They were not reported in the non-case category. Unless otherwise stated, all metrics include DSP touch-up cases in reported clear aligner volumes. 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 an overview of our third 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 Q3 financial performance and comment on our views for the remainder of the year. Following that, we'll come back and summarize a few key points, and we'll take questions. Our third quarter results reflect lower than expected demand in a more difficult macro environment than we experienced in the first half of 2023. Dental practices and industry research firms have reported deteriorating trends, including decreased patient visits and increased patient cancellations. along with fewer orthodontic case starts overall, especially among adult patients. The September Gage Report, which reflect more than 1,200 North American ortho practices, shows deceleration for orthodontic treatment and new orthodontic patient appointments were down 8.7% year over year, and ortho case starts were down 6.9% year over year, the biggest decrease in over a year. Despite these headwinds, total Q3 worldwide revenues of $960 million were up 7.8% year-over-year with growth across all regions. For Q3, we had record clear liner shipments to teenage and younger patients, which increased 10% sequentially and 8.4% year-over-year, driven by continued strength from Invisalign First. Q3 year-over-year revenue growth also reflects improvement in APAC, offset by more pronounced summer seasonality in EMEA and North America. Our Q3 systems and services revenues were up 4.9% year over year, despite continued challenges for capital equipment, primarily due to higher ITERO scanner volumes in the Americas and APAC regions, reflecting certified pre-owned, or what we call CPO, sales scanner leasing and rental programs, as well as increased services revenue. Q3 systems and services revenues were down sequentially, primarily due to a weaker capital equipment cycle, as well as lower non-systems revenues. This was partially offset by higher scanner volumes in the Americas, reflecting an increased mix of Itero 5D Plus scanners, including more trade-in trade-ups for DSO customer and Q3. Q3 non-case revenues were up 13.5% year-over-year, primarily due to continued growth from Vivera retainers and increased adoption of Invisalign Doctor Subscription Program, or DSP, our monthly subscription-based clear aligner program, which includes retainers, low-stage touch-up, and clear aligner treatment. For Q3, we shipped over 19,000 DSP touch-up cases, primarily in North America, an increase of more than 70% year-over-year from Q3-22. DSP continues to be well-received by our customers and is currently available in the U.S., Canada, Iberia, and the Nordics. We are excited about the DSP as proving helpful to doctors and their patients. We're continuing to expand the program in EMEA and with certain DSO partners in Q4. For Q3, total clear aligner volumes were down 3.3% sequentially and up 2.3% year-over-year, primarily reflecting weaker-than-expected demand for orthodontic treatment, especially for adult patients. As I said earlier, despite soft consumer trends, our teen and younger patient business was strong across all regions, up both sequentially and year-over-year, primarily due to continued adoption of Invisalign First for kids as young as 6 years old. In terms of Invisalign submitters, the total number of doctors shipped for Q3 increased sequentially to approximately 85.2 thousand doctors, the highest number in two years, driven by the Americas and APAC regions. From a channel perspective, orthodontist submitters were up year over year, especially from doctors submitting teenage cases, offset by fewer GP dentists year over year, particularly in the Americas. On a geographic basis, Q3 clear aligner volumes reflect a sequential increase in Invisalign shipments from the APAC and Latin American regions, as well as North American Invisalign teenage cases. This is offset by lower volume and more pronounced softness from summer seasonality in EMEA and North America, primarily Invisalign adult cases. For the Americas, Invisalign case volume 2323 was down sequentially, primarily due to lower Invisalign adult shipments in the GP channel and slightly down year over year. Q323 clear aligner volumes reflect increased emitters in the ortho channel, with an increase in teen and younger case starts driven by momentum from Invisalign first. This is reflected in September gauge data, which shows Invisalign ortho starts performed better than wires and brackets and other clear aligners. In North America, adoption of Invisalign comprehensive 3-in-3 product drove sequential volume growth in Q323 Invisalign DSP touch-up cases in North America also drove growth sequentially year over year. For May, Q3 clear liner volumes were down sequentially, primarily from the impact of Q3 summer seasonality when doctors' offices are closed for summer vacations and more consumers are traveling. This was partially offset by sequential growth in Italy, Benelux, Turkey, and the Middle East. Year over year, clear liner volumes were up reflecting continued adoption of Invisalign Moderate the comprehensive 3-in-3 product, as well as an increase in teen case starts, driven primarily by Invisalign First and our new Invisalign teen case packs. For APAC, 2-3 ClearLiner volumes grew up sequentially and up year-over-year, reflecting improving trends in China, as well as other key markets like India, Taiwan, Korea, Japan, and Thailand. 2-3 APAC results also reflected increased Invisalign submitters and higher utilization especially for teen patients driven by growth from Invisalign first in the orthodontic channel during our typically strong teen season in China. Q3 APAC results also reflect growth in the GP channel with increased Invisalign submitters and higher utilization sequentially in year over year. During Q3, we continued the rollout of the Invisalign Comprehensive 3-in-3 product in APAC, most recently launched in China. Invisalign Comprehensive 3-in-3 is also available in Hong Kong, Korea, Taiwan, and India. We are pleased with the adoption of the 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. During the quarter, we also shipped to a record number of doctors in APAC, increasing both sequentially and year-over-year. Invisalign is the most trusted brand in the orthodontic industry globally, and it's important that we continue to create demand for Invisalign clear aligners, especially given the macroeconomic pressures on doctors and their patients. In QCO3, we delivered 11.1 billion impressions and had 27.7 million visits to our websites globally. To increase awareness and educate young adults, parents, and teens about the benefits of the Invisalign brand, we continue to invest and create campaigns in top media platforms such as TikTok, Instagram, YouTube, Snapchat, WeChat, and Dillion across markets. The underlying market opportunity for clear aligner treatment, especially for teens and kids, remains huge and significantly under-penetrated. We know Invisalign clear aligner treatment is faster and more effective than braces, yet the vast majority of orthodontic cases are still treated using brackets and wires. Differentiation is key to increasing Invisalign's share of the orthodontic case starts, especially among teens and their parents. We are continuing to differentiate differentiate through novel campaigns such as our new Invisis Drama Free Teen Campaign, which uses humor to juxtapose the significant benefits of Invisalign treatment over metal braces. Similarly, to differentiate Invisalign treatment for adults, we launched new campaigns globally using powerful patient stories that share how important a smile is and how Invisalign treatment increases self-confidence that transforms lives. Reaching young adults as well as teens and their parents also requires the right engagement to Invisalign influencers and creator-centric campaigns, which delivered 5.8 billion impressions in the Americas in Q3. Creators such as Michael Cimino, Jalen Hall, NFL player Darren Warren, and also Leilani Green showed their results and why they chose to transform their smiles with Invisalign aligners. In the immediate region, we partnered with influencers to reach consumers across social media platforms, including TikTok and Meta, and launched our global consumer campaign for teens and parents of teens, highlighting the benefits of Invisalign treatment versus braces. In Germany, we continue to see positive engagement with our patient testimonial campaigns launched in the previous quarter. Our consumer campaigns delivered more than 1.4 billion media impressions and 6.9 million visitors to our website. We continue to invest in consumer advertising across the APAC region, resulting in more than 3.9 billion impressions and 11.9 million visitors to our websites in the quarter. We expanded our reach in Japan and India via Meta and YouTube and partnered with key influencers to reach consumers across social media. We saw increased brand interest from consumers as evidenced by an over 800% increase in unique visitors to our website in India and 135% increase in Japan. Finally, digital tools such as my Invisalign consumer and patient app continue to increase with 3.4 million downloads to date and over 367,000 monthly active users representing a 19% year-over-year growth. With that, I'll now turn the call over to John.