Align Technology, Inc.

Greetings. Welcome to the Align first quarter 2024 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 at Joining me for today's call is Joe Hogan, President and CEO, and John Marucci, CFO. We issued first quarter 2024 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. 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 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 with corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our first quarter 2024 conference call slides on our website under quarterly results. Please refer to these files for more detailed information. 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 first quarter results and discuss a few highlights from our two operating segments, system services and clear aligners. John will provide more detail on our Q1 financial performance and comment on our views for the second quarter and 2024 in total. Following that, I'll come back and summarize a few key points and open the call to questions. I'm pleased to report better than expected revenue and earnings for the first quarter and a solid start to the year. For Q1, total worldwide revenues were up 5.8% year-over-year, reflecting 3.5% growth from our clear aligner segment and 17.5% growth from systems and services. On a year-over-year basis, Q1 revenue growth was up across all regions and was driven by strong clear aligner volumes, primarily in the Asia Pacific region. Year-over-year growth also reflects strength in the orthodontic channel, with total Invisalign case starts from teens and younger patients up 5.8% year-over-year, driven by continued momentum across all regions from Invisalign first as well as Invisalign DSP touch-up cases. On a sequential basis, Q1 total revenues were up 4.3%, reflecting a sequential increase in clear line of revenues, especially for North American orthodontists, as well as strong systems and services revenues primarily driven by ITERA Lumina wand upgrades in North America. During the quarter, we achieved several significant milestones. We completed the acquisition of Cubicure, a leader in direct 3D printing solutions, which is the foundation for our next-generation aligner manufacturing. We successfully launched the ITERA Lumina interaural scanner, our next generation of digital scanning technology. We launched the Invisalign Palette Expander, or IPE, system in the U.S. and Canada. and received regulatory approval for the Invisalign Pallet Expander in Australia and New Zealand. Q1 systems and services revenue year-over-year growth reflects non-systems revenues driven by a teralumina wand upgrades and higher scanner volumes and increased services revenue from a larger base of scanners sold. On a sequential basis, Q1 systems and services revenue were up 3.1%, reflecting growth from non-systems revenues and higher scanner ASPs, partially offset by lower volumes due to seasonality a strong fourth quarter. The ITERA Lumina interaural scanner is available now with orthodontic workflows as a new standalone scanner or as a WAND upgrade to ITERA Element 5D+. The restorative workflow is expected to be available in the fourth quarter of 2024. In the meantime, GP practices can benefit from the ITERA Lumina's new multi-direct capture technology that replaces the confocal imaging technology in earlier models. The Iteraluminous Inter-World Scanner has a 3x wider field of capture and a 50% smaller and 45% lighter wand, delivering faster scanning speed, higher accuracy, super visualization, and more comfortable scanning experience. Overall, we're really pleased with the launch of the Iteraluminous Scanner. Customer feedback has been positive, and we're really excited about the feedback from doctors, so we've included some great verbatims in our webcast slides. Q1 total clear liner revenues were up year over year reflecting revenue growth across the regions from strong year over year volume growth across APAC markets as well as the AMEA region. For the Americas region, Q1 clear liner volume was consistent with prior year. For Q1 total clear liner shipments were up 2.1% sequentially reflecting seasonality with increased volumes in the Americas regions offset somewhat by AMEA and APAC regions. For Q1 clear liner shipments, include over 23,000 Invisalign doctors' subscription cases, or DSP touch-up cases, primarily from North America Ortho Channel, an increase of approximately 49% year-over-year from Q123. These DSP touch-up cases are a component of the overall DSP program, which consists of retainers and touch-up cases or aligners, and it continues to be an important offering for our customers and their patients. DSP is currently available in the United States, Canada, Iberia, Nordics, the UK, and most recently in Italy, France, and Poland. We expect to continue expanding DSP into other country markets in May and Q2, including a 14-stage touch-up aligner offering. For non-case revenues, Q1 was up 7.5% year-over-year, primarily due to continued growth from Vivera retainers along with Invisalign DSP retainer revenues. In a teen market, nearly 200,000 teens and younger patients started treatment with Invisalign clear aligners in Q1. up 5.8% year-over-year. This represents a record number of teen cases shipped as compared to prior quarters, reflecting strength in APAC and EMEA. Teen starts were up sequentially 1.2%, reflecting strength in EMEA and North America, offset by seasonally fewer teen starts in China. While the teen market tends to be less susceptible to consumer demand around discretionary spending and more resilient than adult orthodontic case starts, We're pleased that in Q1, our clear aligner volumes for both adults and teens were up sequentially and year over year. We believe the Invisalign Pallet Expander System is one of the most exciting innovations we've developed in our 27-year history and is a better option for expanding a growing patient's narrow palate. Initial response from doctors and patients for Invisalign Pallet Expander System is positive. The Invisalign Pallet Expander System is not a traditional Invisalign aligner. It's a series of direct 3D printed orthodontic appliances based on proprietary and patented technology that has four systems designed for skeletal expansion. Clinical data shows that Invisalign Pallet Expander System is safe, effective, and proven to deliver skeletal expansion. Specifically, our clinical data is based on 49 patients across the United States and Canada between the ages of 6.9 and 11, with a mean age of 8.8 years. In this group, the mean expansion of 6 millimeters was achieved with minimal tipping with ranges between 3.4 and 10.7 millimeters, as measured using the change in intermolar width between the initial and post-expansion scans, with the mean expansion efficacy of 97%. In addition, we found that surveyed doctors agree the Invisalign Pallet Expander is less painful than traditional expanders and facilitates better oral hygiene compared to traditional metal expanders. Phase I or early interceptive treatment includes both skeletal, orthopedic, and dental orthodontic arch expansion and makes up to 20% of the orthodontic case starts each year. Combined with Invisalign First aligner treatment, Invisalign Pallet Expanders provide doctors the full early interceptive treatment solution that allows doctors to treat all Phase I patients. We expect Invisalign Pallet Expander to be available in other markets pending future applicable regulatory approvals. Today Invisalign is the most recognized orthodontic brand globally and Invisalign clear aligner treatment is faster and more effective than traditional metal braces. Yet the underlying market opportunity remains huge and untapped. We continue to invest in consumer marketing and demand creation initiatives that raise awareness and drive potential patients to Invisalign practices globally. Below are several highlights from Q1 and more information is available in our Q1 24 earnings webcast slides. In Q1 24 we delivered four 14.5 billion impressions, and have 43 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 and top media platforms such as TikTok, Instagram, YouTube, Snapchat, and WeChat across markets. Reaching young adults as well as teens and their parents also requires the right engagement to Invisalign influencers and creator-centric campaigns. Our teen and business drama free campaign was recently recognized by the association of national advertisers with a silver award in the Reggie awards for creative and strategic excellence. In the U S in addition to our ongoing influencer campaigns, we partner with athletes such as mass Crosby, Tik TOK, Gen Z, influencer, overtime, Meg, and the famous fashion designer, Christine Ushik to create a compelling brand activation at the super bowl. Our campaigns delivered more than 6.1 billion impressions. and 18.1 million unique visitors to our consumer websites across the Americas. In the Maya region, we partner with influencers to reach consumers across social media platforms, including TikTok and Meta, and launched our global consumer campaigns for teens and parents. Our campaigns delivered more than 1.6 billion media impressions and 8.9 million visitors to our website. We continue to invest in consumer advertising across the APAC region, resulting in more than 6.6 billion impressions and 16 million visitors to our websites, 195% increase year over year. 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 a 285% year over year increase in unique visitors to our website in India and 129% increase in Japan. Finally, digital tools such as my Invisalign consumer and patient app continue to increase with 4 million downloads to date and over 381,000 monthly active users, 15% year-over-year growth rate. Q124 clear liner volume from DSO customers increased sequentially, reflecting growth in Americas and EMEA regions, and increased year-over-year, reflecting growth across international regions. Dental service organizations, or DSOs, represent a large and growing opportunity to help drive adoption of digital technology across the dental industry. We have established relationships with many DSOs globally that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the Align Digital platform, including increased practice efficiency and profitability, as well as delivering a better patient experience from shorter cycle times and proximity to their customers. SmileDocs and Heartland Dental are some of the largest DSO partners and are continuously exploring collaborations with DSOs that can further adoption of digital dentistry. Each DSO has a different strategy and business model, and our focus is on working with and encouraging DSOs aligned with our vision, strategy, and business model goals. Today, we announced an additional $75 million equity increase in Heartland. Following the previous $75 million equity investment a year ago, Heartland is a multidisciplinary DSO with GP and ortho practices across the United States. Their growth strategy includes Heartland's DeNova dental practices, which feature modern technology, located in areas with a strong community need for dentistry, where Heartland provides practices with opportunities for mentorship, leadership training, and continuing education. In the last four years, Heartland opened 240 state-of-the-art DeNova practices across the U.S. and are planning to continue investing through more DeNova openings. We have a shared sense of purpose with Heartland. Their mission is to help doctors and their teams deliver the highest quality digital dental care to the communities they serve. With that, I'll now turn it over to John. Thanks, Joe.