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spk06: 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.
spk05: 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?
spk14: 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.
spk07: Now for our Q1 financial results. Total revenues for the first quarter were $997.4 million, up 4.3% from the prior quarter and up 5.8% from the corresponding quarter a year ago. On a constant currency basis, Q1 24 revenues were impacted by favorable foreign exchange of approximately $10 million or approximately 1% sequentially and were unfavorably impacted by approximately $4.8 million year-over-year or approximately 0.5%. For clear aligners, Q1 revenues of $817.3 million were up 4.5% sequentially, primarily from higher ASPs and higher volumes. On a year-over-year basis, Q1 clear aligner revenues were up 3.5%, primarily due to higher volumes in ASPs and increased non-case revenues. For Q1, Invisalign ASPs for comprehensive treatment were up sequentially and up year over year. On a sequential basis, ASPs primarily reflect higher additional aligners and price increases and the variable impact of foreign exchange, partially offset by a product makeshift to lower ASP products. On a year-over-year basis, the increase in comprehensive ASPs primarily reflect higher additional aligners and price increases, partially offset by a product makeshift to lower ASP products and higher discounts, and the unfavorable impact from foreign exchange. For Q1, Invisalign ASPs for non-comprehensive treatment were down sequentially and year-over-year. On a sequential basis, the decline in ASPs reflect unfavorable country mix, shift and higher discounts, partially offset by the favorable impact from foreign exchange. On a year-over-year basis, the decrease in noncomprehensive ASBs reflect the product mix shifts to lower ASB products. Unfavorable country mix shift and higher discounts, partially offset by lower net revenue deferrals. As a reminder, we announced about a 5% global price increase for some Invisalign products across most markets, effective January 1st, 2024. This price increase did not include Invisalign Comprehensive 3-in-3 product. Invisalign Comprehensive 3-in-3 product is available in North America and in certain markets in EMEA and APEC, most recently launching in French territories and in the Middle East. We are pleased with the continued adoption of the Invisalign Comprehensive 3-in-3 product and anticipate it will continue increasing, providing doctors the flexibility they want and allowing us to recognize more revenue upfront, with deferred revenue being recognized over a shorter period of time compared to our traditional Invisalign comprehensive product. Q124 clear aligner revenues were impacted by a favorable foreign exchange of approximately $8.4 million, or approximately 1% sequentially. On a year-over-year basis, clear aligner revenues were unfavorably impacted by foreign exchange of approximately $3.9 million, or approximately 0.5%. Clear aligner deferred revenues on the balance sheet decreased $26.7 million, or 2% sequentially, and increased $15.8 million, or 1.2% year-over-year, and will be recognized as additional aligners are shipped. Q124 systems and services revenue of $180.2 million were up 3.1% sequentially, primarily due to increased non-systems revenues mostly related to upgrades and higher ASPs, partially offset by lower volumes. Q124 systems and services revenue were up 17.5% year-over-year, primarily due to increased non-systems revenues mostly related to upgrades higher scanner volumes, and higher services revenues from our larger base of scanners sold. CAD, CAM, and services revenue for Q1 represent approximately 51% of our systems and services business. Q1 24 systems and services revenues were favorably impacted by foreign exchange of approximately $1.5 million or approximately 0.9% sequentially. On a year-over-year basis, Systems and services revenues were unfavorably impacted by foreign exchange of approximately $0.9 million or approximately 0.5%. Systems and services deferred revenues on the balance sheet was down $14.3 million or 5.5% sequentially and down $25.3 million or 9.4% year-over-year, primarily due to the recognition of services revenues which will which is recognized ratably over the service period. The decline in deferred revenues both sequentially and year over year reflects the shorter duration of service contracts with initial scanner purchases. As our scanner portfolio expands and we introduce new products, we increase the opportunities for customers to upgrade and make trade-ins, in addition to other scanner leasing and rental programs. Developing new capital equipment opportunities to meet the digital transformation needs of our customers and our DSO partners is a natural progression for our equipment business with a large and growing base of scanners sold. We're pleased to be able to leverage our technological innovations and operational capabilities and efficiencies to provide different types of go-to-market models to our customers, such as rentals and leasing, selling the way that our customers want to buy. Moving on to gross margin. First quarter overall gross margin was 70%, approximately flat sequentially and year over year. Overall gross margin was favorably impacted by foreign exchange by approximately 0.3 points sequentially and unfavorably impacted by approximately 0.1 points on a year over year basis. Clear aligner gross margin for the first quarter was 70.9%, down 0.3 points sequentially, primarily due to higher manufacturing spend, partially offset by higher ASP. Clear aligner gross margin for the first quarter was down 0.8 points year over year, primarily due to higher manufacturing spend, partially offset by favorable ASP. Systems and services gross margin for the first quarter was 65.9%, up 1.1 points sequentially due to higher ASP, partially offset by manufacturing variances. Systems and services gross margin for the first quarter was up 4.3 points year-over-year, primarily due to higher ASP, lower service and manufacturing costs. Q1 operating expenses were $543.7 million, up 9.2% sequentially and 3.1% year-over-year. On a sequential basis, operating expenses were up by $45.7 million, from higher incentive compensation and consumer marketing spend, partially offset by restructuring and other charges not recurring in Q1. Year over year, operating expenses increased by $16.5 million, primarily due to our continued investments in sales and R&D activities and higher incentive compensation. On a non-GAAP basis, excluding stock-based compensation, amortization of acquired intangibles related to certain acquisitions and restructuring and other charges, operating expenses were $506.1 million, up 13.3% sequentially, and up 3.2% year over year. Our first quarter operating income of $154.1 million resulted in an operating margin of 15.5%, down 2.5 points sequentially, and up 1.3 points year over year. The sequential decrease in operating margin is primarily attributed to investments in our go-to-market teams and higher incentive compensation. The year-over-year increase in operating margin is primarily attributed to operating leverage and proactively managing our costs, partially offset by unfavorable impact from foreign exchange of approximately 0.7 points. On a non-GAAP basis, which excludes stock-based compensation, amortization of intangibles related to certain acquisitions, and restructuring and other charges, operating margin for the first quarter was 19.8%, down four points sequentially and up 1.3 points year over year. Interest and other income expense net for the first quarter was an income of $4.3 million compared to an income of $1.3 million in Q4 of 23 and an income of $1.1 million in Q1 of 23. primarily driven by a gain on our equity investments and net interest income and offset by unfavorable foreign exchange. The GAAP effective tax rate in the first quarter was 33.7% compared to 28.3% in the fourth quarter and 34.8% in the first quarter of the prior year. The first quarter GAAP effective tax rate was higher than the fourth quarter effective tax rate primarily due to discrete tax benefits recognized in Q4 of 23 partially offset by increased earnings in low tax jurisdictions in Q1 of 24. Our non-GAAP effective tax rate in the first quarter was 20% which reflects our long-term projected tax rate. First quarter net income per diluted share was $1.39 down sequentially 24 cents and up 26 cents compared to the prior year. Our EPS was not impacted on a sequential basis from foreign exchange. Our EPS was unfavorably impacted by $0.09 on a year-over-year basis to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.14 for the first quarter, down $0.28 sequentially and up $0.32 year-over-year. Moving on to the balance sheet, as of March 31, 2024, cash, cash equivalents, and short term and long-term marketable securities were $902.5 million, down sequentially $78.2 million, and down $18.9 million year-over-year. Of our $902.5 million balance, $217.5 million was held in the U.S., and $685 million was held by our international entities. In January 2024, we received approximately 37,000 shares of our common stock upon final settlement of the $250 million accelerated share repurchase from Q4 of 23. In total, we repurchased approximately 1.1 million shares and an average price per share of $230.13 under the Q4 ASR contract. We have $650 million available for repurchase of our common stock under our January 2023 repurchase program. During Q2 24, we expect to repurchase up to $150 million of our common stock through either a combination of open market repurchase or an accelerated stock repurchase agreement. Q1 accounts receivable balance was $950.7 million up sequentially Our overall day sales outstanding was 86 days, up approximately one day sequentially and up approximately three days as compared to Q1 last year. Cash flow from operations for the first quarter was $28.7 million. Capital expenditures for the first quarter were $9.4 million, primarily related to our continued investments to increase aligner manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations, less capital expenditures, amounted to $19.3 million. We're continuing to use our healthy balance sheet to drive growth and profitability. During the quarter, we continue to make disciplined investments in our strategic growth drivers. We completed the acquisition of Cubicure, which will enable us to scale our 3D printing operations to a eventually direct print millions of custom appliances per day, and we exit the quarter with a healthy cash flow position and no long-term debt, maintaining a strong position to support our additional $75 million investment in our DSO partner, Heartland Dental, and $150 million stock buyback. Now turning to our outlook. Assuming no circumstances occur beyond our control, we provide the following framework for Q2 and fiscal 2024. For Q2-24, we provide the following business outlook. For Q2-24, we expect worldwide revenues to be in the range of $1.3 billion to $1.5 billion. We expect clear aligner volume to be up sequentially and clear aligner ASB to be down slightly sequentially, primarily as a result of unfavorable foreign exchange. We expect systems and services revenue to be up sequentially as we continue to ramp Itero Lumina in Q2 2024. We expect Q2 24 GAAP operating margin and non-GAAP operating margin to be slightly above Q1 24 GAAP and non-GAAP operating margins, respectively. For fiscal 24, we provide the following business outlook. We expect fiscal 24 total revenue to be up 6% to 8% versus 2023, which is higher than our prior outlook of up mid single digit growth compared to 2023. The increase in our 2024 revenue outlook reflects our Q1 results, Q2 outlook, and continued execution of our growth strategies. We anticipate that the incremental revenue reflected in our 2024 outlook will be roughly split 50-50 between our two operating segments. We expect fiscal 2024 clear aligner ASVs to be slightly up year over year. We expect fiscal 2024 GAAP operating margin and non-GAAP operating margin to be slightly above the 2023 GAAP operating margin and non-GAAP operating margin, respectively. We expect our investments in capital expenditures for fiscal 2024 to be approximately $100 million. Capital expenditures primarily relate to building construction and improvements, as well as manufacturing capacity in support of our continued expansion. With that, I'll turn it back over to Joe for final comments. Joe?
spk14: Thanks, John. In summary, Q1 was a good start for the year. While I'm pleased with our results, I'm even more excited about Align's innovation in 2024 on our next wave of growth drivers that we believe will continue to revolutionize the orthodontic and dental industry in scanning software and direct 3D printing. Our focused execution of our product roadmap and innovation pipeline has resulted in the largest introduction of new products and technologies in our history, further advancing our software scanning and 3D printing capabilities. We're excited about the potential for these strategic investments to enable a new phase of growth to transform the orthodontic industry again. The ITERA Illumina Interoral Scanner has the potential to set a new standard of care for dental practices by simplifying the scanning of complex oral regions while offering superior chair-side visualization and a more comfortable experience for patients, especially kids. The Invisalign Pallet Expander increases the clinical applicability of the Invisalign system to nearly 100% of orthodontic case starts. It is a revolutionary removable 3D-printed appliance that has clinically proven to be safe and effective It is less painful than traditional metal expanders and promotes better oral hygiene. And our recent acquisition of Hubicure, a pioneer of 3D printing solutions for polymer additive manufacturing, brings a talented team and unique cutting-edge technology into a line to help us scale our 3D printing operations, providing ultimate design freedom and highly customized outcomes from a customer and patient standpoint, as well as operational benefits to the business. We see incredible opportunities in this business and continue to make the Invisalign system, the standard of care in orthodontics, by continually innovating and developing digital technologies and services that enable more doctors to easily diagnose and treat patients with crooked teeth and help them retain their healthy, beautiful smiles. We're increasing access to care for millions of people who might not otherwise receive orthodontic treatment. With that, I thank you for your time today. We look forward to sharing our continued progress in leading the digital transformation of the orthodontic and restorative dental industry. I'll now turn the call over to the operator for your questions. Operator?
spk06: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1-1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 1-1 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk09: One moment, please, while we poll for questions. Our first question comes from Elizabeth Anderson with Evercore ISI.
spk06: You may proceed.
spk26: Hi, guys. Thanks so much for the question. I was wondering if you could talk about how you're seeing the overall demand environment. I guess I'm particularly curious about the U.S., sort of how you're seeing it from like a consumer demand perspective, especially any comments you could make on the smile direct impact on volumes in the quarter. And then secondarily, if you could comment a little bit more on the broader demand environment in China, that would be super helpful. Thank you.
spk14: Hey, Elizabeth, I'll start off and have John jump in on anything. First of all, we describe the business right now as stable. It's the same things that we talked about as we came out of the fourth quarter, and we see that stability broadly around the globe. And you saw in our script that we just read, too, that it's good from an adult standpoint and also a teen standpoint, too, which, again, lends to that kind of stability that we talk about. If I look around the world, I mean, we've – That stability exists, you know, whether it's in Asia, whether we've seen it in parts of Europe, and we see it in the United States and in America also. So it's hard for us to call out a particular region or whatever that is dramatically down or dramatically up. We just see them moving pretty much in unison in the first quarter. John, would you add anything?
spk07: No, I agree. And that's, you know, we're driving the growth strategies. As we've said, we've seen that stability in the environment, and we're executing against that.
spk14: And as a last thing on your Smile Direct Club comment, you know, and them not being, you know, advertising like they were before or whatever, we can't attribute, you know, any part of the demand equation up or down as part of that. And, you know, and obviously that was more pronounced in the United States than it was anywhere else in the world. But I can't attribute any change in the marketplace because of them not advertising it at this point in time.
spk27: Great. Great to hear. Thank you so much. Appreciate the commentary. Thanks.
spk06: Thank you. One moment for questions. Our next question comes from Brandon Vasquez with William Blair. You may proceed.
spk17: Hi, everyone. Thanks for taking the question. I wanted to focus for a second on the team side. You know, you have the Palo Alto Expander out there now getting great reviews, and it seems like it closes, if I'm understanding the numbers correctly, maybe 20% of that market that you haven't been able to hit before. This is such a big opportunity. I'm curious if you can just reflect on, like, How does commercialization within teams look in the next couple of years now that you have kind of a broader and more full portfolio here compared to the prior couple of years? And what does that mean for growth rates within that team section and adoption within team that's underpenetrated relative to teams as we look forward the next couple of years? Thanks.
spk14: That's a good question, Brandon. You know, I think, you know, as we mentioned, it's 20%. And we call them tweens, really. They're young students, you know, before they really hit the teen years and have, you know, mature dentition. With Invisalign First, and now with IPE, we can handle the 20% that's out there on the phase one. And, you know, some teens just need, the tweens just need dental expansion, and some you really have to split the suture and widen the palate overall. We feel in both those cases, with IPE and Invisalign First, these are very unique products specific to that area. And we think it'll actually make doctors that aren't comfortable with phase one maybe even more comfortable now because of the impact on patients is not what it was before when you tried to work these kinds of cases with wires and brackets or hyrax expanders and those kinds of things. But like anything in the orthodontic community, it takes time. It takes time for acceptance. And the good thing about this is IPE is about a 30 to 35-day kind of an episode, so our feedback loop is really good. You can tell from my transcript also is You know, right now we're approved in the United States and Canada and recently in ANZ. And right now we're throttled by the regulatory procedures we have to go throughout the world. So we'll be able to give you more specificity on this, Brandon, as we go forward. But as I mentioned in my closing, too, we're really excited about that technology. And we didn't tie it together. The new Luminous Scanner has such a broad kind of a bandwidth from a scanning standpoint. It scans that pallet that you have to cover with Invisalign First extremely well. So those technologies thread together very well out there. So we're excited about it and more to come.
spk09: Thank you.
spk06: One moment for questions. Our next question comes from John Block with Stiefel. You may proceed.
spk16: Hey, Scott. Hey, Joe. Good afternoon. I'm going to ask two, maybe just the first one. Throughout the quarter, there was sort of like an obsession or a big focus from investors on month-to-month trends. There was talk about February strength, March weakness. I don't think if anyone really knew if it was the consumer or the calendar or both. So maybe you guys can talk a little bit about how it played out for you guys, elaborate on February and March, and then as much as you can, just touch on April here for the first two to three weeks, and then I'll ask my follow-up. Thanks.
spk07: yeah john this is john you know look from as we as we talk about the quarter and and think about we're very pleased with our results in in q1 we saw stability as joe mentioned and that really continued from the end of the year and into the quarter um less about month to month i mean it was the stability and then then the execution that we had throughout the quarter with our with our products okay um and then i'll just shift gears john i might stick with you i believe the wording is slightly above
spk16: you know, the 2023 OM, which I think is 21.4% unchanged, despite the higher revenues, you know, the midpoint going from roughly 5% to 7%. So can you talk about where that extra spend is going? Do we see the returns on that this year? Or will that aid and give you some more tailwinds into 2025? And then just to tack on to that, you know, the new higher guidance doesn't, It implies we're at a 6% in the back part of this year, year-over-year growth, which isn't too dissimilar from 1H, but the comps get more difficult, so the stacks need to accelerate. Why should we be comfortable with that? Is that just an accelerating contribution from some of those new products like Lumina and IPE.
spk07: Thanks, guys. That latter point is how I would look at it, John. We're making investments. We make investments throughout the year. We get the shorter, longer-term investments that we make, different returns on whether they're short or long-term. But what we see is a stable environment, continued investments in go-to-market activities. We have new products coming, so that helps us accelerate with with things that we'll have on the ITERO side as well as IPE and others that Joe talked about where we really get the approval later in the year. So, you know, it's about a stable environment, making investments into that environment, and then executing on our growth strategies. And that should give us the benefits that you described in the second half.
spk09: Thank you.
spk06: One moment for questions. Our next question comes from Jeff Johnson with Beard. You may proceed.
spk23: Hi, Jeff. Thank you. Good afternoon, guys. Hey, guys. How are you? So, John, maybe following up on John's question there and just a little finer point on the guidance itself. You know, you've taken that guidance from mid-single digits to six to eight. Scanner and CAD CAM services came in, obviously, you know, strongly in the double digits upper teens. Should we think about kind of that double digits, maybe not the upper teens, but double digits is kind of where the scanner and services continues this year and Your clear aligner revenue guidance kind of still in the mid single digits. I think last quarter we were talking about both those segments being mid single digit growers. It seems like to me now maybe the raise here is being driven more by the scanner and CAD CAM services. And as Joe called the market stable, then maybe the clear aligner revenue is still kind of expected to be in that middish single digits. Is that a fair kind of way to look at guidance?
spk07: that's that's a fair way to look at it jeff i mean you would see you know given the the new products that we have and uh with lumina and itero we'll see a little bit faster growth we're very pleased with what we saw in the first quarter typically in the first quarter you don't have a sequential uh gain in revenue from the fourth quarter being an equipment business so we're very pleased with what we saw there but then we also look at the clear aligner business and we expect to be able to to grow and continue to grow there both in terms of the investments that we're making in a relatively stable environment and some of the new products that should help supplement that growth.
spk23: Yeah, that's helpful. And then one other follow-up. I think it's been asked in the past, maybe at an analyst day or something. I don't remember if you've given a clear answer, but it's something I keep getting asked here more recently, and that's a percentage of your patient base or of maybe orthodontic cases that get financed through some sort of program. third-party patient financing company. You know, we have seen in areas like full arch implants, some of the aesthetic procedures outside of dental where lending standards have gone up, FICO scores have gone from the 500 to 700, something like that, to qualify for patient financing in this cost of capital and tougher capital environment. So what percentage, do you know a percentage or roundabout of what cases get financed and if those lending standards have changed at all or put any incremental pressure on patients here more recently? Thanks.
spk07: Yeah, what we see, Jeff, is, and it varies country by country, I'll say U.S. is maybe the most, and I'll combine ortho and GP together, roughly a third of the cases that we see get some type of external financing. Remember, many patients or parents will pay in advance. That's great for doctors. Many doctors, especially orthos, will do some type of kind of internal financing where you kind of pay as you go and so on. And many doctors are continuing to do that, especially in the tougher environment. And we're doing things to help doctors to try to give them a little bit more extension in payments so that they can provide and pass that on to their patients as well. And we'll work with DSO partners to really try to help them work with these external companies to try to give better financing rates to try to get these patients to go into treatment. So we're well aware. We know we can help. We have the balance sheet and the cash to be able to help with our customers so that they can pass that on. And that's something that we want to keep working towards.
spk23: John, any change to note over just the past few months, even in those lending standards getting tougher, or do you feel like that's stable as well as just kind of the overall environment as you've described that way? Thanks.
spk07: I look at that as more stable. I think there was a lot of things, if you go back to last year, people were really getting a bit of sticker shock in terms of the higher interest rates when they came to try to go into treatment. I think people are past that. I think when I see this or what I hear from doctors or or see from our customers that it's a little bit more stable. There's not a big change.
spk09: Thank you. Thank you.
spk06: One moment for questions. Our next question comes from Michael Troney with Lyric Partners. You may proceed.
spk09: Hey, can you hear me okay?
spk01: Yeah, we can hear you fine.
spk20: Okay. So just relative to the spend, I want to dive in a little bit more, if possible. You talked about the investment growth. Can you delineate, relative to that investment, how you're thinking about the growth into, call it, your core markets for some of the new product launches? And especially with regards to the ramp on the printing side, how much incremental printing spend, so to speak, is coming now versus where you think it's going to grow and what the run rate should be on ramping that over time?
spk07: Yeah, I think we have a core business that we're running and obviously there's a certain amount of investment that you have to be able to grow around sales and marketing and the go-to-market activities that we have. There's also R&D spending that we've had throughout the time. And now it's that R&D in the case of acquiring Cubicure and now turning this into more of a platform to be able to build our 3D printing. There's a certain amount of spend that we have. You know, how that lays out, it varies over time that we'll have. But rest assured, we know how to scale products. We know how to scale 3D printing. We'll make the right investments to be able to start scaling up that direct fab printing while making sure that the core business has the right investments for growth. And we'll balance that as we go forward.
spk19: Got it. Thank you.
spk06: Thank you. One moment for questions. Our next question comes from Jason Bednar with Piper Sandler. You may proceed.
spk15: Hi, Jason. Hey, good afternoon. Thanks for taking the questions. First, I want to build on some of the macro questions that have been asked. I don't want to belabor the point, but other consumer discretionary companies called out a downtick in March. It doesn't sound like you saw any of that, but just wanted to confirm that's the case with respect to Invisalign Demand. And maybe speak to your confidence to drive clear liner volumes going forward now that comps turn a little bit tougher. How much do you think you might need to fund that growth with investments to drive more traffic into the office?
spk14: Hey, Jason, on the first part is, you know, we talk about the stable environment. We've seen that stability of it. You know, we read and I read, you know, what's going on there with consumer investments, some concerns, particularly on the luxury goods or what's going on out there. But You know, honestly, I think often what we see, and analysts that follow us here, just really pick up the U.S. data. And what we see is, you know, differences all around the world, and that's what's great about having an international business. You have some countercycling in the sense of the demand patterns and what goes on out there. But I would say there's nothing that we would highlight right now that would say that we think something's changed to what we saw in the second half of 2023 to what we saw in the first quarter of this year. John, you have
spk07: Yeah, and in terms of investments, you know, we make the investments that we need, go to market and manufacture and other expansion as we continue to grow. We'll continue those investments. But as we've talked about, not only for now the second quarter when we're talking about that sequential improvement in op margin and what we've talked about in total year, where we expect the year-over-year improvement in margin, we're making sure that we're investing with that right amount of profitability to still be able to grow into our market and expand on the opportunities that we have, but then being respectful in terms of what margin we need to be able to deliver for the company.
spk15: All right. Very helpful, Joe and John. And maybe one follow-up here. um to maybe a multi-parter on team so bear with me this might be a nuanced look uh it seems like a lot of emphasis here just recently in product development and marketing that's really trying to tap into that much younger market that phase one opportunity you know ipe fits in there your new marketing branding plan has an emphasis there there seems to be some benefits for younger patients with lumina it's really it seems intentional but wondering if you could buy for k for us how your Invisalign business is performing in this younger patient population relative to teens as a whole, where does your penetration sit in those younger patients versus the broader teen channel, and maybe what kind of outsized growth you're expecting from this part of the channel as we look out over the near to intermediate term.
spk14: Jason, I'll just back up on your question, just give you kind of a conceptual view. When you think of phase one, It's actually been controversial in the orthodontic market for years. Some orthodontists don't want to do phase one because I mentioned before the kind of devices that have been used have been kind of difficult from a consumer standpoint. And so those wait for all permanent dentition and move on to there. We feel confident that within this line first now for dental expansion and then for palate expansion or a morphological change, IPE will do that. And we think it will attract more orthodontists to begin phase one treatment, but This is an industry that takes a while for things to bake in and for them to gain confidence. And I understand it because you're working with kids' teeth and mouths and their dentition. But we actually think that a significant amount of growth could come from this area. But we think it'll take time. But it's been a great focus for us. And it's going to be interesting to watch how orthodontists in the future actually focus on phase one, phase two, because these kinds of devices make it simpler and for them and for patients in the future so right now i can't i can only just kind of give you the ground rules on that that we've changed those rules in a sense but we i can't project exactly where it's going any sense penetration wise or maybe where you're at relative to the broader team market i'd say we're just in that story i mean you have even invisalign first is used sometimes on more permanent dentition too so it's hard we'd have to split our cases out of invisalign first is what the age of patients are or whatever but You know, as we get more data and we really get through with IPE and some more specificity around this, we'll share it with you and the rest of the people.
spk05: Yeah, I mean, the only thing that, you know, I mean, if you've tracked us for a while, you know that our average age of teen patients gets younger and younger. I think we're 14 now versus 15 plus before. So, I mean, that's a reflection of just being able to go after those younger patients first.
spk09: All right. Very helpful. Thank you. Thank you. One moment for questions.
spk06: Our next question comes from Nathan Rich with Goldman Sachs. You may proceed.
spk10: Great. Good afternoon. Hi, and thanks for the questions. I wanted to go back to the guidance. I know it's kind of been touched on a few different times, but I wanted to ask on the clear line of revenue outlook. It looks like you're raising the outlook for the full year by about 1%. I guess, could you maybe just touch on what changed specifically with respect to that outlook? It sounds like maybe it's expectations around IPE and DSP versus, you know, market improvement. But I'd be curious any color you could share there and, you know, maybe anything on teen versus adult within the updated guidance would be great.
spk07: Yeah, I'll start, Nate. So overall, we went from, you know, we talked to a mid-single digit, so call it 5%, to raising it to the midpoint of 7% on a year-over-year, so up two points. And really that's a reflection of a few things. One is the continued stability that we're seeing. We're operating in an environment that's more stable. We saw that coming into the fourth quarter and now into this quarter as well. So that's good. We want that stability there. And then you look at the execution that we have on our core business to be able to grow with a lot of the innovations that we have, the promotions and other things that we have as we get further into teen season. supplemented with the various new products that we talked about. We feel really good about Lumina and the launch that we have in iTero and the further expansion that that can drive, as well as some of the new products like IPE and others to really not only help those unit sales there, but then as Joe described, we had to pull in other products around Invisalign First and others to really help drive some of that growth that we can see in the team business. It's a combination of things, Nate, but it's what we're seeing in stability, how we're executing on our core strategies, and then some of the new products really supplementing that extended growth to help us. And that's why we adjusted our total year.
spk10: Okay, that's helpful. And then, John, maybe just sticking with you, the 2Q operating margin, I know up slightly sequentially, but down year over year. And I think, you know, Historically, it's been a little bit variable, but you've seen more of a step up in the second quarter than I think what the guidance implies. Anything to call out with respect to FX or I think you mentioned some manufacturing cost spend, but just anything there that we should keep in mind as it regards the margin cadence?
spk07: Well, and certainly we are seeing a stronger dollar, so that's something that we talked about when we think about our guide, too. You know, we see a stronger dollar coming out of the first quarter into the second quarter. Our guide reflects that as well. But then you look at the continuing investments that we're making to be able to drive more submitters, more doctors into our ecosystem and then ultimately drive more and more utilization. Some of it's that core business that we have to be able to drive growth, and some of it's some of the new products where there's a certain amount of OPEC spend that we have with that. But we're being very mindful of what we can do to be able to drive growth and then what it also means from an operating margin standpoint. And we're delivering that sequential improvement from 1Q to 2Q in operating margin and then talk to the total year of being up on a year-over-year basis.
spk09: Great. Thank you.
spk06: Thank you. One moment for questions. Our next question comes from Erin Wright with Morgan Stanley. You may proceed.
spk25: Great, thanks. Hi, I'll ask my two up front here, but I'll follow up on the guidance, and I don't want to belabor this too much, but do you think you have better visibility now just on the underlying demand trends globally, or would you say that there's still an element or a healthy element of macro uncertainty that's still embedded in your guidance and some conservatism there? And then second would be on Lumina and the launch. And just can you talk about where you're seeing the most success with the launch and the target markets and promotions where you're focused in terms of expanding share and upgrades as well? Thanks.
spk07: Hi, Aaron, this is John. I'll talk a little bit about visibility and guidance. I think, you know, what we, what we enjoy now and what we want to be able to have in an operating environment is more stability and that stability is there. Markets are open. There's, there's a higher overall higher inflation and, and, and interest rates, but, but people are operating in that environment. That stability transcends it to other things that we have. We see the Michigan index or other indices that kind of point to that stability. based on that stability, the investments that we're making, how we're going to market, some of the new products that we have, other things that we know that can, on a core basis, drive our business, as well as the new products and initiatives that we have. That's what gives us confidence to be able to have a guidance that we gave for Q2 and what it means for the total year.
spk14: And Aaron, on the Lumina piece, it's Joe, obviously, is... As I mentioned in the closing of my script, we're really excited about that technology. We've been working on it for six years. It is a true new platform. It's not a derivative of the old confocal imaging platform. And there's really no other scanner in the world that's like that and how we've built it. And it'll take a while for, I think, the market to absorb that. You have to do this doctor by doctor and place by place. But we've had a very enthusiastic response from the orthodontic community, but also the general dentistry community, too, even though we're not completely ready for the restorative piece, and we mentioned it'll be the fourth quarter this year, we'll have that capability out. It's just the speed of that wand, the simplicity of being able to scan, the dimensional tolerances and all that's used in the sense of both comprehensive and orthodontic cases are really unmatched. So we're excited about that, but we just have to take this thing, we've only had it out now for roughly a couple months, But we are expecting to have a really strong year, but more importantly, to have that really be to set the standard from a scanner standpoint for the industry going forward.
spk09: Thank you.
spk06: And as a reminder, to ask a question, please press star 1-1 on your telephone keypad. And our next question comes from Michael Reiskin with Bank of America. You may proceed.
spk18: Hey, Joe. John, thanks for taking the question and congrats on the quarter. I want to follow up on something I think, Joe, you touched on in the prepared remarks. If I caught it correctly, you kind of pointed to a little bit of strength in U.S. ortho or America's ortho in the quarter. It stood out for us. It seems like it's one of the stronger results in a number of quarters. Just wondering if you could expand on that a little bit. Is it the Lumina launch? Is it the fact that you're moving into younger younger teens and younger kids, which obviously is going to be a little bit more ortho-focused. Just any structural change you're seeing there with that group of dentists, or am I just reading it too much?
spk14: Yeah, no, Michael, I understand your question. I'd say, you know, we feel it's, you know, we've seen more stability in that market, you know, this year than we have last year. You know, we've always known that the teen segment of that, you know, much more solid than the adult segment, but the adult segment held up for us in the quarter, too, and so that aspect of the adult segment was good for us also. But I'm very cautious about projecting this market going forward because as you can see with a lot of the surveys that are done, this moves pretty dramatically from month to month. But again, it's not just the United States market we're focused on. The global market has been good for us too in that sense. So we're going to take this thing a month at a time, but we're confident enough to say this is stable, that we have products in here that are very helpful from an orthodontic standpoint and new, like you mentioned Lumina and also IPE. gives us more ground to stand on in the sense of those orthos and so we're excited about that but in no way do i think there's a phase change between what we saw last year and this year in ortho it's just more stable and uh and with more continuity is another word that i'd use to describe it okay and if i could squeeze in the follow-up if there's time um you know again also impressed by the the dsp touch-up progress um you know you called it out on the in the deck um
spk18: You've got some additional launches later this year. You've got the 14-stage touch-up aligner offering you're talking about. Any way you can start framing in terms of, you know, would you incorporate that into guidance at some point in terms of where you think that can go in terms of volumes and revenues or any update longer term how you see DSP and touch-up evolving over time? Thanks.
spk07: Yeah, Mike, I'll take that one. Look, DSP is very popular because it, It really serves the needs that doctors have. They want to be able to buy things kind of the way they want to buy. They want to be able to, instead of making things or doing things themselves, they can use our aligners as part of that DSP and be able to treat those touch-up cases. And we like that. That's incremental for us in terms of what we see there. And they can also then use a lot of the aligners that they have for retention. And that's great, too, because that's typically incremental volume that we have. So I think when we see us rolling this out, like we said a few years ago, it was U.S. and North America, and now it's into Europe. It continues to do what we expect it to do, doctors start. They adopt it more and more because part of their workflow, and we see positive volume from that. And in success for projects, programs like that, we'll continue to expand those out.
spk02: Thanks, Michael. Operator, we can take one more question.
spk09: Thank you. One moment for questions. And our last question comes from Kevin Caliendo with UBS.
spk06: You may proceed.
spk13: Hi, thanks for getting me in. I appreciate it. I have two questions. So the first one is on Heartland. Can you talk a little bit about the benefits of the Heartland investment operationally? And also, Heartland is, my understanding, is a pretty profitable business. And now with two separate investments there, how does... how does their profits or how does the accounting work for that from your perspective at this point? And then secondly, if you can provide, I guess, you know, with regards to the guidance, I think we understand it, but was that in any way based on the trends that you've seen so far in April? Or if you can elaborate on those in any way, that would be great. Thanks.
spk07: I can start with the guidance. part of that, Kevin. Look, we use a lot of factors to look at where our guidance is. So we're using data from Q1 and the most recent information. But it goes back to the stability that we've seen. You can see it in a lot of the surveys and other things that a lot of people do. But what we see is that stability coupled with what we're trying to do to go to market to drive the initiatives we have and the new products that we have. That's a key part of what we factor in into our guidance. No change from what we normally do. This is how we've come together in terms of a guidance standpoint. In terms of Heartland, we look at Heartland as this is a great investment from investing in a company that shares a digital orthodontic mindset that we have to be able to do things in a similar mindset, to be able to expand like they're expanding to be able to get into markets that in some cases we don't have much market share with or a big presence there. And they share that same mindset, that expansion. They've been around for a lot of years as well. With this investment, it's less than 5%. There's no consolidation or anything else that's required. And we'll evaluate going forward on whether there's any mark-to-market that we have to do going forward. But it's a continuation of that investment, the expansion that they're doing, and we're pleased with the results that we've seen over the last year.
spk13: Super helpful.
spk09: Thank you.
spk04: Thanks, Kevin.
spk03: Will that actually conclude? Sorry, go ahead, Operator.
spk06: And we have reached the end of our question and answer session. I will now turn the call back over to Shirley Stacey for closing remarks.
spk05: Thank you so much, and thank you, everyone, for joining us today. We look forward to speaking to you at upcoming financial conferences and industry meetings, including the American Association of Orthodontics meeting in New Orleans May 4th and 5th. If you have any questions, please give us a call. Thank you.
spk06: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. you you Thank you. Thank you. Thank you. Thank you. 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.
spk05: 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?
spk14: 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 liner 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 survey 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 the 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 from 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.
spk07: Now for our Q1 financial results. Total revenues for the first quarter were $997.4 million, up 4.3% from the prior quarter and up 5.8% from the corresponding quarter a year ago. On a constant currency basis, Q1 24 revenues were impacted by favorable foreign exchange of approximately $10 million or approximately 1% sequentially and were unfavorably impacted by approximately $4.8 million year-over-year or approximately 0.5%. For clear aligners, Q1 revenues of $817.3 million were up 4.5% sequentially, primarily from higher ASPs and higher volumes. On a year-over-year basis, Q1 clear aligner revenues were up 3.5%, primarily due to higher volumes in ASPs and increased non-case revenues. For Q1, Invisalign ASPs for comprehensive treatment were up sequentially and up year over year. On a sequential basis, ASPs primarily reflect higher additional aligners and price increases and the variable impact of foreign exchange, partially offset by a product mix shift to lower ASP products. On a year-over-year basis, the increase in comprehensive ASPs primarily reflect higher additional aligners and price increases, partially offset by a product makeshift to lower ASP products and higher discounts, and the unfavorable impact from foreign exchange. For Q1, Invisalign ASPs for non-comprehensive treatment were down sequentially and year-over-year. On a sequential basis, the decline in ASPs reflect unfavorable country mix, shift and higher discounts, partially offset by the favorable impact from foreign exchange. On a year-over-year basis, the decrease in non-comprehensive ASBs reflect the product mix shifts to lower ASB products. Unfavorable country mix shift and higher discounts, partially offset by lower net revenue deferrals. As a reminder, we announced about a 5% global price increase for some Invisalign products across most markets, effective January 1st, 2024. This price increase did not include Invisalign Comprehensive 3-in-3 product. Invisalign Comprehensive 3-in-3 product is available in North America and in certain markets in EMEA and APEC, most recently launching in French territories and in the Middle East. We are pleased with the continued adoption of the Invisalign Comprehensive 3-in-3 product and anticipate it will continue increasing, providing doctors the flexibility they want and allowing us to recognize more revenue upfront, with deferred revenue being recognized over a shorter period of time compared to our traditional Invisalign comprehensive product. Q124 clear aligner revenues were impacted by a favorable foreign exchange of approximately $8.4 million, or approximately 1% sequentially. On a year-over-year basis, clear aligner revenues were unfavorably impacted by foreign exchange of approximately $3.9 million, or approximately 0.5%. Clear aligner deferred revenues on the balance sheet decreased $26.7 million, or 2% sequentially, and increased $15.8 million, or 1.2% year-over-year, and will be recognized as additional aligners are shipped. Q124 systems and services revenue of $180.2 million were up 3.1% sequentially, primarily due to increased non-systems revenues mostly related to upgrades and higher ASPs, partially offset by lower volumes. Q124 systems and services revenue were up 17.5% year-over-year, primarily due to increased non-systems revenues mostly related to upgrades higher scanner volumes, and higher services revenues from our larger base of scanners sold. CAD, CAM, and services revenue for Q1 represent approximately 51% of our systems and services business. Q1 24 systems and services revenues were favorably impacted by foreign exchange of approximately $1.5 million or approximately 0.9% sequentially. On a year-over-year basis, Systems and services revenues were unfavorably impacted by foreign exchange of approximately $0.9 million or approximately 0.5%. Systems and services deferred revenues on the balance sheet was down $14.3 million or 5.5% sequentially and down $25.3 million or 9.4% year over year, primarily due to the recognition of services revenues, which will which is recognized ratably over the service period. The decline in deferred revenues both sequentially and year over year reflects the shorter duration of service contracts with initial scanner purchases. As our scanner portfolio expands and we introduce new products, we increase the opportunities for customers to upgrade and make trade-ins, in addition to other scanner leasing and rental programs. Developing new capital equipment opportunities to meet the digital transformation needs of our customers and our DSO partners is a natural progression for our equipment business with a large and growing base of scanners sold. We're pleased to be able to leverage our technological innovations and operational capabilities and efficiencies to provide different types of go-to-market models to our customers, such as rentals and leasing, selling the way that our customers want to buy. Moving on to gross margin. First quarter overall gross margin was 70%, approximately flat sequentially and year over year. Overall gross margin was favorably impacted by foreign exchange by approximately 0.3 points sequentially and unfavorably impacted by approximately 0.1 points on a year over year basis. Clear aligner gross margin for the first quarter was 70.9%, down 0.3 points sequentially, primarily due to higher manufacturing spend, partially offset by higher ASP. Clear aligner gross margin for the first quarter was down 0.8 points year over year, primarily due to higher manufacturing spend, partially offset by favorable ASP. Systems and services gross margin for the first quarter was 65.9%, up 1.1 points sequentially due to higher ASP, partially offset by manufacturing variances. Systems and services gross margin for the first quarter was up 4.3 points year-over-year, primarily due to higher ASP, lower service and manufacturing costs. Q1 operating expenses were $543.7 million, up 9.2% sequentially and 3.1% year-over-year. On a sequential basis, operating expenses were up by $45.7 million, from higher incentive compensation and consumer marketing spend, partially offset by restructuring and other charges not recurring in Q1. Year over year, operating expenses increased by $16.5 million, primarily due to our continued investments in sales and R&D activities and higher incentive compensation. On a non-GAAP basis, excluding stock-based compensation, amortization of acquired intangibles related to certain acquisitions and restructuring and other charges, operating expenses were $506.1 million, up 13.3% sequentially, and up 3.2% year over year. Our first quarter operating income of $154.1 million resulted in an operating margin of 15.5%, down 2.5 points sequentially, and up 1.3 points year over year. The sequential decrease in operating margin is primarily attributed to investments in our go-to-market teams and higher incentive compensation. The year-over-year increase in operating margin is primarily attributed to operating leverage and proactively managing our costs, partially offset by unfavorable impact from foreign exchange of approximately 0.7 points. On a non-GAAP basis, which excludes stock-based compensation, amortization of intangibles related to certain acquisitions, and restructuring and other charges, operating margin for the first quarter was 19.8%, down four points sequentially and up 1.3 points year over year. Interest and other income expense net for the first quarter was an income of $4.3 million compared to an income of $1.3 million in Q4 of 23 and an income of $1.1 million in Q1 of 23. primarily driven by a gain on our equity investments and net interest income and offset by unfavorable foreign exchange. The GAAP effective tax rate in the first quarter was 33.7% compared to 28.3% in the fourth quarter and 34.8% in the first quarter of the prior year. The first quarter GAAP effective tax rate was higher than the fourth quarter effective tax rate primarily due to discrete tax benefits recognized in Q4 of 23, partially offset by increased earnings in low tax jurisdictions in Q1 of 24. Our non-GAAP effective tax rate in the first quarter was 20%, which reflects our long-term projected tax rate. First quarter net income per diluted share was $1.39, down sequentially 24 cents and up 26 cents compared to the prior year. Our EPS was not impacted on a sequential basis from foreign exchange. Our EPS was unfavorably impacted by $0.09 on a year-over-year basis to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.14 for the first quarter, down $0.28 sequentially, and up $0.32 year-over-year. Moving on to the balance sheet, as of March 31, 2024, cash, cash equivalents, and short term and long-term marketable securities were $902.5 million, down sequentially $78.2 million, and down $18.9 million year-over-year. Of our $902.5 million balance, $217.5 million was held in the U.S., and $685 million was held by our international entities. In January 2024, we received approximately 37,000 shares of our common stock upon final settlement of the $250 million accelerated share repurchase from Q4 of 23. In total, we repurchased approximately 1.1 million shares and an average price per share of $230.13 under the Q4 ASR contract. We have $650 million available for repurchase of our common stock under our January 2023 repurchase program. During Q2 24, we expect to repurchase up to $150 million of our common stock through either a combination of open market repurchase or an accelerated stock repurchase agreement. Q1 accounts receivable balance was $950.7 million up sequentially Our overall day sales outstanding was 86 days, up approximately one day sequentially and up approximately three days as compared to Q1 last year. Cash flow from operations for the first quarter was $28.7 million. Capital expenditures for the first quarter were $9.4 million, primarily related to our continued investments to increase aligner manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations, less capital expenditures, amounted to $19.3 million. We're continuing to use our healthy balance sheet to drive growth and profitability. During the quarter, we continue to make disciplined investments in our strategic growth drivers. We completed the acquisition of Cubicure, which will enable us to scale our 3D printing operations to a eventually direct print millions of custom appliances per day, and we exit the quarter with a healthy cash flow position and no long-term debt, maintaining a strong position to support our additional $75 million investment in our DSO partner, Heartland Dental, and $150 million stock buyback. Now turning to our outlook. Assuming no circumstances occur beyond our control, we provide the following framework for Q2 and fiscal 2024. For Q2-24, we provide the following business outlook. For Q2-24, we expect worldwide revenues to be in the range of $1.3 billion to $1.5 billion. We expect clear aligner volume to be up sequentially and clear aligner ASB to be down slightly sequentially, primarily as a result of unfavorable foreign exchange. We expect systems and services revenue to be up sequentially as we continue to ramp Itero Lumina in Q2 2024. We expect Q2 24 GAAP operating margin and non-GAAP operating margin to be slightly above Q1 24 GAAP and non-GAAP operating margins, respectively. For fiscal 24, we provide the following business outlook. We expect fiscal 24 total revenue to be up six to 8% versus 2023, which is higher than our prior outlook of up mid single digit growth compared to 2023. The increase in our 2024 revenue outlook reflects our Q1 results, Q2 outlook, and continued execution of our growth strategies. We anticipate that the incremental revenue reflected in our 2024 outlook will be roughly split 50-50 between our two operating segments. We expect fiscal 2024 clear aligner ASVs to be slightly up year over year. We expect fiscal 2024 GAAP operating margin and non-GAAP operating margin to be slightly above the 2023 GAAP operating margin and non-GAAP operating margin respectively. We expect our investments in capital expenditures for fiscal 2024 to be approximately $100 million. Capital expenditures primarily relate to building construction and improvements, as well as manufacturing capacity in support of our continued expansion. With that, I'll turn it back over to Joe for final comments. Joe?
spk14: Thanks, John. In summary, Q1 was a good start for the year. While I'm pleased with our results, I'm even more excited about Align's innovation in 2024 on our next wave of growth drivers that we believe will continue to revolutionize the orthodontic and dental industry in scanning software and direct 3D printing. Our focused execution of our product roadmap and innovation pipeline has resulted in the largest introduction of new products and technologies in our history, further advancing our software scanning and 3D printing capabilities. We're excited about the potential for these strategic investments to enable a new phase of growth to transform the orthodontic industry again. The ITERA Illumina Interoral Scanner has the potential to set a new standard of care for dental practices by simplifying the scanning of complex oral regions while offering superior chair-side visualization and a more comfortable experience for patients, especially kids. The Invisalign Pallet Expander increases the clinical applicability of the Invisalign system to nearly 100% of orthodontic case starts. It is a revolutionary removable 3D-printed appliance that has clinically proven to be safe and effective It is less painful than traditional metal expanders and promotes better oral hygiene. And our recent acquisition of Hubicure, a pioneer of 3D printing solutions for polymer additive manufacturing, brings a talented team and unique cutting edge technology into a line to help us scale our 3D printing operations, providing ultimate design freedom and highly customized outcomes from a customer and patient standpoint, as well as operational benefits to the business. We see incredible opportunities in this business and continue to make the Invisalign system, the standard of care in orthodontics, by continually innovating and developing digital technologies and services that enable more doctors to easily diagnose and treat patients with crooked teeth and help them retain their healthy, beautiful smiles. We're increasing access to care for millions of people who might not otherwise receive orthodontic treatment. With that, I thank you for your time today. We look forward to sharing our continued progress in leading the digital transformation of the orthodontic and restorative dental industry. I'll now turn the call over to the operator for your questions. Operator?
spk06: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1-1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 1-1 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk09: One moment, please, while we poll for questions. Our first question comes from Elizabeth Anderson with Evercore ISI.
spk06: You may proceed.
spk26: Hi, guys. Thanks so much for the question. I was wondering if you could talk about how you're seeing the overall demand environment. I guess I'm particularly curious about the U.S., sort of how you're seeing it from like a consumer demand perspective, especially any comments you could make on the SmileDirect impact on volumes in the quarter. And then secondarily, if you could comment a little bit more on the broader demand environment in China, that would be super helpful. Thank you.
spk14: Hey, Elizabeth, I'll start off and have John jump in on anything. First of all, we describe the business right now as stable. It's the same things that we talked about as we came out of the fourth quarter, and we see that stability broadly around the globe. And you saw in our script that we just read, too, that it's good from an adult standpoint and also a teen standpoint, too, which, again, lends to that kind of stability that we talk about. If I look around the world, I mean, we've – That stability exists, you know, whether it's in Asia, whether we've seen it in parts of Europe and we see it in the United States and in the Americas also. So it's hard for us to call out a particular region or whatever that is dramatically down or dramatically up. We just see them moving pretty much in unison in the first quarter. John, would you add anything?
spk07: No, I agree. And that's, you know, we're driving the growth strategies. As we've said, we've seen that stability in the environment and we're executing against that.
spk14: And as a last thing on your Smile Direct Club comment, you know, and them not being, you know, advertising like they were before or whatever, we can't attribute, you know, any part of the demand equation up or down as part of that. And, you know, and obviously that was more pronounced in the United States than it was anywhere else in the world. But I can't attribute any change in the marketplace because of them not advertising it at this point in time.
spk27: Great. Great to hear. Thank you so much. Appreciate the commentary. Thanks.
spk06: Thank you. One moment for questions. Our next question comes from Brandon Vasquez with William Blair. You may proceed.
spk17: Hi, everyone. Thanks for taking the question. I wanted to focus for a second on the team side. You know, you have the Palo Alto Expander out there now getting great reviews, and it seems like it closes, if I'm understanding the numbers correctly, maybe 20% of that market that you haven't been able to hit before. This is such a big opportunity. I'm curious if you can just reflect on, like, How does commercialization within teams look in the next couple of years now that you have kind of a broader and more full portfolio here compared to the prior couple of years? And what does that mean for growth rates within that team section and adoption within team that's underpenetrated relative to teams as we look forward the next couple of years? Thanks.
spk14: That's a good question, Brandon. You know, I think, you know, as we mentioned, it's 20%. And we call them tweens, really. They're young students, you know, before they really hit the teen years and have, you know, mature dentition. With Invisalign First and now with IPE, we can handle the 20% that's out there on the phase one. And, you know, some teens just need, the tweens just need dental expansion, and some of you really have to split the suture and widen the palate overall. We feel in both those cases with IPE and Invisalign First, these are very unique products specific to that area. And we think it'll actually make doctors that aren't comfortable with phase one maybe even more comfortable now because of the impact on patients is not what it was before when you tried to work these kinds of cases with wires and brackets or hyrax expanders and those kinds of things. But like anything in the orthodontic community, it takes time. It takes time for acceptance. And the good thing about this is IPE is about a 30 to 35 day kind of an episode. So our feedback loop is really good. You could tell from my transcript also is You know, right now we're approved in the United States, in Canada, and recently in ANZ. And right now we're throttled by the regulatory procedures we have to go throughout the world. So we'll be able to give you more specificity on this, Brandon, as we go forward. But as I mentioned in my closing too, we're really excited about that technology. And we didn't tie it together. The new Luminous Scanner has such a broad kind of a bandwidth from a scanning standpoint. It scans that palette that you have to cover with Invisalign First extremely well. So those technologies thread together very well out there. So we're excited about it and more to come.
spk09: Thank you.
spk06: One moment for questions. Our next question comes from John Block with Stiefel. You may proceed.
spk16: Thanks, Scott. Hey, Joe. Good afternoon. I'm going to ask two, maybe just the first one. Throughout the quarter, there was sort of like an obsession or a big focus from investors on month-to-month trends. There was talk about February strength, March weakness. I don't think if anyone really knew if it was the consumer or the calendar or both. So maybe you guys can talk a little bit about how it played out for you guys, elaborate on February and March, and then as much as you can, just touch on April here for the first two to three weeks, and then I'll ask my follow-up. Thanks.
spk07: yeah john this is john you know look from as we as we talk about the quarter and and think about we're very pleased with our results in in q1 we saw stability as joe mentioned and that really continued from the end of the year and into the quarter um less about month to month i mean it was the stability and then then the execution that we had to throughout the quarter with our with our products okay um and then i'll just shift gears john i might stick with you i believe the wording is slightly above
spk16: you know, the 2023 OM, which I think is 21.4% unchanged, despite the higher revenues, you know, the midpoint going from roughly 5% to 7%. So can you talk about where that extra spend is going? Do we see the returns on that this year? Or will that aid and give you some more tailwinds into 2025? And then just to tack on to that, you know, the new higher guidance doesn't It implies sort of 6% in the back part of this year, year-over-year growth, which isn't too dissimilar from 1H, but the comps get more difficult, so the stacks need to accelerate. Why should we be comfortable with that? Is that just an accelerating contribution from some of those new products like Lumina and IPE.
spk07: Thanks, guys. That latter point is how I would look at it, John. We're making investments. We make investments throughout the year. We get the shorter, longer-term investments that we make, different returns on whether they're short or long-term. But what we see is a stable environment, continued investments in go-to-market activities. We have new products coming, so that helps us accelerate with with things that we'll have on the ITERO side as well as IPE and others that Joe talked about where we really get the approval later in the year. So, you know, it's about a stable environment, making investments into that environment, and then executing on our growth strategies. And that should give us the benefits that you described in the second half.
spk09: Thank you.
spk06: One moment for questions. Our next question comes from Jeff Johnson with Beard. You may proceed.
spk23: Hi, Jeff. Thank you. Good afternoon, guys. Hey, guys. How are you? So, John, maybe following up on John's question there and just a little finer point on the guidance itself. You know, you've taken that guidance from mid-single digits to six to eight. Scanner and CAD CAM services came in, obviously, you know, strongly in the double digits upper teens. Should we think about kind of that double digits, maybe not the upper teens, but double digits is kind of where the scanner and services continues this year. And Your clear aligner revenue guidance kind of still in the mid single digits. I think last quarter we were talking about both those segments being mid single digit growers. It seems like to me now maybe the raise here is being driven more by the scanner and CAD CAM services. And as Joe calls the market stable, then maybe the clear aligner revenue is still kind of expected to be in that middish single digits. Is that a fair kind of way to look at guidance?
spk07: That's a fair way to look at it, Jeff. I mean, you would see, you know, given the new products that we have with Lumina and iTero, we'll see a little bit faster growth. We're very pleased with what we saw in the first quarter. Typically, in the first quarter, you don't have a sequential gain in revenue from the fourth quarter, being an equipment business. So we're very pleased with what we saw there. But then we also look at the clear aligner business, and we expect to be able to grow and continue to grow there. both in terms of the investments that we're making in a relatively stable environment and some of the new products that should help supplement that growth.
spk23: Yeah, that's helpful. And then one other follow-up, I think it's been asked in the past, maybe at an analyst day or something, I don't remember if you've given a clear answer, but it's something I keep getting asked here more recently, and that's a percentage of your patient base or of maybe orthodontic cases that get financed through some sort of third-party patient financing company. You know, we have seen in areas like full arch implants, some of the aesthetic procedures outside of dental where lending standards have gone up, FICO scores have gone from the 500 to 700, something like that, to qualify for patient financing in this cost of capital and tougher capital environment. So what percentage, do you know a percentage or roundabout of what cases get financed and if those lending standards have changed at all or put any incremental pressure on patients here more recently? Thanks.
spk07: Yeah, what we see, Jeff, is, and it varies country by country, I'll say U.S. is maybe the most, and I'll combine ortho and GP together, roughly a third of the cases that we see get some type of external financing. Remember, many patients or parents will pay in advance. That's great for doctors. Many doctors, especially orthos, will do some type of kind of internal financing where you kind of pay as you go and so on. And many doctors are continuing to do that, especially in the tougher environment. And we're doing things to help doctors to try to give them a little bit more extension in payments so that they can provide and pass that on to their patients as well. And we'll work with DSO partners to really try to help them work with these external companies to try to give better financing rates to try to get these patients to go into treatment. So we're well aware. We know we can help. We have the balance sheet and the cash to be able to help with our customers so that they can pass that on. And that's something that we want to keep working towards.
spk23: John, any change to note over just the past few months, even in those lending standards getting tougher, or do you feel like that's stable as well as just kind of the overall environment as you've described that way? Thanks.
spk07: I look at that as more stable. I think there was a lot of things, if you go back to last year, people were really getting a bit of sticker shock in terms of the higher interest rates when they came to try to go into treatment. I think people are past that. I think when I see this or what I hear from doctors or or see from our customers that it's a little bit more stable. There's not a big change.
spk09: Thank you. Thank you.
spk06: One moment for questions. Our next question comes from Michael Cherney with Lyric Partners. You may proceed.
spk09: Hey, can you hear me okay?
spk01: Yeah, we can hear you fine.
spk20: Okay. So just relative to the spend, I want to dive in a little bit more, if possible. You talked about the investment growth. Can you delineate, relative to that investment, how you're thinking about the growth into, call it, your core markets for some of the new product launches? And especially with regards to the ramp on the printing side, how much incremental printing spend, so to speak, is coming now versus where you think it's going to grow and what the run rate should be on ramping that over time?
spk07: Yeah, I think we have a core business that we're running, and obviously there's a certain amount of investment that you have to be able to grow around sales and marketing and the go-to-market activities that we have. There's also R&D spending that we've had throughout the time, and now it's that R&D in the case of acquiring Cubicure and now turning this into more of a platform to be able to build our 3D printing. There's a certain amount of spend that we have. You know, how that lays out, it varies over time that we'll have. But rest assured, we know how to scale products. We know how to scale 3D printing. We'll make the right investments to be able to start scaling up that direct fab printing while making sure that the core business has the right investments for growth. And we'll balance that as we go forward.
spk19: Got it. Thank you.
spk06: Thank you. One moment for questions. Our next question comes from Jason Bednar with Piper Sandler. You may proceed.
spk15: Hi, Jason. Hey, good afternoon. Thanks for taking the questions. First, I want to build on some of the macro questions that have been asked. I don't want to belabor the point, but other consumer discretionary companies called out a downtick in March. It doesn't sound like you saw any of that, but just wanted to confirm that's the case with respect to Invisalign Demand. And maybe speak to your confidence to drive clear liner volumes going forward now that comps turn a little bit tougher. How much do you think you might need to fund that growth with investments to drive more traffic into the office?
spk14: Hey, Jason, on the first part is, you know, we talk about the stable environment. We've seen that stability of it. You know, we read and I read, you know, what's going on there with consumer investments, some concerns, particularly on the luxury goods or what's going on out there. But You know, honestly, I think often what we see, and this will follow us here, just really pick up the U.S. data. And what we see is, you know, differences all around the world, and that's what's great about having international business. You have some countercycling in the sense of the demand patterns and what goes on out there. But I would say there's nothing that we would highlight right now that would say that we think something's changed to what we saw in the second half of 2023 to what we saw in the first quarter of this year. John, you have.
spk07: Yeah, and in terms of investments, you know, we make the investments that we need, go to market and manufacture and other expansion as we continue to grow. We'll continue those investments. But as we've talked about, not only for now the second quarter when we're talking about that sequential improvement in op margin and what we've talked about in total year, where we expect the year-over-year improvement in margin, we're making sure that we're investing with that right amount of profitability to still be able to grow into our market and expand on the opportunities that we have, but then being respectful in terms of what margin we need to be able to deliver for the company.
spk15: All right. Very helpful, Joe and John. And maybe one follow-up here. um to maybe a multi-parter on team so bear with me this might be a nuanced look uh it seems like a lot of emphasis here just recently in product development and marketing that's really trying to tap into that much younger market that phase one opportunity you know ipe fits in there your new marketing branding plan has an emphasis there there seems to be some benefits for younger patients with lumina it's really it seems intentional but wondering if you could buy for k for us how your Invisalign business is performing in this younger patient population relative to teens as a whole, where does your penetration sit in those younger patients versus the broader teen channel, and maybe what kind of outsized growth you're expecting from this part of the channel as we look out over the near to intermediate term.
spk14: Jason, I'll just back up on your question, just give you kind of a conceptual view. When you think of phase one, It's actually been controversial in the orthodontic market for years. Some orthodontists don't want to do phase one because I mentioned before the kind of devices that have been used have been kind of difficult from a consumer standpoint. And so those wait for all permanent dentition and move on to there. We feel confident that within this line first now for dental expansion and then for palate expansion or a morphological change, IPE will do that. And we think it will attract more orthodontists to begin phase one treatment, but This is an industry that takes a while for things to bake in and for them to gain confidence, and I understand it because you're working with kids' teeth and mouths and their dentition. But we actually think that a significant amount of growth could come from this area, but we think it'll take time. But it's been a great focus for us, and it's going to be interesting to watch how orthodontists in the future actually focus on phase one, phase two, because these kinds of devices make it simpler for them and for patients in the future so right now i can't i can only just kind of give you the ground rules on that that we've changed those rules in a sense but we i can't project exactly where it's going any sense penetration wise or maybe where you're at relative to the broader team market i'd say we're just in that story i mean you have even invisalign first is used sometimes on more permanent dentition too so it's hard we'd have to split our cases out of invisalign first is what the age of patients are or whatever but You know, as we get more data and we really get through with IPE and some more specificity around this, we'll share it with you and the rest of the people.
spk05: Yeah, I mean, the only thing that, you know, I mean, if you've tracked us for a while, you know that our average age of teen patients gets younger and younger. I think we're 14 now versus 15 plus before. So, I mean, that's a reflection of just being able to go after those younger patients first.
spk09: All right. Very helpful. Thank you. Thank you. One moment for questions.
spk06: Our next question comes from Nathan Rich with Goldman Sachs. You may proceed.
spk10: Great. Good afternoon. Hi, and thanks for the questions. I wanted to go back to the guidance. I know it's kind of been touched on a few different times, but I wanted to ask on the clear line of revenue outlook, it looks like you're raising the outlook for the full year by about 1%. I guess, could you maybe just touch on what changed specifically with respect to that outlook? It sounds like maybe it's expectations around IPE and DSP versus market improvement. But I'd be curious any color you could share there and maybe anything on teen versus adult within the updated guidance would be great.
spk07: Yeah, I'll start, Nate. So overall, we went from, you know, we talked to a mid-single digit, so call it 5%, to raising it to the midpoint of 7% on a year-over-year, so up two points. And really, that's a reflection of a few things. One is the continued stability that we're seeing. We're operating in an environment that's more stable. We saw that, you know, coming... coming into the fourth quarter and now into this quarter as well. So that's good. We want that stability there. And then you look at the execution that we have on our core business to be able to grow with a lot of the innovations that we have, the promotions and other things that we have as we get further into teen season, supplemented with the various new products that we talked about. We feel really good about Lumina and the launch that we have in Itero. and the further expansion that that can drive, as well as some of the new products like IPE and others to really not only help those unit sales there, but then as Joe described, we had to pull in other products around Invisalign First and others to really help drive some of that growth that we can see in the team business. It's a combination of things, Nate, but it's what we're seeing in stability, how we're executing on our core strategies, and then some of the new products really supplementing that extended growth to help us. And that's why we adjusted our total year.
spk10: Okay, that's helpful. And then, John, maybe just sticking with you, the 2Q operating margin, I know up slightly sequentially, but down year over year. And I think, you know, Historically, it's been a little bit variable, but you've seen more of a step up in the second quarter than I think what the guidance implies. Anything to call out with respect to FX or I think you mentioned some manufacturing cost spend, but just anything there that we should keep in mind as it regards the margin cadence?
spk07: Well, and certainly we are seeing a stronger dollar. So that's something that we talked about when we think about our guide too. You know, we see a stronger dollar coming out of the first quarter into the second quarter. Our guide reflects that as well. But then you look at the continuing investments that we're making to be able to drive more submitters, more doctors into our ecosystem, and then ultimately drive more and more utilization. Some of it's that core business that we have to be able to drive growth, and some of it's some of the new products where there's a certain amount of OpEx spend that we have with that. But we're being very mindful of what we can do to be able to drive growth, and then what it also means from an operating margin standpoint. And we're delivering that sequential improvement from 1Q to 2Q in operating margin, and then talk to the total year of being up on a year-over-year basis.
spk10: Great.
spk09: Thank you.
spk06: Thank you. One moment for questions. Our next question comes from Erin Wright with Morgan Stanley. You may proceed. Great.
spk25: Thanks. Hi. I'll ask my two up front here, but I'll follow up on the guidance, and I don't want to belabor this too much, but Do you think you have better visibility now just on the underlying demand trends globally, or would you say that there's still an element or a healthy element of macro uncertainty that's still embedded in your guidance and some conservatism there? And then second would be on Lumina and the launch, and just can you talk about where you're seeing the most success with the launch and the target markets and promotions where you're focused in terms of expanding share and upgrades as well? Thanks.
spk07: Hi, Aaron, this is John. I'll talk a little bit about visibility and guidance. I think, you know, what we, what we enjoy now and what we want to be able to have in an operating environment is more stability and that stability is there. Markets are open. There's, there's a higher overall higher inflation and, and, and interest rates, but, but people are operating in that environment. That stability transcends it to other things that we have. We see the Michigan index or other indices that kind of point to that stability. based on that stability, the investments that we're making, how we're going to market, some of the new products that we have, other things that we know that can, on a core basis, drive our business, as well as the new products and initiatives that we have. That's what gives us confidence to be able to have a guidance that we gave for Q2 and what it means for the total year.
spk14: And Aaron, on the Lumina piece, it's Joe, obviously, is... As I mentioned in the closing of my script, we're really excited about that technology. We've been working on it for six years. It is a true new platform. It's not a derivative of the old confocal imaging platform. And there's really no other scanner in the world that's like that and how we've built it. And it'll take a while for, I think, the market to absorb that. You have to do this doctor by doctor and place by place. But we've had a very enthusiastic response from the orthodontic community, but also the general dentistry community, too, even though we're not completely ready for the restorative piece, and we mentioned it'll be the fourth quarter this year, we'll have that capability out. It's just the speed of that one, the simplicity of being able to scan, the dimensional tolerances and all that's used in the sense of both comprehensive and orthodontic cases are really unmatched. So we're excited about that, but we just have to take this thing, we've only had it out now for roughly a couple months, But we are expecting to have a really strong year, but more importantly, to have that really be to set the standard from a scanner standpoint for the industry going forward.
spk09: Thank you.
spk06: And as a reminder, to ask a question, please press star 1-1 on your telephone keypad. And our next question comes from Michael Reiskin with Bank of America. You may proceed.
spk18: Hey, Joe. John, thanks for taking the question and congrats on the quarter. I want to follow up on something I think, Joe, you touched on in the prepared remarks. If I caught it correctly, you kind of pointed to a little bit of strength in U.S. ortho or America's ortho in the quarter. It stood out for us. It seems like it's one of the stronger results in a number of quarters. Just wondering if you could expand on that a little bit. Is it the Lumina launch? Is it the fact that you're moving into younger younger teens and younger kids, which obviously is going to be a little bit more ortho-focused. Just any structural change you're seeing there with that group of dentists? Or am I just reading it too much?
spk14: Yeah, no, Michael, I understand your question. I'd say, you know, we feel it's, you know, we've seen more stability in that market, you know, this year than we have last year. You know, we've always known that the teen segment of that, you know, much more solid than the adult segment, but the adult segment held up for us in the quarter too. And so that aspect of the adults, was good for us also. But I'm very cautious about projecting this market going forward because as you can see with a lot of the surveys that are done, this moves pretty dramatically from month to month. But again, it's not just the United States market we're focused on. The global market has been good for us too in that sense. So we're going to take this thing a month at a time, but we're confident enough to say this is stable, that we have products in here that are very helpful from an orthodontic standpoint and new, like you mentioned Lumina and also IPE. that gives us more ground to stand on in the sense of those orthos. And so we're excited about that. But in no way do I think there's a phase change between what we saw last year and this year in ortho. It's just more stable and with more continuity is another word that I'd use to describe it.
spk18: OK. And if I could squeeze in a follow-up if there's time. Again, also impressed by the DSP touch-up progress. You called it out in the deck. You've got some additional launches later this year. You've got the 14-stage touch-up aligner offering you're talking about. Any way you can start framing in terms of, you know, would you incorporate that into guidance at some point in terms of where you think that can go in terms of volumes and revenues or any update longer term how you see DSP and touch-up evolving over time? Thanks.
spk07: Yeah, Mike, I'll take that one. Look, DSP is very popular because it, It really serves the needs that doctors have. They want to be able to buy things kind of the way they want to buy. They want to be able to, instead of making things or doing things themselves, they can use our aligners as part of that DSP and be able to treat those touch-up cases. And we like that. That's incremental for us in terms of what we see there. And they can also then use a lot of that aligners that they have for retention. And that's great, too, because that's typically incremental volume that we have. So I think when we see us rolling this out, like we said a few years ago, it was U.S. and North America, and now it's into Europe. It continues to do what we expect it to do, doctors start now. They adopt it more and more because part of their workflow, and we see positive volume from that. And in success for projects, programs like that, we'll continue to expand those out.
spk02: Thanks, Michael. Operator, we can take one more question.
spk09: Thank you. One moment for questions. And our last question comes from Kevin Caliendo with UBS.
spk06: You may proceed.
spk13: Hi, thanks for getting me in. I appreciate it. I have two questions. So the first one is on Heartland. Can you talk a little bit about the benefits of the Heartland investment operationally? And also, Heartland is, my understanding, is a pretty profitable business. And now with two separate investments there, how does... how does their profits or how does the accounting work for that from your perspective at this point? And then secondly, if you can provide, I guess, you know, with regards to the guidance, I think we understand it, but was that in any way based on the trends that you've seen so far in April? Or if you can elaborate on those in any way, that would be great. Thanks.
spk07: I can start with the guidance. part of that, Kevin. Look, we use a lot of factors to look at where our guidance is. So we're using data from Q1 and the most recent information. But it goes back to the stability that we've seen. You can see it in a lot of the surveys and other things that a lot of people do. But what we see is that stability coupled with what we're trying to do to go to market to drive the initiatives we have and the new products that we have. That's a key part of what we factor in into our guidance. No change from what we normally do. This is how we've come together in terms of a guidance standpoint. In terms of Heartland, we look at Heartland as this is a great investment from investing in a company that shares a digital orthodontic mindset that we have to be able to do things in a similar mindset, to be able to expand like they're expanding to be able to get into markets that, in some cases, we don't have much market share with or a big presence there. And they share that same mindset, that expansion. They've been around for a lot of years as well. With this investment, it's less than 5%. There's no consolidation or anything else that's required. And we'll evaluate going forward on whether there's any mark-to-market that we have to do going forward. But it's a continuation of that investment, the expansion that they're doing, and we're pleased with the results that we've seen over the last year.
spk13: Super helpful. Thank you.
spk04: Thanks, Kevin. Will that actually conclude?
spk03: Sorry, go ahead, Operator.
spk06: And we have reached the end of our question and answer session. I will now turn the call back over to Shirley Stacey for closing remarks.
spk05: Thank you so much, and thank you, everyone, for joining us today. We look forward to speaking to you at upcoming financial conferences and industry meetings, including the American Association of Orthodontics meeting in New Orleans May 4th and 5th. If you have any questions, please give us a call. Thank you.
spk06: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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