Align Technology, Inc.

Welcome to the Align Technologies second quarter 2024 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Shirley Stacey with Align Technologies. You may begin.

Good afternoon and thank you for joining us. I'm Shirley Stacey, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO, and John Marie, 2CFO. We issued second 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 outlooks. These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission, available on our website and at sec.gov. Actual results may vary significantly, and a line 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 second quarter 2024 conference call slides on our website under quarterly results. Please refer to these files for more detailed information. With that, I'd like to turn the call over to Align Technologies President and CEO, Joe Hogan. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us. On our call today, I'll provide an overview of our second quarter results and discuss a few highlights from our two operating segments, systems and services, and clear aligners. John will provide more detail on our Q2 financial performance and comment on our views for our third quarter and for 2024 in total. Following that, I'll come back and summarize a few key points and open the call to questions. Overall, I'm pleased to report solid second quarter results. Total Q2 24 revenues of $1,028,000,000 were up 3.1% sequentially and 2.6% year over year, reflecting growth in both clear aligner volumes and imaging systems and CAD CAM services revenues. Q2 24 total revenues were unfavorably impacted by foreign exchange of approximately 11.6 million, or 1.1% sequentially, and unfavorably impacted by approximately 18.1 million, or 1.7% year-over-year. For clear aligners, Q224 volumes increased 6.2% sequentially and 3.2% year-over-year, driven by growth from adult patients and strong teen case starts across the regions, led by strength in Asia Pacific, EEMA, and Latin America. Our Q2 results also reflect a record number of doctors submitting cases and record doctors shipped to for the quarter. Q2-24 clear aligner ASPs were down sequentially and lower than anticipated in our second quarter outlook due in part to greater impact of unfavorable foreign exchange across multiple currencies, especially the Japanese yen, euro, and Brazilian real, as well as discounts and products mix shift to lower ASP products. As a result, Total Q2 revenues were slightly below the expected range for our Q2 quarterly revenues. Notwithstanding these factors, non-GAAP operating margin for the second quarter was 22.3%, up 2.5 points sequentially, and up 1 point year-over-year. For imaging systems and CAD-CAM services, Q2 24 revenues increased 9.2% sequentially and 16.1% year-over-year, reflecting continued adoption of our next-generation ITERA Luminous Scanner. which made up the majority of our equipment sales. Itero Lumina and wand upgrades, Itero Element scanner trade-ins, as well as increased Itero scanner leases. For Q224, adult patient case starts were up 5% sequentially and 1% year over year, reflecting our highest number of adult shipments in eight quarters, driven by strength in the GP channel led by North America and APAC dentists. In teen and growing kids segment, over 216,000 teens and younger patients started treatment with Invisalign clear aligners during the second quarter, an increase of 8.8% sequentially and up 8% year-over-year, reflecting growth across regions, especially from Invisalign first and the EMEA and APAC regions. In Q2, the number of doctors submitting teen or younger patient case starts was up 8% year-over-year, led by continued strength from doctors treating young kids, also known as growing patients. The response from doctors and their patients to the Invisalign Pallet Expander System continues to be positive. We believe that Invisalign Pallet Expander System is a better option for expanding a growing patient's narrow pallet compared to traditional appliances used today. The Invisalign Pallet Expander System is currently available in the US, Canada, Australia, and New Zealand. We expect it to be available in other markets pending future applicable regulatory approvals. Non-case revenues include our Vivera retainers, which include retention aligners ordered through our doctor's subscription program, or DSP. as well as clinical training and education accessories in e-commerce. Q2 non-case revenues were up 3.5% sequentially and up 5.1% year-over-year, primarily due to continued growth in retainers and DSP. For Q2, total clear aligner shipments include approximately 25,000 Invisalign DSP touch-up cases, a record high quarter of 37% year-over-year. DSP continues to drive growth and is currently available in North America and certain EMEA countries. During the quarter, we extended DSP into more countries in Europe, and we anticipate expanding into additional markets going forward. DSP is also now available in 14-stage touch-ups, a liner offering across all markets where it's available. As a result, touch-up cases increased significantly in Q2. Q2-24 clear liner volume and DSO customers increased sequentially year-over-year, reflecting growth across all regions. DSOs represent a large and growing opportunity to help drive adoption of digital technology across the dental industry. We have well-established relationships in many DSOs globally that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the digital platform, including increased practice efficiency and profitability, as well as delivering a better patient experience from shorter cycle times and customer proximity. Smile Docs and Heartland Dental are two of our largest DSO partners, We are continuously exploring collaboration with the DSOs that can further the adoption of digital dentistry. Each DSO has a different strategy and business model, and our focus is working and encouraging DSOs aligned with our vision, strategy, and business model goals. 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. In Q2, we had more than 17 billion impressions and 50 million visitors to our websites globally. Below are additional highlights from Q2, and more information is available in our Q2 24 earnings webcast slides. To increase awareness and educate young adults, parents, and teens about the benefits of Invisalign brand, We continue to invest and create campaigns and social media platforms such as TikTok, Instagram, YouTube, Snapchat, WeChat, Dion across the markets. Reaching young adults as well as teens and their parents also requires the right engagement to Invisalign influencers and creator-centric campaigns. In the Americas, our influence and social media campaigns featured Olympic athletes such as Rebecca Andrade from Brazil, Andre de Grasse from Canada, Jordan Childs from the United States, and Paralympic athlete Lizzie Smith from the United States. To bolster teen demand, we launched new activations with teen high school sports social media platform, Overtime, including several programs focused on showcasing elite high school athletes across boys, footballs, girls basketball, girls soccer. We highlighted why they chose to transform their smile with Invisalign aligners and showcase their results. In the mayor region, we partnered with influencers to reach consumers across social media platforms, including TikTok and Meta, and launched our global consumer campaigns for teens and parents. In APAC, we continued to invest in consumer advertising across the region and expanded our reach in Japan and India via Meta and YouTube and partnered with key social media influencers. Finally, adoption of My Invisalign consumer patient app continued to increase with over 4 million downloads to date, and over 384,000 monthly active users, an 8% year-over-year increase. Usages of our other digital tools also continued to increase. ClinCheck Live Update was used by almost 50,000 doctors on more than 692,000 cases, reducing time spent in modifying treatment plans by an average of 16.3%. Invisalign Practice App is increasing its adoption with 85,000 doctors who actively are using the app and 5.9 million photographs were uploaded in Q2 via the Invisalign practice app. Year-over-year growth in Q2 systems and services revenue were up 16.1%, reflect higher scanner ASPs and non-system revenues driven by a teraluminal wand upgrades, increased service revenues, and a larger base of scanners sold. On a sequential basis, Q2 systems and services revenues were up 9.2%, reflecting higher scanner volumes, higher scanner ASPs, and higher non-systems revenues driven by ITERA Lumina wand upgrades. The ITERA Lumina's new multi-direct capture technology replaces the confocal imaging technology in earlier models and has a 3x wider field of capture and a 50% smaller and 45% lighter wand, delivering faster scanning speed, higher accuracy, superior visualization, and a more comfortable scanning experience. Lumina is currently available with orthodontic workflows as a new standalone scanner, or as a wand upgrade from iTero Element 5D Plus scanner. During the second quarter, we had a record number of competitive trade-ins demonstrating the continued success of the iTero Luminous scanner in the marketplace. We're also seeing a halo effect with Invisalign scans. We're pleased to see more doctors coming into the digital ecosystem with an increase in first-time Invisalign case submitters, as well as return of lapse submitters. Overall, Q2, we're very pleased with the continued uptake of iTero Luminous scanner with ortho workflow and response from customers. We're looking forward to a limited market release for the restorative software on Lumina in Q4, followed by full commercialization in Q125. Today we introduced the iTero Design Suite, offering doctors an intuitive way to facilitate designs for 3D printing of models, bite splints, and restorations in practice. This software innovation is designed to help doctors increase their practice efficiencies and elevate patient experiences by shortening the time to treatment through an intuitive way to design for in-practice 3D printing. The Align digital platform provides an innovative portfolio of customer-focused technologies that enable seamless end-to-end workflows for dental professionals. iTero Design Suite is now available through an early access program. Doctors using an iTero scanner can submit their interest via their scanner or My iTero Portal. Software is expected to be available later this year in selected markets. With that, I'll turn it over to John.