The operator welcomes participants to the Align First Quarter 2024 Earnings Call and introduces the host, Shirley Stacy. The call will include forward-looking statements and historical financial statements are available on the website. President and CEO Joe Hogan will discuss first quarter results and highlight the System Services and Clear Aligners segments.

In the second paragraph, John will provide more details on the company's Q1 financial performance and outlook for the second quarter and the rest of 2024. The company reported better-than-expected revenue and earnings for the first quarter, with total worldwide revenues up 5.8% year-over-year. This growth was driven by strong Clear Aligner volumes, particularly in the Asia Pacific region, and a 17.5% increase in Systems and Services revenue. The company also achieved several significant milestones during the quarter, including the acquisition of Cubicure and the launch of the iTero Lumina intraoral scanner and Invisalign Palatal Expander. The year-over-year growth in Systems and Services revenue was driven by iTero Lumina wand upgrades and increased scanner volumes.

In the first quarter, Systems and Services revenue increased by 3.1%, mainly due to non-Systems revenue growth and higher scanner prices. The new iTero Lumina intraoral scanner is now available with orthodontic workflows and will have a restorative workflow by the end of 2024. The scanner has improved technology and has received positive feedback from customers. Clear Aligner revenues also saw growth in all regions except for the Americas, where volume remained consistent. Clear Aligner shipments were up 2.1% sequentially, with a significant increase in Invisalign Doctor subscription cases. These cases are part of the DSP program, which includes retainers and touch-up cases and is an important offering for customers.

In Q1, Invisalign's digital treatment planning software (DSP) was expanded into several new countries and is expected to continue expanding into other markets. Non-case revenues increased due to growth in Vivera retainers and Invisalign DSP retainer revenues. Teen starts for Invisalign treatment also saw a record number of cases shipped, with growth in APAC and EMEA markets. The new Invisalign Palatal Expander system, designed for expanding a growing patient's narrow palate, has received positive feedback from doctors and patients and is proven to be safe and effective based on clinical data from 49 patients.

The Invisalign Palatal Expander has been found to be effective and less painful than traditional expanders, making it a popular choice for early interceptive treatment. Invisalign is investing in marketing and demand creation to raise awareness and attract potential patients, particularly young adults and teens, through various social media platforms and influencer campaigns.

Invisalign's teen campaign was recognized with an award and reached a large audience through partnerships with influencers and advertising campaigns in the US, EMEA, and APAC regions. The company also saw growth in their digital tools and an increase in clear aligner volume from DSO customers.

Align has strong relationships with DSOs globally and is continuously seeking collaboration to further adoption of digital dentistry. They have announced an additional $75 million equity increase in Heartland Dental, a multidisciplinary DSO with a growth strategy focused on De Novo dental practices. Align and Heartland have a shared purpose of delivering high-quality digital dental care to communities. In Q1, Align's total revenues were $997.4 million, up 4.3% from the previous quarter and 5.8% from the same quarter last year.

In the first quarter of 2024, revenues for Clear Aligners were impacted by favorable foreign exchange and were up sequentially and year-over-year due to higher ASPs and volumes. Invisalign ASPs for comprehensive treatment were also up sequentially and year-over-year, while ASPs for non-comprehensive treatment were down. A global price increase was announced for some Invisalign products, excluding the comprehensive 3-in-3 product.

The company is pleased with the increasing adoption of their Invisalign comprehensive 3-in-3 product, which allows for more upfront revenue recognition. Foreign exchange had a slight impact on Clear Aligner revenues, but they still saw a decrease in deferred revenues. Systems and Services revenue increased both sequentially and year-over-year, with CAD/CAM and Services representing over half of the business. Foreign exchange also had a slight impact on Systems and Services revenues, and deferred revenues decreased due to the recognition of Services revenues over the service period.

The decline in deferred revenues is due to shorter service contracts with initial scanner purchases. The company is expanding its scanner portfolio and introducing new products to increase opportunities for customers to upgrade and make trade-ins. They are also offering different go-to-market models such as rentals and leasing. Gross margin for the first quarter was 70%, impacted by foreign exchange. Clear Aligner gross margin was 70.9%, down 0.3 points sequentially and 0.8 points year-over-year. Systems and Services gross margin was 65.9%, up 1.1 points sequentially and 4.3 points year-over-year. Operating expenses were $543.7 million, up 9.2% sequentially and 3.1% year-over-year.

In the first quarter, operating expenses increased by $45.7 million due to higher incentive compensation and marketing spend, but also saw a year-over-year increase of $16.5 million due to investments in sales and R&D. Operating income was $154.1 million, resulting in a margin of 15.5%, down 2.5 points sequentially and up 1.3 points year-over-year. Interest and other income was $4.3 million, primarily driven by a gain on equity investments and net interest income. The GAAP effective tax rate for the first quarter was 33.7%.

The first quarter of 2024 saw a higher GAAP effective tax rate compared to the fourth quarter due to discrete tax benefits and increased earnings in low tax jurisdictions. Net income per diluted share was $1.39, down sequentially but up compared to the previous year. The balance sheet showed a decrease in cash and marketable securities, with $217.5 million held in the US and $685 million held by international entities. The company also repurchased 1.1 million shares of its common stock. Accounts receivable increased, and cash flow from operations was $28.7 million for the quarter.

In the first quarter, the company had capital expenditures of $9.4 million for investments in aligner manufacturing and facilities. They also had a free cash flow of $19.3 million and made disciplined investments in strategic growth drivers. They completed the acquisition of Cubicure and have a healthy cash flow position with no long-term debt. For the second quarter of fiscal 2024, they expect worldwide revenues to be between $1.030 billion to $1.050 billion, with Clear Aligner volume increasing and ASP decreasing due to foreign exchange. They also expect Systems and Services revenue to increase as they ramp up iTero Lumina. For fiscal 2024, they expect total revenue to increase by 6% to 8% compared to 2023, higher than their previous outlook. This is due to their Q1 results, Q2 outlook, and continued execution of growth strategies.

The company expects equal revenue contribution from its two operating segments in 2024. They anticipate a slight increase in Clear Aligner ASPs and operating margins for that year. They plan to invest approximately $100 million in capital expenditures for building construction and manufacturing capacity. The CEO is excited about the company's innovation in 2024 and believes it will revolutionize the orthodontic industry with new products and technologies. The iTero Lumina intraoral scanner and Invisalign Palatal Expander are expected to simplify scanning and expand the clinical applicability of the Invisalign system.

The paragraph discusses the success of Align's revolutionary 3D-printed appliance, Invisalign, and their recent acquisition of Cubicure. They see great potential for growth and increasing access to orthodontic treatment through digital technologies. The speaker thanks the audience and opens the floor for questions. The first question asks about the demand environment, specifically in the U.S. and the impact of SmileDirect on volumes.

In response to a question about the demand environment in China, Joe Hogan, along with John Morici, described the business as stable globally, with no particular region showing significant changes. They also stated that SmileDirectClub's decrease in advertising has not affected the demand equation. The next question was about the teen side.

The speaker discusses the success of the Palatal Expander and its potential impact on the teen market. They mention that the product can handle 20% of the market and is specifically designed for tweens. They believe it will make doctors more comfortable with Phase 1 treatment and that its short treatment time will lead to quick feedback. However, regulatory procedures are currently limiting its availability worldwide.

The speaker discusses their excitement about new technology and how it ties in well with their existing products. They also mention their stable results in the first quarter and their focus on execution. In terms of spending, they plan to increase it slightly above the 2023 operating margin, with potential returns this year and in the future.

The company has increased its guidance for the year, with a projected 6-8% growth in scanner and CAD/CAM services and mid-single digit growth in Clear Aligner revenue. The increase is attributed to stable market conditions, investments in go-to-market activities, and new product launches. The company expects to see continued growth in scanner and services, possibly in the double digits, while Clear Aligner revenue remains in the mid-single digits.

John Morici, CEO of a dental company, discusses the company's recent growth in the first quarter. He attributes this growth to the new products they have introduced, such as Lumina and iTero. He also mentions that the Clear Aligner business is expected to continue growing, with investments being made in a stable market. He also addresses the percentage of patients who use third-party financing for orthodontic cases, stating that it varies by country and that there have been no significant changes in lending standards.

The company's CEO discusses the use of external financing in orthodontic and general practice cases, which accounts for about a third of their business. He notes that many patients and parents pay in advance, while others use internal financing options. The company is working to help doctors extend payment options for their patients and is collaborating with DSO partners to secure better financing rates. The CEO believes that lending standards have stabilized in recent months.

The speaker, Jason Bednar, asks a question about the company's performance in March, as other consumer discretionary companies have reported a downtick in that month. He wants to confirm if this is the case for Invisalign demand as well.

The CEO and CFO of Clear Aligner discuss the company's stable environment and international business, stating that there have been no significant changes in demand. They also mention making investments to support growth while maintaining profitability. The analyst asks for more details on the company's teen market, prompting a multi-part response.

The company is placing a lot of emphasis on tapping into the younger market with their new product development and marketing strategies. They believe that their Invisalign First product will attract more orthodontists to begin Phase 1 treatment, which has been controversial in the industry. They expect significant growth to come from this area, but acknowledge that it may take time for orthodontists to gain confidence in using these devices for younger patients.

The speaker discusses the changes in the ground rules for the company and mentions that they cannot project exactly where things are going. They also mention that they are unable to give specific data on their cases and age of patients, but they will share more information in the future. The average age of teen patients is getting younger, and the speaker mentions that they have raised their outlook for Clear Aligner revenue by 1% due to expectations around IPE and DSP. They also mention that the overall increase is 2 points, from 5% to 7%.

The stability in the market and strong execution of core strategies are contributing to the growth of the company. New products such as Lumina, iTero, and IPE are also expected to drive growth. The operating margin for the second quarter is slightly up from the previous quarter but down from the previous year due to a stronger dollar and increased manufacturing costs.

The speaker discusses the investments being made to drive growth and utilization in their business. They mention being mindful of expenses and delivering sequential improvement in operating margin. A question is asked about visibility and guidance, to which the speaker responds that they have more stability in the current market environment. They also mention the success of their Lumina launch in specific target markets.

The company is confident in their guidance for the second quarter and the rest of the year due to their stable investments, marketing strategies, and new products. They are particularly excited about their new Lumina technology, which has received positive responses from the orthodontic and general dentistry communities. The technology is expected to set a new standard in the industry. They have only had it out for a couple of months, but are anticipating a strong year.

The speaker is asking for further information on the strength of the U.S. orthodontic market, which has shown stability in the current quarter. The CEO attributes this to the success of their new products and increased focus on the global market. However, he cautions against projecting future success and clarifies that there has been no significant change in the market, just increased stability and continuity. The speaker also mentions the success of their DSP touch-up product.

The speaker is addressing a question about the benefits of the company's investment in Heartland and how it impacts their operations. They also mention that Heartland is a profitable business and inquire about the accounting for it.

The speaker, John Morici, responds to a question about the company's guidance and investment in Heartland. He explains that the guidance is based on stability and the company's efforts to drive initiatives and introduce new products. He also discusses the investment in Heartland, stating that it is a great opportunity to expand and enter new markets. The investment is less than 5% and there are no plans for consolidation. The call concludes with Shirley Stacy thanking the participants.

Shirley Stacy thanks everyone for joining the conference and mentions upcoming financial conferences and industry meetings, including the American Association of Orthodontics meeting in New Orleans. She invites any questions and the operator concludes the call.

This summary was generated with AI and may contain some inaccuracies.