The operator welcomes participants to the Align Technology Second Quarter 2024 Earnings Call and introduces the host, Shirley Stacy. The call will include forward-looking statements and historical financial statements can be found on the company's website. The President and CEO, Joe Hogan, will lead the call.

The second quarter results for the company were positive, with revenues increasing sequentially and year-over-year. This growth was driven by both Clear Aligner volumes and Imaging Systems and CAD/CAM Services revenues. However, foreign exchange had a negative impact on revenues. Clear Aligner volumes saw a significant increase, particularly from adult patients, and there was also a record number of doctors submitting cases. The company's non-GAAP operating margin also improved compared to the previous quarter and the same period last year.

In the second quarter of 2024, Align Technology saw an increase in revenues for Imaging Systems and CAD/CAM services, driven by the adoption of their next-generation iTero Lumina scanner and increased scanner leases. Adult patient case starts also saw an increase, with the highest number of adult shipments in 8 quarters. In the teen and growing kids' segment, there was growth in case starts and the number of doctors submitting cases. The response to the Invisalign Palatal Expander System has been positive, and it is expected to be available in more markets pending regulatory approval. Non-case revenues, including Vivera retainers and clinical training and education accessories, also saw growth in the second quarter.

In Q2, Clear Aligner shipments increased by 37% year-over-year, driven by the success of Invisalign DSP touchup cases. DSP is now available in more countries and has expanded to include a 14 stage touch up aligner offering. The number of Touch-Up cases also increased significantly in Q2. Additionally, there was growth in Clear Aligner volume and DSO customers, reflecting the growing adoption of digital technology in the dental industry. Align Technology has partnerships with several DSOs and is continuously exploring collaborations to further the adoption of digital dentistry. Despite being the most recognized orthodontic brand globally, the market for Invisalign treatment is still largely untapped and the company continues to invest in consumer marketing to drive awareness and bring more patients to Invisalign practices. In Q2, there were over 17 billion impressions and 50 million website visitors globally.

In the second quarter, the company continued to invest in social media campaigns to promote the benefits of Invisalign to young adults, parents, and teens. They collaborated with influencers and launched campaigns featuring Olympic athletes and high school athletes. They also expanded their reach through partnerships with social media platforms and saw an increase in adoption of their consumer patient app and other digital tools.

The Invisalign practice app is being increasingly adopted, with 85,000 active users and 5.9 million photographs uploaded in Q2. In Q2, system and services revenue grew by 16.1%, driven by higher scanner sales and upgrades. The iTero Lumina wand, with new multi-direct capture technology, has been well-received by customers for its faster speed, accuracy, and comfort. There has been a record number of competitive trade-ins and an increase in first-time and returning Invisalign case submitters. The iTero design suite was also introduced, allowing for easier design for 3D printing of models, bite splints, and restorations.

The software innovation, Align, is designed to help doctors increase their practice efficiencies and improve patient experiences by shortening the time to treatment through 3D printing. It is available through an early access program and expected to be released later this year. In the second quarter, total revenues were up 3.1% from the prior quarter and 2.6% from the same quarter last year. Clear Aligner revenues were up 1.8% sequentially and flat year-over-year, while ASPs for comprehensive treatment were down in both comparisons. Foreign exchange had an unfavorable impact on revenues.

The decline in average selling prices for Invisalign products is mainly due to higher discounts, a shift towards lower priced products, and the negative impact of foreign exchange rates. However, the company has seen an increase in adoption of their Invisalign comprehensive [3-in-3] product, which allows for more revenue recognition upfront and has a more favorable gross margin. Deferred revenue for clear aligners decreased slightly both sequentially and year-over-year, but will be recognized as more aligners are shipped.

In the second quarter of 2024, the company's systems and services revenues increased by $196.8 million, representing a 9.2% increase from the previous quarter and a 16.1% increase from the same period last year. This growth was driven by higher volumes, higher average selling prices, and increased non-system revenues from upgrades and leasing programs. The company is focused on providing flexible go-to-market options for customers, including leasing and rental options. Foreign exchange had a slight negative impact on revenues. Deferred revenues decreased sequentially and year-over-year due to the recognition of services revenues, which are recognized over the service period. The company's expanding scanner portfolio and introduction of new products provide more opportunities for customers to upgrade and trade-in their equipment. The company is also developing new capital equipment opportunities to meet the digital transformation needs of customers and DSO partners. Structural programs implemented across both operating segments provide more options for customers.

In the second quarter, the overall gross margin was 70.3%, impacted by foreign exchange and lower ASPs. Clear aligner gross margin was 70.8%, down 0.1 points sequentially due to lower ASPs, but up 2.3 points year-over-year due to higher ASPs and manufacturing efficiencies. Operating expenses were $575.6 million, up 5.9% sequentially and 6.3% year-over-year, primarily due to legal settlements and higher employee compensation. Excluding certain charges, operating expenses were down 1.3% sequentially and year-over-year.

In the second quarter, the company's operating income was $147 million with a margin of 14.3%, which was down from the previous quarter and year. This was due to unfavorable impacts from foreign exchange. On a non-GAAP basis, the operating margin was 22.3%, up from the previous quarter and year. Interest and other income expense net was an expense of $3.2 million, compared to an income of $4.3 million in the previous quarter. The GAAP effective tax rate was 32.9%, lower than the previous quarter due to discrete tax events and non-deductible expenses. Net income per diluted share was $1.28, down from the previous quarter and year due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.41, up from the previous quarter and year.

As of June 30, 2024, the company's cash, cash equivalents, and securities totaled $782.1 million, with $140 million held in the U.S and $642.1 million held internationally. They repurchased 0.6 million shares of common stock for $150 million and have $500 million remaining for repurchases. The company also invested $75 million in Heartland Dental. Accounts receivable balance was $1,020.1 million, with a day sales outstanding of 89 days. Cash flow from operations was $159.8 million, with $53.5 million in capital expenditures. The company expects Q3 revenue to be between $980 million and $1 billion, with a decrease in clear aligner volume and ASPs due to seasonality and foreign exchange. Systems and services revenue is also expected to decrease due to seasonality.

In the third quarter of 2024, the company expects their GAAP operating margin to be lower than the previous year, while their non-GAAP operating margin is predicted to remain the same. They also anticipate a 4% to 6% increase in total revenue for fiscal 2024, with a slight decrease in GAAP operating margin and an increase in non-GAAP operating margin. The delay of the commercial launch of iTero Lumina with restorative capabilities until 2025 will also affect their revenue outlook. The company plans to invest approximately $100 million in capital expenditures for fiscal 2024 to support their expansion. Overall, they are pleased with their performance in the second quarter and remain committed to providing innovative digital solutions for their customers.

The orthodontic market has a lot of potential for growth, but there are still many people who have not yet benefited from digital orthodontics. Our company is constantly evolving to meet the needs of both doctors and patients, and our digital platform has greatly improved treatment for millions of people. However, the transition from traditional to digital methods has been challenging for practices. We believe that full digital transformation is necessary for the future of orthodontic practices, and our company is uniquely positioned to help with this. We are looking forward to sharing our progress in the industry. During the Q&A session, the company was asked about their recent change in guidance. They explained that while some factors, like foreign exchange rates, are out of their control, they are constantly monitoring and adjusting their pricing and promotions to stay competitive in the market.

Elizabeth Anderson asks about the impact of the guidance change on iTero restorative scan revenue and the acceleration of teen cases. John Morici responds that the guidance change was affected by the push back of the Lumina restorative launch and that revenue was expected for this year.

The speaker discusses the reasoning behind the decrease in overall guidance and the growth in the teen market. They mention that the iTero restorative contribution is less than 1% of the total. The next question is about the decline in aligner ASP, which the speaker confirms was down 4% Q-over-Q with a 1% FX hit. They attribute the remaining 3% decline to a mix of factors, including increased utilization of DSP at a lower ASP and growth in the GP market.

The company has seen an increase in adult cases and lower stage products being sold, which has led to higher ASPs and better margins. However, this has also resulted in a slight decrease in clear aligner revenue for the year. The change in revenue is mainly due to FX and iTero changes, but the non-GAAP EBIT margins are expected to be slightly higher than previously predicted.

The speaker, John Morici, is responding to a question about the company's performance. He mentions that they have a good margin on their products and are mindful of their operating profit. The next question is about the number of doctors they have shipped to, which has increased slightly in the past few years. The speaker attributes this to investments made in expanding their customer base and slowing the outflow of customers to competitors. He is pleased with the increase in utilization and the number of doctors they are serving.

The company is focused on expanding into underserved markets and training more doctors. While they may lose some doctors, they often bring them back. The company is making progress in convincing doctors to use their products and this growth has occurred globally. There have been recent changes in leadership in the manufacturing department, but the company has faith in the current leader to successfully implement their 3D printing plans by 2026.

The speaker discusses the company's outlook for the next 2-3 years, with a focus on their new resin product and the time it will take to establish it in the market. They also mention that their analyst has provided valuable feedback and that the business is expected to see a high single digit revenue increase in the upcoming quarter, which is similar to pre-COVID levels. The speaker expresses confidence in the company's ability to return to normal seasonality within the year, despite market uncertainty. The long-term growth expectations for the company's business are not explicitly stated.

John Morici, the speaker, responds to a question about the current and future state of the end market. He mentions that the second quarter saw more normal seasonality, and they expect this trend to continue for the rest of the year. Looking ahead, they see an opportunity for growth due to being in an underpenetrated market and having the right products and go-to-market capabilities. They have a long-term model for 25% revenue growth and 25% margin, and are focused on driving growth through Direct Fab and standard production.

The speaker discusses their investment strategy and how they are mindful of short-term changes in the economy. They give guidance for the near-term, but believe in their long-term model. The next question is about third quarter guidance and how it compares to last year's experience. The speaker explains that they consider various factors, including the current team season in different regions, when making these predictions.

The company is making decisions based on their expectations for the quarter, specifically in terms of volume and foreign exchange. They are pleased with the team growth, especially in Asia and Europe. The company is closely watching the ramp up of a new product and expects to perform well in the third quarter. There have been various initiatives and programs aimed at expanding utilization and improving doctor productivity, including a new Costco relationship and changes to the Advantage program. These efforts are seen as impactful and may have a bigger impact than previous initiatives.

Jason Bednar asks if there have been any changes in doctor behavior in response to the recent changes in the Advantage program and how those changes will affect the ASP line. John Morici responds by explaining that the changes in the Advantage program were meant to provide more structure and drive utilization, and that they are also piloting programs like Costco to drive conversion. The goal is to connect potential patients with the product and their customers.

The speaker, Joe Hogan, addresses concerns about the trend of lower ASPs (average selling prices) in their company's market. He explains that the variation in products and customer preferences around the world is causing different ASPs, but their margins have actually increased. He also mentions that 25,000 cases have come through their DSP (digital signal processor).

The company has seen an increase in demand for their products, particularly in the restorative market, where they have responded by adjusting their pricing to meet the needs of the market. The release of the Lumina restorative product has been pushed back to the first quarter of 2025 in order to ensure its quality and to gather feedback from doctors. There have been no significant changes in adult case volume dynamics or the macro environment for the remainder of the year.

The speaker discusses the stability of the company's guidance and the macro environment for the remainder of the year, stating that they are expecting stability overall but acknowledging potential fluctuations in exchange rates. They also mention growth in the adult market and provide an update on the company's performance in China, stating that it has met their expectations. They note that the market in China is challenging, particularly in Tier 3 and 4 cities.

The speaker discusses Juno [ph], a great leader for the company in China, and expresses confidence in the results for the upcoming third quarter. They thank the participants and invite them to follow up with any questions through the investor relations team.

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