The paragraph introduces the Align Technology Fourth Quarter and Full Year 2024 Earnings Call. Shirley Stacy, Vice President of Corporate Communications and Investor Relations, opens the call, introducing Joe Hogan, the President and CEO, and John Morici, the CFO. The company's financial results have been issued via Business Wire and are available on their website, where the call is also being webcast. The presentation will include forward-looking statements subject to risks and uncertainties, as outlined in their SEC filings. Historical financial statements and reconciliations are available online for more details. Joe Hogan then takes over the presentation.

During the call, an overview of the fourth quarter and full year results for the System Services and Clear Aligners segments was provided. Q4 results met revenue expectations, and operating margins surpassed expectations. Clear Aligner ASPs were lower due to unfavorable foreign exchange impacts. Fourth quarter revenues increased by 4% year-over-year, driven by a 14.9% rise in Systems and Services and a 1.6% increase in Clear Aligner revenues. Clear Aligner volumes grew by 6.1% due to strong shipments in EMEA, APAC, and LatAm, with stability in North America. Sequential Q4 growth of 1.8% was attributed to sales of iTero Lumina scanners and increased Clear Aligner volumes in EMEA and LatAm, despite seasonal weakness in APAC, especially China. In the Americas, Clear Aligner volumes were impacted by a soft orthodontic channel but buoyed by the strength in the GP channel for adults.

In 2024, total revenues reached $4 billion with Clear Aligner volumes at 2.5 million cases, marking a 3.5% increase year-over-year. The non-GAAP operating margin was 21.8%, aligning with the 2024 forecast. By Q4 2024, notable milestones included 272,000 active Invisalign practitioners and 19.5 million patients. Clear Aligner volume growth was strong in various regions: Latin America and North America showed improvements; EMEA saw increased volumes in core Europe and growth in Eastern Europe, the Middle East, and Africa; APAC experienced growth led by China, Japan, India, Thailand, and Korea. Globally, 85,700 doctor submitters in Q4 reflected a record, with growth in adult and non-comprehensive cases. In the teen and kids segments, 216,000 started treatment in Q4, an 8.6% sequential decrease but a 9.8% year-over-year growth, with notable increases in the APAC and EMEA regions.

In Q4, the number of doctors submitting cases for teens and kids increased by 6.2% year-over-year, driven by strong performance in treating young patients. For fiscal 2024, Invisalign Clear Aligner shipments for teens and kids hit a record 868,000, a 7.7% increase from the prior year, making up 35% of the 2.5 million total shipments. Teen-specific marketing and the growth of Invisalign First for young children and the Invisalign Palatal Expander supported global adoption. The Invisalign Palatal Expander gained steady traction, similar to Invisalign First, despite needing regional regulatory approvals. In Q4, the system received CE mark approval in Europe and UK registration, allowing broad use for children, teens, and adults, marking a key achievement for expanding its market in the EMEA region by 2025.

The Invisalign Palatal Expander is gaining recognition for its clinical efficacy and improving patient experiences, as evidenced by its coverage in the Journal of Clinical Orthodontics and positive feedback from parents. With growing adoption among orthodontists, the device is benefiting from increased clinical data and practitioner experience. Non-case revenues, primarily from retainers and the Doctor Subscription Program (DSP), have grown year-over-year, with strong increases in Invisalign DSP touch-up cases, particularly in North America, Europe, and Brazil. The Clear Aligner volume from Dental Service Organization (DSO) customers is also rising, outpacing growth among retail doctors globally.

In the U.S., Align Technology experienced significant growth driven by partnerships with DSOs like Smile Doctors and Heartland Dental. The company completed a $30 million equity investment in Smile Doctors to support digital workflow adoption. Align is focused on collaborating with DSOs that align with its vision of enhancing digital dentistry for improved practice efficiency and patient experience. The Systems and Services segment reported strong revenue growth in Q4 2023. The company launched the iTero Lumina scanner and is preparing to expand its capabilities with restorative features after receiving positive feedback during its limited market release.

The paragraph discusses the financial results for the fourth quarter, highlighting that total revenues increased to $995.2 million, marking a 1.8% increase from the previous quarter and a 4% increase from the same quarter last year. This growth is attributed to an increase in clear aligner volumes and revenue growth from Systems and Services. It mentions the impact of foreign exchange fluctuations on revenues and notes that the U.S. dollar's unexpected strengthening in November and December affected the results. The iTero Lumina scanner is also mentioned, emphasizing its automatic update feature to a new version at no extra cost when available.

In the fourth quarter of 2024, Clear Aligner revenues increased by 1.6% year-over-year, driven by higher volumes, reduced net deferrals, price increases, and higher non-case revenues, despite a decline in average selling prices (ASPs) influenced by unfavorable foreign exchange rates and product mix shifts. The per-case shipment revenue decreased by $55 compared to the previous year, mainly due to U.K. VAT impacts and product discounts. A favorable resolution with U.K. tax authorities led to a $100 million VAT refund for sales from October 2019 to October 2023, with $7 million still under dispute. A court ruling is expected in the first half of 2024, potentially affecting future VAT applications. Deferred revenues decreased both sequentially and year-over-year and will be recognized as aligners are shipped.

In Q4 2024, Systems and Services revenues reached $200.9 million, reflecting a 5.2% sequential increase and a 14.9% year-over-year rise, driven by higher scanner volumes and increased non-systems revenue, despite lower scanner ASPs. The impact of foreign exchange on revenue was minimal, affecting year-over-year figures by approximately $0.2 million. Deferred revenue decreased both sequentially and year-over-year due to shorter service contract durations. Gross margin for the quarter was 70%, slightly up sequentially, but flat compared to the previous year. The Clear Aligner segment saw a gross margin of 70.2%, slightly down sequentially and year-over-year, primarily due to lower ASPs and restructuring costs, with minimal impact from foreign exchange.

In the fourth quarter, the Systems and Services gross margin increased both sequentially and year-over-year, driven by manufacturing efficiencies and changes in manufacturing and freight costs, despite fluctuations in scanner ASPs. Operating expenses rose 6.4% sequentially and 11% year-over-year, largely due to restructuring, advertising, and marketing costs, with restructuring charges higher than expected. On a non-GAAP basis, operating expenses showed a modest increase. The operating margin was 14.5%, impacted by restructuring and foreign exchange, with a sequential decrease of 2.1 points and a year-over-year drop of 3.4 points. The non-GAAP operating margin rose sequentially but declined year-over-year. Interest and other income for the quarter was a net expense, shifting from an income in the previous quarter mainly due to unfavorable foreign exchange movements, though partially offset by higher interest income and investment gains.

In Q4 2024, the company experienced a decline in interest and other income compared to Q4 2023 due to unfavorable foreign exchange movements, though this was partially offset by increased interest income and investment gains. The GAAP effective tax rate was 26.3%, lower than both the previous quarter and the same quarter last year, due to the release of uncertain tax position reserves and some deferred tax adjustments. The non-GAAP effective tax rate was 20%. The diluted net income per share decreased both sequentially and year-over-year, impacted by foreign exchange losses; however, on a non-GAAP basis, it showed an increase. The company's cash and cash equivalents totaled $1,043.9 million at the end of December 2024, a slight sequential increase but a significant year-over-year decrease. Of this, a large portion was held internationally. Additionally, the company planned to repurchase $275 million of its common stock in the open market during the quarter.

As of December 31, 2024, the company purchased 0.9 million shares for approximately $202.9 million and completed an additional $72.1 million in stock repurchases in January 2025, leaving $225 million for future repurchases. A $30 million equity investment was made in Smile Doctors, the largest ortho-focused dental organization in the US, during the quarter. The accounts receivable balance was $995.7 million, with a 90-day sales outstanding period. Fourth-quarter cash flow from operations was $286.1 million, while capital expenditures were $23 million, resulting in a free cash flow of $263 million. From March 1, 2025, the company will increase clear aligner prices by 3% in the Americas and EMEA but remove a $10-15 processing fee, with no net impact on ASPs expected. The company is also dealing with a fluid US-Mexico tariff situation for its Mexico-manufactured aligners.

The paragraph discusses the cost components of Align's Clear Aligners, including materials, labor, overhead, and freight. It anticipates potential tariffs on shipments from Mexico to the US but maintains that shipping aligners from the US is economically favorable despite these tariffs. In Q1 2025, Align forecasts worldwide revenues between $965 million and $985 million, a sequential decline due to unfavorable foreign exchange rates and reduced capital equipment sales. Clear Aligner volumes are expected to increase slightly, but average selling prices will decline due to exchange rates and a product mix shift. Revenues from Systems and Services will drop due to the later availability of a new scanner. The Q1 2025 GAAP operating margin is predicted to be 2 points lower than Q1 2024, mainly due to foreign exchange impacts.

The paragraph outlines financial projections for 2025, indicating a slight decline in the Q1 2025 non-GAAP operating margin compared to Q1 2024 due to adverse foreign exchange rates. Revenue growth for 2025 is expected to be in the low single digits, influenced by negative foreign exchange impacts. Clear Aligner volume is anticipated to grow mid-single digits, but ASPs are expected to decrease due to foreign exchange and product mix shifts. Systems and Services revenue is projected to grow faster than Clear Aligner revenue. The 2025 GAAP operating margin is anticipated to be 2 points higher than in 2024, with non-GAAP operating margin at approximately 22.5%, benefiting from restructuring actions. Capital expenditures are forecasted between $100 million and $150 million, focusing on construction and manufacturing capacity. The paragraph concludes with satisfaction over 2024 results, including Clear Aligner growth and operating margin improvements.

In 2024, Align achieved significant milestones, including $4 billion in worldwide revenue and $769 million in System and Services revenue. They treated a record 19.5 million patients, including 5.6 million teens and shipped products to 130,400 doctors. The company repurchased $353 million in stock, ending the year with no debt and over $1 billion in cash. Despite challenges in the dental industry, Align introduced innovative products like the iTero Lumina intraoral scanner, which offers enhanced scanning capabilities and efficiency. Looking ahead to 2025, they plan to release software updates to further improve restorative workflows for dentists.

The paragraph discusses several advancements and initiatives by Align Technology in digital orthodontics. It highlights the importance of the iTero scanner and ClinCheck for personalized treatment planning and simulations, enhancing communication between doctors and patients. The focus is on innovative digital workflows and 3D-printed devices, such as the Invisalign Palatal Expander system and upcoming Invisalign First retainers, to improve treatments for young patients. Additionally, the company is advancing options for Class II correction in youth with Invisalign mandibular advancement. Align aims to drive growth and margin improvement by leveraging vast data from Invisalign cases to propel orthodontic science forward.

The paragraph features a Q&A session during a call, with Michael Cherny from Leerink Partners asking about the guidance and dynamics of volume versus price for Clear Aligners. John Morici responds by indicating that they expect the volume for Clear Aligners to grow by mid-single digits for the year, acknowledging variability across regions and times. Cherny follows up by inquiring about the competitive dynamics in the market and potential opportunities related to competitors possibly exiting the market.

The paragraph involves a conversation during a company earnings call, where Joe Hogan discusses competitive dynamics and market outlook for 2024 and 2025. He expresses confidence in the company's innovative products, like Minute ClinCheck, which enhances productivity and positions them ahead globally, including in China. Elizabeth Anderson from Evercore ISI then asks about expectations for the launch of the company's Lumina product and scanner business, mentioning the impact of lease versus capital equipment sales. She seeks clarity on unit growth and the growth dynamics in North America between DSO (Dental Service Organizations) and non-DSO customers. Joe Hogan begins to respond to her questions.

The paragraph discusses the successful release of the Lumina product line in the orthodontic field, highlighting its improved features such as a wider field of view, speed, and image quality. The Lumina's light design addresses past complaints about the bulkiness of wands used in confocal imaging. The product is set to expand into the restorative market, providing a complete system for general practitioners (GPs). The company offers a comprehensive portfolio of scanners, including options for purchasing, leasing, or renting, to accommodate various customer preferences and financial situations. They anticipate further discussions and the official launch in March, with additional developments expected in the second quarter.

The paragraph features a discussion about the company's optimism regarding increasing product volumes and market share within the orthodontic industry. Joe Hogan responds to Glen Santangelo's inquiry by expressing confidence in the company's ability to offer products in various ways and through expanding their customer base, particularly with new product releases. Despite macroeconomic uncertainties in 2023, the company is experiencing stability and momentum in regions like Europe and APAC, with specific growth noted in China, Japan, and Thailand. However, the U.S. orthodontic market has remained stagnant over the past three years, presenting challenges despite progress with new product introductions.

The paragraph discusses the challenges and strategies in the orthodontic market, specifically concerning competition and the use of clear aligners. Doctors are facing lower patient throughput and are cautious about margins, making it hard to sell clear aligners. Despite this, there's significant progress and growth in general practitioners (GPs) globally, aided by a tailored channel strategy for GPs and orthodontists. The company is optimistic about its new technology and differentiation in the orthodontic channel, particularly targeting younger patients, with plans to focus on this area into 2025. Glen Santangelo asks about the anticipated decrease in average selling prices (ASPs) due to foreign exchange (FX) effects and product mix shifts. John Morici explains there's a 2-point FX headwind anticipated in 2025 due to the strengthened dollar.

In the paragraph, Jon Block asks Joe Hogan about the company's revenue guidance, noting a 2% decrease in the first quarter of 2025 but a projected increase for the full year. Block questions whether this reflects underlying assumptions about improving conditions or specific factors like the timing of a new scanner launch. Joe Hogan responds by explaining that the new restorative scanner, due in March, will not fully impact the first quarter, which partly explains the initial decline. He also mentions that exchange rates, a full year of IPE, and regulatory approvals in Europe and Asia, along with technological advancements in blocks, are expected to contribute to growth throughout the year.

In the paragraph, John Morici discusses that there is no expectation of an overall improvement in the macro economy, but he notes a positive trend with a 6% growth in Q4, the highest in three years. The company is focusing on sustaining this momentum with new products and innovations. Jon Block then asks Joe Hogan about the faster growth from Dental Service Organizations (DSOs) and their impact on the North American business. He inquires if the strategies used with DSOs, which seem advanced with their marketing support, can be applied to the fragmented General Practitioner (GP) market, and how long it might take to see results. Joe Hogan refers to DSOs as a "force multiplier," indicating their significant positive impact.

The paragraph discusses a company's approach to leveraging technology and brand efficiency in collaboration with dental service organizations (DSOs), which can disseminate this information more effectively than a traditional sales force. The company's salespeople, experienced and skilled, focus on engaging with orthodontists and dentists who are interested in adopting the company's procedures. The speaker mentions the challenges of dealing with family-driven practices that are more clinically than business-oriented, which can slow down the sales process. DSOs help accelerate the adoption of these procedures. Jon Block acknowledges the explanation, and the discussion moves to David Saxon from Needham, who asks about the projected volume growth for Clear Aligners, indicating that U.S. growth may be slower than international growth.

The paragraph discusses the anticipated trends in average selling prices (ASPs) and operating margins for the company. ASPs are expected to decline in the first quarter due to a stronger U.S. dollar impacting international business, which makes up over 50% of their sales. However, a price increase planned for the second quarter could alter this trend in the following quarters, and the impact of the strong dollar will likely lessen by the end of the year. The company is also predicting a lower operating margin in the first quarter but expects margin expansion for the full year. The conversation involved Joe Hogan expressing confidence in their projections into 2025 and John Morici providing context about foreign exchange influences and quarterly financial performance.

The paragraph discusses strategies for improving operating margins throughout the year. It highlights that the first quarter typically has the lowest operating margin due to initial ramp-up. However, as volume increases, productivity improves, leading to margin growth. The company is focusing on introducing new products, like Lumina Restorative, to drive margins. Despite facing a 200 basis point headwind from unfavorable foreign exchange rates, they aim for margin accretion of 22.5% year-over-year. The conversation also touches on currency impacts on average selling price and includes a transition to a question from Jeff Johnson of Baird.

The paragraph discusses the impact of currency fluctuations on a company's financial performance, specifically in Q1. Jeff Johnson estimates a 3-3.5 point headwind on both ASPs and global revenue due to currency effects, to which John Morici agrees, noting a larger currency effect in Q1 compared to the average for the year. Morici acknowledges a 70 basis point year-over-year improvement in operating margins, despite over a one-point pressure from currency effects. This improvement is also affected by incremental investments in direct fabrication and growth platforms, which offset some of the pressure from currency fluctuations.

The paragraph involves a discussion during a Q&A session about the adoption and potential impact of a relatively new product called Invisalign Palatal Expander (IPE), launched over a year ago. Brandon Vazquez asks Joe Hogan about the adoption curve of this product and its potential to drive further adoption, especially in the underpenetrated teen market. Joe Hogan responds that the adoption curve is positive and compares it to Invisalign First. He explains that IPE is more advanced, involving bone movement, which entails navigating regulatory processes regionally. He expresses optimism about IPE, noting positive feedback from both patients and parents, who appreciate the product's comfort compared to traditional expansion devices, increasing its desirability.

The paragraph discusses the progress and global expansion of a dental product line, highlighting improvements in scanning and wearability, as well as the synergistic use of Invisalign First with upper palate expansion. Joe Hogan expresses optimism about the momentum, emphasizing the product's success from a regional to a global scale. Brandon Vazquez then inquires about the durability of international growth compared to the Americas, questioning if it's due to early adoption or better macroeconomic conditions. Hogan responds by noting that while initial product penetration contributes to growth in some areas, regions like Latin America show continued growth due to better economic conditions.

The paragraph discusses the economic recovery in Asia post-COVID compared to the Western world. The speaker notes that Asian countries, excluding China, recovered in a stronger position and sees potential for continued expansion with new technologies. The conversation then shifts to a Q&A session, with Jason Bednar from Piper Sandler asking about reducing frictions in the teen orthodontic market. He inquires about marketing strategies to boost demand and whether processing fees have caused issues with doctors. Joe Hogan acknowledges the question before providing an answer.

The paragraph discusses the challenges faced by orthodontic practices, particularly in North America, due to economic constraints and stagnant growth over the past three years. The practices are cautious from a business perspective, leading to friction related to processing fees, especially in Europe and the US, unlike in Asia. In response, the company decided to roll back some price increases, which was well-received by doctors and relieved the sales team from having to justify these costs. The conversation then shifts to focusing on the future of the business rather than past expenses like processing fees. The paragraph ends with a transition to a new question from Steven Valiquette of Mizuho regarding evolving tariffs.

The paragraph features a conversation between an interviewer named Steven and Joe Hogan, discussing the impact of Chinese competitors, such as Angel Aligner, on the U.S. orthodontic market under a new political backdrop with potential trade wars. Hogan emphasizes that the key to overcoming international competition lies in customer service, technology, and relationships. He believes that Chinese companies are offering unsustainable prices and expresses confidence that market dynamics will resolve these issues. While he can't predict the political sentiments of orthodontists or general practitioners in the U.S., his focus remains on delivering superior products and services to maintain market leadership.

The paragraph discusses the progress and plans related to the commercialization of new orthodontic products by a company. Joe Hogan explains that while they initially plan to release a limited version of the Invisalign First retainer, which requires high variability and precision, they aim to fully commercialize it by the third and fourth quarters of the year utilizing the new Cubicure 3D printing process. Future developments will include products for mandibular advancement and aligners with complex designs, enhancing the technology's efficiency and offering orthodontists greater design flexibility.

In the paragraph, Michael Ryskin from Bank of America asks John Morici about the impact of tariffs on goods manufactured in Mexico, specifically regarding transfer prices as a percentage of the cost of goods sold (COGS). John explains that while certain costs like freight and treatment planning are unaffected, tariffs could increase costs by $4 million to $5 million monthly if set at 25%. Despite this potential cost, it's not substantial enough to justify relocating manufacturing from Mexico to Poland, although the situation will be monitored.

The paragraph is a Q&A segment from a discussion involving Michael Ryskin, Shirley Stacy, and others, addressing financial guidance and market conditions. Erin Wright from Morgan Stanley asks about tariff implications in the company's financial guidance and the market environment in China. John Morici responds, clarifying that the company's guidance does not account for any new tariffs and outlines potential costs if tariffs are imposed. Joe Hogan provides insight into the Chinese market, noting that the third quarter was satisfactory and the market appears stable, despite a seasonal dip expected in the fourth quarter.

The conference call concluded with Shirley Stacy thanking participants and inviting them to contact Investor Relations for follow-up questions. She mentioned upcoming industry events, including the Chicago Midwinter Dental Show in February. The operator then officially ended the conference, wishing everyone a good day.

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