ALIGN TECHNOLOGY INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Q3 '24 revenues were $978 million, up 1.8% y/y. Clear Aligners volume was 617,000, up 2.5% y/y. Systems and Services revenue grew 15.6% y/y.
• Record 236,000 teens and younger patients started Invisalign treatment, with growth in APAC/EMEA. Launched Invisalign Palatal Expander in Singapore, expanding to APAC. Restructuring announced with Raj Pudipeddi's role eliminated, Frank Quinn rejoining.
• iTero Lumina scanner ongoing adoption, restorative software expected in Q1 '25. Non-case revenues up due to retainers and DSP program. DSO Clear Aligner volume grew sequentially/y/y, with strong iTero scanner sales from DSOs.

Segment Performance

• Clear Aligners: Q3 '24 revenues were $786.8 million, down 5.4% sequentially. Volume was 617,000, up 2.5% year-over-year. Contributed approximately 80.5% to total revenue. Year-over-year volume growth was driven by APAC, especially China, and EMEA/Latin America. Sequentially, volume was down due to U.S. soft market but offset by APAC/Latin America strength. Teen and younger patient starts were record 236,000, up 6.7% y/y.
• Systems and Services: Q3 '24 revenues were $191 million, up 15.6% year-over-year. Driven by higher scanner ASPs, non-systems revenues, and services. Record doctor submitters (87,400), DSP Invisalign Touch-Up cases (over 25,000, up nearly 30% y/y).

Guidance

• Q4 '24 worldwide revenues expected $995M-$1,015M. Clear Aligner volume and ASPs slightly up sequentially. Systems and Services revenues up sequentially. Q4 GAAP operating margin slightly lower than 14% due to restructuring charges; non-GAAP operating margin slightly up. Fiscal 2024 capital expenditures above $100M. Restructuring expected to be op margin accretive in 2025 despite 3D printing investments.

Risks

• Weak consumer sentiment and soft dental market, especially in the U.S., impacting Clear Aligners revenue. Foreign exchange impacts on revenues and margins. Economic challenges affecting patient traffic and treatment conversions for orthodontists/doctors.

Question and Answer

• Q: Macro backdrop and end markets?

A: Joe notes third quarter is typically tough due to seasonality, and U.S. market is most affected by external economic factors.

• Q: U.S. vs international results?

A: Joe attributes U.S. weakness to external economics/consumer confidence, not competitive dynamics; international markets (APAC, EMEA, Latin America) showed growth.

• Q: Restructuring and Frank Quinn?

A: Joe explains Frank Quinn's return brings expertise in relationships, technology, and understanding doctor needs; restructuring aims to align business with environment for margin accretion.

• Q: iTero Lumina and restorative workflow?

A: Joe discusses Lumina as new platform with ongoing adoption, restorative software expected in Q1 '25 to enhance digital workflows.

• Q: 3D printing and gross margin?

A: John states restructuring is op margin accretive despite 3D printing costs, with gross margin benefits expected as 3D printing scales over 2-3 years.