Q2 2020 Align Technology Inc Earnings Call
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Oh, Hi, all participants Arnie listen only mode.
Great question and answer session well follow the formal presentation.
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The conference is being recorded and it's now my pleasure.
Surely they see like I think corporate and Investor Communications. Thank you you maybe.
Thank you everyone. Thank you for joining us joining me today.
Joe Hogan, President and CEO and younger Ricci CFO, we issued second quarter 2020 financial results today via Globe Newswire, which is available on our website at industry data line Tech Dot Com on April 1st 2020, we completed the acquisition a privately held echo CAD Global Holdings G. M. P. H X okay.
To reflect this addition of Ekso cat into our operations as of Q2 20, we have renamed the scanner and services segment to imaging systems and CAD Cam services.
Core systems and services.
Today's conference call is being audio webcast will be archived on our website for approximately one month, a telephone replay will be available today by approximately 530 PM Eastern time through 530 PM Eastern time on August fit.
To access the telephone replay domestic callers should dial 87766 06853 with conference number 137, 05887, followed by <unk> International callers should dial 20161 to seven for one five with the same conference number as a reminder of the info.
Termination provided and discuss today will include forward looking statements, including statements about aligns future events in product outlook. 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 <unk>.
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Actual results may vary significantly in a line expressly assumes no obligation to update any forward looking statement.
We have posted historical financial including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation as applicable and our second quarter 2020 conference call flights or 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.
Well getting Joe.
Surely good afternoon, and thanks for joining us.
I'm pleased to report Q2 results and continued progress across all regions and customer channels that reflect our cobot 19 recovery efforts and those of our customers.
Practices across every region have reopened and are seeing patients and many of those practices are embracing digital treatment and new ways and more purposely than ever before <unk>.
In particular, and just want providers are using the virtual tools, we expedited over the last few months to minimize in office appointments and deliver doctor directed personalized treatment that meets the needs of the moment trusted safe convenient and reflecting the digital option.
Initiatives Reprioritize globally over the last few months, including support for doctors to ensure treatment and business continuity a shift to online education and training ramping availability of virtual tools to keep doctors and patients connected through out the treatment. It continued investment in consumer marketing costs years programs and personal protective equipment or.
He or helping doctors navigate this evolving environment and come back stronger as their practices of reopened.
We have received consistently positive reactions and feedback from doctors in support of our efforts over the last few months.
While it's too early you know for sure how extensive a sustainable the digital transition will be interesting digital solutions is building, even among doctors were not early adopters or advocates prior to the pandemic.
The positive feedback a momentum is not just around invisalign treatment. It includes digital work flow around Itero scanners and general dentistry.
Doctors are telling us that itero is central to their practice.
Their practice workflows, and it's key to driving digital treatment.
With that let me turn to resolve.
For Q2 total revenues were 30, 352 million down, 36% sequentially and down 41% year over year, reflecting significantly lower sales of Invisalign clear Aligners and Itero scanners due to a full quarters effective cobot 19 pandemic on practice closures.
Revenues from clear Aligners were 298 million in everything systems in CAD Cam services were 54 million.
On a year over year basis, well clear aligner shipments were 222000 cases down 41% year over year. We're pleased with the continue progress as seen from our recovery efforts throughout the quarter.
For the quarter, we shipped Invisalign cases to approximately 48000 doctors of which 3000 were first time customers, reflecting lower dr. activity due to practice closures, primarily in Americas GP Jim.
We also trained approximately 3500, new doctors in Q2, including 20 350 International doctors.
Well our inability to hold in person course is due to cobot 19 resulted in fewer trained doctors in the second quarter. We continue with a significantly larger number of Invisalign doctors do online virtual education courses summits in forms for the team marketing in Q2.
71000 teens in pre teens started treating with invisalign clear aligners, representing 32% of total cases shipped reflecting growth from a APAC across comprehensive products by the end of the quarter. We started to see recovery in ortho channel with increases in Invisalign comprehensive treatment and the teams and pre teen segment across most regions.
With positive growth predominantly in a pack and the team segment.
In this line first continues to accelerate among young patients as well and reflects greater resiliency as parents continue to prioritize orthodontic treatment for their kids.
Overall, both non comprehensive and comprehensive shipments were down but was increased adoption of our modern product among the ortho channel.
Last week, we held our team for virtual edition, taking what was a popular teen intensive program fourth Adonis launch last year and recreating it is a virtual experience in order to facilitate broader attendance among our customer doctors, we scheduled to team formed virtual events. The first took place on July 17 in the second will be.
Held this Friday the program is designed to help doctors understand the highly visible online and on demand world of today's teens and provide the know how tools and confidence to differentiate and grow their invisalign teen practices.
Approximately 800 customers have registered for this full day session that combines live and on demand sessions clinical practice integration presentations panel discussions and valuable insights from experts with successful team team practices.
Now, let's turn to the specifics around our second quarter results, starting with the Americas for the Americas region Q2, Invisalign case volume was down 53% sequentially and down 52% year over year, reflecting significantly fewer invisalign case shipments due to the impact of cobot 19.
For Q2 reported utilization was down for any worth those in GPS both quarter over quarter and year over year.
However utilization increased in June, especially among certain orthodontist doing more invisalign treatments with teen shipments recovering faster in North America in late May and through June as part of our recovery programs, we enable doctors to switch their braces patients into invisalign treatment by buying their wires and brackets.
This program was well received and as a result doctors converted approximately 2500 wires and brackets cases to invisalign clear aligner patients.
And the GP segment, the timing of office Reopenings Encase prioritization slowed the recovery and this key segment as compared to the orthodontic segment, but the GP segment is catching up.
In terms of timing of the recovery in the Americas US continues to lead followed by Canada, and then last him corresponding to the timing of the pandemic related shutdowns and reopenings in each region.
For international business due to Invisalign case volumes were down 17.2% sequentially, reflecting a significant decrease in AMEA again due to the impact of cobot 19, partially offset by growth from APAC, which was ahead in the recovery curve in China, Taiwan, Hong Kong in South Korea.
On a year over year basis international shipments were down 27.1%, reflecting a decline in AMEA, partially offset by slight growth in APAC.
For a may at Q2 volumes were down sequentially, 44% and down 46% on a year over year basis across all markets with more softness in the GP channel compared ortho.
We continue to see momentum within this line first for Invisalign treatment in young patients overall, we saw slower deceleration and teams shipment growth men adults driven by Germany, and France. The expansion markets had less decline and only accounted for five point a decline in EMEA.
We also rolled out a recovery 360 program in EMEA with over 3700, orthodontist enrolled resulting in a stronger partnership purses perception by our customers, including an increase in our net promoter score or NPS.
Using a combination of our DAP consultants, which I'll be scribing more later in territory managers, we help practices with their workflow and scheduling increased our doctors engagement with their patients through the use of education and communication tools and provided business liability access sustainability materials to the doctors.
In may over 1400 attendees from three regions 75 countries participated in our virtual Invisalign scientific form in EMEA.
At the end of June we held a virtual GP growth summer with over 1300 doctors from over 42 countries, who signed up to gain insights on business Dentistry health and change management management.
During this on that we launched our GP recovery program and we see great feedback on the tools and approach we provide to support business recovery. During the quarter. We also offered over 150 online and on demand education events, which reached over 20000 GPS cumulatively.
In July we launched the Invisalign go plus system in the UK Nordic in Benelux, which offers wider treatment options enables dentists to treat more patients with confidence and can be easily integrated into a wide range of restorative treatments in their practice.
For a pack due to volumes were up sequentially, 41%, reflecting improving trends as practices reopened and got back to business as well as Kobin 19 recovery measures we implemented in China.
On a year over year basis, APAC was up 3.4% compared to the prior year and was the only region up year on year.
As mentioned earlier, we saw positive growth in APAC and teen shipments led by China, reflecting a strong uptick a recovery programs and the GP segment, we saw growth in a non comprehensive cases with Invisalign go and the launch a moderate in China in March continuing to further demonstrate dr. confidence in treating young patients with invisalign throughout the region.
In Japan, Taiwan, South Korea successfully managed recovery efforts have performed better than expected.
During the quarter, we reached another major milestone with our one millionth invisalign patient and APAC and athlete in modern pus, Avalon and fencing, who is being treat treated by Dr. you got in Tokyo, Japan.
Earlier this month, we held the Invisalign teen form in China in a virtual form broad cash to four venues in Beijing, Sean do when do we won and Yong Joe to approximately 8000 participants the form focused on the innovations in applications of digital technology and clear aligners as well as theories in clinical practice clinical practices.
I mean patients.
Foreign brought together outstanding orthodontist from leading dental colleges from approximately 30 academic institutions.
We believe that our global clinical education programs are the best in the industry and we have been even more valuable to doctors throughout the pandemic, we launched a new improved digital learning environment for our doctors this year offering a comprehensive learning platform with roll specific content Fort worth those GPS and their teams.
The improved functionality enables more online learning opportunities with spotlight features for what's trending now recommending learning path based on Boster doctors experiences and expanded categories, including digital treatment planning comprehensive dentistry and team education.
To date over 85000 doctors have accessed recorded lectures and completed self paced learning modules and watch how the video at watch how to videos and over 3 million sessions.
Among the ortho channel over 30000 unique users have engaged with the digital learning site with an additional 50000 unique users from the GP channel.
We are encouraged by the digital training utilization rates, among our doctors, which has helped them continue their invisalign treatment learning journey during the pandemic feedback from the participants describes of course is engaging providing broader reach to online Vince and a strong desire that align continued to provide these virtually.
They also acknowledge aligns agility and providing relevant tools and content to help them. During the Lockdowns. We see this as an ongoing opportunity to enhance dr. learning through direct feedback and continuous improvement.
Building on the benefit of critical education and training today, we announced a global launch of the align digital and practice transformation or adapt service. This is our first customized consulting service and support offering for doctors and was developed based on years of learnings from practices that saw strong growth and practice transformation when chain.
During their practice to digital.
Initially available to Invisalign and Itero doctors in select segments of the EMEA market and then in the US. The global program has now generally available in EMEA and APAC regions and will be available in the us in the second half of this year.
Did that program is an expert in independent fee based business consulting service offered by aligned to optimize clinics operational workflow and processes to enhance patient experience and customer and staff satisfaction, which will in turn translate into higher growth in greater efficiencies for orthodontic practices.
The goal of adapt program to support digital practiced transformation for doctors and their staff.
Adaptive design for Orthodontists was approximately 200 total K starts per year, who are seeking to build their future business.
Driven by a team of independent business consultant analyst and program support specialist adapt offers a customized onsite consulting service.
To each participating practice the program combines a review of business operations in practice workflow data with aligns expertise in digital workflow optimization practice support business transformation marketing and clinical education support.
The pilot version of the program has been successfully developed across EMEA, the United States Asia Pacific region over the last 12 months as resolve the adapt service participating practice has improved profitability of the 15% within six months of implementation and increased practice revenue up 20%.
Our consumer marketing is focused on building the clear aligner category and driving demand for invisalign treatment through a doctor's office.
In Q2, we saw strong digital engagement globally with more than 70% increase in unique visitors as well on leads other key metrics showed increased activity engagement with the Invisalign brand and are included in our Q2 quarterly presentation slides available on our website.
We're pleased with a strong engagement in activity, we've seen on our customer platforms over the last few months and believe it speaks to the strength of the branded consumer interest in treatment even during the challenges over the last few months.
In Q3, we are coming into what is typically the strongest part of the team season with teens in younger kids are home from the summer break unlikely to start treatment before heading back to school.
And while back to school looks very different this year in many countries, including the United States. This is still a time when practices, especially orthodontic practices are focusing on younger patients teams are the biggest the most critical part of orthodontic practices and our huge influencers and drivers of practice growth.
That matters now more than ever as we partner with practices in this recovery one of the most important ways, we partner with customers by creating demand for invisalign treatment and to drive teams and parents to their practices for great outcomes in great treatment experiences. We've just launched a new teen mom focused consumer campaign.
Designed to do this just just that by reaching teams in moms, where they are most engaged on digital platforms social channels and later this year national and cable TV channels, where they spend the most time like Instagram Twitter for teens, Instagram Facebook and people dotcom from loans.
We're going to leverage Influencers that teens in kids follow on trust.
Charlie Demilio, we recently established a new partnership with Charlie who is really dynamic Kid and accomplished dancer, who has a combined following of over 90 million fans on ticked off and Instagram. She is about to become a new invisalign patient in ambassador for our brand she'll be sharing her treatment journey in a way that is relevant and teams across social platforms.
And our new campaign will get the heart of what it get to the heart of what Invisalign is and what it isn't using straightforward language that teens respond to our goal is to tell teens why parents Invisalign is more advanced and more comfortable than traditional braces emphasizing that this is not your pet parents braces. We also want to ensure that they know the.
Doctors are front and center and the Invisalign treatment, because it's time to be very candid about the benefits of digital orthodontics and invisalign treatment specifically.
For our systems and services business, which now includes Exco CAD Q2 revenues were down 22% sequentially.
We were pleased to see the momentum with element five de imaging systems in North America, and APAC, along with sales of Itero element, one scanner model in China and significant sales of the flex scanner model in EMEA.
On a year over year basis systems and services revenues were down 48% were slightly offset by the inclusion of Ekso CAD CAD Cam services.
Cumulative the over 24 million orthodontic scans and 5.5 million restorative scans had been performed with Itero scanners.
For Q2 total Invisalign cases submitted to the digital scanner in the Americas increased to 86% from 77% in Q2 last year.
International scans increased to 72% up from 61% in the same quarter last year.
We're pleased to see that within the Americas, 96% of cases submitted by North American Orthodontist were submitted digitally.
We also recently announced that the Itero element five de imaging system was awarded best New technology solution for Dentistry, and the 2020 Medtech Breakthrough awards. The annual program honors outstanding Health and medical technology products and companies. We also received an award from Dentistry Q naming the Itero element Fiveg imaging system as now.
Over 10 of 14 products and services to help dentist rebound from cobot 90 with that ill turn the call over to John.
Thanks, Joe now for our Q2 financial results total revenue for the second quarter was $352.3 million down 36.1% from the prior quarter and down 41.3% from the corresponding quarter a year ago for clear Aligners Q2 revenues of $298.3 million was.
Down, 38.1% sequentially and down 39.9% year over year due to volume decreases across most regions driven by North America, EMEA and last Tam, partially offset by APEC clear aligner revenue growth was impacted unfavorably.
From foreign exchange of approximately $6 million or approximately one point year over year.
Due to Invisalign Asps were flat sequentially at $1255, primarily due to promotional discounts and unfair favorable foreign exchange, mostly offset by increased revenue from countries with higher list prices and increase other case revenues on a year over year basis Q2 in business.
An ASP increased approximately $25, primarily reflecting price increases in all regions and additional aligner revenue, partially offset by promotional discounts and unfavorable foreign exchange. One example of a crisis recovery program that we have implemented in Q2 was a switch program that enabled dock.
Just to switch wires and brackets patient into Invisalign clear aligners.
Total Q2, Invisalign shipments of 221.9 thousand cases were down 38.3% sequentially and down 41.2% year over year, our system and services revenues for the second quarter was $54 million down 22.2% sequentially and down 48.1 for.
Year over year due to volume decreases across most regions except APEC.
Promotional discounts and decreased in service revenue, partially offset by X have had revenue.
Moving on to gross margin.
Second quarter overall gross margin was 63.7% down 7.9 point sequentially and down 8.3 points year over year on a non-GAAP basis, excluding stock based compensation expense and amortization of intangibles related to acts of CAD overall gross margin was 64.4% for the.
Second quarter down 7.4 points sequentially and down 7.8 points year over year Q2.
Gross margin, we flex aligns decision to maintain our head count in salaries.
Across our operations in anticipation of a volume pickup as the coven 19 pandemic subsides. This decision also enabled us to manufacture nasal test swaps for hospitals and pp for use by our own employees as well as our doctors as they reopen their practices.
We also proposal postponed itero subscription fees for one month in the us in parts of APEC on a year over year basis Q2 gross margin includes approximately.
0.7% impact from unfavorable foreign exchange.
Clear Aligner gross margin for the second quarter was 64.5% down 8.5 points sequentially and down 9.2 points year over year due to lower volumes driving higher cost per case and increased freight costs from higher international shipment mix on a year over year basis. The decrease in the clear aligner gross.
Margin was primarily was partially offset by an increase in invisalign asps and continued efficiency improvements.
Systems and services gross margin for the second quarter was 59.2% down 2.6 points sequentially and 4.4 points year over year due to lower asps and lower volumes with higher costs per unit and.
And amortization of intangible assets related to the exit pad acquisition, partially offset by lower service support costs.
Q2, operating expenses were $297.3 million down sequentially, 8.4% and up 16.2% year over year. The sequential decrease in operating expenses reflects lower travel spend.
Decreased compensation.
Related to commissions and lower marketing and media spend partially offset by higher exit pad acquisition costs year over year operating expenses increased by $41.5 million. This is mainly caused by the $51 million favorable litigation settlement received in Q2 2019.
Okay.
Offset by cost controls measures in Q2 of 2020 on a non-GAAP basis operating expenses were $265.6 million down sequentially, 11.9% and down 7% year over year due to the reasons as described above offset by X a pad costs.
Our second quarter operating loss was $73 million.
Down, 204.4% sequentially and down 141.4% year over year, our second quarter operating margin was negative 20.7% down 33.4 points sequentially and down 50.1 points year over year. The sequential decrease in operating income in operating margin or.
Maybe due to lower revenues and gross margin as a result of lower volume from Koeppen 19 impacts operating margin was unfavorably impacted by approximately 0.9 points year over year from foreign exchange on a year over year basis. The decrease in operating income and operating margin primarily reflects lower gross profit.
On lower volumes from the impact of Copel 19. In addition to the prior year quarter included the $51 million favorable litigation settlement.
On a non-GAAP basis, which excludes stock based compensation acquisition related costs and amortization of intangibles related to exit CAD operating margin for the second quarter was.
Minus 11% down 28.1 point sequentially and down 35.6 points year over year.
Interest and other income and expense net for the quarter was an expense of zero point $5 million, including a 1 million dollar hedge loss related to the Ekso pad acquisition, excluding the hedge loss interest in other income and expense net was.
0.5 million income on a non-GAAP basis.
With regards to the second quarter tax, Brazil provision, our GAAP tax rate was 44.8%, which includes a tax benefit related to the impact of changes in the jurisdictional mix of forecasted income to GAAP profits recorded last quarter, the second quarter tax rate on a non-GAAP basis was 27.8.
Percent compared to 33.2% in prior quarter and 25.3% in the same quarter a year ago, the second quarter non-GAAP tax rate was lower.
Then the first quarters rate, primarily due to changes in jurisdictional mix of forecasted full year results second quarter net loss per diluted share was.
Negative 52 cents down $19 in 73 cents sequentially and down $2.35 compared to prior year on a non-GAAP basis net loss.
Per diluted share was negative 35 cents for the second quarter down one dollar an eight cents sequentially and down $1.84 cents year over year.
Moving onto the balance sheet as of June Thirtyth, 2020, cash and cash equivalents were $404.4 million a decrease of approximately $386.3 million from the prior quarter.
Which is primarily due to the acquisition of extra CAD, partially offset by our free cash flow improvement.
Of our $404.4 million of cash and cash equivalents $160.2 million was held in the us and $244.2 million was held by our international entities.
Q2 accounts receivable balance was $473.3 million down approximately 11.2% sequentially.
Our overall days sales outstanding our Dsos was 121 days up 34 days sequentially and up 44 days as compared to Q2 last year due to Dr. office closures that resulted in slower accounts receivable collections, we expect dsos to remain relatively high as doctors offices.
As we turn resumed normal business activity.
Cash flow from operations for the second quarter was $59.9 million.
Capital expenditures for the second quarter were $34.4 million, primarily related to our continued investment in increasing the liner capacity and facilities.
Free cash flow defined as cash flow from operations less capital expenditures amounted to $25.5 million.
Under our May 2018 repurchase program, we have $100 million still available for repurchase of our common stock.
Now, let me turn to our outlook since the last time, we talk the orthodontic in dental market has continued to evolve in response to government regulations and safety guidance of local regional and National Health officials, we believe that all of our markets have bottomed out and and our recovery, albeit at different rates.
And different times corresponding with regional outbreaks in recoveries from Kobin 19, preventative measures as we're now seeing improvements in consumer and Dr. activity. Nevertheless, we are mindful that that demand environment remains uncertain. There may be additional waves of infection and governments around.
The world May strategically choose to shutdown Cds state and countries again, forcing people to shelter in place and practices to close again. Therefore, we are not providing any forward looking guidance.
While our management team understands the markets remain fluid we continue to focus on taking care of our employees customers and shareholders specifically for our employees. We are committed to protecting our employees and do not intend to implement furloughs or salary reductions for our customers. We will continue to be supportive of our customer.
Those who are impacted by cobot 19, and are committed to helping slow this spread of buyers by providing PB to doctors.
We continue to release products.
Tools and promotions to help our doctors recovered from the crisis for our shareholders.
We will continue to invest in our strategic initiatives to grow in a vastly underpenetrated market and position our company to capture growth as a market returns to normal. This includes continued it continued investment in aligned.
End to end digital workflow as well as increased investment in Invisalign brand and consumer demand creation as you heard Joe described earlier, we will continue to add resources in markets that give us a good return.
I'm very proud of what a line has accomplished while maintaining our financial dis discipline. During this pandemic. We finished Q2 with $404.4 million in cash and cash equivalent close the purchaser of exit cap for $430 million and still delivered free cash flow of $25.5 million. Despite.
Having the lowest volume a line has had in a very long time, our cash flow reflects the strength of our business model the strength of our balance sheet and our strong operational focus I'm also pleased to share that we have established a new line of credit of $300 million with a consortium of banks led by Citibank. This new line we places.
Our line of credit with Wells Fargo, as a market leader and clear Aligners and digital dentistry, we're well positioned to continue investing strategically for the future with that I'll turn it back to Joe for final comments, Joe Thanks, John and summary, we're pleased with our progress last quarter and by the customer responses to the actions we've been taking this.
Support their practices in patients.
We have developed a careful recovery approach that accounts for the safety of our employees, our customers and their teams and their patients and are committed to helping doctors navigate this evolving environment and be successful.
One of the biggest lessons we've learned over the last few months is about the critical importance of digital technology line has always been a proponent of digital treatment, but think about all the things that digital platforms in virtual tools have enabled during the crisis. The people in the businesses and the customers who stay connected the way, we're able to adapt to working from home.
On the rise of Tele health and Tele consult.
The AI that model the virus patterns and informed health experts and so much more consider also the companies that have thrive. Most other companies that are digital with their core Amazon Apple assumed docusign Netflix Instacart just to name a few.
The advantage of digital are much more magnified the practitioners and consumers. This became even clear in our industrial and practices were shut down for months.
Over and over we heard I've been able to help my invisalign patients progress and treatment, but I had just had to just try to keep my patients and a holding pattern with wires and brackets treating orthodontic cases as amplified the clear benefits of digital technology and clear Aligners. This isn't meant to sound self serving this pandemic has.
Besides the benefits of digital technology across many facets of our lives in businesses our acquisition of Ekso Qads adds additional digital workflows.
Play in the GP space and lab space. We're all excited about the Ekso CAD team and what our investment brings to this new world of digital dentistry.
Lines digital platform has made it possible for thousands of doctors and patients to continue invisalign treatment throughout our global disruption.
Thanks to the digital orthodontics of Invisalign Aligners Itero digital records in simulations digital treatment planning and virtual monitoring.
Care Adeline, we've always believed the digital orthodontics is the best options for teens and adults as you can see from a peak at our new team campaign, we're going to feature this going forward.
What is clear to us is that the momentum were seeing in the business and then the dental and ortho practices reflects more than just one thing or one new product or tool or one program or action and reflects continuous improvement and continued execution of our core strategy across our business in every region, we're going to continue to stay the course, while remaining.
Vigilant and agile.
We feel good about the progress that we have made and as we continue along the recovery phase of Kobin 19 crisis in many regions. We're focused on what we can control and impact we are in a unique position to continue investing to a huge underpenetrated market to extend our lead and accelerate growth with that I want to thank you again for joining our call.
All I look forward to updating you on our progress as year unfolds now I'll turn the call over to the operator for questions operator.
Thank you will now.
A question.
If you would like to ask your question.
On your thoughts.
The conference.
Yes.
Correct.
For participants Kirkland, then maybe necessary to pick up.
Before.
One moment please.
Yes.
Our first question comes from the line.
With Goldman Sachs. Please proceed with your question.
Thanks, Good afternoon.
Thanks for the question Joe.
You highlighted the improvement in utilization the on June I understand sort of the rationale or not providing guidance for threeq you kind of given the situation, but can you maybe help us better understand kind of where the business third kind of the ended June just so we have a better sense of sort of what the jumping off point is as we think about the back half of the year.
Yes, I mean, we saw a dramatic improvement between April and June.
Obviously, we were kind of in the in the jaws of Cobot 19, with all the shutdowns and all in April.
Maybe a little better than we've seen strong momentum we've moved into June so.
I can think I think you can look at that as a significant improvement in our business overall.
Okay, Great and then.
You highlighted the 3000 customers there were new to invisible on this quarter can you maybe just talk about how that compares to maybe what you see in a typical quarter and kind of what you're doing to ensure that those doctors become kind of longer term customers along those lines.
Yes, I mean, that's I mean, when you think about cobot 19, and what the business is really faced in that 3000 customers loss was terrific in that way right. You don't actually look for new customers coming in on that you're looking for utilization rates on your current base. So I mean, we felt on I felt good really great about the 3000, obviously that got stronger as of quarter winter.
Yes.
Thanks.
Thanks, Nathan next question please.
Thank you. Our next question comes from the line Elizabeth Anderson.
With Evercore. Please proceed with your question.
Hi.
Thanks, Hi.
Can you talk about do you think Asia is a good path to think about in terms of their recovery or do you see significant differences in that geography that win that we should prevent us from extrapolating.
Yes, I think its Asia, so diverse and itself it's hard just to extrapolate Asia Elizabeth I mean, obviously China.
It was kind of first out of this thing, but John has had a bumpy road also you know with the recent issues in Shanghai in different areas. So every one of these regions has its own unique footprint and its own unique.
Model in the sense of how they've dealt with a virus but.
Really I don't obviously, it's at our transcript here, but we've seen significant improvement in it really every region around the world.
Okay and I think you commented also in terms of your cost structure in terms of not following our laying off in place any other major changes that cost structure and Nick third quarter, maybe just in the back half any are generally that we should think about as where.
Updating our model.
Hi, Elizabeth this is John.
No we continue to to believe in our model. It's a it's a vastly underpenetrated market, we're going to make strategic investments to grow in that market.
Whether its R&D sales marketing, we're going to continue to make those investments where we see a return.
Okay perfect. Thank you very much.
Thanks Lou.
Thank you. Our next question comes from the line.
Well first Sir please proceed with your question.
Hi, Steve.
Hi, good afternoon, thanks for the time here.
I Wonder first Joe could you give us anymore color on the breadth of uptake of some of the new digital tools that you referred to and the extent to which practices are making these changes and converting over to something of a quote unquote virtual experience I mean is.
Is this 2% of your customer base or is that a lot bigger than that any colors really really helpful. There.
We really is Steve when we talk about digital platform. You know you really start with Itero on the front end rated even in a downturn like we saw with co bid in the capital equipment business Itero was showed up well and in particular with five dia different areas, but that's the front end of this whole piece that we talk about a digital platform than you move through our Abhi.
I think our treatment planning and all but what we added.
Do you think about the whole breadth of a global digital platform. We added virtual care that you did you knew about when we came out so that you have doctors could touch our patients remotely and be able to track treatment and actually we had several doctors actually close cases remotely with our with our virtual treatment capability and that really extended the effectiveness of the dock.
There's an effect in this of the digital treatment in essence too.
There's a lot of imaging that we do now on our treatment planning and all too and and so it's not just tracking patients. It's also having images and different things that you can share with patients in the sense of where they should be allowed around treatment in those and those types of areas.
So it's a broad kind of a digital platform. We're talking about I mean, we had tens of thousands of people on our virtual care platform as we roll that thing out in a matter of 30 days and then all around the world and we'll continue to update that platform with AI will make it much more predictive. So the doctors don't have to look at every patient we have a strong roadmap.
In essence Tuesday, so it's just it's the breadth of a digital platform and how covers everything from starting with a consumer turning them into a patient from Itero all the way to the back end being able to monitor and treat those patients.
Got it and just one more for me.
What I'm trying to get to here is some perspective on what the underlying trend is and I. Appreciate that you don't want to talk about the exit rate.
Leaving twoq and you're not going to give guidance for threeq, but what if I said, let's imagine a scenario, where we don't have another wave of Lockdowns, where practices are operating in what is admittedly a challenging environment, but we don't have any sort of government level or professional society level. Utica says Hey, you got to stop doing cases or stop engaging.
Practices, if thats the operating environment. We're in I mean can you can you grow in Threeq you are the back half of the year. It can you speak it all to what the business would like looked like in that situation. If we don't get more locked out. Thank you.
Hey, Steve.
No.
I'd say, we're incredibly optimistic in this scenario that you painted where we don't see another coal cobot shutdown in the major market that last a long period of time.
Based on the the recoveries that we've seen in latter half of May and then the strong recovery in June.
We feel really good about the future of this business in the third and fourth quarter and beyond.
John anything that that covers it.
Okay. Thanks.
Thank you. Our next question comes from the line John.
Please proceed with your question.
Hey, guys good afternoon.
Hey, Joe over you can hear me, Okay, I'm going to good data, we had one of US similar line of questioning just started and engaged with.
Emails about sort of trend. So let me try to frame. It. This way I think with slide eight you guys did increase in North American utilization for June I think first part of the question is just wanted to be clear that was for boats.
Or assumes again GPS I thought the slide was hard to tease that out and then if thats. The case, Joe was that Youre in other words I'm getting questions on.
This is we opened in May and obviously, there's a lot of backlog figure, saying North America grew in June but wasn't pure was this benefit of backlog and maybe you can comment if that growth continued into July would be very helpful for North America.
Hey, John This is John.
Some of that is some of its backlog and some of its.
Additional.
Growth that they would have so the utilization has improved as those doctors of has come back to work and they're seeing patients and that's true in North America, and Thats shoe and in all countries, where we see those doctors offices opening up so it's hard to tell how much is backlog versus how much is more run rate going forward, but we're so.
And the combination of the both.
And the second part of that question Jedward Gotcha that increase or the year over year growth in North America does that continue into the mother July.
We are that momentum continued to be stronger.
Okay fantastic. Thanks in the second part of the question ill go from very near term next month to sort of 18 months out 24 months, John just as we think about the model longer term industry. As you guys from 2021 perspective revenues higher and 21. The 19, let's throw away 2020 for a whole host to reasons, but lets look 21 versus 19.
Structurally if reps are higher by X percent should the margin structure also be higher I look back to 19, you had some onetimers and legal et cetera, you reset the base X stock based comp, but if that were the key I'm just trying to figure out do you think the margin profile would also follow what we look out of the earnings power.
Thanks, guys.
Thanks, John So as we look at investing our long, leaving our long term model, our long term growth model and that has op margin at at the 25 plus percent. So thats, how we look to to keep investing.
As you get some some benefit.
To do the expansion and other things you might get some leverage.
As you go but we believe in that long term model.
And that's how we look forward on on our investments.
Okay.
Thanks, guys I'll follow up I appreciate it.
Sean.
Thank you. Our next question comes from the line of Rod.
Rob.
With Baron.
Please proceed with your question.
Hi, Thanks for taking the questions I hope everyone as well. So just just first I wanted to ask you gave us some sort of inclination about watch the covert impact was in Q1.
Anything that you can provide color wise on on that for Q2.
Yes, I think Robbie we'll get tell you is obviously April was was tough as we came out of March into April.
We saw some stabilization in May and then good progress in June overall so.
Just a complete.
Kind of beginning an end to that quarter overall and like we just mentioned the John is that continued into into July also.
Okay, I guess, it's going to be higher ticket at dollar figure out are you guys how about just on adapt.
I'm curious about the business model here, when you're talking about kind of increasing in utilization can you help us thinking about how.
You plan on monetizing that is there some sort of profit sharing or revenue sharing that it comes to the increase caseload and when does that kind of.
Yes start to kind of flow through the PNM, how should we expect this as a 2021 event or when is this a small program that shouldnt really haven't material impact to revenue. Thanks.
Total.
Ravi This is John So you talked about the adapt program that we spoke about.
Yes look we believe it they digital transformation and this is a way we seeded in testing that we've done to be able to help practices being more efficient moving from analog to digital.
We believe in that platform and believing that that process and diesel to these are initiatives that will take two to help with that.
It will be no service for a fee and those doctors those practices will.
We will see the benefit we've seen it time after time on those practices that they've seen improvement in their efficiency and profitability and we want to better provide that service.
Yes.
Upfront payment.
Well I think you know the way the way, we built for that will be probably different by region, but.
It is it's not an easy transition for practitioners to go from analog to digital.
We've known that's been one of the frictional points of customers wanting to.
Obviously to go digital from a dentistry standpoint, orthodontic standpoint, so we've learned a lot and we're using those learnings for customers it reach out and it really want to make a commitment for digital transition and we know we can help we piloted last year in every region, we roll it out full force now.
Thank you.
Thank you.
Steven.
Barclays. Please proceed with your question.
Great. Thanks, good afternoon everybody.
Hey, Steve.
You guys mentioned the that braces buyback program, which has some success with 2500 patients switches.
Yes, I was curious whether that program is something you expect to turn into substantially larger numbers and the remainder of 2020 or is that can be maybe a smaller part of the overall picture also did you do that just in North America are you planning to do that in most regions.
Thanks.
We we have been doing that program in different countries in Asia for awhile. So I mean, we knew how to implement it.
We thought it was a good time in North America, obviously, because of some doctors being trapped with their wires and brackets patients in their inability to help them. So.
Well, we continue that will continue through this quarter.
If we know whether we continue to it or not will you really based on what consumer needs are and what doctors needs are but.
We'll make that decision when time comes we're just this is trying to help in the moment in the sense of doctors being able to control their practices and help their patients.
Okay. Finally, my pre teen daughter was wondering if you can say high to Charlie Demilio for winning it.
[laughter] John is generally no or very high.
Third floor okay.
Hi, Thanks.
Thank you. Our next question comes from the line of Matthew O'brien with Piper. Please proceed with your question.
Afternoon. Thanks for taking my questions just for starters, just as we think about the recovery year.
In Q2, and I looked at the adult number.
On a worldwide basis once I get was down 45 to was down 32 per my math.
But obviously in the us or North America that number was much lower so you know with a higher unemployment rate you know with more people kind of stand at home how does the adult market in the U.S. recovered during the back half of the year.
Well I think it's honestly hard to call that I mean, obviously, what you're pointing out or teams are Oh. This is the seasonal time for teens and and we know we'll get a strong signal here in the third quarter.
But we're optimistic about adults, who I think there's a lot of.
Just talking to different people in the marketplace and you know this too there seems to be a lot of people with time on their hand wanting to do elective procedures that they havent had time to do before we're picking this up all around the country. So unlike 2008, where a lot of things kind of folded up because people are worried about their personal well, even though people are sheltering in place or socially distancing, especially.
Our demographic that we work through right now seem to have more time on their hands to to be able to pursue these kinds of things. So we're relatively often relatively optimistic on the adult segment going forward third fourth quarter to also.
Okay. Thanks, and then a follow up question, Joe just as to your point about all this enthusiasm that you're seeing going forward.
Olden SGN a higher gross margins are taking a hit right now because you're keeping folks in place you got all this optimism the dock training number was down a little bit, but obviously that's totally related. So can you just kind of eliminate a little bit more where all this enthusiasm and optimism comes from as we start making.
On this year.
For your touch points on the dockside.
In terms of virtual plus and person way higher.
Yes, what everybody's trying to get their hands on because of cold and do you think this could accelerate the adoption of clear aligners versus traditional brackets and wires given all the benefits of less opposites et cetera.
Matthew asked you asked the million dollar question right or the billion dollar question all right.
We think we think I mean, obviously.
Were our stories always been we're way underpenetrated in this marketplace.
Based on what consumers want based on what our technology can do from a clinical standpoint.
The consumer experience, it's going on I think we all think that covered is really shine the light on this.
Of much less invasive treatment much easier in the central location standpoint, much better work flow for doctors to keep track of their patients. So we think if anything. This is the time that this could happen. We're not telling you that this is the tipping point in the entire thing, but we certainly say this isn't hurting our story and it's certainly being supported out there not just.
United States, but broadly around the world.
Yes. Thank you.
Thank you. Our next question comes from the line and John Kreger with William Blair. Please proceed with your question.
Hey, John Hey, Joe.
Just following up on Matts question, just if you could give us your sense about how you view the attitude of the consumer right now I had the sort of forced deferral.
Yeah as practices shutdown, but in other practices are reopened what is your sense about the willingness or the consumer to sort of step up and make this purchase does it feel like business is normal or still very much kind of oh wait and see mode.
Well it feels like it's we're in a team season, we've talked about this before John the decision we call. These elective procedures, but teams have a certain clinical window that they fit into and it's always a timeframe with parents and we're very optimistic that that kind of team focus in growth will continue in the third quarter in China to in United States.
In different places.
But you know also this is a different John this is different than 2008 from what we feel is consumers seem to have more optimism in essentially the economy you see it in the stock market right now we all see it there.
And they have more timeline their hands with many people not working from offices.
And so we're optimistic again that there's money out there and there's a willingness for patients to pursue these elective treatments and.
I think you know you also have to look at the aesthetic markets from a surgical standpoint, and see what's going on there too it seems to support that kind of an ideal also so it's a this is different than what we've seen in past recessions for sure I'm not a registered economists. Neither is John we're good at Invisalign in this business and Thats, where we can only just.
Reiterate to you to signals, we're seeing in the marketplace.
Right now is this comes back.
We know that all dental offices aren't completely up to speed, but that's not necessarily based on demand thats based on the way that they have to actually paced. These patients through their practices that make sure that they keep their staff safe and they keep these patients they too.
Great great. Thank you.
Then one last one you mentioned being still very much committed innovation can you give us an update there how is mandibular advancement being adopted and any update on pilot expansion.
Yeah, it's hard to take the second quarter on M&A and give you a trend because it was.
It was a pretty hard hit overall, obviously fund you saw from our numbers.
I'd say overall Mandibular advancement continues to go well, we pair it with with our our team first product Invisalign first product line, which is doing extremely well also and so what you really find around the world John as you find some docs that are just glued demand over advancement they love it they use it everyday other ones are trying it out you know.
That they've had it on some patients and their watch we're watching through it on the on the first product line. This kind of combined that together and so we see.
A significant increase in what I call, our clinical penetration because we can do those kinds of cases that we couldn't really have done you know really two years ago. It all so I'd say the way to look at that is our our team first product Invisalign first being the most uptake in the fastest uptake with Mandibular advancement right behind it.
Great and any update on pellet expansion.
We have you know we have all the protocols, we know how to do it we're trying to find manufacturing capability that can scale with what we say in the needs are out there and that's sounds trivial, but in a business like this where you you have incredible amount of volume we have to put through we still have some work to doing that and that scale.
At most.
Great. Thank you.
Thanks, John.
Thank you next question comes from the line of Jeff Johnson with Baird. Please proceed with your question.
Hi, guys.
Hey, Joe.
So couple of clarifying questions here, if I could one.
Question on the North American number.
It depends on how you read.
Slide deck.
North America up year over year.
And then if I take your April May June and.
And may a little bit better, but June a significant better it seems like June on a kind of global revenue basis has been down only about 10% to 20% or sell that allows you all talked to that at all but when I look at the three down 20%.
Thank you very comfortable with.
486 million dollar revenue number where it's at right now so just any help you can give us again as we want to make sure we kind of that Threeq you at least ballpark accurate.
Yeah, Jeff it's up year over year, not just quarter not yet from a June standpoint, not just quarter over quarter, but June year over year.
So it's a pretty sharply was up year over year in June.
Yes.
Okay, and then tend to slow down 20%.
Third quarter from a global revenue perspective.
Sounds like Youre kind of globally was probably down less than that 20%. If I can that be April may June comments. So just kind of your comfort that 486 million dollar number where the street that Threeq you I know you're not guidance, but I would I would assume you don't have accepted.
Hey gave you an acre try and it does a good went jvs because when Jeff did no. We're not we're not we're not guiding but you try to give you as much information I know people are doing surveys and other work as well and you can help triangulate around it but just don't want to give out for the things that we've talked about doing about future guidance and Jeff we're not being Q here.
It's just it's hard to read signal through noise right now, okay, and Thats, yes that were conveyed machine. Okay totally totally understood last question just on the principal tools.
Come back we're talking to them Theyre, saying, Hey, I would that patients that I haven't seen in three months, there's still progressing well.
There may be going to go to a Q3 month inside of an every two month follow up schedule with their clear aligner patients and that I mean, it seems like I mean, we're getting chair time down on even some of these really messed up team cases to three hours for hours virtual so well maybe takes that even lower overtime.
Just talk as the.
In season throughput advantages, that's been a half versus braces isn't that going to be the real driver even more so that all this digital and and what have you. It's just the efficiency improvements are getting so good here in clear aligners.
Yes, I'd say when you say all that digital it's just that's what allows them to drive the efficiency you're talking about just so when you have these kind of digital tools that allow you to monitor patients to communicate with patients one on one or.
Any kind of AI. They can tell patients are off track are on track and we know that interaction also encourages patients with the most important variable invisalign treatment is compliance, making sure that they have their or their aligners intact, and if doctors are watching and we're keeping up in that sense that helps also and so and with doctors find out overtime as the taken that'll happen.
See these patients like every three weeks like they do with wires and brackets. They don't have this the obviously the there the PB and everything else associated with there with our staff in all working through these patients and if a patient doesn't have to come in from a clear aligner standpoint, you either give them all their aligners upfront or you give a more aligners to allow the current too too.
Continuing their treatment.
You know without adding an actual doctors' visits so that just tools that they're kind of tools that we use now in from a business standpoint, and we have within the supply from the clinical standpoint to keep track and.
Of patients into allowed doctors to be more productive for sure.
Understood. Thanks.
Yes, Thanks, Joe.
Thank you. Our final question comes from the line of Richard Newitter with SPD.
Proceed with your question.
Hi, Thanks for taking my question.
Sure. The switch program that you guys are.
Launch this quarter.
More effective and teens or or adults. This all.
Yes, rich this is John.
It's a program to show it said that we had.
Hedge in Japan, and other places as well, it's something that.
Our doctors and many of their patients.
Who were stuck in treatment and teeth were moving wanted to make a switch to this it's not necessarily a teen versus adult it's just patients who who want to progress retreatment and didn't want the uncertainty of the current environment that the ran or future.
Environment and went to their doctors in the doctors.
Wanted to be at a switch them over and we've made it so that they could do so.
I think Ritz Madrid here from both of Us is.
In this case, we're not quite sure exactly how many teams in adults were going to switch program. It's a good question, but you got to guess statistically the orthodontic market. The United States is 80% team to 20% adults you can get the majority switches were probably teens.
But thats since we're guessing, but we can get that data back to you.
Yeah Ben.
The bigger question, there that I'm trying to get at.
Some of the things that you're talking about.
In a post coded world and all of the benefits that now kind of pile onto aligners versus wires and brackets.
I was trying to trying to ask the question through the first programs this year.
My apologies, but it would seem that he and the conversion with the conversation with adults and being able to get genes in the parents over the finish line you haven't added level of cell now is that what you're actually seeing in the marketplace and is it fair to say that maybe co bid has has resulted in a much anticipated inflection.
Points or teams is that is that fair.
Well, it's fair that it's helped I can't tell you that the inflection points here, but we certainly see.
A lot of uptake in interest in a digital workflow and our digital methodology in light of Cobot 13, and experience has been when doctors can really convert most of their practice and Thats why DAF is once you get over 50, 60% digital your practices in your and your and your practices changed significantly.
And consumers like it better doctors tend to like it better, but we talked about you have higher margin and also.
Dramatic increase like 20% increase from a revenue standpoint. So yes. This is certainly a coal that has certainly been a push for this.
Yeah, we're cautious we don't want to talk about a crisis, which is terrible for people actually enhancing our business, but the fact is it does promote a work flow and capability.
That's much more convenient at this point in time, given the covert threat.
Thank you.
You're welcome next question please.
Thank you. Our next question comes from the line of Michael right.
Please proceed with your question.
Hi, Thanks for taking the question guys I've a couple of quick ones.
In your prepared remarks, Joe and John you, obviously talked about third quarter, how that's typically the strongest part of the teen season.
There will be season ISO bullets in the summer as everything stays home Im just curious where the strength you saw in Q2 Q you think there could have been any sort of pull forward into the quarter looking after the last couple of months ever movement home anyway. So.
Any expectations of maybe a little bit of a low in threeq, you or should we expect further pickup from current levels.
I think Michael when you ask a question like that and you think of our business and how broad is in global is today.
Is this a lot of mitigating factors right. So.
We can't tell you if theres a backlog of patients that have come in sooner or whatever we just know its team season, United States and is Canada, and I mean, I'm, sorry in China, Canada also and.
And were June was indicative of.
A good increase in the sense of teens looking for treatment and.
We think that will continue.
Great. Thanks, and then another quick one.
I realize you want to talk about exit run rate or anything like that but I think a lot of the assumptions go forward are there are no further locked down as there are no further sort of quarantine measures implemented but I just want to ask in recent weeks, that's coming on that Sunbelt, Texas, California, Florida have you seen any fluctuation in volumes any early indications there I guess.
Let's move.
On one hand, you have a full recovery of the economy on the other half you have full locked down what were somewhat in the middle are you seeing any indications there.
I would say John.
Yes, I think you look at.
Every every area is different we're seeing a different pace of recovery.
For for the various regions and locations and and practices.
Some practices.
They're open but that somebody within the practice.
Develops covidien and it shuts down so it varies across we're doing everything we can to to make sure that those doctors have that at PB have have promotions have things in place to be able to help drive volume.
But it's very dependent on those specific areas not just in the U.S., but we're seeing this across.
The other regions as well.
Hey, Mike right, it's back to Joe again too.
Just wanted to know we have great enthusiasm for team and no matter, where it is around the world, but we can't tell you if theres a.
There is a surge of teen patients based on a lot of teams not being in school.
We can't tell you that the backlog or whatever but we can't tell you. We're enthusiastic about the season ended June was a good indication that it's heading into right direction.
Great. Thanks, Thats a quick clarification.
[music].
This has come up a dozen times in past five minutes Eurosport. The just question on June did you mean, absolutely case volume is up in North America in June or utilization is up.
Utilization utilization.
Okay. Thank you so much thanks.
Yeah. Thanks, Mike.
Thank you final question comes from the line Brandon.
Please proceed with your question.
Hey folks celebrations. Please begin.
George on just a question on China as you can speak to grow specifically into Q, whether it was still down year over year.
And where there any other regions kind of outside the three that you listed Japan, South Korea, and Taiwan Network ahead of your internal expectations.
We.
Now I can't say that there are there was really I mean, we didn't talk a lot of specifically about that but Japan, Taiwan and Korea were exceptions because.
There were hardly a blip in the sense of what we solved and how they were affected with coded but really every other country in APAC in most countries around the world. We set aside for the expansion markets you know in Asia.
I mean, obviously cofunds co it was a big impact on them.
Okay, and then hope that answers you put on.
I think so.
John a chance you could share with us the Ekso CAD contribution in the second quarter to results or should we just wait for the Q4 for that.
Yes, I think we talked about it being in.
Scanner and services segment that we have and I think you wait for the Q on that but it yes.
We acquired and it's part of our business and.
We will put more details into the Q.
Alright. Thank you thanks, Brandon Thanks, Brad.
Well.
I think that's the last question. So thank you everyone for joining US today. This concludes our conference call. If you have any follow up questions. Please follow up with Investor Relations every day.
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