Q2 2021 Align Technology Inc Earnings Call
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I would now like to.
I turn the conference over to your host Shirley Stacy VP corporate communications and Investor Relations.
Good afternoon, and thank you for joining us from Shirley Stacy Vice President of corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO and John Morici CFO.
We issued second quarter 2021 financial results today via Globe Newswire, which is available on our website at Investor Day. The line Tech Dot Com Today's conference call is being audio webcast and will be archived on our website for approximately 1 month.
A telephone replay will be available by approximately 530 P. M. Eastern time through 530 P M Eastern time.
On August 11th to access the telephone replay domestic callers should dial 870, 766068.53 with conference number 1 <unk> 720, 779, followed by pound.
International callers should dial 20161 to 7415 with the same conference number.
As a reminder, the information provided and discussed today will include forward looking statements, including statements about align future events and 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 at SEC Gov.
Actual results may vary significantly and align expressly assumes no obligation to update any forward looking statements, we have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation.
Applicable and our second quarter 2021 conference call slides.
Under quarterly results. Please refer to these files for more detailed information with that I'd like to turn the call over to align technology's President and CEO, Joe Hogan Joe.
Thanks, Shirley and good afternoon, and thanks for joining us on our call today I'll provide some highlights from the second quarter and briefly discuss the performance of our 2 operating.
<unk> segment system services, and clear liners, John will provide more detail on our financial results and discuss our outlook following that I'll come back and summarize a few key points and open the call to questions.
I'm pleased to report our first billion dollar revenue quarter with record volumes reflected continued momentum from both clear liners systems.
And services for Q2 systems and services revenues reflect strong growth across all regions and the strategic value of the <unk> business with continued adoption of the <unk> element 5 day plus series of next generation scanners imaging systems, which launched in February increasingly doctors are seeing the strategic impact.
Vitaros scanners in their practices. In addition to its role in Invisalign case submissions its true its a true work force in digital enabler in every type of practice and across every type of orthodontic restorative workflow.
Q2 sequential clear line of volumes were primarily driven by strength in both adult and teen market segment.
<unk> and across customer channels and regions, especially from the Americas, and EMEA regions, reflecting the expanding opportunity for invisalign treatment among adults globally as well as the underlying orthodontic market as we continue to build awareness of the Invisalign brand and drive utilization among teens and younger patients for.
For Q2 'twenty 1.
John Invisalign clear aligner volume for teens were up 9.5% sequentially, 156% year over year to 181000 teens, representing 1 third of total cases shipped with strong growth from North America, and EMEA orthodontist during the quarter, we hosted several teen focused peer to peer events.
Design and build clinical confidence in teen treatment and highlighted teen digital treatment journey with Invisalign treatment.
The recent APAC virtual symposium featured leading providers focusing on clinical excellence with teen treatment in North America hosted the Invisalign Teen Forum virtual edition for Invisalign doctors, bringing together.
The clinical speakers digital industry experts and teen patient panelist to share their insights.
In may align focused on the align digital platform at the 2021.
Annual session featuring a dynamic virtual lineup of Invisalign doctors, describing how they have grown their practices through adoption of digital technology.
Together, our Q2 results also reflect the positive impact of our investments in consumer marketing generating billions of impressions and 33% year over year increase in leads for Invisalign doctors during.
During the quarter, we launched the next phase of our <unk> multi touch campaign as well as the new envisage the powerful thing campaign designed to.
<unk> engaged teens and young adults, we also deepened our partnership with Influencers like Charlie the Emilio with the first limited edition Aligner case as part of our New E. Commerce initiative, featuring custom cases cleaning in oral care products as well as accessories like Invisalign stickles, all of which are available on Invisalign dot com.
These.
<unk> consumer initiatives are important in supporting doctors practices, especially through the busy summer teen season and beyond they also build out our investments in digital technology and innovation that are the foundation of the align digital platform, including integrated digital workflows and virtual tools designed to improve clinical confidence treatment efficiency and patient outcomes.
Loans, a year ago, we released Invisalign virtual appointment and Invisalign virtual care tools within our my Invisalign App in response to the global pandemic to enable invisalign doctors to provide continuity of care for their patients today Invisalign virtual care is available globally in 60 markets and the my Invisalign App.
<unk> has been downloaded 1 million times with Invisalign patients worldwide.
He was recently recognized as the best virtual care platform by the Med Tech Breakthrough Awards program and has a digital innovation of the year by Health Care Asia Med Tech awards as part of the Invisalign virtual care patients use my Invisalign app sustaining.
To stay engaged with their treatment and convey progress photos to their doctor fostering 2 way communications with the doctor through their Invisalign treatment journey.
Now, let's turn to the specifics around our second quarter results starting with the Americas.
For the Americas region, Q2 was another strong quarter with Invisalign case volume was up 11% sequentially.
<unk> and 261% year over year, reflecting growth across the region, especially in the United States and Canada from both comprehensive and non comprehensive products and increased invisalign utilization from orthodontic and GP channels.
DSO utilization continues to be a strong growth driver as well led by Heartland and smell docs.
For International business Q2, Invisalign case volume was up sequentially 12, 7% on a year over year basis International shipments were up 149%.
For EMEA Q2 volumes were up sequentially, 17% in 265% year over year with broad based growth across all markets.
Markets led by Iberia, U K and Italy, along with continued growth in our expansion markets in Q2 growth from both channels was strong with orthodontic channel growth, reflecting increased invisalign utilization and GP channel growth driven by increased Invisalign submitters.
For Q2 EMEA growth also reflects.
Adoption of the Invisalign first product designed to treat a broad range of teeth straightening issues in growing children from simple to complex, including crowding spacing and narrow didn't dental arches aiding in treatment engagement for those younger patients Invisalign <unk>, our innovative accessories designed exclusively for use with our patented smart.
Track material and Invisalign clear systems.
Available in a ray of designs colors shapes and themes Invisalign <unk>.
Our fund wafer patients to show their personal style during invisalign treatment.
During the quarter. We also hosted a successful virtual edition of GP growth summit attended by over 200 doctors from.
From the EMEA region.
For APAC Q2 volumes were up sequentially, 4.8% and 50% on a year over year basis, reflecting growth across the region led by Japan, China and ANZ, Despite new and extended Covid restrictions in several APAC markets APAC performance reflects strength in GP channel with increasing.
His line submitters, especially in Japan, which continues to deliver strong growth during.
During the quarter, we hosted our China Forum attended by over 500 doctors from private clinics are APAC virtual symposium attended by 1400 doctors as well as the China Public hospital form in June.
Our consumer marketing is focused on educate.
Kris and consumers about the Invisalign system, and driving that demand from Invisalign doctor's offices, ultimately capitalizing on the massive market opportunity to transform 500 million smiles.
We have provided many of our key metrics that show increased activity and engagement with the Invisalign brand and our Q2 quarterly presentation slides available.
<unk> on the line Tech Dot com.
In Q2, we launched a next generation of Invis is multi touch campaign, driving reach and awareness with adult mum and team consumers, yielding more than 200% growth in visitors globally to our web sites and more than 82% increase in searches for an invisalign trained doctors.
<unk>, leading with the Invis is not your parents braces campaign, we conducted with teens utilizing digital media such as Youtube Twitch in social media.
We also continue with our Invisalign change makers program that celebrated a recognized teens driving change in their communities, which was covered by multiple media outlets such as elite daily.
Finery 29.
Yahoo, Unwind Hollywood life.
She knows J 14, Yahoo, Finance parents Dot com, glamour, and new beauty and generated more than 600 million impressions.
And the major region, our new marketing campaign to drive engagement and visit the powerful thing went live in the U K.
Revenue in France during the quarter, resulting in more than a 170% year over year increase in unique visitors.
36% year over year increase in Doctor Locator searches, we will continue to rollout the campaign to additional markets in the region during the third quarter.
We continue to expand our consumer advertising in the APAC region in.
Hey, Jeremy Hana in China, and saw more than 800% increase in consumer engagement and 55% year over year increase in leads.
Lastly, we continue to build strong relationship with global search and social media Giants like Google Snapchat Tictoc in order to further leverage our best in class consumer demand programs.
Failure typically more effective globally.
These partners recognize the power of the Invisalign brand and are helping us to amplify and gain efficiencies from our investments.
For our systems and services business Q2 revenues were up 20% sequentially and up 214% year over year, reflecting strong scanner shipments and services there.
This represent.
More effect, a fourth consecutive quarter of sequential revenue growth.
Yes, Tara element 5 day, plus imaging system continues to gain traction across all regions with strong adoption with new customers in the APAC and EMEA regions and with existing customers in the Americas region.
In APAC, the <unk> element to innerwear scanner did well during.
Representer, helping to transform digital workflows and chaired side consults with doctors during the quarter, we announced a new <unk> workflow to no software and previewed auto upload functionality in the <unk> element Fived imaging system the.
The <unk> workflow 2.0 software advanced features include faster scanning.
The quarter visualization and enhanced patient communication tools were rolled out regionally in all markets, where the <unk> element plus imaging systems are sold.
<unk> element Fived imaging system auto upload feature will eliminate steps in streamlining invisalign case submissions with inner oral color scan images that can be used.
Used in place of traditional intermodal photos.
Upload functionality is scheduled for release during the third quarter of 2021.
There's great symmetry between systems and services business with clear Aligner business reflected in the positive correlation between the deployment of scanners and the increased utilization of Invisalign clear liners.
In terms of digital.
<unk> scans used for Invisalign case submissions total digital scans in Q2 increased to 82, 2% from 78, 5% in Q2 last year.
International scans increased to 76, 2% up from 72% in the same quarter last year for the Americas 86, 6% of cases.
Submitted digitally compared to 86% a year ago John.
Moving to the over $40.1 million orthodontic scans and $8.4 million restorative scans have been performed with <unk> scanners.
I'm also pleased to share that align received regulatory approval for the <unk> 5 day plus series in Japan on July.
<unk> with a formal launch event planned for August.
Turning to XO cash during the quarter <unk> launched the creator center.
The new <unk>, 1 stop shop for online and in person educational events with a database consisting of 35 educational webinars showcasing the highlights and add on.
<unk> features of <unk> software solutions dental CAD Galloway 3 point O.
<unk> 3 <unk> Galloway more than 2500 users and distributors have been trained on the new software releases worldwide.
<unk> had its also expanded their market coverage with a new global OEM partner <unk> dividend or we call IV.
1 of the largest manufacturers in the dental industry. This strategic collaboration will give <unk> access to thousands of new IV users worldwide will also provide extra CAD users with access to product production processes with removable prosthetics in the future.
Earlier this month <unk> has released partial.
Partial CAD 3 <unk> Galloway, it's module for removable partial dental frameworks, which has new and advanced features for design of high quality partial dentures.
This new release enhances digital cadcam possibilities for XO, CAD users and dental technicians by providing simpler design solutions for complex cases.
Cases partial CAD 3 point O Galloway provides both experts and new users with smoothed improved integration with dental CAD <unk>, leading software for dental laboratories.
Bringing the <unk> and extra cash businesses together makes us more viable within the GP segment and more relevant and day to day comprehensive denim.
<unk> customers the combination of Invisalign clear liners, and <unk> scanners have long provided a seamless workflow of orthodontic treatment the integration of <unk> expertise in restorative dentistry, and implantology guided surgery and Smile design takes the align technical portfolio beyond our established footprint in orthodontics.
The ortho restorative and restore to treatment and paves the way for new cross disciplinary workflows that span from visualization and treatment planning to lap production to chair side <unk> also broadens align platform reach and digital dentistry with over 200 partners and more than 40000 licenses installed worldwide.
With.
With that I'll now turn the call over to John.
Thanks, Joe let me begin by reminding everyone that for align and many companies Q2, 2020 was significantly impacted by COVID-19 business disruptions income and comparisons of our results for Q2.2021 should be considered accordingly.
<unk>.
For our Q2 financial results total revenues for the second quarter were $1 billion.
13% from the prior quarter and up 186, 9% from the corresponding quarter a year ago.
We're clear liners Q2 revenues of $841 million were up 11, 6% sequentially and up.
Up 181, 9% year over year, reflecting invisalign volume growth in most geographies.
In Q2, we shipped a record $665.
6000, Invisalign cases, an increase of 11, 7% sequentially and 200% year over year. In addition, we shipped a record.
83, 5000, Invisalign doctors worldwide of which approximately $7.2000 were first time customers.
Q2 clear line of revenues reflect strong growth across the invisalign portfolio for both comprehensive and non comprehensive products Q2 comprehensive volume increased.
2.4% sequentially and 181, 9% year over year in Q2, non comprehensive volume increased 12, 3% sequentially driven by strength in Invisalign moderate and Invisalign go and.
Up 251, 7% year over year.
Q2, adult patients increased 12, 6% sequentially and 224% year over year. In Q2 teams are younger patients increased 9.5% sequentially and 156, 3% year over year.
Clear aligner revenues were unfavorably impacted by.
By foreign exchange of approximately $3.4 million or approximately 0.5 points sequentially on a year over year basis clear aligner revenues were favorably impacted by foreign exchange of approximately $36.7 million or approximately 12.3 points.
For Q2, Invisalign comprehensive asps decreased sequentially and year over year on a sequential basis Invisalign comprehensive asps.
Reflect higher discounts credits and foreign exchange, partially offset by regional mix.
On a year over year basis comprehensive asps reflect the increase in net Rev.
Pearls, 4 new Invisalign cases versus additional aligner shipments, partially offset by foreign exchange recall Q2, 2020, Asp's increase as a result of more additional shipments of aligner shipments as doctors were focused on maintain treatment progress for existing invisalign patients.
This trend reversed itself after practices reopened in Q3 and demand for new cases ramped up significantly.
Q2, Invisalign non comprehensive asps increased sequentially and were flat year over year on a sequential basis invisalign non comprehensive asps reflect lower discounts, partially offset by foreign exchange.
Change on a year over year basis, Invisalign non comprehensive asps were favorably impacted by foreign exchange offset by higher mix of new Invisalign cases versus additional aligner shipments.
Clear aligner deferred revenues on the balance sheet increased $101 million sequentially and 337.
Dollars year over year and will be recognized as the additional liners are shipped.
Our system and services revenues for the second quarter were a record $169.8 million up 20% sequentially and up 214, 7% year over year, the increase sequentially and year.
<unk> can be attributed to increased scanner shipments higher asps.
And increased services revenue for our larger installed base.
Our systems and services revenue.
Deferred revenue on the balance sheet was up 22% sequentially and up 135% year over year, primarily.
Over year to increase in scanner sales and the deferral of service revenues, which will be recognized ratably over the service period.
Moving on to gross margin second quarter gross margin was 75% down <unk> 6 points sequentially and up 11.4 points year over year.
On a non.
GAAP basis, excluding stock based compensation and amortization of intangibles related to our <unk> acquisition. Overall gross margin was 75, 4% for the second quarter down <unk> 7 points sequentially and up 11 points year over year.
Overall gross margin was favorably impacted by approximately.
<unk> 1 points on a year over year basis, due to foreign exchange and relative unchanged sequentially.
Clear Aligner gross margin for the second quarter was 76, 9% down <unk> 7 points sequentially due to higher freight costs and slightly lower asps.
Clearer.
Your line or gross margin was 12.4 points year over year due to increased manufacturing efficiencies from higher production values volumes, partially offset by lower asps.
Systems and services gross margin for the second quarter was a record 65, 9% up 0.5 points sequentially primarily due.
The higher Asps, partially offset.
Net by manufacturing variances and higher freight costs.
Systems and services gross margin was up 6.6 points year over year due to higher Asps and services revenues. In addition to improved manufacturing efficiencies from higher production volume, partially offset by higher freight costs.
Q2, operating expenses were $489.6 million up.
Up sequentially, 8.4% and up 64, 7% year over year. The sequential increase in operating expenses is due to increased consumer marketing spend increased compensation related to additional head count.
Costs are commissions and other general and administrative costs.
Year over year operating expenses increased by $192.3 million, reflecting our continued investment in marketing and sales and R&D activities and investments commensurate with business growth.
On a non-GAAP basis, which.
And hybrids stock based compensation and amortization of intangibles related to our <unk> acquisition operating expenses were $461.2 million.
Up sequentially, 8, 6% and up 73, 6% year over year due to the reasons described above.
Our second quarter opera.
<unk> income of $268.9 million.
Resulted in an operating margin of 26, 6% up 1.4 points versus prior quarter and up 47.3 points year over year. The sequential increase in operating margin was attributed primarily to operational leverage the year over year.
The increase in operating margin was primarily attributed to higher gross margin and operating leverage as well as the favorable impact from foreign exchange by approximately 1.8 points.
On a non-GAAP basis, which excludes stock based compensation and amortization of intangibles operating margin for the second quarter was 20.
Operating at 8% up 1.2 points sequentially and up 48 points year over year.
Interest and other income and expense.
Net for the second quarter was a loss of <unk> 1 million down sequentially by $36.3 million, primarily due to the <unk>.
9 penetration award gain recorded in the first quarter.
With regards to the second quarter tax provision our GAAP tax rate was 25, 7%, which was higher than the prior quarter rate of 23, 4%, primarily due to lower excess tax benefits from stock based compensation.
Our.
Our tax rate was lower than the same quarter last year, which was 44, 8% primarily due to foreign income tax at lower rates. The second quarter tax rate on a non-GAAP basis was 19, 5% compared to 22% in the prior quarter and 27, 8% in the prior year.
Our GAAP second quarter non-GAAP tax rate was lower than the prior quarter and the second quarter.
Of the prior year rates due to foreign income tax at lower rates.
Second quarter net income per diluted share was $2.51.
Flat sequentially and up.
The <unk> and <unk> compared to the prior year.
On a non-GAAP basis net income per diluted share was $3 <unk>.
For the second quarter up <unk>.
<unk> $505 sequentially and up $3.39 year over year.
Moving onto the balance.
As of June 32020, cash and cash equivalents were $1.1 billion.
Flat sequentially.
Of our $1.1 billion.
Cash and cash equivalents $551 million was held in the U S and $535.3 million was held.
Alex sure International entities.
Q2 accounts receivable balance was $808.1 million up approximately 12, 4% sequentially. Our overall day sales outstanding was 72 days flat sequentially and down approximately 49, 1 days as compared to Q2 last year.
Cash flow from operations for the second quarter was $317.5 million capital expenditures for the second quarter were up $124.2 million primarily related to our continued investment in increasing the liner capacity and facilities free.
Free cash flow defined as cash flow.
Vibration less capital expenditures amounted to $193.3 million.
We also have $300 million Ava.
Available under our revolving line of credit.
Under our $1 billion repurchase program announced in May 2021, we have $900 million remaining.
From our available for repurchase of our.
Common stock.
Now, let me turn to our outlook and the factors that inform our view for the remainder of the year.
Overall, we are very pleased with our second quarter results and our continued strong performance across regions customer channels and products.
While there continues to be uncertainty around.
The pandemic and increasing restrictions related to COVID-19 in certain geographies. We are continued to invest in our strategic growth initiatives, including sales marketing innovation and manufacturing capacity to drive demand and conversion globally and are confident in our competitive position and ability to execute.
Remaining same time, we are also anticipating more pronounced summer seasonality across all regions.
Then we have experienced in recent years as doctors and their staff and patients take long overdue vacations.
Notwithstanding seasonality given our strong performance and continued confidence in the huge market opportunity.
<unk>, our industry leadership, and our ability to execute we are increasing our 2021 revenue guidance provided in April on the Q1.
'twenty 1 earnings call to a range of $3.85 billion to $3.95 billion.
Additionally, we now expect our second half.
Year over year revenue growth rate to be above the midpoint of our long term operating model target of 20% to 30%.
On a GAAP basis, we now anticipate our 2021 operating margin to be better than our prior guidance in the range of 24% to 25%.
On a non-GAAP basis, we expect the 2.
Q1 operating margin to be approximately 3 points higher than our GAAP operating margin after excluding stock based compensation and intangible amortization in.
In addition, during Q3 'twenty, 1 we expect to repurchase up to $75 million of our common stock through either a combination of open market repurchases.
Purchases or an accelerated stock repurchase agreement.
For 2021, we expect our investments in capital expenditures to be approximately $500 million.
Capital expenditures, primarily relate to building construction and improvements as well as additional manufacturing capacity to support our international expansion.
This includes our planned investment in our new manufacturing facility in Poland. Our first 1 in the EMEA region with that I'll turn it back over to Joe for final comments Joe.
Thanks, John.
Q2 was a terrific quarter and we're very pleased with the improvements we're seeing in recovering doctor practices.
We value their increasing adoption of digital treatment approaches their confidence in the unique align digital platform that spans from vitaros to the world's most sophisticated treatment planning the world's largest 3 D printing business on the globe to a patient app with over 100 with 1 million consumers.
Rich 1 with the world's most recognized orthodontic brand has driven strong performance across the business.
Our performance over the last year confirms the incredible size of our target market and demonstrates that our strategy and investments in recent years and help further solidify our competitive position.
We have numerous growth drivers in a vastly underpenetrated market.
And while we continue to see some lasting impact and continued uncertainty due to COVID-19. We remain confident in both the enormous opportunity we have to lead the evolution of digital orthodontics and comprehensive dentistry with our doctor customers and in our ability to execute our strategy to increase adoption of invisalign treatment globally.
We're also confident.
And excited about the benefits of digital treatment that more and more doctors are experiencing by transforming their practices with invisalign digital orthodontics and <unk> scanners for chair side treatment planning in visualization in fact, invisalign treatment requires on an average 30% fewer doctor visits than fixed appliances.
Creating efficiency gains for the doctors and a better patient experience and.
And 85% of Orthodontist surveyed agreed that adopting the align digital platform have made a huge difference in their practices. It provides ways to improve their efficiency and productivity.
I look forward to updating you at the GP summit in Investor Day.
In October in Las Vegas, and sharing more examples of how our line is helping doctors transform their practices and their approach to treatment now I'll turn the call over to the operator for questions operator.
Thank you.
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If your question Mr. Keith.
Our first question comes from Nathan Rich with Goldman Sachs. Please.
Please state your question.
Hi, good afternoon, thanks for the questions.
Joe I wanted to start with the increased guidance.
And the expectations around the back half of the year being at the high end of the <unk>.
Before range I guess several of the factors that you highlighted on the call you know the growth in new customers. The strong antero placements those have all historically been good leading indicators of growth in Invisalign. It also sounds like Youre seeing better uptake from the DSO channel is that's obviously an opportunity that you guys have been going after for a long time.
Long term I guess at this point you know does that change how you're thinking about what the right target is for top line growth next year within the long term range that you have.
Hey, Nathan.
Look I think you cited really well what we're seeing right now what we're experiencing overall and we are calling strong growth for the second half of this year, but look.
Revenue guidance is for the long term for the business is 20%, 30% and we continue to work within those boundaries. So we're not prepared to change that at the moment John any thoughts on your income that's exactly it.
Good.
What we're seeing in the marketplace and our guide reflects that.
I appreciate that and then John maybe a follow up for you.
Look our could you maybe go into a little bit more detail around your comments on the more pronounced summer seasonality.
Just how that impacts your expectations.
For the sequential growth, we're likely to see in <unk> and <unk> of this year, maybe versus what you would expect in a normal year.
Well as we know.
M Summer period, where people take vacations and holidays, and so on and in EMEA and other places and we expect and I think what we see in our own lives as you take a longer weekend or maybe more pronounced vacations people doing things in advance of.
Shutdowns or lockdowns that might happen.
I think we're just being reflected.
There is above that but really looking at all the variables that we normally see in <unk> and <unk>.
Talking to the what we expect for the second half which is.
To the upper point.
The upper side of our midpoint on a year over year basis.
Alright, thanks for the questions.
Our next question comes from Jon Block with Stifel. Please go ahead.
John.
Hey, Joe Good afternoon, guys I think Joe I'll start with you with the first 1.
It was $5.3 north American GP utilization number was huge and I think we all weighted for a while to get that to get to for now.
Now it's north of 5.
Just talk to us on what that is I mean im assuming its what its more scanners is it also just increased utilization with even those that have had the scanner for some time would love some color and maybe you're just more importantly is that 5 handle on the North American GP utilization do you view that as sustainable going forward and then.
I've got a follow up.
Hey, John I consider everything we do has more than a single variable to it.
And that's the platform that we work with which you know as well as anybody, but I would say, yes scanners.
Serve that very well our increased advertising helps to drive that to it brings more patients to the GPS.
And thirdly.
Thirdly, new products like we're working I go in different derivatives of that product line that are very efficient for GPS to use and it gives them a huge amount of confidence in our product line when they use it John So it's a combination of our brand. It's a combination of digital platform with <unk>. It's a combination of product piece and then we don't talk about it a lot.
But we split our sales force years ago, and we have a specific focused sales force on GPS and the GP speak a different language John it's different from orthodontists altogether and that team has been incredibly effective being able to work with doctors, how they can integrate invisalign into their workflow and from a restorative standpoint.
Users proactively so.
I am confident that is a that's a great market force, we know that 500 million patients. We talk about globally sits broadly in that segment and but you need a difference different kind of a product approach a different sales approach.
Our strong platform geared for those guys to keep that going and we feel good about.
Endpoint. Thanks.
Yes, actually you brought up an interesting point I think that the sales force for us.
I believe bifurcated international more recently in North America. So I guess, we're starting to see that come through now second question. John just let me try to be as detailed as possible. So you've got a solid <unk> 21 sales upside that you just reported.
And you're right.
The back part of the year from roughly 25% year over year revenue mid point growth to closer to 27% yet you called out some more pronounced summer seasonality and those seem at odds with 1 another so can you just reconcile those 2 data points in other words youre alluding to more seasonality yet you just took up the forecast.
Does the bounce from the back part of the year, even in the face of that so any color would be great.
I think it really reflects just the timing.
Between quarters, and not kind of kind of as you said looking at the second half in a way not knowing how vacations and holidays and lockdowns potential might play out, but but looking at it in totality and kind of looking.
<unk>.
Our second half standpoint.
Thanks, guys.
Thanks, John.
Yeah.
Our next question comes from Jason Bednar with Piper Sandler. Please state your question.
Yeah, Hey, everyone. Good afternoon.
And at a fraction of a strong quarter here.
Joe I wanted to follow up on Nathan's question there.
The first 1 maybe if you can unpack a bit further what you're seeing here as we look ahead in the next couple of quarters, especially now that we've lapped the easiest of your comps.
Guide here would suggest momentum is strong across the business, but the key question I keep getting from investors is really.
Now how that adult consumer in the second half of the year and then into 'twenty, 2 how theyre going to respond.
The question I guess for you is just how youre seeing the adult consumer respond in your various geographies as economies have opened back up and as we started staring down some tougher comps in the adult side and then I've got a follow up.
Well I think yes.
Yes, Jason.
With adults and we see this really all over the globe as we obviously had a big uptick from an adult standpoint, but you can see our teen numbers up pretty substantially too at the same time. So it's a good balance the previous question that John asked 2 of GPS. It comes into broadly in adult segment and that segment also.
In my explanation.
We've seen in the sense of why we've been effective in that segment. We think we can continue to be helped to contribute to that now when we talk about third quarter and seasonality with John is talking about whatever but a lot of that is around adult patients and vacations and different things too and it affects different parts of the organization, but and.
And how we go to market, but in general we just we just feel good about the direct.
The business of signal in words, we're getting from our doctors on what theyre, explaining they're seeing out there and that's all incorporated into what we've been forecasting for it.
And you know the 1 thing that never forget about 2 adjacent to the size of this marketplace.
We talk about 500 million patients that I know you hear from a lot of other companies in different industries about oversized Sims and whatever.
This is true if anything should have shown like I mentioned in my closing comments that this market is as big as we talk about being as what you've seen from this business over the last year.
The adult segment of that part 2 which is a big part of that 500 million patients. So we talk about.
Alright, that's all from Joe and then you're just looking at least relative to our model.
Model and in the quarter it looks like most of the outperformance or disproportionate amount came from the Americas.
I'm sure that that's U S. But also maybe Brazil, and you've made some pretty strong comments in the past and what Brazil could do for your business in a pretty short window of time.
So just wondering if you can update us here on where you're at with expansion in Brazil, maybe how much of that market.
<unk> in particular is contributing to our sequential case growth.
Yeah, No statistics for Brazil continues to be strong I think you know it's the biggest static market was 1 of the biggest markets in the world. It parallels Iberia and a lot of ways is how we have to go into removed.
We're primarily in the orthodontics segment, they're not in the GP segment, right now and how we've done.
It's a different market that way because worth those play.
On a much more broader sense of net in that country than we do here, but we have a very experienced team. There we funded it well I feel good about our position from a product standpoint, and taro scanners and.
It's a big market force and net don't just think about Brazil.
On it in Latin America in general and it's been a big expanding market for us So Brazil leads because of the size population in this study as we talked about but overall.
Latam market is extremely strong and we're well positioned there John any thoughts about every day.
Alright, Thanks, guys alright. Thanks.
Our next question comes from Erin Wright.
Credit Suisse. Please go ahead.
Okay, great and sticking with that international topic can you speak to the growth in the quarter and in Asia Pac and what you're seeing across that market or are you still seeing from COVID-19 related lingering headwinds there.
And can you speak to some of the competitive landscape dynamics as well and then also your efforts in terms of expanding the consumer advertising expert across that that geography as well.
Hey, John This is John I can I can address that started that.
APAC day is important region for us a huge market opportunity we've invested as we've talked.
About with manufacturing and treatment planning and other places. We recently have added some advertising additional advertising in APAC and we see great results, where theres a lot of interest a lot of awareness that drives people come to our website and look for doctors and so on and we think that translates.
Well, we're very happy.
With the quarter.
For Q2.
You have you do have pockets of areas, where there's COVID-19 more of a COVID-19 impact southeast Asia parts of China. Other areas that we're always mindful of but when we look at the investments we're making the return that we're getting from those investments we feel really good about APAC.
Okay, and then how should we be thinking about the quarterly progression of the gross margin from here and the run rate going forward is this is there anything to call out in terms of mix or asps or some of those seasonal dynamics you were talking about that we should be thinking about as we think about the third and the fourth quarter gross margin trend.
Nothing.
Her note.
Dean that.
As we've history.
Drive utilization have more coming through our factories is very productive for us we're very mindful of the tradeoffs that affect our margin and youre seeing that come through so as we look at some of the investments that we're making and how we're going to market products that we have how we how we view things.
There's nothing that should be too.
2 different than what we've seen from a gross margin standpoint.
Okay, great. Thank you. Thank you Sir.
Okay.
Our next question comes from Jeff Johnson with Robert W. Baird <unk> co. Please go ahead.
Thanks, John Good afternoon, Hey, Hey, Joe how are you.
Couple of questions here I guess 1.
On the seasonality doesn't again I hate to.
Keep harping on that but.
You don't typically by this point late July you guys now no July numbers, you probably know pretty much what's what lined up for August given cases that are in treatment planning phase right now.
So are the seasonality comments drive driven by something you've seen so far in the numbers is it something that you're just expecting could come in late in the quarter is it focused on the adult side, just kind of any more color there would be helpful as well.
Hey, Jeff It's just it's based on our experience with the season I think you know you've been following.
Our business long enough third quarter is a real transition quarter.
From a vacation standpoint teams coming in here European vacations, which are really big and our comments are just reflecting what we're hearing from our customer base, our doctor basis, not just the United States, but all over the world and we're just trying to share that with you but at the same time the guidance that we have taken up you have to remember we're at the.
Upper end of our you know our growth modeling.
For the second half and when you think about it we've got 2 really strong quarters last year, Jeff third and fourth quarter. So it's just a lot of confidence in what we see and what we feel yes.
Yes, understood and then on <unk>.
John maybe for you.
It sounds like some of the rebating or some of the promotional activity I guess.
Say, maybe has stepped down just a little bit obviously, you were running some bigger trade in programs in that late last year and the early part of this year is that an opportunity then for asps.
To float a little bit higher into the back half of next year or does does other do other emotions pop up and just think about asps.
The straight line from here. Thanks.
I would say the latter I mean look there's always promotions that we're running to drive that right utilization and you try to find that right mix.
What we talk about it I think everybody gets it.
Thanks, Tom.
Brings to our bottom line so.
There'll be some tradeoffs, but I don't expect too much of a change in ASP.
And the way we've looked at it and just because some growth faster than others look at it from a comprehensive standpoint versus a non comprehensive standpoint.
To be relatively stable.
Understood. Thanks, guys.
To translate to gross margin and we feel good about the gross margin that is ultimately driving it and and our op margin.
Alright, John.
Our next question comes from John Kreger with William Blair. Please go ahead hi.
Hey, guys. Thanks, so much maybe just 1 more follow up.
If you've got any thoughts on how the teen season might differ this year.
I would assume that seasonality comment is mainly sort of 1 of an adult I'm curious.
It does it shaping up to be sort of a normal years, we assume schools are open again or maybe more spread evenly across the second half.
I think if you look at it John just from a standpoint.
There are unknowns around COVID-19.
Vacations and other things Covid 1 of them you know some some places we hear some of the countries and regions school is going to open up earlier, some are saying that it's later so we're just trying to be to be mindful that there's going to be changes that happened to this and tried to give as much information about that as possible.
Great. Thanks, John and then maybe 1.
Follow up on Asps it seemed like the year over year trend was different in comprehensive versus non comprehensive.
Could you just explain that again why would the comprehensive change have been greater than a non comprehensive then when you think about that metric longer term do you assume the trajectory.
Those chips or not because you had the biggest change from.
From last year to this year is really around the additional treatment that doctors were provided to remember last year. They didn't have as many new patients coming in but they were still keeping the existing patients along and treatment and it doesn't count as a new case they really.
He is someone says.
Additional revenue and therefore asp's are higher as a result of that Conversely, and now they focus more on primary cases and new patients coming in.
We see that shift we saw that shift really started in the third quarter of last year, it's kind of been progressed relatively steady from.
Just quarter on and that's kind of how we think if there is no. It's not a promotional change or there's nothing of that nature, which is really more just on how we're recognizing revenue between our primary shipment and any additional treatment that type of price.
Okay. It makes sense. Thank you. Thanks.
Thanks, John.
Our next question comes from Elizabeth Anderson with Evercore. Please go ahead.
Hi, guys. Thanks, so much good question.
Hey, So my question is in terms of the second quarter could you talk about how you saw volume progressing maybe.
The U S across the 3 months.
Yeah.
I think when we look at it.
This is John.
So we saw strength across our business.
Not going to get into kind of a month by month, but I think what we saw in Nissan and the print for a second.
Quarter, very strong across geographies products and so on and what we're seeing is a reflection of that with our guidance.
Okay that makes sense and then turning the cash flow I appreciate the cash.
I think this year it is largely a function of the new facility in Poland is that something that should continue on at that.
That kind of pace going forward or do you see kind of all of that wrapped up in this year's expense and that we should go back just to go from the more normalized level afterwards.
I think what you'll see with kind of the convergence of what we have now we have a lot of capacity that we're adding to meet the demand in the markets that we have and they have that unique event with Poland.
Kind of going on from a land purchase building and equipment that goes in and so this year will be a little bit heavy from that standpoint, and then going forward. It should just be more about the expansion and growth that way, but not as much as this year with the building as well.
Just Joe in your thinking about when we're talking about 200% growth.
Both rigs right and.
We're talking about growth rates on the upper end of what our revenue models. We can give it to you guys. So it requires capacity of that kind of investment it's.
It's a good question, but like John said.
We hit it hard this year build some more capacity and this will lay in over time.
No that makes sense, especially as you update all day.
Ahead of the growth so thank you.
Our next question comes from Liza Garcia with Wolfe Research. Please go ahead.
Hi, guys.
Yeah.
Hmm.
Digging into kind of how you're thinking about B M D.
The after tax engine, yeah, I've already that and kind of how is the opportunity building or even a couple of things.
Like for moving forward.
Strategic and Cat M.
So there's quite a bit.
Tom and I think close to just a.
Got it.
I guess the type of restorative platform for Dennis all around the world artificial <unk> for our business as we become a big part of restorative and saving enamel and moving teeth before you actually do implants, you need to do different things.
And that's what you know what.
We think as the revolution of orthodontics, because that wasn't a tool that was really just before.
And so <unk> plug in really well behind that never forget that our strategy is always about selling more invisalign, that's what actual cash about.
I was about to but they also have to have credibility as units in those segments and thats. When we talk about you know what we're doing with XO CAD and <unk>, we're expanding our technology, but always with a thought.
It'll work out.
So you use them or they want me. This day, just started yogurt PS hobbies and as day alone and indeed, they don't control of Asian doesn't go into M. P. No more synergies you can figure it out digitize from this type of South Florida.
However, we were pleased.
Okay.
I'm just wondering if you're hearing from customers about.
Mr.
No.
It doesn't have to it doesn't mean that we're not trying to vacate them when they do that.
But we haven't had that as an excuse of doctors, saying I cant do more cases, because they can't find staff, it's just harder to spend more time doing it.
The 1 thing that you do here and it's just the reality when we talk about some of that seasonality people take vacations or doctors on vacation as well as staff and patients so they might fall into that bucket as well.
Well 2.2.
Limit some of that staff at their offices.
Great. Thanks, so much.
Okay.
Our next question comes from Rich Hill.
SBB Leerink. Please go ahead.
Hey, guys, it's Jamie.
<unk> on for rich quick.
Quick question from me on <unk>, obviously, our JAK specifically within the ortho channel have been very bullish over the last couple of months.
And now with net representing greater than a third of total case shifts I is it fair to say now that Dean adoption is finally hitting.
That inflection point in the U S and if not kind of what are some of the things that you think.
They'll need to happen to really start to take on this sort of viewpoint.
It's Joe look I, just thought a tipping point and you know as you referred to it. This is something that's been a ground war actually and that ground wars.
Is it basically started with product liability and obviously with Invisalign first and Mandibular advancement in some of our other innovations that we've had we've really opened up that segment and made it available to us to.
Now that work is primarily with orthodontists to make I'm confident that they can service. These teams not just clinically but from a business standpoint.
Net income we bought into right now happy Merck funny sport rates from smaller and then some choppy breath like out different things, we've put into place and remember that it's the war here is not against you know other clear aligner companies, it's about braces and fixed appliances, and that's what we really have to break through and get done it honestly orthodontists.
And I feel like we're making progress on educating teams are educating mom, but on the other end educating orthodontists are how they can properly do this clinically and also be efficient in their practices and doing it and that's the groundwork part.
Just have to be comfortable not clinically, but also from a business standpoint.
I feel we're well positioned and obviously our numbers they were making progress, but there is we're not declaring victory here at all.
Got it and then just 1 follow up on back to kind of some of the more pronounced summer seasonality. If I look back kind of through 2017 through 2019. It seems like you guys have seen anywhere from you know flat to maybe mid single digit sequential improvement consensus is currently standing at something that would imply a decline.
Is there any reason to be thinking that it shouldn't at least fall within the bounds of the zero or flat to mid single digit improvement versus you know what consensus is currently I'm, implying which would be a decline just john.
And it got better calibration there yeah, Jamie this is John.
We're trying to give you color to the second half.
Total year and you can kind of get for what you know kind of infer what that means from third quarter and fourth quarter, but just trying to give you as much color without giving quarterly guidance is all of it.
Yeah.
Okay. Thank you.
Jamie.
Our next question comes from Michael Rice skin with Bank of America. Please go ahead.
Hey, guys.
Congrats congrats on the quarter on the guide raise.
I want to ask first on the I guess for John on the on the operating margin, especially on the non-GAAP side.
We had another really good.
But go ahead.
Awesome.
Or do you sat down and so I'm wondering Tom.
Got it thank you my standard.
It's an accelerator to the marketing spend how are those costs trending.
Quarter, the turn on that going.
Yes, it's a good question I mean look we're very pleased with their op margin that we've seen through the first half as you noted very strong performance a reflection of a lot of the investments that we made and we continue to make to help grow our business and we look at the second half is continuing these investments to expand from a.
How is that money into point, there's some you know the operating costs that we have to be able to grow our business like we have it reflects those investments and we're trying to continue to position ourselves. So that we continue momentum and be able to start you start next year with that momentum. So it's really more of a reflection.
Sales and.
As we go through the second half, we'll update on what that means for margin.
Okay, and then on the on the gross margin line again, just on the you've got the manufacturing facility in China, you're talking about the plant in Poland.
Up in 2022.
Could you give.
Of that day or sort of how we should think about rushing there in terms of shifting some of the manufacturing there and how that should work its way through the gross margin line when do those plants reach more or less full capacity and sort of.
You've worked through with the ramp up there.
Yeah, you're right Tom you know when we when we go live there is until you get that.
Give us that'll be up and we're really you know we know how to do that manufacturing we've learned as we've gone through some of the China facility ramp up that'll get applied to how we.
M ramp up in Poland will move doctors over kind of country by country and ramp things up that'll happen in the first half next year.
But very mindful of what it means from margin.
<unk> standpoint, and do everything we can to minimize that.
Inefficiency that you have when you first start up and be able to get those facilities up and running.
Near 100% capacity.
Yes, well 1 of the things that John and that was better than me on this from Michael listen when we ramped up.
Pass it remember we started with a rental temporary facility. It was not even close to scale and it has pounded our cost, but we just wanted to get in place to get the work flow down in vivo. A building next door that were area was then transitioned into it so that was a pretty big bump that we took there were not anticipating John right. The same great in that way that would happen Michael when.
China kind of quietly went live in Q2 of last year with that new Greenfield facility and it's all about running that day factory with the high utilization have inefficient labor.
Productivity, there that we know how to drive but there is some ramp up period, but we will look to that to kind of the first half and then.
See improvement as we go into the second half.
Okay fantastic. Thanks, Thanks, Mike.
Oh.
Our next question comes from Ravi Misra with bearing by capital market. Please go ahead.
Hi, Jim how are you doing Roger.
Alright.
I guess I have 2 questions 1 more on the R&D side and 1 on China. So just on the R&D you know 1 of your competitors announced a new polymer.
You know 1 of the things that's actually turned up in our checks with with where those are leases that smart track gives you an edge just curious on your.
Your view and whether that's kind of starting to have any sort of impact or is it too early and then how you plan to maybe position yourself.
Just to kind of keep ahead of the.
Tears and then secondly, just around China, I guess, it's another kind of competition question.
I guess your.
Largest but still you know relatively small competitor going public how are you kind of viewing that market now with kind of you know another I guess well funded a competitor out there in terms of the ability to grow the market or kind of go after potential segment of that market, whether it's the more luxury focused patient or how are you kind of segment.
If you were there thanks.
And Robin on your first question on the new polymer.
Okay original multilayer materials. So it has various polymers that you put together and we're balancing equation between elasticity in and an overall rigidity or a tensile strength in our.
Our other competitors are starting to figure that piece out.
See pieces of it we have a strong patents around smart track and obviously improvement over time is a real important part about not just having the right materials, but having the right kind of system in place.
That's a treatment planning part that we talked about 25 years of understanding how to really activate those of liners and make that plastic actually worked through those algorithms.
And we don't use a displacement methodologies, which is basically building a liner.
Leads things it actually engages with these things in a different way. So I expect more companies to come out and work different polymers or whatever we have a huge amount of experience that but don't forget about the entire system. The algorithms how it works together.
And how.
Those attachments did exactly so there's attachments, where you put those attachments are how they're shaped so a lot going on there we feel good about our position and we'll continue to innovate in that space across all those spectrums.
But there's nothing in the competitive marketplace that we are concerned with it would change the trajectory of where we're investing right now from a China competitive.
It works standpoint, obviously angel align IPO, we watch that closely and.
Give some clarity to everybody in that marketplace as the IPO to what's going on and I think you see they are strong in tier 3 cities are strong with public hospitals in different areas.
But look I feel good about our position in China, our manufacturing strong our training centers.
There are strong our treatment planning strong it's close to accounts.
Growth in the quarter overall, good sequential growth with year on year growth.
I like our position there John.
Moving to just to add in China, we've been competing in China with various companies since we've been there. So it is nothing new really with the with the IPO.
Veterans day like more of a reflection of this underpenetrated market in China, China is a huge opportunity for <unk> for clear aligner.
Business and so we feel very good about our positioning there is.
Primarily primarily cases are done with wires and brackets and so this is less about share shifting amongst clear aligner.
<unk> and more about growth in the category.
Yeah.
Thank you Tom.
Yeah.
Well.
And thank you everyone for joining us today, we really appreciate your time and look forward to speaking to you at upcoming financial conferences and industry meetings, including the international Dental show in Cologne, Germany.
September 'twenty through 'twenty, 5 where we'll be showcasing align extra cat innovations and a hybrid of multimedia exhibition space their physical and virtual experiences will also be hosting an investor meeting in conjunction with our GP summit in October in Las Vegas, and Nevada will have that October 29th.
30th So look for more information and if you have any additional questions. Please follow up with our Investor Relations Department, Thanks, and have a great day.
Yeah.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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