Q4 2021 Align Technology Inc Earnings Call

February 2, 2022

Greetings and welcome to the align Q4 'twenty one earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I will now turn the conference over to your host Shirley Stacy with align technology you may begin.

Thank you good afternoon, and thank you for joining us I'm, 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 fourth quarter and full year 2021 financial results today via Globe Newswire, which is available on our website at investor <unk> checked off.

Tom.

Today's conference call is being audio webcast and will be archived on our website for approximately one month. The telephone replay will be available today by approximately 530 P. M. Eastern time through 530 P. M. Eastern time on February 16th.

To access the telephone replay domestic callers should dial 870, 76606853 with conference number one <unk> seven to 595 zero followed by pound International caller 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 aligns 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, if applicable and our fourth quarter and full year 2021 conference call slides on our webcast.

Site under quarterly results. Please refer to these files for more detailed information with that I'll turn the call over to align technology's President and CEO , Joe Hogan Joe.

Thanks, Shirley good afternoon, and thanks for joining us.

On our call today I'll provide some highlights from the fourth quarter and briefly discuss the performance of our two operating segments services systems and clear liners, John will provide more detail on our financial results and discuss our outlook following that I'll come back summarize a few key points and open the call to questions. Overall I'm very pleased to report fourth quarter.

<unk> and another record year of full year for align.

Net revenues of 4 billion, an operating margin of 24 seven.

7% for both at the high end of our guidance for fiscal 2021.

Our systems and services full year revenues increased 94% over the prior year to a record $705 5 million for clear liners full year revenues increased 54, 5% over the prior year to a record $3 2 billion.

During 2021, we achieved several major installed base milestones, including our 12 million Invisalign patient 68, thousands <unk> scanner sold and 47, thousands XO CAD software license install.

Together. These elements are the foundation of the aligned digital platform proprietary combination of software systems and services designed to provide a seamless experience and workflow that integrates and connects all users doctors labs patients and consumers.

For Q4 revenues reflect continued strong growth and momentum for my Taro scanner services revenues, particularly in North America, offset by lower than expected Invisalign clear aligner revenues.

Through most of the fourth quarter, our clear aligner volumes were trending in line with our Q4 seasonality. However, the environment quickly changed in December with the rise of COVID-19, Omicron variant. We believe our Q4 clear aligner volumes were impacted by an increase in COVID-19 cases that cause customer lab shortages from our staff stay.

Endpoint practice closures or reduced hours and less patient traffic in December .

And that continued into Q1.

This compound and it already slower seasonal period for many practices and which offices took time often between the holidays. We estimate that our Q4 was negatively impacted by roughly three points of year over year revenue growth as a result of these factors.

Well there are some similarities to what we experienced two years ago. When COVID-19, first appeared especially in China.

Which currently has a zero tolerance COVID-19 policy. The environment. Today is total is today is different.

There aren't broad government mandated shutdowns stay at home orders are extended quarantines, but there is more consumer caution self imposed quarantines higher inflation less economic stimulus and supply chain shortages, which makes it more difficult to predict when a covering may occur Nonetheless, invisalign Doctor Submitters NK.

Submissions are improving we're working closely with our customers to support their needs and protect the health and safety of our employees.

For Q4 systems and services revenues were up 61, 3% year over year and up 21% sequentially with strong revenue growth across all regions.

Q4 results reflect the continued adoption of the <unk> element Fived plus imaging system, which we launched last year and the features innovative technology like near infrared technology with agent the detection and monitoring of Entoproct symbol caries lesions or cavities above the gingiva without harmful radiation the taro element <unk>.

<unk> imaging system represents 75% of Taro volumes in Q4. In addition over 50% of Vitaros scanner sales in Q4 were sold to first time scanner buyers, who are just beginning their align digital platform journey.

We also continue to see growth in our arterial scanner installed base with strong service revenues, which historically had been a leading indicator of increased digital adoption amongst doctors.

For Q4 clear Aligner revenues were up 16, 3% year over year with strong revenue growth across all regions and across the portfolio, including comprehensive and non comprehensive products as well as in Invisalign first and Invisalign moderate and Invisalign go products.

Our fourth quarter revenues also include noncash revenue for clinical training and education Doctor prescribed retainer products and other dental consumables during the quarter. We saw good performance from a retainer business overall delivering strong revenue growth along with increased enthusiasm for the Doctor subscription program pilot in North America.

As we mentioned last quarter, our share of the retention market is significantly underpenetrated, even more so that our share of orthodontic case starts.

We have been developing a robust retainer strategy, including a separate marketing team focused solely on driving adoption and increasing market share in the U S.

Our objective is to build brand awareness from avera retainers and drive engagement with doctors through clinical education and sales initiatives, while connecting consumers to doctors through demand creation programs and our concierge service. We have also recently implemented social media campaigns, featuring the benefit of a barrel from the makers of Invisalign.

Clear Aligner is we believe that incremental investments will increase value for invisalign practices and contribute to growth consistent with our long term financial model target.

Q4 noncash revenues also include accessories, the consumables such as align aligner cases, clam shells cleaning crystals, invisalign whitening pen and the other oral health oral health products that are available on our E Commerce channel, including the Invisalign accessory store, Walmart Dot com and Amazon Dot com.

We view these ancillary products is a natural brand extension, enabling patient and doctor behavior with the power of the Invisalign brand.

Our full year results reflect continued adoption and demand for both the Invisalign system, and <unk> systems and services and XO CAD CAD Cam software as more doctors transform their practices to digital the more consumers seek to transform their smiles through doctor directed Invisalign treatment.

Let's turn to the specifics around our fourth quarter results starting with the Americas.

For the Americas region full year 2021, Invisalign case volumes were up 57, 6% for Q4, Invisalign case volumes were up 11, 5% year over year, reflecting growth across the region, especially in Latam.

On a sequential basis American shipments were down seven 9%, primarily reflecting the impact of omicron previously described as well as the seasonally slower teen season from Q3 to Q4, we also saw higher GP and adult case volume and continued momentum from our Doctor subscription plan pilot.

In Q4, we pledged one 1 million donation to the American Association of Orthodontists Foundation, the charitable arm of the American Association of Orthodontists and supported the science of Orthodontics. We're also investing in education grants.

Programs to provide universities with greater access to all line products for education and training purposes through these programs our partnership with the Aligner intensive fellowship and the other in person educational programs, we're investing in the orthodontic profession.

Through the people, who care for and treat patients directly.

For systems and services Q4 was a strong quarter for Americas, driven by continued adoption of <unk> plus imaging system across customer channels, including our DSO partners.

Services revenues continued to grow nicely, reflecting the.

The growth of the <unk> scanner installed base in North America.

For the full year International Invisalign case volume was up 51, 6%.

For our international business Q4, Invisalign case volumes were up 10 seven.

7% year over year on tough comps compared to 2020.

On a sequential basis international shipments were up one 7% notwithstanding the impact of the omicron in December we still saw strong growth in EMEA offset somewhat by a seasonally slower period, primarily in China.

For the full year EMEA Invisalign volume was up 69, 5% for May at Q4, Invisalign case volumes were up 14, 9% year over year with broad based growth across all markets led by Italy, and Iberia, along with continued growth in our expansion markets in Turkey, Russia, Cif and Benelux for Q.

For year over year, Invisalign case volume in EMEA was driven by increased submissions primarily from the orthodontist channel.

On a sequential basis, despite the impact of Omicron EMEA Invisalign case volume was up 13, 6%, primarily as a result of strong ortho channel performance, especially in the teen market.

During Q4, we began commercial operations in Africa with our initial focus on North Africa, and then plan to enter sub Sahara Africa, and South Africa. This year further broadening our expansion markets in EMEA.

Its exciting opportunity for align and this untapped and expanding totally addressable market. We're also making great progress on building, our European manufacturing facility and work hard Poland, which will be our third global aligner manufacturing operation.

Europe manufacturing facility is on track to go live during the first half of 2022 further increasing our ability to efficiently provide the invisalign system to our valued doctor customers within European region.

For Q4, we saw strong scanner shipments during the quarter as more doctors in the EMEA region continued to digitize their practices.

For the full year APAC Invisalign case volume was up 27, 1% for Q4, APAC Invisalign case volumes led by Japan, Korea, and India were up three 4% year over year on tough comps. Despite continued Covid research surgeons is in lockdown sporadically impacting various APAC.

Countries, including China. We also saw strength in the GP dentist channel with increased Invisalign Submitters, and then the teen market with increased submissions from the orthodontic channel on a sequential basis APAC was down 15, 4% notwithstanding the impact of Omicron in December and Q4 seasonality in China.

Strong growth in Thailand, Southeast Asia, Taiwan.

Overall, it was encouraging to see record numbers of shipments to those markets in APAC that we're not as impacted by the most severe lockdown in Q4 systems and services in APAC saw the highest percentage of Vitaros scanners sold to new doctors.

Today, we announced new Invisalign systems innovations for the online digital platform, our proprietary combination of software systems and services designed to provide a seamless experience and workflow that integrates and connects all users doctors labs patients and consumers.

These new innovations include Chin, calling check live update for <unk> controls.

Invisalign practice, App, invisalign personalized plan or IPP and the Invisalign smile architect.

We believe they will revolutionize digital treatment planning for orthodontics, and restorative dentistry by providing doctors with greater flexibility consistency of treatment preferences in real time treatment planning access a modification capabilities.

Each of these innovations is designed to enhance invisalign treatment planning quality efficiency and scale and contribute to better doctor patient engagement and treatment outcome.

Then check live update for three D controls enables real time check treatment plan modifications that improve practice productivity significantly while also improving quality of treatment plans.

If Islam practice that provides mobile integration with Invisalign doctor site or ideas and enables doctors to manage their practices at their fingertips.

<unk> personal plan or IPP automatically applies a doctor specific treatment preferences for comprehensive cases, enhancing efficiency and step changing treatment planning consistency.

This lifestyle architect software.

<unk> is designed for GP dentist to create visualize orthodontic restorative treatment plans for their patients using <unk> digital scans.

And wide smile photos on the Invisalign go platform.

The technical design assessment, our go to market is scheduled for Q4 22.

We know that every invisalign trained doctor has distinct preferences every patient is unique and every treatment plan can vary depending on a variety of factors such as the type of malocclusion patient age and desired outcome because of that Doctor spend time planning reviewing in modifying their klimczak plans and it multiplies with practice growth.

IPP and couldn't print check live update for three D controls are game changing innovations that represent a step change in digital treatment planning to help doctors achieve more personalized klimczak treatment plans by using three D controls doctors can see greater efficiency with changes reflected in real time.

Invisalign Smile architect combines basically driven in ortho restorative treatment planning within the power of Quinn check software, providing flexibility across treatment planning to address a variety of patient needs whether it may be orthodontic restorative ortho restorative combine it allows doctors to share their vision with patients and huge digital.

Technology and tools to achieve the best quality clinical outcomes for their patients.

It is true the convergence of advancements in digital technology.

<unk> unique capabilities and Knowhow and data from millions of Invisalign patients that we're able to bring these new invisalign innovations to our customers this year.

The journey to deliver a quick check live update in Invisalign personal plan has taken thousands of combined person years of development testing and learning and.

It is only possible through the experience data and insights we have gained from over 12 million Invisalign cases.

Across our innovations. We're also using a combination of AI and automation to re imagine what the treatment planning experience looks like for a doctors Dr customers and augmenting their expertise and experience to help them create and personalize and modify invisalign treatment plans more efficiently and more consistently than ever before.

What used to take several days can now be accomplished in just a few minutes and it's a huge productivity win for doctors and their patients.

Our consumer marketing.

It's focused on educating consumers about the invisalign system and driving that demand to invisalign doctor's offices, ultimately capitalizing on the massive market opportunity to transform 500 million smiles.

Consumer interest in the Invisalign brand remains high and we are continuing to invest in building the brand in key markets and customer segments. This includes investments in social media as an effective channel to increase awareness and interest for Invisalign treatment. We're continuing to work closely with our media partners to reach consumers with the right creative and compelling campaigns optimizer.

Our buys and test new approaches in Q4, we continued to build on our successful and this is multimedia campaign across the Americas, EMEA and APAC drove awareness and interest in invisalign treatment with adult teen and parent consumer segments.

Globally, we delivered record impression volume with over 8 billion impressions, representing 84% year over year growth and $21 7 million unique visitors to our website, a 127% increase year over year.

In U S. We amplified our campaigns across the top social media platforms, such as Tictoc, Snapchat, Instagram and Youtube to increase awareness with teens about invisalign treatment. Our campaigns continue to feature some of the largest teen influencers from our Invisalign Smile squad, such as Collins, Devon key trial at <unk>.

And Michael weigh each of whom share their personal experiences with invisalign treatment and why they chose to transform their spouses invisalign aligner.

Our consumer marketing programs also include connecting with teens within gaming specifically on Twitch with a customized integration that was awarded the gold medal in the annual Internationalist Awards for innovation and digital marketing solutions to.

To continue growing our young adult business across the Americas, EMEA and APAC, we build upon our successful envisages a powerful thing campaign, which highlights the power of Invisalign treatment transformation for every young adult self confidence our integrated media plans across Youtube Snapchat, Instagram Facebook and Tic Toc conducted with young adults in the meat.

The channels they consume the most in Brazil, we continue to amplify our envisage a powerful thing campaign, featuring Mega Influencer type E Suraj real driving a 400% year over year increase in web traffic.

And you May you May a region, we successfully expanded into new markets, such as Italy, the Netherlands to complement our integrated media plan with Google and Youtube. We also leveraged newer media channels, such as tick tock and Snapchat to drive engagement with consumers, resulting in more than 170% year over year increase in unique visitors.

We continue to expand our investment in consumer advertising across the APAC region, resulting in 192% year over year increase in unique visitors and a 235% year over year increase in impressions, we continue to strengthen our investments in Australia, leveraging leading influencers featured in premium placements and Tic Toc and also Youtube.

In Japan, we continue to see strong response from consumers as evidenced by 117% year over year increase in unique visitors.

Lastly, we expanded our advertising investments in India, and Taiwan, which generated a strong consumer response, we saw 200% and 628.

<unk> increase in impressions, and a 470% and 116% increase in unique visitors to our websites and India and Taiwan, respectively.

Adoption of our consumer and patient at my Invisalign continues to increase with $1 4 million downloads to date usage of our four digital tools continues to increase for example in addition to my Invisalign just mentioned the Invisalign virtual appointment tool was used over 14000 times and our insurance verification feature was used.

4000 times in Q4.

Further globally, we received more than 45000 patient photos that are virtual care feature globally, which continues to provide us with rich data to leverage our AI capabilities and improve our services for doctors and patients.

Our systems and services business Q4 revenues grew 61, 3% year over year, reflecting strong scanner shipments and services up 21% sequentially.

This is the sixth consecutive quarter of sequential revenue growth for our systems and services business.

And as mentioned earlier over 50% of scanner sales in Q4 with the first time at Taro scanner buyers were pleased to see doctors continue to go digital and invest in the online digital platform.

Tara element 50, plus imaging system continued to gain traction across all regions with the most recent launch in China during Q4.

The series expands our portfolio of <unk> element scanners and imaging systems to include new solutions.

More broadly serve the needs of doctors and patients in the dental market.

A strong indicator of digital acceleration within the dental offices, it's a number of intra oral digital scans used for Invisalign case submissions.

Total worldwide in oral digital scans submitted to start an invisalign cases in Q4 increased to 85, 4% from 79, 3% in Q4 last year.

International Inter aural digital scanners for Invisalign case submissions increased 88% up from 73, 7% in the same quarter last year.

For the Americas 89, 1% of Invisalign cases were submitted using an inner oral digital scan compared to 84% in the same quarter last year.

Cumulatively the over 50 million orthodontic scans and $10 3 million restorative scans have been performed with <unk> scanners.

With continued growth of the <unk> scanner.

At 68000 scanners are sold worldwide as of Q4, approximately 30% as services revenue, which includes reoccurring revenue subscriptions cadcam software and ancillary products.

We continue to make improvements in our scanner and imaging systems, making <unk> systems and services, an integral part of orthodontic and GP dentists workflow for.

For example, we streamlined the Invisalign case submission process with the <unk> element Fived imaging systems auto upload functionality.

Turning to XO CAD.

For Q4 systems and services revenues also include extra CAD, CAD Cam products and services extra cads expertise in restorative dentistry implantology guided surgery and smell design extends our digital dental solutions and broadens aligns digital platform towards a fully integrated into disciplinary end to end workflows.

Cumulatively as Q4 ex Cat now has over 47000 software license worldwide during the quarter XO Cat announced the release of chair side CAD three point O Galloway.

It's a next generation of easy to use CAD software for single visit dentistry with this new release extra cat offers dentists design tools for a vast range of indications with a wide choice of integrated devices.

Also during the quarter ex Ocado announced the availability of chair side CAD three point, though Galloway software in the U S and Canada, where the software is now available in North America, EU and other selected markets.

<unk> chair side CAD is groundbreaking open architecture CAD software for single visit Dentistry. It received the 2021 seller in best of Class Technology Award from Celebrant consulting group during the quarter as well. This is the third consecutive year that cheer side Cat has been recognized for this award with that.

I'll now turn this over to John .

Thanks, Joe now for our Q4 financial results total revenues for the fourth quarter were $1 $31 1 million up one 5% from the prior quarter and up 23, 6% from the corresponding quarter a year ago for clear liners Q4 revenues of $815 three.

Yeah.

We're down to 7% sequentially due to lower invisalign volumes, partially offset by slightly higher asps.

Up 16, 3% year over year, reflecting invisalign volume growth across all geographies and higher asps.

In Q4, we shipped $631 1000, Invisalign cases, a decrease of three 7% sequentially an increase of 11, 1% year over year. In addition, we shipped to 83 5000, invisalign doctors worldwide of which over 6400.

Were to first time customers.

Q4 comprehensive volume increased 13, 1% year over year and decreased four 5% sequentially.

And Q4, non comprehensive volume increased six 6% year over year and decreased one 7% sequentially.

Q4, adult patients increased 10, 4% year over year and increased 0.1% sequentially in.

In Q4 teens or younger patients increased 13% year over year and decreased 11, 8% sequentially.

Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $11 4 million or approximately one four points sequentially on a year over year basis clear aligner revenues were unfavorably impacted by foreign exchange of approximately $1 $5 billion or approximately zero point.

Two points.

For Q4, Invisalign comprehensive asps increased sequentially and year over year on a sequential basis Invisalign comprehensive asps reflect higher additional liners, partially offset by unfavorable foreign exchange and higher discounts on.

On a year over year basis comprehensive asps reflect higher additional liners, partially offset by higher discounts.

Q4, Invisalign non comprehensive asps decreased sequentially and increased year over year on a sequential basis invisalign non comprehensive asps were unfavorably impacted by foreign exchange, partially offset by higher additional liners on a year over year basis Invisalign non comprehensive asps.

Reflect higher additional liners and product mix, partially offset by higher discounts.

Clear aligner deferred revenues on the balance sheet increased $68 5 million or six 9% sequentially and $332 $9 million or 45, 8% year over year and will be recognized as the additional liners are shipped.

Our systems and services revenues for the fourth quarter were a record $215 $8 million up 21% sequentially and up 61, 3% year over year. This marks the sixth consecutive quarter of sequential revenue growth.

The increase sequentially can be attributed to increased scanner shipments and increased service revenues from our larger installed based.

The increase year over year can be attributed to increased scanner shipments increased service revenues from our larger installed base as well as higher asps from the favorable mix shift towards higher priced <unk> scanners and imaging systems our.

Our systems and services deferred revenue on our balance sheet.

It was up $42 $6 million or 22, 8% sequentially and up $116 $2 million or 102, 6% year over year, primarily due to the increase in scanner sales ended differ.

And the deferral of services revenues, which will be recognized ratably over the service period.

Moving on to gross margin fourth quarter overall gross margin was 72, 2% down two one points sequentially and down <unk> nine points year over year on a non-GAAP basis, excluding stock based compensation expense and amortization of intangibles related to acquisitions.

Overall gross margin was 72, 6% for the fourth quarter down two one points sequentially and down <unk> nine points.

Year over year overall gross margin was unfavorably impacted by approximately 0.1 points on a year over year basis and by approximately 0.4 point sequentially due to foreign exchange.

Clear aligner gross margin for the fourth quarter was 74, 2% down two points sequentially due to higher freight costs and additional liners, along with lower primary shipments, partially offset by higher asps.

Clear Aligner gross margin was down 0.6 points year over year due to higher additional liners and higher freight costs, partially offset by higher asps and improved manufacturing absorption due to higher volumes.

Systems and services gross margin for the fourth quarter was $64 964, 7% down <unk> nine points sequentially, primarily due to higher freight costs and increased component costs, partially offset by higher asps from five D plus mix and higher service revenues just.

Services gross margin was up 0.4 points year over year due to higher asps from higher mix of <unk>, plus and higher service revenues, partially offset by higher freight costs and increased component costs. We are actively engaged in activities to mitigate supply disruptions by.

Expanding supplier communications modifying our purchase order coverage and increasing inventory levels for key components.

For operating expenses were $523 $7 million up sequentially, 6% and up 31, 8% year over year on a sequential basis operating expenses.

We're up by $29 $7 million.

Year over year operating expenses increased by $126 $4 million, reflecting increased head count and our continued investment in marketing sales and R&D activities and other investments commensurate with business growth.

non-GAAP basis, excluding stock based compensation and amortization of acquired intangibles related to certain acquisitions.

Operating expenses were $494 4 million up sequentially, six 1% and up 32, 8% year over year due to the reasons described earlier.

Our fourth quarter operating income of $229 million.

It resulted in an operating margin of 21, 4% down four three points sequentially and down four one points year over year, the sequential and year over year decreases in operating margin are primarily attributed to lower gross margin investments in our go to market.

Teams and technology as well as unfavorable impact from foreign exchange.

On a non-GAAP basis, which excludes stock based compensation and amortization of intangibles related to certain acquisitions operating margin for the fourth quarter was 24, 7% down four one points sequentially and down four 3% points year over year.

Interest and other income and expense net for the fourth quarter was a loss of <unk> $9 million down sequentially by $1 $7 million.

And down year over year by $2 2 million.

The GAAP tax rate for the fourth quarter was 13, 2% compared to 39% in the third quarter and 25, 9% in the fourth quarter of the prior year or.

Our non-GAAP effective tax rate was 11, 5% in the fourth quarter compared to 22, 2% in the third quarter and 14, 5% in the fourth quarter of <unk>.

<unk>.

Fourth quarter fourth.

Fourth quarter, the fourth quarter, GAAP and non-GAAP effective tax rate reflected an out of period adjustment, which reduced our tax rates by seven 3% and six 3%.

Respectively.

Fourth quarter net income per diluted share was $2 40 up sequentially 12 sets and up 40, <unk> compared to the prior year on a non-GAAP basis net income per diluted share was $2.83 for the fourth quarter down 4% sequentially and up 22 cents year over.

A year.

For the full year net income per diluted share was $9 69 sets down $12.72 year over year due to the onetime tax benefit in 2020 of approximately $1 $5 billion associated with our corporate structure reorganization completed during the first quarter of 2020.

On a non-GAAP basis net income per diluted share was $11 22 for the full year up $5.97 year over year.

Moving onto the balance sheet as of December 31, 2021, cash cash equivalents and short term and long term marketable securities were $1 3 billion.

Up sequentially, $58 $8 million and up $335 $8 million year over year of our $1 3 billion dollar balance $582 9 million was held in the U S and $713 8 million was held by our international entities.

Q4 accounts receivable balance was $897 $2 million up approximately four 9% sequentially. Our overall days sales outstanding was 78 days up approximately three days sequentially and up approximately seven days as compared to Q4 last year.

Cash flow from operations for the fourth quarter was $272 8 million capital expenditures for the fourth quarter were $109 $1 million, primarily related to our continued investment in increasing aligner manufacturing capability or the capacity and facilities.

Free cash flow defined as cash flow from operations less capital expenditures amounted to $163 $8 million.

In November 2021, we purchased $100 million of our common stock through an accelerated share repurchase which was approximately 0.2 million shares at an average price of $666 53 per.

For sure we.

We have approximately $725 million remaining available for purchase under our May 13, 2021 $1 billion repurchase program.

Before I move to our outlook I would like to make a few comments on our full year 2021 results.

In 2021, we shipped a record $2 5 million Invisalign cases up 54, 8% year over year. This reflects 51, 6% volume growth from our international doctors and 57, 6% volume growth from our Americas doctors total revenues were a record $4 billion up.

59, 9% year over year with clear Aligner revenues, a record $3 $2 billion up 54 five.

5% year over year, 2021 systems and services revenue were a record $705 5 million compared to 370.

$5 million in 2020.

Up 94% year over year.

Full year 2021, GAAP operating income of $976 $4 million was up 152, 2% versus 2020 and operating margin at 24, 7%.

First is 15, 7% in 2020 on a non-GAAP basis 2021 operating margin was 27, 9% versus 23% in 2020.

2021 interest income and other income and expense net of.

$36 million included the Smile direct club Arbitration award gain of $43 $4 million, excluding the Smile direct club Arbitration award gain interest and other income and expense was $7 4 million dollar expense on a non-GAAP basis.

With regards to full year tax provision, our GAAP tax rate was $23.

7% full year tax rate on a non-GAAP basis was 18, 5% compared to 17, 6% for 2020.

2021 diluted EPS was <unk> <unk>.

$9.69 on a non-GAAP basis 2021 diluted EPS was $11 22.

Free cash flow was $771 4 million for 2021 up $264 $2 million versus 2020.

Overall, we are pleased with our Q4 results and another record year for align we delivered strong growth and profitability in line with our guidance. Despite disruptions late in the quarter from Amazon and other factors. Our Q4 revenue year over year growth was within our long term model despite disruptions impacting roughly three.

<unk> of growth, we continued to see strong momentum and demand for our systems and services throughout Q4 with the majority of scanners being sold to first time buyers. We believe this is a good leading indicator of future invisalign growth as our customers continue to invest in digital technology, even during COVID-19 .

Let me turn to our outlook, we would normally expect sequentially higher invisalign revenues and lower systems and services revenue consistent with the typical Q1 seasonality. However, due to the continued impact of I'm a crowded into Q1, we now expect our total Q1 revenue to be slightly down sequentially.

We remain confident in our strategy, our huge underpenetrated market opportunity, our industry leadership and our ability to execute these factors have guided our approach throughout the pandemic, where we continued to invest in new technology commercial expansion and manufacturing capabilities to drive our growth we plan to continue these investments.

In Q1, and therefore expect our Q1 operating margin to be less than 20%.

In addition, during Q1 2020.

2022, we expect to repurchase up to $75 million of our common stock through either a combination of open market repurchases or an accelerated stock repurchase agreement.

Turning to full year 2022, despite omicron headwinds, we expect 2022 revenue growth to be in line with our long term model range of 20% to 30%. Our 2022 guidance assumes no significant new COVID-19 surges. After the current wave no meaningful practice disruptions nor material supply chain.

Issues throughout the year.

On a GAAP basis, we anticipate our 2022 operating margin to be around 24% on a non-GAAP basis, we expect 2022 operating margin to be approximately three points higher than our GAAP operating margin after excluding stock based compensation and intangible amortization from certain acquisitions.

For 2022, we expect our investments in capital expenditures to exceed $350 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 a clear aligner manufacturing facility in World car, Poland, which is expected to begin serving doctors in 2022.

As part of our strategy to bring operational facilities closer to customers with that I'll turn it back over to Joe for final comments Joe. Thanks.

Thanks, Sean.

We look back I wanted to take a moment to recognize their accomplishments and thank our employees and our customers for another remarkable year in the face of ongoing challenges related to COVID-19, and economic uncertainty we remain steadfast in our commitment to our employees customers and the focused execution of our strategic initiatives and our customers remain confident in our.

Ability to support them.

Operating in this environment has not been easy, but after two years of navigating uncharted waters. The align team is more agile and resilient than ever.

In 2021, we met our goals and achieved numerous milestones globally, we delivered across each of our strategic priorities, which are highlighted in our Q4 'twenty one webcast slides.

Our performance over the last year reaffirms the incredible sides of our target market and demonstrates that our strategy investment in recent years are validated by the trust and faith, our customers place in us.

In 2022, we must continue to extend our leadership in digital orthodontics and restorative dentistry through relentless execution of our strategic initiatives focusing on expanding our commercial manufacturing R&D clinical treatment planning and manufacturing operations and building, our quality and regulatory muscle globally and existing and emerging.

That's reaching millions of consumers, who want to transform their smiles using the most advanced clear aligner systems in the world through the right investments in advertising PR digital social media and Influencer marketing to drive demand and conversion to Invisalign trained doctors.

Misaligned ortho adoption in teen utilization of Invisalign treatment and training and educating GP dentists on how the <unk> element family of Innerwear scanners in imaging systems can propel today's dental practice into the future by enhancing patient experience and elevating clinical precision and on the benefits of digital dentistry with the <unk>.

This line system trusted by more than 12 million people worldwide to transform smiles we.

We remain mindful of the ongoing uncertainty surrounding COVID-19, and the challenges that go with it.

There is still uncertainty has become increasingly clear over the last year with the first spread of the Delta variant now omicron that COVID-19 may never fully go away. It may be a virus that persist one variant form or another and for the foreseeable future and like other viruses newer different vaccines will be needed and new therapies.

Can be developed to minimize the impact and treat COVID-19, more effectively and our most vulnerable populations. The gravity of living with Covid is one of the governments businesses and communities all over the world are beginning to acknowledge and move towards out of line. We will do the same.

Closing I want to share some thoughts that I express to our employees recently.

What we learned in life, both in business and our personal lives is that were not fully in control of our environment and Destiny. This is a fact of life that we face every day, but not being in control does not mean that we can't make good choices, regardless of the situation or challenges. We all face we must look forward focus on the opportunities.

Align has 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.

Leading the evolution of digital worth a daunting and comprehensive dentistry.

We never forget the digital orthodontics presents the fastest growing and largest market in the world of medical devices. We have the greatest clear aligner system scanners, GP lab software in the world and the broadest and deepest digital dental platform.

We have the most recognized consumer brand and the largest direct sales force in the dental space with over 4000 salespeople supporting over 212000 doctors in labs and their staff, we have incredible skills and dedication to their patients. We have an amazing team of employees committed to our purpose. It's a unique opportunity unlike anything I've ever seen.

In my career.

Both continue to grow in line and be part of a positively changing millions of lives by transforming their smiles. Thank you for your time today look forward to speaking to you again as the year progresses now I'll turn the call over to the operator.

Operator.

At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from the line of Nathan Rich with Goldman Sachs. Please proceed with your question.

Thanks, and good afternoon.

Joe Thanks for all the details on the outlook.

You called out the 300 basis point headwind from Covid in the quarter with the impact I think concentrated in December so maybe a bit higher.

As we think about what the headwind was exiting the year.

Could you maybe.

Talk about how the impact in January as compared to what you experienced in December and can you maybe elaborate on what you've seen in recent weeks I'm just looking for a sense of maybe where January is trending and kind of what youre assuming for the balance of the quarter to get you to the guidance that you gave for <unk>.

Hi, Nathan Hey, look we saw when we talked about in December .

Well you know we had a rapid decrease.

Through Covid, but what we've seen as we've gone into Jaron January is just a progressive improvement.

And we feel good about that we feel it's moving in the right way and it's a direct correlation we track it around the country with.

What what's going on with omicron in certain states in certain regions and remember this isn't just United States you've seen this all over the world we see it in APAC and we see it in Europe , too and we track it.

Okay, and maybe just building on that at a high level Joe do.

Do you feel like the slowdown I guess, it's primarily a supply issue just given the practice closures and lockdowns and staffing issues that you cited versus the demand issue because I think in your prepared remarks, you also mentioned some impacts from inflation and less stimulus. So I'd just be curious to kind of get your thoughts there.

No. We don't see this as a demand issue I mean, we look at the market as we always have and that's why we reasserted our 20, 30% growth.

Growth rate for this year. So this is not a demand equation issue or you call. It a supply, but I'd call. It demand from a patient standpoint, we can see.

Its patients and doctors in the sense of cancellations availability and all those things that Covid is.

As impacted around so we remain very confident that's.

That's why you see us to continue to make investments in things we announced today.

So we feel really good about the business, we just have to get.

To get through this first quarter, but we talked about and.

We'll move on we feel really good about it.

Great. Thank you.

And our next question comes from the line of Matt <unk> with Credit Suisse. Please proceed with your question.

Hi, Thanks, so much for taking the question.

Just maybe a follow up on that question.

On planning assumptions around your Q1 comments in 2022 guidance.

Maybe Joe if you could just.

Give a sense as to how you mentioned improvements in early January .

Is this kind of sluggish recovery.

Wrapping up by the end of the quarter is Q2, the inflection to help you get to that 20, 30% growth that you mentioned.

And then and then just if I could also on a similar topic.

The idea that.

That somehow there is.

Yeah, and I think many of the folks on the call I've heard this idea that somehow there was outsized growth through <unk>, we're sort of digesting that somehow now which.

I know as you sort of one of the ways that folks look at.

And in a liners and so on if you could maybe just talk about your confidence that.

Once we get through the staffing.

Is that the demand that's in front of any of the growth drivers that you are leaning in on top of your core markets.

Yes.

We're not looking to digest, some sort of outsized growth during the pandemic here in 'twenty, two but we're getting back to growth market that is still highly underpenetrated sorry for the lengthy two part question, but.

You hit it.

We understand the basis of your question, Matt Damon is that sort of it's not a problem in that sense look as I've mentioned before we're really confident demand equation in the sense of clear liners in invisalign.

What we're experiencing right now is.

Obviously AR.

Somewhat of a slowdown in our order demand pattern.

Based on what we see through the virus, that's going on around the world.

As soon as that clears and we see a clearing around the world and as I mentioned, we see January improving over December .

Competent and demand models that we've expressed for this business over the last several years.

Thanks, so much.

And our next question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks, so much for your question.

So the first thing I think you you obviously talked about some of the increased investments that youre, making on marketing and also in sales capacity et cetera.

How do we think about the conversion efforts and those initiatives versus sort of prior and entered a where do you sort of see that hitting in terms of as we're thinking about the pacing of the year.

Okay.

Yes, I mean, the pacing of the year I mean, we continue to invest as we mentioned John mentioned I mentioned two in marketing, where we invest we understand the returns that we get no matter, what the country is or what kind of immediately use.

In order to go after consumers. So we've been very consistent in the sense of that investment in and.

And we move money around based on where we see the most opportunity John .

As we as we mentioned we added some sales resources in Q4 to get ahead of this.

Sales territories and changes and so on we saw that show up in Q4, but it really gives us.

The opportunity then to be able to grow as we get into this year. So it's continued investments to drive the biggest return and that's what we'll continue to do.

Okay. So it sounds like maybe no change in sort of the pacing that we've been seeing before.

Maybe as a follow up I know you, obviously highlighted that the total growth of the company.

20% to 30% range do you also see that the case growth on a year over year basis would be above 20% as you look out at this point.

We'd expect it to be similar when we talk about a 20% to 30% we're talking about revenue for the entire company but.

They would be similar.

An outlook standpoint.

Okay. Thank you.

Thanks Melissa.

And our next question comes from the line of Jon Block with Stifel. Please proceed with your question.

Hey, guys, Great, Hey, Joe Hey, John Good afternoon.

<unk>.

Maybe just the first one the op margin compression year over year to $24 seven ish gap that is to the 24, maybe you could talk to that John I wish I was initially just going to say, it's a gross margin thing with scanners likely to grow much faster than case falls, but to Elizabeth's question. It seems like you expect both to be.

Within the guard rails of 20% to 30%. So is it more a function of you guys just sort of call it running a little bit harder on the Opex line to drive that case volume on why we would see that year over year O&M compression again, I'm, just referring GAAP to GAAP for apples to apples.

I think John it's continued investments like like we have with the storage continuing to invest that we have and being able to be able to grow into this market. So I think when we look at it overall, we're kind of pegging that the GAAP rate to be at 24% for.

For 2022, and we'll reevaluate and update as we go forward, but it has continued to invest we've got as you know.

Poland facility going live in 2022, and we have some some of those moving parts that will impact our gross margin slightly as a result of that but and that translates to op margin, but those are the initiatives that we have but nothing out of the ordinary that we've done in the past.

Okay.

This next one is going to be long, probably two cars, but maybe could you get people comfortable with the fact that if you look at your two Q3 Q4 'twenty one case falls in the implied guidance for <unk> to get the 20% to 30% can you just volumes for the year youre going to have to ramp sequentially into Q3, Q <unk> of 'twenty two.

Maybe if you could talk to that and then the other sort.

A third question if you would've admittedly as I am confused on the three point so in for Q was impacted by three points of growth why don't you recapture I don't know two or three points of that in <unk> 'twenty, two where are those cases going through.

Im showing up in the next possible quarter. Thanks, guys.

Yeah.

I think I'll, let me start with the last part of your question John When you think of what's happened in the world with with Abercrombie and the effects of that it's affecting parts of the world at different different basis, you'd see we even within the U S. Northeast made me get <unk>.

With it first it starts to open up later.

After that maybe other parts of the country get impacted so it's not like it just happened and you immediately get it back it comes down to when people are able to go to work in this case, a doctor's offices to be able to provide care and then it comes down to when patients feel comfortable to be able to go back in and so it's not an immediate.

<unk>.

Effect and how we look at it so think of it.

And what we've learned from a kind of Covid one point O. The first time, we saw this we know that there is an impact and then there's a recovery period and that's our best view of that recovery.

Hey, Jonathan Fair enough about your other part about you have to rip the rest of the year.

We understand that I mean, we've modeled it out.

Remember our comparisons are a little a better second half than they were first half when you look at what we did.

In 2021 in the first half of the year so.

Look we wouldnt make a prediction if we didn't think it was feasible based on what we've seen and what we model.

Fair enough thanks, guys.

Thanks, Dan.

Our next question comes from the line of Jeff Johnson with Robert W. Baird. Please proceed with your question.

Jeff. Thanks, Good evening, Hey, guys. How are you hi, just.

Just a couple of questions here for me I guess, one Jon in 2021, you guys were talking about being within your LP, but at the upper end of that do you want to put any quality buyers on kind of the LLP for 2022 feels like kind of low end, given where <unk> is starting but one do you want to put any qualifiers around where within that <unk> expect to be.

And to just go back to the last two questions.

I feel like I am.

On top of my 10 year old Kid here, so apologies, but I'm going to give you one more chance do you feel like case shipment.

They'll grow within that I'll RFP this year too not just revenue because you've got.

Some of the new.

Products are selling plus you've got.

<unk> growth not the case shipments also can be within that 20%, 30% <unk> I just want to make sure I'm hearing that correctly.

Yes, I can answer.

Both of those Jeff in terms of the 20% to 30, we're not going to call kind of high low of that word.

We are reaffirming our 20% to 30%.

Similar to what we talked about it at Investor day. Despite some of the things that we've talked about here with Amazon and some of those COVID-19 cases, and so on.

But when we look at Invisalign case volume, we would we would expect to be in about that range. So.

Nothing nothing out of the ordinary from what we expect we don't see a.

Our asps were very similar to what they were in the prior quarter.

Provided that there is not.

FX or other things that we're not projecting now and if there is no change there we.

We would expect to be in that range as well.

Fair enough and then Joe maybe kind of just update us on kind of the competitive landscape.

A couple of DSO contracts now.

Announced here from others.

In the last few months and maybe you can talk over in China about some growing competition or slowing end markets and that's where do you see your end markets across the globe from a competitive standpoint would just love to hear your update there.

Yeah, Jeff I think from a competitive standpoint, nothing's really changed.

As we look out there you can see the tech we just we just announced this week, we move on the sense of our capabilities, what we can do.

My position has always been that competition isn't really affecting us from a price standpoint, I think you see that in what we're doing.

But they do serve to broaden the market and increase the market and make an increase the awareness. So we.

We feel we are in this kind of competitive environment, we're doing well and we lead in this sense and there is nothing as we go into 2022 that I'll reflect on its change competitively than what I've seen over the last three years.

Understood. Thanks, guys.

Thanks, Jeff Jeff.

And our next question comes from the line of John Kreger with William Blair. Please proceed with your question Hey, Thanks very much.

Two quick ones for you I think you said that the receivable dsos were up about seven days year over year can you just expand on that was that were you, providing some extra and inducements to practices or anything to be concerned about there.

Nothing to be concerned.

We're in a fortunate cash position as a company to be able to generate a lot of CFO and free cash flow and in working with doctors to be able to.

Give them more flexibility, sometimes we'll extend payment, but we've actually seen historically low about of past dues.

We've gone through this through this time period in 2021, so we feel very comfortable with that is just working with doctors to kind of meet their cash flow needs, but nothing out of the ordinary.

Okay, great. Thanks, and then one other one to clarify I think you said that you expect the EBIT margin to be under 20% in the first quarter was that GAAP or non-GAAP .

That's GAAP.

Thank you Scott.

Thanks, Joe Thanks, Tim.

Yeah.

Our next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Hey, good afternoon, thanks for taking the questions today either.

Joe just real quick can I.

Ask whether you can confirm you said January improved over December I thought I heard you say that earlier in the call or is it just that the January trend lines showed improvement as the month unfolded, sorry for just clarifying that something nuance like that here.

Yeah.

Yes, I think that's to clarify Jason it.

The month and showed improvement versus December it was yes.

It's how COVID-19 spreads across whether it's one country or parts of countries and so on and.

How it affects the staff and how it affects the patient's in.

As we exited were in a better.

Trend line, then we started to bundle with.

Okay understood. Thanks for that and then maybe as a follow up to an earlier question really for Joe or John I know you often talk about the internal investments you keep making the business you've talked about running a similar growth algorithm here in 'twenty two as you have in the past, but we also have two different case examples here of the market with pre COVID-19 onto those resources were helping.

Resourcing this business and another significant way here in 'twenty two how would you approach how do you approach. It for this year from a sales force and marketing plan and whatnot is it are you really with respect to how youre thinking about the adult <unk> mix that you are expecting for this year.

I mean.

It's Joe Jason I mean, Theres no big change in a sense of what we think the critical drivers are that we have to invest in to drive growth.

Where we invest and how we invest is really important when you look at technology. When you look at consumer pieces.

However, parts of those demand inflation do you want to go to but remember there are certain ratios that we always hold true in this business is that what we invest in and we hold ourselves accountable for those ratios in that performance from a profitability standpoint, but I can't I can't overstate the importance of having a strong sales force we talked about additional salespeople who are putting in place.

The our consumer brand means a lot in the sense of our growth.

And that's becoming more and more sophisticated in the sense of where we spend those dollars and how we spend those dollars, but leading in technology you have to have technology in this business and that's all we are excited to really announce what we did today and we've been working on these programs for three years or more.

And these are game breakers, and a sense of how you interface with a doctor and our doctor interface of the patient.

And I would just add to that Jason.

We're investing with that return on investment in mind, that's how we look at our long term growth model and when we make investments we have that it might in some countries, you're going deeper youre, adding more salespeople to get closer to doctors and really tried to drive that utilization and other areas, where you don't have a direct sales force youre, just adding and just trying to get the breath.

And then we've been talking about a lot of the marketing activities and other things that we do to drive that awareness and some of those markets and coupled with the research and development investments some of it operations again to get closer to our customers like in Poland. So its a multitude of investments, but we look at it with how do we generate the.

The best return and there's multiple different ways that we do it across these functions.

Alright very helpful. Thanks, so much.

Thanks, Jason Operator, we'll take one more call. Please.

Sure.

The last question. We have is from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Great. Thanks for squeezing me in John you talked about freight cost for few quarters now.

Any chance you're planning a price increase this year to help offset some of that it's been a few years since you've taken less pricing.

Yes, it's a good question and we are seeing Friday afraid.

Just like many companies have we have a lot of plans in place to drive productivity. The operating team is very aware of our cost inputs and where we can drive productivity getting closer to our customers like we talked in Poland. Once we get there.

<unk> will be a freight savings once we're operational there and that'll help.

But we haven't.

We haven't really.

Finalized any plans on a price increase we will evaluate as we as we as we go through and the first people that we talk to would be our customers, but you are right. We we understand.

Price is important but we're also very sensitive to our customers and what they've had to go through as we've been on this COVID-19 journey. So nothing nothing in the works now.

Okay, and then Joe on Ontario.

I appreciate the detail as far as more than 50% of placements being new buyers I would actually expect that to be normally the case, what's the relevant key.

That metric is that up a lot compared to historical levels and what percent of those placements are being used for invisalign case submissions.

Okay.

Over the years, you know Brandon we've always seen that correlation that we've communicated to you in a sense. If you sell more of Taro scanners, you sell more invisalign.

Obviously, you know the front end of our digital system and it works.

No of course really well, we just have to decide that to 50% because one you saw we had a very strong fourth quarter for a brighter and we always have strong fourth quarters was this was exceptional in that sense. It was a good signal from.

The practices that we're dealing with it this had to do with the.

The day to day flow that you see from an Invisalign patient standpoint, it had nothing to do with their own there.

Their enthusiasm in the sense of embracing digital environment that we're talking about so to see the number of sales that we had.

You really in the last couple of weeks of the quarter was it was just a good signal for us and we wanted to share that with you is that this market is embracing digital even when its under pressure and we're performing really well in that area as far as 50% whatever and how I don't know exactly what the historical percentages are in that way.

But we're obviously what we're excited about is once those scanners are in place. It gives us a good foundation to film.

Great. Thanks.

Okay.

And we have reached the end of our question and answer session and I will turn the call back over to Shirley Stacy for closing remarks.

Thank you thanks to everyone for joining US today, we look forward to speaking to you at upcoming financial conferences and industry meetings. If you have any questions or follow up please contact our investor relations team.

Have a great day.

Okay.

Thank you and this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

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Greetings and welcome to the align Q4 'twenty one earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Note. This conference is being recorded.

I'll now turn the conference over to your host Shirley Stacy with align technology you may begin.

We issued fourth quarter and full year 2021 financial results today via Globe Newswire, which is available on our website at Investor Day. The line check Dot Com Today's conference call is being audio webcast and will be archived on our website for approximately one month, a telephone replay will be available today by approximately 530 P. M. Eastern time through 530 P M Eastern time.

February 16.

To access the telephone replay domestic callers should dial 870, 76606853 with conference number one <unk> seven to $5 95 zero followed by pound International caller should dial 20161 to 7415 with the same conference number.

And at SEC Gov.

Site under quarterly results. Please refer to these files for more detailed information with that I'll turn the call over to align technology's President and CEO , Joe Hogan Joe.

Thanks, Shirley good afternoon, and thanks for joining us.

<unk> and another record year of full year for align.

Net revenues of 4 billion, an operating margin of 24.

7% for both at the high end of our guidance for fiscal 2021.

Our systems and services full year revenues increased 94% over the prior year to a record $705 5 million for <unk>.

Airliners full year revenues increased 54, 5% over the prior year to a record $3 2 billion.

During 2021, we achieved several major installed base milestones, including our 12 millionth Invisalign patient 68, thousands <unk> scanners sold 40.

<unk> 47, thousands XO CAD software license install.

For Q4 revenues reflect continued strong growth and momentum from Vitaros scanner <unk> services revenues, particularly in North America, offset by lower than expected Invisalign clear aligner revenues.

Through most of the fourth quarter, our clear aligner volumes were trending in line with our Q4 seasonality. However, the environment quickly changed in December with the rise of COVID-19, Omicron variant. We believe our Q4 clear aligner volumes were impacted by an increase in COVID-19, omicron cases that cause customer lab shortages from a.

Staff standpoint practice closures or reduced hours and less patient traffic in December .

And that continued into Q1.

This compound and it already slower seasonal period for many practices and which offices took time off and between the holidays. We estimate that our Q4 was negatively impacted by roughly three points of year over year revenue growth as a result of these factors.

Well there are some similarities to what we experienced two years ago. When COVID-19, first appeared especially in China.

Which currently has a zero tolerance COVID-19 policy. The environment. Today is total is today is different.

Submissions are improving we're working closely with our customers to support their needs and protect the health and safety of our employees.

For Q4 systems and services revenues were up 61, 3% year over year and up 21% sequentially with strong revenue growth across all regions.

Q4 results reflect the continued adoption of the <unk> element Fived plus imaging system, which we launched last year and the features innovative technology like near infrared technology with agent the detection and monitoring of inner proximal caries lesions or cavities above the gingiva without harmful radiation the taro element <unk>.

<unk> imaging system represents 75% of <unk> volumes in Q4. In addition over 50% of Vitaros scanner sales in Q4 were sold to first time scanner buyers, who are just beginning their aligned digital platform journey.

We also continue to see growth in our arterial scanner installed base with strong service revenues, which historically have been a leading indicator of increased digital adoption amongst doctors.

As we mentioned last quarter, our share of the retention market is significantly underpenetrated, even more so than our share of the orthodontic case starts.

We have been developing a robust retainer strategy, including a separate marketing team focused solely on driving adoption and increasing market share in the U S.

Our objective is to build brand awareness for <unk> retainers and drive engagement with doctors through clinical education and sales initiatives, while connecting consumers to doctors through demand creation programs and our concierge service. We have also recently implemented social media campaigns, featuring the benefit of a barrel from the makers of Invisalign.

Clear liners, we believe that incremental investments will increase value for invisalign practices and contribute to growth consistent with our long term financial model target.

Q4 noncash revenues also include accessories in consumables, such as align aligner cases, clam shells cleaning crystals, invisalign whitening pen and other oral health oral health products that are available on our E Commerce channel, including the Invisalign accessory store, Walmart Dot com and Amazon Dot com.

We view these ancillary products is a natural brand extension, enabling patient and Dr behavior with the power of the Invisalign brand.

Our full year results reflect continued adoption and demand for both the Invisalign system, and <unk> systems and services and <unk> software as more doctors transform their practices to digital the more consumers seek to transform their smiles through doctor directed Invisalign treatment.

Let's turn to the specifics around our fourth quarter results starting with the Americas.

With the Americas region full year 2021, Invisalign case volumes were up 57, 6% for Q4, Invisalign case volumes were up 11, 5% year over year, reflecting growth across the region Express, especially in Latam.

On a sequential basis America's shipments were down seven 9%, primarily reflecting the impact of omicron previously described as well as the seasonally slower teen season from Q3 to Q4, we also saw higher GP and adult case volume and continued momentum from our Doctor subscription plan pilot.

In Q4, we pledged one 1 million donation to the American Association of Orthodontists Foundation, the charitable arm or the American Association of Orthodontists and supported the science of Orthodontics. We're also investing in education grants.

Through the people, who care for and treat patients directly.

Persistent to services Q4 was a strong quarter for Americas, driven by continued adoption of <unk> plus imaging system across customer channels, including our DSO partners.

Services revenues continue to grow nicely, reflecting the.

The growth of the <unk> scanner installed base in North America.

For the full year International Invisalign case volume was up 51, 6%.

For our international business Q4, Invisalign case volumes were up 10.

7% year over year on tough comps compared to 2020.

For the full year EMEA Invisalign volume was up 69, 5%.

<unk> Q4, Invisalign case volumes were up 14, 9% year over year with broad based growth across all markets led by Italy, and Iberia, along with continued growth in our expansion markets in Turkey, Russia CIS in Benelux.

For Q4 year over year Invisalign case volume in EMEA was driven by increased submissions primarily from the orthodontist channel.

On a sequential basis, despite the impact of pharma crime EMEA Invisalign case volume was up 13, 6%, primarily as a result of strong ortho channel performance, especially in the teen market.

Its exciting opportunity for align and this untapped and expanding totally addressable market. We're also making great progress on building, our European manufacturing facility and work, our Poland, which will be our third global aligner manufacturing operation.

For Q4, we saw strong scanner shipments during the quarter as more doctors in the EMEA region continued to digitize their practices.

Countries, including China. We also saw strength in the GP dentist channel with increased Invisalign submitters and in the teen market with increased submissions from the orthodontic channel on a sequential basis APAC was down 15, 4% notwithstanding the impact of Omicron in December and Q4 seasonality in China.

Strong growth in Thailand, Southeast Asia, Taiwan.

Overall, it was encouraging to see record numbers of shipments to those markets in APAC that we're not as impacted by the most severe lockdowns in Q4 systems and services in APAC saw the highest percentage of Vitaros scanners sold to new doctors.

Today, we announced a new Invisalign systems innovations for the online digital platform, our proprietary combination of software systems and services designed to provide a seamless experience and workflow that integrates and connects all users doctors labs patients and consumers.

These new innovations include Chin couldn't check live update for three D controls.

Invisalign practice, App, invisalign personalized plan or IPP and the Invisalign smile architect.

Each of these innovations is designed to enhance invisalign treatment planning quality efficiency and scale and contribute to a better doctor patient engagement and treatment outcome.

And then check live update for three D controls enables real time check treatment plan modifications that improve practice productivity significantly while also improving quality of treatment plans.

<unk> practice App provides mobile integration with Invisalign doctor site or ideas and enables doctors to manage their practices at their fingertips.

<unk> personal plan or IPP automatically applies a doctor specific treatment preferences for comprehensive cases, enhancing efficiency and step changing treatment planning consistency.

This lifestyle architect software.

<unk> is designed for GP dentists to create and visualized orthodontic restorative treatment plans for their patients using <unk> digital scans.

And wide smile photos on the Invisalign go platform.

The technical design assessment go to market is scheduled for Q4 22.

We know that every invisalign trained doctors has distinct preferences every patient is unique and every treatment plan can vary depending on a variety of factors such as the type of metal inclusion patient age and desired outcome because of that doctor spend time planning reviewing them modifying their klimczak plans and a multiplies with practice growth.

IPP and Colin Quinn check live update for three D controls are game changing innovations they represent a step change in digital treatment planning to help doctors achieve more personalized klimczak treatment plans by using three D controls doctors can see greater efficiency with changes reflected in real time <unk>.

Invisalign Smile architect combines basically driven in ortho restorative treatment planning within the power of Quinn check software, providing flexibility across treatment planning to address a variety of patient needs whether it may be orthodontic restorative ortho restorative combined it allows doctors to share their vision with patients and huge digital.

Technology and tools to achieve the best quality clinical outcomes for their patients.

It is true the convergence of advancements in digital technology.

<unk> unique capabilities and Knowhow and data from millions of Invisalign patients, but we're able to bring these new invisalign innovations to our customers this year.

The journey to deliver a quick check live update in Invisalign personal plan has taken thousands of combined person years of development testing and learning and <unk>.

Only possible through the experience data and insights we have gained from over 12 million Invisalign cases.

Across our innovations. We're also using a combination of AI and automation to re imagine what the treatment planning experience looks like for our doctors, Dr customers and augmenting their expertise and experience to help them create and personalized and modify invisalign treatment plans more efficiently and more consistently than ever before.

What used to take several days can now be accomplished in just a few minutes and it's a huge productivity win for doctors and their patients.

Our consumer marketing.

Focus on educating consumers about the invisalign system and driving that demand through invisalign doctor's offices, ultimately capitalizing on the massive market opportunity to transform 500 million smiles consumer.

Consumer interest in the Invisalign brand remains high we are continuing to invest in building the brand in key markets and customer segments. This includes investments in social media as an effective channel to increase awareness and interest for Invisalign treatment. We're continuing to work closely with our media partners to reach consumers with the right creative and compelling campaigns optimize our.

Bis and test new approaches in Q4, we continued to build on our successful and this is multimedia campaign across the Americas, EMEA and APAC drove awareness and interest in invisalign treatment with adult teen and parent consumer segments.

And Michael weigh each of whom share their personal experiences with invisalign treatment and why they chose to transform their spouses invisalign of learners.

Our consumer marketing programs also include connecting with teams within gaming specifically on Twitch with a customized integration that was awarded the gold medal in the annual Internationalist Awards for innovation and digital marketing solutions.

To continue growing our young adult business across the Americas, EMEA and APAC, we build upon our successful envisages a powerful thing campaign, which highlights the power of Invisalign treatment transformation forever young adult self confidence our integrated media plans across Youtube Snapchat, Instagram Facebook and Tictoc conducted with young adults in.

Immediate channels they consume the most in Brazil, we continue to amplify our envisage a powerful thing campaign, featuring Mega Influencer <unk> driving a 400% year over year increase in web traffic.

And it may it may a region, we successfully expanded into new markets, such as Italy, the Netherlands.

To complement our integrated media plan with Google and Youtube, We also leverage newer media channels, such as tick tock Snapchat to drive engagement with consumers, resulting in more than 170% year over year increase in unique visitors.

In Japan, we continue to see strong response from consumers as evidenced by 117% year over year increase in unique visitors.

Lastly, we expanded our advertising investments in India, and Taiwan, which generated a strong consumer response, we saw 200% and 628.

Percent increase in impressions, and a 470% and 116% increase in unique visitors to our websites and India and Taiwan, respectively.

Adoption of our consumer and patient out my Invisalign continues to increase with one 4 million downloads to date.

Each of our four digital tools continues to increase for example in addition to my Invisalign just mentioned the Invisalign virtual appointment tool was used over 14000 times and our insurance verification feature was used 24000 times in Q4.

Other globally, we received more than 45000 patient photos of our virtual care feature globally, which continues to provide us with rich data to leverage our AI capabilities and improve our services for doctors and patients.

For assistance and services business Q4 revenues grew 61, 3% year over year, reflecting strong scanner shipments and services up 21% sequentially.

This is the sixth consecutive quarter of sequential revenue growth for our systems and services business.

As mentioned earlier over 50% of scanner sales in Q4 with the first time I Taro scanner buyers were pleased to see doctors continue to go digital and invest in the online digital platform.

Element <unk> plus imaging system continued to gain traction across all regions with the most recent launch in China during Q4.

The series expands our portfolio of Alterra element scanners and imaging systems to include new solutions.

More broadly serve the needs of doctors and patients in the dental market.

A strong indicator of digital acceleration within the dental offices, it's a number of intra oral digital scans used for Invisalign case submissions.

Total worldwide in oral digital scan submitted to start an invisalign cases in Q4 increased to 85, 4% from 79, 3% in Q4 last year.

International Inner oral digital scanners for Invisalign case submissions increased 88% up from 73, 7% in the same quarter last year.

For the Americas 89, 1% of Invisalign cases were submitted using an inner oral digital scan compared to 84% in the same quarter last year cumulatively. The over 50 million orthodontic scans and $10 3 million restorative scans have been performed with <unk> scanners.

With continued growth of the <unk> scanner.

At 68000 scanners are sold worldwide as of Q4, approximately 30% as services revenue, which includes reoccurring revenue subscriptions cadcam software and ancillary products.

And we continue to make improvements in our scanner and imaging systems, making <unk> systems and services, an integral part of orthodontic and GP dentist workload for.

For example, we streamlined the Invisalign case submission process with the <unk> element Fived imaging systems auto upload functionality.

Turning to XO cab.

For Q4 systems and services revenues also include XO, CAD Cadcam products and services <unk> expertise in restorative dentistry implantology guided surgery and smell design extends our digital dental solutions and broadens lines digital platform towards a fully integrated into disciplinary and workflows.

Cumulatively as Q4 <unk> now has over 47000 software license worldwide during the quarter ex Cat announced the release of chair side CAD three point O Galloway.

It's a next generation of easy to use CAD software for single visit dentistry with this new release extra Cat offers Dennis design tools for a vast range of indications with the right choice of integrated devices.

Also during the quarter ex cat announced the availability of cheer side CAD three point of Galloway software in the U S and Canada, where the software is now available in North America, EU and other selected markets.

Extra cash chair side CAD is groundbreaking open architecture CAD software for single visit Dentistry. It received the 2021 seller in best of Class Technology Award from Celebrant consulting group during the quarter as well. This is the third consecutive year that cheer side Cat has been recognized for this award with that.

I'll now turn this over to John .

Thanks, Joe now for our Q4 financial results total revenues for the fourth quarter were $1 $31 1 million up one 5% from the prior quarter and up 23, 6% from the corresponding quarter a year ago.

For clear liners, Q4 revenues of $815 $3 million were down two 7% sequentially due to lower invisalign volumes, partially offset by slightly higher asps and up 16, 3% year over year, reflecting invisalign volume growth across all geographies and high.

Your asps.

In Q4, we shipped 631 1000, Invisalign cases, a decrease of three 7% sequentially an increase of 11, 1% year over year. In addition, we shipped to 83 5000, invisalign doctors worldwide of which over 6400.

To first time customers.

Q4 comprehensive volume increased 13, 1% year over year and decreased four 5% sequentially.

And Q4, non comprehensive volume increased six 6% year over year and decreased one 7% sequentially.

Q4, adult patients increased 10, 4% year over year and increased 0.1% sequentially in.

In Q4 teens or younger patients increased 13% year over year and decreased 11, 8% sequentially.

Two points.

On a year over year basis comprehensive asps reflect higher additional liners, partially offset by higher discounts.

Q4, Invisalign non comprehensive asps decreased sequentially and increased year over year on a sequential basis invisalign non comprehensive asps were unfavorably impacted by foreign exchange.

Partially offset by higher additional liners on a year over year basis, Invisalign non comprehensive asps reflect higher additional liners and product mix, partially offset by higher discounts.

The increase sequentially can be attributed to increased scanner shipments and increased service revenues from our larger installed base.

Our systems and services deferred revenue on our balance sheet.

It was up $42 $6 million or 22, 8% sequentially and up $116 $2 million or 102, 6% year over year, primarily due to the increase in scanner sales ended differ.

And the deferral of services revenues, which will be recognized ratably over the service period.

<unk> gross margin was 72, 6% for the fourth quarter down two one points sequentially and down <unk> nine points year over year overall gross margin was unfavorably impacted by approximately 0.1 points on a year over year basis, and by approximately 0.4 points sequentially due to.

Foreign exchange.

Clear Aligner gross margin was down <unk> six points year over year due to higher additional aligner and higher freight costs, partially offset by higher asps and improved manufacturing absorption due to higher volumes.

Systems and services gross margin was up 0.4 points year over year due to higher asps from higher mix of <unk>, plus and higher service revenues, partially offset by higher freight costs and increased component costs. We are actively engaged in activities to mitigate supply disruptions.

By expanding supplier communications modifying our purchase order coverage and increasing inventory levels for key components.

Q4, operating expenses were $523 $7 million up sequentially, 6% and up 31, 8% year over year on a sequential basis operating expenses.

We're up by $29 $7 million.

non-GAAP basis, excluding stock based compensation and amortization of acquired intangibles related to certain acquisitions.

Operating expenses were $494 4 million up sequentially, six 1% and up 32, 8% year over year due to the reasons described earlier.

Our fourth quarter operating income of $229 million.

Teams and technology as well as unfavorable impact from foreign exchange.

On a non-GAAP basis, which excludes stock based compensation and amortization of intangibles related to certain acquisitions.

Operating margin for the fourth quarter was 24, 7% down four one points sequentially and down four 3% points year over year.

Interest and other income and expense net for the fourth quarter was a loss of <unk> $9 million down sequentially by $1 $7 million.

And down year over year.

$2 2 million.

The GAAP tax rate for the fourth quarter was 13, 2% compared to 39% in the third quarter and 25, 9% in the fourth quarter of the prior year.

Our non-GAAP effective tax rate was 11, 5% in the fourth quarter compared to 22, 2% in the third quarter at 14, 5% in the fourth quarter of <unk>.

Fire.

Fourth quarter fourth.

Fourth quarter, the fourth quarter, GAAP and non-GAAP effective tax rate reflected an out of period adjustment, which reduced our tax rates by seven 3% and six 3%.

Respectively.

A year.

For the full year net income per diluted share was $9 69 sets down $12.72 year over year due to the onetime tax benefit in 2020 of approximately $1 5 billion associated with our corporate structure reorganization completed during the first quarter of 2020.

On a non-GAAP basis net income per diluted share was $11 22 for the full year up $5.97 year over year.

Moving on to the balance sheet as of December 31, 2021, cash cash equivalents and short term and long term marketable securities were $1 3 billion.

Up sequentially, $58 $8 million and up $335 $8 million year over year of our $1 $3 billion balance $582 9 million was held in the U S and $713 8 million was held by our international entities.

Q4 accounts receivable balance was $897 2 million up approximately four 9% sequentially. Our overall days sales outstanding was 78 days up approximately three days sequentially and up approximately seven days as compared to Q4 last year.

Free cash flow defined as cash flow from operations less capital expenditures amounted to $163 $8 million.

In November 2021.

We purchased $100 million of our common stock through an accelerated share repurchase which was approximately 0.2 million shares at an average price of $666 53.

Per share we.

We have approximately $725 million remaining.

Remaining available for purchase under our May 13, 2021 $1 billion repurchase program.

Before I move to our outlook I would like to make a few comments on our full year 2021 results.

Revenues were a record $4 billion up 59, 9% year over year with clear Aligner revenues a record $3 2 billion.

Up 54 point.

5% year over year, 2021 systems and services revenue were a record $705 5 million compared to 370.

$5 million in 2020.

Up 94% year over year.

Full year 2021, GAAP operating income of $976 $4 million was up 152, 2% versus 2020 and operating margin at 24, 7%.

<unk> is 15, 7% in 2020 on a non-GAAP basis 2021 operating margin was 27, 9% versus 23% in 2020.

2021 interest income and other income and expense net of.

With regards to full year tax provision, our GAAP tax rate was $23.

7% the full year tax rate on a non-GAAP basis was 18, 5% compared to 17, 6% for 2020.

2021 diluted EPS was $9 69 on a non-GAAP basis 2021 diluted EPS was $11 20 to.

Free cash flow was $771 4 million for 2021 up $264 $2 million versus 2020.

A growth we continued to see strong momentum and demand for our systems and services throughout Q4 with the majority of scanners being sold to first time buyers. We believe this is a good leading indicator of future invisalign growth as our customers continue to invest in digital technology, even during COVID-19 .

In Q1, and therefore expect our Q1 operating margin to be less than 20%.

In addition, during Q1 2020.

2022, we expect to repurchase up to $75 million of our common stock through either a combination of open market repurchases or an accelerated stock repurchase agreement.

Issues throughout the year.

This includes our planned investment in a clear aligner manufacturing facility in Poland.

Poland, which is expected to begin serving doctors in 2022.

Our strategy to bring operational facilities closer to customers with that I'll turn it back over to Joe for final comments Joe. Thanks.

Thanks, Sean.

Despite the disruption from the Omicron in December we delivered a record year with strong revenue growth and operating margin in line with our guidance for the full year on top of a record Q4 and 2020 a year ago. As we look back I wanted to take a moment to recognize their accomplishments and thank our employees and our customers for another remarkable year.

Here in the face of ongoing challenges related to COVID-19, and economic uncertainty, we remain steadfast in our commitment to our employees customers and the focused execution of our strategic initiatives and our customers and remain confident in our ability to support them.

Operating in this environment has not been easy, but after two years of navigating uncharted waters. The align team is more agile and resilient than ever.

In 2021, we met our goals and achieved numerous milestones globally, we delivered across each of our strategic priorities, which are highlighted in our Q4 'twenty one webcast slides our performance over the last year reaffirms the incredible sides of our target market and demonstrates that our strategy investment in recent years are validated by the trust and faith.

Are customers, placing us in.

Reaching millions of consumers, who want to transform their smiles using the most advanced clear aligner systems in the world through the right investments in advertising PR digital social media and Influencer marketing to drive demand and conversion to Invisalign trained doctors.

His line ortho adoption and utilization of Invisalign treatment and training and educating GP dentists on how the <unk> element family of inner World scanners in imaging systems can propel today's dental practice into the future by enhancing patient experience and elevating clinical precision and on the benefits of digital dentistry with the <unk>.

His line system trusted by more than 12 million people worldwide to transform smiles, we remain mindful.

<unk> for the ongoing uncertainty surrounding COVID-19, and the challenges that go with it.

There is still uncertainty has become increasingly clear over the last year with the first spread of the Delta variant now omicron that COVID-19 may never fully go away. It may be a virus that persists and one variant form or another and for the foreseeable future and like other viruses newer different vaccines will be needed and new therapies.

Will be developed to minimize the impact and treat COVID-19, more effectively and our most vulnerable populations. The gravity of living with Covid is one of the governments businesses and communities all over the world are beginning to acknowledge and move towards out of line. We will do the same.

In closing I want to share some thoughts that I express to our employees recently.

Leading the evolution of digital worth a daunting and comprehensive dentistry weed.

We never forget the digital orthodontics presents the fastest growing our largest market in the world of medical devices. We have the greatest clear aligner system scanners, GP lab software in the world and the broadest and deepest digital dental platform.

In my career.

<unk> continued to grow in line and be part of a positively changing millions of lives by transforming their smiles. Thank you for your time today look forward to speaking to you again as the year progresses now I'll turn the call over to the operator.

Operator.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the Q2.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we pull for questions.

Our first question comes from the line of Nathan Rich with Goldman Sachs. Please proceed with your question.

Thanks, and good afternoon.

And Joe Thanks for all the details on the outlook.

You called out the 300 basis point headwind from Covid in the quarter with the impact I think concentrated in December so maybe a bit higher.

As we think about what the headwind was exiting the year.

Could you maybe.

Talk about how the impact in January as compared to what you experienced in December .

And can you maybe elaborate on what you've seen in recent weeks I'm just looking for a sense of maybe where January is trending and kind of what youre assuming for the balance of the quarter to get you to the guidance that you gave for <unk>.

Hi, Nathan Hey look we.

We saw will be talked about in December .

We had a rapid decrease.

Through Covid, but what we've seen as we've gone into Jaron January is just a progressive improvement.

And we feel good about that we feel it's moving in the right way and it's a direct correlation we track it around the country with whats going on with Amazon in certain states in certain regions and remember this isn't just United States, you're seeing this all over the world we see it in APAC, where we see in Europe , too and we track it.

Okay, and maybe just building on that at a high level Joe.

Do you feel like the slowdown I guess this is primarily a supply issue just given the practice closures and lockdowns and staffing issues that you cited versus the demand issue because I think in your prepared remarks, you also mentioned some impacts from inflation and less stimulus. So I'd just be curious to kind of get your thoughts there.

No. We don't see this as a demand issue I mean, we look at the market as we always have and that's why we get reasserted, our 2030% growth.

Our growth rate for this year. So it's just not a demand equation issue or you call. It a supply, but I'd call. It demand from a patient standpoint, we can see.

Its patients and doctors in the sense of cancellations availability and all of those things that Covid has as.

As impacted around so we remain very confident.

That's why you see us continuing to make investments in things we announced today.

We feel really good about the business, we just have to.

Through this first quarter, when we talked about and.

We'll move on we feel really good about it.

Great. Thank you.

And our next question comes from the line of Matt <unk> with Credit Suisse. Please proceed with your question.

Hi, Thanks, so much for taking the question.

Just maybe a follow up on.

The question on planning assumptions around your Q1 comments in 2022 guidance.

Maybe Joe if you could just.

Give a sense as to how you just mentioned improvements in early January .

Is this kind of sluggish recovery.

Wrapping up by the end of the quarter is Q2 the inflection.

You get to that 30% growth that you mentioned.

And then and then just if I could also on a similar topic.

The idea that somehow.

Somehow there is.

Yes.

You have I think many of the folks on the call I've heard this idea that somehow.

It was outsized growth through the pandemic and we're sort of digesting that somehow now which.

I know, it's sort of one of the ways that folks look at align at a liners and so on if you could maybe just talk about your confidence that.

Once we get through the staffing.

Is that the demand that's in front of you the growth drivers that you are leaning in on top of your core markets.

That we're not looking to digest some sort of.

Outsize growth during the pandemic here in 'twenty, two but we're getting back to growth market that is still highly underpenetrated sorry for the lengthy two part question, but I.

I appreciate it.

We understand the basis of your question, Matt Damon is that sort of it's not a problem in that sense.

As I mentioned before we're really confident demand equation in the sense of clear liners in invisalign.

What we're experiencing right now.

Obviously.

Somewhat of a slowdown in our order demand pattern.

Based on what we see through the virus, that's going on around the world.

As soon as that clears and we see a clearing around the world and as I mentioned, we see January improving over December .

Competent and demand models that we've expressed for this business over the last several years.

Thanks, so much.

And our next question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks, so much for the question.

The first I think you you obviously talked about some of the increased investments that youre, making on marketing and also in sales capacity et cetera.

How do we think about the conversion efforts and those initiatives versus sort of prior and entered a where do you sort of see that hitting in terms of as we're thinking about the pacing of the year.

Yes.

Yes, I mean, the pacing of the year I mean, we continue to invest as we mentioned John mentioned that I mentioned, two in marketing, where we invest we understand the returns that we get no matter, what the country is or what kind of immediately use.

In order to go after consumers. So we've been very consistent in the sense of that investment in and.

And we move money around based on where we see the most opportunity John .

As we as we mentioned we added some sales resources in Q4 to get ahead of this.

Sales territories and changes and so on we saw that show up in Q4, but it really gives us.

The opportunity then to be able to grow as we get into this year. So it's continued investments to drive the biggest return and that's what we'll continue to do.

Okay. So it sounds like may be no change in sort of the pacing that we've been seeing before.

Maybe as a follow up I know you, obviously highlighted that the total growth of the company.

20% to 30% range do you also see that the case growth on a year over year basis would be above 20% as you look out at this point.

We'd expect it to be similar when we talk about a 20% to 30% we're talking about revenue for the entire company but.

They would be similar.

An outlook standpoint.

Okay. Thank you.

Thanks Luca.

And our next question comes from the line of Jon Block with Stifel. Please proceed with your question.

Hey, guys, Great, Hey, Joe Hey, John Good afternoon.

Maybe just the first one the op margin compression year over year to $24 seven ish gap that is to the 24, maybe if you could talk to that John I was I was initially just going to say, it's a gross margin thing with scanners likely to grow much faster than case falls, but to Elizabeth's question. It seems like you expect both to be.

Within the guard rails are 20%, 30%. So is it more a function of you guys just sort of running.

Running a little bit harder on the Opex line to drive that case volume on why we would see that year over year compression again, I'm, just referring GAAP to GAAP for apples to apples.

I think John It it's continued investments like like we have with the story, it's continuing to invest that we have and being able to be able to grow into this market. So I think when we look at it overall, we're kind of pegging that the GAAP rate to be at 24% for.

For 2022 and will evaluate an update as we go forward, but it's continued to invest we've got as you know.

Our Poland facility going live in 2022, and we have some some of those moving parts that will impact our gross margin slightly as a result of that but and that translates to our market, but those are the initiatives that we have but nothing out of the ordinary that we've done in the past.

Okay.

Next one is going to be long, probably two cars, but maybe can you get people comfortable with the fact that if you look at your two Q3 Q4 'twenty one case falls in the implied guidance for <unk> to get to 20%, 30% can you just volumes for the year youre going to have to ramp sequentially into Q3, Q4 Q2 two <unk>.

Maybe if you could talk to that and then the other.

Third question, if you Wouldnt admittedly as I am confused on the three point so in for Q was impacted by three points of growth why don't you recapture I don't know two or three points of that in <unk> 'twenty, two where are those cases going if they're not showing up in the in the next possible quarter. Thanks guys.

I think I've made.

Start with the last part of your question John When you think of what's happened in the world with with Amazon and the effects of that it's affecting parts of the world at different different basis, you see it we even within the U S. Northeast maybe get gets hit with it first it starts to open up later.

After that maybe other parts of the country get impacted so it's not like it just happened and you immediately get it back it comes down to when people are able to go to work in this case that at doctors' offices to be able to provide care and then it comes down to when patients feel comfortable to be able to go back in and so it's not an immediate.

It affect and how we look at it so think of it.

And what we've learned from a kind of Covid one point O. The first time, we saw this we know that there is an impact and then there is a recovery period and that's our best view of that recovery.

Hey, John on fair enough about your other part about you have to rip the rest of the year.

We understand that I mean, we've modeled it out remember our comparisons are a little a better second half than they were first half when you look at what we did.

In 2021 in the first half of the year so.

Look we wouldnt make a prediction if we didn't think it was feasible based on what we've seen and what we model.

Fair enough thanks, guys.

Thank you Dan.

Our next question comes from the line of Jeff Johnson with Robert W. Baird. Please proceed with your question.

Yes. Thanks, Good evening, Hey, guys how are you.

Just a couple of questions here for me I guess one Jon.

2021, you guys were talking about being within your LP, but at the upper end of that do you want to put any quality buyers on kind of the LLP for 2022, it feels like kind of low end, given where <unk> is starting but one do you want to put any qualifiers around where within that LLP you'd expect to be and to just go back to the last two questions again.

I feel like.

I'm talking to my 10 year old Kid here, so apologies, but I'm going to give you one more chance do you feel like case shipment can still grow within that al RFP. This year too not just revenue because you've got.

Some of the new.

The products you are selling plus you've got faster <unk> growth not the case shipments also can be within that 20%, 30% <unk> I just want to make sure I'm hearing that correctly.

Yes, I can answer both of those Jeff in terms of the 20 to 30, we're not going to call cut out hi Lo of that word.

We're reaffirming our 20% to 30% similar.

Similar to what we talked about it at Investor day. Despite some of the things that we've talked about here with Amazon and some of those COVID-19 cases, and so on.

But when we look at Invisalign case volume, we would we would expect to be in about that range. So.

Nothing nothing out of the ordinary from what we expect we don't see a.

Our asps were very similar to what they were in the prior quarter.

Provided that there is not.

FX or other things that we're not projecting now and if there is no change there we would expect to be in that range as well.

Fair enough and then Joe maybe kind of just update us on kind of the competitive landscape.

A couple of DSO contracts now.

Now, let's hear from others.

In the last few months and maybe you can talk over in China about some growing competition or slowing end markets and that is where do you see your end markets across the globe from a competitive standpoint would just love to hear your update there.

Hey, Jeff I think from a competitive standpoint, nothing's really changed.

As we look out there you can see the tech we just we just announced this week, we move on the sense of our capabilities, what we can do.

Our position has always been that competition isn't really affecting us from a price standpoint, I think you see that in what we're doing.

But you know they do serve to broaden the market and increase the market and make an increase the awareness. So we.

We feel we are in this kind of competitive environment, we're doing well and we lead in this sense and there's nothing as we go into 2022 that I'll reflect on its change competitively, but what I've seen over the last three years.

Understood. Thanks, guys.

Thanks, Jeff Jeff.

And our next question comes from the line of John Kreger with William Blair. Please proceed with your question Hey, Thanks very much.

Two quick ones for you I think you said that the receivable dsos were up about seven days year over year can you just expand on that was that.

Are you, providing some extra and inducements to practices or anything to be concerned about there.

Nothing to be concerned.

We're in a fortunate cash position as a company to be able to generate a lot of CFO and free cash flow and in working with doctors to be able to.

Give them more flexibility sometimes.

Extend payment, but we've actually seen historically low about of past dues.

As we've gone through this through this time period in 2021, so we feel very comfortable with that is just working with doctors to kind of meet their cash flow needs, but nothing out of the ordinary.

Okay, great. Thanks, and then one other one to clarify I think you said that you expect the EBIT margin to be under 20% in the first quarter was that GAAP or <unk>.

Our non-GAAP .

That's GAAP.

Thank you Scott.

Thanks, Joe Thanks, Jeff.

Our next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

Hey, good afternoon, thanks for taking the questions today, Hi, there Joe.

Joe just real quick can I ask whether you can confirm you said January improved over December I thought I heard you say that earlier in the call or is it just that the January trend lines showed improvement as the month unfolded, sorry for just clarifying that something nuanced like that here.

Yes, I think that to clarify Jason.

The month end.

Showed improvement versus December it was yes.

It's how COVID-19 spreads across whether it's one country or parts of countries and so on it and.

How it affects the staff and how it affects the patient's in.

As we exited weird.

Trend line, then we started to bundle with.

Funding faster growth and your teen business and then the last 18 months during the pandemic adult demand has really taken off and grown faster than t's. So I guess my question here is as you went through your year end planning and Youre, obviously resourcing this business and another significant way here in 'twenty two how would you approach how do you approach. It for this year from a sales force.

They had marketing plan and whatnot is it are you really with respect to how youre thinking about the adult <unk> mix that you are expecting for this year.

I mean, we are.

It's Joe Jason I mean, Theres no big change in a sense of what we think the critical drivers are that we have to invest in to drive growth.

Where we invest and how we invest is really important when you look at technology. When you look at consumer pieces.

Parts of those demand deflation do you want to go to but remember there are certain ratios that we always hold true in this business is that what we invest in and we hold ourselves accountable for those ratios in that performance from a profitability standpoint, but I can't I can't overstate the importance of having a strong sales force we talked about additional salespeople are putting in place.

The our consumer brand means a lot in the sense of our growth.

That's becoming more and more sophisticated in the sense of where we spend those dollars and how we spend those dollars, but leading in technology you have to have technology in this business.

That's all we are excited to really announce what we did today and we've been working on these programs for three years or more.

And these are game breakers, and a sense of how you're interfacing with a doctor and how a doctor and patient and patient.

And I would just add to that Jason.

The best return and there's multiple different ways that we do it across these functions.

Alright very helpful. Thanks, so much.

Thanks, Jason Operator, we'll take one more call. Please.

Sure and.

The last question will have is from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Great. Thanks for squeezing me in John you talked about freight cost for few quarters now.

Any chance you're planning a price increase this year to help offset some of that it's been a few years since you've taken less pricing.

Yes, it's a good question and we are seeing Friday freight.

<unk> will be a freight savings once we're operational there and that'll help.

But we haven't.

We haven't really.

Finalized any plans on a on a price increase where we will evaluate as we as we as we go through and the first people that we talk to would be our customers, but you're right. We we understand.

Price is important but we're also very sensitive to our customers and what they've had to go through as we've been on this COVID-19 journey. So nothing nothing in the works now.

Okay, and then Joe on Ontario.

I appreciate the detail as far as more than 50% of placements being new buyers I would actually expect that to be normally the case whats the relevancy of that metric is that up a lot compared to historical levels.

What percent of those placements are being used for Invisalign case submissions.

Okay.

Over the years, you know Brandon we've always do you see that correlation that we've communicated to you in a sense. If you sell more terrorist scanners, you sell more invisalign and that's.

Obviously, you know the front end of our digital system and it works.

For us really well, we just have decided to 50% because when you saw we had a very strong fourth quarter for <unk>.

Alrighty Arrow and we always have strong fourth quarters was this was exceptional in that sense that it was a good signal from the.

The practices that we're dealing with at this had to do with.

The day to day flow that you see from an Invisalign patient standpoint, it had nothing to do with their own.

Their enthusiasm in the sense of embracing digital environment that we're talking about so to see the number of sales that we had.

You're really in the last couple of weeks of the quarter. It was it was just a good signal for us and we wanted to share that with you is that this market is embracing digital even when its under pressure and we're performing really well in that area as far as 50% whatever and how I don't know exactly what the historical percentages are in that way.

But we're obviously what we're excited about is once those scanners are in place. It gives us a good foundation to fill at this point.

Great. Thanks.

Okay.

And we have reached the end of our question and answer session and I will turn the call back over to Shirley Stacy for closing remarks.

Thank you thanks, everyone for joining us today, we look forward to speaking to you at upcoming financial conferences and industry meetings. If you have any questions or follow up please contact our investor relations team.

Have a great day.

Thank you and this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Q4 2021 Align Technology Inc Earnings Call

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