Q3 2022 Align Technology Inc Earnings Call

October 26, 2022

You recorded.

I would now like to turn the conference over to our host Shirley Stacy with align technology you may begin.

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 third quarter 2022 financial results today via business wire, which is available on our website at investor.

Not a line tech 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 on November nine to access the telephone replay domestic callers should dial 806 68139403 with access code.

Good 119351 international callers should dial nine to 94586194 using the same access code 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 Florida looking statements.

We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliations if applicable and our third quarter 2022 conference call slides on our website under quarterly results. Please refer to these files for more detailed information with that I'd like to turn the call over to align technology's pre.

Didn't and CEO , Joe Hogan Joe.

Thanks, Shirley good afternoon, and thanks for joining us on our call today I'll provide an overview of our Q3 results and discuss the performance of our two operating segments system and services and clear liners, John will provide more detail on our financial performance and our view for the remainder of the year following that I'll come back summarize a few key points.

And open the call to questions. Our third quarter results reflect the continued macroeconomic uncertainty and weaker consumer confidence as well as significant impact from unfavorable foreign exchange rates across currencies that affect our operations on a constant currency basis total Q3 revenues were reduced by $25 million or two 7% sequentially.

<unk> and $57 4 million or six 1% year over year, one of the largest quarterly foreign exchange impacts in our history.

We remain confident in the execution of our strategic growth drivers. Despite the continuing economic headwinds in Q3, we reached our 14th millionth Invisalign patient milestone during the quarter, which includes nearly 4 million teenagers and kids as young as six years old.

<unk> been treated with Invisalign clear liners in Q3 Teen case starts of 200000 were up 13% sequentially and just off slightly compared to Q3, 'twenty one a year ago. When a record 206000 teenagers started invisalign treatment.

We're also excited to be launching significantly new products and technologies that further enhance the aligned digital platform.

The digital transformation of the practice of dentistry during the quarter. We also began to commercialized clean check live update software Invisalign practice out Invisalign personal plan Invisalign smile architect the Invisalign outcome simulator pro within face visualization cone being computed tomography integration with <unk> soft.

Invisalign.

Virtual AI software and <unk> connector. These.

These technology advancements represent an important expansion of our digital platform that we believe will help our doctor customers increased treatment efficiency and deliver superior clinical outcomes and patient experiences positioning us to drive growth when the market inevitably rebound.

We'll be showcasing these innovations next month that Invisalign ortho summit in Las Vegas, the Premier education, and networking experience for Invisalign practices with the most peer to peer presentations of any invisalign education events.

For Q3 systems and services interest in our <unk> scanners was good with increased product demos across the regions.

Doctors are increasingly recognizing the substantial benefits of inner world scanning and end to end digital workflows with the <unk> scanner and imaging systems.

At the same time, increasing inflation rising interest rates and less patient traffic in dental practices are lengthening sales cycles and conversion time.

For Q3 system. This services revenues of $157 5 million were down sequentially year over year on a constant currency basis unfavorable foreign exchange reduced Q3, 22 systems and services revenues by approximately $4 1 million or two 5% sequentially and approximately $9 9 million or.

Five nine year over year for.

For Q3 scanner services year over year revenue growth was strong across all regions, particularly due to the increased subscription revenue driven by growth of the installed base of Vitaros scanners year over year growth also reflects increased sales of <unk> and continued growth of our scanner leasing rental programs.

We continue to work closely with our doctor customers to support their practice growth and digital transformation goals. This includes understanding different ways to enable them to navigate more uncertain economic environment.

Over the past year, we've had good success rolling out new leasing programs in Latin America and certified pre owned our CTO as we call it options in India and North America. We're also looking at new opportunities on the capital equipment side for our DSO partners. This is a natural progression in an equipment business with a large and growing installed base.

As we introduced new products, there are more opportunities for customers to upgrade to make trade ins and to provide refurbish scanners for emerging markets too. We expect to continue to rollout programs that are especially helpful for customers in the current macroeconomic environment, it's selling the way doctors and customers wanted to do business and leveraging our balance sheet.

Were still early were pleased with the contribution of margin accretion we'll see.

For our clear Aligner segment macroeconomic uncertainty and waiting a consumer confidence continues to impact the dental market overall, making for a challenging operating environment across the board for Q3 third party reports indicate there are fewer new patient visits less traffic flow and lower orthodontic case starts overall, our clear aligner volume.

<unk> further reflect the underlying orthodontic market trends and a shift away from adults towards teens in Q3.

Q3 clear aligner revenues were down eight 2% sequentially and down 12, 5% year over year compared to Q3, 'twenty one year over year revenue growth rates of plus 35%.

On a constant currency basis Q3, 'twenty two clear aligner revenues were reduced by unfavorable foreign exchange of approximately $21 million or approximately two 8% sequentially.

Approximately $47 4 million or approximately six 1% year over year.

For the quarter Q3, aligner volumes reflect a sequential increase in invisalign shipments from Asia Pacific and Latin America, as well as North America, Invisalign Teen cases, offset by lower volume EMEA and North America, primarily Invisalign adult cases.

For Q3, Invisalign first for kids.

Young as six grew year over year and was strong across all regions on a trailing 12 month basis as of Q3, Invisalign clear aligner shipments for teens and young kids using Invisalign first up year over year to over 734000 cases.

For Q3, the total number of new Invisalign trained doctors increased sequentially eight 5% driven by North America and Asia Pacific.

In terms of Invisalign <unk>. The total number of doctors ship two for Q3 increased sequentially to $84 4000 doctors. The second highest number of this year driven by Asia Pacific and the Americas from a channel perspective, ortho submitters or slightly year over year up, especially from doctors submitting.

Teen cases, offsetting offset by a few GP dentist year over year, especially in EMEA.

For other non case revenues, which include retention products, such as the very retainers clinical training and education accessories E Commerce, and our new subscription programs such as our DSP Q3 revenues were up both sequentially and year over year. This reflects strong growth in retainer sequentially and year over year growth across all regions driven by more so.

<unk>.

In U S revenues for our Doctor subscription program increased sequentially and year over year I'm very pleased to see continued momentum in noncash revenues driven by subscription based programs that we expect to continue to expanding across the business now lets turn to the specifics around the third quarter results starting with the Americas.

The Q3, Invisalign case volumes for Americas was down sequentially single digit percentages and primarily due to lower invisalign adult shipments.

The environment remains challenging and feedback from our customers indicates consumer financing and patient no shows affecting their practices in Q3, especially with adult patients.

Q3, Invisalign volume also reflects increased case in the case of emissions from orthodontic channel and sequential growth in the teen segment.

For Q3 teen patients, where most resilient, reflecting continued momentum in younger patients with Invisalign first as well as the new Invisalign Teen case packs. During Q3 Invisalign Teen case backs grew both sequentially and year over year as a reminder, invisalign teen case packs, a new subscription program that enables.

Orthodontists to buy clear liners in packs in advance. They also include exclusive practice development benefits with the Invisalign brand and require an incremental volume commitment from doctors Teen case packs are currently available in the U S, Canada, and France, and we expect to be expanded more in EMEA region.

Turning to our international business for Q3, Invisalign clear Aligner volume was down very slightly sequentially, 1.4% with strong sequential growth for APAC offset by lower volume in EMEA for EMEA at Q3 operating environment was challenging inflation in the eurozone has more than 10%.

And the global macroeconomic factors weighed on consumer sentiment and purchasing decisions, especially for adult patients, which compounded the impact of Q3 summer seasonality.

The Americas doctors in EMEA also reported increased appointment cancellations and the impact of less patients financing their purchases.

They may 18 patients also resilient in Q3 increased sequentially in Iberia, as well as France, where we introduced a teen case backs during the quarter and.

In APAC Q3 system.

<unk> growth was led by China, Japan, and ANZ, despite ongoing COVID-19 restrictions and lockdowns in parts of China and Japan.

On a year over year basis, Invisalign case volumes reflected increased shipments across almost all markets led by Taiwan, Thailand, India, and Korea, driven by increased submitters.

In Q3, APAC sequential growth also reflects strong demand from our expanded and Invisalign clear aligner product portfolio in China. We call in late April Q2, we introduced two new products to better serve the expanding market in China, Invisalign adult and Invisalign standard clear liners leverage our proven technology, while broadening our appeal to more.

Consumer segments Q3 was the first full quarter offering these new products that provide doctors and patients in China with broader clinical and affordable options for moderate to complex adult cases.

Finally, I am pleased to share that the Invisalign system was recently awarded the Gold Design Award for 2022, making it the first orthodontic appliance to win the prestigious award in Japan.

And the judges assessment and the Invisalign system de emphasized that the opportunity for T. Straightening is high in Japan inside of the barrier to adoption by Japanese consumers is resistance to metal braces and praised the invisalign system as an orthodontic solutions that can improve the quality of life during treatment, we certainly recognize the.

We're into the Japanese market for digital Orthodontics and is one of the reasons. We opened our first office in Tokyo, nearly 15 years ago and established treatment planning operations in Yokohama, a few years ago.

These technology advancements illustrate our commitment to continuous innovation and digital orthodontics and remain excited about the transformational projects that we're working on as we continue to drive the evolution of our industry.

No other dental company has the experience, including over 14 million patients treated to date to lead the transformation of the practice of dentistry.

Our consumer marketing focused on educating consumers about the invisalign system and driving that demand to invisalign doctor's offices.

In Oklahoma, a few years ago.

Turning to new innovations, we continue to deliver our technology roadmap as I mentioned earlier during the quarter, we began to commercialized several new products and services that we previously announced would come to market in the second half of 2022. These technology advancements illustrate our commitment to continuous innovation and digital orthodontics.

Normally capitalize on the massive market opportunity to transform 500 million smiles globally.

In Q3, we built on our successful Invis is media campaign and continued our launch of the envisaged drama free targeted teens and is when everything clicks targeted as adults.

And we remain excited about the transformational projects that we're working on as we continue to drive the evolution of our industry.

Our teen campaign Invis is drama free highlights the benefits of Invisalign, while humerous. He just opposing them with a significant trade offs involved was using braces are envisaged when everything clicks campaign showcases invisalign treatment transforming smiles and the resulting confidence it gives to young adults.

No other dental company has experience, including over 14 million patients treated to date to lead the transformation of the practice of dentistry.

Our consumer marketing focus on educating consumers about the invisalign system and driving that demand to invisalign doctor's offices, ultimately capitalize on the massive market opportunity to transform 500 million smiles globally.

During Q3, we had over $4 3 billion impressions delivered 14 million visits to our websites a one 6% year over year increase as a result of right sizing our media investments. We're also right sizing our consumer media investments across all core EMEA markets impacting the impressions and unique visits in U S. We.

In Q3, we built on our successful Invis is media campaign and continued our launch of the envisaged drama free targeted at teens ends is.

When everything clicks targeted at adults.

Our influencer and creator centric campaigns partnering with leading smile squad creators like Olympic Gold medalist SUNY Lee Michael Lee, Josh Wishers in Marseille Martin each of these creators shared their personal experiences of invisalign treatment and why they chose to transform their smile with invisalign of liners. Most recently SUNY Lee shared or pause.

Our teen campaign in business drama free highlights the benefits of Invisalign, while humerous. He just opposing them with a significant tradeoffs involved was using braces are envisaged when everything clicks campaign showcases invisalign treatment transforming smiles and the resulting confidence it gives to young adults.

Her experience with Invisalign and major media programming include good morning America people Dot com, resulting in over 93 million impressions, we continue to invest in consumer advertising across APAC region, resulting in a 70% 72% year over year increase in impressions and 29% year over year increase in unique visitors.

Our influencer and creator centric campaigns partnering with leading smile squad creators like Olympic Gold medalist SUNY Lee Michael Lee, Josh Wishers in Marseille Martin <unk>.

Our ongoing campaigns, where omni present across the top social media platforms, such as Tictoc, Snapchat, Instagram and Youtube to increase the awareness of the Invisalign brand with young adults and teens in Q3, we launched a global plot on roadblocks platform within the popular game live to appear creating a fun experience for players to learn.

Each of these creators shared their personal experiences of invisalign treatment and why they chose to transform their smile with invisalign of liners. Most recently SUNY Lee shared a positive experience with Invisalign and major media programming include good morning America people Dot com, resulting in over 93 million impressions, we continue to invest in consumer advertising across APAC.

About the benefits and the baseline treatment.

To date, we had over $5 9 million impressions delivered in over $2 6 million unique visitors.

On the game experience.

Region, resulting in a 70% 72% year over year increase in impressions and 29% year over year increase in unique visitors.

Adoption of buy Invisalign consumer and patient App continues to increase with two plus 2 million downloads to date uses of our key digital tools also continued to increase live update was used by 41000 doctors are more than 395000 cases.

Our ongoing campaigns, where omni present across the top social media platforms, such as Tictoc, Snapchat, Instagram and Youtube to increased awareness in the Invisalign brand with young adults and teens in Q3, we launched a global plot on roadblocks platform within the popular game live to appear creating a fun experience for players to learn about.

Reduced time spent and modifying treatment by 18% Invisalign practice App has been downloaded 314000 times to date further we received more than the 110000 patient photos and our virtual care capabilities to date, providing rich global data to leverage our AI capabilities and improve our services for doctors.

The benefits of baseline treatment.

To date, we had over $5 9 million impressions delivered in over $2 6 million unique visitors on.

<unk>.

On the game experience.

The investments that we make to drive patient demand and conversion to support our doctor customers is unparalleled in our industry leveraging the global recognition of the Invisalign system no. Other dental company equals our brand strength today for more details on our consumer marketing programs. Please see our Q3 'twenty two earnings conference slides.

Adoption of buy Invisalign consumer and patient App continues to increase with two plus 2 million downloads to date usage of our key digital tools also continued to increase live update was used by 41000 doctors are more than 395000 cases.

Turning to XO cat overall, I'm very pleased with our progress with the <unk> business and its leadership in restorative Dentistry. In addition to the <unk> connector I mentioned previously during the quarter. We also introduced <unk> nearing near is near infrared technology in oral camera images that are now automatically imported into that.

Reduced time spent and modifying treatment by 18% Invisalign practice App has been downloaded 314000 times to date further we received more than the 110000 patient photos and our virtual care capability to date, providing rich global data to leverage our AI capabilities and improve our services for doctors and <unk>.

Cat when design when designing restorations, enabling technicians to visualize the internal and external to structure and optimize the process of margin line Tracy.

<unk>.

The investments that we make to drive patient demand and conversion to support our doctor customers is unparalleled in our industry leveraging the global recognition of the Invisalign system no. Other dental company equals our branch strength today for more details on our consumer marketing programs. Please see our Q3 'twenty two earnings and conference slides.

The new X snap module as a model attachment for printable three D articulated system, featuring a spherical head, which allows a precisely executed movement.

Turning to XO cat overall, I'm very pleased with our progress with the <unk> business and its leadership in restorative Dentistry. In addition to the <unk> connector I mentioned previously during the quarter. We also introduced <unk> nearing nearly as near infrared technology in oral camera images that are now automatically imported into that.

And I have acquired evolution dental system, a complete workflow for digital production of high quality removable dense dentures is now available in X. Okay.

Together, the <unk> and <unk> product portfolios to help accelerate the digital transformation of dental practices by facilitating the way doctors and labs collaborate to deliver better care for their patients.

Cat when design when designing restorations, enabling technicians to visualize the internal and external to structure and optimize the process of margin line Tracy.

As part of their line digital platform the integration of Vitaros digital scanning and XO cats complete software solution delivers seamless end to end digital workflows from diagnosis to treatment planning and then fabrication.

The new X snap module as a model attachment for printable three D articulated system, featuring a spherical head, which allows a precisely executed movement.

Customers are already utilizing the automated workflows unlocking efficiencies and productivity, which are more important than ever in the current economic climate.

And I have acquires a dilution dental system, a complete workflow for digital production of high quality removable dense dentures is now available on X. Okay.

With the recent integration of Taro Neary, an integral camera camera images unique <unk> element fived imaging system.

Together, the <unk> and <unk> product portfolios help accelerate the digital transformation of dental practices by facilitating the way doctors and labs collaborate to deliver better care for their patients.

<unk> and <unk> software release align is redefining restore to visualization and treatment planning for the doctors and labs, we are committed to continuing to innovating the dental industry to drive efficiency and clinical excellence, but the benefit of our customers and their patients with that I'll now turn it over to John .

As part of the online digital platform the integration of Vitaros digital scanning and <unk> complete software solution delivers seamless end to end digital workflows from diagnosis to treatment planning and then fabrication.

Thanks, Joe now for our Q3 financial results total revenues for the third quarter were $893 million down eight 2% from the prior quarter and down 12, 4% from the corresponding quarter a year ago on a constant currency basis, Q3, 2022 unfavorable foreign exchange.

Customers are already utilizing the automated workflows unlocking efficiencies and productivity, which are more important than ever in the current economic climate.

With the recent integration of Taro Neary, an integral camera camera images unique <unk> element Fived imaging systems and <unk> software release align is redefining restore to visualization and treatment planning for the doctors and labs, we are committed to continuing to innovating the dental industry to drive efficiency.

Reduced Q3 revenues by approximately $25 $1 million sequentially, and approximately $57 $4 million year over year.

But clear liners Q3 revenues of $732 $8 million were down eight 2% sequentially, primarily due to lower volumes unfavorable foreign exchange higher promotions and discounts and product mix shift, partially offset by higher additional liners on a year over year.

Clinical excellence, but the benefit of our customers and their patients with that I'll now turn it over to John .

Thanks, Joe now for our Q3 financial results total revenues for the third quarter were $890 3 million.

Down eight 2% from the prior quarter and down 12, 4% from the corresponding quarter a year ago on a constant currency basis, Q3, 2022 unfavorable foreign exchange reduced Q3 revenues by approximately $25 1 million sequentially and approximately $57 4 million.

<unk> Q3 clear aligner revenue.

12, 5%, primarily reflecting the aforementioned items offset somewhat by per order processing fees and higher non case revenues.

On a constant currency basis, Q3, 'twenty two unfavorable foreign exchange reduced Q3 clear aligner revenues by approximately $21 million.

Year over year.

But clear liners Q3 revenues.

Or approximately two 8% sequentially and approximately $47 four.

$732 $8 million were down eight 2% sequentially, primarily due to lower volumes unfavorable foreign exchange higher promotions and discounts and product mix shift partially offset by higher additional liners on a year over year basis, Q3 clear aligner revenue were down.

Or approximately six 1% year over year.

For Q3, Invisalign Asps for both comprehensive and non comprehensive treatment decreased sequentially and year over year on a sequential basis the decline in asps reflect unfavorable impact from foreign exchange.

12, 5%, primarily reflecting the aforementioned items offset somewhat by per order processing fees and higher noncash revenues.

That Joe described earlier as well as higher discounts and product mix shift, partially offset by higher additional liners on a year over year basis the decline in asps reflect.

On a constant currency basis, Q3, 'twenty two unfavorable foreign exchange reduced Q3 clear aligner revenues by approximately $21 million or approximately two 8% sequentially and approximately 47 $4 million or approximately six 1% year over year for <unk>.

The significant impact of unfavorable foreign exchange product mix shift and higher discounts, partially offset by the higher additional liners and per order processing fees.

As our revenues from subscription retainers and other.

Ancillary products continued to grow and expand globally. Some of the historical metrics that focus only on case shipments do not account for our overall growth.

Q3, Invisalign asps for both comprehensive and non comprehensive treatment decreased sequentially and year over year on a sequential basis.

And asps reflect unfavorable impact from foreign exchange.

In our earnings release and financial slides, you will see that we have added our total clear aligner revenue per case shipment, which is more indicative of our overall growth strategy.

Joe described earlier as well as higher discounts and product mix shift, partially offset by higher additional liners on a year over year basis the decline in asps reflect.

Clear aligner deferred revenues on the balance sheet increased $37 million or three 3% sequentially and $184 million.

The significant impact of unfavorable foreign exchange product mix shift and higher discounts, partially offset by the higher additional liners and per order processing fees.

Or up 18, 6% year over year and will be recognized as the additional liners are shipped.

As our revenues from subscription retainers and other <unk>.

During the three months ended September 32022, we recognized $137 2 million that was.

Ancillary products continue to grow and expand globally. Some of the historical metrics that focus only on case shipments do not account for our overall growth.

<unk> in the clear aligner deferred revenue balance.

At December 31, 2021 Q.

In our earnings release and financial slides, you will see that we have added our total clear aligner revenue per case shipment, which is more.

Q3, 22 systems and services revenue of $157 $5 million were down 8% sequentially, primarily due to lower scanner volume, partially offset by higher services revenues from our larger installed base and were down 11 point.

Indicative of our overall growth strategy.

Clear aligner deferred revenues on the balance sheet increased $37 million or three 3% sequentially and $184 million or.

7% year over year, primarily due to lower scanner volume and lower Asps.

We're up 18, 6% year over year and will be recognized as the additional liners are shipped.

Partially offset by higher services revenue from our larger installed base.

During the three months ended September 32022, we recognized $137 2 million.

Q3, 22 systems and services revenue were unfavorably impacted by foreign exchange of approximately $4 1 million or approximately two 5% sequentially on a year over year basis system and services revenues were unfavorably impacted by foreign exchange of approximately $9 9 million.

That was included in the clear aligner deferred revenue balance.

At December 31, 2021 Q.

Q3, 22 systems and services revenue of $157 5 million were down 8% sequentially, primarily due to lower scanner volume, partially offset by higher services revenues from our larger installed base and were down 11 seven.

Or approximately five 9%.

Systems and services deferred revenues on the balance sheet was up $4 $1 million or one 6% sequentially and up $76 5 million or 49% year over year, primarily due to the increase in scanner sales and a deferral of service revenues included with the scanner purge.

7% year over year, primarily due to lower scanner volume and lower Asps.

Partially offset by higher services revenue from our larger installed base.

<unk>, which will be recognized ratably over the service period.

During the three months ended September 32022, we recognized $13 $3 million that was included in the systems and services deferred revenues balance as of December 31, 2021.

Our approximately five 9%.

Moving on to gross margin third quarter overall gross margin was 69, 5% down one four points sequentially and down four eight points year over year.

Overall gross margin was unfavorably impacted by approximately 0.8 points sequentially and one eight points on a year over year basis due to the impact of foreign exchange on our revenues clear aligner gross margin for the third quarter was 79% down two four points sequentially due to lower <unk>.

<unk>, which will be recognized ratably over the service period.

During the three months ended September 32022, we recognized $13 $3 million that was included in the systems and services deferred revenues balance as of December 31, 2021.

Asps and increased manufacturing spend as we continue to ramp up operations at our new manufacturing facility in Poland.

Clear aligner gross margin for the third quarter was down five three points year over year due to increased manufacturing spend for the reasons stated previously higher freight and a higher mix of additional aligner volume and lower Asps.

Moving on to gross margin third quarter overall gross margin was 69, 5% down one four points sequentially and down four eight points year over year.

Systems and services gross margin for the third quarter was 63, 3% up three six points sequentially due to improved manufacturing absorption and lower freight costs systems and services gross margin for the third quarter was down two three points year over year due to higher NV inventory costs and manufacturing.

Asps and increased manufacturing spend as we continue to ramp up operations at our new manufacturing facility in Poland.

<unk> inefficiencies, coupled with lower Asps, partially offset by higher service revenues.

<unk> Aligner gross margin for the third quarter was down five three points year over year due to increased manufacturing spend for the reasons stated previously higher freight and a higher mix of additional aligner volume and lower Asps.

Q3, operating expenses were $475 $5 million down sequentially, four 8% and down three 7% year over year on a sequential basis operating expenses were down two.

$3 9 million, mainly due to controlled spend on advertising and marketing as part of our efforts to proactively manage costs.

Year over year operating expenses decreased by $18 5 million for the same reasons as sequential as well as lower incentive compensation.

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

<unk> inefficiencies, coupled with lower Asps.

See offset by higher service revenues.

Q3, operating expenses were $475 5 million.

Operating expenses were $443 $4 million down sequentially, four 8% and down four 9% year over year.

Down sequentially, four 8% and down three 7% year over year on a sequential basis operating expenses were down.

Okay.

Our third quarter operating income of $143 7 million resulted in an operating margin of 16, 1% down three three points sequentially and down nine six points year over year operating margin was unfavorably impacted by approximately one six points sequentially due to foreign.

$23 $9 million, mainly due to controlled spend on advertising and marketing as part of our efforts to proactively manage costs year over year operating expenses decreased by $18 5 million for.

For the same reasons as sequential as well as lower incentive compensation.

Exchange.

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

And lower gross margin the year over year decrease in operating margin is primarily attributed to lower gross margin.

Investments in our go to market teams and technology as well as unfavorable impact from foreign exchange by approximately three five points.

Operating expenses were $443 4 million down sequentially, four 8% and down four 9% year over year.

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

Okay.

Our third quarter operating income of $143 7 million resulted in an operating margin of 16, 1% down three three points sequentially and down nine six points year over year.

The operating margin for the third quarter was 22% down three points sequentially and down eight six points year over year.

Operating margin was unfavorably impacted by approximately one six points sequentially due to foreign exchange and.

Interest and other income and expense net for the third quarter was a loss of $21 million.

Compared to a loss of $14 6 million in Q2.

And lower gross margin the year over year decrease in operating margin is primarily attributed to lower gross margin.

And an income of <unk> 8 million in Q3 of 21, primarily due to larger net foreign exchange losses from the weakening of certain foreign currencies against the U S dollar.

Investments in our go to market teams and technology as well as unfavorable impact from foreign exchange by approximately three five points.

The GAAP effective tax rate for the third quarter was 47% compared to 35% in the second quarter and 39% in the third quarter of the prior year.

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

The operating margin for the third quarter was 22% down three points sequentially and down eight six points year over year.

Third quarter GAAP effective tax rate was higher than the second quarter effective tax rate, primarily due to the decrease in profits and changes in jurisdictional mix of income, resulting in lower tax benefits from foreign income taxed at different rates and higher than in the U S.

Interest and other income and expense net for the third quarter was a loss of $21 million compared.

Compared to a loss of $14 6 million in Q2 and.

And an income of <unk> $8 million in Q3 of 21, primarily due to larger net foreign exchange losses from the weakening of certain foreign currencies against the us dollar.

On a non-GAAP our non-GAAP effective tax rate was 33, 1% in the third quarter compared to 25, 6% in the second quarter and 22, 2% in the third quarter of the prior year.

The GAAP effective tax rate for the third quarter was 47% compared to 35% in the second quarter and 39% in the third quarter of the prior year.

Third quarter net income per diluted share was <unk> 93.

Down sequentially, 51, and down $1 35 compared to the prior year. Our EPS was unfavorably impacted by 30 <unk> on a sequential basis and 48 on a year over year basis due to foreign exchange.

On a non-GAAP basis net income per diluted share was $1 36 for the third quarter down 64% sequentially and down $1 51.

On a non-GAAP our non-GAAP effective tax rate was 33, 1% in the third quarter compared to 25, 6% in the second quarter and 22, 2% in the third quarter of the prior year.

Year over year.

Moving onto the balance sheet as of September 32022, cash cash equivalents and short term and long term marketable securities were $1 1 billion up sequentially $163 $8 million and down $96 $8 million year over year.

Third quarter net income per diluted share was <unk> 93 down sequentially 51, and down $1 35 compared to the prior year. Our EPS was unfavorably impacted by 30 <unk> on a sequential basis and 48 on a year over year basis due to foreign exchange.

Of the $1 1 billion balance $471 million was held in the U S and $670 million was held by our international entities.

On a non-GAAP basis net income per diluted share was $1 36 for the third quarter down 64% sequentially and down $1 51.

Q3 accounts receivable balance was $859 6 million down approximately seven 8% sequentially. Our overall days sales outstanding was 86 days flat sequentially and up approximately 11 days as compared to Q3 last year.

Year over year.

Cash flow from operations for the third quarter was $266 $5 million.

Capital expenditures for the third quarter were $75 $3 million.

Of the $1 1 billion balance $471 million was held in the U S and $670 million was held by our international entities.

Primarily related to our continued investments to increase aligner manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to 191 $1 million, we are well capitalized to continue to invest for growth while managing through this.

These challenging market conditions exited the quarter with over $1 billion in cash on the balance sheet and zero debt.

Now turning to full year 2022, and the factors that influence our views on our business outlook underlying market dynamics as well as the reactions to macroeconomic headwinds by central banks governments and consumers remain uncertain.

Cash flow from operations for the third quarter was $266 5 million capital expenditures for the third quarter were $75 3 million.

Primarily related to our continued investments to increase the lighter manufacturing.

We will continue to focus on those matters that have been central to our historically successful business strategies by managing those things within our control. This includes maintaining fiscal controls and focused delivery on our business model. So that we are positioned for success once the difficult operating.

<unk> and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to $191 1 million.

We are well capitalized to continue to invest for growth while managing through these challenging market conditions exiting the quarter with over $1 billion in cash on our balance sheet and zero debt.

Ultimately abates, we remain confident in the huge underpenetrated market for the digital orthodontics and restorative dentistry.

Our technology and industry leadership, and our ability to execute and make progress toward our long term model of 20% to 30% revenue growth we.

We expect to be below our fiscal 2022, GAAP operating margin target of 20%, which includes the impact from the current unfavorable foreign exchange of approximately two to three points that was not factored into our operating margin guidance for the fiscal year 2022, when we gave an update on the Q1 'twenty two.

<unk> earnings call in April .

<unk> ultimately abates, we remain confident in the huge underpenetrated market for the digital orthodontics and restorative dentistry are technology and industry leadership, and our ability to execute and make progress toward our long term model of 20% to 30% revenue growth.

For 2022, we expect our investments in capital expenditures to exceed $300 million.

Capital expenditures, primarily relate to building construction and improvements as well as additional manufacturing capacity to support our international expansion. This includes our.

Our investment in the aligner fabrication facility and Rockall Poland.

Which began servicing doctors in the second quarter of 2022.

In addition, during Q4 'twenty to 'twenty, two we expect to repurchase up to $200 million of our common stock through either.

Or a combination of open market repurchases or an accelerated stock repurchase agreement.

Earnings call in April .

For 2022, we expect our investments in capital expenditures to exceed $300 million.

With that I'll turn it back over to Joe for final comments, Joe. Thanks.

Capital expenditures, primarily relate to building construction and improvements as well as additional manufacturing capacity to support our international expansion. This includes our investment in the aligner fabrication facility and Rockall, Poland, which began servicing doctors in the second quarter of 2022.

Thanks, John as we continue to navigate a macroeconomic uncertainty weaker consumer confidence and the lingering impacts of COVID-19, shutdowns, primarily in China, and Japan remain focused on our strategic initiatives as well as the incredible market opportunity for digital dentistry and our products.

We believe our unwavering drive to transform smiles and change lives for millions of people around the world is one no other clear aligner company can match and positions us to better address this market opportunity.

In addition, during Q4 'twenty to 'twenty, two we expect to repurchase up to $200 million of our common stock through either.

Regardless of the operating environment, we are committed to balancing investments to drive growth and long term strategic priorities that will transform the practice of dentistry and strengthen our business.

Or a combination of open market repurchases or an accelerated stock repurchase agreement.

With that I'll turn it back over to Joe for final comments, Joe. Thanks.

These are uncertain times every business is being impacted by macroeconomic.

Thanks, John as we continue to navigate a macroeconomic uncertainty weak.

Environmental uncertainty in addition, as a multinational company based in the United States with roughly half of our sales outside the country.

Consumer confidence and the lingering impacts of COVID-19, shutdowns, primarily in China, and Japan remained focused on our strategic initiatives as well as the incredible market opportunity for digital dentistry and our products.

I gave the impact from unfavorable foreign exchange has been like anything I've ever seen in my career.

We will continue to invest in digital solutions and demand creation to help doctors and their patients. We are committed to doctor directed care and transforming the industry together, while working through these global macroeconomic challenges. Thank you for your time today, we look forward to updating you on our next earnings call now I'll turn the call over to the operator for questions.

Operator.

These are uncertain times every business is being impacted by macroeconomic.

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, a confirmation tone will indicate your line.

Environmental uncertainty in addition, as a multinational company based in the United States with roughly half of our sales outside the country.

<unk> impact from unfavorable foreign exchange has been like anything I've ever seen in my career.

Kate Your line is in the question queue, you May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star buttons.

One moment, please while we poll for questions.

Our first question comes from Jason Bednar with Piper Sandler Your line is now open.

Yes, hi, everyone. Thanks for taking my questions here.

Operator.

Joe from what we've seen and heard in the market.

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.

Without saying that monthly demands just been quite choppy here in the U S. I think July and September were pretty darn soft August maybe not as weak, but it's still not great.

<unk> tone will indicate your line.

Your line is in the question queue, you May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star buttons.

Did you see a similar level of uneven demand when we look outside the U S and I guess is there anything you'd call out geographically or in any of your channels that was maybe less bad than what you were prepared for three months ago.

One moment, please while we poll for questions.

So Jason we started with not high expectations to begin with right.

Our first question comes from Jason Bednar with Piper Sandler Your line is now open.

But I would say the U S market panned out the way we thought overall, maybe a little more strength in Latin America, a little momentum.

Yes, hi, everyone. Thanks for taking the questions here.

Joe from what we've seen and heard in the market.

Despite the elections and some economics there.

Goes without saying that monthly demands just been quite choppy here in the U S. I think.

Europe , just wasn't quite as strong as what we thought.

And as we tried to explain or in my notes that I really feel it's just.

July and September were pretty darn soft August maybe not as weak, but it's still not great.

It's the uncertainty that circulates Europe right now in Ukraine situation does doesn't help either.

From an Asia standpoint were affected by Covid again.

We saw it in China, even though we had growth in China, which was respectable in Japan also but we saw the market impacted in those two areas too.

So Jason we started with not high expectations to begin with right.

I felt great about.

It's a smaller part of the business, but Korea, Taiwan, Thailand, and other businesses that were up significantly, but our major three we're still affected primarily the three is Australia.

But I would say the U S market panned out the way, we thought overall, maybe a little bit more strength in Latin America, a little momentum.

Despite the elections and some economics there.

Europe , just wasn't quite as strong as what we thought.

And China, and Japan with some COVID-19 issue so.

And as we tried to explain or in my notes that I really feel it.

Way of saying I think in general we anticipated where we are we were hoping for the best here, but.

It's the uncertainty that circulates Europe right now in Ukraine situation does it doesn't help either.

But what really grasp to Jason maybe I am giving you too much for your call is that the team demand we felt good about overall across the globe in the United States too.

From an Asia standpoint were affected by Covid again.

We saw in China, even though we had growth in China, which was respectable and in Japan also but we saw the market impacted in those two areas two I always felt great about it.

The team packs did well overall, and obviously rule, we'll roll that out in other parts of the world to the adult the impact on the adult cases.

It's a smaller part of the business, but Korea, Taiwan, Thailand, and other businesses that were up significantly, but our major three we're still affected primarily the three is Australia and.

Was to me is astounding in a sense and you see that flow through the orthodontic community the GP community too and Thats not just the United States, we see that all over the world.

China, and Japan with some COVID-19 issues so.

Okay, Alright, that's real helpful. Thanks for all that.

It's a way of saying I think in general we anticipated where we are we were hoping for the best here.

Maybe Joe or John just on the margin topic, you are backing away from that 20% margin quarter commentary that you had you had given previously fully understand part of this is FX related but.

But.

What really grasp to Jason maybe I am giving you too much for your call is that the team demand we felt good about overall across the globe in the United States too.

But maybe can you talk about how much of it's tied to the decremental impacts from lower volumes and then fully understand this is a tough macro environment to forecast, but a lot of investors right. Now are really trying to get comfortable with how defensible margins and profitability are as we look out to 2023, which.

<unk> did well overall, and obviously rule, we'll roll that out in other parts of the world to the adult.

The impact on the adult cases.

To me is astounding in a sense and you see that flow through the orthodontic community. The GP community too and that's not just the United States, we see that all over the world.

And I hope, it's not but it could very well be another tough year for the business just given the global macro environment. We're in so you just are you willing to provide any guardrails around what we can consider for 2023 margins or maybe talk about how much flexibility you have in the P&L to offset pressures from lower volumes. Thank you.

Okay, Alright, that's real helpful. Thanks for all that.

Maybe Joe or John just on the margin topic.

Backing away from that 20% margin quarter commentary that you had you had given previously fully understand part of this is FX related.

It's a fair question first of all I'll turn it over to John but you don't.

The one that gave that 20% operating margin piece I had no idea you would see international currency swings in the way we've seen it I've been in these jobs for a long time, and you don't expect 25% decreases year over year and currency.

Maybe can you talk about how much of it's tied to the decremental impacts from lower volumes and then fully understand this is a tough macro environment to forecast, but a lot of investors right. Now are really trying to get comfortable with how defensible margins and profitability are as we look out to 2023, which.

So obviously, we have had to back up on that piece I feel good about the way we manage our costs.

Feel good about where we're investing in where we continue to right size John will give you more specifics so on a constant currency basis, we expect to be at that 20% or above it's just that like Joe said.

I hope, it's not but it could very well be another tough year for the business just given the global macro environment. We're in so we just are you willing to provide any guardrails around what we can consider for 2023 margins or maybe talk about how much flexibility you have in the P&L to offset pressures from lower volumes. Thank you.

It's pretty dramatic to see the FX changes that we have as noted in the comments, we said, it's going to affect the year by two to two to three points. So there's no there's a.

I guess, it's a fair question first of all I'll turn it over to John but Im.

Commitment to that margin and we're investing based on on volume that we see and other priorities that we have on R&D and go to market activities and so on but it's just that FX piece that we're calling out but on.

And so obviously, we have had to back up on that piece I feel good about the way we manage our cost.

On a constant currency basis, we feel that that that number of 20%.

I feel good about where we're investing and where we're at.

Still holds from earlier.

We continue to right size, John will give you more specifics so on a constant currency basis, we expect to be at that 20% or above it's just that like Joe said.

Okay. Thanks, Jason.

Yeah.

Our next question comes from Brandon Velasquez with William Blair. Your line is now open.

It's pretty dramatic to see the FX changes that we have as noted in the comments, we said, it's going to affect the year by two to two to three points. So theres no theres a commitment to that margin and we're investing based on on volume that we see and other priorities that we have on R&D and go to market activities.

Hi, everyone. Thanks for taking my question I wanted to.

Everyone I'd like to go back for a second kind of to the monthly progression just to I think what might be helpful to kind of understand underlying market dynamics and maybe you can tease it out a little bit in Americas versus international just where are you seeing through the quarter, where you did you exit the quarter in Q4, where things stabilizing or are they getting better where they are getting worse.

So on but it's just that FX piece that we're calling out but.

On a constant currency basis, we feel that that that number of 20%.

Still holds from earlier.

Or any kind of color you can give us around what the situation is like as we go forward from Q3.

Okay. Thanks, Jason.

Yeah.

Again on the last call Brandon I think it played out the way our expectations I think were formatted we talked about teens in the third quarter, and obviously that teen season.

Our next question comes from Brandon Velasquez with William Blair. Your line is now open.

Hi, everyone. Thanks for taking my question I wanted to go.

Brian So let me go back for a second kind of to the monthly progression just to I think what might be helpful to kind of understand underlying market dynamics and maybe you can tease it out a little bit in Americas versus international just where are you seeing through the quarter, where you did you exit the quarter in Q4 were things stabilizing where they are getting better where they're getting worse.

That played out well from what we anticipated and as we mentioned before we think teens are somewhat shielded not completely but shielded from the economic environment because of the time window for treatment and parents.

To help their teams through that whole process. The adult segment was the we saw the most volatility in for sure.

Or any kind of color you can give us around what the situation is like as we go forward from Q3.

Both in the United States Europe and in Asia, It's hard for me to tell you that we are.

There is any kind of change from court from month to month or quarter to quarter was pretty consistent from what we've seen John would you add anything else to minutes, that's how we saw it.

Again on the last call, Brian I think it played out the way our expectations I think were formatted we talked about teens in the third quarter and obviously that's teen season.

Okay. Thanks, and then.

Nationally you guys sound pretty excited about kind of the new product launches within China, specifically offering that new maybe lower tier product can you just talk a little bit about what youre seeing there how strong is the recovery bin in China, how much of that recovery has come from really opening up the product portfolio, there and how should that kind of continue going forward.

To help their teams through that whole process. The adult segment was the we saw the most volatility in for sure.

Both in the United States Europe and in Asia, It's hard for me to tell you that were.

Thanks.

Yeah. Thanks, Brian that's a good question I mean, China is a very important market for us.

There is any kind of change from court from month to month or quarter to quarter was pretty consistent from what we've seen John would you add anything else limits, that's how we saw it.

As we've talked about on other calls those tier three and tier four cities have been important target for us.

We've known for about two years, we have a hole in our portfolio in those areas.

Particularly we have comprehensive on top and then we have a moderate product between it so we announced Invisalign standard Invisalign adult and what this does is it just helps US segment. The market. These are not they can't handle these.

Okay. Thanks, and then.

Nationally you guys sound pretty excited about kind of the new product launches within China, specifically offering that new maybe lower tiered product can you just talk a little bit about what youre seeing there how strong is the recovery bin in China, how much of that recovery is going to come from really opening up the product portfolio, there and how should that kind of continue going forward.

Each products can have handled cases like invisalign first can or mandibular advancement or some of the sophisticated cases, we have out there we don't offer CBC T.

Thanks.

Yeah. Thanks, Brian that's a good question I mean, China is a very important market for us.

Five minute Quinn checking those kinds of things around those products too. So we tailor those products for more moderate kinds of cases.

As we've talked about on other calls those tier three and tier four cities have been an important target for us we've known for about two years, we have a hole in our portfolio in those areas.

In those specific areas, where public hospitals have been stronger.

Good result from a standpoint of what we saw in the uptake that.

But we saw.

Over that over this last quarter and we will continue with that strategy, we feel good about it and it's about market expansion, there, where we're selling into more doctors than we sold to in the past with these products. So we're really trying to capture more of that market as Joe said into tier three tier four cities and.

These products can have handle cases, like invisalign first can or mandibular advancement or some of the sophisticated cases, we have out there we don't offer CBC T.

And we saw we saw good uptake from that and it's something that we know to go to the market and be able to reach potential customers. These are the types of products that we need yes. So brennan I think honestly I feel I feel really good about our positioning there China did performed well from a volume standpoint.

Five minutes Glen checking those kinds of things around those products too. So we tailor those products for more moderate kinds of cases in.

In those specific areas, where public hospitals have been strong and really good result from a standpoint of what we saw in the uptake.

We will continue to update on our progress.

Great. Thank you.

We saw.

Thank you.

Our next question comes from Jon Block with Stifel. Your line is now open.

Thanks Scott.

Hey, Joe Hey, Joe Hey, John .

Maybe just first one for me the <unk> 22, <unk> of $11 50.

And we saw we saw good uptake from that and it's something that we know to go to the market and be able to reach potential customers. These are the types of products that we need.

12, 20, I'm counting down 6% Q over Q.

Some of Thats FX, but I think if I look at your comments it seems like half.

Of that 6% headwinds FX and John I know, you said mix, but.

So Brandon I think honestly I feel I feel really good about our positioning there China did.

I'm counting the team was.

Well from a volume standpoint, and we'll continue to update on our progress.

35% of your three Q 'twenty two cases.

Great. Thank you.

Versus 30% of your <unk>.

Thank you.

22 cases.

Okay.

<unk> has a higher acuity comprehensive AOSP.

Our next question comes from Jon Block with Stifel. Your line is now open.

I would think DSP is also helping pull out some of the lower.

Thanks Scott.

Hey, Joe Hey, Joe Hey, John .

ASP cases, as DSP ramps quarter in quarter out. So can you just help me with.

Maybe just first one for me the <unk> 22, <unk> of $11 50.

ASP movement, what else was it outside of FX and if it was mix why mix based on my team commentary.

12, 20, I'm counting down 6% Q over Q.

Some of Thats FX, but I think if I look at your comments it seems like half.

Yes, I think I think you hit the major pieces, John when you look at it.

Of that 6% headwinds FX and John I know, you said mix, but.

Majority was was FX, we saw the dollar strengthening that oxy hits, our numbers and then you look at.

I'm counting the team was.

35% of your three Q 'twenty two cases.

The other part said, we do have a higher proportion of <unk> in the third quarter and that that's a help we also have things that we've done like we answered on the previous call about about mix in China and expansion out and there's offsets to that but it's primarily FX and then you have some mix but from.

Versus 30% of your <unk>.

<unk> thousand two cases.

<unk> has a higher acuity comprehensive AOSP.

I would think DSP is also helping pull out some of the lower.

ASP cases, as DSP ramps quarter in quarter out. So can you just help me with the ASP movement, what else was it outside of FX and if it was mix why mix based on my team commentary.

A discounting standpoint, there are other things Theres really no overall change to how we've done stuff, it's primarily the FX piece and the mix.

Yes, I think I think <unk>.

Hey, gentlemen.

Hit the major pieces, John when you look at it.

To add to that too on the DSP program, we look at that as incremental not is replacing other business that we've had in the past so like.

Majority was was FX, we saw the dollar strengthening that oxy hits, our numbers and then you look at.

So we feel good that's an expansion play for us So I think youll see that in our numbers too.

Okay. So maybe just quickly on that last point, Joe a question <unk> would be you don't really think any cases are being pulled out of the case volume number into DSP, that's actually having an incremental negative impact of 22. You think those are just truly largely incremental that was one b just to be clear.

A discounting standpoint, there are other things Theres really no overall change to how we've done stuff, it's primarily the FX piece and the mix.

Yes, I think I.

I think you learn a business John never be binary either or I would say the majority of those cases, if you look at it we're picking up from an ortho standpoint, a lot of retention, we never had before.

Hey, John wanted.

To add to that too on the DSP program, we look at that as incremental not is replacing other business that we've had in the past so like.

We see ortho is doing touch up cases, and all that might have been done in house at times. So I'm not saying that there is absolutely nothing that would transpose from one to another but I'd say, primarily we're looking at that as a growth opportunity for us.

We feel good that's an expansion play for us So I think youll see that in our numbers.

Okay. So maybe just quickly on that last point, Joe a question <unk> would be.

You don't really think any cases are being pulled out of the case volume number into DSP, that's actually having an incremental negative impact of 22. You think those are just truly largely incremental that was one b just to be clear.

Okay helpful. And then the last question and it's just where I struggle. The most is I think sort of.

Who cares, but my view on team versus how you guys have positioned with all due respect and I get the team <unk> had a good sequential growth rate, but the <unk> <unk> because <unk> was weak was actually below trend on a four year average throwing out 2020 and Joe just.

Yes, I think.

I think you learn a business John never be binary either or I'd say the majority of those cases, if you look at it we're picking up from an ortho standpoint, a lot of retention, we never had before.

If we can go down that road, a little bit more Tnk's falls, we're still down 3% year over year. This whole story is about taking maybe 200 bps of share every year and this market. What do you think overall teen case volume was globally. If you guys were down 3% and and maybe just really the questions about <unk>.

Okay helpful. And then the last question and it's just where I struggle. The most is I think sort of.

Market share gains and if you still feel like <unk> got the momentum there or if that has slowed as of late in what can reaccelerate. Thanks for your time.

Yes, John again.

That's a good question I think when you talk about first quarter to second quarter.

The rhythm that we had there remember the normal rhythms, we've seen in this business the seasonality we call. It we have not seen that since really 2019 and so.

We had muted signals on teens through 2000 2021, just there wasn't the same what what I liked about what I saw in the third quarter was we saw teens come.

Come back in the sense of in a pattern of what you'd expect in teen season, Q3, Q4, it's too early for me to dig out the data and tell you how much share we're gaining against wires and brackets.

Market share gains and if you still feel like you have got the momentum there or if that has slowed as of late in what can reaccelerate. Thanks for your time.

Yes, John again.

That's a good question I think when you talk about first quarter to second quarter.

John will be able to talk about a lot of products like <unk>.

And we highlighted here today when you look at the Invisalign first product line really getting tremendous results out there on young patients six to nine years old the phase one phase III treatments, where.

The rhythm that we had there remember the normal rhythm as we've seen in this business the seasonality we call. It we have not seen that since really 2019 and so.

We had muted signals on teens through 2020 'twenty. One just there wasn't the same what what I liked about what I saw in the third quarter was we saw teens come.

Often the phase III can be a lot less extensive than what the phase one one was with wires and brackets. So are different expansion devices. So we see a big uptick in that product line from a teen standpoint, we see that as penetration too.

Come back in the sense of in a pattern of what you'd expect in teen season, Q3, Q4, it's too early for me to dig out the data and tell you how much share we're gaining against wires and brackets.

We've seen consistent growth from a share standpoint, those teen cases in Americas globally. So.

We just didn't.

Introduced curved wings mandibular advancement to that's having a really good start in the market too. It addresses some cases mandibular advancement couldnt get in the past so John both of technology with our advertising campaigns, the teen packs and whatever I continue to feel good about our movement.

John will be able to talk about a lot of products like <unk>.

We'll have more as we analyze the trends the share trends and stuff that we'll be able to share with you, but I do like our position in the marketplace.

Appreciate it thanks, Scott Thanks, Scott.

Alright.

Yeah.

Our next question comes from Brandon Couillard with Jefferies. Your line is now open.

We've seen consistent growth from a share standpoint, those teen cases in Americas globally. So.

We just didn't.

Hi, Joe Hi, Brian just a question on Opex, and how Youre managing head count whether you've pulled back.

The parts of the business globally, and maybe just talk about the levers that might be entry disposal.

Environment continued to deteriorate and maybe if there are some areas that would be bring fence as far as the potential cuts.

We'll have more as we analyze the trends the share trends and stuff that we'll be able to share with you, but I do like our position in the marketplace.

Hey, Ben It's Joe look first of all.

What I protect with my life here are our direct salespeople and also our our technology and our engineering teams and what we focus on.

I appreciate it thanks sure Thanks, Sean.

Alright.

Yeah.

Our next question comes from Brandon Couillard with Jefferies. Your line is now open.

And so we've made sure that we continue to reinforce those.

There is other parts of our business too that we right size I mean, obviously this business is used to grow in 2030%. So we kind of came into the year with that mindset, we quickly realized that wasn't and so we've taken actions in order to do that but.

Hi, Joe Hi, Brian just a question on just Opex and how Youre managing head count whether you've pulled back.

The parts of the business globally, and maybe just talk about the levers that might be entry disposal.

And you see that throughout the business don't forget we also have really strong productivity programs and manufacturing at all it really help us during these times and Murray and his team do a terrific job to help too.

Environment deteriorate and maybe if there are some areas that would be bring sense as far as the potential cuts.

Help to drive that John will give you another insight in a sense of how we're managing opex across the business. So we have a good we have good insight into our P&L across across the world. So we're looking at country by country and in certain regions and so on and like Joe said from an overall focus.

Hey, Ben It's Joe look first of all.

What I protect with my life here are our direct salespeople and also our our technology and our engineering team and what we focus on.

And so we've made sure that we continue to reinforce those.

Right.

Make sure that we'll go into market and protecting the sales make sure our R&D and technology is putting out the best products and the best technology going forward that we protect that and then we look at what expenses.

There is other parts of our business too that we right size I mean, obviously this business is used to grow in 2030%. So we kind of came into the year with that mindset, we quickly realized it wasn't and so we've taken actions in order to do that but.

Sense and in the short and long term in in various regions. Various campaigns that we have to make sure that we're getting the return that's appropriate given given the market condition. So.

Help to drive that John will give you another insight in a sense of how we're managing opex across the business. So we have a good we have good insight into our P&L across across the world. So we're looking at country by country in certain regions and so on and like Joe said from an overall focus.

We're constantly iterating and changing thinks it is.

No different on the other side of things when a year ago were looking at at the growth opportunities. We're looking at it the same type of way.

On a country by country market by market basis, It's just the.

The other way as it is now so we feel like we have a good understanding of our return on investment and a good understanding of the levers that we need to pull or not Paul.

To.

Make sure that we're going to market and protecting the sales make sure our R&D and technology is putting out the best products and the best technology going forward that we protect that and then we look at what expenses make.

These conditions.

That's helpful. And then John just one follow up can you tell us kind of understand what's going on with the inventory line. While it continues to grow year over year and sequentially there something tied to the new European fab facility that may be driving that.

Makes sense and in the short and long term in in various regions. Various campaigns that we have to make sure that we're getting the return that's appropriate given given the market condition. So we're constantly iterating and changing thinks it is no different on the other side of things when a year ago were looking at at the growth opportunities. We're looking at it the same type of <unk>.

Which we should expect on that line next few quarters, Yes, I think we're kind of getting to.

We kind of get to a point, where some of that is due to just the fact that you have a third manufacturing site and you're going to have raw materials related to that in other in process.

Wei.

On a country by country market by market basis, it's just.

The other way as it is now so we feel like we have a good understanding of our return on investment and a good understanding of the levers that we need to pull or not pull given these conditions.

Inventory and so on there so you're going to have some of that some of it is also on the on the <unk> side, where youre manufacturing and you're doing some things where you're you're securing supply I mean theres been a lot of talk and we feel good about our supply to be able to components and so on we purchased several components just to make sure that we had.

Adequate supply for our forecasts and so on but nothing out of the ordinary other than some expansion that we have with new manufacturing and then making sure that we secured our supply lines and that's what we've seen in our numbers.

What should we should expect on that line.

Yes, I think we're kind of getting to.

We kind of get to a point, where some of that is due to just the fact that you have a third manufacturing site and you're going to have raw materials related to that in other in process inventory and so on there so you're going to have some of that some of it is also on the on the <unk> side, where youre manufacturing and you're doing some things where you are.

Great. Thank you.

Thank you Brian .

Our next question comes from Jeff Johnson with Baird. Your line is now open.

Thank you good afternoon guys.

Hey, guys, Joe I want to pin you down a little bit on a couple of things that I couldn't hear that.

Securing supply I mean, theres been a lot of talk and we feel good about our supply to be able to components and so on with purchased several components just to make sure that we had.

Questions that have been asked.

And then on the team, especially I mean, Luckily we know there were so many adult cases last year with the XOMA factor whenever we want to call it stimulus spending and all that but the team number is obviously the important number I think we're all trying to focus on here the down 3% I think is what you said year over year up sequentially that down 3% year over year on teen cases globally I mean, how do you feel.

Adequate supply for our forecast and so on but nothing out of the ordinary other than some expansion that we have with new manufacturing and then making sure that we secured our supply lines and that's what we've seen in our numbers.

Okay. Thank you.

That compares to the overall ortho market, where you better or worse than other teen cases done with brackets and wires when you throw in other clear liners.

Thanks, Brian .

Our next question comes from Jeff Johnson with Baird. Your line is now open.

From the competitors things like that just how are you competing in that market right now.

Thank you good afternoon guys.

Hey, guys, Joe I want to pin you down a little bit on a couple of things that I couldn't hear that.

Hey, Jeff It's fair question.

Questions that have been asked and then the team, especially I mean, Luckily we know there were so many adult cases last year with the XOMA factor whenever we want to call it and stimulus spending and all that but the pin number is obviously the important number I think we're all trying to focus on here the down 3% I think is what you said year over year.

At first taken to Europe , I mean, Europe was down substantially for us too. So I don't think we got a clear signal out of there because of the economics in general.

We did we did fairly well from a European standpoint, but the third quarter in Europe is never a particularly strong quarter pull signal out of.

Sequentially net down 3% year over year on teen cases globally, I mean, how do you feel like that compares to the overall ortho market, where you better or worse than other teen cases done with brackets and wires when you throw in other clear liners.

You look at the United States go to Gage data.

And Youll see that.

Inside the Gage data.

<unk> were down, but invisalign was actually above what the generic liners are a record and engage data which says.

From the competitors things like that just how are you competing in that market right now.

We continue to do well with our team portfolio and what we do you see wires and brackets cases actually actually expanded but with that is as you will see is theyre doing more or fewer adults and how orthos have held onto teams for a long time, you'll get a mixed phenomena, there where it looks like theyre doing more wires and brackets, but theyre not theyre, just doing fewer adults and they mixed.

Hey, Jeff It's fair question.

First taking the Europe , I mean, Europe was down substantially for us too. So I don't think we got a clear signal out of there because of the economics and in general I mean, we did we did fairly well from a European standpoint.

In that sense, So and then move over to Asia I've always felt good about being in Asia is different by country, but the COVID-19 overlay in Japan in particular, but also China.

Third quarter in Europe is never a particularly strong quarter pull signal out of.

Look at the United States go to Gage data and.

And Youll see that.

I thought the teen case volume was still were still reasonable, but it's still hard to pull a signal out of a lot of noise with the COVID-19 shutdowns at all in those countries. So again just like in John's question, Jeff is I do feel great about our portfolio I feel good about how we're positioning the product I think the team packs are a way to sell the way doctors.

Inside the Gage data.

The liners were down, but invisalign was actually above what the generic liners are a record and engage data which says.

We continue to do well with our team portfolio and what we do you see wires and brackets cases actually actually expanded but with that is as you will see is theyre doing more or fewer adults and how orthos have held onto teams for a long time, you'll get a mixed phenomena, there where it looks like you're doing more wires and brackets, but theyre not theyre just doing fewer adults and they mixed.

To commit in this area.

We will continue to get stronger in the future of those teen cases. There is no question is digital it's just how we approach it the products, we launch and convincing doctors more and more of that teams will use these and showing in the results that we're seeing all of the world.

In that sense, So and then move over to Asia I've always felt good about and been in Asia is different by country.

But the Covid overlay in Japan in particular, but also China.

Yes, fair enough Alright, and then I'm going to jam two questions together kind of I'll, let Jon block here I'll call. It two way and to be even though they're separate questions, but any update on volume based procurement in China. How we should think about that and then I didn't see a breakout for Americas versus international doctors shipped to you provided that in the past any way we could get that number at this time.

And the Doctor ship too.

Doug This is consolidate them together to a total and what we saw if you looked at international versus domestic they're both up.

Want to commit in this area.

I think we'll continue to get stronger in the future of those teen cases. There is no question is digital it's just how we approach it the products, we launch and convincing doctors more and more of that teams will use these and showing in the results that we're seeing all over the world.

Again, the numbers that we had this is actually our second highest ever from a ship to standpoint.

But we decided to consolidate those together without giving too much too much more details on that but they were both up.

Yes, fair enough Alright, and then I'm going to jam two questions together kind of I'll, let Jon block here I'll call. It <unk>. Another separate question, but any update on volume based procurement in China, how we should think about that and then I didn't see a breakout for Americas versus international doctors shipped to you provided that in the past any way we could get that number this time. Thanks.

And sequentially, John just to be clear.

Yes, yes, John both up sequentially. Thank you, yes, I'm, sorry, yes, yes.

Yes sequential yeah.

On the volume based purchasing in China, we have our eyes all over it Jeff as you can guess.

Yeah.

And the Doctor.

Chip to what we've done is consolidate them together to a total and what we saw if you looked at international versus domestic they're both up.

It represents.

Anywhere between 15, and 18% of our business there the.

The way they are setting this up.

Pretty much what we would call did not our main areas, where we do business in China.

And.

The numbers that we had this is actually our second highest ever from a ship to standpoint.

I think we've positioned ourselves for this strategically.

But we decided to consolidate those together without giving too much too much more details on that but they were both up.

Yes.

We can make the right move here.

I have friends and other medical device businesses is in the medical devices for a while we know what this did the stance and hip transplants and different things I feel like the way. They set this up one is 70% of it will be the BP in those areas.

Yes.

Essentially Jon just to be clear.

Yes, yes, John both up sequentially. Thank you sorry, Joe Yes, yes, correct.

Yes on sequential.

On the volume based purchasing in China, we have our eyes all over it Jeff as you can guess.

30% will still be up to the doctors in the sense of what they want to use and how they want to use it. So what's key here is that we exercise our portfolio and the capacity that we have over there to just have a strategic positioning in that so I don't expect any major differences as we move into 2023, we'll just have to wait to see how that goes and as we move into 2002.

It represents.

Anywhere between 15, and 18% of our business there the.

The way they are setting this up.

Pretty much what we would call did not our main areas, where we do business in China.

I think we positioned ourselves for this strategically.

For 2025, how the government, which way the government moves.

Yes.

We can make the right move here.

Thank you.

Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is now open.

Hi, guys. Thanks. So much further question I guess my first question is just on the equipment line I noticed you sort of talking more about leased equipment in the quarter can you just talk about.

How how that's been growing and sort of what contribution that made to the equipment revenues in the quarter.

Yes, I can start with that.

It's obviously a strategy that we have we've got great equipment based great products, and we want to be able to get those to our customers in a way that they want to buy it sometimes those doctors of Archstone don't necessarily want to purchase it outright. They wanted to try other things and so we've tested in certain markets just alternatives part of the rental model in <unk>.

For 2025, how the government, which way the government moves.

Thank you.

Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is now.

Hi, guys. Thanks. So much further question I guess my first question is just on the equipment line. I know this is sort of talking more about leased equipment in the quarter can you just talk about.

And we see we see good uptake we see them. These doctors now wanting to get the scanner to bear up digitize their practice. So it's really at early stage right now Elizabeth but it is something that when we think about how we want to go to market, we want to offer alternatives, such as leasing or expanding rental or <unk>.

How how that's been growing and sort of what contribution that made to the equipment revenues in the quarter.

Yes, I can start with that.

Other parts of our business are going to see.

It's obviously a strategy that we have we've got great equipment, great great products, and we want to be able to get those to our customers in a way that they want to buy sometimes those doctors of archstone don't necessarily want to purchase it outright. They wanted to try other things and so we've tested in certain markets just alternatives part of the rental model.

The certified pre owned wherever you have upgrades and other things that happened as we have a larger and larger installed base, we're going to get some of that equipment back we want to be able to have a mechanism to be able to use that equipment use it in other places and give our customers alternatives. Both in terms of equipment that they can purchase from us.

So on and we see we see good uptake we see them. These doctors now wanting to get a scanner to bear out digitize their practice. So it's really at early stage right now Elizabeth but it is something that when we think about how we wanted to go to market, we want to offer alternatives, such as leasing or expanding rental or <unk>.

And then how they purchase and use that equipment from a financing or.

Or maybe a leasing or rental option and we think that they will they'll end up used.

Using our equipment more and more and that we know that helps from a digital standpoint, when they use the equipment and then they'll end up using more invisalign. So it all kind of works from an ecosystem standpoint.

Other parts of our business are going to see.

The certified Preowned wherever you have upgrades and other things that happen as we have a larger and larger install base, we're going to get some of that equipment back we want to be able to have a mechanism to be able to use that equipment use it in other places and give our customers alternatives. Both in terms of equipment that they can purchase from us.

Got it.

And then just in terms of the on the P&L like one of the things that obviously saw that the change in the SG&A spend in the quarter and how you pulled back on spending there one is that on the R&D line, you sort of see an opportunity to pull back on R&D and small going forward or is that something I should've keener to defend going.

Ed how they purchase and use that equipment from a financing or.

Pod.

Or maybe a leasing or rental options and we think that they'll they'll end up.

Hey, listen it's Joe we want to defend R&D very important part of the business you can see the programs are rolling out.

The programs are rolling out we didn't do them. This year right. Some of these are three year old programs that we've been working on.

And so I don't want to stop the momentum on those I mean, obviously, we will take any steps here to preserve the cash flow and integrity of this business that we have to do but our frontline to our sales organization and technology.

Got it and then just in terms of the on the P&L like one of the things that obviously saw that the change in SG&A spend in the corner I mean, how you pulled back on spending there one of them.

And before we go anywhere near those are going to make sure. We do everything we can there.

Right size the business in other areas.

On the R&D line, you sort of see an opportunity to pull back on R&D as well going forward or is that something I should've keener to defend going forward.

Got it and then just in terms of my <unk> question.

In terms of like what Youre seeing through the month of October so far if we're sort of thinking about how the cadence of <unk> is shaping up but you shouldn't expect that Keith has to be sort of flat sequentially. At this point based on what youre seeing or like how do we think about sort of where we are now.

Elizabeth It's Joe we wanted to defend R&D very important part of the business you can see the programs are rolling out.

The programs are rolling out we didn't do that this year right. Some of these are three year old programs that we've been working on.

And so I don't want to stop and momentum on those I mean, obviously, we will take any steps here to preserve the cash flow and integrity of this business that we have to do but our frontline's or our sales organization and technology.

Does this.

Kind of anticipating that question is we're not seeing any major change I'd say some momentum that we saw in the second quarter.

And before we go anywhere near those want to make sure we do everything we can there.

You mean, the third quarter.

I'm, sorry third quarter, that's right.

Right size the business in other areas.

Got it and then just in terms of my <unk> question.

Got it.

Yeah.

Thank you I appreciate it.

In terms of like what Youre seeing through the month of October so far if we're sort of thinking about how the cadence of <unk> is shaping up but you can expect that Keith is to be sort of flat sequentially. At this point based on what youre seeing or like how do we think about sort of where we are now.

Thank you.

Yeah.

Our next question comes from Erin Wright with <unk>. Your line is now open.

Great. Thanks, so much so how should we think about underlying e&ps going forward, excluding the FX dynamics.

Yeah.

From here just given some of the mixed dynamic he noted and FX is FX.

Kind of anticipating that question is we're not seeing any major change I'd say some momentum that we saw in the second quarter.

That's understandable, but if.

If we do continue to see what we're seeing in terms of the macro environment.

You mean, the third quarter.

I'm, sorry third quarter, that's right.

What do we think about in terms of trough margins from here and do you see an opportunity for it sort of recovery near term or any sort of margin expansion and anything you can give us on that front would be helpful. Thanks.

Got it.

Yes.

Thank you I appreciate it.

Thank you.

Yeah.

Our next question comes from Erin Wright with <unk>. Your line is now open.

Yeah, obviously, Erin this is John obviously gross margin op margins.

Great. Thanks, so much so how should we think about underlying asps going forward, excluding the FX dynamics.

Primary concern for US we wanted to make sure that we're managing appropriately.

From an ASP standpoint.

FX out of this and really FX out of our margin because its hard to so much coming through from a P&L standpoint, but we're always looking at productivity to be able to help drive the business and as we scale up Poland is a great example, we'll become.

And from here just given some of the mixed dynamic Keynoting and FX is FX.

That's understandable, but if.

If we do continue to see what we're seeing in terms of the macro environment.

What do we think about in terms of trough margins from here or do you see an opportunity for it sort of recovery near term or any sort of margin expansion and anything you can give us on that front would be helpful. Thanks.

More productive there and that will help our margin it's kind of in our margins right now is as an impact, but it will get better over time through utilization.

We look at.

The technology that we have in the business and what it means from an ASP standpoint, and our customers understand that.

Yeah, obviously, Erin this is John obviously gross margin op margins.

Primary concern for US we wanted to make sure that we manage things appropriately.

Theres always going to be a geographical mix shifts that happen at certain parts of the world.

From an ASP standpoint take FX out of this and really FX out of our margin because its hard to so much coming through from a P&L standpoint, but we're always looking at productivity to be able to help drive the business and as we scale up Poland is a great example will become.

At different times throughout the year, but I don't expect a dramatic shift in our overall asp's take FX out of it.

From an overall ASP standpoint, and then we're really focused on what can we do too.

To look at savings that help us from a gross margin standpoint, and see that and then also on an op margin standpoint for all the Opex things that we previously talked about.

More productive there and that will help our margin it's kind of in our margins right now as an impact, but it will get better overtime through utilization.

We look at.

The technology that we have in the business and what it means from an ASP standpoint, and our customers understand that.

Okay. Thanks, and then just going back to this question on the quarterly cadence.

<unk> market in particular.

What are you seeing in terms of the typical seasonality there and did you see some of that momentum continuing here into the fourth quarter in that particular segment or how should we be thinking about the corner to corner cadence.

Theres always going to be a geographical mix shifts that happen in certain parts of the world.

At different times throughout the year, but I don't expect a dramatic shift in our overall asps.

Given relative to what you typically see from a seasonal standpoint.

Take FX out of it.

Yeah.

From an overall ASP standpoint, and then we're really focusing on what can we do too.

Teen market predominantly we look at the third quarter.

Obviously, a bleed some into the fourth quarter or whatever but I wouldn't take anything we're seeing right now and projected into the future to change.

Look at savings that helped us from a gross margin standpoint, and see that and then also on an op margin standpoint for all of the Opex things that we've previously talked about.

What the normal fourth quarter sequence could be so.

Like I said previously on the question as far as when you look at third quarter moving into the fourth quarter, we're not seeing any meaningful change one way or another.

Okay. Thanks, and then just going back to your liquids question on the quarterly cadence in the teen market in particular and what are you seeing in terms of the typical seasonality there and did you see some of that momentum continuing here into the fourth quarter in that particular segment or how should we be thinking about the corner to corner Kian.

Okay. Thank you.

Thank you.

Our next question comes from Nathan Rich Goldman Sachs. Your line is now.

Given relative to what you typically see from a seasonal standpoint.

Hi, Thanks for the questions.

Any other.

Teen market predominantly we look at the third quarter.

Hi, good afternoon.

Could go back to.

Obviously, a bleed some into the fourth quarter, whatever but I wouldn't take anything we're seeing right now projected into the future to change.

Margins for a minute.

You mentioned not changing the target for this year on a constant currency basis I guess.

What the normal fourth quarter sequence could be so.

If I could maybe ask the question. This way if we don't see further changes to FX or the kind of overall demand environment do you think the 16% margin that you saw this quarter on a GAAP basis is indicative of what.

Like I said previously on the question as far as when you look at third quarter moving into fourth quarter, we're not seeing any meaningful change one way or another.

Okay. Thank you.

We should assume going forward again kind of no assuming no changes in the underlying environment.

Thank you.

Our next question comes from Nathan Rich Goldman Sachs. Your line is now.

I wouldn't say I wouldn't take that I think when we're talking about for the full year, we're kind of looking at kind.

Hi, Thanks for the questions.

Kind of debt on.

Hi, good afternoon.

On a constant currency basis that 20% and I think Q3.

If I could go back to <unk>.

Margins for a minute.

You have impacts with.

You mentioned not changing the target for this year on a constant currency basis I guess.

Poland startup and some other.

Things in the quarter that are that are impacting that but when we look at the 20% in what we're calling earlier in the year, we were thinking about that less about the quarters, but on a more on a total year basis.

On a constant currency basis.

We should assume going forward again kind of no assuming no changes in the underlying environment.

Okay, and then the FX headwind for the year on margins is that 2% to 3%.

That's the way to look at it Nate its kind of look at it as best as we can call. It now we're kind of using the latest FX rates that you have now.

I wouldn't say I wouldn't take that I think when we're talking about for the full year, we're kind of looking at kind.

Kind of debt on.

On a constant currency basis that 20% and I think Q3.

Up to predict what's going to happen in the next two months, but if you took kind of currently and kind of what we've done throughout the year and then use the current FX rates, we think thats, a 2% to three point impact.

Impacts with.

Poland startup and some other.

Things in the quarter that that are impacting that but when we look at the 20% in what we're calling earlier in the year, we were thinking about that less about the quarters, but on a more on a total year basis.

And without that FX rates.

Our GAAP numbers would have been at the 20% hybrid called.

Okay.

Thanks for that if I could just ask a quick follow up.

On a constant currency basis.

Joe I think you had noticed less willingness of consumers to finance treatments in both the U S and Europe , how big is that as a percent of case volumes in terms of whats typically financing.

Okay, and the FX headwind for the year on margins is that 2% to 3%.

That's the way to look at it it's kind of look at it as best as we can call. It now we're kind of using the latest FX rates that you have now it's tough to predict what's going to happen in the next two months, but if you took kind of currently and kind of what we've done throughout the year and then use the current FX rates, we think thats, a 2% to three point impact.

How much in particular kind of might of this weighed on demand and I guess bigger picture are there ways kind of in this environment, you kind of see it as kind of maybe being best able to stimulate demand.

Just in terms of how you might.

Either help customers are doctors in this environment.

Without that FX rates.

GAAP numbers would have been at the 20% might be called.

Yeah, Nathan I think what we gave you is basically.

Okay.

Thanks for that if I could just ask a quick follow up.

<unk> that we received from the marketplace.

Joe I think you had noticed less willingness of consumers to finance treatments in both the U S and Europe .

What we're hearing from orthodontists and dentists in general and treatment we.

We don't have any quantification to say so many patients.

How big is that as a percent of case volumes in terms of whats typically finance and.

We're seeking funding it didn't get it or as so many losses in that sense.

How much in particular kind of might of this weighed on demand and I guess bigger picture are there ways kind of in this environment that you kind of see it as kind of.

It's pretty much listed as the reasons why patients have refused treatment or thinking about treatment.

The financial considerations of John which you know I think you're always going to have a mix of some patients.

Maybe being best able to stimulate demand.

The pay for it all upfront some will will financing either through the doctor or some outside group that I think.

Just in terms of how you might.

Either help customers are doctors in this environment.

You're constantly going to have that we do think that as much as we can with our doctors to give them.

Yeah, Nathan I think.

What we gave you is basically data that we receive from the marketplace.

Some of the financial flexibility so that day.

What we're hearing from orthodontists and dentists in general in treatment.

Maybe have additional terms, where they pay us the doctors they can maybe apply some of that to their patients and they can help their patients as well manage some of the cash flow. So we're aware of it we do as much as we can adjust it.

We don't have any quantification to say so many patients.

We're seeking funding it didn't get it or has so many losses in that sense.

Thats pretty much listed as the reasons why patients have refused treatment or thinking about treatment.

It is just kind of out there and like Joe said, we don't have a quantification of it but in tougher economic times, we know that patients will be looking for different alternatives.

The financial considerations of John which I think you're always going to have a mix of some did some patients.

Pay for it all upfront some will will financing either through the doctor or some outside group and I think you are.

And the other part of your question about how do we help.

We help accounts.

I mean, we watch payments, we try to help in that sense at times.

Your costs are going to have that we do think that as much as we can with our doctors to give them.

We tried to drive direct.

Some of the financial flexibility so that day.

Invisalign docs, who do a lot of Invisalign, obviously, our advertising is extremely important to them. So we have our whole lead program, helping drive those things, we just want to be as close to our customers as possible because they are feeling what we feel and we have strong relationships with many of them and they are part of the family here and.

We work at country by country Doctor by Doctor region by region to see how we can help.

It's just kind of out there and like Joe said, we don't have a quantification of it but in tougher economic times, we know that patients will be looking for different alternatives and.

Thanks, Jim Operator, we'll take one more question please.

Okay.

The other part of your question about how do we help how do we help accounts.

Our final question comes from Kevin Caliendo with UBS. Your line is now open.

I mean, we watch payments, we try to help in that sense at times.

Thanks, and thanks for sneaking me in I appreciate it.

We tried to drive direct.

Design docs to do a lot of Invisalign and obviously, our advertising is extremely important to them. So we have our whole lead program, helping drive those things, we just want to be as close to our customers as possible because they are feeling what we feel and we have strong relationships with many of them in there they're part of the family here and we.

I wanted to have found a little bit on the comment around October .

The momentum continued.

Think about that that was sort of down 12% year over year.

I think what we're all looking for as you saw cases flat Q1 to Q2, and then we saw a step down in Q3, despite a stronger <unk>.

We work at country by country Doctor by Doctor region by region to see how we can help.

Yeah.

Thanks, Jim Operator, we'll take one more question please.

<unk> season, So I think what we're all trying to figure out here is adjusting for the third quarter strength seasonality and team when do you actually expect to see stabilization globally and cases, meaning.

Our final question comes from Kevin Caliendo with UBS. Your line is now open.

Thanks, and thanks for sneaking me in I appreciate it.

Either.

I wanted to have found a little bit on the comment around October .

Sequentially or year over year flatness like when do you actually expect that that could happen.

Saying that the momentum continues.

Hey, Kevin It's Joe.

We think about that that was sort of down 12% year over year.

Look I think we can sit here and tell you I think we're in pretty volatile economic times I can't tell you what the dollar is going to be in three months.

I think what we're all looking for as we saw cases flat Q1 to Q2, and then we saw a step down in Q3 despite stronger.

I don't know what can happen in Europe , I don't know, how bad Covid hits, China, I don't know what it doesn't Japan. So I know exactly what you are asking for and every investor is asking for and we'd give you that data. If we thought we had it but we are in such a volatile time right now.

Teen season, So I think what we're all trying to figure out here is adjusting for the third quarter strength.

<unk> and team when do you actually expect to see stabilization globally and cases, meaning.

We're just working this thing from month to month.

As we've mentioned as we go into the fourth quarter. Obviously, there is a rhythm between teens and adults from the third quarter the fourth quarter.

Either sequentially or year over year flatness like when do you actually expect that that could happen.

What I mentioned from a continuation standpoint is we haven't seen much of a change between the third and the fourth right now as we move into it that's about as well as I can tell you what we're seeing and what we're experiencing trying to forecast what's going to happen.

Hey, Kevin it's Joel.

Look I think we can sit here and tell you I think we're in pretty volatile economic times I can't tell you what the dollar is going to be in three months.

Towards the end of the quarter next quarter I can't do that I don't think anybody here.

What has to happen in Europe , I don't know, how bad Covid hits, China, I don't know what it does in Japan. So I know exactly what you're asking for in every investor is asking for and we would give you that data. If we thought we had it but we are in such a volatile time right now.

Okay.

And if I can just ask a follow up there's been a lot of talk about spending and margins and 20% and everything else and historically.

Historically in the past you guys always just invested to grow is it now given the uncertainty of everything that you're just going to manage to a margin or try to manage to the 20% margin X.

We're just working this thing from month to month.

As we mentioned as we go into the fourth quarter. Obviously, there is a rhythm between teens and adults from the third quarter the fourth quarter.

Ex FX or.

What I, what I've mentioned from a continuation standpoint is we haven't seen much of a change between the third and the fourth right now as we move into it that's about as well as I can tell you what we're seeing and what we're experiencing trying to forecast what's going to happen.

I mean is that the strategy.

Or is it still to try to get back to the what you would need to do normally to hit certain growth targets that you've had.

Yeah.

It's a growth business Kevin if.

Towards the end of the quarter next quarter I can't do that I don't think anybody here.

We had good economic times here I can tell you we'd be having a much different conversation.

Okay.

So the challenge with this business is how do we responsible on costs and obviously a challenged demand environment, but decent Pete This company very strong because when this market comes back you. Just go back in history, you can take a look it comes back and it comes back hard and we've got to make sure that we're in a good position to be able.

And if I can just ask a follow up there's been a lot of talk about spending and margins and 20% and everything else and historically in the past you guys always just invested to grow is it now given the uncertainty of everything that youre, just going to manage to a margin or try to manage to the 20% margin.

That field that when it does occur so youll see us be what I call a fiscally responsible.

Ex FX or.

I mean is that the strategy.

But we will continue to make sure that we invest in.

Or is it still to try to get back to the what you would need to do normally to hit certain growth targets that you've had.

And make.

There's many.

As we can around around different areas of opex, but to protect those key areas, where our customer interface and development of our technology and actually.

Yeah.

It's a growth business.

If we had good economic times here I can tell you we'd be having a much different conversation.

So the challenge with this business is how do we responsible on costs.

The actual operations capacity, we need in this business. When this thing does spring back and Thats not just a manufacturing of liners, that's in being able to service customers across the board. So youll see us balance that well as we should do from a leadership standpoint.

And obviously, a challenged demand environment, but decent Pete This company very strong because when this market comes back you. Just go back in history, you can take a look it comes back and it comes back hard and we've got to make sure that we're in a good position to be able.

That field that when it does occur so youll see us be but I call fiscally responsible.

Thank you ever so much.

Appreciate it.

Yeah.

But we'll continue to make sure that we invest.

Well. Thank you everyone for joining us today, we appreciate your time and look forward to speaking with you at upcoming financial conferences and industry meetings, including the Ortho summit in Las Vegas next month, if you have any further questions or follow up please contact our investor relations team have a great day.

And make.

As many.

Changes as we can around around different areas of opex, but to protect those key areas, where our customer interface and development of our technology and actually.

That concludes the conference call. Thank you for your participation.

Thank you Omar.

Thank you ever so much.

Got it.

De.

Yeah.

That concludes the conference call.

You may now disconnect your lines.

Q3 2022 Align Technology Inc Earnings Call

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