Q4 2022 Align Technology Inc Earnings Call

February 1, 2023

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

Thank you good afternoon.

Thank you for joining us I'm, Shirley Stacy Vice President of corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO and John Morici CFO , we issued fourth quarter and full year 2022 financial results today via business wire, which is available on our website at investors out of line check Dot Com Today's conference call is being audio web.

Cash and will be archived on our website for approximately one month.

A telephone replay will be available by approximately 530 P. M. Eastern time through 530 P. M. Eastern time on February 15 to access the telephone replay domestic callers should dial 806 68139403 with access code three to 8900 International caller should dial 990 458.

694, 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 forward looking statements. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable and our fourth.

Quarter and full year 2022 conference call slides on our website under align our quarterly results.

Please refer to these files for more detailed information with that I'd like to turn the call over to align technology's President and CEO , Joe Hogan Joe.

Thanks, Shirley good afternoon, and thanks for joining us on our call today I'll provide an overview of our fourth quarter results and discuss a few highlights from our two operating segments systems and services and clear liners, John will provide more detail on our Q4 financial performance and comment on our views for 2023 following that I'll come back.

And summarize a few key points and open the call to questions. You'll note that we have shortened our formal remarks in order to leave more time for Q&A.

Overall Im pleased to report fourth quarter results that reflect a more stable environment for doctors and their patients in the recent quarters, especially in the Americas and EMEA regions as well as parts of APAC for Q4 trends in consumer interest fourth hedonic treatment patient traffic in doctors' practices and Taro scanner demos improved.

However, the unfavorable effect of foreign exchange on our fourth quarter and full year 2022 results reduced our revenues and margins significantly.

Despite the large impact of unfavorable foreign exchange Q4 revenues of $901 5 million increased sequentially from Q3.

Reflecting growth in systems and services as well as a slight increase in clear aligner shipments. This is the first quarter and a year that our total revenues in clear aligner volumes increased sequentially.

As we move through 2023 and are hopeful that we will see continued stability in an improving operating environment, but remind everyone that the macroeconomic situation remains fragile regardless.

Regardless, we are confident in our large untapped market opportunity for digital orthodontics and restorative dentistry, we anticipate 2023 will be an exciting year.

For new innovation at a line and we will begin to commercialize one of our largest new product and technology cycles in our 25 year history.

The Q4 systems and services revenue of $169 9 million were up seven 8% sequentially and down 21, 3% year over year on a constant currency basis, Q4 systems and services revenues were impacted by unfavorable foreign exchange of approximately $2 7 million or one 5% sequentially.

And approximately $11 2 million or six 2% year over year.

For Q4 systems and services revenues increased sequentially driven by growth in the Americas, and EMEA regions, reflecting continued sales of inner oral scanners, especially the <unk>.

Q4 sequential growth also reflects continued growth of our scandal rental programs as well as initial deployment of a certified pre owned will be called CPO scanner leasing rental program with desktop metal that I'll describe in more detail shortly.

We continue to develop new capital equipment opportunities that meet the digital transformation needs of our customers and DSO partners, which is a natural progression for our equipment business with a large and growing base of scanners are sold.

As our scanner portfolio expands and we introduce new products, we increased the opportunities for customers to upgrade to make trade ins and provide refurbished scanners for emerging markets. We expect to continue rolling out programs, such as leasing and rental offerings that help customers in the current macroeconomic environment by leveraging our balance sheet and selling the way our customers want to buy.

On a year over year basis, Q4 services revenues increased primarily due to increased subscription revenue, resulting in a larger number of field scanners. We also had higher non case systems revenues related to our scanner leasing rental programs previously mentioned.

To help accelerate the adoption of digital orthodontics and restorative dentistry in Q4, we announced a strategic collaboration with desktop metal to supply <unk> element flex scanners. The desktop labs, one of the largest lab networks in the U S serving general dentists.

Element flex is now the preferred restorative scanner for desktop labs and will connect Dennis directly to a suite of offerings from desktop labs that simplifies the digital design and manufacturer restorations with both traditional and digital technologies.

Our collaboration with desktop metal reflects our commitment to a relationship we expect will evolve and expand to being advanced restored of workflows to market.

We see significant opportunities to enable dentists to use scan data directly order restored of services or printed ready digital files from desktop labs.

Can be used for three D printing in their offices and.

In addition to our <unk> scanners were also excited about extending the benefits of the aligned digital platform, including the Invisalign system and <unk> software to desktop labs customers as well.

For Q4 total clear aligner revenues of 73.

$731 7 million were down slightly 2% sequentially and down 10, 3% year over year.

On a constant currency basis for Q4 clear aligner revenues were impacted by unfavorable foreign exchange of $13 4 million or one 8% sequentially and $56 4 million or seven 2% year over year.

Q4, total clear aligner volumes of 583000 was up slightly sequentially, reflecting growth in the Americas and EMEA regions offset by lower APAC volumes, primarily in China for.

For the Americas, Q4, clear aligner volumes were down slightly sequentially, reflecting lower ortho cases, especially teen starts as compared to the typical higher teen season in Q3.

Offset primarily by an increase in adult patients from the GP dentist channel.

For Q4 clear aligner volume from DSO customers continued to outpace non DSO customers.

For EMEA Q4, clear aligner volume increased sequentially in all markets and across product, especially recently launched invisalign moderate.

<unk>, plus and <unk> express, which enable GP dentists to treat a broader range of cases may also moderate types of amount of inclusions and can easily be integrated in a wide range of restorative treatments and a dental practice.

<unk> had a strong sequential growth in the teen market segment with continued demand for Invisalign Teen case packs, which are available in France in Iberia as well as Invisalign first treatment for kids as young as six years old.

APAC Q4 clear aligner volumes were lower sequentially due primarily to China, which continues to be impacted by Covid in Q4 ongoing COVID-19 restrictions and lockdowns in China persisted throughout the quarter.

Outside of China, APAC volumes increased sequentially led by Japan, Taiwan, India, and Southeast Asia markets on a year over year basis, Q4 clear Aligner case volumes reflected increased shipments led by Korea, India, Japan, Taiwan and Vietnam.

The easing of Covid restrictions in China, and the more recent downward trend in Covid infection rates are encouraging many uncertainties remain including the lingering impacts from COVID-19 across the population and the time and effort needed to restore consumer confidence.

For the other noncash revenues, which include retention products, such as our <unk> retainers clinical training and education accessories, ecommerce and our new subscription programs such as our DSP fourth quarter revenues were down slightly sequentially and up double digits year over year for retention and E. Commerce products Q4 revenues were relatively.

Unchanged from Q3, we are pleased with our subscription based programs like DSP, which increase sequentially and a year over year and year over year and expect to continue expanding DSP offerings in other regions.

For Q4, the total number of new Invisalign trained doctors decreased sequentially due primarily to fourth quarter being a seasonally slower period for clinical education with holidays et cetera, as well as fewer training in China and Brazil. This is off offset by somewhat significantly higher numbers of new Invisalign doctors trained in EMEA.

Dean Orthodontic treatment is the largest segment of the orthodontic market worldwide and represents our largest opportunity for clear aligner sales to <unk>. We continue to focus on gaining share from traditional metal braces through team specific sales and marketing programs and product features including Invisalign <unk> for kids as young as six.

Which is up sequentially across all markets for Q4 total clear aligner teen cases were down sequentially due primarily to the impact of Covid in China as well as seasonally fewer teen starts in North America as compared to Q3.

According to a December gauge report, which tracks approximately 1000 ortho in the United States and Canada, New patient exams for teams slowed in Q4, while new patient exams for adults improved slightly.

A smaller pool of potential teen patients may put pressure on traditional worth those and caused them to go between clear liners in wires and brackets, especially those practices that have failed to understand the significant benefits of adopting more efficient digital workflows, believing metal braces are more profitable.

In EMEA Q4 was a record quarter for TNK starts on a year over year basis. Q14, K starts were relatively unchanged for Q4, Invisalign first increased year over year and was strong across all regions Invisalign clear aligner treatment is designed for predictive results and a positive experience while at <unk>.

The unique needs of growing children from as young as six.

<unk> phase one.

For the full year Invisalign clear aligner shipments for teens and young kids is approximately 733000 cases are teen case mix overall was a record 31% of Invisalign cases shipped for the year.

Finally in Q4, the total number of doctors ship was 82 9000 doctors a slight decrease due primarily to the impact of Covid in China and off our Q3 22 high point, which included a major DSO Onboarding in North America.

For the full year 2023, we also shipped to the highest cumulative number of Invisalign trained doctors over 124000 doctors reinforcing our commitment to doctor directed care for clear aligner treatment to achieve the safest and best possible clinical treatment outcomes for patients.

With that I'll now turn the call over to John .

Thanks, Joe before I go through the details of our Q4 results I want to comment on two items in our fourth quarter financial results we.

Restructuring and other charges. During Q4 2022, we incurred a total of $14 3 million of restructuring and other charges of which $2 9 million was included in the cost of net revenues and $11 5 million included in operating expenses restructuring and other charges included.

<unk> $8 7 million of severance related costs and $5 6 million.

Certain lease terminations and asset impairments, primarily related to <unk> operations in Russia in light of business needs.

Second non-GAAP tax rate in Q4, 2022, we changed to a long term projected tax rate for our non-GAAP provision for income taxes, our previous methodology for calculating our non-GAAP effective tax rates included certain nonrecurring.

And period specific items that produce fluctuating effective tax rate that management does not believe are reflective of the companys long term effective tax rate.

We have recast non-GAAP results for our provision for income taxes effective tax rate net income and diluted net income per share for each reporting period in 2022 to reflect this change we did not make any changes to the results reported for 2021 as reflecting the change in our methodology for the <unk>.

Computation of the non-GAAP effective tax rate was immaterial to our 2021 results referred to the section in our Q4 press release titled recast of financial measures for prior periods in 2022 for tax rate change.

Unaudited GAAP to non-GAAP reconciliation for further information.

Now for our Q4 financial results total revenues for the fourth quarter were $901 5 million.

Up one 3% from the prior quarter and down 12, 6% from the corresponding quarter a year ago on a constant currency basis Q4, 2022 revenues were impacted by unfavorable foreign exchange of approximately $16 million or approximately one 7% sequentially and approx.

<unk> $67 $6 million year over year or approximately 7%.

For clear liners, Q4 revenues of $731 $7 million were flat sequentially, primarily from lower Asps.

The offset by higher.

Volumes on a year over year basis, Q4 clear Aligner revenues were down 10, 3%, primarily due to lower volume and lower asps, partially offset by higher non case revenues.

For Q4, Invisalign Asps for comprehensive treatment were flat sequentially and decreased year over year on a sequential basis Asps reflects the unfavorable impact from foreign exchange, partially offset by higher additional liners and product mix shift.

On a year over year basis.

Heine in comprehensive Asps reflect the significant impact of unfavorable foreign exchange product mix shift and higher discount, partially offset by higher additional liners and per order processing fees for.

For Q4, Invisalign asps for non comprehensive treatment decreased sequentially and year over year on a sequential basis. The decline in asps reflect product mix shift unfavorable impact from foreign exchange and higher discounts, partially offset by higher additional lenders.

On a year over year basis, the decline in Asps reflect a significant unfavorable impact of unfavorable foreign exchange product mix shift and higher discussed partially offset by higher additional liners and per order processing fees.

As we mentioned last quarter as our revenues from subscriptions retainers and other ancillary products continued to grow and expand and globally. Some of the historical metrics that focus only on pay shipments do not account for our overall growth.

In our earnings release and financial slides, you will see that we've added to.

Added our total clear aligner revenue per case shipment, which is more indicative of our overall growth strategy.

Clearer lines of deferred revenues on the balance sheet increased $56 4 million or four 8% sequentially.

$171 9 million or up 16, 2% year over year and will be recognized as the additional liners are shipped.

Q4, 2022 systems and services revenues of $169 $9 million were up seven 8% sequentially, primarily due to higher scanner volume services and <unk> revenues, partially offset by lower Asps and were down 21, 3% year over year, primarily due to.

Lower scanner volume and Asps.

The offset by higher services revenue from our larger installed base of scanners and increased non system revenues related to our certified pre owned and leasing and rental programs.

Operator: Mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Shirley Stacy, with Align Technology. You may begin.

Certain lease terminations and asset impairments, primarily related to <unk> operations in Russia in light of business needs.

Q4, 2022 systems and services revenue were unfavorably impacted by foreign exchange of approximately $2 7 million or approximately one 5% sequentially on a year over year basis system and services revenue were unfavorably impacted by foreign exchange of approximately $11 2 million.

Shirley Stacy: Thank you. Good afternoon. Thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO, and John Morici, CFO. We issued fourth quarter and full year 2022 financial results today via Business Wire, which is available on our website at investor.aligntech.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 by approximately 5:30PM Eastern Time through 5:30PM Eastern Time on 15 February. To access the telephone replay, domestic callers should dial 866-813-9403 with access code 328900. International callers should dial 929-458-6194 using the same access code. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events and product outlook.

And period specific items that produce fluctuating effective tax rates that management does not believe are reflective of the company's long term effective tax rate.

Or approximately six 2%.

Systems and services deferred revenues on the balance sheet was up $9 million or three 4% sequentially and up $42 9 million or 18, 7% year over year, primarily due to the increase in scanner sales and the deferral of service revenues included with the scanner purchase which will be <unk>.

We have recast non-GAAP results for a provision for income taxes.

The tax rate net income and diluted net income per share for each reporting period in 2022 to reflect this change we did not make any changes to the results reported for 2021 as reflecting the change in our methodology for the computation of the non-GAAP effective tax rate was immaterial to our 2021.

Ignite badly over the service period.

Moving on to gross margin fourth quarter overall gross margin was 68, 5% down one point sequentially and down three seven points year over year overall gross margin was unfavorably impacted by foreign exchange on our revenues by approximately <unk> six points sequentially and two two.

<unk> referred to the section in our Q4 press release titled Recast financial measures for prior periods in 2022 for tax rate change under unaudited GAAP to non-GAAP reconciliation for further information.

Shirley Stacy: These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission, available on our website and at sec.gov. Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our fourth quarter and full year 2022 conference call slide on our website under Align Quarterly Results. Please refer to these files for more detailed information. With that, I'd like to turn the call over to Align Technology's President and CEO, Joe Hogan. Joe?

These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission, available on our website and at sec.gov. Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our fourth quarter and full year 2022 conference call slide on our website under Align Quarterly Results. Please refer to these files for more detailed information. With that, I'd like to turn the call over to Align Technology's President and CEO, Joe Hogan. Joe?

On a year over year basis.

Now for our Q4 financial results total revenues for the fourth quarter were $901 5 million up one 3% from the prior quarter and down 12, 6% from the corresponding quarter a year ago on a constant currency basis Q4, 2022 revenues were impacted by unfavorable <unk>.

Clear aligner gross margin for the fourth quarter was 78% down <unk> one points sequentially due to lower asps.

Warranty and restructuring costs, partially offset by improved manufacturing absorption and lower training costs.

<unk> gross margin for the fourth quarter was down three four points year over year, primarily due to lower Asps increase.

In exchange of approximately $16 million or approximately one 7% sequentially and approximately $67 $6 million year over year or approximately 7%.

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

And a higher mix of additional aligner volume systems and services gross margin for the fourth quarter was 58, 8% down four six points sequentially due to lower asps.

Joseph Hogan: Thanks, Shirley. Good afternoon, and thanks for joining us. On our call today, I'll provide an overview of our fourth quarter results and discuss a few highlights from our two operating segments, Systems and Services, and Clear Aligners. John will provide more detail on our Q4 financial performance and comment on our views for 2023. Following that, I'll come back and summarize a few key points and open the call to questions. You'll note that we have shortened our formal remarks in order to leave more time for Q&A. Overall, I'm pleased to report fourth quarter results that reflect a more stable environment for doctors and their patients than the recent quarters, especially in the Americas and EMEA regions, as well as parts of APAC. For Q4, trends in consumer interest for orthodontic treatment, patient traffic, and doctors' practices, and iTero scanner demos improved.

Joe Hogan: Thanks, Shirley. Good afternoon, and thanks for joining us. On our call today, I'll provide an overview of our fourth quarter results and discuss a few highlights from our two operating segments, Systems and Services, and Clear Aligners. John will provide more detail on our Q4 financial performance and comment on our views for 2023. Following that, I'll come back and summarize a few key points and open the call to questions. You'll note that we have shortened our formal remarks in order to leave more time for Q&A. Overall, I'm pleased to report fourth quarter results that reflect a more stable environment for doctors and their patients than the recent quarters, especially in the Americas and EMEA regions, as well as parts of APAC. For Q4, trends in consumer interest for orthodontic treatment, patient traffic, and doctors' practices, and iTero scanner demos improved.

For clear liners Q4 revenues of $731 $7 million were flat sequentially, primarily from lower asps, mostly offset by higher.

Volumes on a year over year basis, Q4, clear aligner revenues were down 10, 3%, primarily due to lower volumes and lower asps, partially offset by higher non case revenues.

And higher inventory costs, and manufacturing inefficiencies, partially offset by higher services revenues and lower freight cost.

Systems and services gross margin for the fourth quarter was down five nine points year over year for the reasons stated previously.

For Q4, Invisalign Asps for comprehensive treatment were flat sequentially and decreased year over year on a sequential basis asps reflect the unfavorable impact from foreign exchange, partially offset by higher additional liners and product mix shift.

Q4, operating expenses were $505 million up.

<unk>, six 2% and down three 6% year over year.

On a sequential basis operating expenses were up $29 5 million mainly.

On a year over year basis, the decline in comprehensive asps reflect the significant impact of unfavorable foreign exchange product mix shift and higher discount, partially offset by higher additional liners and per order processing fees.

Mainly due to restructuring and other charges and our continued investment in sales and R&D activities, along with higher consulting expenses year over year operating expenses decreased by $18 $6 million, primarily due to control spend on advertising and marketing.

Joseph Hogan: However, the unfavorable effect of foreign exchange on our fourth quarter and full year 2022 results reduced our revenues and margins significantly. Despite the large impact of unfavorable foreign exchange, Q4 revenues of $901.5 million increased sequentially from Q3, reflecting growth in Systems and Services, as well as a slight increase in Clear Aligner shipments. This is the first quarter in a year that our total revenues and Clear Aligner volumes increased sequentially. As we move through 2023, I'm hopeful that we'll see continued stability and an improving operating environment, but I remind everyone that the macroeconomic situation remains fragile. Regardless, we are confident in our large untapped market opportunity for digital orthodontics and restorative dentistry. We anticipate 2023 will be an exciting year for new innovation at Align, and we'll begin to commercialize one of the largest new product and technology cycles in our 25-year history.

However, the unfavorable effect of foreign exchange on our fourth quarter and full year 2022 results reduced our revenues and margins significantly. Despite the large impact of unfavorable foreign exchange, Q4 revenues of $901.5 million increased sequentially from Q3, reflecting growth in Systems and Services, as well as a slight increase in Clear Aligner shipments. This is the first quarter in a year that our total revenues and Clear Aligner volumes increased sequentially. As we move through 2023, I'm hopeful that we'll see continued stability and an improving operating environment, but I remind everyone that the macroeconomic situation remains fragile. Regardless, we are confident in our large untapped market opportunity for digital orthodontics and restorative dentistry. We anticipate 2023 will be an exciting year for new innovation at Align, and we'll begin to commercialize one of the largest new product and technology cycles in our 25-year history.

As part of our efforts to proactively manage costs as well as lower incentive compensation, partially offset by restructuring and other charges.

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

On a year over year basis, the decline in Asps reflect the significant unfavorable impact of unfavorable foreign exchange product mix shift and higher discounts, partially offset by higher additional liners and per order processing fees.

Operating expenses were up.

We're $459 $7 million up three 7% sequentially and down 7% year over year.

As we mentioned last quarter as our revenues from subscriptions retainers and other ancillary products continued to grow and expand expand globally. Some of the historical metrics that focus only on K shipments do not account for our overall growth in our earnings release and financial slides you will see.

Our fourth quarter operating income of $112 $7 million.

Results in an operating margin of 12, 5% down three six points sequentially and down eight nine points year over year operating margin was unfavorably impacted by <unk> nine points sequentially, primarily due to foreign exchange and lower gross margin.

Joseph Hogan: The Q4 Systems and Services revenue of $169.9 million were up 7.8% sequentially and down 21.3% year over year. On a constant currency basis, Q4 Systems and Services revenues were impacted by unfavorable foreign exchange of approximately $2.7 million, or 1.5% sequentially, and approximately $11.2 million, or 6.2% year over year. For Q4, Systems and Services revenues increased sequentially, driven by growth in the Americas and EMEA regions, reflecting continued sales of intraoral scanners, especially the iTero 5D. Q4 sequential growth also reflects continued growth of our scanner rental programs, as well as initial deployment of a certified pre-owned, what we call CPO scanner leasing rental program with Desktop Metal that I'll describe in more detail shortly.

The Q4 Systems and Services revenue of $169.9 million were up 7.8% sequentially and down 21.3% year over year. On a constant currency basis, Q4 Systems and Services revenues were impacted by unfavorable foreign exchange of approximately $2.7 million, or 1.5% sequentially, and approximately $11.2 million, or 6.2% year over year. For Q4, Systems and Services revenues increased sequentially, driven by growth in the Americas and EMEA regions, reflecting continued sales of intraoral scanners, especially the iTero 5D. Q4 sequential growth also reflects continued growth of our scanner rental programs, as well as initial deployment of a certified pre-owned, what we call CPO scanner leasing rental program with Desktop Metal that I'll describe in more detail shortly.

That we've added to.

Added our total clear aligner revenue per case shipment, which is more indicative of our overall growth strategy.

The year over year decrease in operating margin is primarily attributed.

Clear aligner deferred revenues on the balance sheet increased $56 4 million or four 8% sequentially.

Two lower gross margin <unk>.

Investments in our go to market teams and technology as well as unfavorable impact from foreign exchange by approximately $4 two points.

And $171 $9 million or up 16, 2% year over year and will be recognized as the additional liners are shipped.

On a non-GAAP basis, which excludes stock based compensation restructuring and other charges and amortization of intangibles related to certain acquisitions operating margin for the fourth quarter was 18, 3% down one nine points sequentially and down six four points year over year.

Q4, 2022 systems and services revenues of $169 $9 million were up seven 8% sequentially, primarily due to higher scanner volume services and extra CAD revenues, partially offset by lower Asps and were down 21, 3% year over year, primarily due.

Interest and other income expense.

Net for the fourth quarter was it was income of $2 7 million compared to a loss of $21 million in the third quarter and a loss of <unk> 9 million in Q4 of 2021, primarily due to net foreign exchange gains from the strengthening of certain certain foreign currencies against the U S.

To lower scanner volume and Asps, partially offset by higher services revenue from our larger installed base of scanners and increased non system revenues related to our certified pre owned and leasing and rental programs.

Joseph Hogan: We continue to develop new capital equipment opportunities to meet the digital transformation needs of our customers and DSO partners, which is a natural progression for our equipment business, with a large and growing base of scanners sold. As our scanner portfolio expands and we introduce new products, we increase the opportunities for customers to upgrade, to make trade-ins, and provide refurbished scanners for emerging markets. We expect to continue rolling out programs such as leasing and rental offerings that help customers in the current macroeconomic environment by leveraging our balance sheet and selling the way our customers want to buy. On a year-over-year basis, Q4 Services revenues increased primarily due to increased subscription revenue, resulting in a larger number of field scanners. We also had higher non-case systems revenues related to our scanner leasing rental programs previously mentioned.

We continue to develop new capital equipment opportunities to meet the digital transformation needs of our customers and DSO partners, which is a natural progression for our equipment business, with a large and growing base of scanners sold. As our scanner portfolio expands and we introduce new products, we increase the opportunities for customers to upgrade, to make trade-ins, and provide refurbished scanners for emerging markets. We expect to continue rolling out programs such as leasing and rental offerings that help customers in the current macroeconomic environment by leveraging our balance sheet and selling the way our customers want to buy. On a year-over-year basis, Q4 Services revenues increased primarily due to increased subscription revenue, resulting in a larger number of field scanners. We also had higher non-case systems revenues related to our scanner leasing rental programs previously mentioned.

S dollar.

The GAAP effective tax rate in the fourth quarter was 63, 8% compared to 47% in the third quarter and 13, 2% in the fourth quarter of the prior year, the fourth quarter GAAP effective tax rate was higher than third quarter effective tax rate primarily due to decreased.

Or approximately six 2%.

Earnings in low tax jurisdictions.

And an increase in the amount of U S minimum tax on foreign earnings our non-GAAP effective tax rate was 20% in the fourth quarter and reflects the change in our methodology that was discussed earlier, our non-GAAP effective tax rate was 11, 5% in the fourth quarter.

Joseph Hogan: To help accelerate the adoption of digital orthodontics and restorative dentistry, in Q4, we announced a strategic collaboration with Desktop Metal to supply iTero Element Flex scanners to Desktop Labs, one of the largest lab networks in the US serving general dentists. The iTero Element Flex is now the preferred restorative scanner for Desktop Labs and will connect dentists directly to a suite of offerings from Desktop Labs that simplifies the digital design and manufacture of restorations with both traditional and digital technologies. Our collaboration with Desktop Metal reflects our commitment to a relationship we expect will evolve and expand to being advanced restorative workflows to market. We see significant opportunities to enable dentists to use scan data to directly order restorative services or printed ready digital files from Desktop Labs that can be used for 3D printing in their offices.

To help accelerate the adoption of digital orthodontics and restorative dentistry, in Q4, we announced a strategic collaboration with Desktop Metal to supply iTero Element Flex scanners to Desktop Labs, one of the largest lab networks in the US serving general dentists. The iTero Element Flex is now the preferred restorative scanner for Desktop Labs and will connect dentists directly to a suite of offerings from Desktop Labs that simplifies the digital design and manufacture of restorations with both traditional and digital technologies. Our collaboration with Desktop Metal reflects our commitment to a relationship we expect will evolve and expand to being advanced restorative workflows to market. We see significant opportunities to enable dentists to use scan data to directly order restorative services or printed ready digital files from Desktop Labs that can be used for 3D printing in their offices.

<unk> badly over the service period.

Of the prior year, and 2021, which does not reflect the change in our methodology.

Fourth quarter net income per diluted share was 54 down sequentially 39, and down $1 86 compared to the prior year.

Our earnings per share was unfavorably impacted by <unk> on a sequential basis and 22 on a year over year basis due to foreign exchange on a non-GAAP basis net income per diluted share was $1 73 for the fourth quarter up 10 sequentially.

On a year over year basis.

Clear aligner gross margin for the fourth quarter was 78% down 0.1 points sequentially due to lower asps.

Higher warranty and restructuring costs, partially offset by improved manufacturing absorption and lower training costs.

And down $1.10 year over year.

Clear aligner gross margin for the fourth quarter was down three four points year over year, primarily due to lower asps.

Note that the prior year 2021, non-GAAP net income per diluted share.

Joseph Hogan: In addition to iTero scanners, we're also excited about extending the benefits of the Align Digital Platform, including the Invisalign system and exocad software, to Desktop Labs customers as well. For Q4, total Clear Aligner revenues of $731.7 million were down slightly, 0.2% sequentially, and down 10.3% year over year. On a constant currency basis, for Q4, Clear Aligner revenues were impacted by unfavorable foreign exchange of $13.4 million, or 1.8% sequentially, and $56.4 million, or 7.2% year over year. Q4 total Clear Aligner volumes of 583,000 was up slightly sequentially, reflecting growth from the Americas and EMEA regions, offset by lower APAC volumes, primarily in China. For the Americas, Q4 Clear Aligner volumes were down slightly sequentially, reflecting lower ortho cases, especially teen starts, as compared to the typical higher teen season in Q3, offset primarily by an increase in adult patients from the GP dentist channel.

In addition to iTero scanners, we're also excited about extending the benefits of the Align Digital Platform, including the Invisalign system and exocad software, to Desktop Labs customers as well. For Q4, total Clear Aligner revenues of $731.7 million were down slightly, 0.2% sequentially, and down 10.3% year over year. On a constant currency basis, for Q4, Clear Aligner revenues were impacted by unfavorable foreign exchange of $13.4 million, or 1.8% sequentially, and $56.4 million, or 7.2% year over year. Q4 total Clear Aligner volumes of 583,000 was up slightly sequentially, reflecting growth from the Americas and EMEA regions, offset by lower APAC volumes, primarily in China. For the Americas, Q4 Clear Aligner volumes were down slightly sequentially, reflecting lower ortho cases, especially teen starts, as compared to the typical higher teen season in Q3, offset primarily by an increase in adult patients from the GP dentist channel.

Or prior year 2021, EPS does not reflect the Q4 2022 change in our methodology for the computation of the non-GAAP effective tax rate.

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

And a higher mix of additional aligner volume CIS.

Moving on to the balance sheet as of December 31, 2022, cash and cash equivalents and short term and long term marketable securities were $1 billion down.

<unk> services gross margin for the fourth quarter was 58, 8% down.

Down four six points sequentially due to lower asps.

And higher inventory costs, and manufacturing inefficiencies, partially offset by higher services revenues and lower freight cost.

Down sequentially, $99 $5 million and down $255 $1 million year over year.

Of our $1 billion.

Systems and services gross margin for the fourth quarter was down five nine points year over year for the reasons stated previously.

Balance.

$387 9 million was held in the U S and $653 7 million was held by our international entities. In October 2022, we purchased approximately 848000 shares of our common stock at an average price of $188 62 per share.

Q4, operating expenses were $505 million up sequentially, six 2% and down three 6% year over year.

On a sequential basis operating expenses were up $29 $5 million, mainly due to restructuring and other charges and our continued investment in sales and R&D activities, along with higher consulting expenses year over year operating expenses decreased by $18 six.

Through a $200 million accelerated share repurchase under our May 2021, $1 billion stock repurchase program.

We have $250 million remaining available for repurchase under this program and we plan to repurchase this remaining amount starting in Q1 2023 through either.

Joseph Hogan: For Q4, Clear Aligner volume from DSO customers continued to outpace non-DSO customers. For EMEA, Q4 Clear Aligner volume increased sequentially in all markets and across products, especially recently launched Invisalign Moderate, iGo Plus, and iGo Express, which enable GP dentists to treat a broader range of cases, mild to moderate types of malocclusions, and can easily be integrated in a wide range of restorative treatments in a dental practice. EMEA had a strong sequential growth in the teen market segment with continued demand for Invisalign Teen case packs, which are available in France and Iberia, as well as Invisalign First treatment for kids as young as six years old. APAC Q4 Clear Aligner volumes were lower sequentially due primarily to China, which continues to be impacted by COVID. In Q4, ongoing COVID restrictions and lockdowns in China persisted throughout the quarter.

For Q4, Clear Aligner volume from DSO customers continued to outpace non-DSO customers. For EMEA, Q4 Clear Aligner volume increased sequentially in all markets and across products, especially recently launched Invisalign Moderate, iGo Plus, and iGo Express, which enable GP dentists to treat a broader range of cases, mild to moderate types of malocclusions, and can easily be integrated in a wide range of restorative treatments in a dental practice. EMEA had a strong sequential growth in the teen market segment with continued demand for Invisalign Teen case packs, which are available in France and Iberia, as well as Invisalign First treatment for kids as young as six years old. APAC Q4 Clear Aligner volumes were lower sequentially due primarily to China, which continues to be impacted by COVID. In Q4, ongoing COVID restrictions and lockdowns in China persisted throughout the quarter.

<unk> million dollars.

Primarily due to controlled spend on advertising and marketing as part of our efforts to proactively manage costs as well as lower incentive compensation, partially offset by restructuring and other charges.

Either or a combination of open market repurchases or an accelerated stock repurchase agreement completing the repurchases in Q2 of 2023.

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

Q4 accounts receivable balance was $859 7 million flat sequentially.

Our overall days sales outstanding was 85 days down one day sequentially and up approximately seven days as compared to Q4 last year.

Operating expenses were up.

We're $459 7 million up three 7% sequentially and down 7% year over year.

Cash flow from operations for the fourth quarter was $144 7 million capital expenditures for the fourth quarter were $53 $2 million.

Our fourth quarter operating income of $112 7 million.

<unk> in an operating margin of 12, 5% down three six points sequentially and down eight nine points year over year operating margin was unfavorably impacted by <unk> nine points sequentially, primarily due to foreign exchange and lower gross margin.

Primarily related to our continued investment to.

To increase our lighter manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to 91 $5 million.

Joseph Hogan: Outside of China, APAC volumes increased sequentially, led by Japan, Taiwan, India, and Southeast Asia markets. On a year-over-year basis, Q4 Clear Aligner case volumes reflected increased shipments led by Korea, India, Japan, Taiwan, and Vietnam. While the easing of COVID restrictions in China and the more recent downward trend in COVID infection rates are encouraging, many uncertainties remain, including the lingering impacts from COVID across the population and the time and effort needed to restore consumer confidence. For the other non-case revenues, which include retention products such as our Vivera retainers, clinical training and education, accessories, e-commerce, and a new subscription program such as our DSP, fourth quarter revenues were down slightly sequentially and up double digits year-over-year. For retention and e-commerce products, Q4 revenues were relatively unchanged from Q3.

Outside of China, APAC volumes increased sequentially, led by Japan, Taiwan, India, and Southeast Asia markets. On a year-over-year basis, Q4 Clear Aligner case volumes reflected increased shipments led by Korea, India, Japan, Taiwan, and Vietnam. While the easing of COVID restrictions in China and the more recent downward trend in COVID infection rates are encouraging, many uncertainties remain, including the lingering impacts from COVID across the population and the time and effort needed to restore consumer confidence. For the other non-case revenues, which include retention products such as our Vivera retainers, clinical training and education, accessories, e-commerce, and a new subscription program such as our DSP, fourth quarter revenues were down slightly sequentially and up double digits year-over-year. For retention and e-commerce products, Q4 revenues were relatively unchanged from Q3.

We exited fiscal 2022 with a strong balance sheet, including $1 billion in cash and investments a healthy cash flow position and no long term debt as we announced with our earnings Alliance Board of directors has authorized a new $1 billion.

The year over year decrease in operating margin is primarily attributed.

Two lower gross margin <unk>.

Investments in our go to market teams and technology as well as unfavorable impact from foreign exchange by approximately $4 two points.

<unk> repurchase program to succeed the current $1 billion program this new $1 billion.

Program reflects the strength of our balance sheet, and our cash flow generation as well as management and our boards continued confidence in our ability to capitalize on large market opportunities in our target markets and trajectory for growth, while concurrently returning capital to our shareholders.

Interest and other income expense.

Net for the fourth quarter was it was income of $2 $7 million compared to a loss of $21 million in the third quarter and a loss of <unk> 9 million in Q4 of 2021, primarily due to net foreign exchange gains from the strengthening of certain certain foreign currencies against the U.

Now turning to our outlook as Joe mentioned earlier, we are pleased with our Q4 results and what appears to be a more stable environment in North America and EMEA. We are cautiously optimistic for continued stability and improving trends as we move through the year. However, the macroeconomic environment remains fragile and given continue.

Joseph Hogan: We are pleased with our subscription-based programs like DSP, which increased sequentially and year over year and expect to continue expanding DSP offerings in other regions. For Q4, the total number of new Invisalign-trained doctors decreased sequentially due primarily to fourth quarter being a seasonally slower period for clinical education with holidays, etc., as well as fewer trainings in China and Brazil. This was offset by somewhat significantly higher numbers of new Invisalign doctors trained in EMEA. Teen orthodontic treatment is the largest segment of the orthodontic market worldwide and represents our largest opportunity for clear aligner sales to orthos. We continue to focus on gaining share from traditional metal braces through teen-specific sales and marketing programs, and product features, including Invisalign First for kids as young as six, which was up sequentially across all markets.

We are pleased with our subscription-based programs like DSP, which increased sequentially and year over year and expect to continue expanding DSP offerings in other regions. For Q4, the total number of new Invisalign-trained doctors decreased sequentially due primarily to fourth quarter being a seasonally slower period for clinical education with holidays, etc., as well as fewer trainings in China and Brazil. This was offset by somewhat significantly higher numbers of new Invisalign doctors trained in EMEA. Teen orthodontic treatment is the largest segment of the orthodontic market worldwide and represents our largest opportunity for clear aligner sales to orthos. We continue to focus on gaining share from traditional metal braces through teen-specific sales and marketing programs, and product features, including Invisalign First for kids as young as six, which was up sequentially across all markets.

S dollar.

The GAAP effective tax rate in the fourth quarter was 63, 8% compared to 47% in the third quarter and 13, 2% in the fourth quarter of the prior year.

<unk> global challenges and uncertainty we are not providing full year revenue guidance, we would like to see improvements in the operating environment and consumer demand signals, including stability in China before revisiting our approach.

Fourth quarter GAAP effective tax rate was higher than the third quarter effective tax rate, primarily due to decreased earnings in low tax jurisdictions.

At the same time, we are confident in our large untapped market opportunity for digital orthodontics, and restorative dentistry and our ability to make progress towards our strategic initiatives we.

We intend to focus on the things, we can control and influence which includes strategic investments in sales marketing technology and innovation.

For full year 2023, assuming no additional material disruptions or circumstances beyond our control, we anticipate our 2023 non-GAAP operating margin to be slightly above 20%.

Joseph Hogan: For Q4, total clear aligner teen cases were down sequentially due primarily to the impact of COVID in China, as well as seasonally fewer teen starts in North America as compared to Q3. According to the December Gaidge report, which tracks approximately 1,000 orthos in the United States and Canada, new patient exams for teens slowed in Q4, while new patient exams for adults improved slightly. A smaller pool of potential teen patients may put pressure on traditional orthos and cause them to go between clear aligners and wires, and brackets, especially those practices that have failed to understand the significant benefits of adopting more efficient digital workflows, believing metal braces are more profitable. In EMEA, Q4 was a record quarter for teen case starts. On a year-over-year basis, Q4 teen case starts were relatively unchanged. For Q4, Invisalign First increased year over year and was strong across all regions.

For Q4, total clear aligner teen cases were down sequentially due primarily to the impact of COVID in China, as well as seasonally fewer teen starts in North America as compared to Q3. According to the December Gaidge report, which tracks approximately 1,000 orthos in the United States and Canada, new patient exams for teens slowed in Q4, while new patient exams for adults improved slightly. A smaller pool of potential teen patients may put pressure on traditional orthos and cause them to go between clear aligners and wires, and brackets, especially those practices that have failed to understand the significant benefits of adopting more efficient digital workflows, believing metal braces are more profitable. In EMEA, Q4 was a record quarter for teen case starts. On a year-over-year basis, Q4 teen case starts were relatively unchanged. For Q4, Invisalign First increased year over year and was strong across all regions.

Of the prior year, and 2021, which does not reflect the change in our methodology.

Fourth quarter net income per diluted share was 54 down sequentially 39, and down $1 86 compared to the prior year.

With this backdrop for Q1 2023, we anticipate clear aligner volumes to be down sequentially, primarily due to weakness in China from Covid.

We offset by some stability from our Americas and EMEA regions, we anticipate clear aligner asps to be up from Q4, 2022, primarily due to higher pricing and unfavorable and favorable foreign exchange rates.

Our earnings per share was unfavorably impacted by <unk> on a sequential basis and 22 cents on a year over year basis due to foreign exchange and a non-GAAP basis net income per diluted share was $1 73 for the fourth quarter up 10 sequentially.

We anticipate <unk> scanner and services revenue to be down sequentially as the business followed a more typical capital equipment cycle.

And down $1 10 set year over year.

Note that the prior year 2021, non-GAAP net income per diluted share.

Taken in total we expect Q1 2023 revenues to be about flat to Q4 of 2022, we expect our Q1 2023 non-GAAP operating margin to be consistent with our Q4 2022 non-GAAP operating margin as we continued to make investments in R&D and other go to market activities.

Or prior year 2021, EPS does not reflect the Q4 2022 change in our methodology for the computation of the non-GAAP effective tax rate.

Joseph Hogan: Invisalign First clear aligner treatment is designed for predictive results and a positive experience while addressing the unique needs of growing children from as young as six to treat Phase One. For the full year, Invisalign clear aligner shipments for teens and young kids was approximately 733,000 cases. Our teen case mix overall was a record 31% of Invisalign cases shipped for the year. Finally, in Q4, the total number of doctors shipped was 82,900 doctors, a slight decrease due primarily to the impact of COVID in China, and off our Q3 2022 high point, which included a major DSO onboarding in North America. For the full year 2023, we also shipped to the highest cumulative number of Invisalign-trained doctors, over 124,000 doctors, reinforcing our commitment to doctor-directed care for clear aligner treatment to achieve the safest and best possible clinical treatment outcomes for patients.

Invisalign First clear aligner treatment is designed for predictive results and a positive experience while addressing the unique needs of growing children from as young as six to treat Phase One. For the full year, Invisalign clear aligner shipments for teens and young kids was approximately 733,000 cases. Our teen case mix overall was a record 31% of Invisalign cases shipped for the year. Finally, in Q4, the total number of doctors shipped was 82,900 doctors, a slight decrease due primarily to the impact of COVID in China, and off our Q3 2022 high point, which included a major DSO onboarding in North America. For the full year 2023, we also shipped to the highest cumulative number of Invisalign-trained doctors, over 124,000 doctors, reinforcing our commitment to doctor-directed care for clear aligner treatment to achieve the safest and best possible clinical treatment outcomes for patients.

Moving on to.

The balance sheet as of December 31, 2022, cash and cash equivalents and short term and long term marketable securities were $1 billion.

For 2023, we expect our investments in capital expenditures to exceed $200 million.

Down sequentially, $99 $5 million and down $255 $1 million year over year.

Capital expenditures, primarily relate to building construction and improvement as well as additional manufacturing capacity to support to support our international expansion with that I'll turn it back over to Joe for final comments Joe.

Of our $1 billion.

Balance.

$387 9 million was held in the U S and $653 7 million was held by our international entities.

Thanks, John in closing, we're pleased with our fourth quarter results and the improved trend in sequential growth, we saw in the Americas and EMEA regions and parts of APAC that reflect a more stable environment for doctors and their patients.

October 2022, we purchased approximately 848000 shares of our common stock at an average price of $188 62 per share through a $200 million accelerated share repurchase under our May 2021, $1 billion stock repurchase program.

It's still very early and many uncertainties remain we are hopeful that we'll see continued stability across the business and regions, especially in China. As we continue to work through these challenges were confident in our ability to focus on our customers and deliver key technology and innovation that furthers our leadership position in digital orthodontics and restorative dentistry, we're balancing it.

Joseph Hogan: With that, I'll now turn the call over to John.

With that, I'll now turn the call over to John.

We have $250 million remaining available for repurchase under this program and we plan to repurchase this remaining amount starting in Q1 2023 through either.

Shirley Stacy: Thanks, Joe. Before I go through the details of our Q4 results, I want to comment on two items in our fourth quarter financial results: restructuring and other charges. During Q4 2022, we incurred a total of $14.3 million of restructuring and other charges, of which $2.9 million was included in the cost of net revenues and $11.5 million included in operating expenses. Restructuring and other charges included $8.7 million of severance-related costs and $5.6 million of certain lease terminations and asset impairments, primarily related to rightsizing operations in Russia in light of business needs. Second, non-GAAP tax rate. In Q4 2022, we changed to a long-term projected tax rate for our non-GAAP provision for income taxes.

John Morici: Thanks, Joe. Before I go through the details of our Q4 results, I want to comment on two items in our fourth quarter financial results: restructuring and other charges. During Q4 2022, we incurred a total of $14.3 million of restructuring and other charges, of which $2.9 million was included in the cost of net revenues and $11.5 million included in operating expenses. Restructuring and other charges included $8.7 million of severance-related costs and $5.6 million of certain lease terminations and asset impairments, primarily related to rightsizing operations in Russia in light of business needs. Second, non-GAAP tax rate. In Q4 2022, we changed to a long-term projected tax rate for our non-GAAP provision for income taxes.

Investments to deliver shareholder value through transformative digital orthodontic solutions unique to align.

Either or a combination of open market repurchases or an accelerated stock repurchase agreement completing the repurchases in Q2 of 2023.

As a purpose driven business and we are committed to helping doctors transform smiles and change lives of millions of people around the world over.

Over the last year, we are flooded our customer base with a lot of new technology that represents one of the largest new product cycles in our history, but there is still a great deal of room for innovation in the next one to three years, you should expect to see new platforms from us that will continue to revolutionize doctors' practices and patients expectations for Doctor led treat.

Q4 accounts receivable balance was $859 $7 million flat sequentially.

Our overall days sales outstanding was 85 days down one day sequentially and up approximately seven days as compared to Q4 last year.

Cash flow from operations for the fourth quarter was $144 7 million capital expenditures for the fourth quarter were $53 $2 million, primarily related to our continued investment.

<unk> and scanning, making it simpler and faster and software saving both doctors and patients more time with <unk> or with improved clinical outcomes.

To increase our lighter manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to 91 $5 million.

In direct three D printing and evolution in both product and material science.

These three platforms will give doctors tools only drempt before with a singular focus to make the invisalign system. The standard of orthodontic and restored of care and we couldnt be more excited about it.

Shirley Stacy: Our previous methodology for calculating our non-GAAP effective tax rate included certain non-recurring and period-specific items that produce fluctuating effective tax rates that management does not believe are reflective of the company's long-term effective tax rate. We have recast non-GAAP results for our provision for income taxes, effective tax rate, net income, and diluted net income per share for each reporting period in 2022 to reflect this change. We did not make any changes to the results reported for 2021, as reflecting the change in our methodology for the computation of the non-GAAP effective tax rate was immaterial to our 2021 results. Refer to the section in our Q4 press release titled "Recast of Financial Measures for Prior Periods in 2022 for Tax Rate Change" under unaudited GAAP to non-GAAP reconciliation for further information. Now for our Q4 financial results.

Our previous methodology for calculating our non-GAAP effective tax rate included certain non-recurring and period-specific items that produce fluctuating effective tax rates that management does not believe are reflective of the company's long-term effective tax rate. We have recast non-GAAP results for our provision for income taxes, effective tax rate, net income, and diluted net income per share for each reporting period in 2022 to reflect this change. We did not make any changes to the results reported for 2021, as reflecting the change in our methodology for the computation of the non-GAAP effective tax rate was immaterial to our 2021 results. Refer to the section in our Q4 press release titled "Recast of Financial Measures for Prior Periods in 2022 for Tax Rate Change" under unaudited GAAP to non-GAAP reconciliation for further information. Now for our Q4 financial results.

Thank you for your time today, we look forward to updating you on our next earning call.

Now I'll turn the call back over to the operator for questions operator.

Yeah.

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

Program this new $1 billion.

<unk> tone will indicate your line is in the question queue. You May Press Star two if you would like to move your questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

One moment, please while we poll for questions.

The first comes from Jason Bednar with Piper Sandler you May proceed.

Thanks, Good afternoon, thanks for taking the questions.

Joe and John Congrats on seeing the stability return to the business.

Maybe I'll start with that point.

Shirley Stacy: Total revenues for the fourth quarter were $901.5 million, up 1.3% from the prior quarter and down 12.6% from the corresponding quarter a year ago. On a constant currency basis, Q4 2022 revenues were impacted by unfavorable foreign exchange of approximately $16 million, or approximately 1.7% sequentially, and approximately $67.6 million year over year, or approximately 7%. For Clear Aligner, Q4 revenues of $731.7 million were flat sequentially, primarily from lower ASPs, mostly offset by higher volumes. On a year-over-year basis, Q4 Clear Aligner revenues were down 10.3%, primarily due to lower volumes and lower ASPs, partially offset by higher non-case revenues. For Q4, Invisalign ASPs for comprehensive treatment were flat sequentially and decreased year over year. On a sequential basis, ASPs reflect the unfavorable impact from foreign exchange, partially offset by higher additional aligners and product mix shift.

Total revenues for the fourth quarter were $901.5 million, up 1.3% from the prior quarter and down 12.6% from the corresponding quarter a year ago. On a constant currency basis, Q4 2022 revenues were impacted by unfavorable foreign exchange of approximately $16 million, or approximately 1.7% sequentially, and approximately $67.6 million year over year, or approximately 7%. For Clear Aligner, Q4 revenues of $731.7 million were flat sequentially, primarily from lower ASPs, mostly offset by higher volumes. On a year-over-year basis, Q4 Clear Aligner revenues were down 10.3%, primarily due to lower volumes and lower ASPs, partially offset by higher non-case revenues. For Q4, Invisalign ASPs for comprehensive treatment were flat sequentially and decreased year over year. On a sequential basis, ASPs reflect the unfavorable impact from foreign exchange, partially offset by higher additional aligners and product mix shift.

You could talk about maybe what's changed versus say three to six months ago.

All part of the market still sounds maybe a little sluggish, but you also saw a sequential improvement team.

Teams are holding in could you maybe speak to the visibility you have today versus where you set.

Last summer and the fall would have led to the greater confidence and demand forecasting.

At the same time, we are confident in our large untapped market opportunity for digital orthodontics, and restorative dentistry and our ability to make progress towards our strategic initiatives.

Hey, Jason it's Joe.

First of all I think we have a more stable stable macroeconomic environment.

Obviously 2022 is pretty unprecedented when you think about China situation, Ukraine situation in Europe .

We intend to focus on the things, we can control and inputs, which include strategic investments in sales marketing technology and innovation.

The rapid increase federal reserve rates, it really puts the economy and a lot of ways. So I mean, we're working from a better platform in that sense I think.

For full year 2023, assuming no additional material disruptions or circumstances beyond our control, we anticipate our 2023 non-GAAP operating margin to be slightly above 20%.

Powells comments today in <unk> five increase at all I mean, it shows a little bit of confidence and the best partner since of what they're seeing and what youre directing too. So I'd just say Jason from a broad standpoint, we feel really good about our portfolio. We feel good about the technology, we talked about and all of those things. We're just looking for a stable platform from an economic standpoint to operate.

With this backdrop for Q1 2023, we anticipate clear aligner volumes to be down sequentially, primarily due to weakness in China from Covid, partially offset by some stability from our Americas and EMEA regions, we anticipate clear aligner asps to be up from Q4 2022, primarily due to <unk>.

Yes.

Okay. That's helpful.

It sounds more macro related than anything else.

Shirley Stacy: On a year-over-year basis, the Invisalign and comprehensive ASPs reflect the significant impact of unfavorable foreign exchange, product mix shift, and higher discounts, partially offset by higher additional liners and per-order processing fees. For Q4, Invisalign ASPs for non-comprehensive treatment decreased sequentially and year-over-year. On a sequential basis, the decline in ASPs reflects product mix shift, unfavorable impact from foreign exchange, and higher discounts, partially offset by higher additional liners. On a year-over-year basis, the decline in ASPs reflects the significant impact of unfavorable foreign exchange, product mix shift, and higher discounts, partially offset by higher additional liners and per-order processing fees. As we mentioned last quarter, as our revenues from subscriptions, retainers, and other 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.

On a year-over-year basis, the Invisalign and comprehensive ASPs reflect the significant impact of unfavorable foreign exchange, product mix shift, and higher discounts, partially offset by higher additional liners and per-order processing fees. For Q4, Invisalign ASPs for non-comprehensive treatment decreased sequentially and year-over-year. On a sequential basis, the decline in ASPs reflects product mix shift, unfavorable impact from foreign exchange, and higher discounts, partially offset by higher additional liners. On a year-over-year basis, the decline in ASPs reflects the significant impact of unfavorable foreign exchange, product mix shift, and higher discounts, partially offset by higher additional liners and per-order processing fees. As we mentioned last quarter, as our revenues from subscriptions, retainers, and other 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.

But that's helpful. And then maybe Joe I wanted to pick up on one point you mentioned.

Higher pricing and unfavorable and favorable foreign exchange rates.

Regarding the bracket and wire piece.

We anticipate <unk> scanner and services revenue to be down sequentially as the business follows a more typical capital equipment cycle.

Sure seems like maybe a profit motivated decision for docs, maybe shortsighted, but still profit motivated as they focus on that across the brackets and wires versus that clear aligner lab fee.

Taken in total we expect Q1 2023 revenues to be about flat to Q4 of 2022, we expect our Q1 2023 non-GAAP operating margin to be consistent with our Q4 2022 non-GAAP operating margin as we continue to make investments in R&D and other go to market activities.

What do you think it's going to take to reverse that trend bath to clear liners picking up meaningful share I guess, especially with teens to market volumes need to come back in a bigger way to convince doctors to free up more cheer time of clear liners or is there something you can do on your end to really stimulate that that shift back towards in decline.

For 2023, we expect our investments in capital expenditures to exceed $200 million.

<unk>.

Yes, that's a great question.

Capital expenditures, primarily relate to building construction and improvements as well as additional manufacturing capacity to support to support our international expansion with that I'll turn it back over to Joe for final comments Joe.

First of all I mean doctors are doing what they think are in the best financial interest and from a patient standpoint too.

Stronger macroeconomic environment will help in that sense, because they'll have higher patient traffic in.

The trade off won't be as severe in that sense because of the patient throughput, but where we help is in technology and that's why we emphasize the technology developments and the investments that we're making that a really significant as we launched this year and like I talked about with just software alone the big one in the sense of being able to move patients through faster.

Thanks, John in closing, we're pleased with our fourth quarter results and the improved trends in sequential growth. We saw in the Americas and EMEA regions and parts of APAC that reflect a more stable environment for doctors and their patients while still very early and many uncertainties remain we're hopeful that we'll see continued stability across the business and regions, especially in China.

Shirley Stacy: In our earnings release and financial slides, you will see that we've added our total Clear Aligner revenue per case shipment, which is more indicative of our overall growth strategy. Clear Aligner's deferred revenues on the balance sheet increased $56.4 million, or 4.8% sequentially, and $171.9 million, or up 16.2% year over year, and will be recognized as the additional aligners are shipped. Q4 2022 systems and services revenues of $169.9 million were up 7.8% sequentially, primarily due to higher scanner volume, services, and exocad revenues, partially offset by lower ASPs, and were down 21.3% year over year, primarily due to lower scanner volume and ASPs, partially offset by higher services revenue from our larger installed base of scanners and increased non-system revenues related to our certified pre-owned and leasing and rental programs.

In our earnings release and financial slides, you will see that we've added our total Clear Aligner revenue per case shipment, which is more indicative of our overall growth strategy. Clear Aligner's deferred revenues on the balance sheet increased $56.4 million, or 4.8% sequentially, and $171.9 million, or up 16.2% year over year, and will be recognized as the additional aligners are shipped. Q4 2022 systems and services revenues of $169.9 million were up 7.8% sequentially, primarily due to higher scanner volume, services, and exocad revenues, partially offset by lower ASPs, and were down 21.3% year over year, primarily due to lower scanner volume and ASPs, partially offset by higher services revenue from our larger installed base of scanners and increased non-system revenues related to our certified pre-owned and leasing and rental programs.

Being able to have doctors really do cases, a lot faster before with our products like IPP in different areas. So those technology advancements are really important and then how we put those together and business models like our digital subscription programs really help doctors get over that line too. So I feel we have a good format to be able to address that going forward, but again I'll emphasize.

As we continue to work through these challenges were confident in our ability to focus on our customers and deliver key technology and innovation that furthers our leadership position in digital orthodontics and restorative dentistry, we're balancing investments to deliver shareholder value through transformative digital orthodontics solutions unique to align.

We need a market that we can stand on NUCYNTA and predict.

The line is a purpose driven business and we are committed to helping doctors transform smiles and change lives of millions of people around the world.

Alright, thanks, so much congrats again.

I appreciate it next question please.

Over the last year with flooded our customer base with a lot of new technology that represents one of the largest new product cycles in our history, but there is still a great deal of room for innovation in the next one to three years, you should expect to see new platforms from us that will continue to revolutionize doctors' practices and patients expectations for Dr. <unk>.

Absolutely. The next question comes from Jeff Johnson with Baird You May proceed.

Hi, Jeff. Thanks, Hey, guys. Good afternoon, Joe I, just wanted to ask a couple of questions here I guess, one just on the clear aligner volume guidance for <unk>.

It sounds like it's because China incrementally weaker stability in Americas and EMEA.

<unk>.

And scanning, making it simpler and faster and software saving both doctors and patients more time with employees with improved clinical outcomes.

Press release, but <unk> got some hedging words in there about primarily due to weakness in China and some stability in the Americas and EMEA I mean should we be thinking at this point that your Americas and EMEA are kind of odd.

Shirley Stacy: Q4 2022 systems and services revenue were unfavorably impacted by foreign exchange of approximately $2.7 million, or approximately 1.5% sequentially. On a year-over-year basis, system and services revenue were unfavorably impacted by foreign exchange of approximately $11.2 million, or approximately 6.2%. Systems and services deferred revenues on the balance sheet were up $9 million, or 3.4% sequentially, and up $42.9 million, or 18.7% year over year, primarily due to the increase in scanner sales and the deferral of service revenues included with the scanner purchase, which will be recognized readily over the service period. Moving on to gross margin. Fourth quarter overall gross margin was 68.5%, down one point sequentially, and down 3.7 points year over year. Overall, gross margin was unfavorably impacted by foreign exchange on our revenues by approximately 0.6 points sequentially and 2.2 points on a year-over-year basis.

Q4 2022 systems and services revenue were unfavorably impacted by foreign exchange of approximately $2.7 million, or approximately 1.5% sequentially. On a year-over-year basis, system and services revenue were unfavorably impacted by foreign exchange of approximately $11.2 million, or approximately 6.2%. Systems and services deferred revenues on the balance sheet were up $9 million, or 3.4% sequentially, and up $42.9 million, or 18.7% year over year, primarily due to the increase in scanner sales and the deferral of service revenues included with the scanner purchase, which will be recognized readily over the service period. Moving on to gross margin. Fourth quarter overall gross margin was 68.5%, down one point sequentially, and down 3.7 points year over year. Overall, gross margin was unfavorably impacted by foreign exchange on our revenues by approximately 0.6 points sequentially and 2.2 points on a year-over-year basis.

And direct three D printing and evolution of both product and materials science.

And kind of a baseline here and I know, obviously macro can change from here.

Filming that macro change away or are we kind of at a baseline level now on absolute volume for Americans and EMEA and do you think China put a DEA recovery play throughout this year or are you seeing any early signs of some pickup in some of those big dental hospitals or are the new adult in the standard product there or anything.

Thank you for your time today, we look forward to updating you on our next earning call now.

Now I'll turn the call back over to the operator for questions operator.

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

Hey, Jeff first of all on the front end with western economies as we just see stability and Thats, what we talked about that's what we see versus before we saw the market falling away from us, but right now we see it being stable and.

Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

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Feel better about that point on China uncertainty in China has incredible when you think about 1 billion people being sick there right now or have been over the last couple of weeks.

The first comes from Jason Bednar with Piper Sandler you May proceed.

Jeff I've refused forecast over a number of <unk>.

<unk> of quarters now because a lot of it has to do with the uncertainty that we see in China, specifically, which our second biggest market in the world. So I don't want to try to forecast China right now I can tell you right now it's a blur for us.

Thanks, Good afternoon, thanks for taking the questions.

Joe and John Congrats on seen stability return to the business.

Shirley Stacy: Clear Aligner gross margin for Q4 was 70.8%, down 0.1 point sequentially due to lower ASPs, higher warranty, and restructuring costs, partially offset by improved manufacturing absorption and lower training costs. Clear Aligner gross margin for Q4 was down 3.4 points year over year, primarily due to lower ASPs, increased manufacturing spend as we continue to ramp up operations at our new manufacturing facility in Poland, and a higher mix of additional aligner volume. Systems and services gross margin for Q4 was 58.8%, down 4.6 points sequentially due to lower ASPs, higher inventory costs, and manufacturing inefficiencies, partially offset by higher services revenues and lower freight costs. Systems and services gross margin for Q4 was down 5.9 points year over year for the reasons stated previously. Q4 operating expenses were $505 million, up sequentially 6.2%, and down 3.6% year over year.

Clear Aligner gross margin for Q4 was 70.8%, down 0.1 point sequentially due to lower ASPs, higher warranty, and restructuring costs, partially offset by improved manufacturing absorption and lower training costs. Clear Aligner gross margin for Q4 was down 3.4 points year over year, primarily due to lower ASPs, increased manufacturing spend as we continue to ramp up operations at our new manufacturing facility in Poland, and a higher mix of additional aligner volume. Systems and services gross margin for Q4 was 58.8%, down 4.6 points sequentially due to lower ASPs, higher inventory costs, and manufacturing inefficiencies, partially offset by higher services revenues and lower freight costs. Systems and services gross margin for Q4 was down 5.9 points year over year for the reasons stated previously. Q4 operating expenses were $505 million, up sequentially 6.2%, and down 3.6% year over year.

Maybe I'll start with that point, if you could talk about maybe what's changed versus say three to six months ago.

Very difficult.

Adult part of the market still sounds maybe a little sluggish, but you also saw that sequential improvement.

But we feel good about where we stand with EMEA and the states from a stability standpoint.

Teams are holding in could you maybe speak to the visibility you have today versus where you set.

We tried to reflect as much in our words, what we see for the first quarter for you too.

Last summer and the fall what has led to the greater confidence and demand forecasting.

Understood.

So there's going to be a lot more questions here on the short term things I don't wanted to look at are asking about the desktop metal yellow.

Hey, Jason it's Joe.

First of all I think we have a more stable stable macroeconomic environment.

On that right now is it all for kind of milling.

Obviously 2002.

Two is pretty unprecedented when you think about China situation, Ukraine situation in Europe .

Milling using <unk> to connect to the lab there for milling <unk> three D printing.

The rapid increase federal reserve rates, it really puts the economy and a lot of ways. So I mean, we're working from a better platform in that sense and I think obviously powells comments today at <unk> five increase at all I mean, it shows a little bit of confidence on the first part and a sense of what theyre seeing and which are directing too. So I'd just say Jason from a broad standpoint, we feel really good about.

Just restorations are you guys doing any early work with them on three D printing of clear liners.

And just kind of again kind of update us maybe with your most recent thoughts on when we might start seeing three D printing of the liners in the office and kind of your competitive.

Advantages you think <unk> is <unk>.

Lying carve out in that kind of study.

Our portfolio, we feel good about the technology, we talked about and all of those things. We're just looking for a stable platform from an economic standpoint to operate.

Yes, yes, that's a good question the desktop metals is primarily we think about our restorative play.

Yeah.

Our labs play a huge role in restoring dentistry with general dentist, there I mean, they're really strong partners in that sense, what desktop metal represents as you see a modest three D printing going on there's some really great resin development around restorative times of things dentures different areas. The desktop metal leads in our <unk> scanner can really help.

Okay. That's helpful.

Shirley Stacy: On a sequential basis, operating expenses were up $29.5 million, mainly due to restructuring and other charges, our continued investment in sales and R&D activities, and higher consulting expenses. Year over year, operating expenses decreased by $18.6 million, primarily due to controlled spend on advertising and marketing as part of our efforts to proactively manage costs, as well as lower incentive compensation, partially offset by restructuring and other charges. On a non-GAAP basis, excluding stock-based compensation, restructuring and other charges, and amortization of acquired intangibles related to certain acquisitions, operating expenses were up $459.7 million, up 3.7% sequentially, and down 7% year over year. Our fourth quarter operating income of $112.7 million resulted in an operating margin of 12.5%, down 3.6 points sequentially, and down 8.9 points year over year. Operating margin was unfavorably impacted by 0.9 points sequentially, primarily due to foreign exchange, and lower gross margin.

On a sequential basis, operating expenses were up $29.5 million, mainly due to restructuring and other charges, our continued investment in sales and R&D activities, and higher consulting expenses. Year over year, operating expenses decreased by $18.6 million, primarily due to controlled spend on advertising and marketing as part of our efforts to proactively manage costs, as well as lower incentive compensation, partially offset by restructuring and other charges. On a non-GAAP basis, excluding stock-based compensation, restructuring and other charges, and amortization of acquired intangibles related to certain acquisitions, operating expenses were up $459.7 million, up 3.7% sequentially, and down 7% year over year. Our fourth quarter operating income of $112.7 million resulted in an operating margin of 12.5%, down 3.6 points sequentially, and down 8.9 points year over year. Operating margin was unfavorably impacted by 0.9 points sequentially, primarily due to foreign exchange, and lower gross margin.

It sounds more more macro related than anything else.

That's helpful and then maybe Joe I wanted to pick up on one point you mentioned.

Regarding the bracket and wire piece.

Sure seems like maybe a profit motivated decision for docs, maybe shortsighted, but still profit motivated as they focus on the cost of brackets and wires versus that clear aligner lab fee.

With that too.

Also we have a vision of ortho restorative, where you use our orthodontic procedures in order to reduce the amount of tooth loss mass that often comes with restorative procedures to that we'll work together with desktop about the idea of printing a liners.

What do you think it's going to take to reverse that trend back to clear liners picking up meaningful share I guess, especially with teens to market volumes need to come back in a bigger way to convince doctors to free up more time, a clear liners or is there something you can do on your end to really stimulate that but that shift back towards invisalign.

Standard types of STL kind of processes from a <unk> standpoint, I don't see that and honestly, Jeff I'm not one to think that doctors should turn their offices in the production facilities.

Yes.

Yes, that's a great question.

<unk> printing is hard.

First of all I mean doctors are doing what they think are in the best financial interest and from a patient standpoint too.

The materials are difficult there's a lot of doctors are trying it but I feel like doctors are much better being physicians and doctors in that sense, then trying to run our manufacturing operations.

Stronger macroeconomic environment will help in that sense, because they'll have higher patient traffic in.

The tradeoff won't be as severe in that sense because of the patient throughput, but we're re help us in technology and that's why we emphasize the technology developments and the investments that we're making that a really significant of re launching this year and like I talked about with just software alone to pick one in the sense of being able to move patients through faster.

Even in that first case to try to seal the deal and really lock that patient.

Paying customer.

Jeff I, just think there's some things that.

Kind of makes sense from a productivity standpoint, some things that don't maybe the technology changes to the point, Jeff will have a different conversation, but as it stands today I really don't believe that.

Shirley Stacy: 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 for foreign exchange by approximately 4.2 points. On a non-GAAP basis, which excludes stock-based compensation, restructuring, and other charges, and amortization of intangibles related to certain acquisitions, operating margin for the fourth quarter was 18.3%, down 1.9 points sequentially, and down 6.4 points year over year. Interest and other income expense net for the fourth quarter was income of $2.7 million compared to a loss of $21 million in the third quarter and a loss of $0.9 million in Q4 of 2021, primarily due to net foreign exchange gains from the strengthening of certain foreign currencies against the US dollar.

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 for foreign exchange by approximately 4.2 points. On a non-GAAP basis, which excludes stock-based compensation, restructuring, and other charges, and amortization of intangibles related to certain acquisitions, operating margin for the fourth quarter was 18.3%, down 1.9 points sequentially, and down 6.4 points year over year. Interest and other income expense net for the fourth quarter was income of $2.7 million compared to a loss of $21 million in the third quarter and a loss of $0.9 million in Q4 of 2021, primarily due to net foreign exchange gains from the strengthening of certain foreign currencies against the US dollar.

Understood. Thank you.

Yeah. Thanks, Jim.

Okay.

Thank you. Our next question comes from Elizabeth Anderson with Evercore you May proceed.

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

Okay.

We need a market that we can stand on NUCYNTA predict.

I'm wondering if you could talk about one.

How are you sort of think about the opex spend in terms of this particularly sales and marketing in this environment do you sort of you know obviously with the uncertain demand profile and the things that youre doing incrementally fourth quarter in the first quarter, that's sort of switch that stat.

Alright, thanks, so much.

Congrats again.

Appreciate it next question please.

Yeah.

Absolutely. The next question comes from Jeff Johnson with Baird You May proceed.

Hi, Jeff Thanks, Scott Hey, guys. Good afternoon, Joe I, just wanted to ask a couple questions here I guess, one just on the clear aligner volume guidance for <unk>. It sounds like it's because China incrementally weaker stability in Americas, and EMEA kind of had that in the press release, but you got some hedging words in there about primarily due to weakness in China.

Spend around.

Yes, I think what what we always look at.

This is John we're always looking at trying to find the right return on investment. So as you see some of the market stabilized and start to come back that we see that's what we'll continue to make investments and as we see volume come back we'll invest even more.

Some stability in the Americas, and EMEA I mean should we be thinking at this point that you were Americas and EMEA are kind of odd.

Like we talked about some of the stability in Americas and EMEA. So we'll constantly look at trying to find the right return on investment and as those markets stabilize and come back.

Shirley Stacy: The GAAP effective tax rate in the fourth quarter was 63.8% compared to 40.7% in the third quarter, and 13.2% in the fourth quarter of the prior year. The fourth quarter GAAP effective tax rate was higher than the third quarter effective tax rate, primarily due to decreased earnings in low-tax jurisdictions and an increase in the amount of US minimum tax on foreign earnings. Our non-GAAP effective tax rate was 20% in the fourth quarter, and reflects the change in our methodology that was discussed earlier. Our non-GAAP effective tax rate was 11.5% in the fourth quarter of the prior year in 2021, which does not reflect the change in our methodology. Fourth quarter net income per diluted share was $0.54, down sequentially $0.39, and down $1.86 compared to the prior year.

The GAAP effective tax rate in the fourth quarter was 63.8% compared to 40.7% in the third quarter, and 13.2% in the fourth quarter of the prior year. The fourth quarter GAAP effective tax rate was higher than the third quarter effective tax rate, primarily due to decreased earnings in low-tax jurisdictions and an increase in the amount of US minimum tax on foreign earnings. Our non-GAAP effective tax rate was 20% in the fourth quarter, and reflects the change in our methodology that was discussed earlier. Our non-GAAP effective tax rate was 11.5% in the fourth quarter of the prior year in 2021, which does not reflect the change in our methodology. Fourth quarter net income per diluted share was $0.54, down sequentially $0.39, and down $1.86 compared to the prior year.

I'm kind of a baseline here and I know, obviously macro can change from here.

Assuming that macro change away or are we kind of at a baseline level now on absolute volume for Americas, and EMEA and do you think China.

Youll see us continue to invest in there and as we said last year, we kind of had a pair some of that back based on the conditions and ideally we could be in a better situation, where we can make additional investments this year.

D. A recovery play throughout this year are you seeing any early signs of some pickup in some of those big dental hospitals are of the new adult men standard product there or anything.

That makes sense and maybe I was wondering if you could talk a little bit more about the GP demand profile because that was interesting how that would sort of holding up on a relative basis I heard what you said, obviously about the teen commentary is it something about that market or maybe the lower price point per.

Yeah, Jeff first of all on the front end with the western economies as we just see stability and Thats, what we talked about that's what we see versus before we saw the market falling away from us, but right now we see it being stable.

Keith or anything like that that would sort of be impacting that that'd be just curious to get more color on that.

Feel better about that point on China.

Elizabeth It's Joe could you restate that question I didn't quite get the entire question.

Certainly in China is incredible when you think about 1 billion people being sick there right now or have been over the last couple of weeks.

I think in your prepared remarks, you talked about the GP dentists sort of strength versus the fourth though on a relative to assist in the quarter. I was wondering if you could talk more about sort of the underlying color about why that why you sort of think that is at this point.

Jeff I refused to give a forecast over a number of number of quarters now because.

A lot of it has to do with the uncertainty that we see in China, and specifically, which is our second biggest market in the world. So I don't want to try to forecast China right now I can tell you right now it's a blur for us.

Shirley Stacy: Our earnings per share was unfavorably impacted by $0.04 on a sequential basis and $0.22 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $1.73 for the fourth quarter, up $0.10 sequentially and down $1.10 year over year. Note that the prior year 2021 non-GAAP net income per diluted share, or prior year 2021 EPS, does not reflect the Q4 2022 change in our methodology for the computation of the non-GAAP effective tax rate. Moving on to the balance sheet. As of 31 December 2022, cash and cash equivalents and short-term and long-term marketable securities were $1 billion, down sequentially $99.5 million and down $255.1 million year over year. Of our $1 billion balance, $387.9 million was held in the US, and $653.7 million was held by our international entities.

Our earnings per share was unfavorably impacted by $0.04 on a sequential basis and $0.22 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $1.73 for the fourth quarter, up $0.10 sequentially and down $1.10 year over year. Note that the prior year 2021 non-GAAP net income per diluted share, or prior year 2021 EPS, does not reflect the Q4 2022 change in our methodology for the computation of the non-GAAP effective tax rate. Moving on to the balance sheet. As of 31 December 2022, cash and cash equivalents and short-term and long-term marketable securities were $1 billion, down sequentially $99.5 million and down $255.1 million year over year. Of our $1 billion balance, $387.9 million was held in the US, and $653.7 million was held by our international entities.

Yes, that's a good question.

When you think about it we haven't we're in like a procedure and so someone's going to go into an orthodontist on a procedure like this that have her teeth straightening with the GP.

Very difficult.

But we feel good about where we stand with EMEA and the states from a stability standpoint.

There is patient.

We tried to reflect as much in our words, what we see for the first quarter to 42.

Patient traffic, they're constantly with cleaning and restoration and different things and so just its an area right now where since it's not just elected procedures. There. We feel GPS are just seeing more patients than an ortho wood when you compare period to period.

Understood.

So theres going to be a lot more questions here on the short term things I don't wanted to look at or ask you about the desktop metal deal though.

On that right now is it all for kind of milling using <unk> to connect to the lab there for milling <unk> printing of just restorations are you guys doing any early work with them on three D printing of clear aligner.

Got it thank you.

Thank you.

Thank you. The following question comes from Jon Block with Stifel. You May proceed.

Hi, Jessica is going to change.

Joe.

And just kind of again kind of update us maybe what your most recent thoughts on when we might start seeing three D printing of the liners in the office and kind of your competitive.

Maybe the first one John or Joe can you just talk about the five 5% price increase for 2023.

<unk> guidance is lower cases, lower scanner and services, but rose flat, so clearly a ASP benefits.

Advantages you think Ethernet is aligned carve out in that kind of setting. Thanks.

Thank you realize the five 5% the docs fees on comprehensive.

Yeah, Jeff that's a good question. The desktop metals is primarily do you think about our restore to play.

Shirley Stacy: In October 2022, we purchased approximately 848,000 shares of our common stock at an average price of $188.62 per share through a $200 million accelerated share repurchase under our May 2021 $1 billion stock repurchase program. We have $250 million remaining available for repurchase under this program, and we plan to repurchase this remaining amount starting in Q1 2023 through either, or a combination of open market repurchases or an accelerated stock repurchase agreement, completing the repurchases in Q2 of 2023. Q4 accounts receivable balance was $859.7 million, flat sequentially. Our overall day sales outstanding was 85 days, down one day sequentially, and up approximately seven days as compared to Q4 last year. Cash flow from operations for the fourth quarter was $144.7 million. Capital expenditures for the fourth quarter were $53.2 million, primarily related to our continued investment to increase aligner manufacturing capacity and facilities.

In October 2022, we purchased approximately 848,000 shares of our common stock at an average price of $188.62 per share through a $200 million accelerated share repurchase under our May 2021 $1 billion stock repurchase program. We have $250 million remaining available for repurchase under this program, and we plan to repurchase this remaining amount starting in Q1 2023 through either, or a combination of open market repurchases or an accelerated stock repurchase agreement, completing the repurchases in Q2 of 2023. Q4 accounts receivable balance was $859.7 million, flat sequentially. Our overall day sales outstanding was 85 days, down one day sequentially, and up approximately seven days as compared to Q4 last year. Cash flow from operations for the fourth quarter was $144.7 million. Capital expenditures for the fourth quarter were $53.2 million, primarily related to our continued investment to increase aligner manufacturing capacity and facilities.

Or goes to three by three but how do we think about flu.

All labs play a huge role in restorative dentistry with general dentist, there I mean, they're really strong partners in that sense with desktop metal represents as you see a lot of three D printing going on there's some really great resin development around restorative times of things dentures different areas. The desktop metal leads in our <unk> scanner can really help.

Flows to realized AOSP, John is that sort of.

I don't know a plus two or 3% from the <unk> hundred 22 levels. When we think about <unk> 23 and into the balance of 'twenty three.

That's a good way to look at it John because you're going to have some cases that kind of carryover, where they kind of order them and they get shifted a little bit later, and then you're right you're going to have the mix shift between the three by three which is kind of the same price and then and then the.

With that too.

Also we have a vision of ortho restorative, where you use our orthodontic procedures in order to reduce the amount of tooth loss mass. It often comes with restorative procedures to that we'll work together with desktop about the idea of printing a liners.

The full comprehensive so 2% to 3% in that first quarter is about in that range.

Okay.

Just a quick.

Standard types of STL kind of processes from a <unk> standpoint, I don't see that and honestly, Jeff I'm not one to think that doctors should turn their offices into production facilities.

Go ahead John .

I am sorry that was a clarify that it was just 2% to 3% sequential John correct from the four due to the Lumpiness yes.

Yes, Thats correct okay.

Okay, and sorry, and the second question just on the Op margin I think you said, 18% non-GAAP of <unk> greater than 20% for the year.

<unk> printing is hard.

The materials are difficult there's a lot of doctors are trying it but I feel like doctors are much better being physicians and doctors in that sense, then trying to run our manufacturing operation.

I'll just sort of load up a modeling question here do we think about sequential improvement for each of the quarters throughout 2023, and then that might be for John and Joe for you just talk to us on how you are comfortable.

Even in that first case to try to seal the deal and really lock that patient.

<unk> customer.

One that OLED Guy when you still have a lot of moving parts with the economy, you've got what's going on in China, I think you framed it as a fragile environment. How do you get comfortable with that <unk> guide there is enough wiggle room I suppose in the Opex, where you feel you can titrate spend accordingly, thanks guys.

Shirley Stacy: Free cash flow, defined as cash flow from operations less capital expenditures, amounted to $91.5 million. We exited fiscal 2022 with a strong balance sheet, including $1 billion in cash and investments, a healthy cash flow position, and no long-term debt. As we announced with our earnings, Align Board of Directors has authorized a new $1 billion stock repurchase program to succeed the current $1 billion program. This new $1 billion program reflects the strength of our balance sheet and our cash flow generation, as well as management and our board's continued confidence in our ability to capitalize on large market opportunities in our target markets and trajectory for growth while concurrently returning capital to our shareholders. Now turning to our outlook. As Joe mentioned earlier, we are pleased with our Q4 results and what appears to be a more stable environment in North America and EMEA.

Free cash flow, defined as cash flow from operations less capital expenditures, amounted to $91.5 million. We exited fiscal 2022 with a strong balance sheet, including $1 billion in cash and investments, a healthy cash flow position, and no long-term debt. As we announced with our earnings, Align Board of Directors has authorized a new $1 billion stock repurchase program to succeed the current $1 billion program. This new $1 billion program reflects the strength of our balance sheet and our cash flow generation, as well as management and our board's continued confidence in our ability to capitalize on large market opportunities in our target markets and trajectory for growth while concurrently returning capital to our shareholders. Now turning to our outlook. As Joe mentioned earlier, we are pleased with our Q4 results and what appears to be a more stable environment in North America and EMEA.

Jeff I, just think there's some things that.

It kind of makes sense from a productivity standpoint, some things that don't maybe the technology changes to the point, Jeff will have a different conversation, but as it stands today I really don't believe that.

Understood. Thank you.

Yeah. Thanks, Joe.

Yeah I'll take the modeling question John Yes, you would expect that just like we have in.

Okay.

Thank you. Our next question comes from Elizabeth Anderson with Evercore you May proceed.

I mean with prior years and so on as you start to get that volume leverage youll start to see some of that op margin improvement as you go throughout as you go throughout the year. So kind of starts at that lower point and you would model it too.

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

Hi.

I was wondering if you could talk about one.

To see some improvement as you go through the year and like we said total year.

Slightly above the 20%.

And John on the Om guide and the competence of the competencies related to what we see right now and what we think is some macro trends that are much more stable than what we've experienced before so from that we understand our costs and we know what we have given take John and I watch it closely.

Spend around.

I think what what we always look at Elizabeth This is John we're always looking at trying to find the right return on investment. So as you see some of the market stabilized and start to come back that we see that's what we'll continue to make investments and as we see volume come back we'll invest even more.

We obviously manage it as a percentage of our total revenues are too so revenues have to adjust we have to adjust to.

Shirley Stacy: We are cautiously optimistic for continued stability and improving trends as we move through the year. However, the macroeconomic environment remains fragile, and given continued global challenges and uncertainty, we are not providing full-year revenue guidance. We would like to see improvements in the operating environment and consumer demand signals, including stability in China, before revisiting our approach. At the same time, we are confident in our large untapped market opportunity for digital orthodontics and restorative dentistry and our ability to make progress towards our strategic initiatives. We intend to focus on the things we can control and influence, which includes strategic investments in sales, marketing, technology, and innovation. For full year 2023, assuming no additional material disruptions or circumstances beyond our control, we anticipate our 2023 non-GAAP operating margin to be slightly above 20%.

We are cautiously optimistic for continued stability and improving trends as we move through the year. However, the macroeconomic environment remains fragile, and given continued global challenges and uncertainty, we are not providing full-year revenue guidance. We would like to see improvements in the operating environment and consumer demand signals, including stability in China, before revisiting our approach. At the same time, we are confident in our large untapped market opportunity for digital orthodontics and restorative dentistry and our ability to make progress towards our strategic initiatives. We intend to focus on the things we can control and influence, which includes strategic investments in sales, marketing, technology, and innovation. For full year 2023, assuming no additional material disruptions or circumstances beyond our control, we anticipate our 2023 non-GAAP operating margin to be slightly above 20%.

But again I think we know what the levers are in this business and within the context of stability. We feel we can manage to the numbers that we've given you.

Like we talked about some of the stability in Americas and EMEA. So we will constantly look at trying to find the right return on investment and as those markets stabilize and come back.

Okay fair enough thanks, guys.

Excellent.

Youll see us continue to invest in there and as we said last year, we kind of had to pair some of that back based on the conditions and ideally we could be in a better situation, where we can make additional investments this year.

Thank you. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

Hi, good afternoon. Thanks for the question.

Joe I just wanted to kind of follow up on your comments about starting to commercialize obviously, a product and technology cycle that you seem very excited about and that sort of ortho and restore division I guess could you maybe just kind of help crystallize that for us in terms of how that kind of comes to market in 2023.

That makes sense and maybe I was wondering if you could talk a little bit more about the GP demand profile because that was interesting how that would sort of holding up on a relative basis I heard what you said, obviously, but the team commentary is it something about that market that maybe has a lower price point.

Sure.

Keith or anything like that that would sort of be impacting that that'd be just curious to get more color on that.

The type of investment that the company needs to make to kind of go after that opportunity.

Elizabeth It's Joe could you restate that question I didn't quite get the entire question.

Shirley Stacy: With this backdrop, for Q1 2023, we anticipate clear aligner volumes to be down sequentially, primarily due to weakness in China from COVID, partially offset by some stability from our Americas and EMEA regions. We anticipate clear aligner ASPs to be up from Q4 2022, primarily due to higher pricing and unfavorable foreign exchange rates. We anticipate iTero's scanner and services revenue to be down sequentially as the business follows a more typical capital equipment cycle. Taken in total, we expect Q1 2023 revenues to be about flat to Q4 of 2022. We expect our Q1 2023 non-GAAP operating margin to be consistent with our Q4 2022 non-GAAP operating margin as we continue to make investments in R&D and other go-to-market activities. For 2023, we expect our investments in capital expenditures to exceed $200 million.

With this backdrop, for Q1 2023, we anticipate clear aligner volumes to be down sequentially, primarily due to weakness in China from COVID, partially offset by some stability from our Americas and EMEA regions. We anticipate clear aligner ASPs to be up from Q4 2022, primarily due to higher pricing and unfavorable foreign exchange rates. We anticipate iTero's scanner and services revenue to be down sequentially as the business follows a more typical capital equipment cycle. Taken in total, we expect Q1 2023 revenues to be about flat to Q4 of 2022. We expect our Q1 2023 non-GAAP operating margin to be consistent with our Q4 2022 non-GAAP operating margin as we continue to make investments in R&D and other go-to-market activities. For 2023, we expect our investments in capital expenditures to exceed $200 million.

Yes.

Nathan overall, obviously, we do spend a significant amount on R&D in the business.

I think in your prepared remarks, you talked about the GP dentists sort of strength versus the fourth now on a relative basis in the quarter. I was wondering if you could talk more about sort of the underlying.

The foundation of that is the history of aligned because basically we're <unk> revolutionized digital orthodontics overall, but what we see as a start just invention for invention sake. We're always after how can we do these cases faster how do we do the more predictably how do we make it simpler for doctors a better treatment for patients overall and experienced in <unk>.

Color about why that why you sort of think that is at this point.

Yes, that's a good question.

When you think about it we havent were an elective procedure and so someone's going to go to an orthodontist on procedure like this that have her teeth straightening with GP.

One statistic right, so versus wires and brackets, which we talked about in the script on an average we do patient cases five months past.

Dennis.

Patient traffic, they're constantly with cleaning and restoration and different things and so just its an area right now where since it's not just elective procedures. There we feel GPS youre, just seeing more patients than the north of wood when you compare period to period.

And 35% fewer visits to a doctor and you do that some technology right you do that through remote monitoring you do that through the consistency of your algorithms and moving teeth and knowing when those seats are going to land as long as patients were and so the technology I talked about in those three areas first of all whether it's scanning we get better on scanning every year.

Got it thank you.

Thank you.

Thank you. The following question comes from Jon Block.

Real important part of that because look through AI, you can anticipate a lot of things moving scans through a lot faster.

Stifel You May proceed.

Hi, Jessica.

Shirley Stacy: Capital expenditures primarily relate to building construction and improvements, as well as additional manufacturing capacities to support our international expansion. With that, I'll turn it back over to Joe for final comments. Joe? Thanks, John. In closing, we're pleased with our fourth quarter results and the improved trends in sequential growth we saw in the Americas, EMEA regions, and parts of APAC that reflect a more stable environment for doctors and their patients. While it's still very early and many uncertainties remain, we're hopeful that we'll see continued stability across the business and regions, especially in China. As we continue to work through these challenges, we're confident in our ability to focus on our customers and deliver key technology and innovation that furthers our leadership position in digital orthodontics and restorative dentistry. We are balancing investments to deliver shareholder value through transformative digital orthodontic solutions unique to Align.

Capital expenditures primarily relate to building construction and improvements, as well as additional manufacturing capacities to support our international expansion. With that, I'll turn it back over to Joe for final comments. Joe?

Joe.

Last year like IPP Invisalign personal plan.

Maybe the first one John or Joe can you just talk about the five 5% price increase for 2023.

These kinds of technologies really reduce the traffic and communications between the Doctor and us in the sense of setting up treatment plans and lastly, three D printed devices as I mentioned has always been the Holy Grail and.

The <unk> guidance is lower cases, lower scanner and services revenue flat, so clearly AOSP benefits.

Joe Hogan: Thanks, John. In closing, we're pleased with our fourth quarter results and the improved trends in sequential growth we saw in the Americas, EMEA regions, and parts of APAC that reflect a more stable environment for doctors and their patients. While it's still very early and many uncertainties remain, we're hopeful that we'll see continued stability across the business and regions, especially in China. As we continue to work through these challenges, we're confident in our ability to focus on our customers and deliver key technology and innovation that furthers our leadership position in digital orthodontics and restorative dentistry. We are balancing investments to deliver shareholder value through transformative digital orthodontic solutions unique to Align.

I think you realize the five 5% of the dock space and comprehensive.

And we're the biggest <unk> printer in the world, but we don't really three D printing devices reprint molds, which in vacuum form over top of it when you vacuum form over the top of a mortgage you can't control wall thickness. As you can in three D printing and wall thickness is really critical to move teeth. So all of these invention to take a lot of time and money overall, but.

Or goes to three by three but how do we think about wood flows to realized ASP. John is that sort of a I don't know a plus two or 3% from the <unk> 22 level. When we think about <unk> 23 and into the balance of 'twenty three.

But we just see a huge opportunity for us to be able to increase clinical efficacy efficiency for doctors and patient experience and that's why we're so excited about it.

That's a good way to look at it John because you're going to have some cases that kind of carryover, where they kind of order them and then it gets shipped a little bit later, and then you're right you're going to have some mix shift between the three by three which is kind of the same price. It then and there.

Okay, Great and then just a quick clarification on.

On the adult side cases were up 7% sequentially. It sounds like you saw modest improvement in North America I think that was the case in APAC as well I guess I didn't see a reference to a $1 youre talking about EMEA I guess was the kind of adult dynamic kind of more in one thing about the western economies more in North America, just curious if.

Then the.

A full comprehensive so 2% to 3% in that first quarter is about in that range.

Shirley Stacy: Align is a purpose-driven business, and we are committed to helping doctors transform smiles and change lives of millions of people around the world. Over the last year, we have flooded our customer base with a lot of new technology that represents one of the largest new product cycles in our history. But there is still a great deal of room for innovation. In the next one to three years, you should expect to see new platforms from us that will continue to revolutionize doctors' practices and patients' expectations for doctor-led treatment, in scanning making it simpler and faster, in software saving both doctors and patients more time with improved clinical outcomes, in direct 3D printing, and evolution in both product and material science.

Align is a purpose-driven business, and we are committed to helping doctors transform smiles and change lives of millions of people around the world. Over the last year, we have flooded our customer base with a lot of new technology that represents one of the largest new product cycles in our history. But there is still a great deal of room for innovation. In the next one to three years, you should expect to see new platforms from us that will continue to revolutionize doctors' practices and patients' expectations for doctor-led treatment, in scanning making it simpler and faster, in software saving both doctors and patients more time with improved clinical outcomes, in direct 3D printing, and evolution in both product and material science.

Okay.

All right.

Go ahead John .

I'm, sorry, I thought was a clarify that it was just 2% to 3% sequential John Greg from the <unk> to the Wolfcamp.

You also saw the same thing play out in EMEA as well.

Yes, that's correct okay.

If I get the question right Nathan I mean, EMEA was great both adults and teens, we felt good about it. They can't you always go around I called the dark side of the Moon in Europe in third quarter right, but when they came out in the third quarter, we had a good fourth quarter from that.

Okay I'm sorry.

Question just on the Op margin I think you said, 18% non-GAAP of <unk> greater than 20% for the year.

I'll, just sort of load up on modeling questions here do we think about sequential improvement for each of the quarters throughout 2023, and then that might be for John and Joe for you just talk to us on how you are comfortable.

And so we felt good on both the adult side in the teen side in Europe .

Okay. Thank you.

Yes, Thank you Nick.

On that OLED Guy when you still have a lot of moving parts with the economy, you've got what's going on in China, I think you framed it as a fragile environment. How do you get comfortable with that <unk> guide there is enough wiggle room I suppose in the Opex, where you feel you can titrate spend accordingly, thanks guys.

Thank you. Our next question comes from Kevin Caliendo with UBS you May proceed.

Shirley Stacy: These three platforms will give doctors tools only dreamt of before, with a singular focus to make the Invisalign System the standard of orthodontic and restorative care. We couldn't be more excited about it. Thank you for your time today. We look forward to updating you on our next earnings call. Now I'll turn the call back over to the operator for questions. Operator? Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

These three platforms will give doctors tools only dreamt of before, with a singular focus to make the Invisalign System the standard of orthodontic and restorative care. We couldn't be more excited about it. Thank you for your time today. We look forward to updating you on our next earnings call. Now I'll turn the call back over to the operator for questions. Operator?

Hi, Thanks for taking my question.

Hi, guys.

I always struggle with this number that you really havent grown the number of docs and it's been a while and I understand that when demand is down you don't ship docks every quarter, but even the ones that are registered invisalign users havent really grown and I guess my question is is there an issue with that like.

Yeah I'll take the modeling question John Yes, you would expect that just like we have in.

Operator: Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Maybe prior years and so on as you start to get that volume leverage youll start to see some of that.

Margin improvement as you go throughout as you go throughout the year, so kind of starts at that lower point and you would model it too.

Why hasnt that number really expanded over the last four to five quarters.

See some improvement as you go through the year and like we said total year.

Do you need it as part of your growth algorithm to keep expanding the number of doctors or is it just a change in culture in the world right now or is it competitive pressures or is it just harder to find docs, who are willing to do this because the penetration of clear liners, which suggests there is.

Slightly above the 20%.

Shirley Stacy: The first comes from Jason Bednar with Piper Sandler. You may proceed. Thanks. Good afternoon. Thanks for taking the questions. Joe and John, congrats on seeing the stability return to the business. Maybe I'll start with that point. If you could talk about maybe what's changed versus, say, three to six months ago. The adult part of the market still sounds maybe a little sluggish, but you also saw that sequential improvement. Teens are holding in. Could you maybe speak to the visibility you have today versus where you sat last summer or in the fall? What has led to the greater confidence in demand forecasting? Hey, Jason, it's Joe. First of all, I think we have a more stable macroeconomic environment. I mean, obviously, 2022 is pretty unprecedented when you think about China situation, Ukraine situation in Europe.

The first comes from Jason Bednar with Piper Sandler. You may proceed.

Jason Bednar: Thanks. Good afternoon. Thanks for taking the questions. Joe and John, congrats on seeing the stability return to the business. Maybe I'll start with that point. If you could talk about maybe what's changed versus, say, three to six months ago. The adult part of the market still sounds maybe a little sluggish, but you also saw that sequential improvement. Teens are holding in. Could you maybe speak to the visibility you have today versus where you sat last summer or in the fall? What has led to the greater confidence in demand forecasting?

A lot of doctors out there that could be doing them.

Obviously manage it as a percentage of our total revenues are too so revenues have to adjust we have to adjust to.

Hey, Kevin doctors, both on the orthodontic side and on the GP side I mean, obviously I think you are right about that and obviously, we expand a lot globally. So everything you said is true I'll just give you one word on your questions on China.

But again I think we know what the levers are in this business and within the context of stability. We feel we can manage to the numbers that we've given you.

China's.

Fair enough thanks, guys. Thanks.

China's light.

It's down we shipped thousands of doctors in China, we can't ship to right now.

Thanks, Sean.

That's the answer to your question is Thats why its gone down Theres no systemic overall.

Thank you. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

Joe Hogan: Hey, Jason, it's Joe. First of all, I think we have a more stable macroeconomic environment. I mean, obviously, 2022 is pretty unprecedented when you think about China situation, Ukraine situation in Europe.

Overall issue in the sense of us being penetrated to the point that we can find more doctors, it's just mechanics downdrafts in China right now in your equation is right new doctors, Dr ship too as well as utilization that is the two key metrics that help us grow our business.

Hi, good afternoon. Thanks for the question.

Shirley Stacy: The rapid increase in Federal Reserve rates that really put the economy in a lot of ways. So, I mean, we're working from a better platform in that sense. And I think, obviously, Powell's comments today and 0.25 increase and all, I mean, it shows a little bit of confidence on the Fed's part in the sense of what they're seeing and what they're directing to. So I'd just say, Jason, from a broad standpoint, we feel really good about our portfolio. We feel good about the technology we talked about and all those things. We're just looking for a stable platform from an economic standpoint to operate from. Okay. All right. No, that's helpful. Definitely sounds more macro-related than anything else. But no, that's helpful. And then maybe, Joe, I wanted to pick up on one point you mentioned regarding the bracket and wire piece.

The rapid increase in Federal Reserve rates that really put the economy in a lot of ways. So, I mean, we're working from a better platform in that sense. And I think, obviously, Powell's comments today and 0.25 increase and all, I mean, it shows a little bit of confidence on the Fed's part in the sense of what they're seeing and what they're directing to. So I'd just say, Jason, from a broad standpoint, we feel really good about our portfolio. We feel good about the technology we talked about and all those things. We're just looking for a stable platform from an economic standpoint to operate from.

Can I ask a quick follow up.

Can you talk about the.

Need to see consumer demand signals improving yeah.

The type of investment that the company needs to make to kind of go after that opportunity.

How far ahead can you actually see that meaning.

Is it is there something in ordering and planning like or can you see three months ahead or six months ahead in terms of you're starting to see demand increase.

Yes.

Nathan overall, obviously, we do spend a significant amount on R&D in the business.

Or is it really real time like we've made.

The foundation of that is the history of align because basically were breathalysed revolutionized digital orthodontics overall, but what we see as a start just invention for invention sake. We're always after how can we do these cases faster how do we do the more predictably how do we make it simpler for doctors a better treatment for patients overall and.

Jason Bednar: Okay. All right. No, that's helpful. Definitely sounds more macro-related than anything else. But no, that's helpful. And then maybe, Joe, I wanted to pick up on one point you mentioned regarding the bracket and wire piece.

We're starting to see an inflection point I guess it gets to the point of like.

What what do you need to see in terms of consumer demand how far forward can you can you look before you can really feel comfortable that there's been an inflection point.

Shirley Stacy: It sure seems like maybe a profit-motivated decision for docs, maybe short-sighted, but still profit-motivated as they focus on the cost of brackets and wires versus that clear aligner lab fee. Maybe, what do you think it's going to take to reverse that trend back to clear aligners picking a meaningful share, I guess, especially with teens? Do market volumes need to come back in a bigger way to convince doctors to free up more chair time with clear aligners, or is there something you can do on your end to really stimulate that shift back towards Invisalign? Thank you. Yeah, Jason, that's a great question. First of all, I mean, doctors are doing what they think are in their best financial interest and from a patient standpoint too.

It sure seems like maybe a profit-motivated decision for docs, maybe short-sighted, but still profit-motivated as they focus on the cost of brackets and wires versus that clear aligner lab fee. Maybe, what do you think it's going to take to reverse that trend back to clear aligners picking a meaningful share, I guess, especially with teens? Do market volumes need to come back in a bigger way to convince doctors to free up more chair time with clear aligners, or is there something you can do on your end to really stimulate that shift back towards Invisalign? Thank you.

So just give you one statistic right so versus wires and brackets, which you've talked about in the script on an average we do patient cases five months perhaps.

But Kevin when we look at things that were a real time business. Obviously, when you have a three D printing business like we do and what we make.

There is no leading indicators that would say that.

And 35% fewer visits to a doctor and you do that through technology right. We do that through remote monitoring to do that through the consistency of your algorithms and moving teeth and normally those things are going to land as long as patients were and so the technology I talked about in those three areas first of all whether it's scanning we get better on scanning every year.

It Hasnt R squared of overnight.

90%, but what we watch closely are the consumer confidence indices.

In the states in Europe , where we can get good ones out there theyre more confirming then they are predictive and what we're seeing.

But they reflect the I think best from.

Real important part of that because withdrew AI you can anticipate a lot of things moving scans through a lot faster.

Joe Hogan: Yeah, Jason, that's a great question. First of all, I mean, doctors are doing what they think are in their best financial interest and from a patient standpoint too.

A demand standpoint of what we can expect in the consumer confidence indices that we see both in Europe , and the states have flattened out or turn slightly positive.

Veterans last year like IPP Invisalign personal plan.

Those kinds of technologies really reduce the traffic and communications between the Doctor and us in the sense of setting up treatment plans.

Last month or so thanks, Kevin next question. Please.

Shirley Stacy: A stronger macroeconomic environment will help in that sense because they'll have higher patient traffic, and the trade-off won't be as severe in that sense because of the patient throughput. But where we help is in technology, and that's why we emphasize the technology developments and investments that we're making that are really significant as we launch them this year. And like I talked about with just software alone, the PIC-1, in the sense of being able to move patients through faster, being able to have doctors really do cases a lot faster before with our products like IPP in different areas. So those technology advancements are really important. And then how we put those together in business models like our digital subscription programs really help doctors get over that line too. So I feel we have a good format to be able to address that going forward.

A stronger macroeconomic environment will help in that sense because they'll have higher patient traffic, and the trade-off won't be as severe in that sense because of the patient throughput. But where we help is in technology, and that's why we emphasize the technology developments and investments that we're making that are really significant as we launch them this year. And like I talked about with just software alone, the PIC-1, in the sense of being able to move patients through faster, being able to have doctors really do cases a lot faster before with our products like IPP in different areas. So those technology advancements are really important. And then how we put those together in business models like our digital subscription programs really help doctors get over that line too. So I feel we have a good format to be able to address that going forward.

Lastly, <unk> printed devices as I mentioned has always been the Holy Grail and we're the biggest <unk> printer in the world, but we don't really <unk> print devices reprint molds, which in vacuum form over top of it when you vacuum form over top of remote you can't control wall thickness. As you can in three D printing and wall thickness is really critical to move teeth. So all these invention to take a lot of time and money overall.

Absolutely. Our next one comes from Brandon <unk> with William Blair You May proceed.

Hi, everyone. Thanks for taking the question.

I wanted to ask one to kind of go back.

A couple of those were trying to get at.

You guided to a full year op margin above, 20% and you're a little bit below that now of course, probably transient.

All.

But we just see a huge opportunity for us to be able to increase clinical efficacy efficiency for doctors and patient experience and that's why we're so excited about it.

Question being you need sequential improvements in sales to then drive the sequential improvements in op margins through the year, how should we be thinking about that or are you prepared to kind of deliver that 20%. Even if let's say we are just stable through the rest of the year rather than improving.

Okay great.

Then just a quick clarification.

On the adult side cases were up 7% sequentially. It sounds like you saw modest improvement in North America I think that was the case in APAC as well I guess I didn't see a reference to a $1 youre talking about EMEA I guess was the kind of adult dynamic kind of more in when thinking about the western economies more in North America, just curious if.

Shirley Stacy: But again, I'll emphasize we need a market that we can stand on in a sense and predict. All right. Thanks. Thanks so much. Congrats again. Thanks, Jason. Appreciate it. Next question, please. Absolutely. The next question comes from Jeff Johnson with Baird. You may proceed. Hi, Jeff. Thanks, guys. Hey, guys. Good afternoon. Joe, I just want to ask a couple of questions here. I guess one just on the clear aligner volume guidance for Q1. It sounds like it's because China is incrementally weaker, stability in Americas and EMEA. You kind of had that in the press release. But you got some hedging words in there about primarily due to weakness in China and some stability in the Americas and EMEA. I mean, should we be thinking at this point that your Americas and EMEA are kind of on a kind of a baseline here?

But again, I'll emphasize we need a market that we can stand on in a sense and predict.

Jason Bednar: All right.

Yes, it's a good question.

Shirley Stacy: Thanks.

Jason Bednar: Thanks so much. Congrats again.

We would expect is.

Shirley Stacy: Thanks, Jason. Appreciate it. Next question, please.

As we start to see <unk>.

Demand has stabilized as the exchange in the world.

Operator: Absolutely. The next question comes from Jeff Johnson with Baird. You may proceed.

It gives us a better operating environment, we would expect to see some sequential improvement in revenue as you go through the year and.

You also saw the same thing play out in EMEA as well.

Joe Hogan: Hi, Jeff.

Jeff Johnson: Thanks, guys. Hey, guys. Good afternoon. Joe, I just want to ask a couple of questions here. I guess one just on the clear aligner volume guidance for Q1. It sounds like it's because China is incrementally weaker, stability in Americas and EMEA. You kind of had that in the press release. But you got some hedging words in there about primarily due to weakness in China and some stability in the Americas and EMEA. I mean, should we be thinking at this point that your Americas and EMEA are kind of on a kind of a baseline here?

If I get your question right Nathan I mean, EMEA was great both adults and teens, we felt good about it they can always go around I call. It the dark side of the Moon in Europe in third quarter right, but when they came out in the third quarter, we had a good fourth quarter from that.

That would help us get.

Some of the leverage that we need from an op margin standpoint.

Thanks Brennan got next question.

And so we felt good on both the adult side in the teen side in Europe .

Absolutely. The next question comes from Anne White with Morgan Stanley You May proceed.

Okay. Thank you.

Yes, Thank you Nick.

Great. Thanks, just a follow up to that last question just to clarify I understand youre not giving the full year guidance from a volume perspective, but if you do continue to see the environment.

Thank you. Our next question comes from Kevin Caliendo with UBS you May proceed.

Shirley Stacy: I know, obviously, macro can change from here, but assuming that macro stays away, are we kind of at a baseline level now on absolute volumes for Americas and EMEA? And do you think China could it be a recovery play throughout this year? Are you seeing any early signs of some pickup in some of those big dental hospitals or of the new adult and standard product there or anything? Hey, Jeff, first of all, on the front end with the Western economies, we just see stability. That's what we talked about. That's what we see versus before. We saw the market falling away from us. But right now, we see it being stable, and I feel better about that point.

I know, obviously, macro can change from here, but assuming that macro stays away, are we kind of at a baseline level now on absolute volumes for Americas and EMEA? And do you think China could it be a recovery play throughout this year? Are you seeing any early signs of some pickup in some of those big dental hospitals or of the new adult and standard product there or anything?

Hi, Thanks for taking my question.

Youre, saying sustained where it is today are getting slightly better you are in a position to grow volume year over year end 2023, and then.

Hi, guys.

Separate question on subscription offerings, particularly in routine Ericsson and I'm curious, how that's resonating with customers today is another revenue driver for the practice.

Joe Hogan: Hey, Jeff, first of all, on the front end with the Western economies, we just see stability. That's what we talked about. That's what we see versus before. We saw the market falling away from us. But right now, we see it being stable, and I feel better about that point.

And when do you think that that will be material in terms of contribution. Thanks.

On the volume I mean, we would expect.

Why hasnt that number really expanded over the last four to five quarters.

What we're watching.

Lot of the signal supposedly we tried to give more color around Q1, and the rest of the year will play out as things.

Do you need it is part of your growth algorithm to keep expanding the number of doctors is it just a change in culture in the world right now or is it competitive pressures or is it just harder to find docs, who are willing to do this because the penetration of clear aligner would suggest there is there is.

Shirley Stacy: On China, I mean, uncertainty in China is incredible when you think about a billion people being sick there right now or have been sick over the last couple of weeks. And Jeff, I've refused to give a forecast over a number of quarters now because a lot of it has to do with the uncertainty that we see in China and specifically, which is our second biggest market in the world. So I don't want to try to forecast China right now. I can tell you right now it's a blur for us and very difficult. But just we feel good about where we stand with EMEA and the States from a stability standpoint. And we try to reflect as much in our words what we see for the first quarter for you too. Understood.

On China, I mean, uncertainty in China is incredible when you think about a billion people being sick there right now or have been sick over the last couple of weeks. And Jeff, I've refused to give a forecast over a number of quarters now because a lot of it has to do with the uncertainty that we see in China and specifically, which is our second biggest market in the world. So I don't want to try to forecast China right now. I can tell you right now it's a blur for us and very difficult. But just we feel good about where we stand with EMEA and the States from a stability standpoint. And we try to reflect as much in our words what we see for the first quarter for you too.

As things in the World change due to this situation. So we'll watch volume closely.

But like I said, we would expect some sequential improvement as you go forward through the year, but.

We're not getting into the specifics of what it is for total.

A lot of doctors out there that could be doing them.

They are still on the on the DSP program.

Hey, Kevin doctors, both on the orthodontic side and on the GP side. I mean, obviously you have to you are right about that and obviously, we expand a lot globally too. So everything you said is true I'll just give you one word on your questions China.

And originally that was targeted primarily retainers orthodontist, because a lot of orthodontists were making their own.

<unk> is in a back room.

For wires and brackets.

China's.

So we signed up we also obviously do the touch up cases with that too is tenant liners less.

China's light.

It's down we ship thousands of doctors in China, We can't ship to right now and that's the answer to your question in a sense of why it has gone down Theres no systemic overall issue in the sense of us being penetrated to the point that we can find more doctors. It's just we can't escape downdraft with China right now in your equation is right, it's new doctors.

Jeff Johnson: Understood. I'm sure there's going to be a lot more questions here around the short-term things. I don't want to look or ask you about the Desktop Metal deal, though. On that, right now, is it all for kind of milling, using iTero to connect to the lab there for milling and/or 3D printing of just restorations? Are you guys doing any early work with them on 3D printing of clear aligners? And just kind of, again, kind of update us maybe with your most recent thoughts on when we might start seeing 3D printing of aligners in the office and kind of your competitive advantages you think you can as Align carve out in that kind of setting. Thanks.

And that's worked out well and I think what you're referring to in the end is that the subscription program to the Doctor and we also have a subscription program. We offered from the doctor through the patients and we're implementing that now there's a lot of enthusiasm from our doctors about that because it becomes a reoccurring revenue stream for them that they haven't many of them haven't tapped into before.

Shirley Stacy: I'm sure there's going to be a lot more questions here around the short-term things. I don't want to look or ask you about the Desktop Metal deal, though. On that, right now, is it all for kind of milling, using iTero to connect to the lab there for milling and/or 3D printing of just restorations? Are you guys doing any early work with them on 3D printing of clear aligners? And just kind of, again, kind of update us maybe with your most recent thoughts on when we might start seeing 3D printing of aligners in the office and kind of your competitive advantages you think you can as Align carve out in that kind of setting. Thanks. Yeah, Jeff, that's a good question. The Desktop Metal is primarily we think about a restorative play, how labs play a huge role in restorative dentistry with general dentists.

Doctor ship too as well as utilization that is those are.

Two key metrics that help us grow our business.

So we feel good about that.

We'll be working closely with our doctors to implement that more fully this year.

Can I ask a quick follow up.

Thank you next question please.

You talk about the.

You need to see consumer demand signals, improving and how.

Absolutely. The next question comes from Michael <unk> with Bank of America. You May proceed.

How far ahead can you actually see that meaning.

Great. Thanks, guys ill throw in a couple of just real quick from a versa.

Is it is there something in ordering and planning like or can you see three months ahead or six months ahead in terms of you're starting to see demand increase or.

Joe Hogan: Yeah, Jeff, that's a good question. The Desktop Metal is primarily we think about a restorative play, how labs play a huge role in restorative dentistry with general dentists.

First on China, I think you mentioned that.

On the use the word it's a blur, which is kind of understandable, but any updated thoughts on DVT or any of the local on the ground.

Or is it really real time like maybe.

We're starting to see an inflection point I guess it gets to the point of like.

Shirley Stacy: I mean, they're really strong partners in that sense. What Desktop Metal represents is you see a lot of 3D printing going on. There's some really great resin development around restorative kinds of things, dentures, and different areas that Desktop Metal leads in. And our iTero scanner can really help with that too. Also, we have a vision of ortho-restorative where you use our orthodontic procedures in order to reduce the amount of tooth loss mass that often comes with restorative procedures too that will work together with Desktop Metal about the idea of printing aligners and standard types of STL kind of processes from a 3D standpoint. I don't see that. And honestly, Jeff, I'm not one to think that doctors should turn their offices into production facilities. 3D printing is hard. The materials are difficult. There's a lot of doctors actually trying it.

I mean, they're really strong partners in that sense. What Desktop Metal represents is you see a lot of 3D printing going on. There's some really great resin development around restorative kinds of things, dentures, and different areas that Desktop Metal leads in. And our iTero scanner can really help with that too. Also, we have a vision of ortho-restorative where you use our orthodontic procedures in order to reduce the amount of tooth loss mass that often comes with restorative procedures too that will work together with Desktop Metal about the idea of printing aligners and standard types of STL kind of processes from a 3D standpoint. I don't see that. And honestly, Jeff, I'm not one to think that doctors should turn their offices into production facilities. 3D printing is hard. The materials are difficult. There's a lot of doctors actually trying it.

How what's going on there while the COVID-19 situation is ongoing.

What do you need to see in terms of consumer demand how far forward can you can you look before you can really feel comfortable that there's been an inflection point.

A box and then I also wanted to ask on the on the tax rate. The non-GAAP tax rate and then you called out 20% in <unk> should we sort of assume possibly go forward.

But Kevin when we look at things that weren't realtime business. Obviously, you know when you have a three D printing business like we do and what we make.

So Michael this is John on tax rate for the non non-GAAP tax rate assume 20% going forward.

There is no leading indicators that would say that.

It Hasnt R squared of overnight.

On China, GDP, I mean, obviously that program over there we talked about it several times.

90%, but what we watch closely are the consumer confidence indices.

In tier three tier four cities, it's really not in the middle of our portfolio.

In the states in Europe , where we can get good ones out there theyre more confirming then they are predictive and what we're seeing.

It was picked up by some Chinese competitors were primarily private over there we will sell the public hospitals.

But they reflect the I think best from a.

The programs.

Demand standpoint of what we can expect in the consumer confidence indices that we see both in Europe and the states have flattened out returns slightly positive.

Exclusive of in essence to so when we feel like we can we can manage in China right now around this fine.

Last month or so thanks, Kevin next question. Please.

Shirley Stacy: But I feel like doctors are much better being physicians and doctors in that sense than trying to run a manufacturing operation. Even in that first case to try to seal the deal and really lock that patient in as a paying customer? Jeff, I just think there's some things that kind of make sense from a productivity standpoint and some things that don't. Maybe the technology changes to the point, Jeff, we'll have a different conversation. But as it stands today, I really don't believe that. Understood. Thank you. Yeah, thanks, Jeff. Thank you. Our next question comes from Elizabeth Anderson with Evercore. You may proceed. Hi, guys. Thanks so much for the question. Hi. I was wondering if you could talk about one, how you sort of think about the OpEx spend in terms of particularly sales and marketing in this environment.

But I feel like doctors are much better being physicians and doctors in that sense than trying to run a manufacturing operation.

Alright. Thanks.

Thank you.

Yeah.

Well, thank you everyone.

Absolutely. Our next one comes from Brandon <unk> with William Blair You May proceed.

I appreciate your time today. This concludes our conference call.

Jeff Johnson: Even in that first case to try to seal the deal and really lock that patient in as a paying customer?

We look forward to speaking to you at upcoming financial conferences and industry meetings, including Chicago Midwinter idea and.

Hey, Rob Thanks for taking my question.

Joe Hogan: Jeff, I just think there's some things that kind of make sense from a productivity standpoint and some things that don't. Maybe the technology changes to the point, Jeff, we'll have a different conversation. But as it stands today, I really don't believe that.

Yes.

I wanted to ask one to kind of go back to a couple of those were trying to get at.

If you have any follow up questions. Please contact our Investor Relations line have a great day.

You guided to a full year op margin about 20% and you're a little bit below that now of course, probably transient.

This concludes today's conference. Thank you for your participation you may now disconnect your lines.

Jeff Johnson: Understood. Thank you.

The question being do you need sequential improvements in sales to then drive the sequential improvements in op margins through the year, how should we be thinking about that.

Joe Hogan: Yeah, thanks, Jeff.

Operator: Thank you. Our next question comes from Elizabeth Anderson with Evercore. You may proceed.

Elizabeth Anderson: Hi, guys. Thanks so much for the question. Hi. I was wondering if you could talk about one, how you sort of think about the OpEx spend in terms of particularly sales and marketing in this environment. Do you sort of, obviously, with the uncertain demand profile, are there things that you're doing incrementally in the fourth quarter or the first quarter that sort of switch that spend around?

Or are you prepared to kind of deliver that 20%, even if let's say we are just stable through the rest of the year rather than improving.

Yes, it's a good question.

We would expect is.

As we start to see.

Demand is it has it stabilized at the exchange in the World.

Shirley Stacy: Do you sort of, obviously, with the uncertain demand profile, are there things that you're doing incrementally in the fourth quarter or the first quarter that sort of switch that spend around? Yeah, I think what we always look at, Elizabeth. This is John. We're always looking at trying to find the right return on investment. So as you see some of the market stabilize and start to come back that we see, that's where we'll continue to make investments. And as we see volume come back, we'll invest even more. We talked about some of the stability in Americas and EMEA. So we'll constantly look at trying to find the right return on investment. And as those markets stabilize and come back, you'll see us continue to invest in there.

It gives us a better operating environment, we would expect to see some sequential improvement in revenue as you go through the year and.

John Morici: Yeah, I think what we always look at, Elizabeth. This is John. We're always looking at trying to find the right return on investment. So as you see some of the market stabilize and start to come back that we see, that's where we'll continue to make investments. And as we see volume come back, we'll invest even more. We talked about some of the stability in Americas and EMEA. So we'll constantly look at trying to find the right return on investment. And as those markets stabilize and come back, you'll see us continue to invest in there.

That would help us.

Get some of the leverage that we need from an op margin standpoint.

Thanks Brendan.

Sure.

Absolutely. The next question comes from Anne White with Morgan Stanley You May proceed.

Great. Thanks, just a follow up to that last question just to clarify I understand you're not giving the full year guidance from a volume perspective, but if you do continue to see the environment.

Youre, saying sustain greater today are getting slightly better you are in a position to grow volume year over year end 2023, and then.

Shirley Stacy: As we said, last year, we kind of had to pare some of that back based on the conditions. Ideally, we could be in a better situation where we can make additional investments this year. That makes sense. Maybe I was wondering if you could talk a little bit more about the GP demand profile because that was interesting how that was sort of holding up on a relative basis. I heard what you said, obviously, about the teen commentary. Is it something about that market or maybe the lower price point per case or anything like that that would sort of be impacting that? I'd be just curious to get more color on that. Elizabeth, it's Joe. Could you restate that question? I didn't quite get the entire question.

As we said, last year, we kind of had to pare some of that back based on the conditions. Ideally, we could be in a better situation where we can make additional investments this year.

Separate question on subscription offerings, particularly in routine Ericsson and I'm curious, how that's resonating with customers today is another revenue driver for the practice.

Elizabeth Anderson: That makes sense. Maybe I was wondering if you could talk a little bit more about the GP demand profile because that was interesting how that was sort of holding up on a relative basis. I heard what you said, obviously, about the teen commentary. Is it something about that market or maybe the lower price point per case or anything like that that would sort of be impacting that? I'd be just curious to get more color on that.

And when do you think that that will be material in terms of contribution. Thanks.

And sorry on the volume I mean, we would expect.

We're we're watching a lot of the signals closely we tried to give more color around Q1, and the rest of the year will play out as things.

Joe Hogan: Elizabeth, it's Joe. Could you restate that question? I didn't quite get the entire question.

As things in the World change too.

Two the situation so we'll watch volume closely.

Shirley Stacy: I think in your prepared remarks, you talked about the GP dentist sort of strength versus the ortho on a relative basis in the quarter. So I was wondering if you could talk more about sort of the underlying color about why you sort of think that is at this point. Yeah, that's a good question. When you think about it, we're an elective procedure, right? And so someone's going to go to an orthodontist on a procedure like this to have her teeth straightened. With a GP dentist, there's patient traffic there constantly with cleaning and restorations, and different things. And so just it's an area right now where since it's not just elective procedures there, we feel GPs are just seeing more patients than an ortho would when you compare period to period. Got it. Thank you. Yeah, thank you. Thank you.

Elizabeth Anderson: I think in your prepared remarks, you talked about the GP dentist sort of strength versus the ortho on a relative basis in the quarter. So I was wondering if you could talk more about sort of the underlying color about why you sort of think that is at this point.

But like I said, we would expect some sequential improvement as you go forward through the year, but we.

We're not getting into the specifics of what it is for total.

It's Joe on the on the DSP program.

Joe Hogan: Yeah, that's a good question. When you think about it, we're an elective procedure, right? And so someone's going to go to an orthodontist on a procedure like this to have her teeth straightened. With a GP dentist, there's patient traffic there constantly with cleaning and restorations, and different things. And so just it's an area right now where since it's not just elective procedures there, we feel GPs are just seeing more patients than an ortho would when you compare period to period.

And originally that was targeted primarily retainers orthodontist because lot of orthodontists are making their own.

<unk> is in a back room.

For wires and brackets and so we signed up we also obviously do the touch up cases without too as tena liners less.

That's worked out well and we.

I think what you're referring to in the end is that the subscription program to the Doctor and we also have a subscription program. We offered from a doctor through the patients and we're implementing that now there's a lot of enthusiasm from our doctors about that because it becomes a reoccurring revenue stream for them that they haven't many of them haven't tapped into before and so we feel good about that.

Elizabeth Anderson: Got it. Thank you.

Joe Hogan: Yeah, thank you.

Operator: Thank you. The following question comes from John Block, Stifel. You may proceed.

Shirley Stacy: The following question comes from John Block, Stifel. You may proceed. Hi, Jeff. Hey, Joe. Maybe for the first one, John or Joe, can you talk about the 5.5% price increase for 2023? The Q1 guide says lower cases, lower scanner and services, but revs flat. So clearly, ASP benefits. And I think you realize the 5.5% if the doc stays on comprehensive or goes to 3x3. But how do we think about what flows to realized ASP? John, is that sort of a, I don't know, a +2 or 3% from the Q4 2022 levels when we think about Q1 2023 and into the balance of 2023? That's a good way to look at it, John, because you're going to have some cases that kind of carry over where they kind of order them and they get shipped a little bit later.

Jon Block: Hi, Jeff. Hey, Joe. Maybe for the first one, John or Joe, can you talk about the 5.5% price increase for 2023? The Q1 guide says lower cases, lower scanner and services, but revs flat. So clearly, ASP benefits. And I think you realize the 5.5% if the doc stays on comprehensive or goes to 3x3. But how do we think about what flows to realized ASP? John, is that sort of a, I don't know, a +2 or 3% from the Q4 2022 levels when we think about Q1 2023 and into the balance of 2023?

We'll be working closely with our doctors to implement that more fully this year.

Thank you next question please.

Absolutely. The next question comes from Michael <unk> with Bank of America. You May proceed.

Great. Thanks, guys.

Throw in a couple of just real quick from a versa.

First on China, I think you mentioned that.

Use the word of some bore which is kind of understandable, but any updated thoughts on that.

<unk> or any of the local on the ground. How can you tell what's going on there while the COVID-19 situation is ongoing.

And then I also wanted to ask on the on the tax rate. The non-GAAP tax rate you called out 20% of <unk> should we sort of assume absolutely go forward.

John Morici: That's a good way to look at it, John, because you're going to have some cases that kind of carry over where they kind of order them and they get shipped a little bit later. And then you're right, you're going to have some mixed shift between the 3x3, which is kind of the same price, and then the full comprehensive. So 2% to 3% in that first quarter is about in that range.

So Michael this is John on tax rate for the non-GAAP tax rate assumed 20% going forward.

Shirley Stacy: And then you're right, you're going to have some mixed shift between the 3x3, which is kind of the same price, and then the full comprehensive. So 2% to 3% in that first quarter is about in that range. And okay, the 2% to 3% sequential. Go ahead, John. I'm sorry. That was a clarifier. That was just 2% to 3% sequential, John, correct, from the Q4 to the Q1? Yep, that's correct. Okay. Okay. And sorry, and then the second question, just on the op margins, I think you said 18% non-GAAP for Q1, greater than 20% for the year. I'll just sort of load up on modeling questions here. And then that might be for John.

On China, GDP, I mean, obviously that program over there we talked about it several times.

Jon Block: And okay, the 2% to 3% sequential.

In tier three tier four cities.

Joe Hogan: Go ahead, John.

Really not in the middle of our portfolio.

Jon Block: I'm sorry. That was a clarifier. That was just 2% to 3% sequential, John, correct, from the Q4 to the Q1?

Was picked up by some Chinese competitors were primarily private over there we will sell the public hospitals.

John Morici: Yep, that's correct.

Jon Block: Okay. Okay. And sorry, and then the second question, just on the op margins, I think you said 18% non-GAAP for Q1, greater than 20% for the year. I'll just sort of load up on modeling questions here. And then that might be for John. And Joe, for you, just talk to us on how you're comfortable on that OM guide when you still have a lot of moving parts with the economy. You've got what's going on in China. I think you framed it as a fragile environment. How do you get comfortable with that OM guide? There's enough wiggle room, I suppose, in the OpEx where you feel you could titrate spend accordingly. Thanks, guys.

Programs.

Exclusive of in essence to so when we feel like we can we can manage in China right now around this fine.

Alright. Thanks.

Thank you.

Well, thank you everyone.

I appreciate your time today. This concludes our conference call.

Shirley Stacy: And Joe, for you, just talk to us on how you're comfortable on that OM guide when you still have a lot of moving parts with the economy. You've got what's going on in China. I think you framed it as a fragile environment. How do you get comfortable with that OM guide? There's enough wiggle room, I suppose, in the OpEx where you feel you could titrate spend accordingly. Thanks, guys. Yeah, I'll take the modeling question, John. Yes, you would expect that just like we have in maybe prior years and so on, as you start to get that volume leverage, you'll start to see some of that up margin improvement as you go throughout the year. So kind of starts at that lower point, and you would model it to see some improvement as you go through the year.

We look forward to speaking to you at upcoming financial conferences and industry meetings, including Chicago Midwinter idea.

If you have any follow up questions. Please contact our Investor Relations line have a great day.

Yes.

This concludes today's conference. Thank you for your participation you may now disconnect your lines.

John Morici: Yeah, I'll take the modeling question, John. Yes, you would expect that just like we have in maybe prior years and so on, as you start to get that volume leverage, you'll start to see some of that up margin improvement as you go throughout the year. So kind of starts at that lower point, and you would model it to see some improvement as you go through the year. And like we said, total year slightly above the 20%.

Shirley Stacy: And like we said, total year slightly above the 20%. And John, on the OM guide and the confidence of it, the confidence is related to what we see right now, and what we think is some macro trends that are much more stable than what we experienced before. So from that, we understand our costs, and we know what we have, give or take. And John and I watch it closely. And we obviously manage it as a percentage of what total revenues are too. So if revenues have to adjust, we have to adjust too. But again, I think we know what the levers are in this business. And within the context of stability, we feel we can manage to the numbers that we've given you. Fair enough. Thanks, guys. Thanks, John. Thank you. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

Joe Hogan: And John, on the OM guide and the confidence of it, the confidence is related to what we see right now, and what we think is some macro trends that are much more stable than what we experienced before. So from that, we understand our costs, and we know what we have, give or take. And John and I watch it closely. And we obviously manage it as a percentage of what total revenues are too. So if revenues have to adjust, we have to adjust too. But again, I think we know what the levers are in this business. And within the context of stability, we feel we can manage to the numbers that we've given you.

Jon Block: Fair enough. Thanks, guys.

Joe Hogan: Thanks, John.

Operator: Thank you. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

Shirley Stacy: Hi, good afternoon. Thanks for the question. Joe, I just wanted to kind of follow up on your comments about starting to commercialize, obviously, a product and technology cycle that you seem very excited about and that sort of ortho and restorative vision. I guess could you maybe just kind of help crystallize that for us in terms of how that kind of comes to market in 2023 and the kind of type of investment that the company needs to make to kind of go after that opportunity? Yeah, Nathan, overall, obviously, we do spend a significant amount on R&D in the business. The foundation of that is the history of Align because basically, we've revolutionized digital orthodontics overall. But what we see is it's not just invention for invention's sake. We're always after how can we do these cases faster? How do we do them more predictably?

Nathan Rich: Hi, good afternoon. Thanks for the question. Joe, I just wanted to kind of follow up on your comments about starting to commercialize, obviously, a product and technology cycle that you seem very excited about and that sort of ortho and restorative vision. I guess could you maybe just kind of help crystallize that for us in terms of how that kind of comes to market in 2023 and the kind of type of investment that the company needs to make to kind of go after that opportunity?

Joe Hogan: Yeah, Nathan, overall, obviously, we do spend a significant amount on R&D in the business. The foundation of that is the history of Align because basically, we've revolutionized digital orthodontics overall. But what we see is it's not just invention for invention's sake. We're always after how can we do these cases faster? How do we do them more predictably?

Shirley Stacy: How do we make it simpler for doctors, a better treatment for patients overall and experience? Just give you one statistic, right? Versus wires and brackets, which we talked about in the script, on an average, we do patient cases five months fast and 35% fewer visits to a doctor. You do that through technology, right? You do that through remote monitoring. You do that through the consistency of your algorithms and moving teeth and knowing when those teeth are going to land as long as patients wear. So the technology I talked about in those three areas, first of all, whether it's scanning, we get better on scanning every year. AI is a real important part of that because through AI, you can anticipate a lot of things, moving scans through a lot faster.

How do we make it simpler for doctors, a better treatment for patients overall and experience? Just give you one statistic, right? Versus wires and brackets, which we talked about in the script, on an average, we do patient cases five months fast and 35% fewer visits to a doctor. You do that through technology, right? You do that through remote monitoring. You do that through the consistency of your algorithms and moving teeth and knowing when those teeth are going to land as long as patients wear. So the technology I talked about in those three areas, first of all, whether it's scanning, we get better on scanning every year. AI is a real important part of that because through AI, you can anticipate a lot of things, moving scans through a lot faster.

Shirley Stacy: Innovations last year like IPP and Invisalign Personalized Plan, those kinds of technologies really reduce the traffic and communications between a doctor and us in the sense of setting up treatment plans. Lastly, 3D printed devices, as I mentioned, has always been the holy grail because we're the biggest 3D printer in the world, but we don't really 3D print devices. We print molds, which you vacuum form over top of it. When you vacuum form over top of a mold, you can't control wall thickness as you can in 3D printing. Wall thickness is really critical to move teeth. All these inventions take a lot of time and money overall, but we just see it as a huge opportunity for us to be able to increase clinical efficacy, efficiency for doctors, and patient experience. That's why we're so excited about it. Okay, great.

Innovations last year like IPP and Invisalign Personalized Plan, those kinds of technologies really reduce the traffic and communications between a doctor and us in the sense of setting up treatment plans. Lastly, 3D printed devices, as I mentioned, has always been the holy grail because we're the biggest 3D printer in the world, but we don't really 3D print devices. We print molds, which you vacuum form over top of it. When you vacuum form over top of a mold, you can't control wall thickness as you can in 3D printing. Wall thickness is really critical to move teeth. All these inventions take a lot of time and money overall, but we just see it as a huge opportunity for us to be able to increase clinical efficacy, efficiency for doctors, and patient experience. That's why we're so excited about it. Okay, great.

Shirley Stacy: Then just a quick clarification. On the adult side, cases were up 7% sequentially. It sounds like you saw modest improvement in North America. I think that was the case in APAC as well. I guess I didn't hear a reference to adult as you were talking about EMEA. I guess was the kind of adult dynamic kind of more in one thing about the Western economy is more in North America? Just curious if you also saw the same thing play out in EMEA as well. If I get the question right, Nathan, I mean, EMEA was great. Both adults and teens, we felt good about it. You always go around, I call it the dark side of the moon in Europe in Q3, right? When they came out from Q3, we had a good Q4 from that.

Nathan Rich: Then just a quick clarification. On the adult side, cases were up 7% sequentially. It sounds like you saw modest improvement in North America. I think that was the case in APAC as well. I guess I didn't hear a reference to adult as you were talking about EMEA. I guess was the kind of adult dynamic kind of more in one thing about the Western economy is more in North America? Just curious if you also saw the same thing play out in EMEA as well.

Joe Hogan: If I get the question right, Nathan, I mean, EMEA was great. Both adults and teens, we felt good about it. You always go around, I call it the dark side of the moon in Europe in Q3, right? When they came out from Q3, we had a good Q4 from that. And so we felt good on both the adult side and the teen side in Europe.

Shirley Stacy: And so we felt good on both the adult side and the teen side in Europe. Okay. Thank you. Yeah, thank you, Nathan. Thank you. Our next question comes from Kevin Caliendo with UBS. You may proceed. Hi, thanks for taking my question. Hi, guys. I always struggle with this number that you really haven't grown the number of docs. And it's been a while. And I understand that when demand is down, you don't ship to docs every quarter. But even the ones that are registered Invisalign users haven't really grown. And I guess my question is, is there an issue with that? Why hasn't that number really expanded over the last four to five quarters? And do you need it as part of your growth algorithm to keep expanding the number of doctors?

Nathan Rich: Okay. Thank you.

Joe Hogan: Yeah, thank you, Nathan.

Operator: Thank you. Our next question comes from Kevin Caliendo with UBS. You may proceed.

Kevin Caliendo: Hi, thanks for taking my question. Hi, guys. I always struggle with this number that you really haven't grown the number of docs. And it's been a while. And I understand that when demand is down, you don't ship to docs every quarter. But even the ones that are registered Invisalign users haven't really grown. And I guess my question is, is there an issue with that? Why hasn't that number really expanded over the last four to five quarters? And do you need it as part of your growth algorithm to keep expanding the number of doctors?

Shirley Stacy: Is it just a change in culture in the world right now, or is it competitive pressures, or is it just harder to find docs who are willing to do this? Because the penetration of clear aligners would suggest there's a lot of doctors out there that could be doing this. Yeah, Kevin, doctors both on the orthodontic side and on the GP side. I mean, obviously, I think you're right about that. And I mean, obviously, we expand a lot globally too, so everything you said is true. I'll just give you one word on your questions, China. China's like it's down. We ship thousands of doctors to China. We can't ship to right now. And that's the answer to your question in the sense of why it's gone down.

Is it just a change in culture in the world right now, or is it competitive pressures, or is it just harder to find docs who are willing to do this? Because the penetration of clear aligners would suggest there's a lot of doctors out there that could be doing this.

Joe Hogan: Yeah, Kevin, doctors both on the orthodontic side and on the GP side. I mean, obviously, I think you're right about that. And I mean, obviously, we expand a lot globally too, so everything you said is true. I'll just give you one word on your questions, China. China's like it's down. We ship thousands of doctors to China. We can't ship to right now. And that's the answer to your question in the sense of why it's gone down.

Shirley Stacy: There's no systemic overall issue in the sense of us being penetrated to the point that we can't find more doctors. It's just we can't escape the downdraft to China right now. And your equation is right. It's new doctors, doctor adoption too, as well as utilization. Those are the two key metrics that help us grow a business. Can I ask a quick follow-up? You talk about the need to see consumer demand signals improving. And how far ahead can you actually see that? Meaning, is there something in ordering and planning? Can you see three months ahead or six months ahead in terms of you're starting to see demand increase? Or is it really real-time? We're starting to see an inflection point. I guess it gets to the point of what do you need to see in terms of consumer demand?

There's no systemic overall issue in the sense of us being penetrated to the point that we can't find more doctors. It's just we can't escape the downdraft to China right now.

John Morici: And your equation is right. It's new doctors, doctor adoption too, as well as utilization. Those are the two key metrics that help us grow a business.

Kevin Caliendo: Can I ask a quick follow-up? You talk about the need to see consumer demand signals improving. And how far ahead can you actually see that? Meaning, is there something in ordering and planning? Can you see three months ahead or six months ahead in terms of you're starting to see demand increase? Or is it really real-time? We're starting to see an inflection point. I guess it gets to the point of what do you need to see in terms of consumer demand?

Shirley Stacy: How far forward can you look before you can really feel comfortable that there's been an inflection point? Kevin, when we look at things, we're a real-time business, obviously, when you're a 3D printing business like we do and what we make. There's no leading indicator that would say that it has an R-squared of over 90%. But what we watch closely are the consumer confidence indices in the States and Europe where we can get good ones. Now, they're more confirming than they are predictive in what we're seeing. But they reflect, I think, best from a demand standpoint of what we can expect. And the consumer confidence indices that we see both in Europe and the States have flattened out or turned slightly positive in the last month or so. Thanks, Kevin. Next question, please. Absolutely. Our next one comes from Brandon Vazquez with William Blair.

How far forward can you look before you can really feel comfortable that there's been an inflection point?

Joe Hogan: Kevin, when we look at things, we're a real-time business, obviously, when you're a 3D printing business like we do and what we make. There's no leading indicator that would say that it has an R-squared of over 90%. But what we watch closely are the consumer confidence indices in the States and Europe where we can get good ones. Now, they're more confirming than they are predictive in what we're seeing. But they reflect, I think, best from a demand standpoint of what we can expect. And the consumer confidence indices that we see both in Europe and the States have flattened out or turned slightly positive in the last month or so.

Shirley Stacy: Thanks, Kevin. Next question, please.

Operator: Absolutely. Our next one comes from Brandon Vazquez with William Blair. You may proceed.

Shirley Stacy: You may proceed. Hi everyone. Thanks for taking the question. Hi. I wanted to ask one to kind of go back to a couple of us who were trying to get at. You guided to a full year op margin about 20%, and you're a little bit below that now, of course, probably transient. The question being, do you need sequential improvements in sales to then drive the sequential improvements in op margins through the year? How should we be thinking about that? Or are you prepared to kind of deliver that 20% even if, let's say, we're just stable through the rest of the year rather than improving? Yeah, it's a good question.

Brandon Vazquez: Hi everyone. Thanks for taking the question. Hi. I wanted to ask one to kind of go back to a couple of us who were trying to get at. You guided to a full year op margin about 20%, and you're a little bit below that now, of course, probably transient. The question being, do you need sequential improvements in sales to then drive the sequential improvements in op margins through the year? How should we be thinking about that? Or are you prepared to kind of deliver that 20% even if, let's say, we're just stable through the rest of the year rather than improving?

John Morici: Yeah, it's a good question. I mean, we would expect as we start to see demand, as it stabilizes, as things change in the world and give us a better operating environment, we would expect to see some sequential improvement in revenue as you go through the year. And that would help us get some of the leverage that we need from an op margin standpoint.

Shirley Stacy: I mean, we would expect as we start to see demand, as it stabilizes, as things change in the world and give us a better operating environment, we would expect to see some sequential improvement in revenue as you go through the year. And that would help us get some of the leverage that we need from an op margin standpoint. Thanks, Brandon. Got it. Next question. Absolutely. The next question comes from Erin Wright with Morgan Stanley. You may proceed. Great. Thanks. Just a follow-up to that last question, just to clarify. I understand you're not giving the full year guidance from a volume perspective, but if you do continue to see the environment, is what you're saying sustained where it is today or get slightly better, you are in a position to grow volume year over year in 2023.

Shirley Stacy: Thanks, Brandon.

Brandon Vazquez: Got it.

Shirley Stacy: Next question.

Operator: Absolutely. The next question comes from Erin Wright with Morgan Stanley. You may proceed.

Erin Wright: Great. Thanks. Just a follow-up to that last question, just to clarify. I understand you're not giving the full year guidance from a volume perspective, but if you do continue to see the environment, is what you're saying sustained where it is today or get slightly better, you are in a position to grow volume year over year in 2023.

Shirley Stacy: Then just a separate question on subscription offerings, particularly in retainers. I'm curious how that's resonating with customers today as another revenue driver for the practice. When do you think that that will be material in terms of contributions? Thanks. I can start on the volume. I mean, we would expect as we're watching a lot of the signals closely. We try to get more color around Q1. The rest of the year will play out as things in the world change to the situation. So we'll watch volume closely. But like I said, we would expect some sequential improvements as you go forward through the year, but we're not getting into the specifics of what it is for total. All right. Still on the DSP program.

Then just a separate question on subscription offerings, particularly in retainers. I'm curious how that's resonating with customers today as another revenue driver for the practice. When do you think that that will be material in terms of contributions? Thanks.

John Morici: I can start on the volume. I mean, we would expect as we're watching a lot of the signals closely. We try to get more color around Q1. The rest of the year will play out as things in the world change to the situation. So we'll watch volume closely. But like I said, we would expect some sequential improvements as you go forward through the year, but we're not getting into the specifics of what it is for total.

Joe Hogan: All right. Still on the DSP program. Originally, that was targeted primarily retainers and orthodontists because a lot of orthodontists were making their own retainers in the back room for wires and brackets. And so we signed up. We also obviously do the touch-up cases with that too, is 10 aligners or less. That's worked out well. And I think what you're referring to in the end is that's a subscription program through the doctor, but we also have a subscription program we offer from the doctor through the patients. And we're implementing that now. There's a lot of enthusiasm from our doctors about that because it becomes a recurring revenue stream for them that many of them haven't tapped into before. And so we feel good about that. And we'll be working closely with our doctors to implement that more fully this year.

Shirley Stacy: Originally, that was targeted primarily retainers and orthodontists because a lot of orthodontists were making their own retainers in the back room for wires and brackets. And so we signed up. We also obviously do the touch-up cases with that too, is 10 aligners or less. That's worked out well. And I think what you're referring to in the end is that's a subscription program through the doctor, but we also have a subscription program we offer from the doctor through the patients. And we're implementing that now. There's a lot of enthusiasm from our doctors about that because it becomes a recurring revenue stream for them that many of them haven't tapped into before. And so we feel good about that. And we'll be working closely with our doctors to implement that more fully this year. Thank you. Next question, please. Absolutely.

Shirley Stacy: Thank you. Next question, please.

Operator: Absolutely. The next question comes from Michael Ryskin with Bank of America. You may proceed.

Shirley Stacy: The next question comes from Michael Ryskin with Bank of America. You may proceed. Great. Thanks, guys. I'll throw in a couple just real quick. Some of them are very fast. First, on China, I think you mentioned that I used the word it's a blur, which is kind of understandable. But any updated thoughts on VBP or any of the local position on the ground? Can you tell what's going on there while the COVID situation is ongoing, or is it just kind of a black box? And then I also wanted to ask on the tax rate, the non-GAAP tax rate, you called out 20% in Q4. Should we sort of assume that the tax rate goes forward? So Michael, this is John. On tax rate for the non-GAAP tax rate, assume 20% going forward.

Michael Ryskin: Great. Thanks, guys. I'll throw in a couple just real quick. Some of them are very fast. First, on China, I think you mentioned that I used the word it's a blur, which is kind of understandable. But any updated thoughts on VBP or any of the local position on the ground? Can you tell what's going on there while the COVID situation is ongoing, or is it just kind of a black box? And then I also wanted to ask on the tax rate, the non-GAAP tax rate, you called out 20% in Q4. Should we sort of assume that the tax rate goes forward?

John Morici: So Michael, this is John. On tax rate for the non-GAAP tax rate, assume 20% going forward.

Shirley Stacy: On China, VBP, I mean, obviously, that program over there, we talked about it several times. It's in tier three, tier four cities. It's really not in the middle of our portfolio. It was picked up by some Chinese competitors. We're primarily private over there. We will sell to the public hospitals. The program's not exclusive in that sense too. So we feel like we can manage in China right now around this VBP. All right. Thanks. Yeah. Thank you. Well, thank you, everyone. We appreciate your time today. This concludes our conference call. We look forward to speaking to you at upcoming financial conferences and industry meetings, including Chicago Midwinter, IDS, and AAO. If you have any follow-up questions, please contact our investor relations line. Have a great day. This concludes today's conference. Thank you for your participation. You may now disconnect your lines.

Joe Hogan: On China, VBP, I mean, obviously, that program over there, we talked about it several times. It's in tier three, tier four cities. It's really not in the middle of our portfolio. It was picked up by some Chinese competitors. We're primarily private over there. We will sell to the public hospitals. The program's not exclusive in that sense too. So we feel like we can manage in China right now around this VBP.

Michael Ryskin: All right. Thanks.

Joe Hogan: Yeah.

Shirley Stacy: Thank you. Well, thank you, everyone. We appreciate your time today. This concludes our conference call. We look forward to speaking to you at upcoming financial conferences and industry meetings, including Chicago Midwinter, IDS, and AAO. If you have any follow-up questions, please contact our investor relations line. Have a great day.

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect your lines.

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