Q2 2023 Align Technology Inc Earnings Call
Up from 15, 5%.
In Q1, 'twenty, three and more than double the case volume in Q2 22 last year.
Given its continued success and contribution to our growth. This year DSP touch up cases are included in my overall commentary for clear liners otherwise.
Specified in my remarks, our case volumes and metrics do not include DSP and touch up cases for Q2 total clear aligner volumes were up 5% sequentially and up 1% year over year Q2, clear aligner volumes, including DSP touch up cases were up five 4% sequentially and up two 4%.
Year over year.
For the Americas, Q2, clear aligner volumes reflect sequential growth across the region from both ortho and GP dentist channels, an increase in teen case starts driven by momentum from Invisalign first and increased adult patients from the GP dentist channel.
In North America adoption of the Invisalign comprehensive three and three product drove sequential volume growth.
For Q2, North American Ortho utilization was up sequentially and down a fraction year over year, including DSP touch up cases.
Q2, North American ortho utilization.
Was up both sequentially and year over year as noted in our Q2 'twenty three earnings slides.
For EMEA Q2, clear aligner volumes were up sequentially and year over year, reflecting growth across the region and continued adoption of Invisalign moderate invisalign comprehensive three and three product as well as an increase in teen case starts which grew sequentially and year over year, driven by Invisalign first and our new Invisalign teen case packs on a sequential basis.
Clear Aligner growth was led by Iberia, Italy dock in Turkey.
For APAC Q2, clear aligner volumes were up sequentially and up year over year, reflecting improving trends in China as well as other key markets like Japan, Taiwan, Korea, and India Q2, APAC results also reflect increased invisalign submitters and high utilization, especially for teen patients driven by growth from Invisalign first and new ortho <unk>.
<unk> channel, which is especially important.
As we enter the China teen season in Q3.
Due to APAC results also reflect growth in the GP channel with increased Invisalign, submitters, and higher utilization sequentially and year over year.
During Q2, we continued to rollout the Invisalign comprehensive <unk> III product in APAC, where it is now available in Hong Kong Korea, Taiwan, and India, We plan to launch Invisalign three and three in China. In Q3. We're also pleased with the additional adoption of three and <unk> III product in APAC, where the majority of cases treated a comprehensive along.
Knowing our doctor customers more flexibility within the Invisalign product portfolio.
In June we hosted 2023, Invisalign APAC summit in Singapore, and brought together nearly a thousand orthodontists and general practitioners dentists and clinic staff from 18 countries across the Asia Pacific region.
The summit showcased invisalign and <unk> products, the aligned digital platform and the recent and upcoming innovations while also highlighting our doctors experience with digital transformation and how it improves the patient treatment journey.
Attendees joined expert sessions focused on enhancing treatment planning efficiency optimizing digital workflows addressing the unique needs of teens in younger patients and exploring the essential aspect shaping today's digitally driven orthodontic practices.
Teen orthodontic treatment is the largest segment of the orthodontic market worldwide and represents our largest opportunity for clear aligner sales to or those we continue to focus on gaining share from traditional metal braces.
Routine specific sales and marketing programs and product features unique to the Invisalign system for Q2 total clear aligner cases for teenagers were up 7% sequentially and nine 7% year over year, reflecting improving trends across the regions.
On a sequential basis growth was driven by increased emitters in the APAC and EMEA regions on a year over year basis Teen case starts were in the APAC region, driven by increased the meters and in the EMEA region, driven by increased submitters and utilization both in the orthodontic channel.
Last year, we introduced teen case packs in the United States and Canada and in Q1 Q2, we launched them in France, Scandinavia in Iberia for the quarter Tnk's tax increase sequentially and year over year driven by strength in EMEA.
Invisalign first also was up sequentially and year over year across all regions and continues to drive adoption of Invisalign treatment of among young patients Invisalign first of all liners or doesn't or design for phase one treatment typically in growing children six to 10 years old making up about 20% of orthodontic case starts for the dental.
Service organizations, our DSO customers.
Q2 clear aligner volumes increased sequentially, primarily from the Americas region overall clear aligner growth rate from DSO doctors continues to outpace non DSO doctors and our DSD touch up cases are ramping nicely up as DSO doctors understand the value of the subscription program brings regarding pricing and flexibility for their patients.
<unk>.
Invisalign is one of the most trusted brands in the orthodontic industry globally, among both doctors and patients on the consumer marketing front, we delivered $10 3 billion impressions and had $30 9 million visits to our website in Q2 'twenty three.
To increase awareness and educate young adults parents teens about the benefits of Invisalign brand, we continue to invest in top media platform, such as Tictoc Youtube Snapchat Instagram across all markets as well as key social media Influencers and brand ambassadors.
In the Americas, we focused on reaching young adults as well as teens and their parents to our Influencer and creator centric campaigns partnering with leading smile squad creators, including Marshalls Martin Rally Shaw and Jeremy Lynn each of these creators shared their personal experiences with invisalign treatment and why they chose.
To transform their smile with Invisalign aligner. Additionally, in the United States, we work closely with athletes overtime High School sports social media.
Form.
That showcases the benefits of Invisalign treatment.
Brand interest remained strong throughout the quarter was $9 2 million consumers visiting our websites in the Americas region, representing 17% growth year on year.
In EMEA region, we partner with new Influencers to reach consumers across social media platforms, including Tictoc in meta.
In Germany, we launched new testimonial campaigns, highlighting the stories of seven young adults and teens.
Who share why they chose invisalign treatment and how it impacted their lives are consumer campaigns delivered more than $1 7 billion media impressions and $9 7 million visitors to our website, we continue to invest in consumer advertising across the APAC region, resulting in more than 12 million visitors to our websites and over $4 8 billion.
Impression, we expanded our reach in Japan, and India be a tick tock meta and Youtube.
We partner with key Influencers, like <unk>, and <unk> and commodity gain we.
We saw increased brand interest in consumers as evidenced by a <unk>, 270% year over year increase in unique visitors to our web site in India, and a 46% year over year increase in Japan.
Adoption of my Invisalign consumer and patient App continued to increase with $3 1 million downloads to date and over 350000 monthly active users a 28% year over year growth.
Usage of other digital tools also continued to increase clean check live update was used by 40000 doctors on more than 580000 cases, reducing time spent and modifying treatment by 20%.
Invisalign practice staff is increasing in adoption with 88000 doctors, who are actively using this app and $5 1 million photos were uploaded in Q2 via the Invisalign practice staff with that I will turn the call over to John .
Thanks, Joe now for our Q2 financial results total revenues for the second quarter were $1.002 billion.
Up six 3% from the prior quarter and up three 4% from the corresponding quarter a year ago on a constant currency basis Q2, 23 revenues were impacted by favorable foreign exchange of approximately $1 3 million or approximately 0.1% sequentially and unfavorably.
<unk> by approximately $19 $4 million year over year or approximately one 9%.
But clear liners Q2 revenues of $832 $7 million were up five 4% sequentially, primarily from higher volumes higher noncash revenues and higher asps.
On a year over year basis, Q2 clear aligner revenues were up four 3%, primarily due to higher asps higher non case revenues and higher volumes for Q2, Invisalign Asps for comprehensive treatment were down sequentially and up year over year on a sequential basis asps reflect larger discounts.
And product mix shift to lower price products, partially offset by price increases.
On a year over year basis, the increase in comprehensive asps reflect price increases and higher additional liners, partially offset by product mix shift larger discounts and unfavorable foreign exchange.
Q2, Invisalign asps for non comprehensive treatment were up sequentially and year over year on a sequential basis. The increase in asps reflect lower discounts higher additional liners price increases and favorable foreign exchange on a year over year basis, the increase in non comprehensive asps reflect price increases.
<unk> and hire additional liners, partially offset by product mix shift larger discounts and unfavorable foreign exchange.
In Q1, 'twenty three we launched Invisalign comprehensive three and three product in most markets and we have continued to expand into more markets. As previously mentioned the three in three configuration offers our doctor customers, our invisalign comprehensive treatment with three additional liners included within three years.
Of the treatment and date instead of unlimited additional liners with five years of the treatment and date.
At the 2022 Invisalign comprehensive product price over time, we've come to learn that on average Invisalign doctors complete a comprehensive invisalign treatment with two or fewer additional liners. We are pleased with the continued adoption of the Invisalign comprehensive <unk> III product and anticipate that it will continue to.
Providing doctors the flexibility they desire and allowing us to recognize more revenue upfront.
With deferred revenue being recognized over a shorter period of time compared to our traditional invisalign comprehensive product.
As revenues from subscriptions retainers and ancillary product continued to grow globally. Some of the historical metrics that only focus on case shipments are expected to account for a lesser percentage of our overall growth in our earnings release and financial slides you will see that we have added.
Our total clear aligner revenue per case shipment, which we believe to be more indicative measure of our overall growth strategy.
Q2, 'twenty three clear aligner revenues.
Were impacted from favorable foreign exchange of approximately $1 2 million or approximately 0.1% sequentially.
On a year over year basis clear aligner revenues were unfavorably impacted by foreign exchange of approximately $16 3 million or approximately one 9%.
Airliner deferred revenues on the balance sheet increased $13 million or up 1% sequentially.
And $138 $6 million or up 12, 2% year over year and will be recognized as the additional liners are shipped.
Q2, 'twenty three systems and services revenue of $169 $5 million were up 10, 5% sequentially, mostly due to higher scanner volume higher revenues from our certified pre owned program and higher services revenue from our larger base of scanner sold partially offset by unfavorable asps.
On a year over year basis, Q2, 'twenty three systems and services revenue were down 1%, primarily due to lower scanner volume and unfavorable asps Archie offset by higher services revenues from our larger base.
<unk> of scanners are sold and higher revenues from our CPO and leasing rental programs.
Q2, 'twenty three systems and services revenue were impacted.
Favorable foreign exchange of approximately zero point $1 million or approximately zero and 1% sequentially on a year over year basis systems and services revenue were unfavorably impacted by foreign exchange of approximately $3 1 million or approximately one 8%.
Systems and services deferred revenues on the balance sheet was down $2 3 million or <unk>, 8% sequentially, primarily due to the decrease in the deferral of service revenues included with our scanner purchase.
And up $8 6 million or three 3% year over year, primarily due to the increase in scanner sales.
And the deferral of service revenues included with our scanner purchase.
Which will be recognized ratably over the service period, as our scanner portfolio expands and we introduce new products, we increase the opportunities for customers to upgrade make trade ins and provide refurbish scanners for certain markets as.
As such our model is changing we expect to continue rolling out programs.
As offering our CPO units for purchase and selling the way the customer our customers desire.
Developing new capital equipment opportunities to meet the digital transformation needs of our customers and DSO partners is a natural progression for our equipment business with a large and growing base of scanners sold.
Moving on to gross margin second quarter overall gross margin was 71, 2% up one two points sequentially and up <unk> three points year over year overall gross margin was unfavorably impacted by foreign exchange of approximately 0.5 points on a year over year basis.
Clear Aligner gross margin for the second quarter was 72, 4% up.
0.7 points sequentially, primarily due to the lower mix of additional liners favorable manufacturing variances and higher Asps clearer.
Clear aligner gross margin for the second quarter was down <unk> nine points year over year, primarily due to increased manufacturing spend as we continue continue to ramp up operations at our new manufacturing facility in Poland, and a higher mix of additional aligner volume, partially offset by higher asps and lower freight.
Systems and services gross margin for the second quarter was 65, 1% up three five points sequentially, primarily from lower service and freight costs, partially offset by lower asps.
Systems and services gross margin for the second quarter was up five three points year over year, primarily from lower service and freight costs and higher services revenue, partially offset by lower asps.
Q2, operating expenses were $541 7 million up sequentially to 8% and up eight 5% year over year on a sequential basis operating expenses were up $14 5 million primarily.
Primarily from higher consumer marketing spend and higher incentive compensation year over year operating expenses increased by $42 3 million.
Primarily due to higher incentive compensation and our continued investments in sales and R&D activities, partially offset by controlled spending on advertising and marketing as part of our efforts to proactively manage costs.
On a non-GAAP basis, excluding stock based compensation and amortization of acquired intangibles related to certain acquisitions, partially offset by restructuring and other charges operating expenses were $505 million.
Up two 9% sequentially and up eight 4% year over year.
Our second quarter operating income of $171 9 million resulted in an operating margin of 17, 2% up three points sequentially and down two two points year over year. The sequential increase in operating margin is primarily attributed to higher gross margin as well as favorable impact.
From foreign exchange of 0.1 point the year over year decrease in operating margin is primarily attributed to investments in our go to market teams and technology as well as unfavorable impact from foreign exchange by approximately one one points on a non-GAAP basis, which excludes stock based compensation.
Amortization of intangibles related to certain acquisitions offset by restructuring other charges operating margin for the second quarter was 21, 3% up two eight points sequentially and down two points year over year.
Interest and other income and expense net for the second quarter was a loss of <unk> 3 million compared.
Compared to an income of $1 1 million in the first quarter and a loss of $14 6 million in the second quarter, a year ago, primarily due to foreign exchange the.
The GAAP effective tax rate for the second quarter was 34, 8% consistent with the first quarter effective tax rate of 34, 8%.
And 35% in the second quarter of the prior year as a reminder, in Q4 2022, we changed our methodology for the computation of our non-GAAP effective tax rate for long term projected tax rate and have given.
Effect to the new methodology from January one 2022 and requests recast previously reported quarterly results in 2022, our non-GAAP .
Effective tax rate in the second quarter was 20%, reflecting the change in our methodology.
Second quarter net income per diluted share was $1 46 up sequentially 32, and up <unk> <unk> compared to the prior year. Our EPS was unfavorably impacted by <unk> on a sequential basis and unfavorably impacted by 15th that's on a year over year basis due to foreign exchange on a non-GAAP base.
Net income per diluted share was $2 22 for the second quarter up 40% sequentially and up 7% year over year note that the prior year 2022, non-GAAP net income per diluted share and our prior year 2022, non-GAAP EPS reflects that Q4 2022.
Change in our methodology for the computation of our.
non-GAAP effective tax rate.
Moving on to the balance sheet as of June 32023, cash cash equivalents and short term and long term market us marketable securities were.
1 billion 33, 8%.
Dollars up sequentially, $112, 4 million and up $56 $6 million year over year.
Of our $1 33 eight.
2 billion balance.
$314 3 million was held in the U S and $719 5 million was held by our international entities.
In Q2, we completed a $75 million equity investment in Heartland dental a multi disciplinary DSO with GP and ortho practices across the U S.
During Q1, 2023, we announced that our board of directors authorized a new $1 billion stock repurchase.
Program to succeed that 2021 $1 billion program. Currently 1 billion remains available for repurchase under the $2023 $1 billion stock repurchase program.
Q2 accounts receivable balance was $908 4 million up sequentially. Our overall days sales outstanding was 81 days down approximately two days sequentially and down approximately four days as compared to Q2 last year cash flow from operations for the second quarter was $251 9 million.
Capital expenditures for the second quarter were $58 5 million, primarily related to our continued investments to increase aligner manufacturing capacity and facilities.
Free cash flow defined as cash flow from operations less capital expenditures amounted to $193 $3 million.
Now turning to our outlook as Joe mentioned earlier, we are pleased with our Q2 results while the macroeconomic environment still remains uncertain, we have seen improvements in the operating environment and the consumer demand signals that influence our outlook.
For Q3, 2023, we anticipate our worldwide revenue to be in the range of $990 million to $101 billion up approximately 12% year over year at the midpoint, we expect our Q3 2023, GAAP and non-GAAP operating margin to be slightly.
Up from Q2 2023, as we continued to strategically prioritize our investments in R&D and go to market activities to drive growth.
For full year 2023, assuming no circumstances occur that are beyond our control, we anticipate our 2023 worldwide revenue to be in the range of $3 97 billion to $3 99.
Up approximately 7% year over year at the midpoint.
We also expect our full year 2023, GAAP operating margin to be slightly above 17% and our 2023 non-GAAP operating margin to be slightly above 21%, a one point improvement from the guidance we provided in April 2023.
For 2023, we expect investments in capital expenditures to be approximately $200 million.
Capital expenditures are expected to primarily relate to building construction improvements as well as manufacturing capacity in support of our continued international expansion with that I'll turn it back over to Joe for final comments Joe.
At our continued growth despite the economic slowdown and uncertain environment.
Q2 results demonstrate our resilience and adaptability.
We cannot predict future economic conditions, we're confident in our ability to focus and execute on our strategic growth initiatives.
As a leader in digital transformation, we offer a powerful suite of innovative digital tools that make up the align digital platform, which provides a seamless end to end digital experience for doctors and their patients innovations launched over the last year include Klimczak live update for three D controls. This enables doctors to generate modified invisalign.
Patient treatment plans in real time, reducing modifications that used to take weeks to as little as two minutes improving practice productivity, while also improving the quality of treatment plans.
Invisalign personal plan, our IPP streamlines, the treatment planning process and helps doctors achieve their desired treatment plans more consistently and efficiently.
Invisalign Smile architect allows general dentists to integrate clear aligner therapy into their comprehensive treatment plans by combining tooth alignment and restored of planning and a single platform.
Invisalign virtual care quips Doctor with a next generation remote monitoring solution that has new artificial intelligence assistant capabilities to streamline their workflows.
Cone beam computed tomography or CBC T enables doctors to visualize the patients groups as part of the digital treatment planning process.
Invisalign outcome simulator pro expands aligns existing invisalign outcome simulator technology and adds the benefit of the Companys Klimczak Enface visualization tool that combines a photo of a patients face with their <unk> treatment stimulation, creating a truly personalized view of how their new smile will look.
Our <unk> connector integrates <unk> camera and neary images with XO CAD dental CAD three one software and allows dental professionals to visualize the internal and external structure of tea.
In addition to these and other incredible innovations in the coming years, we will continue to build the digital platform and add new capabilities to improve clinical outcomes and elevate the patient experience to drive continued practice growth and positive patient experiences.
Thank you for your time today, we look forward to speaking to you at our upcoming Investor Day on September six we will share with you our views about the incredible market opportunity, we have and how aligned is uniquely positioned to continue to lead the transformation of the digital orthodontics industry now I'll turn the call 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, a confirmation tone will indicate your line is in the queue.
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Please while we poll for question.
Our first question comes from the line of Jeff.
Jeff Johnson with Baird. Please go ahead.
Thank you good afternoon, guys, Hey, Joe Congrats on a nice bump that quarter here.
I wanted to start really on the teen market, obviously, that's where we all focus long term on the business, but that nine 7% year over year growth when I look back last year. It was your first quarter in a long time.
Negative year over year growth in <unk>. So you had a.
A bit of an easy comp there, although obviously 'twenty one was a fantastic year. So I guess I'm trying to figure out in this economy. When I think about comps from 'twenty. One that were so tough when I think about competition. That's out there where do you think that 9%, 10% teen growth is relative to where you expect to be normalized or are we still.
And a nice improvement off this over the next few years back to kind of mid upper teens something like that.
We'd like to get your views on that.
Hey, Jeff I mean, you know how important that team market is to us like I talked about in the script was the 21 million case starts in the majority of those 75% to 80% being team. So I look at that sequential growth in teens as being really positive now we did have a good number to compare against like you said, but you know what I highlighted in our up there.
<unk> first product line and how well that product is doing overall and continues to grow phenomenally throughout the throughout the world in all three regions that we have.
All right.
<unk> different business models or plans that we put together really helps with that piece too. So the Jeff when you look at our coming technology improvements in products and those kinds of things, they're targeted really well with the teen market also so the numbers that you mentioned about potential growth and penetration in that marketplace in line with our investments and where we.
We think we'll go into marketplace, but let's be honest, it's been it's a struggle to get orthodontists to really move on teens.
Our top docs are almost exclusively invisalign across the across the board and our job is to bring this new technology out, but also infuse it well within doctor So theyre comfortable with the work practices and comfortable with the clinical outcomes and I feel we've made really good progress in that area.
Alright Thats helpful. Thank you and then just would like an update maybe on China.
Third quarter tends to be a big teen season, there, but we're also seeing some mixed macro feedback on China as a whole kind of from an overall economic standpoint, so just what kind of current tenor of business in China, and just remind us how bad where things in third quarter last year in China, We just kind of lose track of the Covid shutdowns and all that.
But she should third quarter be an easy comp in China, where things opening back up there before we got to at the beginning of this year, where they shut back down again.
Yes, China, obviously from an economic standpoint, Jeff.
We watch that closely as everybody does too, but we have to take it as it is right now and we had a good quarter.
A good start in the first quarter, two and so we're seeing good sequential momentum in.
An improvement in that sense, just on the business overall.
Obviously, when you look at the third quarter.
We all know you watch the stock closely we know third quarter is a huge T market in China as I mentioned in the script too and we're really glued on that but we feel very confident in the sense of our positioning there and where China stands right now I can't comment on future economic activity, there with any more accuracy than you can.
But what we've experienced in the second quarter and what we see going into the third we feel good about.
Thank you.
Thank you Joe.
Thank you.
Our next question comes from the line of Jon Block with Stifel. Please go ahead.
Hi, John Good afternoon.
Hey, Joe I will start on innovation and Joe going into 'twenty, three you've called out this year.
One of the biggest for a lot in terms of innovation when we think about the Companys history and at the end of the prepared remarks. It was really helpful. You laid out.
A handful of innovations where are you with the next wave when I say the next wave any details that you can get with paddle expansion.
In terms of timing in the U S. Maybe if you can elaborate a little bit on the limited rollout in Canada, Canada to date and is there anything else that we should expect more near term I E. Maybe next three to 12 months before some of those longer term aspirations come into play on direct printing and then I'll ask my follow up.
Hey, John .
Obviously, invisalign palate expander has come a long way I'd probably get.
Had some forays into Canada recently and good feedback on our product line.
When we look at the Investor Conference coming up we will obviously give you much more detail.
Discussion in the sense of where that product stands and how we'll commercialize it but overall what I'd tell you John we know how to make it we have a process. It makes it I remember with our business, though just making it doesn't mean anything got a scale. This thing $1 million and so that's what our focus is right now is how we scale how we roll this out there's obviously a lot of regulatory.
Three.
Qualifications, we have to meet in each area, because it's a new device to but I feel good about that and John when you look at our development you know this well you can almost draw a line between.
The production of product and then the software that we talked about what the software piece and obviously IPA represents both of those right, it's new software and new kind of treatment planning, but it's actually a three D printed device that we havent, we havent launched before so just think of us in the scale up mode, but when we see you on September six we will have many more details for you.
Okay. That's helpful. And then maybe as my second question sort of one of those payments to partners John to start with you can you elaborate on the Asps for comprehensive Q over Q I believe you said it was down Q over Q little confused because I think you would have had the full quarter of.
The price increase on the three by three in the comprehensive so if I've got that right. Maybe if you can tease out why it would've been down Q over Q and then Joe the upside for the cases I'm pegging at around 10000 relative to the implied guide that you gave back <unk> I've got the U S cases Sn.
Actually in line with our estimate international seems to have really been the driver to the upside and maybe to build on Jeff's question can you just give some more details where the outperformance was wasn't China was in EMEA.
Do you see maybe the better than expected results specific specific to those international regions. Thanks, guys.
Could you.
Just first on the ASP.
Yes, the comprehensive were down slightly just a reflection of some of the product mix that we had as well as <unk>.
Some of the discounts that we have partially offset by price increase so nothing out of the ordinary there we actually saw an increase on a sequential basis for non comp, but the comprehensive was just more mix.
Hey, Jon back to me is yes, you are right I mean, when you look at from a regional standpoint, EMEA and in APAC stood out.
Really across the board in EMEA, but like I mentioned in my script, you had Iberia did well UK did well.
The Nordic side, we just introduced DSP and different things. We're excited about those areas too. So and then the teen growth there overall across those geographies was good. So let me just I think just good strong performance.
Think about the EMEA economy to John I mean last year was a lot of uncertainty with the Ukraine situation now that hasnt gotten any better, but the Europeans and the European countries I think have solidified their economies around that and we're seeing some.
The improvement from.
Our consumer sentiment standpoint, too so that's reflected in our numbers also on APAC, obviously, China was good year on year, Japan actually was very strong for us too along with Korea.
Different parts of Asia as I mentioned, so it still broadly really good improvements in both of those regions by country and also specifically in that teen segment that I mentioned.
Yeah. So.
Seeing good improvement.
From a sequential standpoint.
Next question please.
Our next question comes from the line of Nathan Rich with Goldman Sachs. Please go ahead.
Great. Good afternoon, thanks for the thanks for the questions.
Hey, Joe Hey, John .
Can you maybe just talk about how adult cases performed relative to your expectations improved slightly but I think still down a little bit year over year end.
Are you thinking about the biggest swing factors that could impact revenue in the back half does the guidance kind of just reflect the continuation of the environment that you saw in <unk> and is there any kind of part of the business that youre watching specifically either team versus <unk>.
Certain markets.
That you feel are especially big swing factors in the back half.
Yes, I think I'll take that one Nate this is John when you look at the commentary that we gave we saw improving trends as we went through.
Into the second quarter, we see that in our results and our guidance reflects that it shows up in Q3 and it also gives us the confidence to talk to our guide for the total year. So that's how we've kind of factored things in and looking at the normal metrics and indices that that help us with.
<unk>.
As far as adult versus <unk>, as we said teens.
Teen season now we saw good results in Q2, and we expect that to continue in Q3, as we said China is a big market big market in Q3.
We expect that to continue.
In adults important for us to and we have a lot of capabilities to be able to go to those general dentists and try to work where those adults might be wanting to come into treatment and there's I'll provide for them as well as our <unk>.
So we feel good about the efforts that we have to try to improve both teen and adult.
We go through this year.
Okay, Great and then just a clarification on the touch up cases, so it sounds like Thats pressuring the North America ortho utilization metric, but if you back that out.
Or are you kind of include touch up it would have been up year over year.
Just be curious to get your sense of what portion of those 18000 touch of cases would have been no cases kind of in your view in the past prior to DSP, just so we get a sense of.
What that shift might look like.
Yeah. So those touch up cases, as we talk to those 18000 those would've been.
Those are the touch up cases that would've been the lower stage products that we add five states baby Mamie seven up to 10, but in that range five 5% to 10, but probably more on the low side.
Of that in terms of the stages and we see this great adoption with the.
The DSC DSP program as we mentioned in the prepared remarks doubled from last year.
We wanted to give some commentary about how big this is becoming and show them in our our kind of our.
Discussion about the year over year, and a sequential and so on.
And at Investor Day in September I'll give a lot more detail about kind of.
Where it came from how it's how it's become more and more important.
And what it means going forward because were going to include these cases going forward, but in the end we see it in all cases, where we see we've seen the DSP program. It drives incremental volume for us those doctors to continue to do those those comprehensive cases that we that we see but those doctors are also doing.
These low stage touch up cases, as well as retention.
And we think Thats a good thing for our doctors.
Great. Thank you.
Thank you.
Our next question comes from the line of Brandon <unk> with William Blair. Please go ahead.
Hi, Brian Thanks for taking me Hello, Thanks for taking the question.
I just wanted to follow up first on the DSP program, if we're doing our math correctly. It seems like most if not all of the year over year increase in case volume is actually coming from the DSP program. So one is that correct and two maybe if it is can you talk about where do you think the mix goes eventually to DS.
And as DSP at this point accretive to your case volumes or are you seeing accounts kind of switch what they would have been doing is kind of normal <unk> volumes into DSP.
We're actually seeing DSP is accretive.
We're not seeing we're seeing fundamentally we're seeing doctors, who were either making them themselves or go into lab or other other ways of making the liners actually switching over and continuing to give us those comprehensive cases, but then they're also now giving us the DSP cases remember most of DSP the majority of it.
DSP is retention and its.
The retention network provided but then a subset of that is the.
The touch up cases, and like I said about 18000, or so and what we've also commented to it would have it would have helped us by about a point and a half.
On an overall basis, so we reported our volumes up about <unk>, 9%. They would have been up one point.
<unk> on that to two four.
So its accretive no matter, how we look at it and it's certainly accretive from a standpoint of the margin that it generates it is generating some of the highest margin from a product portfolio that we have because it's it's the cost to serve is very.
Straightforward for US there is no additional liners or anything else. So we recognize all the revenue as soon as we ship without additional liners are related to that.
Okay, and then secondly on one other clarification.
On your question was whether you put DSP in or not we were up year over year numbers.
Got it so sequentially for sure.
Okay.
Got it.
That's helpful.
The next question is just on teams I think Joe you had said a little earlier.
Little Frank.
Hurdles within the teen market in kind of pushing that share into existing accounts to get a little deeper.
Can you guys just talk about what are kind of the top hurdles right now why has it been a little bit tougher to get the incremental share in the teen market and what are you guys kind of focus on in the next six to 12 months to push that share forward fixed.
But in general when you look at.
Orthodontic workflows, if theyre not completely digitized and a sense of what they do in there.
We're kind of in a down cycle right now with orthodontists and their challenge they feel like on the wire bracket side. They can just make more money.
With wires and brackets versus invisalign because of that.
Raw material costs are $3 of Opex.
Now if youre fully digitized.
Youre workflows and everything else, obviously, you make more money with Invisalign, but I think these kind of challenging economic times, it's more difficult.
To move the orthodontic community over to the clear aligner piece because they are just use of the workflow and what we have with <unk>.
Versus wires and brackets I can say invisalign first seems to be an exception to that.
A sense of how phase one kind of patients are treated.
That's not a constant when you look at what's going on in the orthodontic industry, but we see a lot more interest in phase one with Invisalign first and we've talked before and I think that's going to help to be a stand breaker for us in this whole thing in the future there's.
No doubt to us in the sense that clear liners are the future no white spot lesions, obviously six months faster than a normal kind of a treatment.
Much easier for patients we know all of those things when you ask what the biggest issues are they are not basically clinical anymore, it's about workflow workflow and confidence and orthodontic practice.
Thank you.
Our next question comes from the line of Elizabeth Anderson.
With Evercore ISI. Please go ahead.
Hi, guys congrats on the quarter and thanks, so much for the question.
One no no don't take this as a complaint because I am very happy that we have full year guidance. What I wanted to ask was like why did you guys see sort of in the end markets are in the visibility of your result to the macro picture that means this time, the right time to kind of move on from that what we've had in our quarterly guidance.
A couple of quarters.
Into the sort of longer guidance.
Yes, I'll give you the high level view, and then I'll turn it over to John Elizabeth for the ground thing, but I mean, obviously you.
We had a good second quarter and we feel we can see through to the third quarter whatever it is at that point too.
Like we said with the qualifiers as continued economic situation that we see now we feel confident just based on what we understand from a cyclical standpoint to be able to call the fourth quarter.
And so look we're still in very difficult economic times in uncertain times, but with the second quarter out of the way and with what we talked about improvement.
Particularly in the sequential sense.
We just felt like I mean, we're going to give it to you youre going to make it up so we might have the.
The best guess, we have John can give you more look I can't add much Florida, We've got now a couple of good quarters behind us.
Seen stability kind of turning to improving.
Improving trends the good position to be and we continue to see that into the third quarter as Joe said, it's not great, but it's better than it has been from an overall economic standpoint.
And so based on the order trends and kind of how things are looking we we felt comfortable about Q3 and and translate that to to total year as well.
Got it and just as a follow up are you guys, taking any different approach to surround like sales either side of that from a personnel perspective or our focus.
Versus earlier in the year I know, sometimes you guys had sort of been ramping back then that had sort of flat line. So I just wanted to understand like how you're thinking about that as we go into the balance of.
Yes.
Set up for 2024.
Elizabeth I'd say, our sales practices or are consistent and dynamic in the same way.
And consistent in the sense of number of salespeople, we have how we train those salespeople how they go to market.
We also obviously offer different products in different areas, we split up orthodontics.
Salespeople in general Dentistry salespeople, specifically, because it's just a different kind of a call. So there is no I'd say big change in a sense of how we go to market and obviously IRI taro.
Salesforce worked really closely with Invisalign salesforce and overlaps in some areas, but I might be missing your question, but theres no I'd say material changes going on from a sales.
Our salespeople are number of salespeople standpoint, and specifically the way we approached remarkable.
Okay. Thank you guys.
Okay.
Thank you.
Our next question comes from the line of Michael <unk> with Bank of America. Please go ahead.
<unk>.
Sure.
Great. Thanks for taking my question guys.
And I've got a couple quick ones.
<unk>.
One is.
Well she kind of related one is just related to the result, 1% to <unk> would be your outlook for <unk>.
Just sort of a yes or no question is it safe to say.
Saying that youre kind of back of the usual seasonality we've seen historically, it's been a little volatile for the last couple of years, we're sending back into that routine.
Is it safe to say that that should be our base case approach going forward.
Well I think what we see is in terms of our Q2 to Q3 guide that is more of a typical seasonality flat to slightly up.
From Q2 to Q3, so that's that is that how that how that goes going forward I think given the commentary that we've given just the overall macro uncertainty we are not ready to say that we're completely back to normal seasonality, but what we see in that in the short term here.
In the guidance that we gave that it reflects that.
Okay and then.
Second one would be on the analyst day.
A couple of pieces there one is could you just.
What goes into the thought process, but now the right time to have the analyst day.
The market is still pretty uncertain. There is still some volatility visibility is not fully back so kind of what goes into that decision and then related to that.
The long term guide, but it's not something you're going to be addressing.
If we start thinking about modeling 2024 and going forward from there.
Yes, we usually do this about every two years Michael.
Really sophisticated algorithm, we're used to figure that out but it's about every two years.
And we think it's just about time for that too from the standpoint of just to re initiate the investor base and a sense of where we're investing how we see the marketplace. It's just a good summary of a lot of the questions that have been asked.
So long answer to your question.
Okay.
Yeah.
Yeah, sorry is there one more question.
Our next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead.
Hi, Jason.
Good afternoon.
Thanks for taking the questions guys.
Wanted to touch on a few things that stood out to us in the quarter. Maybe first just the combination of sequential increase in doctors you shipped two plus higher utilization across all channels that you serve.
Again always good to see that combination come together I know you don't provide the granularity anymore on doctor shipped across the U S or international markets, but yes.
I guess Directionally are you able to specify whether the increase in doctors is exclusive to China coming back online and expansion in APAC or did you did you see an increase in users in your north American channels in EMEA channels as well.
Yeah, Jason you are right, we don't give that level of detail, but we saw.
More doctors that we ship to <unk>.
APAC related to China, as you said and we saw it in other regions as well so.
We're pleased with the number of doctors that we're shipping two to reflection of our products.
And what they want to do and then as well being able to be up.
On a utilization basis.
Good metric as well.
Okay, I guess, maybe just to follow up there John real quick can you confirm whether or not you saw that increase in.
In North America.
Those are GPS or both.
So yes, we saw improved we saw improvement.
For North America as well.
Okay, Alright, great and then.
I know you've got some good details on some of your APAC markets, including China.
But I guess I'm wondering if you could talk about just monthly cadence of U S trends throughout the quarter and maybe even here in July .
The work we've done shows that Theres, maybe a bit more mixed trends in April and June may was pretty strong I guess I'm just wondering how that jives with what you were seeing in your case shipment trend throughout the quarter and then same question for EMEA, if you could elaborate.
How the quarter unfolded in that region. Thank you.
Yes really.
Not giving like I don't really want to get into the month by month activity I think the results kind of show where they were adjacent to Ed and then it also kind of reflects what we've what we've been able to get from a guidance standpoint, as well, but without getting into months by country and region and so on it gets it gets a little difficult to.
To give that to give that level of detail, but I think I think the results that we have for Q2 and what we've talked about how the.
The sequential improvement in what we were able to see on a quarter over quarter basis, and what it means for the guidance kind of speak to that.
Okay fair enough. Thanks.
Thanks, Jason.
Our next question comes from the line of Brandon <unk>.
Third with Jefferies. Please go ahead.
Thanks Brendan.
You mentioned you mentioned scanner Asps is a bad guy in terms of the segment gross margin sequentially and year over year, Joe you just talk about the competitive environment.
Environment.
Whether you are seeing pricing pressure intensify just your macro view there would be helpful. Thanks.
Yes, Jay I Wouldnt.
Call. It a bad Guy I think what we tried to communicate was we have a mix in there from a price standpoint, we still good about our upper end product line and the prices, we were able to get for <unk> plus.
<unk> flex in its premier scanner in the marketplace as we've mentioned before and as you know I mean, there is a certain sensitivity in the marketplace about these kind of capital expenditures in the dental office when a lot of the economics are challenged right now in the orthodontic and the dental side. So.
We see that but despite that you can see we turned a really good numbers around.
Our CPO has helped us to fight on the lower end CPO is of the certified pre owned.
How us to go down market, we have to.
Obviously, when you look at the marketplace.
It's pretty it's you have the what we would call our confocal imaging scanners like that we lead with.
And then there is.
Products like netted out of Korea, or whatever they try to take the low end and whatever but we feel I feel good about our capability our value proposition and I think our numbers reflect that this quarter and in the past too. So I'm not saying there is not a competitive environment and I just feel we have a superior.
Superior product line and then we have a good value stream that we offer from a standpoint of the integration with Invisalign.
Through <unk> and then on that okay.
Great and John you mentioned freight cost coming down year over year as a positive tailwind to gross margins.
First time in a while.
That's been the case.
Alright.
Sustainable over the next several quarters and any color on hosted about gross margins in the second half of the year.
Thank you Beth I think I think it's a reflection of just it's freight, but maybe some of the material costs and others that.
As we manage things to manage our business and we see less inflationary pressure from kind of the raw material slash freight and other.
Puts and.
We're always driving productivity, you're always trying to be.
Prove our productivity we saw that in some of our gross margin improvements both for clear aligner and the scanner and services.
We will work to continue to manage it but <unk> seen some of those pricing pressures they input pricing pressure come down.
That continues.
Very good thank you.
Yeah.
Thank you.
And we have reached the end of our question and answer session. I will now turn the call back over to Shirley Stacy for closing remarks.
Thank you everyone and thank you again for joining US we look forward to speaking to you at Danny financial conferences and industry meetings and as Joe mentioned align is hosting its 2023 investor day.
September six in Las Vegas for more information. Please visit our Investor Relations page on our line Tech Dot com or if you have any questions. Please contact investor relations, Thanks, and have a great day.
Thank you. This concludes today's conference and you May now disconnect. Your lines at this time. Thank you for your participation.
[music].
Thank you for your participation.
Yeah.
Okay.