Q3 2023 Align Technology Inc Earnings Call

October 25, 2023

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[music].

Okay.

Welcome to align Technology, Inc. Third quarter 2023 earnings call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your phone to remove yourself from the queue simply press.

Star one again.

Please note that this conference call is being recorded I would now like to turn the conference over to your host Shirley Stacy with align technologies you may begin.

Thank you good afternoon, and thank you for joining us I'm, Shirley Stacy Vice President of corporate Communications and Investor Relations.

Turning me for today's call is Joe Hogan, President and CEO and John Morici CFO, We issued third quarter 2023 financial results today via business wire, which is available on our website at investor <unk> check Dot Com Today's conference call is being audio webcast and will be archived on our website for approximately one month as a reminder, the information for.

And discuss today will include forward looking statements, including statements about aligns future events products and 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.

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 third quarter 2023 conference call slides on our website under quarterly results. Please refer to these files for more detailed note.

Q3, Invisalign D. S. P touch up cases and associated revenues have been reclassified to the non comprehensive clear Aligner segment and are now reflected in our reported clear aligner case volumes revenues and business metrics.

Prior to this quarter they were not reported in the non case category.

Unless otherwise stated all metrics include DSP touch up cases, and reported clear aligner volumes with that I'll turn the call over to align technology's President and CEO, Joe Hogan Joe.

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

On our call today I'll provide an overview of our third 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 Q3 financial performance and comment on our views for the remainder of the year following that we'll come back and summarize a few key points and we'll take questions.

Our third quarter results reflect the lower than expected demand in a more difficult macro environment than we experienced in the first half 2023.

That'll practices and industry research firms have reported deteriorating trends, including decreased patient visits and increase patient cancellations, along with fewer orthodontic case starts overall, especially among adult patients.

The September gauge report, which reflect more than 200, North American ortho practices shows deceleration for the dollar tree.

And new orthodontic patient appointments were down eight 7% year over year and ortho K starts were down six 9% year over year, the biggest decrease in over a year.

Despite these headwinds total Q3 worldwide revenues of $960 million were up seven 8% year over year with growth across all regions for Q3, we had record clear aligner shipments to teenagers and younger patients, which increased 10% sequentially and eight 4% year over year driven by.

Strength from Invisalign first.

Q3 year over year revenue growth also reflects improvement in APAC offset by more pronounced summer seasonality in EMEA and North America.

Q3 systems and services revenues were up four 9% year over year. Despite continued challenges for capital equipment, primarily due to higher <unk> scanner volumes in the Americas, and APAC regions, reflecting certified pre owned or what we call CPO sales scanner leasing and rental programs as well as increased services revenue.

Three systems and services revenues were down sequentially, primarily due to a weaker capital equipment cycle as well as lower non systems revenues.

This was partially offset by higher scanner volumes in the Americas, reflecting the increased mix of Vitaros, <unk>, plus scanners, including more trade and trade ups for DSO customer in Q3.

Q3, non case revenues were up 13, 5% year over year, primarily due to continued growth from Rivera retainers and increased adoption of Invisalign Doctor subscription program, our DSP, our monthly subscription based clear Aligner program.

This includes retainers low stage touch up and clear aligner treatment for.

For Q3, we shipped over 19000, DSP touch up cases, primarily North America, an increase of more than 70% year over year from Q3 dollars 22.

DXP continues to be well received by our customers is currently available in the U S. Canada Iberia in the Nordics. We are excited about the DSP is proving helpful to doctors and their patients.

We're continuing to expand the program in EMEA and with certain DSO partners in Q4.

For Q3 total clear aligner volumes were down three 3% sequentially and up two 3% year over year, primarily reflecting weaker than expected demand for the dining treatment, especially for adult patients.

As I said earlier, despite soft consumer trends are teen and younger patient business was strong across all regions up both sequentially and year over year, primarily due to continued adoption of Invisalign first for kids.

This six years old.

In terms of Invisalign submitters or total number of doctors shipped for Q3 increased sequentially to approximately $85 2000 doctors the highest number in two years driven by the Americas and APAC regions from a channel perspective.

Orthodontist emitters were up year over year, especially from Doctor submitting teenage cases, offset by fewer GP dentist year over year, particularly in the Americas.

On a geographic basis Q3 clear aligner volumes reflect a sequential increase in invisalign shipments from the APAC and Latin American regions as well as the North American Invisalign teenage cases, this was offset by lower volume and more pronounced softness from some summer seasonality in EMEA and North America, primarily invisalign.

<unk> adult cases.

For the Americas Invisalign case volume Q3, 23 was down sequentially, primarily due to lower invisalign adult shipments in the GP channel and slightly down year over year.

Q3, 23 clear aligner volumes reflect increased emitters in the ortho channel with.

With an increase in teen in younger case starts driven by momentum from Invisalign <unk>.

This is reflected in September Gage data, which shows an invisalign ortho start to perform better than wires and brackets and other clear liners.

In North America adoption of Invisalign comprehensive three and <unk> III product drove sequential volume growth in Q3, 23, Invisalign DSP touch up cases in North America also drove growth sequentially year over year.

Okay.

For EMEA Q3 clear aligner volumes were down sequentially, primarily from the impact of Q3 summer seasonality when doctors offices are closed for summer vacations and more consumers are traveling.

This was partially offset.

By sequential growth in Italy, Benelux, Turkey, and the middle East year over year clear Aligner volumes were up reflecting continued adoption of invisalign moderate the.

Comprehensive <unk> product as well as an increase in kids and teen case starts driven primarily by Invisalign first and our new Invisalign Teen case packs.

For APAC Q3, clear aligner volumes were up sequentially and up year over year, reflecting improving trends in China as well as other key markets like India, Taiwan, Korea, Japan and Thailand.

Q3, APAC results also reflected increased invisalign, submitters, and higher utilization, especially for teen patients driven by growth from Invisalign first in the orthodontic channel during our typically strong teen season in China Q.

Q3, APAC results also reflect growth in the GP channel with increased Invisalign, submitters, and higher utilization sequentially and year over year.

During Q3, we continued the rollout of Invisalign comprehensive <unk> III product in APAC, most recently launched in China.

<unk> comprehensive three and three is also available Hong Kong Korea, Taiwan, and India. We're pleased with the adoption of the <unk> III product in APAC, where the majority of cases treated our comprehensive, allowing our doctor customers more flexibility within the envision there's a line product portfolio folio.

During the quarter, we also shipped to a record number of doctors in APAC, increasing both sequentially and year over year.

Invisalign is the most trusted brand in the orthodontic industry globally, and it's important that we continue to create demand for invisalign clear liners, especially given the macroeconomic pressures on doctors and their patients in Q3, we delivered $11 1 billion impressions and had $27 7 million visits to our websites globally to increase awareness.

And educate young adults parents and teens about the benefits of Invisalign brand, we continue to invest and create campaigns and top media platforms, such as tick Tock, Instagram Youtube Snapchat, wechat and billion across markets.

<unk> market opportunity for clear aligner treatment, especially for teens and kids remains huge and significantly Underpenetrated, we know invisalign clear aligner treatment is faster and more effective embraces that the vast majority of orthodontic cases are still treated using brackets and wires.

Differentiation is key to increasing invisalign share of orthodontic case starts, especially among teens and their parents.

We are continuing to deferring differentiate through novel campaigns, such as our new envisage drama free Teen campaign, which uses humor to juxtapose the significant benefits of invisalign treatment over metal braces.

Really to differentiate invisalign treatment for adults, we launched new campaigns globally using powerful patient stories that share how important to smile is now invisalign treatment increases self confidence that transforms lives.

And young adults as well as teens and their parents also requires the right engagement through Invisalign, Influencers and creator centric campaigns, which delivered $5 8 billion impressions in the Americas in Q3.

Creators such as.

As Michael Simoneau, Jaylen Hall NFL player.

Darren War and I'll say, they largely green showed their results and why they chose to transform their smiles with invisalign of liners.

In the EMEA region, we partnered with Influencers to reach consumers across social media platforms, including tick Tock, and meta and launched our global consumer campaign for teens and parents of teens, highlighting the benefits of invisalign treatment versus braces.

In Germany, we continue to see positive engagement with our patient testimonial campaigns, Washington, a previous quarter, our consumer campaigns delivered more than $1 4 billion media impressions and $6 9 million visitors to our website.

We continue to invest in consumer advertising across the APAC region, resulting in more than $3 9 billion impressions, an $11 9 million visitors to our websites in the quarter.

We expanded our reach in Japan, and India via meta in Youtube and partner with key influencers to reach consumers across social media.

We saw increased brand interest from consumers as evidenced by an over 800% increase in unique visitors to our website in India and 135% increase in Japan.

Finally, digital tools, such as buy Invisalign consumer and patient App continued to increase with $3 4 million downloads to date and over 367000 monthly active users representing a 19% year over year growth with that I'll now turn the call over to John.

Thanks, Joe now for our Q3 'twenty three financial results total revenues for the third quarter were $962 million down.

<unk> four 2% from the prior quarter and up seven 8% from the corresponding quarter a year ago on a constant currency basis Q3 revenues were impacted by unfavorable foreign exchange of approximately $2 7 million or approximately <unk>, 3% sequentially and favorably impacted by <unk>.

<unk> $4 $2 million year over year or approximately 0.4%.

For clear liners, Q3 revenues of $794 $9 million were down four 5% sequentially, primarily from lower volumes and lower asps.

On a year over year basis, Q3, clear aligner revenues were up eight 5%, primarily due to higher asps higher volumes and higher non case revenues for Q3, Invisalign Asps for comprehensive treatment were down sequentially and up year over year.

On a sequential basis asps reflect larger discounts product shift.

Mix shift to lower price products and unfavorable foreign exchange, partially offset by higher additional liners on a year over year basis. The increase in comprehensive asps reflect higher additional liners and price increases partially offset by larger discounts and a favorable product mix shift for Q3 Invisalign asps.

Unknown Executive: Welcome to Align Technologies, 3rd quarter, 2,023 Ernie's call. At this time, all participants are listening only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you'll need to press star 1-1 on your phone. To remove yourself from the queue, simply press star 1-1 again. Please note that this conference call is being recorded.

For non comprehensive treatment were down sequentially and up year over year on a sequential basis. The decrease in asps reflect larger discounts higher sales credits and unfavorable product mix, partially offset by higher additional liners and favorable foreign exchange.

On a year over year basis, the increase in non comprehensive asps reflects price increases higher additional liners and favorable foreign exchange.

Shirley Stacy: I would now like to turn the conference over to your host, Shirley Stacy, with Align Technologies. You may begin. Thank you. Good afternoon and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Invest relations. Joining me for today's call is Joe Hogan, President and CEO, and John Morici CFO. We issued 3rd quarter, 2023 financial results today via BusinessWire, which is available on our website at investor.aligntech.com. Today's conference call is being audio webcast and will be our website for approximately one month.

Offset by product mix shift.

In Q1, 'twenty three we launched the Invisalign comprehensive three and <unk> III product. The three in three configuration offers our doctor customers Invisalign comprehensive treatment with three additional liners included within three years of the treatment and date.

Shirley Stacy: Joining me for today's call is Joe Hogan, President and CEO, and John Morici CFO. We issued 3rd quarter, 2023 financial results today via BusinessWire, which is available on our website at investor.aligntech.com. Today's conference call is being audio webcast and will be our website for approximately one month. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events, products, and outlook. These forward-looking statements are only predictions and involve recent 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 fuc.gov.

Instead of unlimited additional liners within five years of the treatment and date.

Shirley Stacy: As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events, products, and outlook. These forward-looking statements are only predictions and involve recent 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 fuc.gov. Actual results may vary significantly, and Align expressly assumes no obligations to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliation, including our Gapton-on-Gap reconciliation, if applicable, and our 3rd quarter, 2023 conference call slides on our website under quarterly results.

At the 2022 Invisalign comprehensive product price.

Invisalign comprehensive <unk> III product is available in North America, and certain markets in EMEA and APAC. Most recently launching in China Korea, Hong Kong and Taiwan. We are pleased with the continued adoption of Invisalign comprehensive three and three product and anticipate it will continue to increase providing doctors the flexibility.

Shirley Stacy: Actual results may vary significantly, and Align expressly assumes no obligations to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliation, including our Gapton-on-Gap reconciliation, if applicable, and our 3rd quarter, 2023 conference call slides on our website under quarterly results. Please refer to these files from our detail. Note, as of Q3, Invisalign DSP touch-up cases and associated revenues have been reclassified to the non-comprehensive clear aligner segment, and are now reflected in our reported clear aligner case volumes, revenues, and business metrics. Prior to this quarter, they were not reported in the non-case category. Unless otherwise stated on metrics include DSP touch-up cases in reported clear aligner volumes.

What 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 we begin to ship more additional liners for comprehensive three and three products, we expect to see an ASP benefit.

Shirley Stacy: Please refer to these files from our detail. Note, as of Q3, Invisalign DSP touch-up cases and associated revenues have been reclassified to the non-comprehensive clear aligner segment, and are now reflected in our reported clear aligner case volumes, revenues, and business metrics. Prior to this quarter, they were not reported in the non-case category. Unless otherwise stated on metrics include DSP touch-up cases in reported clear aligner volumes.

As revenues from subscriptions retainers and other ancillary products continue 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.

Total clear aligner revenue per case shipment, which we believe to be a more indicative measure of our overall growth strategy Q.

Joseph Hogan: With that, I'll turn the call over to Align Technologies, President and CEO, Joe Hogan. Thanks, Shirley. Good afternoon, and thanks for joining us. On our call today, I'll provide an overview of our 3rd quarter results and discuss a few highlights from our two operating segments, systems and services and clear aligners.

Q3, 23 clear aligner revenues were impacted by unfavorable foreign exchange of approximately $2 million or approximately 0.3% sequentially on a year over year basis clear aligner revenues were favorably impacted by foreign exchange of approximately $3 8 million.

Joseph Hogan: John will provide more detail on our Q3 financial performance and comment on our views for the remainder of the year. Following that, we'll come back and summarize a few key points, and we'll take questions.

Unknown Executive: John will provide more detail on our Q3 financial performance and comment on our views for the remainder of the year. Following that, we'll come back and summarize a few key points, and we'll take questions.

Or approximately 0.5%.

Clear aligner deferred revenues on the balance sheet increased $14 $1 million or up one, 1% sequentially and up $116 million or up nine 9% year over year.

Joseph Hogan: Our 3rd quarter results reflect lower than expected demand in a more difficult macro environment than we experienced in the first half of 2023. Dental practices and industry research firms have reported deteriorating trends, including decreased patient visits, and increased patient cancellations, along with fewer orthodontic case starts overall, especially among adult patients. The September gauge report, which reflect more than 1,200 North American ortho practices, shows deceleration for orthodontic treatment, and new orthodontic patient appointments were down 8.7% year over year.

And we will be recognized as the additional liners are shipped.

Q3, 23 systems in service revenues of $165 $3 million were down two 5% sequentially, mostly due to unfavorable asps and lower revenues from our certified pre owned program, partially offset by higher scanner volume and higher services revenues.

On a year over year basis, Q3, 23 systems and services revenue were up four 9% due to higher scanner volume higher services revenue.

Joseph Hogan: In ortho case starts, we're down 6.9% year over year, the biggest decrease in over a year. Despite these headwinds, total Q3 worldwide revenues of 960 million were up 7.8% year over year, with growth across all resources. For Q3, we had record clear liner shipments to teenage and younger patients, which increased 10% sequentially and 8.4% year-over-year driven by continued strength from Invisalign first. Q3, year-over-year revenue growth also reflects improvement in APAC, offset by more pronounced summer seasonality in the May and North America.

From our larger base of scanner sold and higher revenues from our certified pre owned and leasing rental programs, partially offset by unfavorable asps.

Q3, 23 systems and services revenues were impacted by unfavorable foreign exchange of approximately zero point $7 million or approximately 0.4% sequentially on a year over year basis system and services revenues were favorably impacted by foreign exchange of approximately <unk> 4 million.

Joseph Hogan: Our Q3 systems and services revenues were up 4.9% year-over-year despite continued challenges for capital equipment. Primarily due to higher ITERO scanner volumes in the Americas and APAC regions, reflecting certified pre-owned or what we call CPO sales scanner leasing and rental programs, as well as increased services revenue. Q3 systems and services revenues were down sequentially, primarily due to a weaker capital equipment cycle, as well as lower non-systems revenues. This was partially offset by higher scanner volumes in the Americas, reflecting the increased mix of ITERO 5D plus scanners, including more trade-and-trade-ups for DSO customer and Q3.

Approximately <unk>, 3%.

Systems and services deferred revenues on the balance sheet was down $4 $4 million or one 6% sequentially, primarily due to the decrease in the deferral of service revenues included with scanner purchases and it essentially flat or up slightly to 0.1 billion.

Dollars or 0.1% year over year.

Services deferred revenues will be recognized ratably over the service period.

As our scanner portfolio expands and we introduce new products.

Increase the opportunities for customers to upgrade make trade ins and purchased certified pre owned scanners in certain markets.

Joseph Hogan: Q3 non-case revenues were up 13.5% year-over-year, primarily due to continued growth from Rivera retainers and increased adoption of Invisalign Doctor subscription program or DSP, our monthly subscription-based clear liner program, which includes retainers, low-stage touch-up and clear liners. For Q3, we shipped over 19,000 DSP touch-up cases, primarily North America, and increase of more than 70% year-over-year from Q3-22. DSP continues to be well received by our customers and is currently available in the US, Canada, Iberia, and the Lorties.

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 are sold.

Moving on to gross margin third quarter overall gross margin was 69, 1% down two one points sequentially and down <unk> five points year over year overall gross margin was unfavorably impacted by foreign exchange by approximately 0.1 point on a sequential basis and favorably impacted by <unk>.

Joseph Hogan: We are excited about the DSP is proving helpful to doctors and their patients. We are continuing to expand the program in AMEA and with certain DSO partners in Q4. For Q3, total clear liner volumes were down 3.3% sequentially, and up 2.3% year-over-year, primarily affecting weaker than expected demand for the Donny treatment, especially for adult patients. As I said earlier, despite soft consumer trends, our teen and younger patient business was strong across all regions, up both sequentially and year-over-year, primarily due to continued adoption of Invisalign first for kids as young as six years old.

Foreign exchange by approximately 0.1 point on a year over year basis clear Aligner gross margin for the third quarter was 77%.

Down one seven points sequentially, primarily from higher manufacturing spend and a higher mix of additional aligner volume and lower asps.

Clear aligner gross margin for the third quarter was roughly flat year over year, primarily due to increased manufacturing spend as we continue to ramp up operations at our new manufacturing facility in Poland, partially offset by higher Asps.

Joseph Hogan: In terms of Invisalign submitters, a total number of doctors shipped for Q3 increased sequentially to approximately 85.2000 doctors, the highest number in two years, driven by the Americas and APAC regions. From a channel perspective, orthodontist submitters were up year-over-year, especially from doctors submitting teenage cases offset by fewer GP dentists year-over-year, particularly in the Americas. On a geographic basis, Q3 clear liner volumes reflect a substantial increase in Invisalign shipments from the APAC and Latin American regions, as well as North American Invisalign teenage cases.

Systems and services gross margin for the third quarter was 61% down $4, one point sequentially, primarily from lower Asps.

Partially offset by favorable manufacturing variances lower service and freight costs and higher services revenues.

Systems and services gross margin for the third quarter was down two three points year over year, primarily from lower asps, partially offset by favorable manufacturing variances lower service and freight costs favorable foreign exchange and higher service revenues.

Q3, 23 operating expenses were $496 $7 million.

Joseph Hogan: This is offset by lower volume and more pronounced softness from some summer seasonality in AMEA and North America, primarily in Invisalign adult cases. For the Americas, in Invisalign case volume, Q3-23 was down sequentially, primarily due to lower-in-visalign adult shipments in the GP channel in slightly down year-over-year. Q3-23 clear liner volumes reflect increased submitters in the ortho channel, with an increase in teen and younger-case starts driven by momentum from Invisalign first. This is reflected in the September gauge data, which shows Invisalign orthostarts perform better than wires and brackets and other clear liner volumes.

Down sequentially, eight, 3% and up four 5% year over year.

Sequential basis operating expenses were down $44 $9 million, primarily from lower consumer marketing spend and lower incentive compensation year over year operating expenses increased by $21 2 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.

Joseph Hogan: In North America, adoption of the Vizeline Comprehensive 3-in-3 product, drove sequential volume growth in Q3-23, and Vizeline DSP touch-up cases in North America also drove growth sequentially year-over-year For a May at Q3 Clearline or volumes were down sequentially, primarily from the impact of Q3 summer seasonality, when doctors' offices are closed for summer vacations, and more consumers are traveling. Central growth in Italy, Benilex, Turkey, and the Middle East, year-over-year, Clearline or volumes were up reflecting continued adoption of the Vizeline moderate, the comprehensive 3-in-3 product, as well as an increase in teen case starts driven primarily by Vizeline first in our new and Vizeline teen case packs, for A-pack, 2-3 Clearline or volumes were sequentially, and up year-over-year reflecting improving trends in China, as well as other key markets like India, Taiwan, Korea, Japan and Thailand.

Operating expenses were $458 2 million down nine 3% sequentially and up three 3% year over year.

Our third quarter operating income of $166 3 million resulted in an operating margin of 17, 3% up 0.1 points sequentially and up one two points year over year.

Operating margin was unfavorably impacted by <unk>.

Approximately 0.3 points sequentially, primarily due to foreign exchange the year over year increase in operating margin is primarily attributable to operating leverage partially offset by investments in our go to market teams and technology as well as an unfavorable impact from foreign exchange by approximately zero point.

One point.

On a non-GAAP basis, which excludes stock based compensation and amortization of intangibles related to certain acquisitions operating margin for the third quarter was 21, 8% up <unk> five points sequentially and up one six points year over year.

Joseph Hogan: 2-3 A-pack results also reflected increase in Vizeline submitters and higher utilization, especially for teen patients driven by growth from the Vizeline first in North Adonin Channel, during our typically strong teen season in China. 2-3 A-pack results also reflect growth in a GP channel with increased in Vizeline submitters and higher utilization sequentially in year-over-year. 2-3 We continue the rollout of the Vizeline comprehensive 3-in-3 product in A-pack, most recently launched in China. Vizeline comprehensive 3-in-3 is also available in Hong Kong, Korea, Taiwan and India.

Interest and other income expense net for the third quarter was a loss of $4 2 million compared to a loss of zero point $3 million in the second quarter and a loss of $21 million in the third quarter, a year ago, primarily due to foreign exchange.

The GAAP effective tax rate for the third quarter was 25, 1% lower than the second quarter effective tax rate of 34, 8% and lower than the third quarter effective tax rate of 47% of the prior year. The third quarter GAAP effective tax rate was lower than the second quarter effective tax rate, primarily due to the applet.

Joseph Hogan: We are pleased with the adoption of the 3-in-3 product in A-pack, where the majority of cases treated are comprehensive, allowing our doctor customers more flexibility within the Vizeline product or folio. During the quarter, we also shipped to a record number of doctors in A-pack, increasing both sequentially in year-over-year. In Vizeline is the most trusted brand in the orthodontic industry globally, and it's important that we continue to create demand for in Vizeline clear liners, especially given the macroeconomic pressures on doctors and their patients.

<unk> of newly issued tax guidance and lower U S taxes on foreign earnings in Q3 as a reminder, in Q4 'twenty to 'twenty two we changed our methodology for the computation of our non-GAAP effective tax rate to a long term projected tax rate and have given effect to the new methodology from January one two.

Joseph Hogan: In Q-3, we delivered 11.1 billion impressions and had 27.7 million visits to our websites globally. To increase awareness and educate young adults, parents and teens about the benefits of the Vizeline brand, we continue to invest and create campaigns and talk media platforms such as TikTok, Instagram, YouTube, Snapchat, WeChat, and Julian across markets. The underlying market opportunity for clear liners treatment, especially for teens and kids, remains huge and significantly under penetrated. We know in Vizeline clear liners treatment is faster and more effective than braces, yet the vast majority of orthodontic cases are still treated using brackets and wires.

In 'twenty, two and recast previously reported quarterly periods in 2022.

Our non-GAAP effective tax rate in the third quarter was 20%, reflecting the change in our methodology.

Third quarter net income for.

For diluted share was $1 58 up sequentially 12, and up 65 cents compared to the prior year. Our EPS was unfavorably impacted by <unk> on a sequential basis and unfavorably impacted by five cents on a year over year basis due to foreign exchange on.

On a non-GAAP basis net income per diluted share was $2 and <unk> 14 for the third quarter down <unk> <unk> sequentially and up 51 sets year over year.

Joseph Hogan: Differenciation is key to increasing in Vizeline's share of the orthodontic case starts, especially among teens and their parents. We are continuing to differentiate through novel campaigns such as our new and Vizis drama free teen campaign, which uses humor to juxtapose the significant benefits of the Vizeline treatment over metal braces. Similarly to differentiate and Vizeline treatment for adults, we launched new campaigns globally using powerful patient stories that share how important a smile is and how in Vizeline treatment increases self confidence that transforms life.

Note the prior.

Note that the prior year 2022, non-GAAP net income in prior year 2022, non-GAAP EPS reflects the Q4 'twenty to change in our methodology for the computation of the.

Our non-GAAP effective tax rate.

Moving onto the balance sheet as of September 32023, cash cash equivalents and short and long term marketable securities.

Joseph Hogan: Reaching young adults, as well as teens, and their parents also requires the right engagement to enviseline influencers and creator-centric campaigns, which delivered 5.8 billion impressions in the Americas and Q3. Creators such as Michael Semino, Jalen Hall, NFL player, Darren Warren, and I'll say Lennie Green showed their results and why they chose to transform their smiles within disliners. In the May of region, we partner with influencers to reach consumers across social media platforms, including TikTok and Meta, and launch our global consumer campaign for teens and parents of teens, highlighting the benefits of the visline treatment versus braces.

1 billion $301 9 million up.

Up sequentially to $168 $1 million and up $169 million.

Year over year of our one 3 billion.

$1 billion balance $381 million was held in the U S and 900 and.

$26 million was held by our international entities.

Three accounts receivable balance was $904 $2 million down sequentially. Our overall days sales outstanding was 84 days up approximately three days sequentially and down approximately two days as compared to Q3 last year cash flow from our operations for the third quarter was $287 2 million.

Joseph Hogan: In Germany, we continue to see positive engagement with our patient testimonial campaigns watching the previous quarter. Our consumer campaigns deliver more than 1.4 billion media impressions and 6.9 million visitors to our website. We continue to invest in consumer advertising across the APAC region, resulting in more than 3.9 billion impressions and 11.9 million visitors to our websites in the quarter. We expand our reach in Japan and India via Meta and YouTube, and partner with key influencers to reach consumers across social media. We saw increased brand interest from consumers as evidenced by an over 800% increase in unique visitors to our website in India and 135% increase in Japan.

<unk>.

Capital expenditures for the third quarter were $21 6 million primarily related to our continued investments to increase our lighter manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to $265 $6 million.

Now turning to our fourth quarter outlook.

Joseph Hogan: Finally, digital tools such as buying visline consumer and patient app continue to increase with 3.4 million downloads to date, and over 367,000 monthly active users representing a 19% year-over-year growth.

We expect both clear aligner and systems and services revenues to be down sequentially, reflecting a more challenging macro environment for doctors and patients with fewer orthodontic case starts overall unfavorable foreign exchange given the strengthening of the U S dollar against key currencies and longer sales cycles for <unk>.

John Morici: With that, I'll now turn the call over to John. Next, Joe, now for our Q323 financial results. Total revenues for the third quarter were $960.2 million down 4.2% from the prior quarter and up 7.8% from the corresponding quarter a year ago. On a constant currency basis, Q3 revenues were impacted by unfavorable foreign exchange of approximately $2.7 million or approximately 0.3% sequentially and favorably impacted by approximately $4.2 million year-over-year or approximately 0.4%.

Capital equipment purchases for.

For our clear Aligner business, we expect clear aligner teen volume to be seasonally lower in Q4 of 'twenty three and we don't.

Anticipate improvement in adult volumes.

For Q4 'twenty three we also expect clear aligner asps to be down sequentially, primarily due to the strengthening U S. Dollar.

Our systems and services business, we anticipate increasing headwind from macro uncertainty and potential supply issues related to the war in the middle East.

John Morici: For clearer liners, Q3 revenues of $794.9 million were down 4.5%, sequentially, primarily from lower volumes and lower ASPs. On a year-over-year basis, Q3 clearer liners revenues were up 8.5%, primarily due to higher ASPs, higher volumes, and higher non-case revenues. For Q3, in visline ASPs, for comprehensive treatment, were down sequentially and up year-over-year. On a sequential basis, ASPs reflect larger discounts, product shift, mixed shift to lower price products, and unfavorable foreign exchange, partially offset by higher additional liners.

We expect our Q4 'twenty three GAAP operating margin to be down sequentially from Q3 of 'twenty three due to restructuring primarily related to severance as we adjust headcount for this environment.

We anticipate our non-GAAP operating margin to be up sequentially.

From Q3 of 'twenty three.

During Q1, 'twenty, three we announced that our board of directors authorized a new $1 billion stock repurchase program to succeed the 2021 $1 billion program currently $1 billion remained available for repurchase under the 2023 stock repurchase program.

John Morici: On a year-over-year basis, the increase in comprehensive ASPs reflect higher additional liners and price increases, partially offset by larger discounts and unfavorable product mixed shift. For Q3, in visline ASPs, for non-comprehensive treatment, were down sequentially and up year-over-year. On a sequential basis, the decrease in ASPs reflect larger discounts, higher sales credits, and unfavorable product mixed, partially offset by higher additional liners and favorable foreign exchange. On a year of year basis, the increase in non-comprehensive ASPs reflects price increases, higher additional liners, and favorable foreign exchange.

During Q4, 'twenty, three we expect to repurchase up to $250 million of our common stock through either or a combination of open market repurchases or an accelerated stock repurchase agreement.

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 383 billion to $3 $85 billion.

We also expect our full year 2023, GAAP operating margin to be roughly one point lower than 2022, and our 2023 non-GAAP operating margin to be slightly above 21% for.

John Morici: It's partially offset by product makeshift. In Q-123, we launched the Invisalign Comprehensive 3-in-3 product. The three-in-3 configuration offers our Dr. Customers Invisalign Comprehensive Treatment with three additional liners included within three years of the treatment and date. Instead of unlimited additional liners within five years of the treatment and date. At the 2022 Invisalign Comprehensive Product Price, Invisalign Comprehensive 3-in-3 product is available in North America and in certain markets in Amaya and APEC, most recently launching in China, Korea, Hong Kong, and Taiwan, where we are pleased with the continued adoption of the Invisalign Comprehensive 3-in-3 product and anticipate it will continue to increase, providing doctors the flexibility they want, and allowing us to recognize more revenue upfront with the third revenue being recognized over a shorter period of time compared to our traditional Invisalign Comprehensive Product.

For 2023, we expect investments in capital expenditures to be approximately $200 million.

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

Thanks, John while our third quarter results and fourth quarter outlook reflects weaker consumer sentiment and increased headwinds, including foreign exchange. A line is in a unique position to continue driving the digital revolution in the dental industry to help doctors transform and grow their practices with invisalign clear liners.

<unk> scanners and align digital platform.

Very excited about the recent innovations developed to further revolutionize digital treatment planning for Orthodontists and also restorative dentistry by providing doctors with greater flexibility realtime treatment plan modification capabilities and digital solutions to help improve practice productivity and patient experience, which are even more important to our.

John Morici: As we begin to ship more additional liners for comprehensive 3-in-3 products, we expect to see an ASP benefit. As revenues from subscriptions, retainers, and other ancillary products continue 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-liner revenue per case shipment, which we believe to be a more indicative measure of our overall growth strategy.

Customers in the current environment. This includes clean check live update for three D controls Invisalign practice App Invisalign personal plan our IPP.

<unk> Smile architect <unk> connector, Invisalign outcome simulator pro and Invisalign virtual care AI software.

As digital tools are continuing to gain adoption and help doctors gain efficiencies in Q3 clean check live update was used by 41000 doctors on more than 560000 cases, reducing time spent and modifying treatment by 21%.

John Morici: Q3-23 clear-liner revenues were impacted by unfavorable foreign exchange of approximately $2 million, or approximately 0.3% sequentially. On a year-over-year basis, clear-liner revenues were favorably impacted by foreign exchange of approximately $3.8 million, or approximately 0.5%. Clear-line deferred revenues on the balance sheet increase $14.1 million, or up 1.1% sequentially, and up $116 million, or up 9.9% year-over-year, and will be recognized as additional liners are shipped. Q3-23 systems and service revenues of $165.3 million were down 2.5% sequentially, mostly due to unfavorable ASPs and lower revenues from our certified pre-owned program, partially offset by higher scanner volume and higher services revenues.

<unk> practice App is now actively used by about 87000 doctors with over $5 2 million photos uploaded during the quarter via the practice staff.

In addition, we will launch Invisalign palate, expander or IP system in Canada. This quarter IP is our first direct printed orthodontic device that provides a safe comfortable and clinically effective alternative to metal panel of Expanders and boost our market opportunity and the teen market by addressing a portion of cases, we couldnt otherwise treat without it.

<unk>.

In summary, we're committed to balancing our investments in the near and long term growth drivers.

Delivering improved operating margin as we navigate one of the most challenging operating environments in recent history with increasing macroeconomic pressure on doctors and their patients. We have an enormous opportunity to continue driving adoption of digital orthodontics and restorative dentistry and responsibility to optimize our investments for the current environment before turning to <unk>.

John Morici: On a year-over-year basis, Q3-23 systems and services revenue were up 4.9% due to higher scanner volume, higher services revenue from our larger base of scanner sold, and higher revenues from our certified pre-owned and leasing rental programs, partially offset by unfavorable ASPs. Q3-23 systems and services revenues were impacted by unfavorable foreign exchange of approximately $0.7 million, or approximately 0.4% sequentially. On a year-over-year basis, system and services revenues were favorably impacted by foreign exchange of approximately $0.4 million, or approximately 0.3%.

Call over for questions I'd like to address the war in the Middle East and our <unk> scanner business. The situation continues to evolve and it is very fluid and we're monitoring.

<unk> developments closely our singular focus at this stage is on the safety and security of our employees and their families and our doctors and their staff and patients.

Nine offices in scanner manufacturing facility in Israel are currently open and operating while we hope the situation will improve we're preparing mitigation plans to ensure business continuity and will update our customers and other stakeholders as needed now I will turn the call back over to the operator for questions.

John Morici: Systems and Services deferred revenues on the balance sheet was down $4.4 million or 1.6% sequentially primarily due to the decrease in the deferral service revenues included with scanner purchases and essentially flat or up slightly to 0.1 million or 0.1% year-over-year services deferred revenues will be recognized radically over the service period. At our scanner portfolio expands and we introduce new products we increase the opportunities for customers to upgrade, make trade-ins and purchase certified pre-owned scanners in certain markets. 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 scanner sold.

Operator.

Certainly ladies and gentlemen, as a reminder, if you do have a question at this time. Please press star one on your telephone to remove yourself from the queue simply press Star One again and our first question comes from the line of Jason Bednar from Piper Sandler Your question. Please.

Hi, Jason.

Jason you might have your phone on mute.

Operator, you want to go to the next question certainly and we will come back.

One moment.

Yes.

Revenue.

And our next question comes in line of Brandon <unk> from William Blair. Your question. Please.

Hey, everyone. Thanks for taking the question on the first one maybe can we just start a little bit.

John Morici: Moving on to gross margin, third quarter overall gross margin was 69.1% down 2.1 points sequentially and down 0.5 points year-over-year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.1 points on a sequential basis and favorably impacted by foreign exchange by approximately 0.1 points on a year-over-year basis. Clear aligner gross margin for the third quarter was 70.7% down 1.7 points sequentially primarily from higher manufacturing spend and a higher mix of additional liner volume and lower ASVs.

It sounds like macro and given the data that you guys were talking about.

We'll be getting a little worse into the end of the year, maybe just talk about how that kind of trended through the quarter. How we're trending now I think what a lot of us are trying to get our head around as well.

Direction of macro in the dental space going into the end of the year and into 2024, especially as you look at kind of the consumer and then capex on scanner. So how are you guys seeing from year end right now.

When you look at the fourth quarter and the way we've done our forecast overall, we felt great about teams.

Third quarter than what we reported two but adults were really highly effective and when you run through the fourth quarter, It's primarily an adult season for us.

John Morici: Clear aligner gross margin for the third quarter was roughly flat year-over-year primarily due to increased manufacturing spend as we continue to ramp up operations in our new manufacturing facility in Poland. Partially offset by higher ASVs. Systems and services gross margin for the third quarter was 61% down 4.1 points sequentially primarily from lower ASVs, partially offset by favorable manufacturing variances, lower service and freight costs and higher services revenues. Q323 operating expenses were $496.7 million down sequentially 8.3% and up 4.5% year-over-year.

China is a big teen season in the third quarter two so.

And when you look at the Gage data.

For September and what we see in October so far and even some of the consumer profiles around how they're feeling about their finances and all.

Basically just projected but we've seen the September forward to the fourth quarter.

Okay, and then maybe as a follow up on the teen side. It sounds like the ortho channel based off of market data. You have is the teams that are declining year over year, but you guys or at least sequentially.

You guys are up it looks like so are you guys taking share within the teen market.

It's a little bit of a funny dynamic because I think earlier this year as the ortho channel got a little weaker or they were going to wires and brackets, but it seems like now you are taking share how durable is that and what are you guys kind of seeing what's driving that in the underlying market. Thanks.

John Morici: On a sequential basis, we can see that there is a higher increase in the cost of production in our new manufacturing facility. Operating expenses were down $44.9 million primarily from lower consumer marketing spend and lower incentive compensation. Year-over-year operating expenses increased by $21.2 million primarily due to higher incentive compensation in 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.

And we were happy to see that change and gauge data that showed wires and brackets going down in competitive aligner is going down and us going up but you.

You can't you can't draw a line through one thought we feel good again about the technology and all that we're presenting the efficiencies in all of our offerings to orthodontists that we think that's a good stimulant in that sense.

But right now we're going to have to take this thing quarter to quarter.

John Morici: On a non-gap basis, excluding stock-based compensation and amortization of acquired intangibles related to certain acquisitions, operating expenses were $458.2 million down 9.3% sequentially and up 3.3% year-over-year. Our third quarter operating income of $166.3 million resulted in an operating margin of 17.3% up 0.1.2% sequentially and up 1.2% year-over-year. Operating margin was unfavorably impacted by... Approximately 0.3 points sequentially, primarily due to foreign exchange. The year-to-year increase in operating margins is primarily attributable to operating leverage partially offset by investments in our go-to-market teams and technology, as well as unfavorable impact from foreign exchange by approximately 0.1 point.

Thank you one moment for our next question.

And Jason Bednar from Piper Sandler Your line is open.

Hi, Jason.

Okay.

Jason we're still not hearing you.

Shall I move on.

Yes, but it's certainly one moment for our next question.

And our next question comes from the line of Jeff Johnson from Baird. Your question. Please.

Hi, Jeff.

Okay.

Hey, Jeff Mr. Jonathan Your line is open.

John Morici: On a non-gap basis, which excludes stock-based compensation and amortization of intangibles related to certain acquisitions, operating margin for the third quarter was 21.8 percent of 0.5 points sequentially and up 1.6 points year-over-year. Interest in other income expense, net for the third quarter was a loss of 4.2 million dollars compared to a loss of 0.3 million dollars in the second quarter and a loss of 21 million dollars in the third quarter a year ago, primarily due to foreign exchange.

Okay.

One moment Sir.

Certainly as we go to our next question.

Our next question comes from the line of Jon Block from Stifel. Your question. Please.

Hey, guys can you hear me okay.

Hey, John.

Alright.

So far so good.

Maybe a couple of questions Joe I'll start right now you're just seem highly tethered to the consumer.

And 24, you've got some Incrementals right you just launched IP in Canada, you've got remote monitoring we think maybe you have a new scanner.

John Morici: The gap effective tax rate for the third quarter was 25.1 percent lower than the second quarter effective tax rate of 34.8 percent and lower than the third quarter effective tax rate of 40.7 percent of the prior year. The third quarter gap effective tax rate was lower than the second quarter effective tax rate primarily due to the application of newly issued tax-guided and lower US taxes on foreign earnings in Q3. As a reminder, in Q4-22, we changed our methodology for the computation of our non-gap effective tax rate to a long-term projected tax rate and have given effect to the new methodology from January 1st, 2022 and we cast previously reported quarterly prayer age in 2022.

So just your thoughts on the ability for the company to manufacture more of your own growth in 2020 forward any commitment to grow revenues year over year in 'twenty, four and where I'm going with that is.

Even the revised guidance youll grow year over year, and <unk> 23, but.

But if I annualize your <unk> number and just sort of run rate that you arguably land down year over year with a call. It a more dynamic set of innovation, so not asking for a number of but clearly things are moving around and how do we think about what that means again in manufacturing your own growth in 'twenty.

John Morici: Our non-gap effective tax rate in the third quarter was 20 percent reflecting the change in our methodology. Third quarter net income for deluded share was $1.58 up sequentially $0.12 and up $0.65 compared to the prior year. Our EPS was unfavorably impacted by 8 cents on a sequential basis and unfavorably impacted by 5 cents on a year of your basis due to foreign exchange. On a non-gap basis net income for deluded share was $2.14 for the third quarter, down 8 cents sequentially in a 51 cents year of a year. Note that the prior year 2022 non-gap net income in prior year 2022 non-gap EPS reflects the Q4-22 change in our methodology for the computation of our non-gap effective tax rate.

For it any commitment to have positive revenue growth and 24.

Okay.

Hey, John it's a good question.

One of the things we talk about obviously here is with what we presented at the Investor's conference in the new technology that we're offering those are areas that we can really expand what we call our penetration in the marketplace and control a certain amount of our destiny.

You know as well as anybody.

We can we can't fight a market from.

From a downturn standpoint, and a sense of that that won't affect us in some way.

I would throw DSP ended that whole question also because you see the continued growth in DSP and I'd say, a business model change and so those kinds of things I feel like we can drive more demand in the marketplace.

As we get into 2024, I, just can't preclude what that consumer sentiment is going to look like at that point in time, but it certainly gives us.

Also the efficiency gains that we show to the software that I.

John Morici: Moving on to the balance sheet. As of equivalent in short and long term marketable securities were $1,301.9 million up sequentially $268.1 million and up $160.9 million year of a year. Of our $1.3 billion balance, $381 million was held in the US and $920.6 million was held by our international entities. Q3 accounts receivable balance was $904.2 million down sequentially. Our overall day sales outstanding was 84 days up approximately three days sequentially and down approximately two days as compared to Q3 last year.

Just talked about in my script too with different orthodontists that seem to be taken hold and you pick up on your in your survey is also John So we do feel good about that it's just the uncertainty of this marketplace. There, obviously surprised us coming out of the third quarter.

We're going to have to get through this quarter and as we go into 2024, we can be more specific about what we think those without opportunity.

Okay that was very helpful. And then maybe just if I build on Brandon's question earlier, but when you guys guide you've got almost half the quarter in the bag, So clearly things changed.

Notably in the last seven weeks of the third quarter I know you guys called out gauge the September data Jay you referenced October.

What was the <unk> deviation I mean, it seems like it was largely North America and EMEA.

Did APAC performed as expected if you could answer that and then I guess, where I'm struggling is.

John Morici: Cash flow from our operations for the third quarter was $287.2 million. Capital expenditures for the third quarter were $21.6 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 $265.6 million.

We all know it's not a robust consumer out there.

Narrative around soft landing or not if that holds true, but it doesn't seem like things changed all that dramatically in the last seven weeks and so anything you can give joe to elaborate because clearly the exit rate in the quarter was very different than the way things started out. Thank you.

Yes, John.

Third quarters I call, our most non linear quarter, it's most difficult to predict and it is because it has three major components to it one is obviously the seasonality of our European business because of the vacation base or whatever and the way that comes back is not always consistent Jon and in this case it did not come back in the way that we had hoped it would.

John Morici: Now, turning to our fourth quarter outlook. For Q423, assuming no circumstances occur that are beyond our control, we anticipate our worldwide revenue to be in the range of 920 to 940 million dollars, down sequentially from Q3 of 23. We expect both clear aligner and systems and services revenues to be down sequentially reflecting on a more challenging macro environment for doctors and patients, with fewer orthodontic case starts overall, unfavorable foreign exchange given the strengthening of the US dollar against key currencies, and longer sales cycles for capital equipment purchases.

Secondly, as you are counting on a big China team market.

We added we did well in China, I feel from a growth standpoint, but it wasn't to a point that it could offset a slower rebound.

Overall from a European standpoint, and the last thing is in the United States that that lack of adult cases, I mean, we did well on teen that lack of adult cases, we went into September was really stalled and so it's those three key variables that I think is how we came out of this differently than what we anticipated as we went in.

John Morici: For our clear aligner business, we expect clear aligner team volume to be seasonally lower in Q423, and we don't anticipate improvement in adult volumes. For Q423, we also expect clear aligner ASPs to be down sequentially primarily due to the strengthening US dollar.

Thanks, guys. Thanks, John Yes.

Thank you one moment for our next question.

John Morici: For our systems and services business, we anticipate increasing headwinds from macro uncertainty and potential supply issues related to the war in the Middle East. We expect our Q423 gap operating margin to be down sequentially from Q3 of 23 due to restructuring primarily related to severance as we adjust headcount for this environment. We anticipate our non-gap operating margin to be up sequentially from Q3 of 23.

And our next question comes from the line of Elizabeth Anderson from Evercore ISI. Your question. Please.

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

My question is so if we think about like obviously, we're talking about consumer weakness and sort of the cyclical.

Nevertheless, the business if.

If we think about like sort of the head count reduction in SG&A spend can you help us parse out like a little bit more about the cuts and how to think about how does sort of preserve margin is sort of we're seeing weaker demand and then like how you need to invest again on the up cycle in order to continue to push penetration and what time.

John Morici: During Q1 23, we announce that our border directors authorize a new $1 billion stock repurchase program to succeed the 2021 $1 billion program. Currently, $1 billion remains available for repurchase under the 2023 stock repurchase program. During Q423, we expect to repurchase up to $250 million of our common stock through either for a combination of open market repurchases or an accelerated stock repurchase agreement. For full year 2023, assuming no circumstances occur that are beyond our control.

We are very like largely underpenetrated market over a longer period.

Yes, Elizabeth this is John So as you go through our planning process like we do every year. We're prioritizing investments that we can continue to invest to be able to help help grow the business.

John Morici: During Q423, we expect to repurchase up to $250 million of our common stock through either for a combination of open market repurchases or an accelerated stock repurchase agreement. 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 $3.83 billion to $3.85 billion. We also expect our full year 2023 gap operating margin to be roughly 1, lower than 2022 and our 2023 non-gap operating margin to be slightly above 21%.

So we look at at some R&D and some of the investments we make we have a lot of new products coming to market as we've talked about at Investor day, we want to preserve that flow of product, we want to make sure we're properly reaching our customers. So we prioritize some of the sales and go to market activities that we have around that but we're looking at all parts of the business.

John Morici: We anticipate our 2023 Worldwide Revenue to be in the range of $3.83 billion to $3.85 billion. We also expect our full year 2023 gap operating margin to be roughly 1, lower than 2022 and our 2023 non-gap operating margin to be slightly above 21%.

To say, okay, what can we adjust what we make adjustments due to still deliver on our priorities that we have as a business. It's to help try to grow with the means that we have seen but that also deliver the profitability and being able to see this margin accretion we have seen that all year as we've gone through and.

John Morici: For 2023, we expect investments in capital expenditures to be approximately $200 million. Capital expenditures are expected to primarily relate to building construction and improvements as well as manufacturing capacity in support in support of our continued international expansion.

Essentially what we're calling for in the fourth quarter as the.

The continuation of that margin accretion and that's just through a combination of just looking at those investments and making sure that we properly invest for the future.

Got it and maybe as a follow up obviously.

Good.

Hopefully the safety of <unk>.

Players in Israel can you talk about.

Sort of the capacity of that organization as sort of things stay as they are is that something where you are sort of drawing down inventory elsewhere, not able to produce if any more details you could provide on that obviously unfortunate situations.

Joseph Hogan: Align is in the unique position to continue driving the digital revolution in the dental industry to help doctors transform and grow their practices within this line clear aligners. We're very excited about the recent innovations developed to further revolutionize digital treatment planning for orthodontics and also restorative dentistry by providing doctors with greater flexibility, real-time treatment plan modification capabilities and digital solutions to help improve practice productivity and patient experience, which are even more important to our customers in the current environment.

And this is back to Joe.

We're producing over there right now I don't give you this it's a reasonable amount of capacity.

I've had other businesses in Israel at times like this to not about this bad but in those situations.

I feel like where it is now we can manage it.

As we talked about in the script, if things get worse before over there we can't guarantee what we have.

Joseph Hogan: This includes clincheck live update for 3D controls and visline practice app and visline personal plan or IPP and then visline spell architect, Itero exocad connector and visline outcome simulator pro and then visline virtual care AI software. These digital tools are continuing to gain adoption and help doctors gain efficiencies and Q3 clincheck live update was used by 41,000 doctors on more than 560,000 cases, reducing time spent and modifying treatment by 21%. Invisalign Practice app is now actively used by about 87,000 doctors with over 5.2 million photos uploaded during the quarter via the practice app.

But we have a terrific team there a very dedicated team they're working both sides of the ankle right now.

We're bringing in materials, we're converting those materials, we're shipping those out so the business is operating fine right now.

We have to just wait.

The upcoming weeks and see what develops on their homeland got.

Got it thank you very much.

Yes.

Thank you one moment for our next question.

And.

Our next question comes from the line of Erin Wright from Morgan Stanley. Your question. Please.

Great. Thanks.

I'm curious if you could break down a little bit the key components of the teen case volume trend you saw in the quarter by geography, specifically in Americas region, and what's driving that any I think you mentioned like Invisalign first and how we should be thinking about visibility across that patient cohort just given you have some more inherent control over it may be that.

Joseph Hogan: In addition, we will launch in Visalign Piled Expander or IP System in Canada this quarter. IP is our first direct printed orthodontic device that provides a safe comfortable and clinically effective alternative to metal pilot expanders and boost our market opportunity in the teen market by addressing a portion of cases. We could have an otherwise treat without IP.

Segment in this sort of environment and then second part of my question is just more of a clarification I guess in terms of the fourth quarter guidance does it specifically assumes that there is further deterioration in the macro or just a continuation of what you saw in the September experience and I just wanted to understand the buffers I guess you have in that expectation at this point. Thanks.

Joseph Hogan: In summary, we're committed to balancing our investments in near and long term growth drivers while delivering improved operating margin as we navigate one of the most challenging operating environments in recent history with increasing macro economic pressure on doctors and their patients. We have an enormous opportunity to continue driving adoption of visual orthodontics and restorative dentistry and responsibility to optimize our investments for the current environment.

As far as the the teenage patients again, we're really pleased with the growth that we saw in teens and it's a very important teen season, I think the teams perform extremely well we saw strength across every geography, we saw in Europe. We saw we saw in North America. We also saw it in China I think our portfolio helps us a lot Invisalign first we lead with.

Remember those are patients are anywhere between six and 10 years old we really have terrific results in those areas, but also with permanent dentition, we saw some good growth too so.

Joseph Hogan: Our singular focus at this stage is on the safety and security of our employees and their families and our doctors and their staff and patients. Align offices and scanner manufacturing facility in Israel are currently open and operating while we hope the situation will improve. We're preparing mitigation plans to ensure a business continuity and will update our customers and other stakeholders as needed.

Overall I feel like it's strong indication in the sense that we're hitting the dot in the sense of where we want to with those specific consumers into the advertising programs that I talked about and also.

Through our digital platform and then the specific products like Invisalign first and then IP that rolls into Canada, and then more broadly as we move into 2020 for Jonathan.

Unknown Executive: Now I'll turn the call back over to the operator for questions. Operator. Certainly, ladies and gentlemen, as a reminder, if you do have a question at this time, please press star 1-1 on your telephone to remove yourself from the queue simply press star 1-1 again. And our first question comes along, Jason Bettiner from Piper Sandler. Your question, please. Hi, Jason. Jason, you might have your phone on mute.

Unknown Executive: Operator, you want to go to the next question? Certainly. And we'll come back. Certainly, one moment. And our next question comes in line to Brandon Vasquez from William Blair. Your question, please. Hey, everyone. Thanks for taking the question. On the first one, maybe can we just start a little bit on it sounds like macro and given the data that you guys were talking about. It's probably getting a little worse into the end of the year.

Brandon Vazquez: Operator, you want to go to the next question? Certainly. And we'll come back. Certainly, one moment. And our next question comes in line to Brandon Vasquez from William Blair. Your question, please. Hey, everyone. Thanks for taking the question. On the first one, maybe can we just start a little bit on it sounds like macro and given the data that you guys were talking about. It's probably getting a little worse into the end of the year.

In the fourth quarter Aaron.

Really taking what we see in September continued into October.

And we assume that things don't get don't get better than what we saw in September so it's a tough macro environment.

Orthodontic case starts lower patient traffic and so we factor in all of those based on what we saw in and Thats, what our projection is for Q4.

Okay. Thank you.

Youre welcome.

Thank you one moment for our next question.

And our next question comes from the line of Jeff Johnson from Baird. Your question. Please.

Hey, Jeff.

Jeff I don't know if youre on a speaker phone, but if you could lift the handset.

Unknown Executive: Maybe just talk about how that kind of trended through the quarter, how we're trending now. I think what a lot of us are trying to get our head around is what's the direction of macro in the dental space going into the end of the year and into 2024, especially as you look at kind of the consumer. And then Catholics on Skinner. So how are you guys seeing that from your end right now?

Brandon Vazquez: Maybe just talk about how that kind of trended through the quarter, how we're trending now. I think what a lot of us are trying to get our head around is what's the direction of macro in the dental space going into the end of the year and into 2024, especially as you look at kind of the consumer. And then Catholics on Skinner. So how are you guys seeing that from your end right now?

If that were the case.

[laughter].

Still not hearing anything from Mr. Johnson.

One moment for our next question.

Sorry, Jeff if you can hear us we just can't.

Can't pick it up.

And our next question comes from Jason Bednar from Piper Sandler Your question. Please.

Yes.

It's still not hearing chasing.

Unknown Executive: You know, when you look at the fourth quarter in a way we've done our forecast overall. You know, we felt great about teens in the third quarter of what we're recording to, but adults were really highly effective. And when you run to the fourth quarter, it's primarily an adult season for us. And China is a big teen season in the third quarter too. So when you look at the gauge data for September and what we see in October so far, and even some of the consumer profiles around how they're feeling about their finances and all.

Brandon Vazquez: You know, when you look at the fourth quarter in a way we've done our forecast overall. You know, we felt great about teens in the third quarter of what we're recording to, but adults were really highly effective. And when you run to the fourth quarter, it's primarily an adult season for us. And China is a big teen season in the third quarter too. So when you look at the gauge data for September and what we see in October so far, and even some of the consumer profiles around how they're feeling about their finances and all.

Right.

That's strange we certainly will follow up with both Jeff and Jason Operator, do you mind just going to the next question. Please certainly one moment for our next question.

Our next question comes from the line of Nathan Rich from Goldman Sachs. Your question. Please.

Great. Thank you can you hear me okay.

Yes, we hear you fine Okay, great. Joe you mentioned the focus on delivering improved operating margins and you guided to non-GAAP margins being up sequentially in the fourth quarter.

Unknown Executive: We basically just projected what we've seen in September forward to the fourth quarter. Okay, and then maybe as a follow up on the team side, it sounds like the ortho channel based off of the market data you have is that teams are declining year over year, but you guys are up both, it looks like so are you guys taking share within the team market, it's a little bit of a funny dynamic because I think earlier this year as the ortho channel got a little weaker they were going to wires and brackets, but it seems like now you're taking share how durable is that and what are you guys kind of seeing it's driving that in the underlying market, thanks.

Brandon Vazquez: We basically just projected what we've seen in September forward to the fourth quarter. Okay, and then maybe as a follow up on the team side, it sounds like the ortho channel based off of the market data you have is that teams are declining year over year, but you guys are up both, it looks like so are you guys taking share within the team market, it's a little bit of a funny dynamic because I think earlier this year as the ortho channel got a little weaker they were going to wires and brackets, but it seems like now you're taking share how durable is that and what are you guys kind of seeing it's driving that in the underlying market, thanks.

Despite the reduction in the revenue guidance I guess as we think about the <unk>.

Business going forward.

Should we think about that <unk> margin is a good base level for the business.

Even in an uncertain demand environment and are there additional actions you can take on the cost side to give yourselves some additional cushion for margins going forward.

You've been watching us long enough to know that.

Each of our quarters have a certain personality in the sense of the kind of operating profit we deliver.

You can see in the fourth quarter, but we feel good about where we stand right now and the levers that we can pull in order to deliver the operating margin that John talked about so I, just I think more than anything I want the investors to understand that.

Unknown Executive: We were happy to see that change and in the gauge data that showed you know wires and brackets going down and competitive aligners going down and us going up, but you can't you can't draw a line through one thought we feel good again about the technology and all that we're presenting the efficiencies and all we're often to work with Donna so we think that's a good stimulant in that sense, but right now we're going to have to take this same quarter to quarter. Thank you one moment for our next question and Jason Bender from Piper Sandler your line is open. Hi Jason. Jason, we're still not hearing you.

Brandon Vazquez: We were happy to see that change and in the gauge data that showed you know wires and brackets going down and competitive aligners going down and us going up, but you can't you can't draw a line through one thought we feel good again about the technology and all that we're presenting the efficiencies and all we're often to work with Donna so we think that's a good stimulant in that sense, but right now we're going to have to take this same quarter to quarter.

While we have this uncertain environment from a demand standpoint, we're going to be responsible and cost will invest in technology and will focus in those areas, but we're always looking closely and a sense of.

Where we can rationalize also where we can prioritize in different areas that will help and net operating profit area. John anything you want to add on I mean thats. It. So we'll see the benefit that we've seen all year to be able to see that operating margin improvement and but as Joe said.

Unknown Executive: Thank you one moment for our next question and Jason Bender from Piper Sandler your line is open. Hi Jason. Jason, we're still not hearing you.

Prioritizing our investments we look at this time as we as we finalize our plan for next year.

But we have got a lot of technology come anyway to make sure that we're properly invested there as well as being able to deliver like like we can an op margin basis.

Unknown Executive: Shall I move on? Yes, but it's certainly one moment for our next question and our next question comes from the line of Jeff Johnson from Baird your question please. Hi Jeff. Mr Johnson your line is open.

Jeffrey Johnson: Shall I move on? Yes, but it's certainly one moment for our next question and our next question comes from the line of Jeff Johnson from Baird your question please. Hi Jeff. Mr Johnson your line is open.

Okay, great and if I could just ask a follow up on the <unk> guidance for clear Aligner volumes. I think you had said that you don't expect improvement in the Dalton.

Had talked about.

Guess modeling what you saw in September through the fourth quarter I guess.

Should we think about adult cases relative to the 381000 I guess when we take that together given how it sounds like September shaped up should we expect a decline off of that 381 level in the fourth quarter for the adult cases, specifically.

Unknown Executive: One moment was certainly as we go to our next question. Our next question comes from the line of John Bloch from Steve full your question please. Hey guys, can you hear me okay? Any time. All right, so far so good. Maybe a couple of questions, you know, Joel start right now, you just seem highly tethered to the consumer, but in 24, you know, you've got some incremental, right? You just launched IP and you've got remote monitoring.

Jonathan Block: One moment was certainly as we go to our next question. Our next question comes from the line of John Bloch from Steve full your question please. Hey guys, can you hear me okay? Any time. All right, so far so good. Maybe a couple of questions, you know, Joel start right now, you just seem highly tethered to the consumer, but in 24, you know, you've got some incremental, right? You just launched IP and you've got remote monitoring.

Yes, I think when you look at things data like we said.

<unk> showed up well in the third quarter, we were pleased with that seasonally comes down in the fourth quarter and.

And based on what we saw in September and so far in October I think you would expect to see adults down as well.

Great. Thank you for the color.

Thank you one moment for our next question.

Okay.

Unknown Executive: We think maybe you have a new scanner. So just like your thoughts on the ability for the company to manufacture more of your own growth in 2024, any commitment to grow revenues year over year in 24? And where I'm going with that is, you know, even the revised guidance, you'll grow year over year in two age 23. But if I annualize your 4Q number and just say I want to run rate that, you arguably land down year over year with a, you know, call it a more dynamic set of innovation.

Jonathan Block: We think maybe you have a new scanner. So just like your thoughts on the ability for the company to manufacture more of your own growth in 2024, any commitment to grow revenues year over year in 24? And where I'm going with that is, you know, even the revised guidance, you'll grow year over year in two age 23. But if I annualize your 4Q number and just say I want to run rate that, you arguably land down year over year with a, you know, call it a more dynamic set of innovation.

And our next question comes from the line of Brandon <unk> from Jefferies. Your question. Please.

Hey, Thanks, good afternoon.

Just a clarification, Joe or John on the <unk>.

Adult trends.

The weakness is that predominantly in the U S or is it also extend outside the U S as well.

Any chance you're willing to take a stab at some of the factors behind that and whether or not student loan repayments.

Maybe contributing to some of the cycling some of the customer.

Customer base.

Unknown Executive: So not asking for a number, but clearly things are moving around and how do we think about what that means, again, the manufacturer your own growth in 24 and any commitment to have positive revenue growth in 24? John, it's a good question. You know, that's one of the things we talk about obviously here is with what we presented at the investors conference and the new technologies we're offering. Those are areas that we can really expand what we call our penetration in the marketplace and control a certain amount of our destiny.

Jonathan Block: So not asking for a number, but clearly things are moving around and how do we think about what that means, again, the manufacturer your own growth in 24 and any commitment to have positive revenue growth in 24? John, it's a good question. You know, that's one of the things we talk about obviously here is with what we presented at the investors conference and the new technologies we're offering. Those are areas that we can really expand what we call our penetration in the marketplace and control a certain amount of our destiny.

Remember.

Third quarter is a big <unk> quarter, but adults.

Obviously, a large component of that we saw that adult phenomenon in North America, but we saw it across each geography.

Yeah.

Okay, and then just a follow up John on the fourth quarter margins operating margins up with raws down sequentially is that all coming from Opex.

Or would you expect gross margins to bounce up sequentially as well.

Unknown Executive: I think you know, as well as anybody. You know, we can't we can't fight a market. It's from a down system point in the sense of that won't affect us in some way. I would throw DSP into that whole question also because you see the continued growth in DSP and I'd say a business model change. And so those kinds of things I feel like we can drive more demand in the marketplace.

Jonathan Block: I think you know, as well as anybody. You know, we can't we can't fight a market. It's from a down system point in the sense of that won't affect us in some way. I would throw DSP into that whole question also because you see the continued growth in DSP and I'd say a business model change. And so those kinds of things I feel like we can drive more demand in the marketplace.

Yes, when we talked about down sequentially on op margin that was done that on a GAAP basis, we have some of the restructuring and other things that include we expect sequential improvement.

On a non-GAAP basis from Q3 to Q Q4.

And we.

We didn't give specific gross margin guidance, but we're working to try to make sure that we.

Unknown Executive: You know, you know, as we get into 2024, I just can't preclude what that consumer sentiment's going to look like at that point in time, but it certainly gives us. And also the efficiency gains that we show, you know, through the software that I just talked about in my script too with different words of the honest that seem to be taken hold and you pick up in your in your surveys also, John.

Jonathan Block: You know, you know, as we get into 2024, I just can't preclude what that consumer sentiment's going to look like at that point in time, but it certainly gives us. And also the efficiency gains that we show, you know, through the software that I just talked about in my script too with different words of the honest that seem to be taken hold and you pick up in your in your surveys also, John.

We work on our gross margin as well, but right now we've kind of given the guidance down to op margin.

Okay. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Mike Raskin from Bank of America. Your question. Please.

Unknown Executive: So we do feel good about that. It's just against certainly this marketplace and obviously surprised us coming out of the third quarter. We're going to have to get through this quarter. And as we go into 2024, we can be more specific about what we think those what that opportunity is.

Jonathan Block: So we do feel good about that. It's just against certainly this marketplace and obviously surprised us coming out of the third quarter. We're going to have to get through this quarter. And as we go into 2024, we can be more specific about what we think those what that opportunity is.

Great. Thanks for taking the question guys.

I've got a couple of real quick here first hopefully you can hear me.

Yeah, we can hear you Mike great.

First of all I'd ask on.

The right sizing or some of the layoffs you discussed I just wanted to I'm thinking back to 2020 sort of a pre COVID-19 when when everyone's panicking in some of your competitors or other players in the dental space announced layoffs and you held fast and.

Joseph Hogan: Okay, that was very helpful. And then maybe just this might build up Brandon's question earlier, but when you guys guys you've got almost half the quarter in the bag. So clearly things changed notably in the last seven weeks of the third quarter. I know you guys called out gauges September data, you know, J.U, reference, the October. What was the three two deviation? I mean, seems like it was largely North American and media.

Unknown Executive: Okay, that was very helpful. And then maybe just this might build up Brandon's question earlier, but when you guys guys you've got almost half the quarter in the bag. So clearly things changed notably in the last seven weeks of the third quarter. I know you guys called out gauges September data, you know, J.U, reference, the October. What was the three two deviation? I mean, seems like it was largely North American and media.

Howard through and I think the argument was that you saw and as being transient and you wanted to invest in growth and sort of be ready for the rebound.

Just contrasting that with the decision to implement some cuts here.

Joseph Hogan: Did APAC perform as expected? You know, if you could answer that. And then I guess where I'm struggling is I think we all know it's not a robust consumer out there. You know, and that narrative around soft landing or not if that holds true. But it doesn't seem like things changed all that dramatically in the last seven weeks. And so anything you can give Joe to elaborate because clearly the exerate in the quarter was very different than the way things started out.

Unknown Executive: Did APAC perform as expected? You know, if you could answer that. And then I guess where I'm struggling is I think we all know it's not a robust consumer out there. You know, and that narrative around soft landing or not if that holds true. But it doesn't seem like things changed all that dramatically in the last seven weeks. And so anything you can give Joe to elaborate because clearly the exerate in the quarter was very different than the way things started out.

I mean does that mean anything in terms of your thoughts on the duration of the macro slowdown why if this is just macro related and as you said September slowed pretty suddenly if there is a rebound.

Why not continue to invest given the balance sheet strong free cash was a strong just sort of.

Compare and contrast, and weigh on your thinking on that.

First of all when you go back to 2020 that you referenced we did power through that.

Joseph Hogan: Thank you. Yeah, John. You know, third quarters, I call our most nonlinear quarter. It's most difficult to predict. And it's because it has, you know, three major components to it. One is obviously the seasonality of our European business because of the vacation base or whatever. And the way that comes back is not always consistent. And in this case, it did not come back in the way that we had hoped it would.

Unknown Executive: Thank you. Yeah, John. You know, third quarters, I call our most nonlinear quarter. It's most difficult to predict. And it's because it has, you know, three major components to it. One is obviously the seasonality of our European business because of the vacation base or whatever. And the way that comes back is not always consistent. And in this case, it did not come back in the way that we had hoped it would.

Personally what I looked at that as I look at that is not.

Not an economic issue that was obviously, a pandemic kind of an issue and I think it had anticipated.

We anticipated to have a clear beginning into clear at.

And so in that sense.

I think it's easier to make that decision, whether that's right or wrong with that kind of a thought process in mind. In this case, we're seeing unprecedented change from an economic standpoint, we're seeing consumer sentiment down.

Joseph Hogan: You know, secondly is your count on a big China team market. And we added, you know, we did well in China. I feel from a gross standpoint, but it wasn't to a point that it could offset a slower rebound overall from a European standpoint. And the last thing is in the United States, that lack of adult cases. I mean, we did well on team. That lack of adult cases that we went into September was really felt. And so it's those three key variables that I think is how we came out of this differently than what we anticipated as we went in. Thanks, guys.

Unknown Executive: You know, secondly is your count on a big China team market. And we added, you know, we did well in China. I feel from a gross standpoint, but it wasn't to a point that it could offset a slower rebound overall from a European standpoint. And the last thing is in the United States, that lack of adult cases. I mean, we did well on team. That lack of adult cases that we went into September was really felt. And so it's those three key variables that I think is how we came out of this differently than what we anticipated as we went in.

I'll have to go through all the economic data you probably know this better than me. So theres a lot of uncertainty there, but I don't want to be misinterpreted that we're gonna disadvantages company and a rebound no way.

Unknown Executive: Thanks. Yeah. Thank you.

Are going to make sure that we're responsible in a sense of the resources and restructuring that John talked about too we're going to make sure that we're well positioned in the key areas to that if we have a rebound will be able to respond with the right kind of capacity in the right kind of product so.

I feel like we're balancing that well right now.

Unknown Executive: Thanks, guys. Thanks. Yeah. Thank you.

Okay, all right I appreciate that and then second point sort of piggybacking on those blocks question earlier I'm not going to ask you for specifics on 24, but.

Elizabeth Anderson: One moment for our next question. And our next question comes from the line of Elizabeth Anderson from Evercore ISI. Your question, please. Hi guys, thanks so much for the question. My question is, so if we think about like obviously we're talking about consumer weakness and sort of the cyclicalness of the business. If we think about like sort of the headcount reduction and the SG&A spend, can you help us like parse out like a little bit more about the cuts and how to think about how to sort of preserve margin is sort of we're seeing weaker demand and then like how you need to invest again on the upside cycle in order to like continue to push penetration and what's obviously a very like largely under penetrated market over a longer period.

Just thinking about this year the price.

Price you took earlier this year certainly contributed to the revenue growth.

As we think forward to next year and your ability to take price again or potentially have to give price given how much. The macros change now the demand dynamics has changed how do you feel about pricing and products any opportunity to take that up again next year or on the flip side are you potentially getting some pressure there we even have to give a little bit.

Hey, Mike I appreciate the question, but as far as price goes we would make an announcement until our doctors really know in that sense and we're still working through 2024.

Okay alright. Thanks.

Thank you.

This does conclude the question and answer session of today's program I'd like to hand, the program back to Shirley Stacy for any further remarks.

Elizabeth Anderson: Yeah, Elizabeth, this is John. So as we go through our planning process like we do every year, we're prioritizing investments that we can continue to invest to be able to help grow the business. So we look at at some R&D and some of the investors who make we have a lot of new products coming to market as we talked about at investor day want to preserve that flow of product. We want to make sure we're properly reaching our customers so we prioritize some of the sales and go to market activities that we have around that.

Thank you operator, and thank you for joining the call today, we look forward to speaking to you at upcoming financial conferences and industry meetings. If you have any questions. Please follow up with Investor Relations team and Jeff and Jason We certainly will get back to you after the call and speak on a one on one thanks, everyone have a great day.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Elizabeth Anderson: What we're looking at all parts of the business to say, okay, what can we adjust? What can we make adjustments to to still deliver on our priorities that we have as a business to help try to grow with the means that we've seen, but then also deliver the profitability and being able to see this margin accretion. We've seen that all all year as we've gone through and essentially what we're calling for in the fourth quarters is the continuation of that margin accretion and that's just through a combination of just looking at those investments and making sure that we we properly invest for the future.

Okay.

[music].

Okay.

Yes.

[music].

Okay.

[music].

Elizabeth Anderson: Got it. And if it's a follow up, obviously, I, you know, have hope for the safety of all of your employees in Israel, can you talk about sort of the capacity of that organization is sort of think stay as they are. Is that something where you're sort of drawing down inventory elsewhere, not able to produce if any more details you could provide on that, obviously, unfortunate situation. And this is back to Joe, we're producing over there right now.

Okay.

[music].

Elizabeth Anderson: I don't give you this sort of, it's a reasonable amount of capacity. I've had other businesses in Israel at times like this to not just bad, but in those situations, you know, we, I feel like where it is now we can manage it. Now, we're bringing in materials, we're converting those materials, we're shipping those out. So the business is operating fine right now, but we have to just wait with the upcoming weeks and see what develops, you know, on their homeland. Got it. Thank you very much. Yeah. Thank you.

Yes.

Okay.

Sure.

Aaron Wright: One moment for our next question. And our next question comes from the line of Aaron Wright from Morgan Stanley. Your question, please. Great. Thanks. I'm curious if you could break down a little bit the key components of the teen case volume trend. You saw in the quarter by geography, specifically in America's region. And what's driving that? And I think you mentioned like in visual and first and how we should be thinking about visibility across that patient cohort, just given you have some more inherent control over maybe that segment in this sort of environment.

Aaron Wright: And then second part of my question is just more of a clarification. I guess in terms of the fourth quarter guidance, specifically assumed that there's a further deterioration in the macro or just a continuation of what you saw in the September experience. And I just want to understand the buffers. I guess you have in that expectation at this point. As far as the teenage patients, again, we're really pleased with the growth that we saw in teams and it's a very important team season and I think the teams perform extremely well.

Aaron Wright: We saw strength across every geography, we saw in Europe, we saw, we saw in North America, we also saw in China. I think our portfolio helps us a lot and this line first we've led with that remember those are patients are anywhere between six and 10 years old. We really have terrific results in those areas, but also with permanent dentition, we saw some good growth. So, you know, overall I feel like it's it's strong indication in the sense that we're we're hitting the dots in the sense of where we want to with those specific consumers into the advertising programs that I talked about and also, you know, through our digital platform and then the specific products like in this line first and then IPE that rolls into Canada and then more broadly as we move into 2024.

Yes.

[music].

Yes.

Aaron Wright: And just on on the fourth quarter, Aaron, really taking what we see in September, we continues into October and we assume that things don't get don't get better than what we saw in September. So it's a tough macro environment, there's less orthodontic case starts, lower patient traffic and so we factor in all those based on what we saw and that's what our projection is for Q4. Okay, thank you.

Yes.

Yeah.

Unknown Executive: Welcome. Thank you.

Yes.

Okay.

[music].

Unknown Executive: One moment for our next question. And our next question comes from the line of Jeff Johnson from Baird your question, please. Hey, Jeff. Jeff, I don't know if you're on a speaker phone, but if you could lift the handset, if that were the case. Hmm, still not hearing anything from Mr Johnson.

Jeffrey Johnson: One moment for our next question. And our next question comes from the line of Jeff Johnson from Baird your question, please. Hey, Jeff. Jeff, I don't know if you're on a speaker phone, but if you could lift the handset, if that were the case. Hmm, still not hearing anything from Mr Johnson.

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

[music].

Unknown Executive: One moment for our next question. Sorry, Jeff, if you could hear us, we just can't get pick it up. And our next question comes from Jason Bedner from Piper Sandler, your question, please. Hmm, still not hearing Jason. That's strange.

Jason Bednar: One moment for our next question. Sorry, Jeff, if you could hear us, we just can't get pick it up. And our next question comes from Jason Bedner from Piper Sandler, your question, please. Hmm, still not hearing Jason. That's strange.

Yes.

[music].

Okay.

Yes.

Okay.

Unknown Executive: We certainly will follow up with both Jeff and Jason, operator D mind, just going to the next question, please. Certainly, one moment for our next question. Our next question comes from the line of Nathan Rich from Goldman Sachs, your question, please. Great. Thank you. Can you hear me? Okay. Yes. Yeah, Nate, we hear you. Okay. Great. Joe, you mentioned the focus on delivering improved operating margins. And you guided to non-gab margins being up sequentially in the fourth quarter, you know, despite the reduction in the revenue guidance.

Nathan Rich: We certainly will follow up with both Jeff and Jason, operator D mind, just going to the next question, please. Certainly, one moment for our next question. Our next question comes from the line of Nathan Rich from Goldman Sachs, your question, please. Great. Thank you. Can you hear me? Okay. Yes. Yeah, Nate, we hear you. Okay. Great. Joe, you mentioned the focus on delivering improved operating margins. And you guided to non-gab margins being up sequentially in the fourth quarter, you know, despite the reduction in the revenue guidance.

Okay.

Yes.

[music].

Okay.

[music].

Okay.

Unknown Executive: I guess as we think about, you know, the business going forward, should we think about that 4Q margin is a good base level for the business, you know, even in an uncertain demand environment, and are there additional, you know, actions you can take on the cost side to give yourself some additional question for margins going forward. You know, you've been watching us, you know, long enough to know that our each of our quarters have a certain personality in the sense of the kind of operating, you know, profit we deliver between the fourth quarter.

Nathan Rich: I guess as we think about, you know, the business going forward, should we think about that 4Q margin is a good base level for the business, you know, even in an uncertain demand environment, and are there additional, you know, actions you can take on the cost side to give yourself some additional question for margins going forward. You know, you've been watching us, you know, long enough to know that our each of our quarters have a certain personality in the sense of the kind of operating, you know, profit we deliver between the fourth quarter.

Okay.

Sure.

Thanks.

Okay.

Sure.

Okay.

Yes.

Sure.

Yes.

Okay.

Sure.

[music].

Unknown Executive: But we feel good about where we stand right now and the levers that we can pull in order to deliver the operating margin that John talked about. So I just, I think, you know, more than anything, I want the investors to understand that why we have this uncertain environment from a demand standpoint, we're going to be responsible on cost, we'll invest in technology and we'll focus in those areas. But we're always looking closely in the sense of, you know, where we can rationalize.

Nathan Rich: But we feel good about where we stand right now and the levers that we can pull in order to deliver the operating margin that John talked about. So I just, I think, you know, more than anything, I want the investors to understand that why we have this uncertain environment from a demand standpoint, we're going to be responsible on cost, we'll invest in technology and we'll focus in those areas. But we're always looking closely in the sense of, you know, where we can rationalize.

Okay.

The.

[music].

Unknown Executive: Also, where we can prioritize in different areas that will help in that operating property area, John, anything you want to add on. And that's it. So, you know, we'll see the benefit that we've seen all year to be able to see that operating margin improvement. And, but as Joe said, we're prioritizing our investments, we look at this time as we finalize our plan for next year. But we have got a lot of technology coming in order to make sure that we're properly invested there as well as being able to deliver like we can on a margin.

Nathan Rich: Also, where we can prioritize in different areas that will help in that operating property area, John, anything you want to add on. And that's it. So, you know, we'll see the benefit that we've seen all year to be able to see that operating margin improvement. And, but as Joe said, we're prioritizing our investments, we look at this time as we finalize our plan for next year. But we have got a lot of technology coming in order to make sure that we're properly invested there as well as being able to deliver like we can on a margin.

Yes.

[music].

Okay.

Yes.

Nathan Rich: Okay, great. And if I could just ask of a follow-up on the 4Q guidance for clear-liner volumes, I think you had said that you don't expect improvement in adult and had talked about, I guess, you know, modeling what you saw in September through the 4th quarter. I guess, you know, how should we think about adult cases relative to the 381,000? I guess when we take that together, you know, given how it sounds like September, remember shaped up, should we expect, you know, a decline off of that 381 level in the 4th quarter for the adult cases specifically?

Yes.

Sure.

Yes.

[music].

Okay.

Yes.

[music].

Okay.

Right.

Yes.

[music].

Yes.

[music].

Yes.

Nathan Rich: I think when you look at things, like we said, you know, team, team showed up well in the 3rd quarter, please with that, seasonally comes down in the 4th quarter. And based on what we saw in September and so far in October, I think, you know, you would expect to see adults down as well. Great. Thank you for the color.

Sure.

[music].

Okay.

Sure.

Yes.

Okay.

Sure.

Okay.

Thank you.

Yes.

Sure.

[music].

Brandon Couillard: Thank you one moment for our next question. And our next question, come to the line of Brendan Cuyah from Jeffries, your question please. Hey, thanks. Good afternoon. Just a clarification, Joe, or John, on the adult trends in the week, is that predominantly in the US or is it about to extend outside the US as well? If you have any chance, you willing to take a stab at some of the factors behind that and whether or not student loan repayments, you know, may be contributing to some of the psyche and some of that customer base.

Yes.

Sure.

[music].

Yes.

Okay.

[music].

Okay.

[music].

Brandon Couillard: Remember, our quarter is a big team quarter, but adults are obviously a large component of that. We saw that adult phenomenon in the work of America, but we saw across each geography. Okay, then just a follow up, John, on the 4th quarter margins, operating margins up with revs down sequentially. Is that all coming from off X? Or would you expect Rose Markins to bounce up sequentially as well? Yeah, when we talked about down sequentially on up margin, that was on a gap basis.

Yes.

Okay.

[music].

Okay.

<unk>.

Okay.

Brandon Couillard: We have some of the restructuring and other things that include we expect sequential improvement on a non gap basis from Q3 to Q4. And we're, we didn't give specific gross margin guidance, but, you know, we're working to try to make sure that, you know, we work on our gross margin as well, but right now we've kind of given the guidance down to our margin. Thank you.

Okay.

[music].

Yes.

[music].

Yes.

Okay.

Michael Ryskin: Thank you one moment for our next question. And our next question comes from the line of Mike Raskin from Bank of America. Your question, please. Great. Thanks for taking the question guys. I got a couple of real quick here. First, hopefully you can hear me. Yeah, we can hear you Mike. Great. First of all, I ask on the right sizing or some of the layoffs you discussed. I'm thinking back to 2020, sort of a big COVID whenever one is panicking and some of your competitors or other players in the dental space and now it's the layoffs and you health fast and powered through.

Yes.

Okay.

Sure.

Okay.

Michael Ryskin: And the argument was that you saw it as being transient and you wanted to invest in growth and sort of be ready for the rebound. So just contrasting that with the decision to implement some cuts here. I mean, does that mean anything in terms of your thoughts on the duration of the macro slowdown? Why, you know, if this is just macro related and, as you said, September, you know, slow it pretty suddenly.

Okay.

[music].

Okay.

[music].

Michael Ryskin: If there is a rebound. Why not continue to invest, given the balance sheets strong, and the free cash was a strong, just sort of, you know, competitive contrast and a way out you're thinking on that. You know, first of all, when you go back to 2020 that you referenced, we did power through that, you know, personally what I looked at that is I looked at that is not an economic issue, you know, that was obviously a pandemic kind of an issue, and I think it had an anticipated to have a clear beginning and a clear end.

Okay.

Welcome to align technologies third quarter 2023 earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your phone.

Yourself from the queue simply press star one again.

Note that this conference call is being recorded I would now like to turn the conference over to your host Shirley Stacy with align technologies you may begin.

Thank you good afternoon, and thank you for joining us I'm, Shirley Stacy Vice President of corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO and John Morici CFO, We issued third quarter 2023 financial results today via business wire, which is available on our website at Investor <unk> line Tech Dot com.

Today's conference call is being audio webcast and will be archived on our website for approximately one month as a reminder, the information provided and discussed today will include forward looking statements, including statements about aligns future events products and outlook. These forward looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most.

Michael Ryskin: And so in that sense, it's I think it's easier to make that decision whether that's right or wrong with that kind of a process of mine. In this case, we're seeing unprecedented change from an economic standpoint, we're seeing consumer sentiment down. I mean, I don't have to go through all the economic data, you probably know this better than me, so there's a lot of uncertainty there. But I don't want to be misinterpreted that we're going to disadvantage this company in a rebound, in no way, we're going to make sure that we're responsible in the sense of the resources and restructuring that John talked about to we're going to make sure that we're well positioned in the key areas too, that if we have a rebound we'll be able to respond with the right kind of capacity and the right kind of product. So, you know, I feel like we're balancing that well right now.

Recent periodic reports filed with the Securities and Exchange Commission available on our website and at SEC Gov actual results may vary significantly.

Michael Ryskin: Okay, all right, I appreciate that. And then the second point sort of piggybacking on, I think it was blocked question earlier. I'm not going to ask you for the specifics on 24, but just thinking about this year, you know, the price, the price you took earlier this year certainly contributed to your revenue growth. As we think forward to the next year in your ability to take price again, or potentially have to give price, you know, given how much the macros change, how the demand dynamics have changed.

Q3, Invisalign DSP touch up cases and associated revenues have been reclassified to the non comprehensive clear aligner segment and are now reflected in our reported clear aligner case volumes revenues and business metrics. Prior to this quarter. They were not reported in the non case category.

Unless otherwise stated all metrics include DSP touch up cases, and reported clear aligner volumes with that I'll turn the call over to align technology's President and CEO, Joe Hogan Joe.

Michael Ryskin: How do you feel about pricing and products, you know, any opportunity to take that up again next year, or on the flip side, are you potentially getting some pressure there, we even have to give a little bit. And Mike, I appreciate the question, but as far as price goes, we wouldn't make an announcement until our doctors really know in that sense. And, you know, we're still working through 2024. Okay, all right, thanks. Thank you.

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

On our call today I'll provide an overview of our third 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 Q3 financial performance and comment on our views for the remainder of the year. Following that we'll come back and summarize a few key points and we will take questions.

Shirley Stacy: This does conclude the question and answer session of today's program. I'd like to hand the program back to Shirley Stacy for any further remarks. Thank you, operator. And thank you for joining the call today. We look forward to speaking to you at upcoming financial conferences and industry meetings. If you have any questions, please follow up with investor relations team. And Jeff and Jason, we certainly will get back to you after the call and speak on our one on one. Thanks, everyone. Have a great day.

Our third quarter results reflect lower than expected demand in a more difficult macro environment than we experienced in the first half of 2023.

Donald practices and industry research firms have reported deteriorating trends, including decreased patient visits and increased patient cancellations, along with fewer orthodontic case starts overall, especially among adult patients.

The September gauge report, which reflect more than 200, North American ortho practices shows deceleration orthodontic treatment and new orthodontic patient appointments were down eight 7% year over year and ortho K starts were down six 9% year over year, the biggest decrease in over a year.

Unknown Executive: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. Thank you.

Unknown Executive: This does conclude the program. You may now disconnect. Good day.

<unk>, 4% year over year, driven by continued strength from Invisalign first.

Q3 year over year revenue growth also reflects improvement in APAC offset by more pronounced summer seasonality in EMEA and North America, Our Q3 systems and services revenues were up four 9% year over year. Despite continued challenges for capital equipment.

Merely due to higher <unk> scanner volumes in the Americas, and APAC regions, reflecting certified pre owned or what we call CPO sales scanner leasing and rental programs as well as increased services revenue.

Q3 systems and services revenues were down sequentially, primarily due to a weaker capital equipment cycle as well as lower non systems revenues. This was partially offset by higher scanner volumes in the Americas, reflecting the increased mix of Vitaros, <unk>, plus scanners, including more trade and trade ups for DSO customer in Q3.

Q3, non case revenues were up 13, 5% year over year, primarily due to continued growth from Rivera retainers and increased adoption of Invisalign doctors subscription program or DSP, our monthly subscription based clear Aligner program.

Which includes retainers low stage touch up on clear aligner treatment.

For Q3, we shipped over 19000, DSP touch up cases, primarily North America, an increase of more than 70% year over year from Q3 dollars 22.

DXP continues to be well received by our customers and is currently available in U S. Canada Iberia in the Nordics. We are excited about the DSP is proving helpful to doctors and their patients we're continuing to expand the program in EMEA and with certain DSO partners in Q4.

As I said earlier, despite soft consumer trends are teen and younger patient business was strong across all regions.

Both sequentially and year over year, primarily due to continued adoption of Invisalign first for kids as young as six years old.

In terms of Invisalign submit or is the total number of doctors shift for Q3 increased sequentially to approximately $85 2000 doctors the highest number in two years driven by the Americas and APAC regions from a channel perspective.

<unk> were up year over year, especially from doctors submitting teenage cases, offset by fewer GP dentist year over year, particularly in the Americas.

On a geographic basis Q3 clear aligner volumes reflect the sequential increase in invisalign shipments from the APAC and Latin American regions as well as North America Invisalign teenage cases, this was offset by lower volume and more pronounced softness from some summer seasonality in EMEA and North America, primarily invisalign.

Unknown Executive: [inaudible] Dr. Pudipeddi, Dr. Pudipeddi[inaudible] Dr. Pudipeddi, Dr. Pudipeddi, Dr.[inaudible] Pudipeddi, Dr. Pudipeddi, Dr. Pudipeddi, Dr. Pudipeddi,[inaudible] Welcome to Align Technologies, 3rd quarter, 2,023 Ernie's call. At this time, all participants are listening only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you'll need to press star 1-1 on your phone. To remove yourself from the queue, simply press star 1-1 again. Please note that this conference call is being recorded.

Unknown Executive: Thank you.

Adult cases.

For the Americas, Invisalign case volume Q3, 'twenty three was down sequentially, primarily due to lower invisalign adult shipments in the GP channel and slightly down year over year.

Q3, 23 clear aligner volumes reflect increased emitters in the ortho channel.

With an increase in teen in younger case starts driven by momentum from Invisalign. First this is reflected in September Gage data, which shows an invisalign ortho starts performed better than wires and brackets and other clear liners.

In North America adoption of Invisalign comprehensive three and three product drove sequential volume growth in Q3 23.

Invisalign DSP touch up cases in North America also drove growth sequentially year over year.

For EMEA Q3 clear aligner volumes were down sequentially, primarily from the impact of Q3 summer seasonality when doctors offices are closed for summer vacations and more consumers are traveling.

This was partially offset.

By sequential growth in Italy, Benelux, Turkey, and the middle East year over year clear Aligner volumes were up reflecting continued adoption of invisalign moderate the.

The comprehensive <unk> product as well as an increase in kids and teen case starts driven primarily by Invisalign first and our new Invisalign Teen case packs.

For APAC Q3, clear aligner volumes were up sequentially and up year over year, reflecting improving trends in China as well as other key markets like India, Taiwan, Korea, Japan and Thailand.

Q3, APAC results also reflect growth in the GP channel with increased Invisalign, submitters, and higher utilization sequentially and year over year.

During Q3, we continued the rollout of Invisalign comprehensive <unk> III product in APAC, Most recently launched in China <unk>.

During the quarter, we also shipped to a record number of doctors in APAC, increasing both sequentially and year over year.

And educate young adults parents and teens about the benefits of Invisalign brand, we continue to invest and create campaigns and top media platforms, such as Tictoc, Instagram Youtube Snapchat, wechat and doing across markets.

The underlying market opportunity for clear aligner treatment, especially for teens and kids remains huge and significantly Underpenetrated, we know invisalign clear aligner treatment is faster and more effective embraces yet the vast majority of orthodontic cases are still treated using brackets and wires.

Differentiation is key to increasing invisalign share of orthodontic case starts, especially among teens and their parents.

<unk> such as <unk>.

Michael Simoneau Jaylen Hall, NFL player Darrin War, and I'll say, the Lani Green showed their results and why they chose to transform their smiles with invisalign of liners.

In EMEA a region, we partner with Influencers to reach consumers across social media platforms, including Tech talk in meta the loss of our global consumer campaign for teens and parents of teens, highlighting the benefits of invisalign treatment versus braces.

We continue to invest in consumer advertising across the APAC region, resulting in more than $3 9 billion impressions, an $11 9 million visitors to our websites in the quarter.

We expanded our reach in Japan, and India via meta in Youtube and partner with key influencers to reach consumers across social media.

We saw increased brand interest from consumers as evidenced by an over 800% increase in unique visitors to our web site in India, and 135% increase in Japan.

Thanks, Joe now for our Q3 'twenty three financial results total revenues for the third quarter were $960 2 million down four 2% from the prior quarter and up seven 8% from the corresponding quarter a year ago on a constant currency basis Q3 revenues were impacted by unfavorable foreign exchange.

Change of approximately $2 7 million or approximately <unk>, 3% sequentially and favorably impacted by approximately $4 $2 million year over year or approximately 0.4%.

For clear liners, Q3 revenues of $794 $9 million were down four 5% sequentially, primarily from lower volumes and lower asps.

Larger discounts product shift mix shift to lower price products and unfavorable foreign exchange, partially offset by higher additional liners on a year over year basis. The increase in comprehensive asps reflect higher additional liners and price increases, partially offset by a larger discounts and unfavorable product mix shift.

For Q3, Invisalign Asps for non comprehensive treatment were down sequentially and up year over year on a sequential basis. The decrease in asps reflect larger discounts higher sales credits and unfavorable product mix, partially offset by higher additional liners and favorable foreign exchange.

On a year over year basis, the increase in non comprehensive asps reflects price increases higher additional liners and favorable foreign exchange.

Shirley Stacy: I would now like to turn the conference over to your host, Shirley Stacy, with Align Technologies. You may begin. Thank you. Good afternoon, and thank you for joining us. I'm Shirley Stacy, vice-president of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, president and CEO, and John Marie T.C. F.O. We issued 3rd quarter, 2023 financial results today via BusinessWire, which is available on our website at investor.aligntech.com. Today's conference call is being audio webcast, and we'll be archived on our website for approximately one month.

Partially offset by product mix shift.

In Q1, 'twenty three we launched the Invisalign comprehensive three and three product. The three in three configuration offers our doctor customers Invisalign comprehensive treatment with three additional liners included within three years of the treatment and date.

Instead of unlimited additional liners within five years of the treatment and date.

Shirley Stacy: As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events, products, and outlook. These forward-looking statements are only predictions and involve recent 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 fuc.gov. Actual results may vary significantly, and Align expressly assumes no obligations to update any forward-looking statements. We have posted historical financial statements, including the corresponding reconciliation, including our Gapton-on-Gap reconciliation, if applicable, and our 3rd quarter, 2023 conference call slides on our website under quarterly results.

At the 2022 Invisalign comprehensive product price.

Invisalign comprehensive <unk> III product is available in North America, and certain markets in EMEA and APAC. Most recently launching in China Korea, Hong Kong and Taiwan. We are pleased with the continued adoption of the Invisalign comprehensive <unk> product and anticipate it will continue to increase providing doctors the flexibility.

They want 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 we begin to ship more additional liners for comprehensive <unk> III products, we expect to see an ASP benefit.

Shirley Stacy: Please refer to these files from our detail. Note, as of Q3, Invisalign DSP touch-up cases and associated revenues have been reclassified to the non-comprehensive clear aligner segment, and are now reflected in our reported clear aligner case volumes, revenues, and business metrics. Prior to this quarter, they were not reported in the non-case category. Unless otherwise stated all metrics include DSP touch-up cases and reported clear aligner volumes.

As revenues from subscriptions retainers and other ancillary products continue 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 a more indicative measure of our overall growth strategy.

Joseph Hogan: With that, I'll turn the call over to Align Technologies, 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 third 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 two three financial performance and comment on our views for the remainder of the year.

Or approximately 0.5%.

Joseph Hogan: Following that, we'll come back and summarize a few key points and we'll take questions. Our third quarter results reflect lower than expected demand in a more difficult macro environment than we experienced in the first half of 2023. Dental practices and industry research firms have reported deteriorating trends, including decreased patient visits and increased patient cancellations along with fewer orthodontic case starts overall, especially among adult patients. The September gauge report, which reflect more than 1200 North American ortho practices shows deceleration for the donic treatment and new orthodontic patient appointments were down 8.7% year over year and ortho case starts were down 6.9% year over year, the biggest decrease in over a year.

Clear aligner deferred revenues on the balance sheet increased $14 $1 million or up one, 1% sequentially and up $116 million or up nine 9% year over year.

And we will be recognized as the additional liners are shipped.

On a year over year basis, Q3, 23 systems and services revenue were up four 9% due to higher scanner volume higher services revenue.

Joseph Hogan: Despite these headwinds, total two three worldwide revenues of 960 million were up 7.8% year over year with growth across all regions. For two three, we had record clear, clear liners shipment to teenage and younger patients, which increased 10% sequentially and 8.4% year over year driven by continued strength from the visline first. Two three year over year revenue growth also reflects improvement in APAC offset by more pronounced summer seasonality in a May and North America.

From our larger base of scanners are sold and higher revenues from our certified pre owned and leasing rental programs, partially offset by unfavorable asps.

Q3, 23 systems and services revenues were impacted by unfavorable foreign exchange of approximately zero point $7 million or.

Approximately 0.4% sequentially on a year over year basis system and services revenues were favorably impacted by foreign exchange of approximately <unk> 4 million or approximately <unk>, 3%.

Joseph Hogan: Our Q3 systems and services revenues were up 4.9% year over year, despite continued challenges for capital equipment, primarily due to higher ITERO scanner volumes in the Americas and APAC regions, reflecting certified pre-owned or what we call CPO sale scanner leasing and rental programs as well as increased services revenue. Two three systems and services revenues were down sequentially primarily due to a weaker capital equipment cycle as well as lower non systems revenues.

Systems and services deferred revenues on the balance sheet was down $4 4 million or.

Or one 6% sequentially, primarily due to the decrease in the deferral of service revenues included with scanner purchases and it and essentially flat.

Up slightly to zero point $1 billion or 0.1% year over year.

Joseph Hogan: This is partially offset by higher scanner volumes in the Americas, reflecting the increased mix of ITERO 5D plus scanners, including more trade and trade ups for DSO customer and Q3. Two three non-case revenues were up 13.5% year over year, primarily due to continued growth from Rivera retainers and increased adoption of the visline doctor subscription program or DSP, our monthly subscription based clear liner program, which includes retainers low stage touch up and clear liner treatment.

Services deferred revenues 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 purchased certified pre owned scanners in certain markets.

Joseph Hogan: For Q3, we shipped over 19,000 DSP touch up cases primarily North America and increase of more than 70% year over year from Q322. DSP continues to be well received by our customers and is currently available in the US, Canada, Iberia, and the Nordics. We are excited about the DSP is proving helpful to doctors and their patients. We're continuing to expand the program in AMEA and with certain DSO partners in Q4. For Q3, total clear liner volumes were down 3.3% sequentially and up 2.3% year over year, primarily reflecting weaker than expected demand for the donic treatment, especially for adult patients.

Foreign exchange by approximately 0.1 point on a year over year basis clear Aligner gross margin for the third quarter was 77%.

Down one seven points sequentially, primarily from higher manufacturing spend and a higher mix of additional aligner volume and lower asps.

Joseph Hogan: As I said earlier, despite soft consumer trends, our teen and younger patient business was strong across all regions, up both sequentially and year over year, primarily due to continued adoption of the visline first for kids as young this six years old. In terms of invisalign submitters, a total number of doctors shipped for Q3 increased sequentially to approximately 85.2000 doctors, the highest number in two years driven by the Americas and APAC regions.

Systems and services gross margin for the third quarter was 61% down $4, one point sequentially, primarily from lower Asps.

Partially offset by favorable manufacturing variances lower service and freight costs and higher services revenues.

Joseph Hogan: From a channel perspective, orthodontist submitters were a year over year, especially from doctors submitting teenage cases offset by fewer GP dentists year over year, particularly in the Americas. On a geographic basis, Q3 clear liner volumes reflect a sequential increase in visline shipments from the APAC and Latin American regions, as well as North American visline teenage cases. This is offset by lower volume and more pronounced softness from some summer seasonality in Amaya and North America, primarily in visline adult cases.

Q3, 23, operating expenses were $496 $7 million down sequentially, eight 3% and up four 5% year over year on a sequential basis operating expenses were down $44 9 million.

Joseph Hogan: For the Americas, in visline case volume, Q3 23 was down sequentially, primarily due to lower and visline adult shipments in the GP channel in slightly down year over year. Q3 23 clear liner volumes reflect increased submitters in the orthochannel, with an increase in teen in younger case starts driven by momentum from the visline first. This is reflected in the September gauge data, which shows in visline orthostarts perform better than wires and brackets and other clear liners.

Primarily from lower consumer marketing spend and lower incentive compensation year over year operating expenses increased by $21 2 million.

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

Joseph Hogan: In North America, adoption of the visline comprehensive 3-in-3 product, drove sequential volume growth in Q3 23, and visline DSP touch up cases in North America also drove growth sequentially year over year. For Amaya, Q3 clear liner volumes were down sequentially, primarily from the impact of Q3 summer seasonality, when doctors offices are closed for summer vacations, and more consumers are traveling. This was partially offset by sequential growth in Italy, Benelux, Turkey, and the Middle East, year over year, clear liner volumes were up reflecting continued adoption of the visline moderate, the comprehensive 3-in-3 product, as well as an increase in teen case starts driven primarily by in vislines first, and our new in visline teen case packs.

Operating expenses were $458 2 million down nine 3% sequentially and up three 3% year over year.

Our third quarter operating income of $166 3 million resulted in an operating margin of 17, 3% up <unk>, one points sequentially and up one two points year over year.

Operating margin was unfavorably impacted by.

Approximately 0.3 points sequentially, primarily due to foreign exchange the year over year increase in operating margin is primarily attributable to operating leverage partially offset by investments in our go to market teams and technology as well as unfavorable impact from foreign exchange by approximately zero.

Joseph Hogan: For A-pack, Q3 clear liner volumes roughly sequentially, and up year over year reflecting improving trends in China, as well as other key markets like India, Taiwan, Korea, Japan, and Thailand. Q3 A-pack results also reflected increase in visline submitters and higher utilization, especially for teen patients driven by growth from the visline first in North Adonin channel, during our typically strong teen season in China. Q3 A-pack results also reflect growth in a GP channel with increased in visline submitters and higher utilization sequentially in year over year.

One point on it.

The non-GAAP basis, which excludes stock based compensation and amortization of intangibles related to certain acquisitions operating margin for the third quarter was 21, 8% up <unk> five points sequentially and up one six points year over year.

Joseph Hogan: During Q3, we continue the rollout of the visline comprehensive 3-in-3 product in A-pack, most recently launched in China. The visline comprehensive 3-in-3 is also available in Hong Kong, Korea, Taiwan, and India. We are pleased with the adoption of the 3-in-3 product in A-pack, where the majority of cases treated are comprehensive, allowing our doctor customers more flexibility within the visline product or folio. During the quarter, we also shift to a record number of doctors in A-pack, increasing both sequentially and year over year.

<unk> of newly issued tax guidance and lower U S taxes on foreign earnings in Q3 as a reminder, in Q4 'twenty to 'twenty two we changed our methodology for the computation of our non-GAAP effective tax rate to our long term projected tax rate and have given effect to the new methodology from January one 2000.

Joseph Hogan: In visline is the most trusted brand in the orthodonic industry globally, and it's important that we continue to create demand for in visline clear liners, especially given the macroeconomic pressures on doctors Inclusive 3, we delivered 11.1 billion impressions and had 27.7 million visits to our websites globally. To increase awareness and educate young adults, parents and teens about the benefits of the Invisalign brand, we continue to invest and create campaigns and taught media platforms such as TikTok, Instagram, YouTube, Snapchat, WeChat, and Dillion across markets.

'twenty, two and recast previously reported quarterly periods in 2022.

Our non-GAAP effective tax rate in the third quarter was 20%, reflecting the change in our methodology.

Third quarter net income.

For diluted share was $1 58 up sequentially 12 and up 65.

Joseph Hogan: The underlying market opportunity for clear-liner treatment, especially for teens and kids remains huge and significantly underpenetrated. We know Invisalign clear-liner treatment is faster and more effective than braces, yet the vast majority of orthodontic cases are still treated using brackets and wires. Differentiation is key to increasing Invisalign's share of the orthodontic case starts, especially among teens and their parents. We are continuing to differentiate through novel campaigns such as our new Invisas Drama Free Teen Campaign, which uses humor to juxtapose the significant benefits of the Invisalign treatment over metal braces.

Compared to the prior year, our EPS was unfavorably impacted by <unk> <unk> on a sequential basis and unfavorably impacted by <unk> <unk> on a year over year basis due to foreign exchange.

On a non-GAAP basis net income per diluted share was $2 14 for the third quarter down <unk> <unk> sequentially and up 51 sets year over year.

Note the prior.

Note that the prior year 2022, non-GAAP net income in prior year 2022, non-GAAP EPS reflects the Q4 'twenty to change in our methodology for the computation of the of our non-GAAP effective tax rate.

Joseph Hogan: Similarly, to differentiate Invisalign treatment for adults, we launched new campaigns globally using powerful patient stories that share how important a smile is and how Invisalign treatment increases self-confidence that transforms lives. Reaching young adults as well as teens and their parents also requires a right engagement to Invisalign influencers and creator-centric campaigns, which delivered 5.8 billion impressions in the Americas in Q3. Creators such as Michael Simano, Jalen Hall, NFL player, Darren Warren, and Lailani Green showed their results and why they chose to transform their smiles within Invisalign aligners.

Moving onto the balance sheet as of September 32023, cash cash equivalents and short and long term marketable securities.

$1 $301 9 million up.

Up sequentially to $168 $1 million and up $169 million.

Year over year of our $1 3 billion.

$1 billion balance $381 million was held in the U S and 900 and.

$26 million was held by our international entities.

Joseph Hogan: In the May of region, we partner with influencers to reach consumers across social media platforms, including TikTok and Meta, and launch our Global Consumer Campaign for teens and parents of teens, highlighting the benefits of Invisalign treatment versus braces. In Germany, we continue to see positive engagement with our patient testimonial campaigns, launching a previous quarter. Our consumer campaigns deliver more than 1.4 billion media impressions and 6.9 million visitors to our website. We continue to invest in consumer advertising across the APAC region, resulting in more than 3.9 billion impressions and 11.9 million visitors to our websites in the quarter.

Three accounts receivable balance was $904 2 million down sequentially. Our overall days sales outstanding was 84 days up approximately three days sequentially and down approximately two days as compared to Q3 last year cash flow from our operations for the third quarter was $287 2 million.

<unk>.

Capital expenditures for the third quarter were $21 6 million.

Primarily related to our continued investments to increase our lighter manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to $265 6 million.

Joseph Hogan: We expanded our reach in Japan and India via Meta and YouTube and partnered with key influencers to reach consumers across social media. We saw increased brand interest from consumers as evidenced by an over 800% increase in unique visitors to our website in India and 135% increase in Japan. Finally, digital tools such as buying Invisalign consumer and patient app continue to increase with 3.4 million downloads to date, and over 367,000 monthly active users representing a 19% year-over-year growth.

Now turning to our fourth quarter outlook.

For Q4, 'twenty three assuming no circumstances occur that are beyond our control, we anticipate our worldwide revenue to be in the range of $920 million to $940 million down sequentially from Q3 of 'twenty three we expect both clear aligner and systems and services revenues to be down some.

<unk>, reflecting a more challenging macro environment for doctors and patients with fewer orthodontic case starts overall unfavorable foreign exchange given the strengthening of the U S dollar against key currencies.

John Morici: With that, I'll now turn the call over to John. Next show, now for our Q323 financial results. Total revenues for the third quarter were 960.2 million dollars, down 4.2% from the prior quarter, and up 7.8% from the corresponding quarter a year ago. On a constant currency basis, Q3 revenues were impacted by unfavorable foreign exchange of approximately $2.7 million, or approximately 0.3%, sequentially, and favorably impacted by approximately $4.2 million a year-over-year, or approximately 0.4%.

Longer sales cycles for capital equipment purchases for.

For our clear Aligner business, we expect clear aligner teen volume to be seasonally lower in Q4 of 'twenty three and we don't.

We anticipate improvement in adult volumes.

For Q4 'twenty three we also expect clear aligner asps to be down sequentially, primarily due to the strengthening U S. Dollar.

For our systems and services business, we anticipate increasing headwinds for macro uncertainty and potential supply issues related to the war in the middle East.

John Morici: For clearer liners, Q3 revenues of $794.9 million were down 4.5% sequentially, primarily from lower volumes and lower ASPs. On a year of a year basis, Q3 clearer liner revenues were up 8.5% primarily due to higher ASPs, higher volumes and higher non-case revenues. For Q3, in visual line ASPs for comprehensive treatment, were down sequentially[inaudible] and up year-over-year, on a sequential basis, the decrease in ASPs reflect larger discounts, higher sales credits and unfavorable product mixed, partially offset by higher additional liners in favorable foreign exchange.

We expect our Q4 'twenty three GAAP operating margin to be down sequentially from Q3 of 'twenty three due to restructuring primarily related to severance as we adjust headcount for this environment.

We anticipate our non-GAAP operating margin to be up sequentially.

From Q3 of 'twenty three.

During Q4, 'twenty, three we expect to repurchase up to $250 million of our common stock through either or a combination of open market repurchases or an accelerated stock repurchase agreement.

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 383 billion to $3 $85 billion.

John Morici: On a year of a year basis, the increase in non-comprehensive ASPs reflect price increases, higher additional liners and favorable foreign exchange, partially offset by product mixed shift. In Q1, 23, we launched the Invisalign Comprehensive 3-in-3 product. The 3-in-3 configuration offers our doctor customers in visual line comprehensive treatment with three additional liners included within three years of the treatment and date. Instead of unlimited additional liners within five years of the treatment and date, at the 2022 Invisalign Comprehensive Product Price.

We also expect our full year 2023, GAAP operating margin to be roughly one point lower than 2022, and our 2023 non-GAAP operating margin to be slightly above 21% for.

For 2023, we expect investments in capital expenditures to be approximately $200 million.

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

John Morici: Invisalign Comprehensive 3-in-3 product is available in North America and in certain markets in AMAIA and APEC, most recently launching in China, Korea, Hong Kong and Taiwan. We are pleased with the continued adoption of the Invisalign Comprehensive 3-in-3 product and anticipate it will continue to increase providing doctors the flexibility they want and allow us to recognize more revenue upfront with deferred revenue being recognized over a shorter period of time, compared to our traditional Invisalign Comprehensive Product.

<unk> scanners and align digital platform.

Very excited about the recent innovations developed to further revolutionize digital treatment planning for Orthodontists and also restorative dentistry by providing doctors with greater flexibility real time treatment plan modification capabilities and digital solutions to help improve practice productivity and patient experience, which are even more important to our.

John Morici: As we begin to ship more additional liners for comprehensive 3-in-3 products, we expect to see an ASP benefit. As revenues from subscriptions, retainers and other ancillary products continue 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-liner revenue per case shipment, which we believe to be a more indicative measure of our overall growth strategy.

Customers in the current environment. This includes Clint check live update for three D controls Invisalign practice App Invisalign personal plan our IPP.

<unk> Smile architect <unk> connector, Invisalign outcome simulator pro and Invisalign virtual care AI software.

John Morici: Q323 clear-liner revenues were impacted by unfavorable foreign exchange of approximately $2 million or approximately 0.3% sequentially. On a year-over-year basis, clear-liner revenues were favorably impacted by foreign exchange of approximately $3.8 million or approximately 0.5%. Clear aligned deferred revenues on the balance sheet increase $14.1 million or up 1.1% sequentially and up $116 million or up 9.9% year-over-year and will be recognized as additional liners are shipped. Q323 Systems and Service Revenues of $165.3 million were down 2.5% sequentially mostly due to unfavorable ASPs and lower revenues from our certified pre-owned program partially offset by higher scanner volume and higher services revenues.

<unk> practice App is now actively used by about 87000 doctors with over $5 2 million photos uploaded during the quarter via the practice staff.

Yes.

In summary, we're committed to balancing our investments in the near and long term growth drivers.

Delivering improved operating margin as we navigate one of the most challenging operating environments in recent history with increasing macroeconomic pressure on doctors and their patients. We have an enormous opportunity to continue driving adoption of digital orthodontics and restorative dentistry and a responsibility to optimize our investments for the current environment before turning to <unk>.

John Morici: On a year-over-year basis Q323 Systems and Services Revenue were up 4.9% due to higher scanner volume, higher services revenue from our larger base of scanner sold and higher revenues from our certified pre-owned and leasing rental programs partially offset by unfavorable ASPs. Q323 Systems and Services Revenues were impacted by unfavorable foreign exchange of approximately $0.7 million or approximately 0.4% sequentially. On a year-over-year basis, System and Services Revenues were favorably impacted by foreign exchange of approximately $0.4 million or approximately 0.3%.

Call over for questions I'd like to address the war in the Middle East and our <unk> scanner business. The situation continues to evolve and it is very fluid and we're monitoring.

Entering developments closely our singular focus at this stage is on the safety and security of our employees and their families and our doctors and their staff and patients.

Line offices in scanner manufacturing facility in Israel are currently open and operating while we hope the situation will improve we're preparing mitigation plans to ensure business continuity and will update our customers and other stakeholders as needed now I'll turn the call back over to the operator for questions.

John Morici: Systems and Services deferred revenues on the balance sheet was down 4.4 million dollars or 1.6% sequentially primarily due to the decrease in the deferral service revenues included with scanner purchases and essentially flat or up slightly to 0.1 million or 0.1% year-over-year. Services deferred revenues will be recognized radically 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 purchase certified pre-owned scanners in certain markets. 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 scanner sold.

Operator.

Hi, Jason.

Jason you might have your phone on mute.

Operator, you want to go to the next question certainly we will come back.

One moment.

John Morici: 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 scanner sold. Moving on to gross margin. Third quarter overall gross margin was 69.1% down 2.1 points sequentially and down 0.5 points year-over-year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.1 point on a sequential basis and favorably impacted by foreign exchange by approximately 0.1 point on a year-over-year basis.

Okay.

Revenue.

And our next question comes from line of Brandon <unk> from William Blair. Your question. Please.

Hey, everyone. Thanks for taking the question on the first one maybe can we just start a little bit.

John Morici: Moving on to gross margin. Third quarter overall gross margin was 69.1% down 2.1 points sequentially and down 0.5 points year-over-year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.1 point on a sequential basis and favorably impacted by foreign exchange by approximately 0.1 point on a year-over-year basis. Clear aligner gross margin for the third quarter was 70.7% down 1.7 points sequentially primarily from higher manufacturing spend and a higher mix of additional aligner volume and lower ASPs.

It sounds like macro and given the data that you guys were talking about.

John Morici: Clear aligner gross margin for the third quarter was 70.7% down 1.7 points sequentially primarily from higher manufacturing spend and a higher mix of additional aligner volume and lower ASPs. Clear aligner gross margin for the third quarter was roughly flat year-over-year primarily due to increased manufacturing spend as we continue to ramp up operations and our new manufacturing facility in Poland, partially offset by higher ASPs. Systems and services gross margin for the third quarter was 61% down 4.1 points sequentially.

When you look at the fourth quarter and the way we've done our forecast overall, we felt great about teams.

Third quarter than what we reported two but adults were really highly effective and when you run through the fourth quarter, It's primarily an adult season for us.

John Morici: Clear aligner gross margin for the third quarter was roughly flat year-over-year primarily due to increased manufacturing spend as we continue to ramp up operations and our new manufacturing facility in Poland, partially offset by higher ASPs. Systems and services gross margin for the third quarter was 61% down 4.1 points sequentially. Primarily from lower ASPs, partially offset by favorable manufacturing barrens is lower service and freight costs and higher services revenue. Partners. Systems and services gross margin for the third quarter was down 2.3 points year-over-year, primarily from lower ASPs, partially offset by favorable manufacturing variances, lower service and freight costs, favorable foreign exchange and higher service revenues.

China is a big teen season in the third quarter two so.

And when you look at the Gage data.

For September and what we see in October so far and even some of the consumer profiles around how they're feeling about their finances and all.

John Morici: Primarily from lower ASPs, partially offset by favorable manufacturing barrens is lower service and freight costs and higher services revenue. Partners. Systems and services gross margin for the third quarter was down 2.3 points year-over-year, primarily from lower ASPs, partially offset by favorable manufacturing variances, lower service and freight costs, favorable foreign exchange and higher service revenues. Q323 operating expenses were $496.7 million, down sequentially 8.3% and up 4.5% year-over-year. On a sequential basis, operating expenses were down $44.9 million, primarily from lower consumer marketing spend and lower incentive compensation.

Basically just projected but we've seen the September forward to the fourth quarter.

Okay, and then maybe as a follow up on the team side. It sounds like the ortho channel based off of market data. You have is the teams that are declining year over year, but you guys or at least sequentially.

You guys are up both it looks like so are you guys taking share within the teen market, it's a little bit of a funny dynamic because I think earlier this year as the ortho channel got a little weaker or they were going to wires and brackets, but it seems like now you are taking share how durable is that and what are you guys kind of seeing thats driving that in the underlying market. Thanks.

John Morici: Q323 operating expenses were $496.7 million, down sequentially 8.3% and up 4.5% year-over-year. On a sequential basis, operating expenses were down $44.9 million, primarily from lower consumer marketing spend and lower incentive compensation. Year-over-year operating expenses increased by $21.2 million, primarily due to higher incentive compensation in 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-gap basis, excluding stocks, stock-based compensation and amortization of acquired intangibles related to certain acquisitions, operating expenses were $458.2 million, down 9.3% sequentially and up 3.3% year-over-year.

And we were happy to see that change and gauge data that showed wires and brackets going down in competitive liners going down not going up but.

John Morici: Year-over-year operating expenses increased by $21.2 million, primarily due to higher incentive compensation in 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-gap basis, excluding stocks, stock-based compensation and amortization of acquired intangibles related to certain acquisitions, operating expenses were $458.2 million, down 9.3% sequentially and up 3.3% year-over-year. Our third quarter operating income of $166.3 million resulted in an operating margin of 17.3% up 0.1% sequentially and up 1.2% year-over-year.

Can't you can't draw a line through one thought we feel good again about the technology and all that we're presenting the efficiencies and all were often to orthodontists that we think that's a good stimulant in that sense.

But right now we're going to have to take this thing quarter to quarter.

Thank you one moment for our next question.

And Jason Bednar from Piper Sandler Your line is open.

Hi, Jason.

Okay.

Jason we're still not hearing you.

John Morici: Our third quarter operating income of $166.3 million resulted in an operating margin of 17.3% up 0.1% sequentially and up 1.2% year-over-year. Operating margin was unfavorably impacted by approximately 0.3% sequentially, primarily due to foreign exchange. The year-over-year increase in operating margin is primarily attributable to operating leverage, partially offset by investments in our go-to-market teams and technology, as well as unfavorable impact for foreign exchange by approximately 0.1%. On a non-gap basis, which excludes stock-based compensation and amortization of intangibles related to certain acquisitions, operating margin for the third quarter was 21.8% up 0.5% sequentially and up 1.6% year-over-year.

Okay.

Shall I move on.

Yes, but it's certainly one moment for our next question.

John Morici: Operating margin was unfavorably impacted by approximately 0.3% sequentially, primarily due to foreign exchange. The year-over-year increase in operating margin is primarily attributable to operating leverage, partially offset by investments in our go-to-market teams and technology, as well as unfavorable impact for foreign exchange by approximately 0.1%. On a non-gap basis, which excludes stock-based compensation and amortization of intangibles related to certain acquisitions, operating margin for the third quarter was 21.8% up 0.5% sequentially and up 1.6% year-over-year.

Okay.

And our next question comes from the line of Jeff Johnson from Baird. Your question. Please.

Hi, Jeff.

Okay.

Hey, Jeff Mr. Jonathan Your line is open.

Okay.

One moment Sir.

Certainly as we go to our next question.

Our next question comes from the line of Jon Block from Stifel. Your question. Please.

John Morici: Interest in other income expense, net for the third quarter was a loss of $4.2 million compared to a loss of $0.3 million in the second quarter and a loss of $21 million in the third quarter a year ago, primarily due to foreign exchange. The gap effective tax rate for the third quarter was 25.1% lower than the second quarter effective tax rate of 34.8% and lower than the third quarter effective tax rate of 40.7% of the prior year.

Hey, guys can you hear me okay.

Hey, John.

Alright.

So far so good.

Maybe a couple of questions Joel I'll start right now you're just seem highly tethered to the consumer.

But in 'twenty four you have got some incrementals right you just launched IP in Canada, you've got remote monitoring we think maybe you have a new scanner.

John Morici: The third quarter gap effective tax rate was lower than the second quarter effective tax rate primarily due to the application of newly issued tax guidance and lower US taxes on foreign earnings in Q3. As a reminder, in Q4-22, we changed our methodology for the computation of our non-gap effective tax rate to a long-term projected tax rate and have given effect to the new methodology from January 1st, 2022 and recast previously reported quarterly pre-age in 2022.

Even the revised guidance youll grow year over year, and <unk> 23, but if I annualize your <unk> number and just sort of run rate that you arguably land down year over year with a call. It a more dynamic set of innovation, so not asking for a number but clearly.

Things are moving around and how do we think about what that means again manufacture your own growth in 'twenty, four and any commitment to have positive revenue growth and 24.

John Morici: Our non-gap effective tax rate in the third quarter was 20% reflecting the change in our methodology. Third quarter net income per deluded share was $1.58 up sequentially $0.12 and up $0.65 compared to the prior year. Our EPS was unfavorably impacted by $0.8 on a sequential basis and unfavorably impacted by $0.5 on a year of your basis due to foreign exchange. On a non-gap basis, net income per deluded share was $2.14 for the third quarter.

Hey, John it's a good question.

On of the things we talk about obviously here is with what we presented at the Investor's conference in the new technology that we're offering those are areas that we can really expand what we call our penetration in the marketplace and control a certain amount of our destiny I think you know as well as anybody.

We can we can't fight a market.

From a downturn standpoint in the sense of that that won't affect us in some way.

John Morici: Down 8 cents sequentially in a 51 cents year of a year. Note that the prior year 2022 non-gap net income in prior year 2022 non-gap EPS reflects the Q422 change in our methodology for the computation of our non-gap effective tax rate.

As we get into 2024, I, just can't preclude what that consumer sentiment is going to look like at that point in time, but it certainly gives us.

The efficiency gains that we show through the software that I just talked about in my script too with different orthodontists that seem to be taking hold and you pick up on your in your surveys also John So we do feel good about that it's just the uncertainty of this marketplace. There, obviously surprised us coming out of the third quarter.

John Morici: Moving on to the balance sheet. As of September 30th, 2023, cash, cash equivalent, and short and long term marketable securities were $1.301.9 million. Up sequentially $268.1 million and up $160.9 million year of a year. Of our $1.3 billion dollar balance, $381 million, was held in the U.S, and $920.6 million was held by our international entities. Q3 accounts receivable balance was $904.2 million. Down sequentially, our overall day sales outstanding was 84 days, up approximately three days sequentially, and down approximately two days as compared to Q3 last year.

Going to have to get through this quarter and as we go into 2024, we can be more specific about what we think those without opportunities.

Okay. That's very helpful. And then maybe just build.

Build on Brandon's question earlier, but when you guys guide you've got almost half the quarter in the bag, So clearly things changed.

Notably in the last seven weeks of the third quarter I know you guys called out gauge of September data, Joe you referenced the October what was the <unk> deviation I mean, it seems like it was largely North America and EMEA.

Did APAC performed as expected if you could answer that and then I guess, where I'm struggling is I think we all know it's not a robust consumer out there.

John Morici: Cash flow from our operations for the third quarter was $287.2 million. Capital expenditures for the third quarter were $21.6 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 $265.6 million.

Yes, John.

John Morici: Now turning to our fourth quarter outlook. For Q423, assuming no circumstances occur that are beyond our control, we anticipate our worldwide revenue to be in the range of $920 to $940 million, down sequentially from Q3 of 23. We expect both clear aligner and systems and services revenues to be down sequentially reflecting a more challenging macro environment for doctors and patients with fewer orthodontic case starts overall. Unfavorable foreign exchange given the strengthening of the U.S, dollar against key currencies and longer sales cycles for capital equipment purchases.

Third quarters I'd call, our most non linear quarter, it's most difficult to predict and it is because it has three major components to it one is obviously the seasonality of our European business because of the vacation base or whatever and the way that comes back is not always consistent Jon and in this case it did not come back in the way that we had hoped it would.

Secondly, as you are counting on a big China team market.

We added we did well in China, I feel from a growth standpoint, but it wasn't to a point that could offset a slower rebound.

Overall from a European standpoint, and the last thing is in the United States that that lack of adult cases, I mean, we did well on teen that lack of adult cases, we went into September was really solid and so it's those three key variables that I think is how we came out of this differently than what we anticipated as we went in.

John Morici: For our clear aligner business, we expect clear aligner team volume to be seasonally lower in Q423 and we don't anticipate improvement in adult volumes. For Q423, we also expect clear aligner ASBs to be down sequentially primarily due to the strengthening U.S, dollar. For our systems and services business, we anticipate increasing headwinds from macro uncertainty and potential supply issues related to the war in the Middle East. We expect our queue for 23 gap operating margin to be down sequentially from Q3 of 23 due to restructuring primarily related to severance as we adjust headcount for this environment. We anticipate our non-gap operating margin to be up sequentially from Q3 of 23.

Thanks, guys. Thanks, John Yes.

Thank you one moment for our next question.

Yeah.

And our next question comes from the line of Elizabeth Anderson from Evercore ISI. Your question. Please.

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

My question is so if we think about like obviously, we're talking about consumer weakness answer the cyclical.

Net of the business.

John Morici: We anticipate our non-gap operating margin to be up sequentially from Q3 of 23. During Q1, 23 we announced that our board of directors authorized a new $1 billion stock we purchased program to succeed. Indeed the 2021 $1 billion program, currently $1 billion remained available for repurchase under the 2023 stock repurchase program. During Q4, 23 we expect to repurchase up to $250 million of our common stock through either or a combination of open market repurchases or an accelerated stock repurchase agreement.

John Morici: During Q1, 23 we announced that our board of directors authorized a new $1 billion stock we purchased program to succeed. Indeed the 2021 $1 billion program, currently $1 billion remained available for repurchase under the 2023 stock repurchase program. During Q4, 23 we expect to repurchase up to $250 million of our common stock through either or a combination of open market repurchases or an accelerated stock repurchase agreement. 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 $3.83 billion to $3.85 billion.

We see a very like largely underpenetrated market over a longer period.

Yes, Elizabeth this is John So as you go through our planning process like we do every year. We're prioritizing investments that we can continue to invest to be able to help help grow the business.

So we look at at some R&D and some of the investments you make we have a lot of new products coming to market as we've talked about at Investor day, we want to preserve that flow of product, we want to make sure we're properly reaching our customers. So we prioritize some of the sales and go to market activities that we have around that but we're looking at all parts of the business.

John Morici: 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 $3.83 billion to $3.85 billion. We also expect our full year 2023 gap operating margin to be roughly one point lower than 2022 and our 2023 non-gap operating margin to be slightly above 21%. For 2023 we expect investments in capital expenditures to be approximately $200 million. Capital expenditures are expected to primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued international expansion.

As to say, okay, what can we adjust what we make adjustments due to still deliver on our priorities that we have as a business. It's to help try to grow with the means that we have seen but that also deliver the profitability and being able to see this margin accretion we have seen that all year as we've gone through and.

John Morici: We also expect our full year 2023 gap operating margin to be roughly one point lower than 2022 and our 2023 non-gap operating margin to be slightly above 21%. For 2023 we expect investments in capital expenditures to be approximately $200 million. Capital expenditures are expected to primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued international expansion.

Essentially what we're calling for in the fourth quarter as is.

The continuation of that margin accretion and that's just through a combination of just looking at those investments and making sure that we properly invest for the future.

Joseph Hogan: With that, I'll turn it back over to Joe for final comments. Thanks, John. While a third quarter results in fourth quarter outlook reflect weaker consumer sentiment and increased headwinds including foreign exchange aligners in the unique position to continue driving the digital revolution in the dental industry to help doctors transform and grow their practices within this line clear aligners. We're very excited about the recent innovations developed to further revolutionize digital treatment planning for orthodontics and also restorative dentistry by providing doctors with greater flexibility, real time treatment plan modification capabilities and digital solutions to help improve practice productivity and patient experience, which are even more important to our customers in the current environment.

Got it and maybe just.

A follow up obviously.

Hopefully the safety of all our peer.

Players in Israel can you talk about.

Sort of the capacity of that organization have sort of things stay as they are is that something where you're sort of drawing down inventory elsewhere not able to produce if any more details you could provide on that obviously unfortunate situations.

And this is back to Joe.

We're producing over there right now I don't give you this it's a reasonable amount of capacity.

I've had other businesses in Israel at times like this to not about this bad but in those situations.

I feel like where it is now we can manage it.

As we talked about in the script, if things get worse for war over there we can't guarantee what we have.

Joseph Hogan: This includes clinchek live update for 3D controls and visline practice app and visline personal plan or IPP and then visline smell architect, ITERRO exocad connector and visline outcome simulator pro and then visline virtual care AI software. These digital tools are continuing to gain adoption and help doctors gain efficiencies and Q3 clinchek live update was used by 41,000 doctors on more than 560,000 cases, reducing time spent and modifying treatment by 21%. In visline practice app is now actively used by about 87,000 doctors with over 5.2 million photos uploaded during the quarter via the practice app.

But we have a terrific team there a very dedicated team they're working both sides of the ankle right now.

We're bringing in materials, we're converting those materials, we're shipping those out so the business is operating fine right now.

We have to just wait.

The upcoming weeks and see what develops on their homeland got.

Got it thank you very much.

Yes.

Thank you one moment for our next question.

And our.

Our next question comes from the line of Erin Wright from Morgan Stanley. Your question. Please.

Great. Thanks, I'm curious if you could breakdown a little bit the key components of the teen case volume trend you saw in the quarter by geography, specifically in Americas region, and what's driving that any I think you mentioned like Invisalign first and how we should be thinking about visibility across that patient cohort just given you have some more inherent.

Joseph Hogan: In addition, we will launch in visline palette expander or IP system in Canada this quarter IP is our first direct printed orthodontic device that provides a safe comfortable and clinically effective alternative to metal palette expanders and boost our market opportunity in the teen market by addressing a portion of cases we couldn't otherwise treat without IPP. In summary, we're committed to balancing our investments in the near and long-term growth drivers while delivering improved operating margins as we navigate one of the most challenging operating environments in recent history with increasing macro economic pressure on doctors and their patients. We have an enormous opportunity to continue driving adoption of digital orthodontics and restorative dentistry and responsibility to optimize our investments for the current environment.

Control over maybe that segment in this sort of environment and then the second part of my question is just more of a clarification I guess in terms of the fourth quarter guidance does it specifically assumes that there is further deterioration in the macro or just a continuation of what you saw in the September experience and I just want to understand the buffers I guess you have in that expectation at this point.

Thanks.

As far as the teenage patients again, you were really pleased with the growth that we saw in teens and it's a very important teen season, I think the teams perform extremely well.

Saw strength across every geography, we saw in Europe. We saw we saw in North America. We also saw it in China I think our portfolio helps us a lot of Invisalign first we led with that remember those are patients that are anywhere between six and 10 years old we really have terrific results in those areas, but also with permanent dentition. We saw some good growth too so overall I feel.

Joseph Hogan: Before turning the call over for questions, I'd like to address the war in the Middle East and our ITERRO scanner business. The situation continues to evolve and is very fluid. We are monitoring developments closely. Our singular focus at this stage is on the safety and security of our employees and their families and our doctors and their staff and patients. Align offices and scanner manufacturing facility in Israel are currently open and operating, while we hope the situation will improve. We're preparing mitigation plans to ensure a business continuity and we'll update our customer and other stakeholders as needed.

It's a strong indication in the sense that we're hitting the dot in the sense of where we want to with those specific consumers and through the advertising programs that I talked about and also.

Through our digital platform and then the specific products like Invisalign first and then IP that rolls into Canada, and then more broadly as we move into 2020 for John and just on.

Unknown Executive: Now, I'll turn the call back over to the operator for questions. Operator? Certainly. Ladies and gentlemen, as a reminder, if you do have a question at this time, please press star 11 on your telephone to remove yourself from the queue, simply press star 11 again.

The fourth quarter, Erin really taking what we see in September continued into October.

And we assume that things don't get don't get better than what we saw in September. So it's a tough macro environment Theres less orthodontic case starts lower patient traffic and so we factor in all of those based on what we saw in and Thats, what our projection is for Q4.

Unknown Executive: And our first question comes along, Jason Bettiner from Piper Sandler. Your question, please. Hi, Jason. Jason, you might have your phone on mute. Operator, you want to go to the next question?

Jason Bednar: And our first question comes along, Jason Bettiner from Piper Sandler. Your question, please. Hi, Jason. Jason, you might have your phone on mute.

Unknown Executive: Certainly. And we'll come back. Certainly. One moment.

Unknown Executive: Operator, you want to go to the next question? Certainly.

Unknown Executive: And we'll come back. Certainly. One moment.

Okay. Thank you.

Youre welcome.

One moment for our next question.

And our next question comes from the line of Jeff Johnson from Baird. Your question. Please.

Joseph Hogan: And our next question comes in line to Brandon Vasquez from William Blair. Your question, please. Hey, everyone. Thanks for taking the question. On the first one, maybe can we just start a little bit on, it sounds like macro and given the data that you guys were talking about is probably getting a little worse into the end of the year. Maybe just talk about how that kind of trended through the quarter, how we're trending now.

Brandon Vazquez: And our next question comes in line to Brandon Vasquez from William Blair. Your question, please. Hey, everyone. Thanks for taking the question. On the first one, maybe can we just start a little bit on, it sounds like macro and given the data that you guys were talking about is probably getting a little worse into the end of the year. Maybe just talk about how that kind of trended through the quarter, how we're trending now.

Hey, Jeff.

Jeff I don't know if youre on a speaker phone, but if you could lift the handset.

If that were the case.

Still not hearing anything from Mr. Johnson.

One moment for our next question.

Sorry, Jeff if you can hear us we just can't.

Joseph Hogan: I think what a lot of us are trying to get our head around is what's the direction of macro in the dental space going into the end of the year and into 2024, especially as you look at kind of the consumer. And then Catholics on scanner. So how are you guys seeing that from your end right now? You know, when you look at the fourth quarter and the way we've done our forecast overall, you know, we felt great about teens and, you know, in the third quarter of what we reported to, but adults were really highly affected.

Brandon Vazquez: I think what a lot of us are trying to get our head around is what's the direction of macro in the dental space going into the end of the year and into 2024, especially as you look at kind of the consumer. And then Catholics on scanner. So how are you guys seeing that from your end right now? You know, when you look at the fourth quarter and the way we've done our forecast overall, you know, we felt great about teens and, you know, in the third quarter of what we reported to, but adults were really highly affected.

Can't pick it up.

And our next question comes from Jason Bednar from Piper Sandler Your question. Please.

It's.

It's still not hearing Jason.

That's strange we certainly will follow up with both Jeff and Jason Operator, do you mind just going to the next question. Please certainly one moment for our next question.

Joseph Hogan: And when you run to the fourth quarter, it's primarily an adult season for us. And, you know, China is a big teen season in the third quarter too. So our, you know, our, and when you look at the gauge data for September and what we see in October so far, you know, and even some of the consumer, you know, profiles around, you know, how they're feeling about their finances and all. We basically just projected what we've seen in September forward to the fourth quarter.

Brandon Vazquez: And when you run to the fourth quarter, it's primarily an adult season for us. And, you know, China is a big teen season in the third quarter too. So our, you know, our, and when you look at the gauge data for September and what we see in October so far, you know, and even some of the consumer, you know, profiles around, you know, how they're feeling about their finances and all. We basically just projected what we've seen in September forward to the fourth quarter.

Our next question comes from the line of Nathan Rich from Goldman Sachs. Your question. Please.

Great. Thank you can you hear me Okay, Yes, yes, we hear you fine okay.

Joe You mentioned the focus on delivering improved operating margins and you guided to non-GAAP margins being up sequentially in the fourth quarter.

The reduction in the revenue guidance I guess as we think about the business going forward should we think about that <unk> margin is a good base level for the business.

Joseph Hogan: Okay, and then maybe as a follow-up on the teen side, it sounds like the ortho channel based off the market data you have is that teens are declining year over year, but you guys, or at least sequentially, you guys are up both, it looks like. So are you guys taking share within the teen market? It's a little bit of a funny dynamic, because I think earlier this year as the ortho channel got a little weaker.

Brandon Vazquez: Okay, and then maybe as a follow-up on the teen side, it sounds like the ortho channel based off the market data you have is that teens are declining year over year, but you guys, or at least sequentially, you guys are up both, it looks like. So are you guys taking share within the teen market? It's a little bit of a funny dynamic, because I think earlier this year as the ortho channel got a little weaker. They were going to wires and brackets, but it seems like now you're taking share how durable is that? And what are you guys kind of seeing it's driving that in the underlying market?

Even in an uncertain demand environment and are there additional actions you can take on the cost side to give yourselves some additional cushion for margins going forward.

You've been watching us long enough to know that.

Joseph Hogan: They were going to wires and brackets, but it seems like now you're taking share how durable is that? And what are you guys kind of seeing it's driving that in the underlying market? Thanks. We were happy to see that change, and the gauge data that showed, you know, wires and brackets going down and competitive aligners going down and us going up. But, you know, you can't, you can't draw a line through one dot.

Each of our quarters have a certain personality in the sense of the kind of operating profit we deliver.

You can see in the fourth quarter, though we feel good about where we stand right now and the levers that we can pull in order to deliver the operating margin that John talked about so.

Joseph Hogan: Thanks. We were happy to see that change, and the gauge data that showed, you know, wires and brackets going down and competitive aligners going down and us going up. But, you know, you can't, you can't draw a line through one dot. We feel good again about the technology and all that we're presenting the efficiencies and all we're often to work with Donna, so we think that's a good stimulant in that sense. But right now we're going to have to take this thing quarter to quarter.

I think more than anything I want the investors to understand that.

Joseph Hogan: We feel good again about the technology and all that we're presenting the efficiencies and all we're often to work with Donna, so we think that's a good stimulant in that sense. But right now we're going to have to take this thing quarter to quarter.

While we have this uncertain environment from a demand standpoint, we're going to be responsible in cost we will invest in technology and will focus in those areas, but we're always looking closely and a sense of where we can rationalize.

So where we can prioritize in different areas that will help and net operating profit area. John anything you want to add on I mean thats. It. So we'll see the benefit that we've seen all year to be able to see that operating margin improvement and but as Joe said, we're we're prioritizing our investments we look at this time as we as we fine.

Unknown Executive: Thank you, one moment for our next question. Jason Bednar from Piper Sandler, your line is open. Hi Jason. Jason, we're still not hearing you. Shall I move on?

Jason Bednar: Thank you, one moment for our next question. Jason Bednar from Piper Sandler, your line is open. Hi Jason. Jason, we're still not hearing you.

Unknown Executive: Yes, please. Certainly one moment for our next question.

<unk> are planned for next year.

But we have got a lot of technology come anyway to make sure that we're properly invested there as well as being able to deliver like like we can an op margin basis.

Unknown Executive: Shall I move on? Yes, please.

Jeffrey Johnson: Certainly one moment for our next question. And our next question comes from the line of Jeff Johnson from Beard. Your question, please. Hi Jeff. Mr. Johnson, your line is open.

Okay, great and if I could just ask a follow up on the <unk> guidance for clear aligner volumes.

Jeffrey Johnson: And our next question comes from the line of Jeff Johnson from Beard. Your question, please. Hi Jeff. Mr. Johnson, your line is open.

You had said that you don't expect improvement in adult and.

He had.

I had talked about.

I guess modeling what you saw in September through the fourth quarter I guess.

Should we think about adult cases relative to the 381000 I guess when we take that together given how it sounded like September shaped up should we expect a decline off of that 381 level in the fourth quarter for the adult cases, specifically.

Unknown Executive: One moment was certainly as we go to our next question. Our next question comes from the line of John Block from Steffel, your question, please.

Unknown Executive: One moment was certainly as we go to our next question.

Yes, I think when you look at things data like we said.

Jonathan Block: Our next question comes from the line of John Block from Steffel, your question, please. Hey guys, can you hear me okay? All right, so far so good. Maybe a couple of questions. You know, Joel, start right now. You just seem highly tethered to the consumer. But in 24, you know, you've got some incremental, right? You just launched IP and Canada. You've got remote monitoring. We think maybe you have a new scanner.

<unk> showed up well in the third quarter, we're pleased with that seasonally comes down in the fourth quarter.

John Block: Hey guys, can you hear me okay? All right, so far so good. Maybe a couple of questions. You know, Joel, start right now. You just seem highly tethered to the consumer. But in 24, you know, you've got some incremental, right? You just launched IP and Canada. You've got remote monitoring. We think maybe you have a new scanner. So just like your thoughts on the ability for the company to manufacture more of your own growth in 2024.

And based on what we saw in September and so far in October I think you would expect to see adults down as well.

Great. Thank you for the color.

Thank you one moment for our next question.

Okay.

And our next question comes from the line of Brendan <unk> from Jefferies. Your question. Please.

Jonathan Block: So just like your thoughts on the ability for the company to manufacture more of your own growth in 2024. Any commitment to grow revenues year over year in 24. And where I'm going with that is, you know, even the revised guidance, you'll grow year over year in two age 23. But if I annualize your 4Q number and just say I want to run rate that, you arguably land down year over year with a, you know, call it a more dynamic set of innovation.

Hey, Thanks, good afternoon.

John Block: Any commitment to grow revenues year over year in 24. And where I'm going with that is, you know, even the revised guidance, you'll grow year over year in two age 23. But if I annualize your 4Q number and just say I want to run rate that, you arguably land down year over year with a, you know, call it a more dynamic set of innovation. So now I'm asking for a number of, but clearly things are moving around.

Just a clarification, Joe or John on the.

Adult trends.

The weakness is that predominantly in the U S or is it also extend outside the U S as well.

Chance, you're willing to take a stab at some of the factors behind that and whether or not student loan repayments.

Maybe contributing to some of the psyche.

<unk> basis.

Jonathan Block: So now I'm asking for a number of, but clearly things are moving around. And how do we think about what that means? Again, the manufacturer your own growth in 24 and any commitment to have positive revenue growth in 24. Hey, John, it's good question. You know, I, that's one of the things we talk about. Obviously here is with what we presented at the investors conference and the new technologies are offering. Those are areas that we can really expand what we call our penetration in the marketplace and control a certain amount of our destiny.

Remember.

Third quarter is a big <unk> quarter, but adults are obviously, a large component of that we saw that adult phenomenon in North America, but we saw it across each geography.

John Block: And how do we think about what that means? Again, the manufacturer your own growth in 24 and any commitment to have positive revenue growth in 24. Hey, John, it's good question. You know, I, that's one of the things we talk about. Obviously here is with what we presented at the investors conference and the new technologies are offering. Those are areas that we can really expand what we call our penetration in the marketplace and control a certain amount of our destiny.

Okay, and then just a follow up John on the fourth quarter margins operating margins up with raws down sequentially is that all coming from Opex.

Or would you expect gross margins to bounce up sequentially as well.

John Block: I think you know, as well as anybody. You know, we can't, we can't fight a market that's from a down to the end point in a sense of that won't affect us in some way. I would throw DSP into that whole question also because you see the continued growth in DSP and I'd say a business model change. And so those kinds of things I feel like we can drive more demand in the marketplace, you know, in, in, you know, as we get into 2024.

Jonathan Block: I think you know, as well as anybody. You know, we can't, we can't fight a market that's from a down to the end point in a sense of that won't affect us in some way. I would throw DSP into that whole question also because you see the continued growth in DSP and I'd say a business model change. And so those kinds of things I feel like we can drive more demand in the marketplace, you know, in, in, you know, as we get into 2024.

Yes, when we talked about down sequentially on op margin that was done that on a GAAP basis, we have some of the restructuring and other things that include we expect sequential improvement.

On a non-GAAP basis from Q3 to Q Q4.

And we didn't give specific gross margin guidance, but we're working to try to make sure that we.

We work on our gross margin as well, but right now we've kind of given the guidance down to op margin.

I just can't preclude what that consumer sentiment's going to look like at that point in time, but it certainly gives us. And also the efficiency gains that we show, you know, through the software that I, I just talked about in my, my script too with different words of honest that. It seemed to be taken hold and you pick up in your, in your surveys also, John, so I, we do feel good about that.

Jonathan Block: I just can't preclude what that consumer sentiment's going to look like at that point in time, but it certainly gives us. And also the efficiency gains that we show, you know, through the software that I, I just talked about in my, my script too with different words of honest that. It seemed to be taken hold and you pick up in your, in your surveys also, John, so I, we do feel good about that.

Okay. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Mike Raskin from Bank of America. Your question. Please.

Jonathan Block: It's just the uncertainty of this marketplace and obviously surprised us coming out of the third quarter. We're going to have to get through this quarter. And as we go into 2024, we can be more specific about what we think those, you went out of office.

Great. Thanks for taking the question guys.

I've got a couple of real quick here first hopefully you can hear me.

Yes, we can hear you Mike great.

First of all I'll ask on the.

Joseph Hogan: Thank you for your opportunity. Okay, that was very helpful. And then maybe just, this might build on Brandon's question earlier, but when you guys guys, you've got almost half the quarter in the bag. So clearly things changed notably in the last seven weeks of the third quarter. I know you guys called out gauges September data, you know, J.U, reference, the October. What was the three two deviation? I mean, seems like it was largely North American and Amia, did APAC perform as expected.

Sort of the right sizing or some of the layoffs you discussed I just wanted to I'm thinking back to 2020 sort of pre COVID-19 when when everyone's panicking in some of your competitors or other players in the dental space announced some layoffs and you held fast and.

Powered through and I think the argument was that you saw and as being transient and you wanted to invest in growth that sort of be ready for the rebound.

Just contrasting that with the decision to implement some cuts here.

Joseph Hogan: You know, if you could answer that and then I guess where I'm struggling is I think we all know it's not a robust consumer out there, you know, and that narrative around soft landing or not if that holds true, but it doesn't seem like things changed all that dramatically in the last seven weeks. And so anything you can give Joe to elaborate because clearly the exerate in the quarter was very different than the way things started out.

Why not continue to invest given the balance sheet strong free cash was a strong just sort of.

Compare and contrast, and weigh on your thinking on that.

First of all when you go back to 2020 that you referenced we did power through that.

Joseph Hogan: Thank you. Yeah, John. You know, third quarters, I call our most nonlinear quarter. It's the most difficult to predict. And it's because it has, you know, three major components to it. One is obviously the seasonality of our European business because of the vacation base or whatever. And the way that comes back is not always consistent. And in this case, it did not come back in the way that we had hoped it would.

Personally what I looked at that as I looked at that as well.

Not an economic issue that was obviously, a pandemic kind of an issue and I think it had anticipated.

We anticipated to have a clear beginning into clear at.

And so in that sense.

Joseph Hogan: You know, secondly is your count on a big China team market. And we added, you know, we did well in China. I feel from a gross standpoint, but it wasn't to a point they could offset a slower rebound overall from a European standpoint. And the last thing is in the United States, that lack of adult cases. I mean, we did well on team. That lack of adult cases that we went into September was really felt. And so it's those three key variables that I think is how we came out of this differently than what we anticipated as we went in.

I have to go through all the economic data you probably know this better than me. So theres a lot of uncertainty there, but I don't want to be misinterpreted that we're gonna disadvantages company and a rebound.

No way.

We're going to make sure that we're responsible in a sense of the resources and the restructuring that John talked about to make sure that we're well positioned in the key areas to that if we have a rebound will be able to respond with the right kind of capacity in the right kind of products. So.

I feel like we're balancing that well right now.

Unknown Executive: Thanks, guys. Thanks.

Okay, Alright, I appreciate that and then the second point.

Unknown Executive: Thank you.

Elizabeth Anderson: One moment for our next question. And our next question comes from the line of Elizabeth Anderson from Evercore ISI. Your question, please. Hi, guys. Thanks so much for the question. My question is, so if we think about, like obviously we're talking about consumer weakness and sort of the cyclicalness of the business. If we think about like sort of the head count reduction and the SG&A spend, can you help us like parse out like a little bit more about the cuts and how to think about how to sort of preserve margin is sort of we're seeing weaker demand and then like how you need to invest again on the up cycle in order to like continue to push penetration and what's obviously a very like largely under penetrated market over a longer period.

Piggybacking on those blocks question earlier I'm not going to ask you for the specifics on 24, but.

Just thinking about this year the price.

Price you took earlier this year certainly contributed to the revenue growth.

As we think forward to next year and your ability to take price again or potentially have to give price given how much the macro change in how the demand dynamics has changed how do you feel about pricing and products any opportunity to take that up again next year or on the flip side are you potentially getting some pressure there we even have to give a little bit.

Hey, Mike I appreciate the question, but as far as price goes we would make an announcement until our doctors really know in that sense and we're still working through 2024.

Okay alright. Thanks.

Thank you.

This does conclude the question and answer session of today's program I'd like to hand, the program back to Shirley Stacy for any further remarks.

Elizabeth Anderson: Elizabeth, this is John. So as we go through our planning process, like we do every year, we're prioritizing investments that we can continue to invest to be able to help grow the business. So we look at some R&D and some of the investments we make. We have a lot of new products coming to market as we talked about at an investor day, want to preserve that flow of product. We want to make sure we're properly reaching our customers.

Elizabeth Anderson: So we prioritize some of the sales and go to market activities that we have around that. What we're looking at all parts of the business to say, okay, what can we adjust, what can we make adjustments to to still deliver on our priorities that we have as a business to help try to grow with the means that we've seen. But then also deliver the profitability and being able to see this margin accretion.

Thank you operator.

And thank you for joining the call today, we look forward to speaking to you at upcoming financial conferences and industry meetings. If you have any questions. Please follow up with Investor Relations team and Jeff and Jason We certainly will get back to you after the call and speak on a one on one thanks, everyone have a great day.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Elizabeth Anderson: We've seen that all all year as we've gone through and essentially what we're calling for in the fourth quarter is the continuation of that margin accretion. And that's just through a combination of just looking at those investments and making sure that we we properly invest for the future. Sure. Got it.

Joseph Hogan: And maybe as a follow up, obviously, I, you know, have hope for the safety of all of your employees in Israel. Can you talk about sort of the capacity of that organization is sort of things stay as they are? Is that something where you're sort of drawing down inventory elsewhere? I'm not able to produce if any more details you could provide on that, obviously, unfortunate situation. This is back to Joe. We're producing over there right now.

Joseph Hogan: I don't give you this. It's a reasonable amount of capacity. I've had other businesses in Israel at times like this to not not just bad, but in those situations, you know, we, I feel like where it is now we can manage it. You know, as we talked about in the script, it's the things get worse the war over there. We can't guarantee what we have. But we have a terrific team there is a very dedicated team.

Joseph Hogan: They're working both sides of the angle right now. We're bringing in materials. We're converting those materials. We're shipping those out. So the business is operating fine right now. But we have to just wait with the upcoming weeks and see what develops on their own land.

Unknown Executive: Got it. Thank you very much. Yeah.

Aaron Wright: Thank you. One moment for our next question.

Aaron Wright: And our next question comes from the line of Aaron Wright from Morgan Stanley. Your question, please. Great. Thanks. I'm curious if you could break down a little bit the key components of the team case volume trend. You saw in the quarter. By geography, specifically in America's region and in what's driving that and I think you mentioned like in Visaline first and how we should be thinking about visibility across that patient cohort, just given you have some more inherent control over maybe that segment in this sort of environment.

Aaron Wright: And then second part of my question is just more of a clarification. I guess in terms of the fourth quarter guidance specifically assumed that there's a further deterioration in the macro or just a continuation of what you saw in the September experience. And I just want to understand the buffers. I guess you have in that expectation at this point. Thanks. As far as the the teenage patients, again, you were really pleased with the growth that we saw in teams and it's a very important team season.

Aaron Wright: I think the teams perform extremely well. We saw strength across every geography. We saw in Europe, we saw we saw in North America. We also saw in China. I think our portfolio helps us a lot in Visaline first. We've led with that. Remember those are patients are anywhere between six and 10 years old. We really have terrific results in those areas. But also with permanent attention, we saw some good growth too.

Aaron Wright: So, you know, overall, I feel like it's it's strong indication in the sense that we're we're hitting the dots in the sense of where we want to with those specific consumers. And through the advertising programs that I talked about and also, you know, through our digital platform and then the specific products like in Visaline first and then IPE that rolls into Canada and then more broadly as we move into 2024. And just on on the fourth quarter, Aaron, you're really taking what we see in September.

Aaron Wright: We continue into October. And we assume that things don't get don't get better than what we saw in September. So it's a tough macro environment. There's less orthodontic case starts lower patient traffic. And so we factor in all those based on what we saw. And that's what our projection is for Q4.

Unknown Executive: Hey, thank you. Welcome. Thank you. One moment for our next question.

Jeffrey Johnson: And our next question comes from the line of Jeff Johnson from Beard. Your question, please. Hey, Jeff. Jeff, I don't hear on a speaker phone, but if you could lift the handset, if that were the case. Still not hearing anything from Mr. Johnson.

Unknown Executive: One moment for our next question. Sorry, Jeff, if you could hear us, we just can't pick it up.

Jason Bednar: And our next question comes from Jason Bednar from Piper Sandler. Your question, please. Still not hearing, Jason. That's strange. We certainly will follow up with both Jeff and Jason.

Unknown Executive: Operator, do you mind just going to the next question, please? Certainly.

Nathan Rich: One moment for our next question. Our next question comes from the line of Nathan Rich from Goldman Sachs. Your question, please. Great. Thank you can hear me. Okay. Yes. Yeah, Nate, we hear it. Okay. Great. Joe, you mentioned the focus on delivering improved operating margins. And you guided to non-gab margins being up sequentially in the fourth quarter, despite the reduction in the revenue guidance. I guess as we think about the business going forward, should we think about that 4Q margin is a good base level for the business, even in an uncertain demand environment.

Nathan Rich: And are there additional actions you can take on the cost side to give yourself some additional question for margins going forward? You know, you've been watching us long enough to know that each of our quarters have a certain personality in the sense of the kind of operating profit we deliver. Getting the fourth quarter, we feel good about where we stand right now and the levers that we can pull in order to deliver the operating margin that John talked about.

Nathan Rich: So I just, I think, you know, more than anything, I want the investors to understand that while we have this uncertain environment from a demand standpoint, we're going to be responsible on cost, we'll invest in technology and we'll focus in those areas. But we're always looking closely in the sense of, you know, where we can rationalize also where we can prioritize in different areas that will help in that operating profit area.

Nathan Rich: John, anything you want to add on that? No, I mean, that's it. So, you know, we'll see the benefit that we've seen all year to be able to see that operating margin improvement. And, but as you said, we're prioritizing our investments. We look at this time as we finalize our plan for next year. But we have got a lot of technology coming in order to make sure that we're properly invested there as well as being able to deliver like we can on a margin basis.

Nathan Rich: Okay. Great. And if I could just ask of a follow up on the, the 4Q guidance for clear line of volumes, I think you had said that you don't expect improvement in adult and had talked about, I guess, you know, modeling what you saw in September through the fourth quarter. I guess, you know, how should we think about adult cases relative to the 381,000? I guess when we take that together, you know, given how it sounds like September shaped up, should we expect, you know, a decline off of that 381 level in the fourth quarter for the adult cases specifically?

Nathan Rich: I think when you look at things like we said, team showed up well, and in the third quarter we're pleased with that, seasonally comes down in the fourth quarter and based on what we saw in September and so far in October, I think you would expect to see adults down as well. Great, thank you for the color.

Nathan Rich: Thank you one moment for our next question. And our next question, come to the line of Brandon Cuyah from Jeffries, your question please. Hey thanks, good afternoon. Just a clarification, Joe or John, on the adult trends in the week, is that predominantly in the US or is it about to extend outside the US as well? If you have any chance you willing to take a stab at some of the factors behind that and whether or not student loan repayments may be contributing to some of the psyche and some of that customer base.

Nathan Rich: Remember, third quarter is a big team quarter, but adults are obviously a large component of that. We saw that adult phenomenon in the work of America, but we saw across each geography. Okay, and then just a follow up, John, on the fourth quarter margins, operating margins up with routes down sequentially, is that all coming from off X? Or would you expect Rose Markins to bounce up sequentially as well? Yeah, when we talked about down sequentially on up margin, I was on a gap basis.

Nathan Rich: We have some of the restructuring and other things that include we expect sequential improvement on a non gap basis from Q3 to Q4. We didn't give specific growth margin guidance, but we're working to try to make sure that we work on our growth margin as well, but right now we've kind of given the guidance down to our margin. Thank you. Thank you one moment for our next question.

Michael Ryskin: And our next question comes from the line of Mike Raskin from Bank of America. Your question, please. Great. Thanks for taking the question, guys. I got a couple of real quick here. First, hopefully you can hear me. Yeah, we can hear you, Mike. Great. First of all, I ask on the right sizing or some of the OAOFs you discussed. I'm thinking back to 2020, sort of be COVID whenever one is panicking.

Michael Ryskin: And some of your competitors or other players in the dental space announced some layoffs and you held fast and powered through. And the argument was that you saw it being transient and you wanted to invest in growth and sort of be ready for the rebound. So just contrasting that with the decision to implement some cuts here. I mean, does that mean anything in terms of your thoughts on the duration of the macro slowdown?

Michael Ryskin: Why, you know, if this is just macro related and as you said, September, you know, slow it pretty suddenly. If there is a rebound, you know, why not continue to invest given the balance sheet strong and the free cash was as strong just sort of, you know, compare and contrast and in a way how you're thinking on it. Now, you know, first of all, when you go back to 2020 that you referenced, and we did power through that, you know, personally what I looked at that is I looked at that is not an economic issue, you know, that was obviously a pandemic kind of an issue, and I think it had an anticipated to have a clear beginning and a clear act.

Michael Ryskin: We're going to make sure that we're responsible in the sense of the resources and the restructuring that John talked about to, we're going to make sure that we're well positioned in the key areas too, that if we have a rebound, we'll be able to respond with the right kind of capacity and the right kind of product. So, you know, I feel like we're balancing that well right now. Okay, all right, I appreciate that.

Michael Ryskin: And then the second point, sort of piggybacking on, I think it was block question earlier, not going to ask you for the specifics on 24, but just thinking about this year, you know, the price, the price you took earlier this year certainly contributed to your revenue growth. As we think forward to the next year and your ability to take price again, or potentially have to give price, you know, given how much the macros change, now the demand dynamics have changed.

Michael Ryskin: How do you feel about pricing and products, you know, any opportunity to take that up again next year, or on the flip side, are you potentially getting some pressure there, we even have to give a little bit. Mike, I appreciate the question, but as far as price goes, we would make an announcement until our doctors really know in that sense. And, you know, we're still working through 2024. Okay, all right, thanks. Thank you.

Shirley Stacy: This does conclude the question and answer session of today's program. I'd like to hand the program back to Shirley Stacy for any further remarks. Thank you, operator, and thank you for joining the call today. We look forward to speaking to you at upcoming financial conferences and industry meetings. If you have any questions, please follow up with investor relations team. And Jeff and Jason, we certainly will get back to you after the call and speak on our one on one. Thanks, everyone. Have a great day.

Unknown Executive: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Q3 2023 Align Technology Inc Earnings Call

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