Q4 2023 Align Technology Inc Earnings Call

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Good afternoon, and thank you for joining us I'm, Shirley Stacy Vice President of corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO and John Morici CFO, we issued fourth quarter and full year 2023 financial results today via business wire, which is available on our website at investors out of line check Dot com.

Today's conference call is being audio 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 future events and product outlook. These forward looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and at SEC Gov.

Actual results may vary significantly and align expressly assumes no obligation to update any forward looking statements, we have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable and our fourth quarter and full year 2023 conference call slides on our website under quarterly results. Please refer.

Due to these files for more detailed information with that I'll turn the call over to align technology, President and CEO, Joe Hogan Joe.

Joseph M. Hogan: Thanks, Shirley good afternoon, and thanks for joining us on our call today I'll provide an overview of our fourth quarter and full results and discuss a few highlights from our two operating segments systems services and clear liners, John will provide more detail on our Q4 financial performance and comment on our views for 2024 following that I'll come back in some.

John F. Morici: There is a few key points and open the call to questions.

John F. Morici: I'm pleased to report fourth quarter results with better than expected revenues and earnings.

At the end of Q4, we achieved several major milestones, including 17 million invisalign patients treated including $4 7 million teens plus for millions of their retainer cases, and over 100000 Vitaros scanner salt.

John F. Morici: For the full year fiscal year 2023, total revenues exceeded our prior outlook and we delivered fiscal 2023, non-GAAP operating margin above 21%.

For Q4 total revenues were up six 1% year over year, reflecting increased systems and services revenues.

John F. Morici: Strength in clear aligner volumes for teens and international doctors as well as continued growth from Invisalign touch up cases under our Invisalign Doctor subscription program or DSP.

John F. Morici: Our Q4 systems and services revenues were up year over year, primarily due to increased services CAD Cam and non systems revenues, including scanner leasing and rental programs and certified pre own scanner sales.

John F. Morici: Q4, total clear aligner shipments were slightly lower year over year on a year over year basis clear aligner volumes were down for the Americas and EMEA regions and we're up for the APAC region.

John F. Morici: For Q4 clear Aligner shipments include approximately 20000, Invisalign DSP touch up cases, primarily in North America.

John F. Morici: An increase of more than 60% year over year.

John F. Morici: From a Q4 'twenty two.

John F. Morici: DXP continues to be well received by our customers is currently available in the U S and Canada, Iberia Nordics and most recently the U K. We're excited to DST is proving helpful to doctors and their patients as we continue to expand the program for.

John F. Morici: For fiscal 'twenty to 'twenty, three total Invisalign DSP touch up cases shipped were 73000 up 85% year over year.

John F. Morici: For non case revenues Q4 was up 33% year over year, primarily due to continued growth from there our retainers along with Invisalign DSP retainer revenues.

John F. Morici: On a sequential basis Q4, total revenues were down slightly <unk>, 4%, primarily reflecting anticipated seasonally lower teens case starts, especially.

John F. Morici: Especially in the U S Ortho channel and unfavorable foreign exchange offset somewhat by increased revenues from system and services as well as an increase in clear aligner volume for adults and non comprehensive cases, and stronger volumes from Canada and EMEA region.

John F. Morici: Q4, total aligner shipments were slightly lower sequentially.

John F. Morici: On a sequential basis clear aligner volumes were down for the Americas, and APAC regions and were up sequentially for the EMEA region.

John F. Morici: December gauge practice analysis tool.

John F. Morici: That collection consolidates data from approximately.

John F. Morici: Orthodontic practices across the U S and Canada reported year over year decline for new patients total exams in total starts, particularly among teens and kids and also shows the year over year decline for wires and brackets and total clear aligner starts with Invisalign case starts better than a clear aligner brands.

John F. Morici: And the teen segment for Q4 of 197000 teens and younger patients started treatment with Invisalign clear aligner systems up 6% year over year and were a record number of teen cases shipped compared to prior fourth quarters.

John F. Morici: 2014 starts were down sequentially consistent with historical seasonality, primarily in China as well as CS seasonally fewer teen starts in North America compared to Q3.

John F. Morici: For fiscal 2023, total invisalign clear aligner shipments for teens and younger patients reached a total of 809000 cases up 8% compared to the prior year and made up 34% of total clear aligner shipments.

John F. Morici: During Q4, we announced that the U S food and drug administration cleared the Invisalign palate expander system, we call. It IP dislike palate expander for commercial availability in the United States.

John F. Morici: The FDA five 10-K clearance is for broad patient applicability, including growing children teens and adults.

John F. Morici: Full early intervention treatments such as phase one of our early intercepted treatment makes up about 20% of the orthodontic case starts each year and is growing.

John F. Morici: Whether with Invisalign first the liners ice's provide doctors with the solution set to treat the most common skeletal dental malocclusion and growing children edition of Mandibular Advancement features to Invisalign. Aligner is also provides doctors with more options for treating skeletal that'll John balances and bite correction.

They are growing patients during their teenage years, essentially we now have an invisalign digital treatment solution for every phase of treatment.

John F. Morici: IP is currently available on a limited basis in Canada, and the United States and we recently received regulatory clearance in Australia, and New Zealand, where.

John F. Morici: Where we anticipate commercialization in Q2, we expect <unk> to be available in other markets spending future applicable regulatory approvals.

John F. Morici: We're also launching <unk> Smile video the next generation of MTA visualization with AI assisted video that is expected to be available to all doctors, who use the invisalign practice, app and click and collect checks treatment planning software.

John F. Morici: This new tools designed to help improve patients understanding.

John F. Morici: And at the confidence in Invisalign treatment and is based on our terra enter or scanners and doctors Klimczak plan for Invisalign treatment.

John F. Morici: Check style video stimulates the doctors can check treatment plan with a short video of a patient space and they talk and smile, which helps patients visualize their potential new smile and can lead to a higher patient treatment acceptance, we expect to rollout <unk> video in Q1 24 in North America, and EMEA, followed by APAC later in the year.

Speaker Change: Before I turn the call over to John for our fourth quarter Financial review I want to share one more exciting news.

John F. Morici: Today, we introduced the latest innovation in the <unk> family of inner oral scanners the.

John F. Morici: The <unk> alumina in oral scanner designed to meet the needs of doctors and their patients by offering smaller wind was unparalleled data capture capabilities for separately scanning by clinical members.

John F. Morici: Yes, Kara alumina inner oral scanner is a breakthrough technology.

John F. Morici: With three X wider field of capture and a 50% smaller one that delivers faster scanning higher accuracy and superior visualization for greater practice efficiency.

John F. Morici: Alumina quickly easily and accurately captures more data, while delivering exceptionally scale quality and photo realistic images that eliminate the need for inner oral photos altogether.

John F. Morici: Doctors can now scan at twice the speed with a wide field of capture multi angled scanning and large capture distance, meaning they can capture more dentition and greater detail throughout the scanning process.

John F. Morici: The date align has filed over 30 patent applications covering technology related to the ITER alumina intra oral scanner I believe <unk> alumina.

John F. Morici: Has the potential to set a new standard of care for dental practices by simplifying the scanning of complex oral regions, while offering superior chair side visualization and more comfortable experience for patients, especially kids.

John F. Morici: Initial doctor feedback has been very positive, noting that eye care alumina scanner is much faster clear less invasive for their patients and the imaging and visualization translates to better communications and patient experience.

Speaker Change: Yes, Carol alumina in oral scanners available now with orthodontic workflows and will be available in the second half of 2024 restored of workflows, Although we expect that GP practices get benefit now from the new scanning technology.

Speaker Change: Global broadcast or it would be our unveil ITER alumina and provide attendees with insights and detailed information from our auto team and early customer users is planned for February 15th registration will open on February one.

Speaker Change: And a link has been provided in our financial slides as well as in today's press release.

Speaker Change: I'll turn the call over to John.

John F. Morici: Thanks, Joe now for our Q4 financial results total revenues for the fourth quarter were $956 $7 million down 0.4% from the prior quarter and up six 1% from the corresponding quarter a year ago on a constant currency basis Q4, 'twenty three revenues were impacted by unfavorable foreign exchange.

John F. Morici: <unk> of approximately $12 8 million or approximately one three <unk>.

John F. Morici: <unk> sequentially and were favorably impacted by approximately.

John F. Morici: Approximately $13 $8 million year over year or approximately one 5%.

John F. Morici: For clear liners Q4 revenues of 781 $9 million were down one 6% sequentially, primarily from lower volumes on a year over year basis, Q4 clear aligner revenues were up six 9% primarily due to higher asps.

John F. Morici: Non case revenues slightly offset by lower volumes.

John F. Morici: For Q4, Invisalign Asps for comprehensive treatment were up sequentially and up year over year on a sequential basis asps reflect higher additional liners, partially offset by the unfavorable impact from foreign exchange higher sales credits and higher discounts.

John F. Morici: On a year over year basis, the increase in comprehensive asps reflect higher additional liners price increases and favorable impact from foreign exchange.

John F. Morici: Partially offset by higher discounts and product mix to lower ASP products for Q4, Asps for non comprehensive treatment were down sequentially and up year over year on a sequential basis. The decline in asps reflect the unfavorable impact from foreign exchange, a product mix shift to lower ASP products and higher.

John F. Morici: Net revenue deferrals, partially offset by.

John F. Morici: Price increases and lower discounts on.

John F. Morici: On a year over year basis, the increase in Asps reflect price increases the impact from favorable foreign exchange and higher additional liners, partially offset by a product mix shift to lower ASP products and higher discounts.

John F. Morici: Last quarter, we announced a about a 5% global price increase for some invisalign products across most markets effective January one 2024.

John F. Morici: Invisalign comprehensive three and three 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 three and three product and anticipate it will continue to increase providing doctors that flexibility.

John F. Morici: They want and allowing us to recognize more revenue upfront with deferred revenue being recognized over a shorter period compared to our traditional invisalign comprehensive product.

Q4, 'twenty three clear aligner revenues were impacted by unfavorable foreign exchange of approximately $10 $7 million or approximately one 4% sequentially on a year over year basis clear aligner revenues were favorably impacted by foreign exchange of approximately $12 million or approximately one 6%.

John F. Morici: Clear aligner deferred revenues on the balance sheet increased $14 $9 million or one 2% sequentially.

John F. Morici: <unk>.

John F. Morici: $74 $6 million or up 66, 1% year over year and will be recognized as the additional liners are shipped.

John F. Morici: 423 systems and services revenues.

John F. Morici: $174 $8 million were up five 8% sequentially, primarily due to higher asps and an increase in CAD Cam and services revenue, partially offset by lower volumes and were up two 9% year over year, primarily due to higher services revenues from our larger base of scanner sales.

John F. Morici: And increased non system revenues related to our CPO and leasing rental programs, mostly offset by lower Asps scanner volume.

John F. Morici: Get Cam and services revenues for Q4 represent approximately 50% of our systems and services business.

Q4, 23 systems and services revenues were unfavorably impacted by foreign exchange of approximately $2 1 million or approximately one 2% sequential.

John F. Morici: On a year over year basis systems and services revenue were favorably impacted by foreign exchange of approximately one $9 million or approximately one 1%.

John F. Morici: Systems and services deferred revenues on the balance sheet were down $4 $3 million or one 6% sequentially and down $13 1 million or four 8% year over year, primarily due to the recognition of services revenue.

John F. Morici: Which is recognized ratably over the service period.

John F. Morici: 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 developing new capital equipment opportunities to meet the digital transformation needs of our customers and DSO partners is a natural progression for our equipment.

John F. Morici: Business with a large and growing base of scanners are sold.

John F. Morici: Moving on to gross margin fourth quarter overall gross margin was 70% up <unk> nine points sequentially and up one five points year over year Q4, non-GAAP gross margin was 75%.

John F. Morici: 0.9 point sequentially and up one two points year over year overall gross margin was unfavorably impacted by foreign exchange by approximately 0.4 points sequentially and favorably impacted by approximately 0.4 points on a year over year basis.

John F. Morici: Clear aligner gross margin for the fourth quarter was 71, 1%.

John F. Morici: 0.4 point sequentially due primarily due to lower manufacturing spend partially offset by higher freight costs clearer.

John F. Morici: Clear aligner gross margin for the fourth quarter was up <unk> three points year over year, primarily due to higher asps and favorable foreign exchange, partially offset by higher manufacturing spend and freight costs.

John F. Morici: Services gross margin for the fourth quarter was 64, 8%.

John F. Morici: Up three eight points sequentially due to higher asps, partially offset by higher service and freight costs.

John F. Morici: Systems and services gross margin for the fourth quarter was up six points year over year due to improved manufacturing efficiencies and favorable foreign exchange, partially offset by lower asp's.

John F. Morici: Before I go into the details I want to note that during Q4 'twenty three we incurred a total of $14 million of restructuring and other charges primarily related to post employment benefits.

John F. Morici: Q4 operating expenses were 498 million.

John F. Morici: Roughly flat sequentially and down one four points.

John F. Morici: Year over year.

John F. Morici: Sequential basis operating expenses were up slightly due primarily due to restructuring and other charges offset by lower lower employee compensation every year operating expenses decreased by $7 $1 million, primarily due to controlled spend on advertising and marketing as part of our efforts to proactively manage.

John F. Morici: Cost, partially offset by employee related costs and slightly higher restructuring charges.

John F. Morici: On a non-GAAP basis, excluding stock based compensation restructuring and other charges and amortization of acquired intangibles related to certain acquisitions operating expenses were $446 $7 million down two 5% sequentially and down two 8% year over year.

John F. Morici: Our fourth quarter operating income of 171 $5 million resulted in an operating margin of 17, 9% up <unk> six points sequentially and up five four points year over year operating margin was unfavorably impacted by approximately <unk> six points sequentially primarily.

John F. Morici: Merrily due to foreign exchange the year over year increase in operating margin is primarily attributed to operating leverage and proactively managing our cost as well as favorable impact from foreign exchange by approximately 0.6 points on a non-GAAP basis, which excludes stock based compensation restructuring and <unk>.

John F. Morici: Other charges the amortization of intangibles related to certain acquisition operating margin for the fourth quarter was 23, 8% up two points sequentially and up five five points year over year.

John F. Morici: Interest and other income and expense net for the fourth quarter was an income of $1 $3 million compared to a loss of $4 $2 million in the third quarter and income of $2 $7 million in Q4, 2022, primarily driven by favorable foreign exchange the.

Shirley Stacy: Yep. Good afternoon, and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO, and John Morici, CFO. We issued fourth quarter and full year 2023 financial results today via Business Wire, which is available on our website at investor.aligntech.com. Today's conference call is being 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 Align's future events and product outlook. These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission, available on our website and at sec.gov.

The GAAP effective tax rate for the fourth quarter was 28, 3% higher than the third quarter effective tax rate of 25, 1% and lower than the fourth quarter effective tax rate of 63, 8%.

John F. Morici: In the prior year.

John F. Morici: The fourth quarter.

John F. Morici: GAAP effective tax rate was higher than the third quarter effective tax rate, primarily due to one time benefit related to tax guidance issued in Q3, our see offset by lower U S taxes on foreign earnings in Q4 as a reminder, in Q4 2022, we changed our methodology for the computation of our non-GAAP effective tax.

Shirley Stacy: Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliations, including our gap to non-gap reconciliation, if applicable, and our fourth quarter and full year 2023 conference call slides on our website under quarterly results. Please refer to these files for more detailed information. With that, I'll turn the call over to Align Technology President and CEO, Joe Hogan. Joe

John F. Morici: Right to <unk>.

John F. Morici: Long term projected tax rate and have given.

John F. Morici: [noise] effect to the new methodology from January one 2022.

John F. Morici: Our non-GAAP effective tax rate for the fourth quarter was 20%, reflecting the change in our methodology.

John F. Morici: Fourth quarter net income per share.

John F. Morici: <unk> was $1 64 up.

John F. Morici: Lee <unk> and up $1.10 compared to the prior year, our EPS was unfavorably impacted by <unk>.

Joseph M. Hogan: Thanks, Shirley. Good afternoon, and thanks for joining us. On our call today, I'll provide an overview of our fourth quarter and full results and discuss a few highlights from our two operating segments, systems, services, and clear aligners. John will provide more detail on our Q4 financial performance and comment on our views for 2024. Following that, I'll come back and summarize a few key points and open the call to questions.

John F. Morici: On a sequential basis and favorably impacted by <unk> on a year over year basis due to foreign exchange and a non-GAAP basis net income per diluted share was $2 42 for the fourth quarter up 28% sequentially and up 69 year over year.

Joseph M. Hogan: I'm pleased to report fourth-quarter results with better than expected revenues and earnings. As of the end of Q4, we achieved several major milestones, including 17 million Invisalign patients treated, including 4.7 million teens, plus 4 million Vivera retainer cases, and over 100,000 iTero scanners sold. And for the full fiscal year 2023, total revenues exceeded our prior outlook.

John F. Morici: Moving onto the balance sheet as of December 31, 2023, cash cash equivalents and short and long term marketable securities were $988 million down sequentially, $321 $2 million and down $68 million year over year.

John F. Morici: Of our $988 million balance $196 $1 million was held in the U S.

Joseph M. Hogan: And we delivered a fiscal 2023 non-GAAP operating margin above 21%. Q4 total revenues were up 6.1% year over year, reflecting increased systems and services revenue. Strength and Clear Aligner Volumes for Teens and International Doctors, as well as Continued Growth from Invisalign Touch-Up Cases under our Invisalign Doctor Subscription Program (DSP). Our Q4 systems and services revenues were up year over year, primarily due to increased services, CAD-CAM, and non-systems revenues, including scanner leasing and rental programs, and certified pre-owned scanner sales. To you, total clear aligner shipments were slightly lower year over year. However, on a year over year basis, clear aligner volumes were down for the Americas and EMEA regions and were up for APAC. The Q4 Clear Aligner shipments include approximately 20,000 Invisalign DSP touch-ups, primarily in North America, an increase of more than 60% year over year from Q4 2020. DSP continues to be well-received by our customers and is currently available in the US and Canada, Iberia, the Nordics, and most recently, the UK.

John F. Morici: $784 $7 million was held by our international entities.

John F. Morici: In October 2023, we purchased approximately 1 million shares of our common stock at an average price of $190 56 per share through a $250 million, except share repurchase and in November and December 2023, we purchased approximately 466000 shares.

John F. Morici: Of our common stock at an average price of 214.

John F. Morici: 81 cents per share through a $100 million open market purchase both under alliance current $1 billion stock repurchase program we.

John F. Morici: We have $650 million remaining available for repurchase of our common stock under the stock repurchase program.

John F. Morici: Q4 accounts receivable balance was $903 $4 million slightly down sequentially. Our overall days sales outstanding was 85 days flat sequentially and year over year cash flow from operations for the fourth quarter was $46 9 million capital expenditures for the fourth quarter.

Joseph M. Hogan: We're excited that DSP is proving helpful to doctors and their patients as we continue to expand the program. For fiscal 2023, total Invisalign DSP touch-up cases shipped were 73,000, up 85% year over year. For non-case revenues, Q4 was up 13.3% year-over-year, primarily due to continued growth from Vivera retainers along with Invisalign DSP retainer revenue. On a sequential basis, Q4 total revenues were down slightly, 0.4%, primarily reflecting anticipated seasonally lower teen case starts. Especially in the U.S., the ortho channel, an unfavorable foreign exchange rate, offset somewhat by increased revenues from system and services, as well as an increase in clear aligner volume for adults and non-comprehensive, and stronger volumes from Canada and the EMEA region. However, Q4 total liner shipments were slightly lower sequentially.

John F. Morici: There were $33 $4 million, primarily related to our continued investments to increase aligner manufacturing capacity and facilities free.

John F. Morici: Free cash flow defined as cash flow from operations less capital expenditures amounted to $13 $5 million.

John F. Morici: Now turning to our outlook assuming no circumstances.

John F. Morici: Occur beyond our control we provide the following framework for Q1 and fiscal 2024.

John F. Morici: For Q1, 2024, we expect our worldwide revenues to be in the range of $960 million to $980 million up slightly from Q4 of 2023, we expect clear aligner volume and Asps.

John F. Morici: To be up slightly sequentially, we expect systems and services revenue to be down slightly sequentially, although less than the historical seasonal decline given the launch of the ITER alumina for ortho workflows in Q1 2024, we expect our Q1 2024 GAAP operating margin.

Joseph M. Hogan: On a sequential basis, clear liner volumes were down for the Americans in APAC, and we're up sequentially for the EMEA. The December GAGE practice analysis, that collects and consolidates data from approximately Jonathan Block, Nathan Rich, Steven Valiquette, Brandon Couillard, Nathan Rich, Jeffrey Johnson, with Invisalign K-Starts performing better than the Clear Aligner brand. In the teen segment, per Q4, 197,000 teens and younger patients started treatment with Invisalign Clear Aligner systems, up 6% year-over-year, and a record number of teen cases shipped compared to prior fourth quarters. However, Q14 starts were down sequentially, consistent with historical seasonality primarily in China, as well as seasonally fewer teen starts in North America compared to Q3.

non-GAAP operating margin to be slightly above <unk>.

John F. Morici: Q1, 2023, GAAP operating margin and non-GAAP operating margin respectively.

For full year, we expect.

John F. Morici: Fiscal 2024 total revenues to be up mid single digits over 2023, we.

John F. Morici: We expect fiscal 2024 clear aligner and systems and services revenues to grow year over year in the same approximate range as our 2020 for total revenues, we expect fiscal 2024 clear Aligner Asps.

John F. Morici: To be up slightly year over year, primarily due to price increases and favorable foreign exchange, partially offset by a higher mix of non comprehensive products, which have lower asps.

John F. Morici: We expect fiscal 2024, GAAP operating margin and non-GAAP operating margin to be slightly above the 2023, GAAP operating margin and non-GAAP operating margin, respectively. We expect our investments in capital expenditures for the fiscal 2024 to be approximately $100 million.

Joseph M. Hogan: For fiscal 2023, total Invisalign clear liner shipments for teens and younger patients reached a total of 809,000 cases, up 8% compared to the prior year, and made up 34% of total clear alignership. During Q4, we announced that the U.S. Food and Drug Administration cleared the Invisalign Pallet Expander System, we call it IPE, for commercial availability in the United States. The FDA 510K clearance is for broad patient applicability, including growing children, teens, and adults.

John F. Morici: Capital expenditures are expected to primarily relate to building construction improvements as well as manufacturing capacity in support of our continued expansion.

John F. Morici: In summary, I am pleased with our fourth quarter and fiscal 2023 results and I'm, especially proud of our continued focused execution of our product roadmap and innovation pipeline. We are committed to delivering on our strategic growth drivers of international expansion patient demand orthodontist utilization and GP.

Joseph M. Hogan: Full early intervention treatments, such as Phase I or early interceptive treatment, make up about 20% of the orthodontic case starts each year and is growing. Together with Invisalign First Aligners, IPEs provide doctors with a solution set to treat the most common skeletal and dental malocclusions in growing children. The addition of mandibular advancement features to Invisalign aligners also provides doctors with more options for treating skeletal, dental, jaw imbalances, and bite correction for their growing patients during their teenage years. Essentially, we now have an Invisalign digital treatment solution for every phase of treatment. IP is currently available on a limited basis in Canada and the United States, and we recently received regulatory clearance in Australia and New Zealand, where we anticipate commercialization in Q2.

John F. Morici: <unk> treatment to extend our leadership in digital orthodontics and dentistry.

John F. Morici: I believe that the next wave of innovation that we are introducing into the market.

John F. Morici: Further differentiate align and allow us to continue to increase our share of the large untapped market opportunity of $22 million annual orthodontic case starts as well as an additional 600 million consumers, who could benefit from a healthy beautiful smile using invisalign clear liners with that I'll turn it back to Joe.

John F. Morici: Comments Joe.

Joseph M. Hogan: Thanks, John and closing, while I am pleased with our better than expected fourth quarter results and start to the year I'm, even more excited about aligning innovation in 2024, and our next wave of growth drivers when I spoke to you.

Joseph M. Hogan: We expect IPE to be available in other markets pending future applicable regulatory approval. We're also launching ClinCheck Smile Video, the next generation of in-face visualization with AI-assisted video that is expected to be available to all doctors who use the Invisalign practice app in ClinCheck treatment planning software. This new tool is designed to help improve patients' understanding and Confidence in Invisalign Treatment and is based on ITERA inter-oral scanners and Dr. Sklincek's plan for Invisalign treatment. ClinCheck Smile Video simulates the doctor's ClinCheck treatment plan with a short video of a patient's face, as they talk and smile, which helps patients visualize their potential new smile and can lead to higher patient treatment acceptance.

Joseph M. Hogan: About a year ago I discussed the innovations that we're planning to bring to market that we continue to revolutionize the orthodontic and dental industry and scanning software and directory D. Printing, we are delivering on that promise.

Joseph M. Hogan: The introduction of <unk> aluminum powered by.

Joseph M. Hogan: Multi direct capture technology, we are pushing the boundaries of what an oral scanners can do.

Joseph M. Hogan: Tara alumina is a combination of years of research and development to offer visualization capabilities that support doctors clinical decisions, while also enhancing their patients comfort and overall treatment experiences.

Building on more than 20 years of expertise in revolutionizing imaging technologies, the ITER alumina scanner elevate standard and digital scanning to achieve exceptional clinical outcomes and increased practice efficiency.

Joseph M. Hogan: We expect to roll out ClinCheck Smile video in Q1 2024 in North America and EMEA, followed by APAC later in the year. Before I turn the call over to Jon for a fourth quarter financial review, I want to share one more exciting news. Today we introduce the latest innovation in the ITERO family of inter-oral scanners. The iTero Lumina Interworld Scanner, designed to meet the needs of doctors and their patients by offering a smaller wand with unparalleled data capture capabilities for effortless scanning by clinical members. The ITERA-Lumina inter-oral scanner is a breakthrough technology, with a 3x wider field of capture and a 50% smaller one that delivers faster scanning, higher accuracy, and superior visualization for greater practice efficiency. ITERA Illumina quickly, easily, and accurately captures more data while delivering exceptionally scanned quality and photorealistic images that eliminate the need for interaural photos altogether. Doctors can now scan at twice the speed of sound, with a wide field of capture, multi-angled scan, and large capture distance, meaning they can capture more dentition in greater detail throughout the scanning process.

Scanner is at the forefront of digital dentistry.

Joseph M. Hogan: With the closing of our acquisition of cubic cure a pioneer of direct three D printing solutions for polymer additive manufacturing.

Joseph M. Hogan: We will enable the next generation of three D printed products, helping to create more unique configurations for our liners that are more sustainable and also efficient solutions.

Joseph M. Hogan: We also expect it to extend and scale, our printing materials and manufacturing capabilities for our <unk> printed product portfolio, which now includes invisalign palate expander system.

Joseph M. Hogan: And with the introduction of IP, we have expanded the clinical applicability of the Invisalign system to nearly 100% of the orthodontic case starts the ability to direct reprint IP. He will eventually lead to other <unk>.

Joseph M. Hogan: Direct printed products with the goal of Directory D printed invisalign clear liners, which we hope to achieve in the next couple of years.

Joseph M. Hogan: As a company align has multifaceted competitive advantage technology innovation, where we invest up to $300 million in R&D per year to bring in some of the most disruptive products in digital dentistry and orthodontics to the market in a highly regulated industry a direct salesforce to consist of 5000 highly trained specialists a doctor centered.

Joseph M. Hogan: To date, Align has filed over 30 patent applications covering technology related to the iTero Lumina interoral scanner. I believe iTero Lumina has the potential to set a new standard of care for dental practices by simplifying the scanning of complex oral regions while offering superior chair-side visualization and a more comfortable experience for patients, especially kids. Initial doctor feedback has been very positive, noting that the ITERA Illumina scanner is much faster, clearer, less invasive for their patients, and the imaging and visualization translates to better communications and patient experience. Gatero Lumina Interoral Scanner is available now for orthodontic workflows and will be available in the second half of 2024 for restorative workflows, although we expect that GP practices could benefit now from the new scanning technology.

Joseph M. Hogan: Model, because we understand the importance of Doctor directed care, a $1 billion brand trusted by over 17 million patients worldwide and.

Joseph M. Hogan: And global scale in manufacturing to deliver millions of customized clear aligner parts everyday.

Joseph M. Hogan: We are extremely pleased with our latest innovations in commercialization of products to better serve our doctor customers and their patients our belief in the future business overall is unwavering.

Joseph M. Hogan: Before we turn the call over to the operator I wanted to address an important matter regarding DTC are directed consumer clear liners in our industry align has always believed that a doctor centered model for orthodontic treatment is the safest for patients and we're always looking for new and better ways to support doctors as they work to create.

Jon: A global broadcast to unveil ITERO Illumina and provide attendees with insights and detailed information from our ITERO team and early customer users is planned for February 15th. Registration will open on February 1st, and a link will be provided in our financial slides as well as in today's press release. With that, I'll turn the call over to Jon.

Joseph M. Hogan: Better smiles for their patients recent.

Joseph M. Hogan: The recent news regarding the bankruptcy of a DTC clear Aligner company has led many consumers to reach out to invisalign providers to address their unmet needs, including helping those DTC patients with incomplete treatments to support these former DTC patients.

Jon: Thanks, Joe. Now for our Q4 financial results. Total revenues for the fourth quarter were $956.7 million, down 0.4% from the prior quarter and up 6.1% from the corresponding quarter a year ago. On a constant currency basis, Q4'23 revenues were impacted by unfavorable foreign exchange of approximately $12.8 million, or approximately 1.3% sequentially, and were favorably impacted by approximately $13.8 million year-over-year, or approximately 1.5%. For clear aligners, Q4 revenues of $781.9 million were down 1.6% sequentially, primarily due to lower volume.

Joseph M. Hogan: Who are seeking help from invisalign providers and practices in Q4, we introduced the program in the U S and select other markets offering up to 50% off Invisalign case submission in Bavaria retention to help offset any additional costs to finish their treatment.

Joseph M. Hogan: We want to help everyone achieve a healthy beautiful smile and strongly recommend the individuals who are impacted by this matter seek the advice of our licensed orthodontist or Dennis or concierge team is always available to answer questions and help connect consumers with invisalign practices.

Speaker Change: With that I'll. Thank you for your time today, we look forward to updating you on our next earnings call now I'll turn the call over to the operator for questions.

Jon: On a year-over-year basis, Q4 clear aligner revenues were up 6.9 percent, primarily due to higher ASBs and non-case revenues slightly offset by lower volumes. Q4 Invisalign ASPs for comprehensive treatment were up sequentially and up year-over-year. On a sequential basis, ASPs reflect higher additional aligners, partially offset by the unfavorable impact from foreign exchange, higher sales credits, and higher discounts. On a year-over-year basis, the increase in comprehensive ASBs reflects higher additional liners, price increases, and higher cost-effectiveness, and Favorable Impact from Foreign Exchange, partially offset by higher discounts in product mix to lower the ASB product. For Q4, ASPs for non-comprehensive treatment were down sequentially and up year over year. On a sequential basis, the decline in ASPs reflects the unfavorable impact of foreign exchange, a product makeshift to lower ASP products, and higher net revenue deferrals, partially offset by price increases and lower discounts.

Speaker Change: Thank you.

Speaker Change: This time operator.

Thank you.

Speaker Change: This time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and wait for your name to be announced you May Press Star. One again, if you would like to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys one moment.

Speaker Change: Questions.

Our first question comes from Elizabeth Anderson with Evercore ISI you May proceed.

Elizabeth Anderson: Hi, guys congrats on the quarter. Thanks, so much.

Speaker Change: A question Hey.

Elizabeth Anderson: I was wondering if you could walk us through the components of that mid single digit guide I got in for 2024, I understand what you said that like systems and services and clear liners would be in the same range.

Elizabeth Anderson: I'm, just sort of thinking about like how to think about that it seems like maybe it's like low single digit ASP improvement and then sort of.

Elizabeth Anderson: Low to mid single digit case growth is that the right way to think about it like what else can you is there anything else you can sort of clarify on that and sort of how do you expect at least currently the sort of pacing of the year progressed.

Jon: On a year-over-year basis, the increase in ASVs reflects price increases, with the impact from favorable foreign exchange and higher additional aligners partially offset by a product makeshift to lower ASB products in higher districts. Last quarter, we announced about a 5% global price increase for some Invisalign products across most markets effective January 1st, 2024. The Invisalign Comprehensive 3-in-3 product is available in North America and certain markets in EMEA and APEC, most recently launching in China, Korea, Hong Kong, and Taiwan.

Elizabeth Anderson: Yes, Elizabeth Hi, This is John you Havent framed the right way, we're looking at the segments up mid single digits and then Asps.

John F. Morici: Because of that you'll have a price increase we have some offset due to some of the lower stage products that we have including the DSP touch ups and so on that you would expect in a little bit lower.

John F. Morici: ASP impact year over year.

Jon: 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 up front, with deferred revenue being recognized over a shorter period compared to our traditional Invisalign Comprehensive product. Q423 Clearliner revenues were impacted by unfavorable foreign exchange of approximately $10.7 million, or approximately 1.4% sequentially. On a year-over-year basis, Clearliner revenues were favorably impacted by foreign exchange of approximately $12 million, or approximately 1.6%.

Speaker Change: Got it that makes sense and then some.

Speaker Change: How does that volume and sort of market in China been progressing across the fourth quarter and maybe into the first quarter and so far as you can comment.

Speaker Change: Hey, listen with US Joe we felt good about China last year, but remember we had year over year comparisons that were really favorable because of the COVID-19 shutdown over there last year, but.

Speaker Change: Overall as we exited the year, we felt good about our performance there and.

Speaker Change: We feel good about as we move into <unk>.

Speaker Change: And to 2024 about our competitive position there.

Speaker Change: China market that I think is a little more predictable because it's not the overhead that we've seen with COVID-19 over the last really several years.

Jon: Clear Aligner Deferred Revenues on the Balance Sheet increased $14.9 million, or 1.2% sequentially, $74.6 million, or up 66.1% year over year, and will be recognized as additional liners are shipped. Q4 23 systems and services revenues of $174.8 million were up 5.8% sequentially, primarily due to higher ASBs and an increase in CAD CAM. We are up 2.9% year-over-year primarily due to higher services revenues from our larger base of scanners sold and increased non-system revenues related to our CPO and leasing rental programs, mostly offset by lower ASPs and scanner volumes. CAD CAM and services revenues for Q4 represent approximately 50% of our systems and services business. Q423 systems and services revenues were unfavorably impacted by a forex change of approximately $2.1 million, or approximately 1.2% sequentially. On a year-over-year basis, systems and services revenue was favorably impacted by foreign exchange of approximately $1.9 million, or approximately 1.1%. Systems and Services Deferred Revenues on the balance sheet were down $4.3 million or 1.6% sequentially and down $13.1 million or 4.8% year-over-year primarily due to the recognition of services revenue, which is recognized readily over the service period.

Speaker Change: Got it and just maybe one last one from me can you just remind us the sort of one Q dip in the operating margins and then how it steps up across the year I understand the guidance you gave for the first quarter in the year, but just why that first quarter has a sort of different.

Our perspective on the rest of the year. Thanks.

Speaker Change: Yes, so we wanted to give to prior year because of that net prior year. When you start the year you have a certain expenses that you incur are ready to begin payroll taxes and other things that you incur initially some of the investments that you make that you then get leverage on <unk> as you go through the year. So.

Speaker Change: It's similar to how we position things from last year in 2023.

Speaker Change: Perfect. Thanks, so much guys.

Speaker Change: Thanks Melissa.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Jeff Johnson with Baird You May proceed.

Jeff Johnson: Hey, Thanks. Good afternoon can you hear me okay.

Jeff Johnson: Yes, well hear you fine.

Jeff Johnson: Alright, great.

Jeff Johnson: John maybe I wanted to hear you I'll follow up on this margin question there beyond just the <unk>.

Jeff Johnson: Let's say you hit your guidance this year on operating margin, it's up nominally from 'twenty to 'twenty three levels.

Jeff Johnson: Three years in a row kind of in that low to mid 21% range I think pre Covid you were up in the 25% range or so.

What's it going to take to get those margins moving back towards those pre COVID-19, you've taken price increases two years in a row. It feels like your R&D should be coming down a little bit obviously with Cuba cure and that I know you are continuing to invest aggressively but it is out alumina now things like that so just help us understand when can we start to see a path back towards.

Jon: 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 scanners sold. Moving on to gross margin, fourth quarter overall gross margin was 70%, up 0.9 points sequentially and up 1.5 points year over year. Q4 non-GAAP gross margin was 70.5%, up 0.9 points sequentially and up 1.2 points year-over-year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.4 points sequentially and favorably impacted by approximately 0.4 points on a year-over-year basis. Clear line gross margin for the fourth quarter was 71.1%, up 0.4 points sequentially, primarily due to lower manufacturing spend, partially offset by higher freight costs.

Jeff Johnson: Getting those margins may be up a few points from where they have settled in the last few years.

Jeff Johnson: Yes, Jeff this is John.

Jeff Johnson: Really when you start to get some of that volume leverage.

John F. Morici: Addition to us having our manufacturing in the organization that we have that really set two to drive our growth and once we get some of that volume leverage we should see that benefit showing up in our numbers and it's really what we saw as we went through the quarters last year, where you see some of that volume benefits you get that benefit as well when you go through.

John F. Morici: Through.

John F. Morici: When you go through the year, but really looking to try to drive as much volume as we can and you'll start to see some of that.

John F. Morici: Leverage that shows up in our numbers.

Alright fair enough and then Joe I think we've talked for many years now.

John F. Morici: It's carved out such as demanding or strong competitive position.

Kind of Vitaros as over the last five years six years or so they're all probably getting.

John F. Morici: Close to their end of their useful life.

John F. Morici: Alumina for the first time feels like that kind of product with a better form factor, especially things like that that could really caused some of these docs docs.

Jon: The Clear Line of gross margin for the fourth quarter was up 0.3 points year over year primarily due to higher ASBs and favorable foreign exchange, partially offset by higher manufacturing spend and break costs. Systems and Services gross margin for the fourth quarter was 64.8%, up 3.8 points sequentially due to higher ASPs partially offset by higher service and freight costs. Systems and services gross margin for the fourth quarter was up six points year-over-year due to improved manufacturing efficiencies and favorable foreign exchange partially offset by lower ASPs. Before I go into the details, I want to note that during Q4'23, we incurred a total of $14 million of restructuring and other charges primarily related to post-employment benefits. Q4 operating expenses were $498 million, roughly flat sequentially and down 1.4 points year over year.

John F. Morici: Get rid of this big Antero and go back down to this much smaller one and things like that just things that would actually matter to the docs and I am sure. The technology does is to I don't want to just put it on the size.

Speaker Change: Just thinking about it.

Speaker Change: Kind of product, we can finally kicked off that multiyear upgrade.

Speaker Change: Strange year path and <unk> that we signed.

Speaker Change: I've been waiting to see.

Speaker Change: Jeff.

Jeff Johnson: Easy answer and the quick answer is yes, I mean, it's a brand new platform.

Jeff Johnson: We've set up you know I mentioned in my script about we have 100000 units out there that we've sold so far about a third of those are pluses, which are upgradable by just one switch out that's the way we've designed lumina and so that part that's why it's easy also we've been really aggressively upgrading our installed base between <unk>, one and <unk> two out there two to better position it for this.

Jeff Johnson: The move so as we develop lumina, we had exactly in mind, which you just a question do we think we're in good position to do that.

Jeff Johnson: And if you switch out that one from the <unk> to the alumina there is a fee there right. Its not like Hey, you bought this knowing that you can always upgrade at no charge to alumina.

Jon: On a sequential basis, operating expenses were up slightly due primarily to restructuring and other charges offset by lower employee compensation. Every year, operating expenses decreased by $7.1 million, primarily due to controlled spend on advertising and marketing as part of our efforts to proactively manage costs partially offset by employee-related costs and slightly higher restructuring charges. On a non-GAAP basis, excluding stock-based compensation, restructuring, and other charges, and amortization of acquired intangibles related to certain acquisitions, operating expenses were $440,000.

Jeff Johnson: And Theres no charity here at align.

Jeff Johnson: Sure.

Speaker Change: To hear that God bless capitalism. Thanks, Joe.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Jon Block with Stifel. You May proceed.

Jon Block: Hey, John.

Jon Block: Hey, guys good afternoon.

So Joe maybe just one for you.

Jon Block: Video <unk> 24.

Some markets today, but more on the common IP should help longer term with teen Dodge might take a little bit of a wait and see approach you talked about the new scanner.

Jon: $6.7 million, down 2.5% sequentially and down 2.8% year-over-year. Our fourth quarter operating income of $171.5 million resulted in an operating margin of 17.9%, up 0.6 points sequentially and up 5.4 points year over year. Operating margin was unfavorably impacted by approximately 0.6 points sequentially, primarily due to foreign exchange.

Jon Block: In your opinion is innovation are we seeing in the 'twenty four guide or is that more of like a ramp at the 25 and maybe even take that a step further John for you is there a way to sort of quantify out of that mid single digit revenue growth. What can you attribute to these new products coming onboard in 'twenty four im just trying to think about the.

Jon Block: <unk> 24 is this more of the ramp or the slope into 25 for the innovation hitting.

Jon Block: Hey, Jonathan the way you set that up its a ramp it really is but we feel good that we can play offense with these product lines now we still have to scale IP, we have a great team that knows how to scale and we will get through that obviously lumen is a completely different set of.

Jon: The year-over-year increase in operating margin is primarily attributed to operating leverage and proactively managing our costs, as well as a favorable impact from foreign exchange by approximately 0.6 points. On a non-GAAP basis, which excludes stock-based compensation, restructuring, and other charges, and the amortization of intangibles related to certain acquisitions, operating margin for the fourth quarter was 23.8%, up two points sequentially, and up 5.5 Interest and other income and expense net for the fourth quarter was an income of $1.3 million compared to a loss of $4.2 million in the third quarter, and an income of $2.7 million in Q4 2022, primarily driven by favorable foreign exchange. The Gap. The effective tax rate for the fourth quarter was 28.3%, higher than the third quarter effective tax rate of 25.1% and lower than the fourth quarter effective tax rate of 63.8%. In the prior year, the fourth quarter, gap effective tax rate was higher than the third quarter effective tax rate primarily due to a one-time benefit related to tax guidance issued in q3 RCF set by lower US taxes on foreign earnings in q4. As a reminder, Our non-gap effective tax rate for the fourth quarter was 20%, reflecting the change in our methodology.

Jon Block: Outside of the computer itself the want itself as we said I feel good about the scale part of that and as we sell through the marketplace, but overall I think the way you described it as a ramp of this new technology really beginning in 2020 for US is a good foundation for that that kind of a thought process.

Jon Block: And any way to quantify what's in there from the current guide or no is that just too difficult to tease out.

Speaker Change: It really is just too okay.

Speaker Change: Okay. So second one is maybe a multi part but just first on the Capex 100 mill I mean, I was really surprised.

Speaker Change: How low that number was for this year is $400 million in 'twenty, one and 300 million in 'twenty two.

Speaker Change: Maybe even more surprised when I think about the direct fabrication initiatives. So I know the slides say.

Speaker Change: Hoping a print invisalign clear liners quote unquote next couple of years do we still think retainers to age 20 418 25.

Speaker Change: When do we feel like you prove it out so to say and do we start to see gross margin benefits from this as early as next year turning accretive in 2025, and then immediately just jump to another question for the guidance can you just help us what's embedded in there and I bring that up.

Speaker Change: Because we've seen this big move in U S consumer confidence Youre.

Speaker Change: Europe still seems very choppy so when we tie back to your guidance for the year.

Speaker Change: What are you extrapolating out if you would for the current macro thanks guys.

Speaker Change: I'll start with that John in terms of the current guidance look we're looking at the environment that we're all in.

Speaker Change: Uh huh.

Speaker Change: Great economy.

Speaker Change: Places, it's but it is more stable and we are building off of that and then as Joe said, we're doing things to play offense, new products that we have with lumina and IP and so on which we think can help us grow in this environment.

Jon: Fourth quarter net income per share was $1.64, up sequentially $0.06 and up $1.10 compared to the prior year. However, our EPS was unfavorably impacted by $0.07 on a sequential basis and favorably impacted by $0.08 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.42 for the fourth quarter, up $0.28 sequentially and up $0.69 year-over-year. Moving on to the balance sheet, as of December 31st, 2023, cash, cash equivalents, and short and long term marketable securities were $980.8 million, down sequentially $321.2 million, and down $60.8 million year over year. Of our $980.8 million balance, $196.1 million was held in the U.S., and $784.7 million was held by our international entity.

Speaker Change: John.

Speaker Change: About.

Speaker Change: The ramp up the margin piece.

Part of that what's that mean in 2025 or whatever.

Speaker Change: We feel confident and as you know from our discussions and our analyst presentation last year is <unk>.

Speaker Change: <unk> printing is foundational.

Speaker Change: It can be less less expansible from scale and so we will start to see that come through as we scaled up but we need time to scale that no one's ever had this polymer before that has a scale no one's ever used the cubic your system because I agree that we need to use it now we did this the three D systems years ago, because we basically scalable systems through our team and team knows how to do that I just can't tell you.

Speaker Change: Specifically within the next one to three years with this being the first year exactly when that really hits that hyperbolic side and just to close on the Capex.

Speaker Change: Those prior years that was a lot of that was with equipment of course, we are always adding capacity, but a lot of that was very unique for buildings, adding buildings for our locations manufacturing and so on and when we when we add some of the capacity that we're adding for our manufacturing.

Jon: In October 2023, we purchased approximately 1 million shares of our common stock at an average price of $190.56 per share through a $250 million accepted share repurchase. And in November and December 2023, we purchased approximately 466,000 shares of our common stock at an average price of $214.81 per share through a $100 million open market purchase, both under Alliant's current $1 billion stock repurchase program. We have $650 million remaining available for repurchase of our common stock under this stock repurchase program. The Q4 accounts receivable balance was $903.4 million, slightly down sequentially.

Speaker Change: We will go into existing building. So we don't have to add another building in most cases for this so thats why the Capex is where it is.

Speaker Change: Thanks for the color guys.

Speaker Change: Thanks, John.

Speaker Change: <unk>.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Brent <unk> with William Blair You May proceed.

Brent: Hi, everyone. Thanks for taking the question.

Brent: On the guidance.

Brent: Maybe one other way I wanted to ask it and see if I could tease out a little bit of color on what the assumed here if I kind of go back to some old sequential and the team side.

Brent: Assuming that's a little less susceptible to macro headwinds you can probably kind of get to a low single digit volume growth I think for the entire clear aligner business already.

Jon: Our overall day sales outstanding was 85 days, flat sequentially and year over year. Cash flow from operations for the fourth quarter was $46.9 million. Capital expenditures for the fourth quarter were $33.4 million, primarily related to our continued investments to increase aligner manufacturing capacity and facility. Free cash flow, defined as cash flow from operations, less capital expenditures, amounted to $13.5 million.

Probably not even including from DSP. So is that am I thinking about this correctly, there really out of adults on a year over year basis for full year 'twenty for you really assuming kind of flattish, maybe even down depending on how teams and some of the DSP cases are doing.

Brent: I would characterize it yes, Brandon this is John.

John F. Morici: Both teen and adult.

John F. Morici: Our positive on a year over year basis.

John F. Morici: Spec, maybe adults to grow faster as we've seen compared to teens grow faster than adults as we've seen in the past but.

Jon: Now, turning to our outlook, assuming no circumstances occur beyond our control, we provide the following framework for Q1 of fiscal 2024. For Q1 2024, we expect our worldwide revenues to be in the range of $960 million to $980 million, up slightly from Q4 2023. We expect clear aligner volume and ASBs to be up slightly sequentially. We expect systems and services revenue to be down slightly sequentially, although less than the historical seasonal decline given the launch of the ITERA Illumina for ortho workflows. Q1 2024.

John F. Morici: I would expect both of them to be up in <unk>.

John F. Morici: And so our numbers that way.

John F. Morici: Okay.

Speaker Change: And then can you just reiterate maybe both for ITE and for Lumina exciting it seems like theyre going to ramp over the coming quarters are there any like key quarters in catalysts that we should think about that that might take that up you're talking about a ramp how do we get to the next level on the ramp on any of those when they go from maybe a limited launch to full market release.

Speaker Change: Anything like that.

Speaker Change: Hey, Brandon.

Speaker Change: Joe again on the alumina side remember are.

Jon: We expect our Q1 2024 gap operating margin and non-gap operating margin to be slightly above, Q1 2023 GAAP Operating Margin and Non-GAAP Operating Margin. Full year, we expect fiscal 2024 total revenues to be up mid single digits over 2023. We expect fiscal 2024 clear aligner and systems and services revenues to grow year over year in the same approximate range as our 2024 total revenue. We expect fiscal 2024 clear aligner ASB to be up slightly year over year, primarily due to price increases and favorable foreign exchange, partially offset by a higher mix of non-comprehensive products which have lower ASD. We expect fiscal 2024 gap operating margin and non-gap operating margin to be slightly above the 2023 gap operating margin and non-gap operating margin, respectively. We expect our investments in capital expenditures for fiscal 2024 to be approximately $100 million.

Speaker Change: We're sort of scanner <unk> comes out in the third quarter, but I'd like Jon indicated we indicated we feel we can sell that into the market now with the capabilities. It has but that will ramp and that will probably be more hence to the regulatory approvals we have to get around the world right now as I mentioned, we only have the United States and Canada and <unk>.

Speaker Change: Z.

Speaker Change: Secondly on IP. It's the same thing is where regulatory constrained we still have to go through Europe.

Speaker Change: As I mentioned IP will come out in the second quarter in Australia, and also and as we get that obviously will be scaling IP to an.

Understanding the dynamics around that so it's more of a ramp as I mentioned, a few calls ago.

Speaker Change: And anything.

Speaker Change: Okay. Thanks, everyone.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Jason Bednar with Piper Sandler You May proceed.

Jason M. Bednar: Hi, Jason.

Jason M. Bednar: Hey, there thanks for taking the questions.

Jason M. Bednar: Im going to pile on here on the guidance just focus there first.

Jason M. Bednar: You mentioned non comprehensive mix as being an offsetting factor to Asps I know you've got that DSP factor I had thought maybe originally you were signaling adults growing better than teens, but doesn't seem like that's the case just given your comments there Brandon, but I guess, regardless on adults are you seen this market getting its footing back it sounds like it but.

Joseph M. Hogan: Capital expenditures are expected, primarily related to building construction improvements, as well as manufacturing capacity in support of our continued expansion. In summary, I am pleased with our fourth quarter and fiscal 2023 results, and I am especially proud of our continued focus on the execution of our product roadmap and innovation pipeline. We are committed to delivering on our strategic growth drivers of international expansion, patient demand, orthodontist utilization, and general dentist treatment to extend our leadership in digital orthodontics and dentistry. I believe that the next wave of innovation that we are introducing into the market will further differentiate, align, and allow us to continue to increase our share of the large untapped market opportunity of 22 million annual orthodontic case starts, as well as an additional 600 million consumers who could benefit from a With that, I'll turn it back to Joe for final comments. Joe?

Jason M. Bednar: If you are and what what's what's giving you the confidence or what are you seeing that kind of the day to day or month to month.

Jason M. Bednar: Showing adults are coming back into the office.

Jason M. Bednar: For treatment and then sorry to load a few in here, but should we expect this faster non comprehensive mix also to have gross margin benefits for the year as well I think it typically does but I don't think we've gotten a kind of a gross margin cadence outlook for 'twenty four.

Speaker Change: Jason I'll take the first part of your question and hand, the rest off to John is we feel we're on a more stable I'd call. It economic platform of last year and so the adult <unk> question that you had is we expect that to carry through and <unk>.

John F. Morici: 2024, as we indicated with our guidance too so.

John F. Morici: When I look back everybody has a clear vision backwards and forward. We look back to last year were pretty unstable platform that we experienced through the year in the third quarter was a tough one in that sense, but I think we all see it right now we have more confidence that.

Joseph M. Hogan: Thanks, John. In closing, while I'm pleased with our better than expected fourth quarter results and start to the year, I'm even more excited about Align Innovation in 2024 and our next wave of growth drivers. When I spoke to you... About a year ago, I discussed the innovations that we were planning to bring to market that would continue to revolutionize the orthodontic and dental industry through scanning software and direct 3D printing. We are delivering on that promise. With the introduction of ITERA Illumina, powered by multi-direct capture technology, we are pushing the boundaries of what interaural scanners can do.

John F. Morici: At least we're dealing with stability from an economic standpoint in most parts of the world and what we see.

John F. Morici: And on the non comprehensive and gross margin questions and related to that look as we have the mix that shifts do and you might have an ASP lower on some of the non comp.

John F. Morici: And others that that fall into that those are our highest gross margin products from a rate standpoint, so they're helpful for us as a business.

John F. Morici: What that customer wants.

John F. Morici: Him or her to to run their practice and that's how we balance things out but.

John F. Morici: But overall, we expect that we would see benefits in gross margin just like we're talking about.

John F. Morici: Op margin year over year benefits, we should see a benefit as well as gross margin.

Speaker Change: Alright Thats helpful. Thank you and then for the follow up here I'll ask on teens.

Joseph M. Hogan: ITERA-Lumina is a combination of years of research and development to offer visualization capabilities that support doctors' clinical decisions while also enhancing their patients' comfort and overall treatment experience. Building on more than 20 years of expertise in revolutionizing imaging technologies, the iTerra Lumina scanner elevates the standard in digital scanning to achieve exceptional clinical outcomes and increase practice efficiency. The ITERA scanner is at the forefront of digital dentistry.

Speaker Change: It does look like you are back to gaining share against brackets and wires. It looks like the kind of the second consecutive quarter of that.

I'm curious if you could talk maybe bigger picture, what's changed or what do you think has changed the last three to six months versus maybe the 12 plus months that preceded that do you think the share gains you're seeing versus brackets and wires does that have to do with changes you made to that teen guarantee program middle part of last year.

Joseph M. Hogan: With the closing of our acquisition of Cubicure, a pioneer of direct 3D printing solutions for polymer additive manufacturing, we will enable the next generation of 3D printed products, helping to create more unique configurations for aligners that are more sustainable and also efficient solutions. We also expect it to extend and scale our printing, materials, and manufacturing capabilities for our 3D printed product portfolio, which now includes the Invisalign Palette Expander System. And with the introduction of IPE, we have expanded the clinical applicability of the Invisalign system to nearly 100% of orthodontic case starts. The ability to directly 3D print IPE will eventually lead to other direct printed products with the goal of directly 3D printed Invisalign clear aligners, which we hope to achieve in the next couple of years.

Speaker Change: Or are there other items at the practice level are associated with your go to market activities that are driving that shift.

Speaker Change: You can always say that it align there is no single variable equations and this is another one the 10 guarantee we think is some of it obviously our portfolio and how we put that together.

Our DSP programs uniqueness is the <unk> first.

Speaker Change: All those things really help and from an adult standpoint.

Speaker Change: A firmer economic platform I talked about I, just think there is more confidence out there that we're starting to see bleed through.

Speaker Change: Okay helpful. Thank you.

Speaker Change: Thanks, Jason.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

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

Michael: Great. Thanks for taking the question guys.

Michael: I wanted to start with DSP kind of where you left off.

Joseph M. Hogan: As a company, Alliant has a multi-faceted competitive advantage: technology innovation, where we invest up to $300 million in R&D per year to bring some of the most disruptive products in digital dentistry and orthodontics to the market in a highly-regulated industry. A direct sales force that consists of 5,000 highly-trained specialists. A doctor-centered model, because we understand the importance of doctor-directed care.

Michael: Successful, obviously you had a <unk>.

Michael: Rate growth year over year for the whole year.

Michael: But it's kind of moved in sort of a step function. If I just look at the numbers.

Michael: 679000, and then you are kind of in the 11 12 range now you are in the 18 1920 range.

Michael: Is there another step function coming next year is there.

Michael: Could you dig into a little bit into what's driving that and just sort of where do you see that going over the next couple of years.

Michael: Yes, Michael This is John I would say as we look to expand this out it's been successful everyplace. It we've done we've seen as you said North America starts with this so you see some doctors start and then we have more and more doctors that sign up for the program and then as the Doctor setup for the program then they end up doing more and more.

Joseph M. Hogan: A billion-dollar brand, trusted by over 17 million patients worldwide, and Global Scale and Manufacturing to deliver millions of customized clear aligner parts every day. We are extremely pleased with our latest innovations and commercialization of products to better serve our doctors, customers, and their patients. Our belief in the future of business overall is unwavering. Before we turn the call over to the operator, I want to address an important matter regarding DTC, or Directed Consumer Clear Aligners, in our industry. Align has always believed that a doctor-centered model for orthodontic treatment is the safest for patients.

Michael: With us we've taken that same approach to other countries and now we've introduced this.

Michael: In EMEA and other places and the same thing happens more and more doctor sign up for it they start to see the benefits of it and then they utilize it more so it's really just a matter of now scaling this to other parts of the world because we find that this is really a nice way to supplement how adapter wants to run their practice.

Joseph M. Hogan: And we're always looking for new and better ways to support doctors as they work to create better smiles for their patients. Recent news regarding the bankruptcy of a DTC Clear Aligner company has led many consumers to reach out to Invisalign providers to address their unmet needs, including helping those DTC patients with incomplete treatments. To support these former DTC patients who are seeking help from Invisalign providers and practices, in Q4, we introduced a program in the U.S. and select other markets offering up to 50% off Invisalign case submission and Vivera retention to help offset any additional costs to finish their treatment. We want to help everyone achieve a healthy, beautiful smile and strongly recommend that individuals who have been affected by this matter seek the advice of a licensed orthodontist or dentist.

Michael: Okay.

Michael: Maybe a follow up on a few questions that were asked on cubic cure and direct three D printing earlier.

Michael: Real exciting technology that you unveiled late last year.

Speaker Change: And definitely see the opportunity, but could you.

Speaker Change: Walk us through the road map, a little bit sort of like what should we be looking for.

Speaker Change: The goalpost six months out a year out two years out just to sort of track progress and see how it's progressing.

Speaker Change: Progressing.

Speaker Change: Michael It's Joe again I think.

Michael: I think the best way for me describe too it's a like I said in my script, that's a one to three year journey.

Michael: Obviously, we will.

Joseph M. Hogan: We know how to make these are liners now we understand how to do it.

Joseph M. Hogan: Just the scalability of resin in the cubicle process and ethics time and.

Joseph M. Hogan: We will obviously report on a quarter by quarter. So you can really understand where we're going with it.

Joseph M. Hogan: And what the hurdles are and what the opportunities.

Speaker Change: Okay, maybe if I could just squeak out a little bit is there.

Joseph M. Hogan: Our concierge team is always available to answer questions and help connect consumers with Invisalign practices. With that, I'll thank you for your time today. We look forward to updating you on our next earnings call. Now I'll turn the call over to the operator for questions. Thank you.

Speaker Change: Just help us understand is there anything in terms of when you talked about scalability of the resin and the polymer.

Speaker Change: If youre looking at comprehensive non comprehensive.

Speaker Change: You talked about retainers and being able to print those is there anything in terms of your portfolio that make some products more amenable or would be amenable earlier than others or is this just kind of be all or nothing.

Operator: Thank you. We'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad and wait for your name to be announced. You may press star one again if you would like to remove yourself from the queue.

Speaker Change: I mean, obviously the scale you look at retailers first because your units of one.

And Thats, where it is and then you would end up with a comprehensive full cases in some way and that basically Hello Graham.

Elizabeth Anderson: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment for questions. Our first question comes from Elizabeth Anderson with Evercore ISI. You may proceed. Hi, guys. Congratulations on the quarter. And thanks.

Graham: Okay, great. Thanks, guys.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Nathan Rich with Goldman Sachs. You May proceed.

Jon: The question, hey, I was wondering if you could walk us through the components of the mid-single-digit guide, I guess, for 2024. I understand what you said that, like, systems and services and clear aligners would be in the same range. I guess I'm just sort of thinking about, like, how to think about that. It seems like maybe it's, like, a low-single-digit ASP improvement and then sort of, you know, low- to mid-single-digit case growth. Is that the right way to think about it? Like, what else can you, is there anything else you can sort of clarify on that and sort of how do you expect, at least currently, the sort of pacing of the year to progress? Yeah, Elizabeth.

Nathan Rich: Hey, good afternoon, thanks for the questions.

Nathan Rich: I wanted to ask on the systems and services revenue.

Nathan Rich: <unk> for 2024, just looks low to me just given.

I think growth in 'twenty, three was basically flat up slightly with Illumina launch.

Nathan Rich: We thought it would maybe be up more than it was in 2023. So I don't know if you could just maybe elaborate on what youre expecting for that segment.

Nathan Rich: Hey, Dave This is John.

John F. Morici: We're looking at.

Like we said this year, you're kind of in that mid single digits.

John F. Morici: We do have looming out which helped but it's also unknowns about the macro.

John F. Morici: Economy, we were very pleased with what we saw in the fourth quarter with doctors.

Joseph M. Hogan: Hi, this is Jon. You have it framed the right way. We're looking at the segments up mid single digits and then ASPs because of the price increase. We have some offset due to some of the lower stage products that we have, including these DSP touch-ups and so on, that you would expect then a little bit lower ASP impact year over year. Got it, that makes sense. And then separately, how has the volume and sort of market in China been progressing across the fourth quarter and maybe into the first quarter, so far as you can call it? Hey, Elizabeth. It's Joe.

John F. Morici: Buying and actually doing better than what we had really guided to so we're pleased with with the performance of Q4, but we just want to make sure that as we ramp up the ramp up of alumina.

John F. Morici: We're properly positioned there.

John F. Morici: As we go along.

Speaker Change: Okay, Great and then just going back to the margin cadence.

Speaker Change: I guess are there any either upfront or onetime costs associated with either of the launches of alumina our IP the impact on margin in the early part of the year, just as we think about cadence and sort of what the right baseline is.

Joseph M. Hogan: You know, we felt good about China last year. But remember, we had year-over-year comparisons that were really favorable because of the COVID shutdown over there last year. But, you know, overall, as we exited the year, we felt good about our performance there. And we feel good about, you know, as we move into, into 2024, about our competitive position there in a Chinese market that I think is a little more predictable, because it's not the overhead that we've seen with COVID over the last really several years. Got it. And sorry, maybe one last one for me.

Speaker Change: There is some of that in Q1.

Speaker Change: We're ramping that up so it's not a big big huge splash, where theres a lot of expenses.

Speaker Change: Kind of hits, all on one quarter, but there were some ramp up but that's factored into our guidance. So when we say that we expect the year over year in the first quarter to be <unk>.

Speaker Change: Lightly up it's factored in those expenses are factored in.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Erin Wright with Morgan Stanley You May proceed.

Jon: Can you just remind us the sort of one-two dip in operating margins and then how it sort of steps up across the year? I understand the guidance you gave for the first quarter of the year, but just why that first quarter has a sort of different perspective than the rest of the year? Yeah, so we wanted to give, you know, to the prior year because in that prior year, when you start the year, you have certain expenses that you incur right at the beginning, payroll taxes, and other things that you incur, initially, some of the investments that you make, that you then get leverage on as you go through the year. So it's similar to how we positioned things from last year, in 20. Perfect. Thanks so much, guys.

Okay.

Erin Wilson Wright: And at the end of the call some of the DTC customers that you were carefully tailoring some of the offerings too.

Erin Wilson Wright: So just to carry all that on a quarter, maybe its not large enough at this point, but any sort of contributions in 2024 and when you think about taking out some of that business and then also.

Erin Wilson Wright: DSO relationships has there been any changes there in terms of the relationships on that side and how.

Erin Wilson Wright: How would you characterize those at this point are you seeing any greater tax and Darren do some of these new products really moved the needle for some of those relationships are conversations youre having.

Erin Wilson Wright: And on the DTC customers, we've always argued that that.

Elizabeth Anderson: Thanks, Elizabeth. Thank you. One moment for questions. Our next question comes from Jeff Johnson with Beard. You may proceed. Hey Jeff.

Erin Wilson Wright: It wasn't our marketplace in a sense of the price point at all but obviously these patients will.

Erin Wilson Wright: Pursue treatment now probably more so for doctors in DTC and we're just doing what we can in order to support those customers going forward.

Jeff Johnson: Hey, thanks. Good afternoon guys. Hey, can you hear me okay?

Erin Wilson Wright: But again as I was clear on my script.

Operator: Yeah, we'll hear you fine. All right, great. Hey, Jon, maybe I want to, I'll follow up on Elizabeth's margin question there beyond just the 1Q. You know, let's say you get your guidance this year on operating margin. It's up nominally from 2023 levels. You know, it would be three years in a row kind of in that low to mid 21% range.

Erin Wilson Wright: We're a doctor focused company and we will keep it that way, but we do see this as being a certain opportunity. It's just hard for us to quantify right now.

Erin Wilson Wright: On a DSO relationships I'd say, there has just gotten stronger all around the globe.

Erin Wilson Wright: Two to call out would be heartland and spell docs.

Erin Wilson Wright: Small box being more new ortho side in heartland being more on the on the GP side, but we have really good relationships and we leverage our portfolio well with them.

Jon: I think pre-COVID you were up in the 25% range or so. What's it going to take to get those margins moving back towards those before COVID? You've taken price increases two years in a row. It feels like your R&D should be coming down a little bit. Obviously, with Qubicure and that, I know you're continuing to invest aggressively, but ITE is out, Lumina is now out, things like that. So just help us understand when we could start to see a path back towards, you know, getting those margins maybe up a few points from where they've settled in the last few years? Yeah, Jeff, this is Jon.

Erin Wilson Wright: To help them grow and we grow with them. So I feel good about our position with Dsos.

Erin Wilson Wright: We have good strong relationships out there with them.

Okay. Thank you.

Got it.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Brandon Couillard with <unk>.

Brandon Couillard: Jefferies You May proceed.

Brandon Couillard: Hey, Brian Hey, Thanks, good afternoon.

Brandon Couillard: Joe given the positive macro shift we've seen in the last few months with consumer confidence coming back.

Brandon Couillard: Can you comment on what you're seeing in case starts in January an inflection and then with respect to the 24 growth outlook.

Jon: Really, when you start to get some of that volume leverage, you know, we're positioned, as you know, with our manufacturing and the organization that we have that's really set to drive more growth. And once we get some of that volume leverage, we should see that benefit showing up in our numbers. And it's really what we saw as we went through the quarters last year, where you see some of that volume benefit, you get that benefit as well when you go through when you go through the year, but really looking to try to drive as much volume as we can. And you'll start to see some of that leverage that shows up in our. All right, fair enough. And then, Joe, you know, I think we've talked for many years about how Itero has carved out such a commanding or, you know, strong competitive position.

Speaker Change: Any chance you could break that out between Americas and international.

Joseph M. Hogan: I can't I really wouldnt break it out between American International because we felt good about the geographies in general as you went across the world for.

Joseph M. Hogan: Especially latter half of <unk>.

Joseph M. Hogan: Of the fourth quarter of last year as we go into this year as I talked about we're looking at I think a stable economic platform. Some of the data that you cited with support that overall in <unk>.

Joseph M. Hogan: We feel good about our new products, we think we can play offense out there and that's what we're focused on right now.

Speaker Change: Okay, and then one housekeeping one for you John the fourth quarter operating cash flow was pretty weak can you just unpack any of the moving parts that might have been onetime in the quarter. It looks like there was a spike in prepaid expenses on the balance sheet.

John F. Morici: Anything you would call out.

John F. Morici: Things that related to like tax payments and things its just some timing as things go through the year, but we feel great.

John F. Morici: Model generates a lot of cash it gives us a lot of flexibility and we were able to use that cash that $350 million buyback that we did last quarter.

Jon: You've sold a ton of Iteros over the last, you know, five, six years or so. They're all probably getting, you know, I don't know, close to the end of their useful life or so, you know, Lumina for the first time feels like that kind of product with the better form factor, especially things like that, that could really cause some of these doctors to say, you know, I got to get rid of this big Itero and go back down to this much smaller one and things like that, just things that would actually matter to And I'm sure technology does this, too. I don't want to just put it on the side.

John F. Morici: Okay.

Speaker Change: Got you.

John F. Morici: Okay.

John F. Morici: Thank you and we have reached the end of our question and answer session. I will now turn the call back over to Shirley Stacy for closing remarks.

Shirley Stacy: Thank you everyone. We appreciate you joining us today, we look forward to speaking with you at upcoming financial conferences and industry meetings, such as Chicago Midwinter. If you have any questions or follow up please contact our investor relations, Thanks and have a great day.

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

Joseph M. Hogan: But just thinking there, is this the kind of product that can finally kick off that multi-year upgrade strategy or path in Itero that, you know, we've kind of been waiting to see? You know, Jeff, the easy answer and the quick answer is yes. I mean, it's just a brand new platform.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Joseph M. Hogan: Now we've set up, you know, I mentioned in my script about we have 100,000 units out there that we've sold so far. About a third of those are 5D pluses, which are upgradable by just the one switch out, the way we've designed Lumina. And so that part, that part's easy. Also, we've been really aggressively upgrading our installed base between E1 and E2 out there too to better position it for this kind of a move. So, you know, as we developed Lumina, we had exactly in mind what you just asked, and we think we're in a good position to do that. And if you switch out that wand, you know, from the 5 to the Lumina, there is a fee there, right? It's not like, Hey, you bought this knowing that you could always upgrade at no charge to Lumina.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: [music].

Joseph M. Hogan: There's no charity here at Align; they'll be a start. I like to hear that. God bless capitalism. Thanks, Joe. Thank you. One moment for questions. Our next question comes from Jon Block with Stiefel. You may proceed. Hey, John.

Speaker Change: Okay.

Speaker Change: Hum.

[music].

Jon Block: Hey guys, good afternoon. So, Joe, maybe this one's for you. Video, 1Q24, IPE, some markets today, but more in the coming. IPE should help longer term with teams, but doctors might take a little bit of a wait-and-see approach. You talked about the new scanner. You know, in your opinion, like, innovation, are we seeing that in the 24 guide? Or is that more of like a ramp at the 25?

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Joseph M. Hogan: And, you know, maybe even to take that a step further, Jon, for you, is there a way to sort of quantify, out of that mid-single-digit revenue growth, what can you attribute to these new products coming on board in 24? I'm just trying to think about the impact of 24. Is this more the ramp or the slope in the 25 for the innovation heading? John, I like the way you set that up. It's a ramp. It really is.

Speaker Change: Okay.

Yes.

Speaker Change: [music].

Jon: But you know how we feel that we can play offense with these product lines. Now, you know, we still have to scale IPE; we have a great team that knows how to scale, and we'll get through that. Obviously, you know, Lumen is a completely different set of, you know, outside of the computer itself, the wand itself is, you know, we feel good about the scale part of that. And, you know, as we sell through the marketplace, but overall, I think the way you described it as a ramp of this new technology, really beginning in 2024 is a good foundation for that kind of a thought process, in any way to quantify Is that just too difficult to tease out? There really are just two of us.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: So.

Speaker Change: Hum.

Speaker Change: [music].

Jon: Okay, okay. So the second one is maybe multi-part, but just first on the CapEx, 100 million. I mean, I was really surprised by how low that number was for this year. It was 400 million in 21, 300 million in 22.

Jon: And I was maybe even more surprised when I think about the direct fabrication initiative. So I know the slides say, Hoping to print Invisalign clear liners in the next couple of years. Do we still think retainers 2H24, 1H25?

Speaker Change: Yes.

[music].

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Jon: When do we feel like you've proved it out, so to say, and do we start to see gross margin benefits from this as early as next year, turning accretive in 2025? And then, you know, admittedly, just a jump to another question. For the guidance, can you just help us understand what's embedded in there? And I bring that up because we've seen this big move in U.S. consumer confidence. Europe still seems very choppy.

Speaker Change: [music].

Speaker Change: Yeah.

Jon: So when we tie it back to your guidance for the year, you know, what are you extrapolating out, if you would, for the current macro? Thanks, guys. I'll start with that, John, in terms of the current guidance. Look, we're looking at the environment that we're all in. It's not a great economy, most places, it is, but it is more stable.

Jon: And we're building off of that. And, and then, as Joe said, we're doing things to play offense, new products that we have with Lumina and IP and so on, which we think can help us grow in this environment. John, your question about, you know, the ramp up the margin piece, or part of that, you know, what's that mean in 2025, or whatever. You know, look, we feel confident, as you know, from our discussions and our analyst presentations last year that, you know, 3D printing is foundationally, it can be less expensive if we scale. And so I mean, we'll start to see that come through as we scale that, but we need time to scale this. No one's ever had this polymer before, so it has to scale. No one's ever used a compass to the degree that we need to use it.

Joseph M. Hogan: Now we did this with 3D systems years ago because we basically scaled those systems through our team, and they know how to do that. I just can't tell you specifically, within those next one to three years, with this being the first year, exactly when that really hits that hyperbolic side. And just to close on the CAPEX, you know, those prior years, a lot of that was equipment. Of course, we are always adding capacity. But a lot of that was very much unique for buildings, adding buildings for our locations, manufacturing, and so on. And, you know, when we add some of the capacity that we're adding for our manufacturing, it will go in existing buildings. So we don't have to add another building, in most cases, for this.

Jon: So that's why the CAPEX is where. All good. Thanks for the call, guys. Thanks, Jeff.

Jon: Thank you. One moment for questions. Our next question comes from Brandon Vazquez with William Blair. You may proceed. Hey, everyone.

Brandon Vazquez: Thanks for the question. On the guidance, maybe one other way I wanted to ask you to see if I could tease out a little bit of color on what's assumed here. You know, if I kind of go back to some old sequentials on the team side, assuming that's a little less susceptible to macro headwinds, you can probably kind of get to a low single-digit volume growth, I think, for the entire ClearLiner business already. That's probably not even including some DSP.

Jon: So, am I thinking about this correctly, that really out of adults on a year-over-year basis for full year 24, you're really assuming kind of flattish, maybe even down, depending on how teams and some of the DSP cases are doing? I would characterize it, Brandon, this is Jon, that both teen and adult are positive on a year-over-year basis. Expect maybe adults to grow faster, as we've seen, compared to teens growing faster than adults, as we've seen in the past, but I would expect both of them to be up and show our numbers that, Okay. And then can you just reiterate, maybe both for IPE and for Lumina, you know, exciting. It seems like they're going to ramp up over the coming quarters. Are there any like key quarters and catalysts that we should think about that might take that up? You know, you're talking about a ramp.

Joseph M. Hogan: How do we get to the next level on the ramp for any of those when they go from maybe a limited launch to full market release, anything like that? Thanks. Hey Brandon.

Joseph M. Hogan: Joe, again, on the Lumina side, remember our restorative scanner for GPs comes out in the third quarter, but it's like John indicated, and we indicated, we feel we can sell that into the market now with the capabilities it has. But that'll ramp, and that'll probably be more hinged on the regulatory approvals we have to get around the world. You know, right now, as I mentioned, we only have the United States and Canada and ANZ.

Joseph M. Hogan: You know, secondly, on IPE, it's the same thing we're regulatory constrained; we still have to go through Europe. And as I mentioned, IPE will come out in the second quarter in Australia and also, and you know, as we gate that, obviously, we'll be scaling IPE too, and, you know, understanding the dynamics around that. So it's more of a ramp, as I mentioned a few calls ago, and Nathan.

Brandon Vazquez: Okay, thanks, everyone. Thank you. One moment for questions. Our next question comes from Jason Bednar with Piper Sandler. You may proceed. Hi, Jason.

Jason M. Bednar: Hey, hey there. Thanks for taking the questions. I'm going to pile on here on the guidance just to focus on that first. You mentioned non-comprehensive mix as being an offsetting factor to ASPs. I know you've got that DSP factor.

Joseph M. Hogan: I thought maybe originally you were signaling adults growing better than teens, but it doesn't seem like that's the case, just given your comments there to Brandon. But I guess regardless, on adults, are you seeing this market, you know, getting its footing back? It sounds like it, but you know, if you are, you know, what's giving you the confidence or what are you seeing day-to-day or month-to-month that's showing adults are coming back into the office for treatment?

Jon: And then, sorry to load a few in here, but should we expect this faster, non-comprehensive mix also to have gross margin benefits for the year as well? I think it typically does, but I don't think we've gotten a kind of gross margin cadence outlook for 24. Jason, I'll take the first part of your question and hand the rest off to Jon. You know, we feel we're on a more stable, I'd call it an economic platform than last year. And so the adult and teen question that you had is, you know, we expect that to carry through in 2024, as we indicated, you know, with our guides too. So, you know, when I look back, everybody has a clearer vision, you know, backwards and forward. We look back on last year, you know, a pretty unstable platform that we experienced through the year, and the third quarter was a tough one in that sense. But I think we all see it right now.

Jason M. Bednar: We have more confidence that, from an economic standpoint, in most parts of the world, we're dealing with stability. And on the non-comprehensive and gross margin questions and related to that, look, as we have the mix that shifts through, and you might have an ASP lower on some of the non-comp, DSP, and others that fall into that, those are our highest gross margin products from a rate standpoint. So they're helpful for us as a business. It's really what that customer wants for him or her to run their practice, and that's how we balance things out. But overall, we expect that we would see benefits in gross margin, just like we're talking about, upper margin year over year benefits. We should see a benefit as well in gross. All right, that's helpful.

Joseph M. Hogan: And then I'll, for the follow-up here, I'll ask about teens. It does look like you're back to gaining share against brackets and wires. It looks like the kind of second consecutive quarter of that. I'm curious if you could talk maybe about the bigger picture; what's changed? Or what do you think has changed in the last three to six months versus maybe the 12 plus months that preceded that? Do you think the share gains you're seeing versus brackets and wires have to do with changes you made to that teen guarantee program in the middle part of last year? Or are there other items at the practice level or associated with your go-to-market activities that are driving that shift? You can always say that in a line, there's no single-variable equation.

Joseph M. Hogan: And this is another one, you know, the team guarantee. We think it's some of that, obviously, our portfolio and how we put that together, our DSP programs, uniqueness of the business line first, all those things really help. And you know, from an adult standpoint, with the firmer economic platform I talked about, I just think there's more confidence out there that we're starting to see. Okay, helpful. Thank you. Thanks, Jake.

Michael Ryskin: Thank you. One moment for questions. Our next question comes from Michael Ryskin with Bank of America. You may proceed. Great. Thanks for taking the question, guys. I want to start with DSP, kind of where you left off.

Jon: Really successful. We had great growth year-over-year for the whole year, but it's kind of moved in sort of like a step function if I just look at the numbers. 79000 and then you're kind of like an 1112 range now you're in the 1819 20 range is there another step function coming next year is there, dig into a little bit into what's driving that and just sort of where do you, Yeah, Michael, this is Jon. I would say, as we look to expand this, how it's been successful every place that we've gone, we've seen, as you said, you know, North America starts with this. So you see some doctors start, and then we have more and more doctors that that sign up for the program. And then as the doctor sign up for the program, then they end up doing more and more volume with us. We've taken that same approach to other countries.

Joseph M. Hogan: And now we've introduced this in, in, EMEA and other places. And the same thing happens; more and more doctors sign up for it, they start to see the benefits of it, and then they use it more. So it's really just a matter of now scaling this to other parts of the world because we find that this is really a nice way to supplement how a doctor wants to run their practice. Okay, and maybe a follow-up on a few questions that were asked about Cubicure and direct 3D printing earlier.

Michael Ryskin: Really exciting technology that you unveiled late last year, and I definitely see the opportunity, but could you... help walk us through the roadmap a little bit? What should we be looking for? The goalposts, six months out, a year out, two years out, just to sort of track progress and see how it's going. You know, Michael, it's Joe again. I think, I think the best way for me to describe it, too, is, like I said in my script, it's a one to three year project, you know, and obviously we'll, We know how to make these aligners now. We understand how to do it. It's just the scalability of resin in the cubicle process that takes time.

Joseph M. Hogan: And we'll obviously report on it quarter by quarter so you really understand where we're going with it and what the hurdles are and what the opportunities are. Maybe if I could just tweak that a little bit, is there anything in terms of, when you talk about the scalability of the rise... Polymer, you know, if you're looking at comprehensive, non-comprehensive, Talked about retainers and being able to print those. Is there anything in terms of your portfolio that makes some products more amenable or would be amenable earlier than others? It will be all. I mean, obviously, the scale; you would look at retainers first because, you know, units of one.

Joseph M. Hogan: And that's where you'd end up with, you know, comprehensive, full cases in some way. And that's basically how long. That's great. Thanks. Thank you, Michael. One moment for questions. Our next question comes from Nathan Rich with Goldman Sachs. Hey, good afternoon.

Nathan Rich: Thanks for the questions. I wanted to ask about the systems and services revenue guidance for 2024. This looks low to me just given, you know, I think growth in 23 was basically flat and up slightly with the Lumina launch; we thought it would maybe be up more than it was in 2023. So I don't know if you could just maybe elaborate on what you're expecting for that segment. Nate, this is Jon.

Jon: You know, we're looking at, like we said, this year, you kind of that mid single digits. We do have Lumina, which helps, but there are also unknowns about the macro economy. We were very pleased with what we saw in the fourth quarter with doctors buying and actually doing better than we had really guided them to. So we're pleased with the performance of Q4. But we just want to make sure that you know, as we ramp up Lumina, ramp up Lumina, that we're, we're properly positioned there, and we'll update you as we go along. Okay, great.

Jon: And then just going back to the margin cadence, I guess, are there any upfront or one-time costs associated with either the launches of Illumina or IPE that impact the margin in the early part of the year, just as we think about, you know, cadence and sort of what the right baseline is? There is some of that in Q1, you know; we're ramping that up. So it's not a big, big, huge splash where there are a lot of expenses and it kind of hits all in one quarter.

Jon: But there is some ramp-up, but that's factored into our guide. So when we say that we expect the full year's revenue in the first quarter to be slightly up, it's factored in, those expenses are factored in. Great, thank you. Thank you. One moment for questions. Our next question comes from Erin Wright with Morgan Stanley. You may proceed.

Erin Wilson Wright: You mentioned at the end of the call some of the DTC customers that you were tailoring some of the offerings to. I guess, was this material at all in the quarter? Maybe it's not large enough at this point, but any sort of contributions in 2024 as we think about picking up some of that business? And then also, DSO relationships. Has there been any change there in terms of the relationships on that front? How would you characterize those at this point?

Joseph M. Hogan: Are you seeing any greater traction there? Do some of these new products really move the needle in terms of some of those relationships or conversations you're having? Thanks. And on the DTC customers, you know, we've always argued that that wasn't our marketplace in the sense of the price point and all, but I mean, obviously, these patients... We'll pursue treatment now, you know, probably more so for doctors than DTC. And we're just doing what we can in order to support those customers going forward. But again, as I was clear in my script, you know, we're a doctor-focused kind of company. We'll keep it that way, but we do see this as being a certain opportunity. It's just hard for us to quantify it. On the DSO relationships, I'd say they've just gotten stronger all around the world.

Joseph M. Hogan: I'd like to call out Heartland and SmileDocs, SmileDocs being more on the ortho side, and Heartland being more on the GP side, but we have really good relationships and we leverage our portfolio well with them to help them grow, and we grow with them, so I feel good about our position with DSOs, and we have good, strong relationships out there. Okay, thank you. Thank you. One moment for questions. Our next question comes from Brandon Couillard with Jeffries. You may proceed. Hey, Brandon.

Brandon Couillard: Hey, thanks. Good afternoon, Joe. Given the positive macro shift we've seen in the last few months with consumer confidence coming back, any chance you can comment on what you saw from KSTART in January in terms of inflection and then with respect to the 24 growth outlook? Any chance you could break that out between America and international?

Joseph M. Hogan: Yeah, I can't, I really wouldn't break it out between America's international because we felt good about the geographies in general, as you went across the world for, you know, especially, you know, the latter half of the fourth quarter of last year. As we go into this year, as I talked about, we're looking at, I think, a stable economic platform. Some of the data that you cited would, you know, support that overall.

Joseph M. Hogan: And we feel good about our new products. We think we can play off of them. That's what we're focused on. Okay, then one housekeeping task for you, John. The fourth quarter operating cash flow is pretty weak. Can you just unpack any of the moving parts that might have been there at one time in the quarter? It looks like there was a spike in prepaid expenses on the balance sheet, but anything you would call out? Things that are related to like tax payments and things. It's just some timing as things go through the year, but we feel great. I mean, it's a great model, generates a lot of cash, and gives us a lot of flexibility.

Jon: And we were able to use that cash, that $350 million buyback that we did last quarter. Thank you, and we have reached the end of our question and answer session. I will now turn the call back over to Shirley Stacy for her closing remarks. Thank you, everyone. We appreciate you joining us today. We look forward to speaking with you at upcoming financial conferences and at industry meetings such as Chicago Midwinter. If you have any questions or need follow-up, please contact our investor relations department.

Shirley Stacy: Thanks, and have a great day! Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. In the name of the Father, and of the Son, and of the Holy Spirit, amen. In the name of the Father, and of the Son, and of the Holy Spirit, amen.