Q3 2024 Align Technology Inc Earnings Call

October 23, 2024

Greetings welcome to the Alliance third quarter 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note. This conference is being recorded I will now turn the conference over to your host Shirley Stacy with align.

<unk> you may begin.

Shirley Stacy: Good afternoon, and thank you for joining us I'm, Shirley Stacy Vice President of corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO and John Morici CFO, We issued third quarter 2024 financial results today via business wire, which is available on our website at investor don't align check Dot Com Today's conference calls.

Shirley Stacy: An audio webcast and will be archived on our website for approximately one month.

Shirley Stacy: As a reminder, the information provided and discussed today will include forward looking statements, including statements about aligns future events and product outlook.

Shirley Stacy: These forward looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodically 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.

Speaker Change: Posted historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable and our third quarter 2024 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's President and CEO Joe <unk>.

Joe: Joe Thanks.

Joe: Thanks, Shirley good afternoon, and thanks for joining us today on our call today I'll provide an overview of our third quarter results.

Joe: To discuss a few highlights from our two operating segments systems and services and clear liners, John will provide more detail on our Q3 financial performance and comment on views for the remainder of the year following that I'll come back and summarize a few key points and open the call to questions.

John: Overall Q3, 'twenty four results were mixed and reflect strong system services year over year revenue growth as well as green clear Aligner volume and Asia Pacific EMEA, and Latin America regions, partially offset by declines in the United States.

John: As recently reported by many analysts and third party research firms the underlying dental market in the United States remains sluggish and our Doctor customers site similar trends Q3, 'twenty four revenues.

John: 178 million increased one 8% year over year and clear aligner volumes of 617000 were up two 5% year over year. Despite strong growth from systems and services revenues a record 87000, or 4000 87000 Doctor Submitters a record of 230.

6000 teens, starting treatment driven by record teen case starts in China, and a record 25000 of DSP Invisalign Touch-up cases total revenues for Q3 were slightly below our Q3 revenue outlook in part due to more pronounced seasonality for clear aligner and expected as well as continued weak consumer sentiment and a soft dental.

John: Market, especially in the United States.

John: Excuse me 24, non-GAAP operating margin of 22, 1% was better than expected and increased year over year compared to 21, 8% in Q3 of 'twenty three.

John: Yes.

John: We're clear liners Q.

John: Q3 volumes were up year over year and down slightly sequentially.

John: Year over year volumes were driven by strong growth in APAC, especially in China as well as growth from the EMEA and Latin American regions on.

John: On a sequential basis clear aligner volumes were down from Q2, reflecting more pronounced seasonality and soft dental markets in the U S offset somewhat by strength in APAC and Latin American regions.

John: And the team and growing kids segment, a record 236000 teens and younger patients started treatment with invisalign clear liners during the third quarter and an increase of nine 1% sequentially and up six 7% year over year, reflecting growth across regions, especially from an invisalign first in the APAC and EMEA region.

John: <unk>.

John: In Q3, the number of doctors submitting teen or younger patient case starts was up over 6% year over year led by continued strength from doctors treating young kids also known as growing patients.

John: During the quarter, we continue to commercialize the Invisalign palate expander aligns first direct three D printed orthodontic appliance Q3 reflected steady momentum for doctors submitters and shipments in the United States and Canada, We recently announced commercial availability in Singapore, and we're excited to extend the availability of the transformative Invisalign Pat.

John: Expand our system, Steven more doctors and their patients in markets across the Asia Pacific region, we expect it to be available in other market spending future applicable regulatory approvals.

John: <unk> revenues include our very retainers retention of liners order to our Doctor subscription program, our DSP clinical training and education accessories in ecommerce in Q3 noncash revenues were up year over year, primarily due to continued growth in our retainers and the DSP program, including.

John: His line patients getting retainers.

John: DSP includes Invisalign touch up cases up to 14 stages and is currently available in North America and certain countries in Europe for Q3 total Invisalign DSP touch up cases were up nearly 30% year over year to more than 25000 cases.

John: Q3, 24 clear aligner volume from DSL customers increased sequentially and year over year, reflecting growth across all regions. The DSO business the United States.

John: Changes to outpace our retail doctors driven by our largest DSO partners smell docs and Heartland dental.

John: We also had strong growth in <unk> scanner sales from Dsos investing in their member practices and end to end digital workflows.

John: Q3 was another strong quarter for our systems and services business and year over year revenue growth was up 15, 6%, reflecting higher scanner asps and non system revenues driven by Taro alumina wind upgrades increased scanner rentals and certified pre owned or CTO leasing programs as well as increased services.

John: Revenues purpose.

John: Partially offset by lower scanner volumes.

John: On a sequential basis Q3 systems and services revenues were down two 9%, reflecting lower scanner asps and non systems revenues, particularly offset by higher scanner volumes.

Speaker Change: Yes, Tara luminous new multi direct capture technology replaces the confocal imaging technology and earlier models and has a three X wider field of capture and a 50% smaller than 45% lighter one delivering faster scanning speed higher accuracy supervision nation, and a more comfortable scanning experience.

Speaker Change: <unk> luminous currently available with orthodontic workflows as new Standalone scanner.

Whereas the one upgrade from the <unk> element Fived plus scanner.

Speaker Change: Overall for Q3, we continue to be very pleased with the ongoing adoption of <unk> Illumina scanner with ortho workflow and response from customers. We currently expect to begin a limited market release for the restore to software on the ITER Illumina scanner in Q1 25, followed by full commercialization by the end of Q1.

Speaker Change: Today, we announced new <unk> scanner product innovations to further enhance digital dentistry workflows and integrated treatment options and oral health restorative and a steady treatment in general dentistry.

Speaker Change: <unk> oral health care suite with new comparison tools that aid in multi modality assessments and personalized oral health records and reports.

Speaker Change: Invisalign outcome simulator pro in multiple treatment stimulation to drive tier side patient education about treatment options and Taro design suite with intuitive design capabilities for in practice three D printing now commercially available in selected markets.

Speaker Change: We believe the <unk> scanner innovations introduced today enable doctors to present, a variety of treatment options to their patients supporting chair side education and communications that.

Speaker Change: That helps deliver a great patient experience and supports patients in making more informed choices about their dental treatment in consultation with our doctors.

Speaker Change: We're also pleased to share that Invisalign, Japan was recently awarded the Golden Design Award for 2024 for the <unk> alumina intra oral scanner, making this the second time, we received this prestigious award in the past two years.

Speaker Change: Good design awards globally, known and recognized by domestic and international designers and is the only comprehensive evaluation of recommendation system of design in Japan.

Speaker Change: The award designation increases the recognition of reliability of awarded works of <unk> companies promotes problem solving through design and focuses on the significance of designed to people and society.

Speaker Change: Before I turn the call over to John I want to comment on the employment actions, we announced today, resulting from a global reorganization and restructuring.

Speaker Change: As part of Alliance 2025 annual operating plan process, we identified positions to be eliminated or transferred to other locations. These are difficult actions and valuable employees will leave the company.

As part of this restructuring Rajput apache's position as EVP, and MD Americas, and Chief Margaret Marketing Officer has been eliminated and we will leave.

Speaker Change: And he will leave in the fourth quarter.

Speaker Change: We thank Raj for his contributions to align over the past five plus years, leading our marketing and product innovation management as well as overseeing the APAC and Americas regions, we wish Raj well I am pleased to welcome Franklin back to align is a well established leader with a customer focus and a proven track record and orthodontics and digital dentistry.

Speaker Change: <unk> deep experience understanding and insights into what digital means for our Doctor customers is key and he is excited to be rejoining align with that I'll now turn the call over to John.

John: Thanks, Joe now for our Q3 financial results total revenues for the third quarter were $977 9 million down four 9% from the prior quarter and up one 8% from the corresponding quarter a year ago on a constant currency basis Q3, 24 revenues were not significantly impacted by.

John: Foreign exchange sequentially and were unfavorably impacted by approximately $14 $6 million year over year or approximately one 5%.

John: For clear liners, Q3, 'twenty four revenues up $786 $8 million were down five 4% sequentially, primarily from lower volume higher discounts product mix shift to lower priced products and geographic mix, partially offset by lower net revenue deferrals.

John: Q3 clear aligner revenues were not significantly impacted by foreign exchange sequentially Q3, 24 clear liners per case shipment of $1275 was lower by $20 on a sequential basis due to higher discounts product and geographic mix, partially offset by lower.

John: <unk> net revenue deferrals on.

John: On a year over year basis, Q3, clear aligner revenues were down 1% primarily from lower Asps.

John: Reflecting the impact from unfavorable foreign exchange of $11 7 million or approximately one 5% a 20% price reduction in the U K to offset a 2024 ruling by the U K tax authorities in Q1 24 that requires a 20% VAT the applied to clear aligner.

John: Sales in the U K product mix shift to lower price products geographic mix and higher discounts.

John: This decrease was partially offset by lower net deferrals and price increases along with higher volumes.

John: And higher non case revenues Q3, 'twenty four clear aligner per case shipment of $1275 was down $45 on a year over year basis due to unfavorable foreign exchange of $18 impact of UK bat of $12 product and geographic mix higher discount.

John: And partially offset by lower net revenue deferrals for price increases.

Our invisalign comprehensive <unk> product is available in North America, EMEA and in certain markets across APAC. We are pleased with the continued adoption of the Invisalign comprehensive three and <unk> III product and anticipate adoption will continue comprehensive three and three provides doctors the flexibility they want while allowing.

John: US to recognize more revenue upfront with deferred revenue being recognized over a shorter period compared to our traditional invisalign comprehensive product, which in turn allows us to benefit from a more favorable gross margin.

John: Clear aligner deferred revenues on the balance sheet decreased $6 $2 million or 0.5% sequentially and decreased $25 $8 billion or 2% year over year and will be recognized as the additional liners our ship under each sales contract Q.

John: Q3, 24 systems. It services revenue of $191 million were down two 9% sequentially, primarily due to lower asps and decreased non system revenues, mostly related to fewer upgrades, partially upset by higher scanner volumes Q3, 24 systems and services revenue.

John: <unk> were up 15, 6% year over year, primarily due to higher asps.

John: Increased non system revenues, mostly related to upgrades in our leasing rental programs and higher services revenue, partially offset by lower scanner volumes Q3, 24 systems and services revenues impact by foreign exchange was approximately flat sequentially on a year over year basis systems and services.

John: Revenues were unfavorably impacted by foreign exchange of approximately $2 9 million or approximately one 5%.

John: Systems and services deferred revenues on the balance sheet was down $1 $5 million or 0.7% sequentially and down $46 million or 15, 4% year over year, primarily due to the recognition of services revenue, which.

John: Which are recognized ratably over the service period, the decline in deferred revenues, both sequentially and year over year, primarily reflects the shorter duration of service contracts applicable to initial scanner purchases.

John: Moving on to gross margin third quarter overall gross margin was 69, 7% down <unk> five points sequentially.

John: And zero seven.

John: <unk> seven points year over year overall gross margin was not significantly impacted by foreign exchange sequentially and was unfavorably impacted by approximately 0.4 points on a year over year basis clear aligner gross margin for the third quarter was 73% down <unk> five points sequentially due primarily to.

Lower asps and higher mix of additional liners, partially offset by lower manufacturing spend.

John: <unk> gross margin for the third quarter was down <unk> five points year over year due primarily.

John: Due to lower Asps, partially offset by lower manufacturing spend on a constant currency basis clear aligner gross margin was unfavorably impacted by foreign exchange by <unk> four points year over year.

Systems and services gross margin for the third quarter was 67, 5% down <unk> seven points sequentially due primarily to mix, partially offset by lower manufacturing spend and freight cost systems and services gross margin for the third quarter was up six five points year over year due primarily to.

John: Higher asps, partially offset by higher service and freight costs on a constant currency basis assistance in services gross margin was unfavorably impacted by foreign exchange by <unk> five points year over year.

John: Q3, operating expenses were $519 5 million.

John: Down nine 7% sequentially and up four 6% year over year on a sequential basis operating expenses were down $56 $1 million due primarily to nonrecurring legal settlements advertising and marketing and employee compensation year over year operating expenses increased.

By $22 $7 million, primarily due to employee compensation.

John: On a non-GAAP basis, excluding stock based compensation amortization of acquired intangibles related to certain acquisitions restructuring legal settlements and other charges operating expenses were $472 7 million down.

John: Down five 4% sequentially and up three 1% year over year.

John: Our third quarter operating income of 162 3 million resulted in an operating margin of 16, 6% up two three points sequentially and down <unk> seven points year over year operating margin was favorably impacted from foreign exchange of approximately 0.1 point sequentially.

John: An unfavorable impacted by <unk> eight points year over year on a non-GAAP basis, which excludes stock based compensation amortization of intangibles related to certain acquisitions restructuring legal settlements and other charges operating margin for the third quarter was 22, 1% down zero point.

John: Two points sequentially and up <unk> three points year over year.

Interest and other income and expense net for the third quarter was an income of $3 $6 million, primarily due to foreign exchange compared to an expense of $3 2 million in Q2 of 'twenty, four and an expense of $4 $2 million in Q3 of 'twenty three.

The GAAP effective tax rate in the third quarter was 31% compared to 32, 9% in the second quarter and 25, 1% in the third quarter of the prior year.

John: The third quarter GAAP effective tax rate was lower than the second quarter effective tax rate, primarily due to adjustments related to tax return filings, partially offset by a small increase in uncertain tax position reserves, the third quarter GAAP effective tax rate was higher in the third quarter.

John: Then the third quarter effective tax rate in the prior year, primarily due to recognizing a one time benefit related to the application of tax guidance issued during the third quarter of the prior year.

John: Our non-GAAP effective tax rate in the third quarter was 20%, which reflects our long term projected tax rate.

John: The third quarter net income per diluted share was $1 55 sets up sequentially 27 sets and down <unk> <unk> compared to the prior year, our EPS was favorably impacted.

John: Due primarily due to foreign exchange by <unk> on a sequential basis and unfavourably impacted by <unk> on a year over year basis.

John: On a non-GAAP basis net income per diluted share was $2 35 for the third quarter down 6% sequentially and up 21 cents year over year.

John: Moving on to the balance sheet as of September 32024, cash and cash equivalents.

John: $1.041 billion nine up sequentially $285 million and down 197 $1 million year over year of our 1 billion $41 9 million balance 285 million was held in the U S and 700 <unk>.

John: $6 $5 million was held.

John: By our international entities, we have $500 million available for repurchase of our common stock under our January 2023 repurchase program beginning in Q4, 'twenty 'twenty four and continued into Q1 25, we expect to repurchase up to $275 million of our common stock.

John: Through either a combination of open market repurchases or an accelerated stock repurchase agreement Q.

John: Q3 accounts receivable balance was $1 billion.

John: $10 $6 million down sequentially. Our overall days sales outstanding was 93 days up approximately four days sequentially and up approximately eight days as compared to Q3 last year cash flow from operations for the third quarter was $263 $7 million capital expenditures.

John: For the third quarter were $29 8 million, primarily related to investments in our manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to $233 $9 million.

John: Turning to our 2024 outlook, assuming no circumstances occur beyond our control, including foreign exchange, we expect the following business outlook for the fourth quarter.

We expect Q4 24 worldwide revenues to be in the range of 995 million.

John: Two 1 billion.

John: 0.01 5 billion.

John: <unk>.

John: We expect Q4, 'twenty four clear aligner volume and Asps to be slightly up sequentially. We expect Q4 dollars 24 systems and services revenues to be up sequentially consistent with typical Q4 seasonality. We expect Q4 'twenty for GAAP operating margin to be slightly lower than 14% primarily.

We expect Q4, 'twenty four clear aligner volume and Asps to be slightly up sequentially. We expect Q4 dollars 24 systems and services revenues to be up sequentially consistent with typical Q4 seasonality. We expect Q4 'twenty for GAAP operating margin to be slightly lower than 14% primarily.

John: Due to restructuring charges related to severance for impacted employees we.

John: Estimate these restructuring charges will impact Q4, 24, GAAP operating margin by approximately three points.

John: We anticipate Q4 24, non-GAAP operating margin to be slightly up sequentially for fiscal 2024, we expect the investments in capital expenditures to be above $100 million.

John: Capital expenditures, primarily relate to building construction and improvements as well as manufacturing capacity in support of continued expansion.

John: As we have said many times, we continue continually evaluate and evolve our business model to provide doctors with the best tools and resources that they need to help them treat their patient while managing our operations responsibly today's restructuring action is designed to adjust our business to more closely align with the existing business.

John: Environment, we expect the restructuring actions, we announced today will give us margin accretion for full year in 2025, even as we scale up our next generation direct three D printing fabrication manufacturing with that I'll turn it back over to Joe for final comments Joe.

Joe: Thanks, John and closing for Q3 I was pleased to report another strong systems and services quarter and I'm excited about our next generation luminous scanner and this continued positive impact on our customers' digital workflow with ortho software today and restored of software expected to be released in Q1 of next year.

Joe: Q3 was also strong for our Invisalign clear aligner business in the Asia Pacific EMEA and Latin American regions for those markets are our fastest growing regions and helped the balance outperformance in other geographies.

Joe: We understand that operating environment is more challenging and we're adapting and driving our growth strategy. Despite continued weak consumer demand trends, especially in United States and a sluggish dental market.

Joe: In the face of inflation and high interest rates less patient traffic and longer conversion cycles, especially for adult patients orthodontists and dentists are facing challenges in practice growth and profitability that impacts the way many of them approach orthodontic treatment.

Joe: It is more important than ever that we differentiate our products and services to become the best partner for our customers by creating solutions that drive more patients to their practices accelerates treatment conversion and improve their experience and bottom line.

Joe: As the innovation leader in digital Dentistry technology, it's our job to ensure we had the organizational structure focus and rigor to help doctors realize the full potential of this opportunity by doing more to engage our doctor customers and support their practice growth and to help consumers and potential patients connect with these practices to get the smiles.

Joe: We continue to evaluate and evolve our business to provide doctors with the best tools and resources they deserve.

Joe: <unk> is the leader in digital Orthodontics, and we're committed to supporting Doctor customers and the future of digital innovation, we're committed to supporting Dr customers and the future of the digital innovation and we're excited that next wave of growth drivers that we believe will revolutionize the orthodontic industry and scanning software and direct three D. Printing we are in the midst of several key technology.

Developments that are critical for the business, we will take the needed actions to get us through this while at the same time investing in the key areas that we know will transform our industry and our business the restructuring actions we.

Joe: Announced today focus on ROI investments in activities that drive revenue and enable margin expansion, while making room for investments in critical future technologies, including scaling our direct three D printing operations with that I. Thank you for your time today I look forward to updating you on our continued progress over the coming quarters now I'll turn the call back over to the operator.

Joe: For questions.

Operator.

Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star one again, if you would like to remove yourself.

Speaker Change: From the Q.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we pull for questions.

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

Brandon: Hey, everyone. Thanks for taking the question.

Speaker Change: I wanted to start on a little bit just the macro backdrop.

Brandon: Last year the year over year comp also had a little bit of weakness in the September period, if I remember in 2023, so things are a little bit worse now I'm. Just curious if you can talk about did things get worse from last year, which was already a little bit of a little weak, but in case that doesn't make sense. The crux of the question is essentially just talk to us about where macro.

Brandon: We are going into year end is it stable I think you guys have used that cruise before is it worsening.

Speaker Change: Any thoughts that you guys are seeing on end markets.

Speaker Change: Yes, Bryan it's Joe I'd say first of all third quarter is always a tough quarter because of the possibility that we have with <unk>.

Speaker Change: Europe shutting down in different.

Speaker Change: Different countries being on vacation at different times, so I wouldn't say that the third quarter. This year was worse in some way in the third quarter last year I would just say that it was the.

Speaker Change: Kind of seasonality in a difficult market, but we tried to call out as you could see is that the United States market seems to be one of our most affected.

Speaker Change: One of our largest markets too and so that's been a challenge in that sense also Johnny one.

Speaker Change: That's accurate.

Speaker Change: Okay and then just my follow up just quickly as we look towards 2025, right and if we just assume and.

Speaker Change: End markets are stable rate, let's say things remain stable how should we think about what the topline on this business could do in <unk>.

Speaker Change: But the P&L could look like in a year, where things are stable rate you guys are somewhat macro.

Speaker Change: Hindered right now so is it a continuation of what we're seeing in 'twenty four are there reasons to get a little bit more excited and accelerate the business.

Speaker Change: Expectations are.

Speaker Change: Around that would be helpful. Thank you.

Speaker Change: Yes.

Speaker Change: Joe again.

Speaker Change: Say, we like to see some increased consumer confidence, obviously in United States and just an economy that feels better to consumers. We feel that this is more of an external issue than it is an internal issue. When you look at a line overall and our growth rates, particularly in United States and so any kind of increase in economic activity and increasing consumer confidence, we think we'd be really pop.

Speaker Change: For our customers and then for a line.

Speaker Change: Thanks, Brandon next question please.

Speaker Change: <unk>.

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

Speaker Change: Hey, Jay Hagan.

Jon Block: Good afternoon, Joe Joe maybe just to start with you.

Jon Block: It picks up on that last question anything to call out with the different results in the U S versus international in other words I think.

Jon Block: Got this right, but pieces up two 5% globally, but as you mentioned down in the U S. So is it just the consumer or is there anything to focus on from a go to market strategy do we have to think about incremental competition that might be more acute in the U S versus O U S. Just would love your thoughts on that dynamic.

Speaker Change: Yeah, John It's a good question I'd say no it's mainly external when I look at it I don't think theres been any dramatic changes from a competitive standpoint in the marketplace, but I look at our ortho channel and are our dental channels Theyre, both challenged in the sense of patient throughput and their ability to close I was just talking to some of our largest dsos. This morning.

Speaker Change: The comparison is similar this is and these are the close rates and our customers are more difficult to its customers come in we know they want to seek treatment, but theyre not really confident in the sense of their ability to pay for it or wanting to pay for it right now and the economic situations. So I wouldn't call out anything externally from a competitive standpoint or whatever this is more of a.

Speaker Change: We feel as the external economic and consumer confidence.

Speaker Change: Issue in the United States, but we see John the same thing in Europe, but Europe has been a little better and a little different because all of those countries have different situations, but it's more pronounced in the United States because it's so large and so uniform in that sense.

Speaker Change: Got it okay. Thanks, and then second question will be sort of a famous two parter, but John just to start I just want to be Crystal clear you guys were committing to overall <unk>.

Speaker Change: <unk> expansion and 25, if that's correct it will be somewhat neutral by the direct three D printing fabrication initiative.

Speaker Change: Maybe if you can verify that and then any thoughts on the topline that would just be first question or I'll call. It part a important journey.

Speaker Change: Sorry go ahead John.

John: No I was going to give the op margin. The op margin, yes, we've made the restructuring actions given us room. So that we can get the the year over year margin accretion, while still investing in all of the things that we've talked about with direct fab in biomedical and check in alumina and so on so we're going to continue making those investments.

Speaker Change: The restructuring gives us some room to just show that margin accretion.

Speaker Change: Okay and again the other part of that question was any thoughts on the top line. If you are committing to the AUM expansion, what does that mean from a top line perspective in the second one Joe just.

Speaker Change: If I can pivot and if you can talk to some of the initiatives out there in other words. It seems like costs goes off to a slow start for our checks do you need to be in the store and then more recently, we picked up on a new financing initiatives. It seems like Youre rolling out as sort of guarantees. The case approval denial has had been a problem where are you with that initiative.

Speaker Change: And when do you expect it to have a more prominent impact on the overall P&L. Thanks guys.

Speaker Change: Hey, Jonathan.

Speaker Change: Just frame your question the first one like Costco.

Speaker Change: We've had some success in Costco, but its nothing thats material for the business right now, but I think you have to look at that is as we do internally. It's a brand strategy. We are the number one brand in the world. We're looking at different areas of how we can leverage that brand to try to encourage consumers more in the sense of entertaining invisalign treatment as far as financing we know the customers right.

Speaker Change: Now were challenged in the sense that they do want.

Treatment from an orthodontic standpoint, but they are really challenged from a financial standpoint, and John and the team are doing all they can and also our DSO Big DSL partners are doing what we can to offer the type of financing that we give consumers more confidence to move forward.

Speaker Change: And then overall revenue John will give more of an update as we get closer into into 2025, but as we've said and as we've made the adjustments we're committed to driving growth investing where we can find that growth balancing our investments on some of the.

Speaker Change: New technologies that we have that we know will transform this business.

Speaker Change: So that's that's all at stake now and things that we're mindful of but we will give more of an update on 2025 as we get closer.

Speaker Change: Thank you.

Speaker Change: Youre welcome John.

John: Thank you.

Speaker Change: Our next question comes from Elizabeth Anderson with Evercore ISI you May proceed.

Elizabeth Anderson: Hi, guys.

Elizabeth Anderson: Hi, I'm also going to try my hand at it at a two parter as well.

Elizabeth Anderson: This is the one I mean as you talk about the restructuring is your friend coming back to the organization I think you hinted at it a little bit I know, it's obviously a little bit early.

Elizabeth Anderson: At a high level of quality and thought to be fine on this to like what what do you need when you're what are you sort of like what is he going to sort of drive and when do you is there sort of like an inflection that you are thinking about how he operates.

Elizabeth Anderson: Differently and.

Elizabeth Anderson: As a corollary to that like I.

Speaker Change: I think you talked about getting closer to the consumer if you could talk maybe about that portion of it and then secondarily. It was nice to hear the positive commentary about China, So love to hear a little bit more about that market and sort of how youre thinking about the consumer outlook for that market as well. Thank you.

Speaker Change: I guess just with its Joe on Frank coming back frankly was had been in the business from 2013, I think he left us in 2022 for another type of venture.

Speaker Change: This business is about it's about three things one is relationships. This is not a transactional business. This is one where you want to have good relationships and good trust with doctors and frankly bring San from a leadership standpoint, secondly, as you would need a good understanding of the technology and types of programs that can help to drive growth.

Speaker Change: <unk> really an expert in that area. He has shown that over the years. When you look at our DSO program today, and it's been really effective Frank happy to put that together back when I first arrived.

Speaker Change: Back in back in 2015, 2016, and really made that happen thirdly, as you need someone with scope in the sense of understands the industry's understands the competition knows what really makes doctors.

Speaker Change: Decisions, an orthodontist and how they make decisions versus the general practitioners.

Speaker Change: Frank has has all of that and he is a trusted commodity within the business. So we're excited to have him back.

Speaker Change: And then the last part of your question Elizabeth on China, We're pleased with China results. So to more doctors are pleased with the utilization. It's a great teen season for us in China, we saw good adoption of various products, including Invisalign first and others, where we.

Speaker Change: We saw good utilization there so China for us from a teen standpoint, especially.

It out really well for us.

Elizabeth Anderson: Thank you.

Speaker Change: Welcome.

Speaker Change: Thank you.

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

Speaker Change: Hi, Jay.

Jason Bednar: Hi, there good afternoon.

Jason Bednar: To come back and follow up on one of John's questions.

Jason Bednar: And no out of its been trying to estimate the margin upside or the margin impact from three printing over time, just given the cost benefits you can realize from initiatives.

The common today here with the restructuring offsetting some of the maybe some of the investments youre, making and it would seem like that the this initiative, maybe dilutive to gross margins and 25, maybe just help US bridge. The thinking that you are making these comments today reconcile some of those comments if you and if you can quantify.

Jason Bednar: Kind of the puts and takes.

Jason Bednar: Yes.

Speaker Change: I'll take my best at this so overall, we were talking about margin, we think that the restructure that we're making is going to be.

Speaker Change: Margin accretive on a year over year basis. Despite all the investments you're right from a gross margin standpoint, as we scale things that direct fab printing, while it gives us a lot of capability and a lot of benefits for our doctors. There is a higher cost initially until we start to scale that but we are committed to that.

Speaker Change: <unk> accretion.

Speaker Change: Accretion on a year over year basis for next year. Despite that and then as we have new products that come and we know that doctors are going to love what we what we're bringing to market that will scale up and as that scales up then that really drives the overall productivity that we will see on the gross margin side, primarily from the the material.

And in a less material that we need to go into the product.

Speaker Change: Alright, understood and I guess, maybe one follow up to there and then another separate follow up but just any timeline on when we might see the gross margin benefits or expansion off of historical norms.

Speaker Change: Once that three D printing does scale and then just.

Speaker Change: With the teen season, maybe now mostly complete.

Speaker Change: What's your assessment of that part of the market Joe inside the U S outside the U S.

Speaker Change: Data, we see it's been a bit more mixed between kind of the clear aligner and bracket and wire part of the markets the past several months.

Speaker Change: Your business has grown decently, the past year and a half so just.

Speaker Change: Do you have better visibility on this part of the market.

Speaker Change: I'm just trying to understand this again in the context of the broader broader comments, you're making on the U S.

Speaker Change: A little bit softer.

Speaker Change: So Jason this is John I'll take the I'll take the first part of your question on on the gross margin look we've talked about it being like a two to three year journey to be able to help to scale. This up I can say this we're very pleased with the progress that we're making around resin and being able to scale that and get it at the right cost. So that's good progress there as well as on the equipment side, we're making.

Good.

Speaker Change: Progress around being able to scale up the actual manufacturing about this but.

Speaker Change: Terms of when you scale this and get it to a larger extent its really two to three years, but you will see some new products that we have on the direct fab showing up next year and in doctors' hands to give them those capabilities.

Speaker Change: Just on the teen market I mean, when you look at the international Teen market. Obviously, you had really good success in Asia.

Speaker Change: During the quarter we have.

Speaker Change: Really a terrific portfolio when you think about our Invisalign first product now have invisalign palate expander.

Speaker Change: With that also will be called Mandibular advancement with occlusal blocks, which are used for class II is usually for patients between 10 and 11 years old. So when you look at those pre teen ages, we have a really good portfolio of the lineup in that sense. So I think youre seeing that come through with our sales overall.

When you reflect back on the United States, obviously, our orthodontic customers are really challenged and 80% on an average 75% of what they do routines.

Speaker Change: And some of the close rates on teens, just talking to some of the dsos in different different doctors that we have on the orthodontic side. The close rates are even tougher on the teen segment, which has been in the past too and so at times like this where there are pressed for traffic in their press for margin they will reflect back with wires and brackets to to support the profitability of their practice, we know that we understand.

Speaker Change: Stand it it's our job to communicate to consumers and to orthodontist, what the benefits are particularly this early treatment and what we can do and so.

Speaker Change: This is a doctor to doctor situation, but again, it's an excellent environment, where consumers are concerned with their pocket books, right now and they're reluctant.

Speaker Change: To make decisions and close at times.

Speaker Change: Obviously, the orthodontist responding from an individual practice standpoint accordingly.

Speaker Change: All right very helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from David Saxon with Needham <unk> Company you May proceed.

Speaker Change: Great. Good afternoon, thanks for taking my questions.

David Saxon: I'd like to start on <unk> actually.

David Saxon: I'd love to get some color on how we should think about <unk> growth with the ongoing alumina rollout, particularly literally with the restorative workflow coming out early next year, but then in the context of interest rates remaining high and then lapping comps from that initial ortho launch.

Speaker Change: Yeah, David I think you have to start with.

David Saxon: I think I get to just to your question, there's a lot of pressure on capital equipment sales in the marketplace given what.

David Saxon: What we're talking about with customers being challenged in that way I think what you have to do with Lumina and think about it it's truly a brand new platform, it's not an iteration of old technology like the next <unk>.

David Saxon: Days of.

David Saxon: Our older technology, it's something that's really new and it's captured doctors attention I think it's.

The size of our sales and how well we've done particularly in the traditional third quarter was a little bit slower I think has surprised a lot of people. So I think this is a testimony to the technology. We brought forward in the uniqueness of that technology, why we've been able to.

David Saxon: To be able to have those kinds of sales at this point in time, we're excited about the restorative coming on in the first quarter. The team is making good progress on that.

So overall, it's just a great foundation to grow from them, what's wonderful about that platform to us, we'll iterate from that platform going forward in different areas that will really help us to diversify the product line and target certain applications in the future and two things that really have helped <unk> and kind of go through this especially with the new product and so it's really given us a lot of opportunity on.

David Saxon: Other products that we sell within the <unk> family. So all the way from <unk> that we have certified pre owned all the way to the <unk>, we actually sold a lot of <unk>. This.

David Saxon: Past quarter, so that really helps us and then he added part a tougher economy, we will give it a lot more flexibility to doctors to kind of sell that way what they want to buy some don't Wanna purchased outright because of the economic conditions.

David Saxon: Conditions and so on so we see a lot more leasing or in other places, we see more rental and for US. That's a that's a great trade it will get that recurring revenue off of those different selling opt.

David Saxon: Options, but then that's great when a doctor uses <unk>, because we know they'll do use more visibly.

Speaker Change: Great. Thanks for that and then on the U S side on the clear liners can you give more color on kind of where that weakness is actually coming from the ortho channel or is it with GPS and then anywhere specifically from a portfolio perspective. Thanks, so much.

David Saxon: Yes.

Speaker Change: It's almost equal in both we see pressure on the ortho side.

Speaker Change: I mean, if you look at any kind of industrial data right now as far as patient.

Speaker Change: Patients entering the dental industry right now the GP space. It's challenged overall, so we see pressure on both of those areas for the same reasons, we talked about before.

Thanks, David next question please.

Thank you.

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

Jeff Johnson: Hey, Jeff Hey, Joe how are you.

Jeff Johnson: Good afternoon, guys. So Joe let me ask on one high level question and then maybe just a modeling question for John but from a high level.

Jeff Johnson: R&D was down 4% year over year this quarter Youre, making the head count reductions capex at $100 million is well below even the last couple of years closer to $2 50, those years Youre talking about increasing the buyback margin improvement next year.

Jeff Johnson: All of these comments.

Jeff Johnson: Point to a more mature company and that's what I heard.

Speaker Change: That's not a critique at all I think that's where we all know you are and see where you are so I guess my question is how does this change your management.

Speaker Change: Style user management objectives over the next few years, obviously you came into this business really pushing the top line, but is there an evolution that's ethnic along with how you lead this company and leads us.

Speaker Change: Organization as well.

Hey, Jeff I think it's a really good question I'd say, we're responding to the times here don't make it a reflection of what the opportunity. The company has at all we're so underpenetrated not just in the United States or North America, or whatever but all over the world and you know there is hundreds of millions of people that need to have their teeth straightening and the only way you could ever do that in a broad sense is with digital.

Speaker Change: Orthodontics, So don't Miss that point, Jeff we are going through a spell right now and what you see with the R&D down in capex or different things like that Capex. As you know, we're not putting on any more manufacturing right now we have enough manufacturing and we're still bringing up our <unk> Poland plant right.

Speaker Change: We're being responsible from our business leadership standpoint for our shareholders in this specific situation, but at the same time, Jeff we're pouring a lot of money into three D printing five minute Quinn check next phases of alumina. All these things will really enter into just another growth cycle with.

Speaker Change: This market starts to come back with brand New Tech now this is the technology of the future. If you really really wanted to play in digital orthodontics. So what we're doing is funding that being responsible to our shareholders, but not losing our enthusiasm for what we think our opportunities in the future.

Speaker Change: Yeah, No that's all fair.

Speaker Change: You are holding a sell side of that or at least an investor event, a week from Saturday would that be assigned to evaluate though that LLP that 20% to 30%.

Speaker Change: Intermediate longer term top line growth expectations.

Speaker Change: I think until we get a better read on what the economy is going to do Joe I think.

Speaker Change: That 20 to 30 represents how we feel that market can grow in the future, but we have to have the right economic conditions, particularly in the biggest markets in the world like the United States that we participate in.

Speaker Change: Okay, John one modeling question.

Speaker Change: I listen to the Asps I think.

Speaker Change: Quick math on that is it sounds like between the issue.

Speaker Change: Issue that should anniversary at the start of next year and just remind me if I've got the timing on that correct, but should anniversary at the start of next year.

Speaker Change: <unk> headwinds should be we will see what the U S dollar post election year, but it should be reasonably moderating from here.

Speaker Change: I think ex currency and ex VIP had about a 111% down asps year over year. One is that math correct and two is that about what we should be thinking about as we head into 'twenty one.

Speaker Change: And hopefully FX normalize a little bit.

Youre right about the FX hopefully normalize it it's hard to predict.

Speaker Change: Does anniversary at the beginning of next year and what we've said in the past that <unk> would be flat to slightly down. So your percentage youre talking about is in that range.

Speaker Change: Thank you.

Speaker Change: Yeah. Thanks, Joe.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Kevin Caliendo with UBS you May proceed.

Speaker Change: Hi, Kevin.

Kevin Caliendo: Hey, Thanks, Hey, Joe Thanks for taking my question.

Kevin Caliendo: This is maybe a little bit off.

Kevin Caliendo: But just wondering if you guys have ever done this analysis in terms of thinking about the.

Kevin Caliendo: The venn diagram between people purchasing DLP ones in people going and getting invisalign treatments, because the cost for adults anyway, it might be close and I'm. Just wondering if there's any if you guys had seen any correlation to maybe that's part of the weakness in the adult market as the shortages are in.

Kevin Caliendo: GOP ones have come down or people may be investing $5000 that way as opposed to into clear liners have you guys done that analysis youre seeing anything.

Speaker Change: I can't say that we've been we've overly quantified it Kevin we hear that a lot. There's a lot of medical device companies to kind of talk about that that might be corollaries in the sense of what youre seeing with the.

The GOP marketplace overall, I can't say that it's not a factor because it's obviously a high expense and something thats kind of on an annual basis in line with what it would cost to do an invisalign treatment, but I havent wanted to lean into that as one of the drivers here I think it's just overwhelmed by.

Speaker Change: And the economy, right now where consumers don't have a lot of money in their pocket or confidence about what it's going to be in the future in GOP might play a role in it it might not I think also you can look around the world also in some of the markets like Continental Europe, that's not necessarily is affected by maybe United States is and I can't say I've seen that that piece too so.

Speaker Change: There's an old saying that correlation doesn't mean causation.

Speaker Change: And so I would stay with that right now.

Speaker Change: Fair enough Thats helpful.

Speaker Change: I know you don't want to talk about 'twenty, five, but let's just think about the fourth quarter and sort of what you are implying for your guide in.

Speaker Change: And exiting the year sort of midpoint of like 5% should we just.

Speaker Change: Sort of take that as a starting point.

Speaker Change: Adjust or whatever we think the economy might do that might impact the adult side of the marketplace more and then think about alumina.

Speaker Change: As an add on to that I mean is that sort of how youre thinking about the business.

Speaker Change: Yes, I think.

Speaker Change: Obviously give more as we get closer to this.

Speaker Change: I think look you come out of the year that it's probably a good starting point to be able to build off of that and say look what do you think is going to happen to the economy, we're going to know more maybe about interest rates and election and other things will kind of come come about and we'll have a better view of that but I think it's a good starting point as you think about next year, you're going to add in some of the things that we've talked about with.

Speaker Change: With alumina of restorative and other things and then build off of that but we will give more details as we get closer obviously.

Speaker Change: I appreciate it guys. Thank you.

Speaker Change: Thanks, Kevin.

Kevin Caliendo: Thank you.

Our next question comes from Michael Cherny with Leerink Partners you May proceed.

Michael Cherny: Hi, Good afternoon, maybe just one.

Michael Cherny: Following up on a question earlier on the sum of three D printing work in the fab.

Michael Cherny: Related to products that you are going to be pushing out as you think about the potential for.

Michael Cherny: The introduction to those products how are you thinking given that this is a bit of a obviously different manufacturing approach that you've taken before.

Michael Cherny: About what the rollout will look like will look any different in terms of the types of.

Beta customers that you're going to be pursuing.

Michael Cherny: Should we think about.

Michael Cherny: Tracking triglyph, great word but.

Michael Cherny: Making sure that youre hitting on the right customer experience the right overlaps great introduction process as you get obviously could be a very scalable set of products that are new.

Michael Cherny: Opportunities out to market.

Speaker Change: Hey, Michael It's Joe.

Just taking your question is as you think about it when you when you think of what we do today when you vacuum form.

Speaker Change: Obviously, you lose a huge amount of opportunity to differentiate.

Speaker Change: The geometry of that particular product and how it can help a doctor.

Speaker Change: The one sector of our business that was I think it will appreciate this the most will be the orthodontic community to do a lot of.

Speaker Change: Class II difficult cases, young teens, and we'll be able to produce products that are.

Speaker Change: More and more tailored to the consumers in that specific condition than what we could do today and so we would offer the product that way and.

Speaker Change: We think it'd be very appealing to them.

Speaker Change: <unk> from general Dentistry standpoint, it's a big part of our marketplace too. There's a lot that we can do to help them with this product line also so.

Speaker Change: Hope I am answering your question, but the design freedom that we have here in the end and we have to prove it when you can use relatively different thicknesses.

You can do different configurations for different kinds of clinical issues that a patient might have we expect to have more predictability and a sense of how fast you can move those teeth more certainty and how long those cases will take.

Speaker Change: I think doctors are going to appreciate that but I think as as we're certain of that patients will appreciate that too and we certainly will communicate that to patients.

Speaker Change: No. It certainly does and then maybe just one quick question I promise is not an attempt to go at 25 guidance, specifically, but obviously the you've mentioned numerous times the UK bat that's impacting asps.

Actually this.

This year is there any outliers or onetime dynamics that we should be thinking about or contemplating relative to next year.

Speaker Change: Something that likely you came out or anything anything else that.

Speaker Change: Could factor into the modeling that's not normal.

Speaker Change: Michael This is John nothing nothing that we would say is not normal I mean, the nice thing about the anniversary of the U K that is it does anniversary obviously, if we're doing things to try to work with the government there to explain and ideally not half of that on our products because it affects what goes to doctors and how much they pay.

Speaker Change: And then pass it on to potential patients but.

Speaker Change: There's nothing like that that we would see on the horizon is that type of impact.

Speaker Change: Thanks, Michael next question please.

Speaker Change: Thank you.

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

Erin Wright: Great. Thanks, Keith speak a little bit more on just the nature of the restructuring outside of the executive teams today, I guess the timeline scope magnitude.

Erin Wright: Now you can give us in terms of quantifying that that benefit from a profit perspective into 2025.

Erin Wright: That translates into just broadly speaking, but also just what how this came about in terms of whats on the table. What were your changes that you were thinking about in terms of the business outlook, our backdrop that really changed in your view since its been its foundation kind of consumer backdrop for some time.

Erin Wright: Guess, what else has changed.

Speaker Change: Yes, and I can try to give you kind of an overview of where things are at just as part of our normal process, you're always evaluating where are you going to make investments where you're going to funded how are you going to fund it and so on so this is part of our process that we go through where we're planning out where we're going to end up for the year and what does it mean for next year and how do we grow.

Erin Wright: And do all the things that we wanted to talk through.

Erin Wright: This type of restructuring this is about <unk> of what we did last year last year.

We did about $3 50, or so just over 300. This is close to 700 people.

There is some restructuring charges, we talked about that this year, but really what it does and what I'll go back to what Joe was talking about we want to be focused in on what we can drive as our business. What we can do from a growth platform standpoint, whether it's the direct fab.

Speaker Change: Five minute Klimczak.

Speaker Change: Lumina restored if we want to fund those but we've got to also show some margin accretion and we want to be margin accretive on a year over year basis. So we can fund what we need to fund to really be driving our business.

Speaker Change: And we will fund it based on some of these changes here, but it really set us up for a physician to be able to show that margin accretion next year.

Speaker Change: Okay, Great and then as we head into the fourth quarter.

Speaker Change: And I guess does your guidance assume a continuation of the theme in terms of the sluggish environment in the U S or does it have any sort of changes across the other regions that you anticipate either continued acceleration or deterioration across other kind of markets or geographies here. Thanks.

Speaker Change: Eric.

Eric: Just kind of assumes what we've seen.

Speaker Change: As we as we pointed out U S. North America, not great kind of assume the same.

Speaker Change: Other places we actually saw good improvement in parts of.

Speaker Change: Asia Latin America Middle East other places and we continue to invest and expect to grow in those areas. So like any forecasts you take the best information you have at the time, we try to translate to what that's going to mean for the for the upcoming quarter and Thats, what we did for fourth quarter. Thanks. Sarah next question. Please.

Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone.

Speaker Change: Our next question comes from Mike <unk> with Bank of America, You May proceed.

Speaker Change: Thanks, guys.

Mike <unk>: A couple of clean up follow up questions. One I think just kind of following up on what Aaron touched there and John you touched on this as well.

Speaker Change: Two years in a row now and again part of that is just natural attrition natural cleanup of the business, but should.

Speaker Change: Should we expect this to be sort of the normal going forward in terms of the restructuring you guys previously kind of held off on that for a while and you're very famous during Covid you actually reinvested in you refused to come up and others are cutting.

Speaker Change: So.

Speaker Change: Just.

Speaker Change: All of a sudden in terms of how we should factor that in going forward.

And comparing this time with Covid is a stretch my mic overall.

Speaker Change: We didn't lay anybody off tour in Covid.

Speaker Change: Our expectation was that that wouldn't last as long as it did but fortunately that was the decision to pay off well what comes on the market came back so strongly right now we're looking at just a sustained economic.

Speaker Change: Malaise I would call it in the United States and we're responding accordingly.

Speaker Change: We haven't lost our enthusiasm and our belief in how this business can grow in this market potential of this business what youre seeing in our restructuring is we're responding external pressures that we see and being responsible from a business standpoint, and being sure that we fund. These key three technologies that we know will lead into the future from.

Speaker Change: Overall digital orthodontics standpoint, and Thats the key point of it now, it's being able to make space and.

Speaker Change: Have a budget to be able to fund. These key technologies, because we know that's going to drive the future and it's doing things that we know no. One else can do no. Other company can do what we're trying to do with it. So it's really important for us now to keep that focus.

Speaker Change: Through these budget changes and so on.

Speaker Change: It's what companies do to be able to push pushed to future and do it in a responsible way where we could show margin accretion. We know we always talk about levers that we could pull or not Paul.

Speaker Change: This is a part of it and it just comes about it on a on a more annual basis as you assess the current environment.

Speaker Change: Okay, and then quick cleanup if I could on the Asps you talked about earlier in the Q&A you touched on some of the factors that impacted you in the quarter and your thoughts about next year, but just on <unk> I think you've guided.

DSP sequentially.

Speaker Change: And you've had some of these mix dynamics.

Speaker Change: Discounting and FX for a number of quarters in a row.

Speaker Change: What are you seeing so far through October that's giving you confidence that you'll be able to reverse that because I think some of those headwinds don't wait till next year.

Speaker Change: Well I think part of.

Speaker Change: Really all our advantaged programs kind of go from there.

Speaker Change: And at the end of June and then they reset as you come into.

Speaker Change: Into the second half so third quarter kind of took the advantage changes so that shows up in discounts. So I don't expect that to that to continue and then where you do have the benefit.

Speaker Change: In our case, where Europe becomes a bigger part of our business in the fourth quarter in China and some of the other businesses become less that's good from a mix standpoint, we have a higher ASP.

Speaker Change: In Europe, and a lower ASP in China, so, whereas that mix hurt us from a country standpoint, and a lower ASP in the third quarter, we actually get the benefit on that in the fourth quarter based on seasonality.

Speaker Change: Okay. That's helpful. Thanks.

Speaker Change: Thank you Michael Yeah. Thanks, Mike.

Speaker Change: And we have reached the end of our Q&A session I'll now turn the call back over to Shirley Stacy for closing remarks.

Shirley Stacy: Great. Thank you operator, and thanks, everyone for joining us on the call today, we look forward to speaking to you at upcoming financial conferences and for those of you that we will see at the end of the line Ortho summit in Las Vegas next week.

Shirley Stacy: Any other questions. Please feel free to contact Investor relations 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.

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Speaker Change: Greetings welcome to the Alliance third quarter 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note. This conference is being recorded I will now turn the conference over to your host Shirley Stacy with align technology you may begin.

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.

Speaker Change: <unk> third quarter 2024 financial results today via business wire, which is available on our website at investor <unk> check Dot Com Today's conference call is being audio webcast and will be archived on our website for approximately one month as a reminder, the information provided and discussed today will include forward looking statements, including statements about aligns future events and <unk>.

Speaker Change: Outlook. Please.

Speaker Change: 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.

Joe Hogan: Joe Thanks.

Joe Hogan: Thanks, Shirley good afternoon, and thanks for joining us today on our call today I'll provide an overview of our third quarter results and discuss a few highlights from our two operating segments systems and services and clear liners, John will provide more detail on our Q3 financial performance and comment on views for the remainder of the year following that I'll come back and summarize a few key points in <unk>.

Joe Hogan: On the call to questions.

Overall Q3, 'twenty four results were mixed and reflect strong system services year over year revenue growth as well as good clear aligner volume and Asia Pacific EMEA, and Latin America regions, partially offset by declines in the United States.

As recently reported by many analysts and third party research firms the underlying dental market in the United States remains sluggish and our Doctor customers site similar trends Q3, 'twenty four revenues of 978 million increased one 8% year over year and clear aligner volumes of 617000 were up to.

Joe Hogan: 5% year over year, despite strong growth from systems and services revenues, a record 87000, or 4000 87000 Doctor Submitters, a record of 236000 teens, starting treatment driven by record Teen case starts in China, and a record 25000 of DSP Invisalign touch up.

Joe Hogan: <unk> total revenues for Q3 were slightly below our Q3 revenue outlook in part due to more pronounced seasonality for clear aligner and expected as well as continued weak consumer sentiment and a soft dental market, especially in the United States.

Joe Hogan: Excuse me 24, non-GAAP operating margin of 22, 1% was better than expected and increased year over year compared to 21, 8% in Q3 of 'twenty three.

Joe Hogan: For clear liners.

Joe Hogan: Q3 volumes were up year over year and down slightly sequentially.

Joe Hogan: Year over year volumes were driven by strong growth in APAC, especially China.

Joe Hogan: As well as growth from the EMEA and Latin American regions.

Joe Hogan: On a sequential basis clear aligner volumes were down from Q2, reflecting more pronounced seasonality and soft dental markets in the U S offset somewhat by strength in APAC and <unk>.

Joe Hogan: Latin American regions.

Joe Hogan: And the team and growing kids segment, a record 236000 teens and younger patients started treatment with invisalign clear liners during the third quarter and an increase of nine 1% sequentially and up six 7% year over year, reflecting growth across regions, especially from an invisalign first in the APAC and EMEA region.

Joe Hogan: <unk>.

In Q3, the number of doctors submitting teen or younger patient case starts was up over 6% year over year led by continued strength from doctors treating young kids also known as growing patients.

Joe Hogan: During the quarter, we continue to commercialize the Invisalign palate expander aligns first direct three D printed orthodontic appliance Q3 reflected steady momentum for Doctor Submitters and shipments in the United States and Canada, We recently announced commercial availability in Singapore, and we're excited to extend the availability of the transformative Invisalign panel.

Joe Hogan: Expand our system, Steven more doctors and their patients in markets across the Asia Pacific region, we expect it to be available in other markets spending future applicable regulatory approvals.

Joe Hogan: Noncash revenues include our very retainers retention of liners order to our Doctor subscription program, our DSP clinical training and education accessories in ecommerce in Q3 noncash revenues were up year over year, primarily due to continued growth in our retainers and the DSP program, including non Invis.

Joe Hogan: <unk> line patients getting retainers.

Joe Hogan: DSP includes Invisalign touch up cases up to 14 stages and is currently available in North America and certain countries in Europe for Q3 total Invisalign DSP touch up cases were up nearly 30% year over year to more than 25000 cases.

Joe Hogan: Excuse me 24 clear aligner volume from DSO customers increased sequentially and year over year, reflecting growth across all regions. The DSO business in United States continues to outpace our retail doctors driven by our largest DSO partners Smile docs and Heartland dental.

Joe Hogan: We also had strong growth in <unk> scanner sales from Dsos investing in their member practices and end to end digital workflows.

Joe Hogan: Q3 was another strong quarter for our systems and services business and year over year revenue growth was up 15, 6%, reflecting higher scanner asps and non systems revenues driven by Taro alumina wind upgrades increased scanner rentals and certified pre owned or CTO leasing programs as well as increased services.

Joe Hogan: <unk> purpose.

Joe Hogan: Partially offset by lower scanner volumes.

Joe Hogan: On a sequential basis Q3 systems and services revenues were down two 9%, reflecting lower scanner asps and non systems revenues, particularly offset by higher scanner volumes.

Speaker Change: Yes, Tara alumina as new multi direct capture technology replaces the confocal imaging technology and earlier models and has a three X wider field of capture and a 50% smaller than 45% lighter warrant delivering faster scanning speed higher accuracy supervision position in a more comfortable scanning experience.

Speaker Change: <unk> luminous currently available with orthodontic workflows as new Standalone scanner.

Speaker Change: Whereas the one upgrade from the <unk> element Fived plus scanner.

Speaker Change: Overall for Q3, we continue to be very pleased with the ongoing adoption of <unk> alumina scanner with ortho workflow and response from customers. We currently expect to begin a limited market release for the restore to software on the ITER alumina scanner in Q1 25, followed by full commercialization by the end of Q1.

Speaker Change: Hawaiian oral health care suite with new comparison tools that aid in multi modality assessments and personalized oral health records and reports.

Speaker Change: That helps deliver a great patient experience and supports patients in making more informed choices about their dental treatment in consultation with our doctors.

Speaker Change: We're also pleased to share that Invisalign, Japan was recently awarded the Golden Design Award for 2024 for the <unk> aluminum inner oral scanner, making this the second time, we received this prestigious award in the past two years.

Speaker Change: Good design awards globally, known and recognized by domestic and international designers and is the only comprehensive evaluation of recommendation system of design in Japan.

Speaker Change: Before I turn the call over to John I want to comment on the employment actions, we announced today, resulting from a global reorganization and restructuring.

Speaker Change: As part of this restructuring Rajput apache's position as EVP, and MD Americas, and Chief Margaret Marketing Officer has been eliminated and we believe.

Speaker Change: And he will leave in the fourth quarter.

Pleased to welcome Frank going back to align is a well established leader with a customer focus and a proven track record and orthodontics and digital dentistry.

Speaker Change: <unk> deep experience understanding and insights into what digital means for our Doctor customers is key he is excited to be rejoining align with that I'll now turn the call over to John.

John: Foreign exchange sequentially and were unfavorably impacted by approximately $14 $6 million year over year or approximately one 5%.

John: For clear liners Q3, 'twenty four revenues of $786 $8 million were down five 4% sequentially, primarily from lower volume higher discounts product mix shift to lower priced products and geographic mix, partially offset by lower net revenue deferrals.

John: Q3 clear aligner revenues were not significantly impacted by foreign exchange sequentially Q3, 'twenty four clear liners per case shipment of $1275 was lower by $20 on a sequential basis due to higher discounts product and geographic mix, partially offset by law.

John: <unk> net revenue deferrals on.

John: On a year over year basis, Q3, clear aligner revenues were down 1% primarily from lower Asps.

John: Reflecting the impact from unfavorable foreign exchange of $11 $7 million or approximately one 5% a 20% price reduction in the U K to offset a 2024 ruling by the U K tax authorities in Q1 of 24 that requires a 20% VAT the applied to clear aligner.

John: Sales in the U K product mix shift to lower priced products geographic mix and higher discounts.

John: This decrease was partially offset by lower net deferrals and price increases along with higher volumes.

John: And higher non case revenues Q3, 'twenty four clear aligner per case shipment of $1275 was down $45 on a year over year basis due to unfavorable foreign exchange of $18 impact of UK VAT of $12 product and geographic mix higher discount.

And partially offset by lower net revenue deferrals and price increases.

John: Our invisalign comprehensive <unk> product is available in North America, EMEA and in certain markets across APAC. We are pleased with the continued adoption of the Invisalign comprehensive three and <unk> III product and anticipate adoption will continue comprehensive three and <unk> III provides doctors the flexibility they want while allowing.

John: Clear aligner deferred revenues on the balance sheet decreased $6 $2 million or 0.5% sequentially and decreased $25 $8 billion or 2% year over year and will be recognized as additional liners, our ship under each sales contract Q.

John: Q3, 24 systems and services revenue of $191 million were down two 9% sequentially, primarily due to lower asps and decreased non system revenues, mostly related to fewer upgrades, partially offset by higher scanner volumes Q3, 24 systems and services revenue.

John: <unk> were up 15, 6% year over year, primarily due to higher asps.

John: Revenues were unfavorably impacted by foreign exchange of approximately $2 9 million or approximately one 5%.

John: Which are recognized ratably over the service period.

John: The decline in deferred revenues, both sequentially and year over year, primarily reflects the shorter duration of service contracts applicable to initial scanner purchases.

John: Moving on to gross margin third quarter overall gross margin was 69, 7% down <unk> five points sequentially.

John: Zero seven.

John: Seven points year over year overall gross margin was not significantly impacted by foreign exchange sequentially and was unfavorably impacted by approximately 0.4 points on a year over year basis clear aligner gross margin for the third quarter was 73% down <unk> five points sequentially due primarily to.

John: Lower asps and higher mix of additional liners, partially offset by lower manufacturing spending.

John: <unk> Aligner gross margin for the third quarter was down <unk> five points year over year due primarily due.

John: Q3, operating expenses were $519 $5 million down.

John: Year over year operating expenses increased by $22 $7 million.

John: Primarily due to employee compensation.

John: Our third quarter operating income of 162 $3 million resulted in an operating margin of 16, 6% up two three points sequentially and down <unk> seven points year over year operating margin was favorably impacted from foreign exchange of approximately 0.1 point so.

John: <unk> and unfavorable impacted by <unk> eight points year over year on a non-GAAP basis, which excludes stock based compensation amortization of intangibles related to certain acquisitions restructuring legal settlements and other charges operating margin for the third quarter was 22, 1% down.

John: <unk> two points sequentially and up <unk> three points year over year.

John: Interest and other income and expense net for the third quarter was an income of $3 $6 million, primarily due to foreign exchange compared to an expense of $3 2 million in Q2 of 'twenty four and an expense of $4 2 million in Q3 of 'twenty three.

John: The GAAP effective tax rate in the third quarter was 31% compared to 32, 9% in the second quarter and 25, 1% in the third quarter of the prior year.

John: Then the third quarter effective tax rate in the prior year, primarily due to recognizing a onetime benefit related to the application of tax guidance issued during the third quarter of the prior year.

John: non-GAAP effective tax rate at third quarter was 20%, which reflects our long term projected tax rate.

John: The third quarter net income per diluted share was $1 55 sets up sequentially 27 sets and down <unk> <unk> compared to the prior year, our EPS was favorably impacted.

John: Due primarily due to foreign exchange by <unk> on a sequential basis and unfavorably impacted by <unk> <unk> on a year over year basis on.

John: On a non-GAAP basis net income per diluted share was $2 35 for the third quarter down 6% sequentially and up 21 cents.

Year over year.

John: Moving onto the balance sheet as of September 32024, cash and cash equivalents were $1.041 billion nine up sequentially $285 million and down 197 $1 million year over year of our $1 billion 41.

John: $9 million balance 285 million was held in the U S and $756 $5 million was held.

Our international entities, we have $500 million available for repurchase of our common stock under our January 2023 repurchase program beginning in Q4, 'twenty 'twenty four and continued into Q1 25, we expect to repurchase up to $275 million of our common stock.

John: Through either a combination of open market repurchases or an accelerated stock repurchase agreement.

John: Q3 accounts receivable balance was $1 billion.

John: For the third quarter were $29 8 million.

John: Primarily related to investments in our manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to $233 $9 million.

John: Turning to our 2024 outlook, assuming no circumstances occur beyond our control, including foreign exchange, we expect the following business outlook for the fourth quarter we.

John: We expect Q4 'twenty four worldwide revenues to be in the range of $995 million.

Two 1 billion.

John: 0.015.

John: <unk>.

John: We expect Q4, 'twenty four clear aligner volume and Asps to be slightly up sequentially. We expect Q4, 'twenty four systems and services revenues to be up sequentially consistent with typical Q4 seasonality. We expect Q4 2004, GAAP operating margin to be slightly lower than 14% primarily.

John: Due to restructuring charges related to severance for impacted employees we.

John: Estimate these restructuring charges will impact Q4, 24, GAAP operating margin by approximately three points.

John: We anticipate Q4 dollars 24, non-GAAP operating margin to be slightly up sequentially for fiscal 2024, we expect investments in capital expenditures to be above $100 million.

John: Capital expenditures, primarily relate to building construction and improvements as well as manufacturing capacity in support of continued expansion as.

Joe: Thanks, John and closing for Q3 I was pleased to report another strong systems and services quarter and I am excited about our next generation luminous scanner and this continued positive impact on our customers' digital workflow with ortho software today and restored of software expected to be released in Q1 of next year.

We understand that operating environment is more challenging and we're adapting and driving our growth strategy. Despite continued weak consumer demand trends, especially in United States and a sluggish dental market.

Joe: In the face of inflation high interest rates less patient traffic and longer conversion cycles, especially for adult patients orthodontists and dentists are facing challenges in practice growth and profitability that impacts the way many of them approach orthodontic treatment.

Joe: As the innovation leader in digital Dentistry technology, it's our job to ensure we have the organizational structure focus and rigor to help doctors realize the full potential of this opportunity by doing more to engage our doctor customers and support their practice growth and to help consumers and potential patients connect with these practices to get to smiles that day.

Joe: We continue to evaluate and evolve our business to provide doctors with the best tools and resources they deserve.

Joe: <unk> is the leader in digital Orthodontics, and we're committed to supporting Doctor customers and the future of digital innovation, we're committed to supporting Dr customers and the future of the digital innovation and we're excited that next wave of growth drivers that we believe will revolutionize the orthodontic industry and scanning software and direct three D printing, we're in the midst of several key technology.

Joe: Developments that are critical for the business, we will take the needed actions to get us through this while at the same time investing in the key areas that we know will transform our industry and our business the restructuring actions we.

For questions.

Joe: Operator.

Speaker Change #100: Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star one again, if you would like to remove yourself.

From the Q.

Speaker Change #100: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we pull for questions.

Speaker Change #101: Our first question comes from Brandon <unk> with William Blair You May proceed.

Speaker Change #102: Hi, everyone. Thanks for taking the question.

Speaker Change #103: I wanted to start on a little bit just the macro backdrop.

Speaker Change #104: Last year the year over year comp also had a little bit of weakness in the September period, if I remember in 2023, so things are a little bit worse now I'm. Just curious if you can talk about the things get worse from last year, which was already a little bit of a little weak, but in case that doesn't make sense. The crux of the question is essentially just talk to us about where macro.

We are going into year end is it stable I think you guys have used that cruise before is it worsening.

Speaker Change #104: Any thoughts you guys are seeing on end markets.

Joe Hogan: Yes, Bryan it's Joe I would say first of all third quarter is always a tough quarter because of the discontinuity that we have with <unk>.

Joe Hogan: Europe shutting down in different.

Joe Hogan: Different countries being on vacation at different times, so I wouldn't say that the third quarter. This year was worse in some way in the third quarter last year I would just say that it was the.

Joe Hogan: The kind of seasonality in a difficult market, but we tried to call out as you could see is that the United States market seems to be one of our most affected.

Joe Hogan: Really one of our largest markets too and so that's been a challenge in that sense also Johnny.

Johnny One: That's accurate.

Speaker Change #106: Okay and then just my follow up just quickly as we look towards 2025 rate and if we just assume.

Speaker Change #107: Markets are stable rate, let's say things remained stable how should we think about what the topline on this business could do and what the P&L could look like in a year, where things are stable rate you guys are somewhat macro.

Speaker Change #107: Hindered right now so is it a continuation of what we're seeing in 'twenty four are there reasons to get a little bit more excited and accelerate the business any expectations around that would be helpful. Thank you.

Okay.

Speaker Change #108: Yes, Joe again, I would just say, we like to see some increased consumer confidence obviously in United States and just in the cloud I need that feels better to consumers. We feel that this is more of an external issue than it is an internal issue. When you look at our line overall and our growth rates, particularly in United States and so.

Any kind of increase in economic activity and increasing consumer confidence, we think we'd be really positive for our customers and then frontline <unk>.

Speaker Change #109: Thanks, Brandon next question please.

Speaker Change #109: Thank you.

Speaker Change #111: Our next question comes from Jon Block with Stifel. You May proceed.

Jon Block: Hey, John.

Speaker Change #112: Good afternoon, Joe Joe maybe just to start with you just.

Jon Block: Sort of picks up on that last question anything to call out with the different results in the U S versus international in other words I think.

Jon Block: Got this right, but cases up two 5% globally, but as you mentioned down in the U S. So is it just the consumer or is there anything to focus on from a go to market strategy do we have to think about incremental competition that might be more acute in the U S versus O U S. Just would love your thoughts on that dynamic.

Speaker Change #113: Yeah, John It's a good question I would say, it's mainly external when I look at it I don't think theres been any dramatic changes from a competitive standpoint in the marketplace, but I look at our ortho channel and are our dental channels Theyre, both challenged in the sense of patient throughput and their ability to close I was just talking to some of our largest dsos. This morning.

Speaker Change #113: The comparison is similar this and these are the close rates and our customers are more difficult to its customers come in we know they want to seek treatment, but theyre not really competent in the sense of their ability to pay for to wanting to pay for it right now and the economic situations. So I wouldn't call out anything externally from a competitive standpoint or whatever this is more.

Speaker Change #113: We feel as external economics and consumer confidence.

Speaker Change #113: Issue in the United States, but we see John the same thing in Europe, but Europe has been a little better and a little different because all of those countries have different situations, but it's more pronounced in the United States because it's so large and so uniform in that sense.

Speaker Change #114: Got it okay. Thanks, and then second question will be sort of a famous two parter, but John just to start I just want to be Crystal clear you guys are committing to overall.

Speaker Change #114: An expansion in 'twenty five if that's correct it will be somewhat neutered by the direct three D printing fabrication initiative.

Speaker Change #114: Maybe if you can verify that and then any thoughts on the top line that would just be first question or I'll call. It part a important.

Speaker Change #115: Alright go ahead right.

I was going to give the op margin the op margin, yes, we've made the restructuring actions given us room. So that we can get the the year over year margin accretion, while still investing in all of the things that we've talked about with direct fab in biomedical and check in alumina and so on so we're going to Canadian making those investments.

Speaker Change #115: The restructuring gives us some room to show that margin accretion.

Speaker Change #116: Okay and again the other part of that question was any thoughts on the top line. If you are committing to the AUM expansion, what does that mean from a top line perspective in the second one Joe just.

Speaker Change #117: If I can pivot and if you can talk to some of the initiatives out there in other words. It seems like Costco is off to a slow start for our checks do you need to be in the store and then more recently, we picked up on a new financing initiatives. It seems like Youre rolling out sort of guarantees the case approval denial of had been a problem where are you with that initiative.

Speaker Change #117: And when do you expect it to have a more prominent impact on the overall P&L. Thanks guys.

Speaker Change #118: Hey, Jonathan.

Kind of just frame your question the first one like Costco.

Speaker Change #119: We've had some success in Costco, but it's nothing that is material for the business right now, but I think you have to look at that is as we do internally. It's a brand strategy. We are the number one brand in the world. We're looking at different areas of how we can leverage that brand to try to encourage consumers more in the sense of entertaining invisalign treatment as far as financing we know the customers right.

Speaker Change #119: Now were challenged in the sense that they do want.

Speaker Change #119: Treatment from an orthodontic standpoint, but they are really challenged from a financial standpoint, and John and the team are doing all they can and also our DSO Big DSL partners are doing what we can to offer the type of financing that we give consumers more confidence to move forward.

And then overall revenue John will give more of an update as we get closer into into 2025, but as we've said and as we've made the adjustments we're committed to driving growth investing where we can find that growth balancing our investments on some of the.

Speaker Change #119: New technologies that we have that we know will transform this business.

Speaker Change #119: So that's that's all at stake now and things that we're mindful of but we'll give more of an update on 2025 as we get closer.

Speaker Change #119: Thank you.

Speaker Change #120: Yes, Youre welcome Tim.

Tim: Thank you.

Speaker Change #122: Our next question comes from Elizabeth Anderson with Evercore ISI you May proceed.

Elizabeth Anderson: Hi, guys.

Elizabeth Anderson: Hi, I'm also going to try my hand at it added two part area as well.

Elizabeth Anderson: One I mean as you talk about the restructuring answer Frank coming back to the organization I think you hinted at it a little bit I know, it's obviously a little bit early.

Speaker Change #123: High level qualitative thoughts you'd be fine on this to like what what do you need when you're what are you sort of like what is he going to sort of drive and when do you is there sort of like an inflection that you are thinking about how he operates.

Speaker Change #123: Differently and sort of as a corollary to that like I.

Speaker Change #124: I think you talked about getting closer to the consumer if you could talk maybe about that portion of it and then secondarily it and it was nice to hear the positive commentary about China, So love to hear a little bit more about that market in terms of how youre thinking about the consumer outlook for that market as well. Thank you.

Joe Hogan: Elizabeth It's Joe on Frank coming back frankly was had been in the business from 2013, I think he left us in 2022 for another type of venture.

Joe Hogan: This business is about it's about three things one is relationships. This is not a transactional business. This is one where you want to have good relationships and good trust with doctors and frankly brings that from a leadership standpoint, secondly, as you would need a good understanding of the technology and types of programs that can help to drive growth.

Speaker Change #125: <unk> really an expert in that area. He has shown that over the years. When you look at our DSO program today has been really effective Frank.

Speaker Change #125: That together back when I first arrived.

And back in 2015, 2016, and really made that happen.

Speaker Change #125: The thing is you need someone with scope in the sense of understands the industry's understands the competition knows what really makes doctors.

Speaker Change #125: Make decisions and orthodontist and how they make decisions versus the general practitioners.

Speaker Change #125: Frank has has all of that and he is a trusted commodity within the business. So we're excited to have him back and then the last part of your question Elizabeth on China. We're pleased with China results. So to more doctors are pleased with the utilization. It's a great teen season for us and in China. We saw good adoption of various products, including Invisalign first and.

Speaker Change #125: Others were.

Speaker Change #125: We saw good utilization there so China for us from a teen standpoint, especially.

Speaker Change #125: Played out really well for us.

Elizabeth Anderson: Thank you.

Elizabeth Anderson: Youre welcome.

Elizabeth Anderson: Q.

Speaker Change #126: Our next question comes from Jason Bednar with Piper Sandler You May proceed.

Jason Bednar: Hi, Jay.

Jason Bednar: Hi, there good afternoon.

Jason Bednar: Going to come back and follow up on one of John's questions.

Jason Bednar: And no out of us been trying to estimate the margin upside or the margin impact from three printing over time, just given the cost benefits you can realize from initiatives.

Speaker Change #127: The comments today here with the restructuring offsetting some of the maybe some of the investments youre, making and it would seem like that the this initiative, maybe dilutive to gross margins and 25. So maybe just help US bridge. The thinking that you are making these comments today reconcile some of those comments.

Speaker Change #127: Can quantify.

Speaker Change #127: The puts and takes.

Speaker Change #127: Yes.

Speaker Change #128: I'll take my best at this so overall, we were talking about margin, we think that the restructuring that we're making is going to be.

Speaker Change #129: Op margin accretive on a year over year basis. Despite all the investments you're right from a gross margin standpoint, as we scale things that direct fab printing, while it gives us a lot of capability and a lot of benefits for our doctors. There is a higher cost initially until we start to scale that but we are committed to that.

Speaker Change #128: Margin accrete.

Speaker Change #128: Accretion on a year over year basis for next year. Despite that and then as we have new products that come and we know that doctors are going to love what we what we're bringing to market that will scale up and as that scales up then that really drives the overall productivity that we will see on the gross margin side, primarily from the the material.

Speaker Change #128: And the less material that we need to go into the product.

Speaker Change #130: Alright, understood and I guess, maybe one follow up to there and then another separate follow up but just any timeline on when we might see the gross margin benefits or expansion off of historical norms.

Speaker Change #130: Once that three D printing does scale and then.

With the teen season, maybe now mostly complete.

Speaker Change #131: What's your assessment of that part of the market Joe inside the U S outside the U S.

Speaker Change #132: Data, we see it's been a bit more mixed between kind of the clear aligner and bracket and wire part of the markets the past several months.

Speaker Change #132: Your business has grown decently, the past year and a half so just.

Do you have better visibility on this part of the market.

Speaker Change #132: I'm just trying to understand this again in the context of the broader broader comments you are making on the U S.

Speaker Change #133: A little bit softer.

Speaker Change #133: So Jason this is John I'll take the I'll take the first part of your question on gross margin look we've talked about it being like a two to three year journey to be able to help to scale. This up I can say this we're very pleased with the progress that we're making around resin and being able to scale that and get it at the right cost. So that's good progress there as well as on the equipment side, we're making good.

Speaker Change #133: Progress around being able to scale up the actual manufacturing about this but.

Speaker Change #133: Terms of when you scale this and get it to a larger extent its really two to three years, but you will see some new products that we have on a direct fab showing up next year and in doctors' hands to give them those capabilities.

Speaker Change #134: And just on the teen market I mean, when you look at the international Teen market, obviously had really good success in Asia.

Speaker Change #134: During the quarter, we have really a terrific portfolio. When you think about our Invisalign first product now have invisalign palate expander.

Speaker Change #134: With that also will be called Mandibular advancement with approval blocks, which are used for class II is usually for patients between 10 and 11 years old. So when you look at those pre teen ages, we have a really good portfolio to lineup in that sense. So I think youre seeing that come through with our sales overall.

Speaker Change #134: When you reflect back on the United States, obviously, our orthodontic customers are really challenged and 80% on an average 75% of what they do routines.

Speaker Change #134: And some of the close rates on teens, just talking to some of the dsos in different different doctors that we have on the orthodontic side. The close rates are even tougher on the teen segment than what it's been in the past too and so at times like this where there are pressed for traffic in their press for margin. They will reflect back of wires and brackets to to support the profitability of their practice, we know that we understand.

And it that's all.

Speaker Change #134: Our job to communicate to consumers and towards the dawn us what the benefits are particularly this early treatment and what we can do and so.

Speaker Change #134: This is a doctor the doctor situation, but again, it's an excellent environment, where consumers are concerned with their pocket books right now and they are reluctant to make decisions and close the times.

Speaker Change #134: And obviously the orthodontist responding from an individual practice standpoint accordingly.

Speaker Change #135: All right very helpful. Thank you.

Thank you.

Speaker Change #136: Our next question comes from David Saxon with Needham <unk> Company you May proceed.

David Saxon: Great. Good afternoon, thanks for taking my questions.

David Saxon: I'd like to start on <unk> actually.

Speaker Change #137: Yeah, David I think you have to start with and I think I get the gist of your question Theres a lot of pressure on capital equipment sales in the marketplace given.

Speaker Change #137: What we're talking about with customers being challenged in that way I think what you have to do with Lumina and think about it it's truly a brand new platform, it's not an iteration of old technology like the next.

Speaker Change #137: Phase of.

Speaker Change #137: Our older technology, it's something that's really new and its cap capture doctors attention I think it's.

Speaker Change #137: The size of our sales and how well we've done, particularly in a traditional third quarter civil but slower I think has surprised a lot of people. So I think this is a testimony to the technology. We brought forward in the uniqueness of that technology, why we've been able to.

To be able to have those kinds of sales at this point in time, we're excited about the restorative coming on in the first quarter. The team is making good progress on that.

Speaker Change #137: So overall, it's just a great foundation to grow from them, what's wonderful about that platform to us, we'll iterate from that platform going forward in different areas that will really help us to diversify the product line and target certain applications in the future and two things that really have helped <unk> and kind of go through this especially with the new product and so it's really given us a lot of opportunity.

Speaker Change #138: On other products that we sell within the <unk> family. So all the way from CPO is that we have certified pre owned all the way to the <unk>, we actually sold a lot of <unk>. This is Pat.

Speaker Change #138: Past quarter, so that really helps us and then the added part a tougher economy, we will give it a lot more flexibility to doctors to kind of sell that way what they want to buy some don't want a purchased outright because of the economic.

Speaker Change #138: Conditions and so on so we see a lot more leasing or in other places, we see more rental and for US. That's a that's a great trade it will get that recurring revenue off of those different selling opt.

Speaker Change #138: Options, but then that's great when a doctor uses <unk>, because we know that use more invisalign.

Speaker Change #139: Great. Thanks for that and then on the U S side on the clear liners can you give more color on kind of where that weakness is actually coming from the ortho channel or with GPS and then anywhere specifically from a portfolio perspective. Thanks, so much.

Speaker Change #138: Yes.

It's almost equal goal, we see pressure on the ortho side.

Speaker Change #140: I mean, if you look at any kind of industrial data right now as far as patient.

Speaker Change #141: Patients entering the dental industry right now the GP space. It's challenged overall, so we see pressure on both of those areas for the same reasons, we talked about before.

Speaker Change #141: Thanks, David next question please.

David Saxon: Thank you.

Speaker Change #143: Our next question comes from Jeff Johnson with Baird You May proceed.

Jeff Johnson: Hey, Jeff Hey, Joe how are you.

Good afternoon, guys. So Joe let me ask one high level question and then maybe just a modeling question for John but from a high level.

Jeff Johnson: R&D was down 4% year over year this quarter Youre, making the head count reductions capex at $100 million is well below even the last couple years closer to $2 50, those years Youre talking about increasing the buyback margin improvement next year.

Jeff Johnson: All of these comments kind of just point to a more mature company and Thats what I heard.

Speaker Change #144: That's not a critique at all.

Speaker Change #145: Where we all know you are and see where you are so I guess my question is how does this change your management.

Speaker Change #145: Style is their management objectives over the next few years. Obviously you came into this business really pushing the top line, but is there an evolution that's happening Golan how you lead this company and leads us.

Speaker Change #145: Organization as well.

Speaker Change #146: Hey, Jeff I think it's a really good question I'd say, we're responding to the times here don't make it a reflection on what the opportunity. The company has at all we're so underpenetrated not just in the United States or North America, or whatever but all over the world.

There's hundreds of millions of people that need to have their teeth straightening and the only way you could ever do that in a broad sense is with digital orthodontics. So don't Miss that point, Jeff we are going through a spell right now and what you see with the R&D down in capex or different things like that Capex. As you know, we're not putting on any more manufacturing right now we have enough manufacturing and we're still bringing up our <unk> Poland plant right.

Speaker Change #146: We're being responsible from our business leadership standpoint for our shareholders in this specific situation, but at the same time, Jeff we're pouring a lot of money into three D printing five minute Quinn check next phases of alumina all of these things will really enter into just another growth cycle with.

Speaker Change #146: This market starts to come back with brand New Tech now this is the technology of the future. If you really want to play in digital orthodontics. So what we're doing is funding that being responsible to our shareholders, but not losing our enthusiasm for what we think our opportunities in the future.

Yes, no that's all fair.

Speaker Change #147: You are holding a sell side of that or at least an investor event, a week from Saturday would that be assigned to evaluate though that LLP that 20% to 30%.

Speaker Change #148: Intermediate longer term top line growth expectations.

Speaker Change #149: I think until we get a better read on what the economy is going to do Jeff I think.

Speaker Change #150: That 20% to 30 represents how we feel that market could grow in the future, but we have to have the right economic conditions, particularly in our biggest markets in the world like the United States that we participated.

Jeff Johnson: Okay. John one modeling question, just when I listen to the Asps I think.

Quick math on that is it sounds like between the.

Jeff Johnson: Issue that should anniversary at the start of next year and just remind me if I've got the timing on that correct, but should anniversary starting next year currency headwinds should be we'll see what the U S. Dollar post election year, but it should be reasonably moderating from here.

Speaker Change #151: So I think ex currency and ex <unk> had about a 111% down asps year over year. One is that math correct and two is that about what we should be thinking about as we head into 'twenty, one and hopefully FX normalizing a bit.

Speaker Change #152: Youre right about the.

Speaker Change #153: FX hopefully normalize it is hard to predict.

Speaker Change #154: Does anniversary at the beginning of next year and what we've said in the past that <unk> be flat to slightly down so your percentage.

Speaker Change #154: What about is in that range.

Speaker Change #154: Thank you.

Speaker Change #155: Yes, Thanks, Joe.

Speaker Change #154: Thank you.

Speaker Change #156: Our next question comes from Kevin Caliendo with UBS you May proceed.

Kevin Caliendo: Hi, Kevin.

Hey, Thanks, Hey, Joe Thanks for taking my question. This is maybe a little bit off.

Kevin Caliendo: But just wondering if you guys have ever done this analysis in terms of thinking about that.

Kevin Caliendo: The venn diagram between people purchasing DLP ones in people going and getting invisalign treatments, because the cost for adults anyway, it might be close and I'm. Just wondering if there's any if you guys have seen any correlation to maybe that's part of the weakness in the adult market as the shortages.

Kevin Caliendo: GLC ones have come down or people may be investing $5000 that way as opposed to into clear liners have you guys done that analysis you are seeing anything.

Speaker Change #157: I can't say that we've been overly.

Speaker Change #158: Overly quantified Kevin we hear that a lot. There's a lot of medical device companies to kind of talk about that that might be corollaries in a sense of what youre seeing with the.

Speaker Change #158: The GOP marketplace overall, I can't say that it's not a factor because it's obviously a high expense and something thats kind of on an annual basis in line with what it would cost to do an invisalign treatment, but I havent wanted to lean into that as one of the drivers here I think it's just overwhelmed by.

Speaker Change #158: And the economy, right now where consumers don't have a lot of money in their pocket or confidence about what it's going to be in the future in GOP might play a role in it it might not I think also you can look around the world also in some of the markets.

Speaker Change #158: Continental Europe, that's not necessarily is affected by maybe United States is and I can't say I've seen that that piece too. So there is an old saying that correlation doesn't mean causation.

Speaker Change #158: And so I would stay with that right now.

Speaker Change #158: Fair enough Thats helpful.

Speaker Change #158: I know you don't want to talk about 'twenty, five, but let's just think about the fourth quarter and sort of what you are implying for your guide in exiting the year sort of midpoint of like 5% should we just.

Speaker Change #158: Sort of take that as a starting point.

Speaker Change #158: Adjust or whatever we think the economy might do that might impact the adult side of the marketplace more.

Speaker Change #158: And then think about alumina.

Speaker Change #159: As an add on to that I mean is that sort of how youre thinking about the business.

Speaker Change #160: Yes, I think we'll obviously give more as we get closer to this.

Speaker Change #160: I think look you come out of the year that it's probably a good starting point to be able to build off of that and say look what do you think is going to happen to the economy, we're going to know more maybe about interest rates and election and other things will kind of come come about and we'll have a better view of that but I think it's a good starting point as you think about next year, you're going to add in some of the things that we've talked about with.

Speaker Change #160: With aluminum restorative and other things and then build off of that but we will give more details as we get closer obviously.

Speaker Change #161: I appreciate it guys. Thank you.

Kevin Caliendo: Thanks, Kevin.

Thank you.

Speaker Change #162: Our next question comes from Michael Cherny with Leerink Partners you May proceed.

Michael Cherny: Hi, Good afternoon, maybe just one.

Following up on a question earlier on the sum of three D printing work in the fab.

Michael Cherny: Related to products that you are going to be pushing out as you think about the potential for.

Michael Cherny: The introduction to those products how are you thinking given that this is a bit of a different manufacturing approach that you've taken before.

Michael Cherny: About what the rollout will look like will look any different in terms of the types of.

Beta customers that you're going to be pursuing how.

How should we think about.

Michael Cherny: <unk> checks all the right word but.

Michael Cherny: Making sure that youre hitting on the right customer experience the right overlap the right introduction process as you get obviously see a very scalable set of products that are new.

Michael Cherny: Opportunities out to market.

Joe Hogan: Hey, Michael It's Joe.

Joe: Just taking your question is as you think about it.

Joe: When you think of what we do today when you vacuum form.

Joe: Obviously, you lose a huge amount of opportunity to differentiate the geometry of that particular product and how it can help a doctor.

Joe: The one sector of our business that I think will appreciate this the most will be the orthodontic community to do a lot of.

Joe: Class II difficult cases young teens in.

I'll be able to produce products that are.

Joe: More and more tailored to the consumers in that specific condition than what we can do today and so we would offer the product that way and.

Joe: We think it would be very appealing to them.

Joe: <unk> from general Dentistry standpoint, it's a big part of our marketplace too. There's a lot that we can do to help them with this product line also so.

Joe: I hope I'm answering your question, but the design freedom that we have here in the end and we have to prove it when you can use relatively different thicknesses.

Joe: You can do different configurations for different kinds of clinical issues that a patient might have we expect to have more predictability and a sense of how fast you can move those teeth and more certainty and how long those cases will take and I think doctors are going to appreciate that but I think as you know is we're certain of that patients will appreciate that too when we certainly.

Joe: We will communicate that to patients.

Speaker Change #163: No. It certainly does and then maybe just one quick question I promise is not an attempt to go at 25 guidance, specifically, but obviously the you have mentioned numerous times the UK bat, that's impacting asps internationally. This.

Speaker Change #163: This year is there any outliers or onetime dynamics that we should be thinking about or contemplating relative to next year.

Speaker Change #163: Something that likely you came out or anything anything else, but.

Speaker Change #163: Could factor into the modeling.

Speaker Change #163: Not normal.

Speaker Change #163: Michael This is John nothing nothing that we would say is not normal I mean, the nice thing about the anniversary of the UK that is it does anniversary obviously, if we're doing things to try to work with the government there to explain and and ideally not half of that on our products because it affects what goes to doctors and how much they are.

Speaker Change #163: And then pass it on to potential patients but.

There's nothing like that that we would see on the horizon is that type of impact.

Speaker Change #164: Thanks, Michael next question please.

Speaker Change #165: Thank you.

Speaker Change #166: Our next question comes from Erin Wright with Morgan Stanley You May proceed.

Erin Wright: Great. Thanks.

Erin Wright: Speak a little bit more on just the nature of the restructuring outside of the executive teams today, I guess the timeline scope magnitude.

Erin Wright: Anything that you can give us in terms of quantifying that benefited from a profit perspective into 2025.

Erin Wright: That translates into just broadly speaking, but also just what how this kind of came about in terms of what's.

Erin Wright: What's on the table what were your changes that you were thinking about in terms of the business outlook, our backdrop that really changed in your view since it's been sluggish kind of consumer backdrop for some time.

Erin Wright: I guess what else has changed.

Speaker Change #167: Yes, and I could try to give you a kind of an overview of where things are at just as part of our normal process, you're always evaluating where you're going to make investments where you're going to funded how are you going to fund it and so on so this is part of our process that we go through where we're planning out where we're going to end up for the year and what does it mean for next year and how do we grow in.

Speaker Change #167: And do all the things that we wanted to talk through.

Speaker Change #167: This type of restructuring this is about <unk> of what we did last year last year we.

Speaker Change #167: And we did about $3 50, or so just over 300. This is close to 700 people.

There is some restructuring charges, we talked about that this year, but really what it does in what I'll go back to what Joe was talking about we want to be focused in on what we can drive as our business. What we can do from a growth platform standpoint, whether it's the direct fab.

Speaker Change #167: <unk> Jack.

Speaker Change #167: Illumina restored if we want to fund those but we've got to also show some margin accretion and we wanted to be margin accretive on a year over year basis. So we can fund what we need to fund to really be driving our business.

Speaker Change #167: And we will fund it based on some of these changes here, but it really set us up for a physician to be able to show that margin accretion next year.

Speaker Change #168: Okay, Great and then as we head into the fourth quarter.

Speaker Change #169: I guess does your guidance assume a continuation of the theme in terms of the sluggish environment in the U S or does it have any sort of changes across the other regions that you anticipate either continued acceleration or deterioration across other kind of markets or geographies here. Thanks.

Speaker Change #170: Aaron if you just kind of assumes what we've seen.

Speaker Change #171: As we as we've pointed out U S. North America, not great kind of assume the same.

Speaker Change #171: Other places we actually saw good improvement in parts of.

Speaker Change #171: Asia Latin America Middle East other places and we continue to invest and expect to grow in those areas. So like any forecast you take the best information you have at the time, we try to translate to what that's going to mean for the for the upcoming quarter and Thats, what we did for fourth quarter. Thanks. Sarah next question. Please.

Speaker Change #172: Thank you and as a reminder to ask a question. Please press star one on your telephone.

Speaker Change #173: Our next question comes from Mike <unk> with Bank of America, You May proceed.

Speaker Change #174: Thanks, guys.

Speaker Change #175: Just a couple of clean up follow up questions. One I think it just kind of following up on what Aaron touched there and John you touched on this as well.

Speaker Change #176: Two years in a row now and again part of that is just natural attrition natural clean up of the business, but should.

Speaker Change #177: Should we expect this to be sort of the normal going forward in terms of the restructuring you guys previously kind of held off on that for a while and he's very famous during COVID-19, you actually reinvested and you refuse to come up and others are coming.

Speaker Change #177: So.

Just help.

Speaker Change #177: Help us think in terms of how we should factor that in going forward.

Speaker Change #178: And comparing this time with Covid is a stretch Mike Mike overall.

Speaker Change #178: We didn't lay anybody off tour in Covid.

Speaker Change #178: Our expectation was that that wouldn't last as long as it did but fortunately that was the decision to pay off well comes on the market came back so strongly right now we're looking at just a sustained economic.

Speaker Change #178: Malaise I would call it in the United States and we're responding accordingly.

Speaker Change #178: We haven't lost our enthusiasm and our belief in how this business can grow in this market potential of this business what youre seeing in our restructuring is we're responding external pressures that we see and being responsible from a business standpoint, and being sure that we fund. These key three technologies that we know will lead into the future from an overall.

Speaker Change #178: <unk> digital orthodontics standpoint, and that's the key point of it now it's being able to make space and.

Speaker Change #178: Have the budget to be able to fund these key technologies, because we know that's going to drive the future and it's doing things that we know no. One else can do no. Other company can do what we're trying to do with it. So it's really important for us now to keep that focus through these budget changes and so on.

Speaker Change #178: It's what companies do to be able to.

Speaker Change #178: Pushed pushed to future and do it in a responsible way where we could show margin accretion. We know we always talk about levers that we could pull or not Paul.

This is a part of it and it just comes about it on a on a more annual basis as you assess the current environment.

Speaker Change #180: Okay, and then quick cleanup if I could on the Asps you talked about earlier than in the Q&A you touched on some of the factors that impacted you in the quarter and your thoughts about next year, but just on <unk> I think you've guided.

Speaker Change #180: Sequentially.

Speaker Change #180: <unk> had some of these mixed dynamics some of the discounting.

Speaker Change #180: <unk> for a number of quarters in a row just what are you seeing so far through October thats, giving you confidence that you'll be able to reverse that because I think some of those headwinds don't wait till next year.

Speaker Change #180: Yeah.

Speaker Change #181: I think part of it.

Speaker Change #180: All our advantage programs kind of go from there.

Speaker Change #180: And at the end of June and then they reset as you've come into.

Speaker Change #180: Into the second half so third quarter kind of took the advantage changes so that shows up in discounts. So I don't expect that to that to continue and then where you do have the benefit in our case, where Europe becomes a bigger part of our business in the fourth quarter in China and some of the other businesses become less that's good from a mixed standpoint.

Speaker Change #180: We have a higher ASP in Europe, and a lower asps in China, so, whereas that mix hurt us from a country standpoint.

Speaker Change #180: Lower ASP in the third quarter, we actually get the benefit on that in the fourth quarter based on seasonality.

Speaker Change #182: Okay. That's helpful. Thanks.

Speaker Change #183: Thank you Michael Yeah. Thanks, Mike.

Speaker Change #184: Thank you and we have reached the end of our Q&A session I'll now turn the call back over to Shirley Stacy for closing remarks.

Shirley Stacy: You have any other questions. Please feel free to contact Investor relations and have a great day.

Speaker Change #185: Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

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