Q4 2024 Align Technology Inc Earnings Call

Greetings and welcome to the alliance fourth quarter and full year 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A question answer session will follow with a formal presentation. Please note. This conference is being recorded I will now.

Speaker Change: Turn the conference over to your host Shirley Stacy with align technology you may begin.

Speaker Change: Good afternoon, and thank you for joining us I'm, Shirley Stacy Vice President of corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO and John Morici CFO, we issued fourth quarter and full year, two and 824 financial results today via business wire, which is available on our website at investors out of line check Dot com.

Speaker Change: <unk> 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 product outlook. These forward looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the securities.

Speaker Change: And exchange Commission available on our website and at SEC Gov. Actual results may vary significantly and align expressly assumes no obligation to update any forward looking statement, we've posted historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliations if applicable and our fourth quarter and full year two.

Speaker Change: 24 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 Hogan Joe.

Joe Hogan: Thanks, Shirley good afternoon, and thanks for joining us today on our call today I'll provide an overview of our fourth quarter and full year results and discuss a few highlights from our two operating segments system service isn't clear liners, John will provide more detail on our financial performance and comment on our views for 2025 following that I'll come back and summarize a few key points.

Joe Hogan: And open the call to questions I am pleased to report that Q4 total revenues clear aligner volumes assistant and services revenues were in line with our Q4 outlook.

Joe Hogan: And both GAAP and non-GAAP operating margins were better than our Q.

Joe Hogan: Q4 outlook Q4 clear aligner Asps were lower than our Q4 outlook due primarily to the impact of unfavorable foreign exchange from a strengthening of the U S. Dollar against major currencies from late October through December as John will explain in his remarks.

Joe Hogan: On a year over year basis fourth quarter revenues of 995 billion increased 4%, reflecting 14, 9% growth from systems and services revenues at one 6% growth from clear Aligner revenues.

Joe Hogan: On a year over year basis clear aligner volumes grew six 1%.

Joe Hogan: Driven by increased shipments across all regions with strength in EMEA, APAC, and Latam regions and stability in North America.

Joe Hogan: From a channel perspective, clear aligner volumes, and the ortho and GP channels rubber year over year basis, with a number of submitters and utilization amongst the highest in the past few years.

Joe Hogan: On a sequential basis fourth quarter revenue growth of one 8% reflects continued momentum from sales of ITER alumina scanners, luminous scanners and increased invisalign clear aligner volumes and the amaze me of reasons, especially from teens and growing patients as well as growth from Latam regions.

Joe Hogan: Across the worth of Donaldson, GP dentists, offset by clear aligner seasonality in APAC, mostly in China, which had a strong team quarter in Q3.

Joe Hogan: Americas Q4 clear aligner volumes reflect a seasonally soft orthodontic channel offset somewhat by strength in the GP channel and the adult segment.

Joe Hogan: For the full year 2020 for total revenues of $4 billion in clear aligner volumes of $2 5 million cases were both up three 5% year over year, we delivered fiscal 2024, and non-GAAP operating margin of 21, 8% above fiscal 2023 and in line with our 2020 for outlook.

Joe Hogan: Q4, 'twenty four we achieved several cumulative milestones, including 272000 active invisalign trained practitioners $19 5 million invisalign patients, including over $5 6 billion teens and kids and over 2 billion clear liners manufacturer worldwide.

Joe Hogan: For clear liners in Q4 year over year volume growth in the Americas reflects strength in Latin America, as well as improving trends in North America, especially for GP dentists.

Joe Hogan: In the EMEA region Q4 year over year clear Aligner volume growth reflects increased volumes from core Europe as well as strong growth from EMEA.

Joe Hogan: Eastern Europe, Middle East and Africa markets from a channel perspective, EMEA a clear aligner.

Joe Hogan: Our growth reflects strength in both ortho and GP as well as teens kids and adult patients in APAC region Q.

Joe Hogan: Q4 year over year clear Aligner volume growth was driven by China, and Japan as well as strong growth from our emerging APAC countries led by India, Thailand and Korea.

Joe Hogan: For Q4, APAC growth also reflects increased utilization and <unk> and both doctor channels and growth in both patient segments.

Joe Hogan: Q4, we had 85700 doctors submitters worldwide.

Joe Hogan: Record total in the fourth quarter, primarily reflecting a sequential increase in clear aligner volume for adult and non comprehensive cases, and the adult clear Aligner segment, we're pleased to see both year over year and sequential growth across all regions.

Joe Hogan: And the team and growing kids segments, approximately 216000 teens and kids started treatment with Invisalign clear liners during the fourth quarter, a decrease of eight 6% sequentially off a record Q3 teen season, and an increase of nine 8% year over year, reflecting growth across regions, especially from Invisalign <unk>.

Joe Hogan: First in the APAC and EMEA regions for Q4.

Joe Hogan: Number of doctors submitting cases starts for teens and kids was up six 2% year over year led by continued strength from doctors treating young kids were growing patients for fiscal 2024 total invisalign clear aligner shipments for teens and kids reached a record total of 868000, Invisalign cases and shipped up.

Joe Hogan: Two.

Joe Hogan: A year up to seven 7% compared to the prior year and comprising approximately 35% of the $2 5 million total clear aligner case shipments for the year teen specific consumer marketing and sales programs along with the continued momentum for Invisalign first for kids.

Joe Hogan: As young as six and Invisalign palate expander systems help drive adoption globally.

Joe Hogan: During the quarter, we continue to commercialize the Invisalign palate expander with steady momentum for Doctor Submitters and shipments and its first full year of availability in North America Invisalign palate expander adoption was followed by similar trajectory and Invisalign first which launched in 2017.

Joe Hogan: But <unk> did not require a regional or country specific regulatory approvals like invisalign palate expander as required in Q4, we received the CE Mark under the medical device regulation to marketing Invisalign palate expander system in most of Europe, and also completed registration with the medicines and healthcare products regulatory agency.

Joe Hogan: For the United Kingdom, and overseas territory, both approvals or for broad patient applicability, including growing children teens and adults with surgery or other techniques. These approvals mark a significant milestone in our efforts to enhance clinical outcomes and its efficiency and orthodontics and enable us to commercialize.

Joe Hogan: The Invisalign palate expander across most of the major may a region in 2025.

Joe Hogan: We are continuing to make progress in establishing the clinical efficacy and improved patient experience with Invisalign palate, expander, which recently made the cover of the journal of clinical Orthodontics for <unk> ACO, an article published by Dr. Jonathan <unk>.

Joe Hogan: There have been multiple peer reviewed studies published on the effectiveness of the Invisalign palate expander as well as Mandibular advancement. We're also receiving positive parental feedback as reflected in the article seven reasons parents loved the Invisalign palate expander system.

Joe Hogan: Overall, the Invisalign palate expander system is gaining traction among orthodontists and patients due to its innovative design and user friendly feature.

Joe Hogan: As more clinical data becomes available and practitioners gain experience with the device and parents become informed we believe adoption will continue to grow.

Joe Hogan: Q4, non case revenues were up year over year, primarily due to continued growth in retainers and our doctor subscription program, our DSP, including non invisalign patients getting retainers.

Joe Hogan: <unk> revenues, including our <unk> retention of liners order to our Doctor subscription program clinical training education accessories and E Commerce.

Joe Hogan: DSP also includes Invisalign touch up cases, which includes up to 14 stages is currently available in North America and certain countries in Europe and was most recently launched in Brazil for Q4 total Invisalign DSP touch up cases were up nearly 37% year over year to more than 27000 cases for <unk>.

Joe Hogan: <unk> 2024, total DSP touch up cases shipped were over 100000 up 37% compared to 2023.

Joe Hogan: 224, clear aligner volume from DSO customers increased sequentially and year over year, reflecting growth across all regions. The DSO business continues to outpace our retail doctors globally and in the U S. It's driven by our largest DSO partners smell doctors and Heartland dental.

Joe Hogan: And also had strong growth in <unk> scanner sales as DSO invested in their members practices end to end digital workflows.

Joe Hogan: In December we completed $30 million equity investment and smiled doctors the largest ortho dornick focused DSO in the U S with more than 450 locations in 32 States smell doctors has a rich history of developing and growing affiliated practices by providing tools and technology that allow their orthodontists to focus entirely on patient care and we are.

Joe Hogan: Tenuously exploring collaboration with Dsos that share our vision of furthering the adoption of digital dentistry.

Joe Hogan: <unk> has a different strategy and business model. We are focused on working with encouraging the DSO is aligned with our vision strategy and business model goals. Those dsos that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the aligned digital platform, including increased practice efficiency and profitability.

Joe Hogan: As well as delivering a better patient experience for shorter cycle times in proximity to their customers.

Joe Hogan: Turning to systems and services Q4 was another strong quarter with year over year revenue growth of 14, 9%.

Joe Hogan: On a sequential basis Q4 systems and services revenues were up five 2%.

Joe Hogan: In Q1, 'twenty four we launched the ITER alumina with orthodontic workflows as a new standalone scanner, whereas a one to upgrade from Arturo element 50, plus scanner overall, we continue to be very pleased with the ongoing adoption of our Terra alumina scanner and we're looking forward to building on our success with the launch of the <unk> alumina scanner with restored of.

Joe Hogan: During the fourth quarter, we began a limited market release of our restore to software on the <unk> scanner and Doctor feedback has been outstanding or a tear aluminum innovation represents continuous advancement in our mission to deliver unparalleled value to customers and dental professionals worldwide.

Joe Hogan: Doctors can continue to purchase the current version of <unk> alumina scanner today, knowing that it will automatically update to the new.

John Morici: New version free of charge once it becomes available at the end of March with that I'll now turn the call over to John.

John Morici: Thanks, Joe now for our Q4 financial results total revenues for the fourth quarter were $995 2 million up one 8% from the prior quarter and up 4% from the corresponding quarter a year ago. This reflects an increase in clear aligner volumes of one 9% sequentially and six by one <unk>.

John Morici: Percent year over year and revenue growth from systems and services of five 2% sequentially and 14, 9% year over year on a constant currency basis Q4, 'twenty four revenues were favorably impacted by approximately <unk> 8 million or approximately 0.1% sequentially.

John Morici: And were unfavorably impacted by approximately <unk> $9 million year over year or approximately <unk>, 1% for.

John Morici: For clear liners Q4 dollars 24 revenues of.

John Morici: $794 $3 million were up <unk>, 9% sequentially, primarily from higher volumes geographic mix shift to higher priced countries and lower net revenue deferrals, partially offset by product mix shift to lower price products and higher discounts Q4 clear aligner revenues were favorably.

John Morici: <unk> by approximately <unk> 7 million or approximately 0.1% from foreign exchange sequentially.

John Morici: Q4, 'twenty four clear aligner per case shipment of.

Speaker Change: $1265 was lower by $10 out of a sequential basis, primarily due to product mix shift and higher discounts, partially offset by favorable geography mix and lower net deferrals.

Speaker Change: Even though FX had a minor impact on our reported quarter over quarter results. Our Q4 guidance did not forecast any substantive change from the October spot rates foreign exchange rates. However, the U S dollar unexpectedly strength in November and December.

Speaker Change: Foreign exchange rates in October had remained constant for November and December than clear Aligner, Asps would have increased approximately $10 quarter over quarter or the equivalent of $14 million.

Speaker Change: On a year over year basis, Q4 clear aligner revenues were up one 6% primarily from higher volumes lower net deferrals price increases and higher non case revenues, partially offset by lower asps.

Speaker Change: And the impact from unfavorable foreign exchange of zero point $7 million or approximately 0.1%.

Speaker Change: Product mix shift to lower price products and geographic mix Q.

Q4, 'twenty four clear aligner per case shipments of $1265 was down $55 on a year over year basis due to the impact of UK bat at $13 <unk>.

Speaker Change: Eric and geographic mix and higher discounts, partially offset by lower net revenue deferrals and price increases.

Speaker Change: During Q4, we reached a favorable outcome with the UK back U K tax authorities regarding cumulative assessments of approximately $100 million for unpaid VAT related to certain clear aligner sales made during the period of October 2019 through October 2023.

Speaker Change: In Q4, we received a full refund of this $100 million from U K tax authorities. This settlement also relieved us of any potential assessments for sales through mid October 2023, as a result, we have approximately $7 million of that paid.

Speaker Change: For periods up to December 2023 that are still in dispute we expect a ruling by the UK courts in the first half of 2024 for this remaining that about this ruling will also give clarity whether a 20% VAT is required to be applied to all clear aligner sales in the UK going forward.

Speaker Change: We believe that clear aligner should continue to be exempt from that.

Speaker Change: Clear aligner deferred revenues on the balance sheet as of December 31, 2024 decreased $51 3 million or four 1% sequentially and decreased $92 1 million or 7% year over year and will be recognized as the additional liners are shipped under each sales <unk>.

Speaker Change: Correct.

Speaker Change: Q4, 24 systems and services revenues of 200.

Speaker Change: $9 million were up five 2% sequentially, primarily due to higher scanner volumes higher non systems revenue driven by ITER alumina upgrades, partially offset by lower scanner asps.

Speaker Change: Q4, 24 systems and services revenue were up 14, 9% year over year, primarily due to higher scanner volumes higher asps and.

Speaker Change: And increased non systems revenues, mostly related to upgrades and leasing rental programs Q4, 24 systems and services revenue impact by foreign exchange was approximately zero point $1 million or flat sequentially on a year over year basis systems and services revenues were unfavorably impacted by foreign exchange.

Speaker Change: Approximately <unk> $2 million or approximately 0.1%.

Speaker Change: Systems and services deferred revenue on the balance sheet was down $4 $1 million or one 8% sequentially and down $43 million or 15, 5% year over year, primarily due to recognition of service revenue as revenues, which are recognized ratably over the service period the decline.

Speaker Change: And deferred revenues, both sequentially and year over year, primarily reflects the shorter duration of service contracts applicable initial scanner purchases.

Speaker Change: Moving on to gross margin fourth quarter overall gross margin was 70% up 0.3 point sequentially and flat year over year. Overall total gross margin was not significantly impacted by foreign exchange sequentially.

On a year over year basis clear aligner gross margin for the fourth quarter was 72% down 0.1 point sequentially due primarily to lower asps and restructuring costs, partially offset by lower manufacturing costs.

Speaker Change: Clear aligner gross margin for the fourth quarter was down one point year over year, due primarily due to lower asps and restructuring costs, partially offset by lower additional liners overall clear aligner gross margin was not significantly impacted by foreign exchange sequentially or on a year over year basis.

Speaker Change: Systems and services gross margin for the fourth quarter was 69, 4% up one nine points sequentially due to lower manufacturing and freight costs, partially offset by lower scanner asps.

Speaker Change: Systems and services gross margin for the fourth quarter was up four seven points year over year due to manufacturing efficiencies and lower freight costs and service costs.

Speaker Change: And higher scanner asps.

Speaker Change: Overall systems and services gross margin was not impacted by foreign exchange sequentially or on a year over year basis.

Speaker Change: Q4, operating expenses were $552 $8 million up six 4% sequentially and up 11% year over year on a sequential basis operating expenses were $33 $3 million higher due primarily to restructuring costs year over year operating expenses increased.

Speaker Change: By $54 $8 million, primarily due to restructuring advertising and marketing expenses Q4 restructuring charges related to severance for impacted employees were higher than anticipated.

Speaker Change: On a non-GAAP basis operating expenses were $474 $7 million.

Speaker Change: <unk>, 4% sequentially and up six 3% year over year.

Our fourth quarter operating income.

Speaker Change: $144 $1 million resulted in an operating margin of 14, 5% down two one points sequentially and down three four points year over year operating margin was favorably impacted by foreign exchange of approximately 0.1 points sequentially and unfavorably impacted by.

Speaker Change: 0.2 point year over year.

Speaker Change: The effect of restructuring on GAAP operating margin was approximately three seven points Q4, non-GAAP operating margin was 23, 2% up one one points sequentially and down <unk> six points year over year.

Speaker Change: Interest and other income and expense net for the fourth quarter was an expense of $3 4 million compared to income of $3 $6 million in Q3, 24, primarily due to unfavorable foreign exchange movements up 15, $3 million, partially offset by higher interest income and gain.

Speaker Change: On investments.

Speaker Change: On a year over year basis, Q4, 2000, and for interest and other income and expense was unfavorable compared to income of $1 $3 million in Q4 2023 <unk>.

Speaker Change: Primarily due to unfavorable foreign exchange movements, partially offset by higher interest income and gain on investments.

The GAAP effective tax rate in the fourth quarter was 26, 3% compared to 31% in the third quarter and 28, 3% in the fourth quarter of the prior year.

Speaker Change: Fourth quarter GAAP effective tax rate was lower than the third quarter effective tax rate, primarily due to the release of uncertain tax position reserves, partially offset by onetime deferred tax adjustments and certain foreign jurisdictions, the fourth quarter GAAP effective tax rate was lower than the fourth quarter effective tax rate.

Speaker Change: Of the prior year, primarily due to the release of certain tax position reserves, partially offset by one time deferred tax adjustment and certain foreign jurisdictions.

Speaker Change: On a non-GAAP.

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

Speaker Change: Fourth quarter net income per diluted share was $1.39.

Speaker Change: Down 16.

Speaker Change: Sequentially and 25 cents compared to the prior year. Our Q4 2004, EPS was unfavorably impacted by a stronger U S dollar, which amounted to approximately <unk> 14 per diluted share.

Speaker Change: To net foreign exchange losses related to the revaluation of certain balance sheet accounts on.

Speaker Change: On a non-GAAP basis, Q4, 24 net income per diluted share was $2 44.

Speaker Change: For the fourth quarter up 0.9 cents or 0.9 dollars sequentially and up <unk> <unk> year over year.

Speaker Change: Moving onto the balance sheet as of December 31, 2024, cash and cash equivalents were.

Speaker Change: 1 billion 43, $43 $9 million up sequentially $2 million and down $106 four.

Speaker Change: Million dollars year over year of our 1 billion $43 $9 million balance $188 $7 million was held in the U S and $855 2 million was held by our international entities.

Speaker Change: During Q4, 'twenty four we initiated a plan to repurchase $275 million of our common stock through open market repurchases as of December 31, 2024, we had purchased approximately 0.9 million shares at an average price of 222.

Speaker Change: And <unk> 94 per share for an aggregate of approximately $202 $9 million the remaining $72 $1 million of the $275 million was completed in January of 2025.

Speaker Change: As of January 30th 2020.

Speaker Change: <unk>.

Speaker Change: 225.

Joe Hogan: Million dollars remains available for repurchases of our common stock under our stock repurchase program approved in January of 2023, as Joe mentioned earlier during the quarter, we completed a $30 million equity investment in small doctors the largest ortho focused dental support organization in the U S Q4 <unk>.

Joe Hogan: Receivable balance was $995 $7 million down sequentially.

Joe Hogan: Our overall days sales outstanding was 90 days down approximately three days sequentially and up approximately five days as compared to Q4 last year.

Joe Hogan: Cash flow from operations for the fourth quarter was $286 1 million gap.

Joe Hogan: Capital expenditures for the fourth quarter were $23 million.

Joe Hogan: Primarily related to investments in our manufacturing capacity and facilities free cash flow defined as cash flow from operations less capital expenditures amounted to $263 million.

Joe Hogan: Before I turn to our Q1 and fiscal 2025 outlook I'd like to provide the following context around pricing and potential new tariffs.

Joe Hogan: On March one 2025, we will raise the list price of clear aligner is by about 3% on average in the Americas and EMEA regions. At the same time, we will remove that 10 to $15 per order processing fee for all new clear aligner orders, all new clear aligner refinement orders from past cases.

And non DSP Bavaria cases, we expect the net effect from these two actions on asps to be zero for 2025.

Joe Hogan: We currently manufacture clear liners in Mexico and ship them to the U S primarily for our U S customers with the remainder eventually ship into other international locations. The U S. Mexico tariff situation remains very fluid and we are unable to predict whether new tariffs will go into effect in the future we are monitoring it.

Joe Hogan: <unk> closely.

Joe Hogan: Clear Aligner Cogs include materials labor overhead and freight costs, we expect an incremental tariff if the amended to be applied to transfer prices for Mexico shipments to the U S. These transfer price prices would not include treatment planning costs freight and other overhead and similar costs.

Joe Hogan: Alliance Global operations have evolved.

Joe Hogan: They get Lee over the past several years and we have greater flexibility to support our global business. However, assuming a new 25% tariff on shipments to the U S for Mexico, We believe it still would be more economically viable to ship clear aligner from the U S to the U S for.

Joe Hogan: Due to a variety of factors, including the incremental additional freight cost incurred where we ship.

Joe Hogan: Ship from our Polish facility.

Joe Hogan: Regarding China, we currently manufacture our products in China for the benefit of our customers in China.

Joe Hogan: With that as a backdrop, assuming no circumstance stances occur beyond our control, including foreign exchange and new tariffs for Q1 2025 in fiscal 2025, we provide the following outlook. We expect Q1 worldwide revenues to be in the range of 965 million to 908.

Joe Hogan: $85 million down sequentially from Q4, primarily due to the impact from foreign exchange rates at current spot rates and lower capital equipment sales, reflecting historic historical Q1 seasonality.

Joe Hogan: We expect Q1 clear aligner volume to be up slightly sequentially and expect Q1 clear aligner asps to be down sequentially, primarily due to unfavorable foreign exchange at current spot rates as well as continued product mix shift to non comprehensive clear liners. In addition to seasonality we expect Q1.

Joe Hogan: And services revenue to be down sequentially due to the timing of commercial availability of our <unk> alumina scanner with restore to software which is expected at the end of March we expect our Q1 2025 GAAP operating margin to be below Q1, 2024, GAAP operating margin by approximately.

Joe Hogan: Two points, primarily due to unfavorable foreign exchange at current spot rates. We expect our Q1 2025 non-GAAP operating margin to be below Q1, 2024, non-GAAP operating margin by approximately one point, primarily due to unfavorable foreign exchange at current spot rates.

Joe Hogan: For fiscal 2025, we expect 2025 year over year revenue growth to be in the low single digits, which reflects approximately two points of unfavorable foreign exchange at current spot rates. We expect 2025 clear aligner volume growth to be up approximately in the mid single digits year over year.

Joe Hogan: Compared to up three 5% year over year in 2025, we expect 2025 clear aligner asps to be down year over year due to unfavorable foreign exchange at current spot rates and continued product mix shift to noncompetitive non comprehensive clear liners, we expect <unk>.

Joe Hogan: 25 systems and services.

Joe Hogan: Year over year revenues to grow faster than clear aligner revenues.

Joe Hogan: We expect 2025 GAAP operating margin to be approximately two points above 2024, GAAP operating margin and we expect 2025 non-GAAP operating margin to be approximately 22, 5%, which both reflect the impact of unfavorable foreign exchange at current spot rates, partially offset by the.

Joe Hogan: It's from restructuring actions, we took in Q4 to improve profitability and give us margin accretion in 2025, even as we scale. Our next generation direct three D printing fabrication manufacturing.

Joe Hogan: We expect our investments in capital expenditures for fiscal 2025 to be between $100 million and $150 million capital expenditures, primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued expansion.

Joe Hogan: Overall, I am pleased with our fourth quarter and fiscal 2024 results, particularly the year over year clear aligner volume growth. The record number of submitters. The continued momentum from our systems and services business and our operating margin improvement after repurchasing $353 million of our.

Joe Hogan: Of align common stock during 2024, we continued we concluded the year with no debt and approximately $1.044 billion in cash and cash equivalents. Our goal as always is to deliver value to our shareholders now I will turn the call.

Joe Hogan: Now I'll turn it back over to Joe for final comments Joe.

Joe Hogan: Thanks, John and closing 2024, it was a year of solid progress across the business record full year total worldwide revenues of $4 billion record full year total worldwide system and services revenue of.

Joe Hogan: $769 million record teen shipments and growth in both teams in adult markets record 130400, doctors ship to $19 5 million total patients treated with $5 6 million teens and kids. We ended the year with over $1 billion in cash and equivalents after repurchasing one 5 million shares.

Joe Hogan: For $353 million.

Joe Hogan: And another year, where the dental industry is down and we continue to grow I feel good about where we ended the year and I am excited to kick off 2025 with a team focused on building. The innovations introduced in 2024 that drive efficiency and growth for practices and committed that are committed to delivering the best customer and patient experiences in the industry.

Joe Hogan: I want to highlight just a few of the align innovations that we introduced in 2020 forward that we believe will continue to drive adoption and utilization.

Joe Hogan: In January 2024, we unveiled a breakthrough technology, the ITER alumina inner oral scanner with three X wider field of capture and a 50% a smaller one that delivers faster scanning higher accuracy and superior visualization for greater practice efficiency.

Joe Hogan: And with Orthodontic workflows, we look forward to introducing at the end of Q1 'twenty five the ITER alumina in oral scanner with software capabilities to enable efficient restorative and ortho restorative workflows to help general practitioner dentists deliver exceptional restored of outcomes there.

Speaker Change: <unk> scanner is the front end of the align digital platform designed to get doctors to capability to run simulations and communicate with patients. So the patients can see their smiles and the time that it would take them to get that outcome. That's also a big part of our growth algorithm. When we've had to had good accretive margin on the tier alumina scanner product.

Joe Hogan: Since its launch.

Joe Hogan: We also are also started rolling out Clinton check in minutes delivering <unk> treatment plans based on doctors building personalized treatment preferences for almost touchless digital workflows, which will expand to more doctors this year, bringing an unprecedented level of speed and customization to digital treatment planning.

Joe Hogan: Changing the paradigm for how doctors can treat growing patients is one of our biggest opportunities as we continue to deliver innovations that help doctors achieve more of a treatment at younger ages potentially decreasing the amount of orthodontic treatment that younger and teen patients need overall as we continue to commercialize the invisalign palate expander CIS.

Joe Hogan: Aligns first direct three D printed device that provides doctors with our solution set to treat the most common skeletal and dental Mal inclusions and growing children. We anticipate introducing the next in a series of direct <unk> printed devices with a pilot for Invisalign first direct printed retainers and the first half of 2025.

Joe Hogan: We have also have invisalign mandibular advancement with occlusal blocks now in limited market release, giving doctors and patients a better option for class II correction in younger patients while simultaneously straightening their teeth.

Joe Hogan: We're also excited about the future of digital orthodontics focused on growth opportunities as a company, while driving margin improvement and our unique ability to leverage aggregated.

Joe Hogan: And optimized data from approximately $19 5 million Invisalign cases to continue to gain more knowledge about the science of orthodontics to move the industry forward and while we are now in our 2008th year in the same way, we're just at the beginning.

Joe Hogan: It's that motivating and exciting for the whole line team 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 will turn the call back to the operator for your questions.

Joe Hogan: Operator.

Joe Hogan: Yes.

Joe Hogan: This time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one one on your telephone keypad, a confirmation tone will indicate your line is in the queue.

Joe Hogan: You May press Star one again, if you would like to remove yourself from the question queue.

Joe Hogan: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Joe Hogan: One moment, please while we pull for questions.

Speaker Change: And our first question will come from the Rhino, Michael Cherny from Leerink Partners. Your line is open.

Michael Cherny: Good afternoon, and thank you for a ton of detail already.

Michael Cherny: Maybe if I could just dive in a bit to the guidance, especially on the clear aligner side.

Michael Cherny: Is there any way to give a little bit more of a breakdown as you think about the dynamics on volume versus price.

Michael Cherny: Hear you loud and clear on the ASP impact.

Michael Cherny: From FX, but curious how to think about the growth dynamics on a liners as a whole, especially coming off of the mix of.

Michael Cherny: Obviously.

Michael Cherny: Easier comps in 'twenty four versus what's still a uncertain macro environment. Thank you.

John Morici: Yeah. Michael This is John when we talk about the kind of give the picture for the total year, we're looking at volume for clear liners.

John Morici: Up mid single digits, and that's kind of how we look at that at a very at various like it does across different regions and different times of the year and so on but we've looked at it that way.

John Morici: And that's the that's the perspective that we have for the year.

John Morici: We were pleased with with how we exited in.

John Morici: 2024, with the volumes that we had and that's the overall guidance that we have for the year.

John Morici: And just along those lines on the volumes mid single digits, obviously really solid number how are you thinking about the competitive dynamics in the market now.

John Morici: Is are there opportunities either in terms of other competitors exiting or how do you think about the components of what drives that in terms of market dynamics competitive dynamics share gains anything.

John Morici: Anything more to breakdown that obviously strong number it would be great as well. Thank you so much.

John Morici: Yeah, Michael It's Joe I think on the competitive dynamics I don't see a big change in the dynamics when you look at 2002.

John Morici: For 2025.

John Morici: Overall, we feel our new innovation continues to put US ahead, obviously the minute Quinn checks really drives our super users to a level of productivity that havent had before so I feel really good about our competitive ability all around the world, including China, including some specific areas about it so as we move into 2025.

John Morici: We feel that we are gaining momentum in that sense.

Speaker Change: Alright. Thank you one moment for our next question.

Speaker Change: Our next question will come from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Elizabeth Anderson: Hi, guys congrats.

Speaker Change: Congrats on the quarter. Thanks, so much for your question.

Speaker Change: Hi, I was wondering if you could talk about two things.

Speaker Change: Regards to the <unk>.

Speaker Change: Lumina incident, the scanner business more broadly.

Speaker Change: It looked like you were you know you obviously have the launch coming up in the first quarter. So if you could talk a little bit on sort of your expectations for that maybe given what you've learned on the ortho side for Illumina and then two you talked about sort of the impact obviously of of more.

Speaker Change: Leases and things like that versus a burst is.

Speaker Change: Perhaps capital equipment sales can you talk about sort of help us understand maybe on a unit basis, how you're thinking about the growth in that business I think that would be one thing that would be helpful. And then maybe if you could also help us sort of understand a little bit better than maybe some of the growth dynamics, particularly in North America, and sort of DSO versus non DSO customers. Thank you.

Speaker Change: Elizabeth It's Joe I'll take the first part of your question. When you look at what we learned in the orthodontic release of alumina was.

Speaker Change: Our product was everything we hoped it would be I talked about the wider field of view the speed I didn't talk a lot about the optics. So the image quality is fantastic on that product line.

Speaker Change: Likeness of a one and all of that was really important.

Speaker Change: For the technicians that use that one day in and day out because in the past we had a lot of complaints in the sense of the heaviness in kind of bulky newness of.

Speaker Change: The ones that are in the marketplace right now, particularly on the conflict imaging side. So as we move that into more of the restored of marketplace. Remember we had a good take up of Gp's using that product line last year to this will complete that whole the whole system for GPS because they can do the restorative work they had on it and not just the orthodontic side.

Speaker Change: So we're excited about it we're looking forward to it.

Speaker Change: Obviously, we will talk about it coming up at the Ids.

Speaker Change: We look forward to launching it in March and bring you through the second quarter.

Joe Hogan: And as Joe said kind of to your second part of the question Elizabeth look this rounds out our portfolio we've got.

Joe Hogan: A complete portfolio from the most advanced scanner latest with Lumina two all the other types of products that we have all the way down to certified pre owned and so that portfolio is round it out but we also as you mentioned.

Joe Hogan: The leasing and other rental we offer a lot of options for our customers some customers want to buy and they want that latest equipment, that's great and they'll buy that new equipment.

Joe Hogan: Do trade ins you just added another scanner and so on but some also don't want to put that capital up especially in this environment. So we offered them a lot of different opportunities to lease that equipment to use external financing that get them at a good rate for Ah.

Joe Hogan: External financing to purchase or it's some just want to rent it and so we feel like we can offer that that customer any which way that they want to be able to utilize our equipment and as we continue to release new products. We keep certified pre owned in and so on logistics day, expanding our base, which is helpful firewall.

Joe Hogan: For all business.

Joe Hogan: Okay.

Joe Hogan: Thanks Elizabeth next question.

Joe Hogan: Thank you one moment for our next question.

Speaker Change: Next question comes from the line of Glen Santangelo from Jefferies. Your line is open.

Glen Santangelo: Yes. Thanks for taking my question, Hey, Joe I also wanted to follow up on this volume issue because it seems like in the fourth quarter and into 2025, you're forecasting some pretty decent volumes and I'm kind of curious could you put that in context of where you think the overall with no industry is now do you feel like you're kind of getting some share back.

Glen Santangelo: Because with $24 in 'twenty three the team was macro uncertainty, but youre not really talking about that anymore and I'm just kind of curious if you think maybe the industry is getting a little bit better or it's some of these DTC offerings that may be fading into the background like what's enabling you to improve your volumes you think and then I just had a follow up for <unk>.

Glen Santangelo: John.

John Morici: Yeah, Yeah, Glenn it's a good question I think we've been talking about stability for them.

John Morici: While now too and again I think we stand on that platform also each one of these regions are different from what we've seen we.

John Morici: Felt good about Europe in the fourth quarter.

John Morici: So a momentum there felt reasonable about APAC in a sense I mentioned, China and Japan.

John Morici: Increases in Thailand in different in China in different I mean <unk>.

John Morici: In different parts of the APAC region, when you come to United States. The orthodontic marketplace spend is really been flat for the last three years.

John Morici: I think we may progress good progress with new products that we've had but we've been challenged in that segment I wouldn't call. It so much competition as I would it's been it's been a wires and brackets kind of regression in that marketplace because of when doctors are seeing less patient throughput, they're looking to save margin and it's it's difficult to really appeal to them with clear liners, when they're not at capacity in that sense.

Speaker Change: But on the counter of that Glenn we've seen really good progress in GPS and good growth in Gp's Mark just in the U S. But all over the world and that has really helped us. So remember we changed our channel strategy years ago to make sure that we went to the GP channel with the GP sales force in ortho with Ortho Salesforce too and I think that's really helped us to give us insight into the industry.

Our products properly for both of those areas. So I hope that helps answer your question I think our new technology to gives us a lot of confidence specifically not orthodontic channel and since offering differentiation. Those early patients that we talked about we feel we have a three products I mentioned in my script, we feel we have something special in the orthodontic community.

Speaker Change: In a sense of that younger patient piece and you'll see us push that really hard as we move into 2025.

Speaker Change: No.

Speaker Change: The ultimate and tell me if I could.

Speaker Change: Just follow up with you on the CSP issue right I mean, obviously everyone's focused on the fact that ESP it'll be down and then you highlighted FX and you highlighted mix shifts I was wondering if you could just unpack that a little bit to tell us and I am sorry, if I missed this exactly how much FX is playing a role here on that ASP number in 'twenty.

Speaker Change: Yes, that's a good question, but overall when we look at 2025 in terms of how we've guided we have about two points of FX.

Speaker Change: Headwind on a year over year basis, it's just a strengthening of the dollar we saw that as it as it came out of October and it continues to be strong November December January we're basically forecasting what we what we see now in our spot rate standpoint, and expecting it to be strong and that impact is about two <unk>.

Speaker Change: Unfavorable on a year over year basis.

Speaker Change: Okay. Thank you very much.

Speaker Change: Good morning, gentlemen.

Speaker Change: Our next question.

Speaker Change: Our next question will come from the line of Jon Block from Stifel. Your line is open.

Jon Block: Thanks Scott.

Jon Block: Hey, Joe first of all the 125 revenue guidance is down around 2% at the midpoint of.

Jon Block: The full year revenue guidance is up low single digits and I think.

Jon Block: Some of that is the one comp I believe also the scanner timing if you would do to the rest of the launch but I think it's an important question. Joe can you talk about other reasons.

Jon Block: While the rest of the year, you're arguably up call it low to mid single digits versus the down two and $1 25 again, the guide and then I think.

Jon Block: People are going to be worried about is is there an embedded assumption that things pick up in the guide or is it just sort of the moving parts again of the comp.

Jon Block: The rest of launch et cetera, and I'll sort of pause there and then I'll ask my follow up.

Speaker Change: John I would say, we obviously.

Speaker Change: Introducing the restorative scanner in March we don't get the full benefit of that in the first quarter and you're accurate in the sense of reflecting that in your comments overall.

I would say, we're not talking about a build as we go through the year I think you have to look at exchange and on the whole thing and John can explain that in a sense of how we take that and overall, but obviously you have a full year of IP coming in this year, we have the.

Speaker Change: Regulatory approvals for that going into Europe in different parts of Asia, too and we think we'll hit mainstream in that into Mandibular advancement with occlusal blocks. Two is another one that we think is going to be specific grower for us also.

Speaker Change: I mean, that's that's how I pretty much tackle that as we have new technology Rolling in you have the <unk> restored of coming in also and John What would you add yes, and we're not expecting John any overall improvement in the macro economy, if it if it happens great.

Speaker Change: That would be good for the entire business, but we're not expecting an overall improvement there. We did see as we came out of out of Q4 I mean, just the.

6% growth in volume in Q4, that's the highest growth that we've seen in three years on a year over year basis. So that's good to see we want to continue to see that that momentum and like Joe said, we're doing everything we can with new products, new innovations new ways to go to market to be able to continue that.

Speaker Change: Though a beat on malls and got ahead involves from <unk> I get that and then just second question I think Joe just one for you but for a couple quarters now at least two maybe more we've heard you detail called the faster growth from the Dsos and so a couple of questions here Joe.

Speaker Change: What are the Dsos call it as a part of your North American business. If you can just give us a rough number but more importantly, the <unk>.

Speaker Change: Please that you run with the Dsos and we've heard of some of those.

Speaker Change: The marketing support.

Speaker Change: Pardon my language.

Speaker Change: There might be more sophisticated with your help are those transferable to the fragment the GP market.

Speaker Change: So.

Speaker Change: How long does that take to go ahead and manifest on your part because clearly if you could extrapolate that faster growth to the individual practices.

Speaker Change: That'd be a certainly a positive and something to get excited about so maybe your comments on again the percent of their weighting of your bids and more importantly can you see yourself running the same plays with the individual practices.

John Morici: Hey, John It's a great question really first of all.

John Morici: Look at I talk about it internally to look at Dsos as a force multiplier. They can actually take our technology, what we learned in the sense of efficiency. What we learned for instance, a brand from a demographics on brand you can apply to that.

John Morici: I just have an ability to be able to disseminate that within their teams.

John Morici: Much better than doing that individually door to door like we do with our normal sales force, which are kind of obvious but that doesn't preclude us from what we're taking to the dsos in the sense of what we know and what they incorporate.

John Morici: Our salespeople are many of them with us many years. They understand that also they just have to find the right orthodontists in the right General dentist, who really want to implement those procedures in their marketplace. That's why I.

John Morici: Talking about the sales kickoff the other day downtown down in Dallas, and it said that we have a longest are the hardest last mile of any company I've ever worked with because you are calling on these individual family driven practices and not that they're stupid or anything that's very smart.

John Morici: But they're very they're not necessarily business minded always there clinically minded and it takes a while to gain their confidence to move it forward DSO has helped to accelerate that China is the best way I can explain that.

John Morici: John you've got it.

John Morici: Thanks for the color guys.

John Morici: Hi, John.

John Morici: One moment for our next question.

John Morici: Yeah.

Speaker Change: Our next question comes from the line of David Saxon from Needham Your line is open.

David Saxon: Oh, great Good afternoon, Joe and John Thanks for taking my questions.

David Saxon: Yeah, I had a couple follow ups on the guide for clear liners. So mid single digit volume growth for clear liners, Joe based on your answer to a previous question. It sounds like U S volume growth should probably be slower than international but just wanted to confirm that's how you're thinking about it and then on the ASP side.

David Saxon: So down year on year for the full year.

David Saxon: First quarter Asp's looked to be down high single digits year on year based off of the first quarter ASP guidance.

David Saxon: But you have this price increase starting in second quarter. So just.

David Saxon: I'd love to.

David Saxon: Here, how we should think about pricing in quarters, two through four on a year over year basis.

David Saxon: Hey, David I'll take the first part of your question, which is our forecast for next year. It does imply a slower U S and the rest of the world and Thats.

David Saxon: To me Thats projecting what we saw in 2024 into 2025, but we don't have any data right now that would make us change that in some way from a consumer confidence and to see her.

David Saxon: Any kind of change in the law.

David Saxon: Last.

David Saxon: Several quarters, I would say that would be different going as far as the asps delek asp's, there heavily impacted with our business over 50% of it outside the U S. They are impacted by by a stronger dollar and.

David Saxon: I just tried to make it very clear in terms of our guidance based on what those spot rates are as of now and saying. This is how it is going to play out in the future obviously the changes and.

David Saxon: But at least give you a reference point to jump off of so when you look at Q1, you would see that asps will be down.

David Saxon: It's a reflection of.

The foreign exchange and that's the primary driver of that.

David Saxon: It will change as it goes to each of the quarters I mean by the end of the year it kind of catches up and that strength of the dollar that we saw in November and December it won't have as much of a year over year impact, but in Q1 it has that impact.

David Saxon: Okay, Alright, that's helpful and then maybe sticking with you John So.

Speaker Change: Operating margin down year on year in the first quarter, but guiding to expansion for the full year. So I'd love to just hear kind of the puts and takes that drive that ramp.

Speaker Change: And maybe it would be great. If you could talk about quarterly cadence. Thanks, so much.

Speaker Change: Yeah. When you think of the op margin that will have.

Speaker Change: We did actions last year to be able to get our op margin in a place from a cost standpoint to be able to.

Speaker Change: Provide that margin accretion it first quarter is one where as you start to ramp up usually first quarter op margin is.

Speaker Change: And our rate standpoint, the lowest or one of the lowest for the quarters.

Speaker Change: It builds as you go through the year.

Joe Hogan: It's based on volume as we have more volume coming through our facilities, we generate additional productivity and that shows up we have new products as Joe described with with the Illumina restorative.

Joe Hogan: Different products, where were expanding out and so on that help us drive additional additional margin as we go through so we've got the levers that we can pull and adjust as we go through the year to be able to generate that debt.

Joe Hogan: Margin accretion on a year over year basis, and that is margin accretion accretion that we talked about at 22, 5%. That's despite unfavorable FX on a year over year basis. So you can tell some of that that margin accretion that we're talking about but it's all about driving productivity through volume that you have.

Joe Hogan: And be inspired about the other investments that you're making.

Joe Hogan: Yes.

Joe Hogan: Great. Thanks, so much.

Joe Hogan: Thanks, David.

Joe Hogan: One moment for our next question.

Our next question comes from the line of Jeff Johnson from Baird. Your line is open.

Jeff Johnson: Hey, Jeff Hey, Thanks, Hey, Joe how are you good afternoon, guys. So.

Joe Hogan: Look we're all dancing around kind of this <unk> trying to understand that relative to the rest of year.

Speaker Change: The one thing I haven't heard and maybe I just missed it but you guys are talking about a 200 basis point headwind for the year from currency I think that is pretty much flow through to AFP as well about a two point headwind to asps for the year as well on the clear aligner side, but I Havent heard you quantify Q1, my math and my currency math is terrible my math would put current.

Joe Hogan: At almost a 335 point headwind in <unk> to both Asps and.

Speaker Change: Yeah.

Speaker Change: Global revenue I am I close on that is it bigger than <unk>.

Speaker Change: Yes, that's the right way to phrase it Jeff It is bigger just based on what the dollar was doing last year compared to this year. So.

Speaker Change: There is a bigger currency effect in Q1 than that on average for the year.

Speaker Change: Ballpark in my close on that 335, Yep, you're close.

Speaker Change: And then just my other question is really kind of the same kind of FX question, but on the gross margin side or I'm, sorry on the company margin side on the operating margin side.

Speaker Change: Youre guiding to 70 basis points of year over year improvement at the op margin line on a non-GAAP basis, how much is currency weighing on I don't care, if it's gross margin or operating margin. However, you want to provide the answer but how much is currency Wayne there and then how much of the incremental direct fab.

Speaker Change: Investments potentially Wayne this year on gross or overall margin just it seems like this could have been a year if currency neutral.

Speaker Change: And you didn't have the direct sabic incremental investments that we really were starting to see a recapture back towards those pre COVID-19.

Speaker Change: Number so just trying to understand all those moving pieces. Thank you yeah.

Speaker Change: Jeff when you when you talk about the FX impact on op margins over a point youre right. Its two points at revenue on a year over year basis falls to just over a point on an op margin basis. So a large part of that falls through so youre right, calling a 70 basis point improvement year over year that's the.

Speaker Change: Spite having.

Speaker Change: A point of of Op margin pressure from FX standpoint, and then of course, all the other things that we're doing to invested so there's some offsets to that in terms of scaling up our growth platforms and so on but that's all in the number that we have at 22, 5%. So if FX.

Speaker Change: I was going the other way you would see EBIT, even more margin accretion and we will see how that foreign exchange plays out as we go through the rest of the year.

Speaker Change: Understood. Thank you guys.

Speaker Change: Thanks, Joe.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Brandon <unk> from William Blair. Your line is open.

Speaker Change: Thanks.

Speaker Change: Guys. Thanks for taking my question.

Glen Santangelo: Joe maybe for you on the <unk> side, I think we're a little bit over a year after the launch of that product now.

Speaker Change: Curious if you could comment on maybe two things one what's the adoption curve looking like relative to your expectation now that we're about a year and then too.

Speaker Change: Is this a product that could maybe be a catalyst within the teen market to let you get that next incremental leg of adoption given that that's kind of the 30 year market that you guys are underpenetrated in.

Speaker Change: Yeah.

Speaker Change: First of all I mean the.

Speaker Change: Adoption curve has been good as I mentioned in my script. It falls Invisalign first.

Speaker Change: <unk> first is what we call a dental expansion product, it's kind of moving your teeth, but it's not moving bone in that sense.

Speaker Change: In this case with IP, removing bone and so that's why the regulatory things and all that I mentioned that we have to go through each region in order to move that through I feel really good about it it's such a breakthrough product and a different product. It takes doctors of why a while in a number of cases to become comfortable with it.

Speaker Change: We have a wonderful feedback from patients and the sense of the comfort of the product line and many of the patients or parents had gone through get to the high Rex device in the ranch and those kinds of things.

Speaker Change: That makes parents, a little more susceptible to wanting invisalign palate expander too so.

Speaker Change: Feel good about it we've had some things too on the release, we didn't have full visualization from a scanning standpoint. We first started there were some attachment pieces that we had to improve in the sense of.

Speaker Change: You attach and then there's also some just where ability aspects about how long you're aware of this but we've come over those.

Speaker Change: We're making good progress in essence, so I'm very optimistic about it and it's great to see it really go from a from a regional standpoint to a global standpoint now.

Speaker Change: But we have a great one two punch in that marketplace with Invisalign first.

Speaker Change: And that's also worth mentioning too we're seeing many doctors as they do the upper palate expansion. They used to design first on the bottom in order to expand the team to be to make sure that they are in line with a sense of the bases are setting in their upper arch. Two so it's good to see a synergistic effect on those two products I hope I'm answering your question, but thats.

That's the momentum that we're talking about.

Speaker Change: Yes.

Speaker Change: Maybe as a quick follow up on a separate note. The international has been more durable for you guys in the Americas. These days.

Speaker Change: Is that simply.

Speaker Change: The result of just being earlier in the adoption curve and so things are doing a little bit better there or is macro international just doing a little bit better than the American I'm, just trying to understand how durable international outperforming should be as we go into 25, even if macro in Americas stays relatively muted. Thanks yeah.

Speaker Change: It's hard to be discreet on that answer.

Speaker Change: Overall, Brendan I would say there are certain areas, where obviously, it's your initial penetration of our product line in a certain area, but I certainly wouldn't say that about Latin America, we've announced for many years and we see continued growth in that sense.

Speaker Change: Middle East Africa in those areas to some of the places of Africa or new when they will hit a certain inflection point.

Speaker Change: But overall I feel like we faced better economies in those regions they didn't necessarily I think.

Speaker Change: Overextend their economies the way we saw in the western World and which has affected.

Speaker Change: Large part of Western Europe, and also the United States and specifically in Asia outside of China. The other countries in Asia, just came back out of Covid and better position than we were before but some of those countries are penetration. Some of those countries are just expansion too. So I think overall it was just a good mix there Brandon.

Speaker Change: That it's good to have and then as you rollout. These new technologies remember it offers you new opportunities in those countries to that expansion piece can continue.

Thanks, Brandon Hey, operator, we want to try and get to the covering analysts that are still on the line so and if I can ask the.

Speaker Change: Folks to limit to one question. So we can get through everyone's questions. Please.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of.

Speaker Change: Jason Bednar from Piper Sandler Your line is open.

Jason Bednar: Hey, good afternoon, thanks for taking the questions I'll try and budget.

Speaker Change: Hey.

Speaker Change: I want to ask on just maybe the thematic we reducing friction.

Speaker Change: Im sorry, Trillium and it kind of a combo in here, but this is.

Speaker Change: They're a way to reduce friction within the teen channel and really address what is been a maybe a bit of a challenge or sluggish ortho environment.

Speaker Change: Anything that you can do from a marketing initiative to really create better demand pull effect and then I'll.

Speaker Change: Also on the friction side, you know maybe help with the business rationale of removing that 10 to $15 processed neutralizing it with price increases that.

Speaker Change: Have you had pushed back on the processing fees as this price friction with doctors that youre trying to remove thank you.

Speaker Change: Yes, I guess, that's a good question first of all the friction of teen channel is.

Speaker Change: Lot of it has to do with the economics and an orthodontist office today, we talked about the orthodontics offices in the United States haven't really North America haven't seen really any substantial growth in the last three years and so.

Speaker Change: Their individual practices and I think you were trying to maximize our bottom line as much as they can and so I think there would be a very cautious.

Speaker Change: From a business standpoint.

Speaker Change: The friction you talked about with our our processing fees and all of those are real.

Speaker Change: Pushback not as much in Asia, we are pushing a lot of pushback in in Europe, and the U S on that end.

Speaker Change: We decided to roll that back with that aggregate.

Speaker Change: Price increase and we have good response from our doctors in order to do that and that is a friction piece and it was.

Speaker Change: It was it was annoying to the sales team to have to kind of fight through that when they have to talk to doctors and either joining what we were doing or having been with us for a while and explaining those things. So I think that's very helpful. Jonathan we want them to.

Speaker Change: And we want to focus on driving this business driving this category driving our our products do and less about some of the other.

Speaker Change: Minor things like this with with processing fees and so on so this is a good opportunity to kind of put this together get it in the right place and talk about the future of the business versus some of the other expenses like this yes.

Speaker Change: Yeah. Thanks, Thank you.

Jason Bednar: Thanks, Jason.

Speaker Change: One moment for our next question.

Speaker Change: Our next question will come from the line of Steven Valiquette from Mizuho. Your line is open.

Steven Valiquette: Thanks, a lot everyone. Thanks for taking the question. So obviously, there's a lot of puts and takes related to the evolving tariff situation, but one area I was just hoping to get your thoughts on is there given that there is a large competitor.

Steven Valiquette: Chinese basis, some investors are watching closely as that competitor tries to establish a larger market share in the U S market really with this new political backdrop for the next four years under the New administration I'm wondering whether some practitioners in the U S. Maybe a little more hesitant.

Steven Valiquette: Want to bind to the ecosystem of really any competitors that are headquartered are based.

Steven Valiquette: Outside the U S. Just given the heightened risk of trade wars et cetera, So perhaps that could play into your hands favorably at least in the U S market, which I think is still your biggest markets. So just at a high level just curious to get your thoughts on that potential.

Steven Valiquette: Potential dynamic thanks.

Speaker Change: Hi, Stephen It is just to confirm the U S is still our biggest market in the world in that sense.

Speaker Change: Remember I just talked about the orthodontic market not really growing for the last three years too. So we have had competition. Obviously, we know that your comments really refer to angel align or maybe some other Chinese suppliers coming in I think overall your first win with customer service and you win with technology, you went with relationships and that's what our sales force is really talking about.

Speaker Change: We felt that the Chinese have come in an unsustainable prices. When you look at we kind of know the prices you have to charge in order to have a decent return.

Speaker Change: That always takes care of itself, one way or another and we've seen that with other competitors in the marketplace. Also so I don't I can't really speak for 10000 or those are GPS that are around the United States and how they feel about international politics or anything they do but our job is to make sure that we keep our heads down we deliver the best technology best productivity the best brands.

Speaker Change: All of those things that make sure we win in the marketplace.

Speaker Change: We'll let that other piece decide for itself.

Speaker Change: Okay got it thanks.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Kevin Caliendo from UBS. Your line is open.

Speaker Change: Thanks for the question.

Speaker Change: This is Dylan on from Duncan Lai on for Kevin. Thanks for the question a quick question on direct fabrication on you guys previously talked to.

Speaker Change: Potentially commercializing products. This year I believe starting with a retainer product so any update there on commercialization of products and maybe detail on the P&L too into both ramping you hand.

Speaker Change:

Investment into constant through the manufacturing capabilities that you can call out.

Speaker Change: Okay first of all I'd say.

Speaker Change: Our IP devices, three D printed but it's not the kidney care process.

Speaker Change: The resin that will use the cubic for process. So as I mentioned in my script, we will begin to just with limited release and Invisalign first retained or if it's my first retainer is a very complicated it has to have a high modulus. It has to have a huge amount of variability in a sense of how how you structure that depending on where the.

Speaker Change: Persons arches at that point in time, and it's the perfect fit for us as we try to ramp up when we ramp up our our new cubic your process with our new resin to so again like I mentioned Youll see just the beginning of that in the first half of this year in the second half of this year, we should begin to.

Speaker Change: Get ourselves more ready for general release in third and fourth quarters of that product line. That's the beginning after that we'll move into what we call mandibular advancement, but any kind of a liners that have auxiliary types of things that you would have to have printed on those are difficult cases, where wall thickness is need to be different some ways. So.

Speaker Change: Yes, we're really excited about the efficiency of that particular technology, but also the design.

Speaker Change: An incredible design capability and design freedom Orthodontists will have in order to do that so that's about as well as I can do for you know thanks next question. Please.

Speaker Change: One moment for our next question.

Speaker Change: Our next question from the line of Michael Riskin through Bank of America. Your line is open.

Speaker Change: Hey, Thanks for squeezing me in guys. Just one quick one for me hopefully John I. Appreciate the commentary you had on tariffs, Mexico and realize Theres still a lot of moving pieces, but I want to make sure I understood that just a comment on transfer prices.

Speaker Change: On overhead and freight costs treatment planning not being included.

Speaker Change: How should we think of that as a percent of your Cogs I think if you just go through the P&L with something like $375 Cogs per case roughly.

Speaker Change: As a transfer like how much would be impacted as 50% to 75% of that and just walk us through the transfer price.

Speaker Change: Just so we can quickly.

Speaker Change: Sure.

Speaker Change: No. It's a good question and you're.

Speaker Change: You are right I tried to give a perspective of look you start with Cogs and then there is some art to Cogs.

Speaker Change: Nothing to do with what we're doing in Mexico freight and treatment planning and other things.

Speaker Change: Specifically the value add and the work that's being done. There then the net transfer price that I guess to put it in perspective in terms of.

Speaker Change: There's been a lot of people.

Speaker Change: People thinking about what this could be just just based on your question and so on.

Speaker Change: But like on an average month that tariff if that's at 25% might impact us $4 million to $5 million of cost or that might be that.

Speaker Change: Cost perspective of this so that gives you an idea of like.

Speaker Change: How this kind of fits into this this is something as I said in my prepared remarks, if it if it at that amount of tariff to about 25% if that ever was implemented it's not a big enough cost.

Speaker Change: On tariffs for us too to switch some of the manufacturing.

Speaker Change: And move from perhaps manufacturer in Mexico to Poland, but we'll evaluate that as we go forward, but I just wanted to kind of size that for you. We'll evaluate as we go forward we'll understand more.

Speaker Change: As these days come about we hope there's not anything but we have a perspective in terms of what it means from a cost standpoint, and we will make decisions based on that and that will impact us what we do in the short and long term.

Speaker Change: Thank you. Thanks, Thanks, operator, we'll take one last question.

Speaker Change: One moment for our next question.

Erin Wright: And our last question comes from the line of Erin Wright from Morgan Stanley. Your line is open.

Erin Wright: Great. Thanks for squeezing me in just a follow up on that last one just to clarify there's no buffer kind of embedded in your guidance as it stands today from a tariff perspective, then and just on China, just the environment, they're not necessarily from a tariff perspective, but just more of a different demand trends land, even in China from a competitive standpoint, I guess expectations for the balance of the year.

Erin Wright: Sure.

Erin Wright: If you could touch on that thanks.

Erin Wright: Thats, great Aaron I'll take the first one on <unk>, so were not in our forecast and what we've given for guidance at that op margin of 22, 5%. There is no additional new tariffs that we've contemplated in that number so we'll see how things come about but in the framework. If there is a tariff and it should be.

Erin Wright: 5% for Mexico to the U S, it's $4 million to $5 million dependent on volume.

Erin Wright: Per month from an expense standpoint.

Speaker Change: And then on China, I don't know if you want to give Joe any other perspective on the kind of the market there I'd.

Erin Wright: I'd say the China market.

Erin Wright: The third quarter, the fourth quarter, obviously is always less in China with the third quarter was there was nothing in that quarter that made me think that anything was different in China insensitive trajectory of the business from what we've seen so overall I'd call China stable right now.

Erin Wright: Yeah.

Erin Wright: Yeah.

Erin Wright: Thank you Youre welcome.

Erin Wright: I'll now turn it over back to Shirley Stacy for any closing remarks.

Shirley Stacy: Well. Thank you everyone for joining our call today. We appreciate it if you have any follow up questions. Please reach out to Investor Relations. We look forward to seeing you at our next industry events, including the Chicago Midwinter dental show coming up here.

Erin Wright: Later in February I hope, everyone has a great day.

Erin Wright: Yeah.

Erin Wright: This concludes today's conference you may now disconnect. Your lines at this time. Thank you for your participation and everyone have a great day.

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Speaker Change: Greetings welcome to the <unk> fourth quarter and full year 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.

Erin Wright: <unk> you may begin.

Erin Wright: Good afternoon, and thank you for joining us I'm, Shirley Stacy Vice President of corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO and John Morici CFO, we issued fourth quarter and full year 2024 financial results today via business wire, which is available on our website at investor <unk> Com today's.

Erin Wright: 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 product outlook. These forward looking statements are only predictions and involve risks and uncertainties.

Erin Wright: In more detail in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and at SEC Gov.

Erin Wright: Actual results may vary significantly and align expressly assumes no obligation to update any forward looking statements.

Joe Hogan: We have posted historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliations if applicable and our fourth quarter and full year 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 Hogan: Joe Hogan Joe.

Joe Hogan: Thanks, Shirley good afternoon, and thanks for joining us today on our call today I'll provide an overview of our fourth quarter and full year results and discuss a few highlights from our two operating segments system services and clear liners, John will provide more detail on our financial performance and comment on our views for 2025 following that I'll come back and summarize a few key points.

Joe Hogan: And open the call to questions.

Joe Hogan: I am pleased to report that Q4 total revenues clear aligner volume system and services revenues were in line with our Q4 outlook and both GAAP and non-GAAP operating margins were better than our Q.

Joe Hogan: Q4 outlook.

Joe Hogan: Q4 clear aligner Asps were lower than our Q4 outlook due primarily to the impact of unfavorable foreign exchange from a strengthening of the U S. Dollar against major currencies from late October through December as John will explain in his remarks.

Joe Hogan: On a year over year basis fourth quarter revenues of 995 billion increased 4%, reflecting 14, 9% growth from systems and services revenues and one 6% growth from clear aligner revenues on a year over year basis clear aligner volumes grew six 1%.

Joe Hogan: Driven by increased shipments across all regions with strength in EMEA, APAC, and Latam regions and stability in North America.

Joe Hogan: From a channel perspective, clear aligner volumes, and the ortho and GP channels rubber year over year basis, with a number of submitters and utilization amongst the highest in the past few years.

Joe Hogan: On a sequential basis fourth quarter revenue growth of one 8% reflects continued momentum from sales of ITER alumina scan as luminous scanners and increased invisalign clear aligner volumes and the amaze may have reasons, especially from teens and growing patients as well as growth from Latam regions.

Joe Hogan: Across the worth of Donaldson, GP dentists, offset by clear aligner seasonality in APAC, mostly in China, which had a strong teen quarter in Q3.

Joe Hogan: The Americas Q4, clear aligner volumes reflect a seasonally soft orthodontic channel offset somewhat by strengthening the GP channel and the adult segment.

Joe Hogan: For the full year 2020 for total revenues of $4 billion in clear aligner volumes of $2 5 million cases were both up three 5% year over year, we delivered fiscal 2024, non-GAAP operating margin of 21, 8% above fiscal 2023 and in line with our 2020 for outlook.

Joe Hogan: As of Q4, 'twenty four we achieved several cumulative milestones, including 272000 active invisalign trained practitioners $19 5 million invisalign patients.

Joe Hogan: <unk> over $5 6 billion teens, and kids and over $2 billion clear liners manufacturer worldwide.

Joe Hogan: For clear liners in Q4 year over year volume growth in the Americas reflect strength in Latin America, as well as improving trends in North America, especially for GP dentists and.

Joe Hogan: In the EMEA region Q4 year over year clear Aligner volume growth reflects increased volumes from core Europe as well as strong growth from EMEA East.

Joe Hogan: Eastern Europe, Middle East and Africa markets from a channel perspective, EMEA a clear aligner.

Joe Hogan: Our growth reflects strength in both ortho and GP as well as teens kids and adult patients in APAC region Q.

Joe Hogan: Q4 year over year clear Aligner volume growth was driven by China, and Japan as well as strong growth from our emerging APAC countries led by India, Thailand and Korea.

Joe Hogan: For Q4, APAC growth also reflects increased utilization and <unk> and both doctor channels and growth in both patient segments.

Joe Hogan: Q4, we had 85700 doctors submitters worldwide.

Joe Hogan: Record total in the fourth quarter, primarily reflecting a sequential increase in clear aligner volume for adult and non comprehensive cases, and the adult clear Aligner segment, we're pleased to see both year over year and sequential growth across all regions.

Joe Hogan: And the team and growing kids segments, approximately 216000 teens and kids started treatment with Invisalign clear liners during the fourth quarter, a decrease of eight 6% sequentially off a record Q3 teen season, and an increase of nine 8% year over year, reflecting growth across regions, especially from Invisalign <unk>.

Joe Hogan: First in the APAC and EMEA regions for Q4.

Joe Hogan: Number of doctors submitting cases starts for teens and kids was up six 2% year over year led by continued strength from doctors treating young kids were growing patients for fiscal 2024 total invisalign clear aligner shipments for teens and kids reached a record total of 868000 Invisalign cases.

Joe Hogan: And shipped up too.

Joe Hogan: A year up to seven 7% compared to the prior year and comprising approximately 35% of the $2 5 million total clear aligner case shipments for the year teen specific consumer marketing and sales programs along with the continued momentum for Invisalign first for kids.

Joe Hogan: As young as six Invisalign palate, expander systems help drive adoption globally.

Joe Hogan: During the quarter, we continue to commercialize the invisalign palate expander with steady momentum for doctors submitters and shipments and his first full year of availability in North America Invisalign palate expander adoption was followed by similar trajectory and Invisalign first which launched in 2017.

Joe Hogan: But <unk> did not require a regional or country specific regulatory approvals like invisalign palate expander as required in Q4, we received the CE Mark under the medical device regulation to marketing Invisalign palate expander system in most of Europe, and also completed registration with the medicines and healthcare products regulatory agency.

Joe Hogan: For the United Kingdom, and overseas territory, both approvals or for broad patient applicability, including growing children teens and adults with surgery or other techniques. These approvals mark a significant milestone in our efforts to enhance clinical outcomes and its efficiency and orthodontics and enable us to commercialize.

Joe Hogan: The Invisalign palate expander across most of the major may region in 2025.

Joe Hogan: We are continuing to make progress in establishing the clinical efficacy and improved patient experience of Invisalign palate, expander, which recently made the cover of the journal of clinical Orthodontics for <unk> ACO in an article published by Dr. Jonathan <unk>.

Joe Hogan: There have been multiple peer reviewed studies published on the effectiveness of the Invisalign palate expander as well as Mandibular advancement. We're also receiving positive parental feedback as reflected in the article seven reasons parents love the Invisalign palate expander system.

Joe Hogan: Overall, the Invisalign palate expander system is gaining traction among orthodontist and patients due to its innovative design and user friendly feature.

Joe Hogan: As more clinical data becomes available and practitioners gain experience with the device and parents become informed we believe adoption will continue to grow Q.

Joe Hogan: Q4, non case revenues were up year over year, primarily due to continued growth in <unk> and our Doctor subscription program, our DSP, including non invisalign patients are getting retainers.

Joe Hogan: <unk> revenues, including our <unk> retainers retention Aligner is order to our Doctor subscription program clinical training education accessories and E Commerce.

Joe Hogan: ASP also includes Invisalign touch up cases, which includes up to 14 stages and is currently available in North America and certain countries in Europe and was most recently launched in Brazil for Q4 total Invisalign DSP touch up cases were up nearly 37% year over year to more than 27000 cases for fiscal <unk>.

Joe Hogan: 2024, total DSP touch up cases shipped were over 100000 up 37% compared to 2023.

Joe Hogan: 224, clear aligner volume from DSO customers increased sequentially and year over year, reflecting growth across all regions. The DSO business continues to outpace our retail doctors globally and in the U S. It's driven by our largest DSO partners small doctors and Heartland dental.

Joe Hogan: And also had strong growth in <unk> scanner sales as DSO invested in their members practices end to end digital workflows.

Joe Hogan: In December we completed $30 million equity investment and smile doctors, the largest dornick focused DSO in the U S with more than 450 locations in 32 States smell doctors has a rich history of developing and growing affiliated practices by providing tools and technology that allow their orthodontists to focus entirely on patient care and we are.

Joe Hogan: Tenuously exploring collaboration with Dsos that share our vision of furthering adoption of digital dentistry.

Joe Hogan: Each DSO has a different strategy and business model. We are focused on working with encouraging the DSO is aligned with our vision strategy and business model goals. Those dsos that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the aligned digital platforms, including increased practice efficiency and profitability.

Joe Hogan: As well as delivering a better patient experience for shorter cycle times in proximity to their customers.

Joe Hogan: Turning to systems and services Q4 was another strong quarter with year over year revenue growth of 14, 9%.

Joe Hogan: On a sequential basis Q4 systems and services revenues were up five 2%.

Joe Hogan: In Q1, 'twenty four we launched <unk> alumina with orthodontic workflows as a new standalone scanner, whereas a one to upgrade from our Taro element 50, plus scanner overall, we continue to be very pleased with the ongoing adoption of <unk> alumina scanner and we're looking forward to building on our success with the launch of the <unk> alumina scanner with restored of.

Joe Hogan: During the fourth quarter, we began a limited market release of our restore to software on the <unk> scanner and Doctor feedback has been outstanding our Terra aluminum innovation represents continuous advancement in our mission to deliver unparalleled value to customers and dental professionals worldwide.

Joe Hogan: Doctors could continue to purchase the current version of our Terra alumina scanner today, knowing that it will automatically update to the.

Joe Hogan: New version free of charge once it becomes available at the end of March with that I'll now turn the call over to John.

John Morici: Thanks, Joe now for our Q4 financial results total revenues for the fourth quarter were $995 2 million up one 8% from the prior quarter and up 4% from the corresponding quarter a year ago. This reflects an increase in clear aligner volumes of one 9% sequentially and six one.

John Morici: Percent year over year and revenue growth from systems and services of five 2% sequentially and 14, 9% year over year on a constant currency basis Q4, 'twenty four revenues were favorably impacted by approximately zero point $8 million or approximately 0.1% sequentially.

John Morici: And were unfavorably impacted by approximately <unk> $9 million year over year or approximately 0.1% for.

John Morici: For clear liners Q4, 'twenty for revenues of $794 $3 million were up <unk>, 9% sequentially, primarily from higher volumes geographic mix shift to higher priced countries and lower net revenue deferrals, partially offset by product mix shift to lower priced products and higher.

John Morici: <unk> Q4 clear aligner revenues were favorably impacted by approximately <unk> 7 million or approximately 0.1% from foreign exchange sequentially.

John Morici: Q4, 'twenty four clear aligner per case shipment of.

John Morici: $1265 was lower by $10 on a sequential basis, primarily due to product mix shift and higher discounts, partially offset by favorable geography mix and lower net deferrals, even though FX had a minor impact on our reported quarter over quarter results. Our Q4 guidance did not foresee.

John Morici: Cast any substantive change from the October spot rates foreign exchange rates. However, the U S. Dollar unexpectedly strength in November and December if foreign exchange rates in October had remained constant for November and December than clear Aligner, Asps would have increased approximately $10 quarter over quarter.

John Morici: Or the equivalent of $14 million.

John Morici: On a year over year basis, Q4 clear aligner revenues were up one 6% primarily from higher volumes lower net deferrals price increases and higher non case revenues, partially offset by lower asps, reflecting the impact from unfavorable foreign exchange of zero point $7 million.

Approximately 0.1%.

John Morici: Product mix shift to lower price products and geographic mix.

John Morici: For 2004 clear aligner per case shipment of $1265 was down $55 on a year over year basis due to the impact of UK bat of $13.

John Morici: Product and geographic mix and higher discounts, partially offset by lower net revenue deferrals and price increases.

John Morici: During Q4, we reached a favorable outcome with the UK back U K tax authorities regarding cumulative assessments of approximately $100 million for unpaid VAT related to certain clear aligner sales made during the period of October 2019 through October 2023 and <unk>.

John Morici: Q4, we received a full refund of this $100 million from U K tax authorities. This settlement also relieved us of any potential assessments for sales through mid October 2023, as a result, we have approximately $7 million of VAT paid.

John Morici: For periods up to December 2023 that are still in dispute we expect a ruling by the UK courts in the first half of 2024 for this remaining bad about this ruling will also give clarity whether a 20% that is required to be applied to all clear aligner sales in the UK going forward.

John Morici: We believe that clear aligner should continue to be exempt from VAT.

John Morici: Clear aligner deferred revenues on the balance sheet as of December 31, 2024 decreased $51 3 million or four 1% sequentially and decreased $92 1 million or 7% year over year and will be recognized as the additional liners are shipped under each sales <unk>.

John Morici: Correct.

Q4, 'twenty four systems and services revenues of 200.

John Morici: $9 million were up five 2% sequentially, primarily due to higher scanner volumes higher non systems revenue driven by ITER alumina upgrades, partially offset by lower scanner asps.

John Morici: Q4, 'twenty four systems and services revenue were up 14, 9% year over year, primarily due to higher scanner volumes higher asps and.

John Morici: And increased non systems revenues, mostly related to upgrades and leasing rental programs Q4, 24 systems and services revenue impact by foreign exchange was approximately zero point $1 million or flat sequentially on a year over year basis systems and services revenues were unfavorably impacted by foreign exchange.

John Morici: Of approximately <unk> 2 million or approximately 0.1%.

John Morici: Systems and services deferred revenue on the balance sheet was down $4 $1 million or one 8% sequentially and down $43 million or 15, 5% year over year, primarily due to recognition of service revenue as revenues, which are recognized ratably over the service period that decline.

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

John Morici: Moving on to gross margin fourth quarter overall gross margin was 70% up <unk> three points sequentially and flat year over year. Overall total gross margin was not significantly impacted by foreign exchange sequentially.

John Morici: On a year over year basis clear aligner gross margin for the fourth quarter was 72% down 0.1 point sequentially due primarily to lower asps and restructuring costs, partially offset by lower manufacturing costs.

John Morici: <unk> gross margin for the fourth quarter was down one point year over year, due primarily due to lower asps and restructuring costs, partially offset by lower additional liners overall clear aligner gross margin was not significantly impacted by foreign exchange sequentially or on a year over year basis.

John Morici: Systems and services gross margin for the fourth quarter was 69, 4% up one nine points sequentially due to lower manufacturing and freight costs, partially offset by lower scanner asps.

John Morici: Systems and services gross margin for the fourth quarter was up four seven points year over year due to manufacturing efficiencies and lower freight costs and service costs and.

And higher scanner asps.

John Morici: Overall systems and services gross margin was not impacted by foreign exchange sequentially or on a year over year basis.

John Morici: Q4, operating expenses were $552 8 million up six 4% sequentially and up 11% year over year on a sequential basis operating expenses were $33 $3 million higher due primarily to restructuring costs year over year operating expenses increased by.

John Morici: $54 $8 million, primarily due to restructuring advertising and marketing expenses Q4 restructuring charges related to severance for impacted employees were higher than anticipated.

On a non-GAAP basis operating expenses were $474 $7 million of 0.4% sequentially and up six 3% year over year.

John Morici: Our fourth quarter operating income.

John Morici: $144 $1 million resulted in an operating margin of 14, 5% down two one points sequentially and down three four points year over year operating margin was favorably impacted by foreign exchange of approximately 0.1 points sequentially and unfavorable impacted by.

John Morici: <unk> two point year over year.

John Morici: The effective restructuring on GAAP operating margin was approximately three seven points Q4, non-GAAP operating margin was 23, 2% up one one points sequentially and down <unk> six points year over year.

John Morici: Interest and other income and expense net for the fourth quarter was an expense of $3 4 million compared.

John Morici: Compared to income of $3 $6 million in Q3, 24, primarily due to unfavorable foreign exchange movements up 15, $3 million, partially offset by higher interest income and gain on investments on.

John Morici: On a year over year basis, Q4, 2000, and for interest and other income and expense was unfavorable compared to income of $1 $3 million in Q4 2023 <unk>.

John Morici: Primarily due to unfavorable foreign exchange movements, partially offset by higher interest income and gain on investments.

John Morici: The GAAP effective tax rate in the fourth quarter was 26, 3% compared to 31% in the third quarter and 28, 3% in the fourth quarter of the prior year.

John Morici: Fourth quarter GAAP effective tax rate was lower than the third quarter effective tax rate, primarily due to the release of uncertain tax position reserves, partially offset by onetime deferred tax adjustments and certain foreign jurisdictions, the fourth quarter GAAP effective tax rate was lower than the fourth quarter effective tax.

John Morici: Eight of the prior year, primarily due to the release of certain tax position reserves, partially offset by onetime deferred tax adjustment in certain foreign jurisdictions.

John Morici: On a non-GAAP.

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

John Morici: Fourth quarter net income per diluted share was $1.39.

John Morici: 16.

John Morici: Sequentially and 25 <unk> compared to the prior year. Our Q4 2004, EPS was unfavorably impacted by a stronger U S dollar, which amounted to approximately <unk> 14 per diluted share.

John Morici: To net foreign exchange losses related to the revaluation of certain balance sheet accounts on.

John Morici: On a non-GAAP basis, Q4, 24 net income per diluted share was $2 44.

John Morici: For the fourth quarter up 0.9 cents.

John Morici: 0.9 dollars sequentially and up <unk> <unk> year over year.

John Morici: Moving onto the balance sheet as of December 31, 2024, cash and cash equivalents were 1 billion 43, $43 $9 million up sequentially $2 million and down 106 four.

John Morici: Million dollars year over year of our 1 billion $43 $9 million balance $188 $7 million was held in the U S and $855 2 million was held by our international entities.

John Morici: During Q4, 'twenty four we initiated a plan to repurchase $275 million of our common stock through open market repurchases as of December 31, 2024, we had purchased approximately 0.9 million shares at an average price of 222.

John Morici: And <unk> 94 per share for an aggregate of approximately $202 $9 million the remaining $72 $1 million of the $275 million was completed in January of 2025.

John Morici: As of January 30th 2020.

John Morici: <unk>.

John Morici: 225.

Joe Hogan: Million remains available for repurchases of our common stock under our stock repurchase program approved in January of 2023, as Joe mentioned earlier during the quarter, we completed a $30 million equity investment in small doctors the largest ortho focused dental support organizations in the U S Q4 <unk>.

Joe Hogan: Receivable balance was $995 $7 million down sequentially.

Joe Hogan: Our overall days sales outstanding was 90 days down approximately three days sequentially and up approximately five days as compared to Q4 last year.

Joe Hogan: Cash flow from operations for the fourth quarter was $286 1 million.

Joe Hogan: Capital expenditures for the fourth quarter were $23 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 $263 million.

Speaker Change: Before I turn to our Q1 and fiscal 2025 outlook I'd like to provide the following context around pricing and potential new tariffs.

Speaker Change: On March one 2025, we will raise the list price of clear liners by about 3% on average in the Americas and EMEA regions. At the same time, we will remove that 10 to $15 per order processing fee for all new clear aligner orders, all new clear aligner refinement orders from past cases.

Speaker Change: And non DSP Bavaria cases, we expect the net effect from these two actions on Asps.

Speaker Change: <unk> zero for 2025.

Speaker Change: We currently manufacture clear liners in Mexico and ship them to the U S primarily for our U S customers with the remainder eventually ship into other international locations. The U S. Mexico tariff situation remains very fluid and we are unable to predict whether new tariffs will go into effect in the future we are monitoring.

Speaker Change: <unk> closely.

Speaker Change: Our clear Aligner Cogs include material labor overhead and freight costs, we expect an incremental tariff.

Speaker Change: Amended to be applied to transfer prices for Mexico shipments to the U S. These transfer price prices would not include treatment planning costs freight and other overhead and similar costs.

Speaker Change: Alliance Global operations have evolved.

Speaker Change: They currently over the past several years and we have greater flexibility to support our global business. However, assuming a new 25% tariff on shipments to the U S from Mexico, We believe it still would be more economically viable to ship clear aligner from the U S to the U S for.

Speaker Change: Due to a variety of factors, including the incremental additional freight cost incurred where we ship.

Speaker Change: Ship from our Polish facility.

Speaker Change: Regarding China, we currently manufacture our products in China for the benefit of our customers in China.

Speaker Change: With that as a backdrop, assuming no circumstance stances occur beyond our control, including foreign exchange and new tariffs for Q1 2025 in fiscal 2025, we provide the following outlook. We expect Q1 worldwide revenues to be in the range of 965 million to 908.

Speaker Change: $85 million down sequentially from Q4, primarily due to the impact from foreign exchange rates at current spot rates and lower capital equipment sales, reflecting historic historical Q1 seasonality, we expect Q1 clear aligner volume to be up slightly sequentially and expect Q1 clear.

Speaker Change: Our asps to be down sequentially, primarily due to unfavorable foreign exchange at current spot rates as well as continued product mix shift to non comprehensive clear liners. In addition to seasonality, we expect Q1 systems and services revenue to be down sequentially due to the timing of commercial availability of our <unk>.

Speaker Change: Alumina scanner with restore to software, which is expected at the end of March we expect our Q1 2025 GAAP operating margin to be below Q1, 2024, GAAP operating margin by approximately two points, primarily due to unfavorable foreign exchange at current spot rates, we expect our.

Speaker Change: Q1, 2025, non-GAAP operating margin to be below Q1, 2024, non-GAAP operating margin by approximately one point, primarily due to unfavorable foreign exchange at current spot rates.

Speaker Change: For fiscal 2025, we expect 2025 year over year revenue growth to be in the low single digits, which reflects approximately two points of unfavorable foreign exchange at current spot rates. We expect 2025 clear aligner volume growth to be up approximately in the mid single digits year over year.

Speaker Change: Impaired too up three 5% year over year in 2025, we expect 2025 clear aligner asps to be down year over year due to unfavorable foreign exchange at current spot rates and continued product mix shift to noncompetitive non comprehensive clear liners, we expect 'twenty.

Speaker Change: 25 systems and services.

Speaker Change: Year over year revenues to grow faster than clear aligner revenues, we expect 2025 GAAP operating margin to be approximately two points above 2024, GAAP operating margin and we expect 2025 non-GAAP operating margin to be approximately 22, 5%, which both reflect the impact of <unk>.

Speaker Change: Unfavorable foreign exchange at current spot rates, partially offset by the benefits from restructuring actions. We took in Q4 to improve profitability and give us margin accretion in 2025, even as we scale. Our next generation direct three D printing fabrication manufacturing we.

Speaker Change: We expect our investments in capital expenditures for fiscal 2025 to be between $100 million and $150 million capital expenditures, primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued expansion.

Speaker Change: Overall, I am pleased with our fourth quarter and fiscal 2024 results, particularly the year over year clear aligner volume growth. The record number of submitters. The continued momentum from our systems and services business and our operating margin improvement after repurchasing $353 million of our.

Speaker Change: Of align common stock during 2024, we continued we concluded the year with no debt and approximately $1.044 billion in cash and cash equivalents. Our goal as always is to deliver value to our shareholders now I will turn the call.

Joe: Now I'll turn it back over to Joe for final comments Joe.

Joe Hogan: Thanks, John and closing 2024 was a year of solid progress across the business record full year total worldwide revenues of $4 billion.

Joe Hogan: Record full year total worldwide system and services revenue.

Joe Hogan: $769 million record teen shipments and growth in both teams in adult markets record 130400, doctors ship to $19 5 million total patients treated with $5 6 million teens and kids. We ended the year with over $1 billion in cash and equivalents after repurchasing one 5 million shares.

Joe Hogan: For $353 million.

Joe Hogan: And another year, where the dental industry is down and we continue to grow I feel good about where we ended the year and I am excited to kick off 2025 with a team focused on building. The innovations introduced in 2024 that drive efficiency and growth for practices and committed that are committed to delivering the best customer and patient experiences in the industry.

Joe Hogan: I want to highlight just a few of the align innovations that we introduced in 2020 forward that we believe will continue to drive adoption and utilization.

Joe Hogan: In January 2024, we unveil our breakthrough technology, the ITER alumina into oral scanner with three X wider field of capture and a 50% a smaller one that delivers faster scanning higher accuracy and superior visualization for greater practice efficiency.

Joe Hogan: And with Orthodontic workflows, we look forward to introducing at the end of Q1 'twenty five the ITER alumina in oral scanner with software capabilities to enable efficient restorative and ortho restorative workflows to help general practitioner dentists deliver exceptional restored of outcomes there.

Joe Hogan: <unk> scanner is the front end of the align digital platform designed to get doctors to capability to run simulations and communicate with patients. So the patients can see their smiles and the time that it would take them to get that outcome. It's also a big part of our growth algorithm and we've had to had good accretive margin on the tier alumina scanner product.

Joe Hogan: Since its launch.

Joe Hogan: We also are also started rolling out Clinton check in minutes delivering <unk> treatment plans based on doctors building personalized treatment preferences for almost touchless digital workflows, which will expand to more doctors this year, bringing an unprecedented level of speed and customization to digital treatment planning change.

Joe Hogan: Changing the paradigm for how doctors can treat growing patients is one of our biggest opportunities as we continue to deliver innovations that help doctors achieve more of a treatment at younger ages potentially decreasing the amount of orthodontic treatment that younger and teen patients need overall as we continue to commercialize the invisalign palate expander system.

Joe Hogan: Aligns first direct three D printed device that provides doctors with our solution set to treat the most common skeletal and dental metal inclusions and growing children. We anticipate introducing the next in a series of direct three D printed devices with a pilot for Invisalign first direct printed retainers and the first half of 2025.

Joe Hogan: We have also have invisalign mandibular advancement with occlusal blocks now in limited market release, giving doctors and patients a better option for class II correction in younger patients while simultaneously straightening their teeth.

Joe Hogan: <unk> also excited about the future of digital orthodontics focused on growth opportunities as a company, while driving margin improvement and our unique ability to leverage aggregated.

Joe Hogan: <unk> data from approximately $19 5 million Invisalign cases to continue to gain more knowledge about the science of orthodontics to move the industry forward and while we are now in our 2008th year in the same way, we're just at the beginning.

Joe Hogan: It's that motivating and exciting for the whole line team 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 will turn the call back to the operator for your questions.

Joe Hogan: Operator.

Joe Hogan: Yes.

Speaker Change: Time will be conducting a question and answer session if you'd like to ask a question. Please press star one one on your telephone keypad, a confirmation tone will indicate your line is in the queue you.

Speaker Change: You May press Star one again, if you would like to remove yourself from the question queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please while we pull for questions.

Michael Cherny: And our first question will come from Rhino, Michael Cherny from Leerink Partners. Your line is open.

Michael Cherny: Good afternoon, and thank you for a ton of detail already.

Michael Cherny: Maybe if I could just dive in a bit to the guidance, especially on the clear aligner side.

Michael Cherny: Is there any way to give a little bit more of a breakdown as you think about the dynamics on volume versus price.

Speaker Change: Hear you loud and clear on the ASP impact.

Speaker Change: From FX, but curious how to think about the growth dynamics on a liners as a whole, especially coming off of the mix of.

Speaker Change: Obviously.

Speaker Change: Easier comps in 'twenty four versus what's still a uncertain macro environment. Thank you.

John: Yes, Michael this is John when we talk about the kind of give the picture for the total year, we're looking at volume for clear liners.

John: Up mid single digits, and Thats kind of how we look at that at a very at various like it does across different regions and different times of the year and so on but we've looked at it that way.

John: And that's the that's the perspective that we have for the year.

John: We were pleased with with how we exited in <unk>.

John: 2024, with the volumes that we had and that's the overall guidance that we have for the year.

John: And just along those lines on the volumes mid single digits, obviously really solid number how are you thinking about the <unk>.

John: <unk> dynamics in the market now.

John: And are there opportunities either.

John: Other competitors exiting or how do you think about the components of what drives that in terms of market dynamics competitive dynamics share gains anything more of a breakdown that obviously strong number it would be great as well. Thank you so much.

Joe Hogan: Yeah, Michael It's Joe I think on the competitive dynamics I don't see a big change in the dynamics when you look at 2000.

John: 24 and 2025.

John: <unk>, we feel our new innovation continues to put US ahead, obviously the minute Quinn check really drives our super users to a level of productivity that havent had before so I feel really good about our competitive ability all around the world, including China, including some specific areas about it so as we move into 2025 I really feel.

John: We're gaining momentum in that sense.

Speaker Change: Alright. Thank you one moment for our next question.

Speaker Change: Our next question will come from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Elizabeth Anderson: Hi, guys congrats.

Speaker Change: Congrats on the quarter. Thanks, so much for your question.

Elizabeth Anderson: Hi.

Elizabeth Anderson: Maybe if you could talk about two things.

Elizabeth Anderson: Regards to the <unk>.

Elizabeth Anderson: Lumina incident, the scanner business more broadly.

Elizabeth Anderson: It looked like you were you obviously have the launch coming up in the first quarter. So if you could talk a little bit on sort of your expectations for that may be given what you've learned on the ortho side for alumina and then two you talked about sort of the impact obviously of of more.

Elizabeth Anderson: Leases and things like that versus.

Elizabeth Anderson: First is.

Speaker Change: Perhaps capital equipment sales can you talk about sort of help us understand maybe on a unit basis, how you're thinking about the growth in that business I think that would be one thing that would be helpful. And then maybe if you could also help us sort of understand a little bit better than maybe some of the growth dynamics, particularly in North America, and sort of DSO versus non DSO customers. Thank you.

Joe Hogan: Hey, listen it's Joe I'll take the first part of your question. When you look at what we learned in the orthodontic release of alumina was.

Joe Hogan: Our product was everything we hoped it would be I talked about the wider field of view the speed I didn't talk a lot about the optics. So the image quality is fantastic on that product line.

Joe Hogan: Likeness of a one and all of that was really important.

Joe Hogan: For the technicians that use that one day in and day out because in the past we had a lot of complaints in the sense of the heaviness in kind of bulky newness of the ones that are in the marketplace right now, particularly on a console <unk> imaging side. So as we move that into more of the restored of marketplace. Remember we had a good take up of Gp's using that product line last year or two.

Joe Hogan: This will complete that whole the whole system for GPS because they can do the restorative work they had on it and not just the orthodontic side. So we're excited about it we're looking forward to it.

Joe Hogan: Obviously, we will talk about it coming up at the Ids.

Joe Hogan: We look forward to launching it in March and then bring you through the second quarter.

Speaker Change: And as Joe said kind of to your second part of the question Elizabeth look this rounds out our portfolio we've got.

Speaker Change: Our complete portfolio from the most advanced scanner and the latest with Lumina two all the other types of products that we have all the way down to certified pre owned and so that portfolio is round it out but we also as you mentioned.

Speaker Change: The leasing and other rental we offer a lot of options for our customers some customers want to buy and they want that latest equipment, that's great and they'll buy that new equipment.

Speaker Change: Do trade ins Youre, just add another scanner so but some also don't want to put that capital up especially in this environment. So we offered them a lot of different opportunities to lease that equipment to use external financing that gets them at a good rate for.

Speaker Change: External financing to purchase or it's some just want to rent it and so we feel like we could offer that that customer any which way that they want to be able to utilize our equipment and as we continue to release new products. We keep certified pre owned in and so on we're just expanding our base, which is helpful for our own.

Speaker Change: Raul business.

Speaker Change: Okay.

Speaker Change: Thanks Elizabeth next question.

One moment for our next question.

Speaker Change: Next question comes from the line of Glen Santangelo from Jefferies. Your line is open.

Glen Santangelo: Yes. Thanks for taking my question, Hey, Joe I also wanted to follow up on this volume issue because it seems like in the fourth quarter and into 2025, you're forecasting some pretty decent volumes and I'm kind of curious could you put that in the context of where you think the overall ortho industry is now do you feel like you're kind of getting some share.

Glen Santangelo: Back because with $24 in 'twenty three the team was macro uncertainty, but youre not really talking about that anymore and I'm just kind of curious if you think maybe the industry is getting a little bit better or some of these DTC offerings that may be fading into the background, what's enabling you to improve your volume do you think and then I just had a fall.

John: Follow up for John.

John: Yeah, Yeah, Glenn it's a good question I think we've been talking about stability for them.

John: While now too and again I think we stand on that platform also each one of these regions are different from what we've seen we.

John: Felt good about Europe in the fourth quarter.

John: So our momentum there felt reasonable about APAC in a sense I mentioned, China and Japan.

Increases in Thailand in different in China in different I mean <unk> and.

John: In different parts of the APAC region, when you come in United States. The orthodontic marketplace spend is really been flat for the last three years.

John: I think we may progress good progress of the new products that we've had but we've been challenged in that segment I wouldn't call. It so much competition as I would.

John: It's been a wires and brackets kind of regression in that marketplace because of when doctors are seeing less patient throughput, they're looking to save margin and it's it's difficult to really.

Speaker Change: All of them with clear liners, when they're not at capacity in that sense, but on the counter of that Glenn we've seen really good progress in GPS and good growth in Gp's Mark just in the U S. But all over the world and that's really helped us. So remember we changed our channel strategy years ago to make sure that we went to the GP channel with the GP sales force in ortho with ortho Salesforce too and I think that's it.

Speaker Change: Really helped us to give us insight into the industry and position our products properly for both of those areas. So I hope that helps to answer your question I think our new technology to gives us a lot of confidence specifically not orthodontic channel offering differentiation. Those early patients that we talked about we feel we have a three products I mentioned in my script, we feel.

Speaker Change: We have something special in the orthodontic community and a sense of that younger patient piece and you'll see us push that really hard as we move into 2025.

Speaker Change: No.

Speaker Change: The ultimate package.

Speaker Change: Just follow up with you on the CSP issue right I mean, obviously everyone's focused on the fact that ESP it'll be down in <unk>.

Speaker Change: Highlighted FX and you highlighted mix shifts I was wondering if you could just unpack that a little bit to tell us and I am sorry, if I missed this exactly how much FX is playing a role here on that ASP number in 'twenty.

Speaker Change: Yes, yes, that's a good question Glenn overall, when we look at 2025 in terms of how we've guided we have about two points of FX.

Speaker Change: Headwind on a year over year basis, it's just a strengthening of the dollar we saw that as it as it came out of October and it continues to be strong November December January we're basically forecasting what we what we see now in our spot rate standpoint, and expecting it to be strong.

Speaker Change: And that impact is about two points unfavorable on a year over year basis.

Speaker Change: Okay. Thank you very much.

Speaker Change: Okay.

Speaker Change: And one moment our next question.

Operator: Our next question will come from the line of Jon Block from Stifel. Your line is open thanks.

Jon Block: Hey, Joe first of all the 125 revenue guidance is down around 2% at the midpoint of.

The full year revenue guidance is up low single digits.

Speaker Change: Some of that is the one comp I believe also the scanner timing if you would do to the rest of the launch but I think it's an important question. Joe can you talk about other reasons.

Speaker Change: While the rest of the year, you're arguably up call like low to mid single digits versus the down two and $1 25 again at the guide and then I think.

Speaker Change: People are going to be worried about is is there an embedded assumption that things pick up in the guide or is it just sort of the moving parts again of the comp.

Speaker Change: The rest of launch et cetera, and I'll sort of pause there and then I'll ask my follow up.

Speaker Change: John I would say, we obviously.

Speaker Change: Introducing the restorative scanner in March we don't get the full benefit of that in the first quarter and you're accurate in the sense of reflecting that in your comments overall.

Speaker Change: I would say, we're not talking about a build as we go through the year I think you have to look at exchange and on the whole thing and John can explain that in a sense of how we baked that in overall, but obviously you have a full year of IP coming in this year, we have the.

Speaker Change: Regulatory approvals for that going into Europe in different parts of Asia to we think well hit mainstream in that into Mandibular advancement was occlusal blocks too was another one that we think is going to be specific grower for us also.

Speaker Change: I mean, that's that's how I pretty much tackle that as we have new technology Rolling in you have the <unk> restored of coming in also and John What would you add yes, and we're not expecting John any overall improvement in the macro economy, if it if it happens great.

Speaker Change: That would be good for the entire business, but we're not expecting an overall improvement there. We did see as we came out of out of Q4 I mean, just the.

Speaker Change: 6% growth in volume in Q4, that's the highest growth that we've seen in three years on a year over year basis. So that's good to see we want to continue to see that that momentum and like Joe said, we're doing everything we can with new products, new innovations new ways to go to market to be able to continue that.

Speaker Change: Though a beat on malls and got ahead evolves from <unk> I get that.

Speaker Change: And then just second question I think Joe just one for you, but for a couple of quarters now at least two maybe more we've heard you detail called the faster growth from the Dsos and so a couple of questions here Joe.

Speaker Change: What are the Dsos call it as a part of your North American business. If you can just give us a rough number but more importantly.

Speaker Change: Please that you run with the Dsos and we've heard of some of those.

The marketing support.

Speaker Change: Pardon my language that there might be more sophisticated with your help are those transferable to the fragment the GP market.

Speaker Change: So.

Speaker Change: How long does that take to go ahead and manifest in on your part because clearly if you could extrapolate that faster growth to the individual practices.

Speaker Change: That would be.

Certainly a positive and something to get excited about so maybe your comments on again the percent of their weighting of your bids and more importantly can you see yourself running the same plays with the individual practices.

John Morici: Hey, John It's a great question really our first of all I look at I talk about it internally to look at Dsos as a force multiplier.

John Morici: Can actually take our technology, what we learned in a sense of efficiency.

John Morici: What we learned from our sense of brand from a demographics on brand you can apply to.

John Morici: They just have an ability to be able to disseminate that within their teams.

John Morici: So much better than doing that individually door to door like we do with our normal sales force, which are kind of obvious but that doesn't preclude us from what we're taking to the dsos in the sense of what we know and what they incorporate.

John Morici: Our salespeople are many of them with us for many years. They understand that also they just have to find the right orthodontists in the right General dentist, who really want to implement those procedures in their marketplace. That's why.

John Morici: Talking about the sales kickoff the other day downtown.

John Morici: In Dallas and it said that we have a longest are the hardest last mile of any company I've ever worked with because you are calling on these individual family driven practices and <unk>.

John Morici: Not that they're stupid or anything that are very smart.

John Morici: But they're very they're not necessarily business minded always they are clinically minded and it takes a while to gain their confidence to move. It forward DSO has helped to accelerate that China is the best way I can explain that.

John Morici: John you've got it right.

John Morici: Thanks for the color guys.

John Morici: John Thanks, Jeff.

John Morici: One moment for our next question.

Speaker Change: Our next question comes from the line of David Saxon from Needham Your line is open.

David Saxon: Oh, great Good afternoon, Joe and John Thanks for taking my questions.

David Saxon: Had a couple follow ups on the guide for clear Aligner, So mid single digit volume growth for clear liners, Joe based on your answer to a previous question. It sounds like U S volume growth should probably be slower than international but just wanted to confirm that's how you're thinking about it and then on the ASP side too.

David Saxon: Down year on year for the full year.

First quarter Asps.

David Saxon: Look to be down high single digits year on year based off of the first quarter ASP guidance.

David Saxon: But you have this price increase starting in second quarter. So just.

David Saxon: I'd love to.

David Saxon: Here, how we should think about pricing in quarters, two through four on a year over year basis.

David Saxon: Hey, David I'll take the first part of your question, which yes, our forecast for next year. It does imply a slower U S and the rest of the world and that's.

David Saxon: To me, that's just projecting what we saw in 2024 into 2025, but we don't have any data right now that would make us change that in some way from a consumer confidence and to see her.

David Saxon: Or any kind of change in the last several quarters I would say that would be different going as far as Asps go Delek asp's, there heavily impacted with our business over 50% of it outside the U S. They are impacted by by a stronger dollar and.

Just tried to make it very clear in terms of our guidance based on what those spot rates are as of now and saying. This is how it is going to play out in the future obviously, the changes and but at least give you a reference point to jump off of so when you look at Q1, you would see that asps will be down.

David Saxon: It's a reflection of the.

David Saxon: Foreign exchange and Thats the primary driver of that.

David Saxon: It will change as it goes to each of the quarters I mean by the end of the year it kind of catches up and that strength of the dollar that we saw in November and December it won't have as much of a year over year impact, but in Q1 it has that impact.

Speaker Change: Okay, Alright, that's helpful and then maybe sticking with you John So.

Speaker Change: Operating margin down year on year in the first quarter, but guiding to expansion for the full year. So I'd love to just hear kind of the puts and takes that drive that ramp.

Speaker Change: And maybe it would be great. If you could talk about quarterly cadence. Thanks, so much.

Speaker Change: Yeah. When you think of the op margin that will have.

Speaker Change: We did actions last year to be able to get our op margin in a place from a cost standpoint to be able to.

Speaker Change: Provide that margin accretion if first quarter is one where as you start to ramp up usually first quarter op margin is.

Speaker Change: On a rate standpoint, the lowest or one of the lowest.

Speaker Change: For the quarters as it builds as you go through the year.

Speaker Change: It's based on volume as we have more volume coming through our facilities, we generate additional productivity and that shows up we have new products as Joe described with with the alumina restorative.

Speaker Change: For products, where were expanding out and so on that help us drive additional additional margin as we go through so we've got the levers that we can pull and adjust as we go through the year to be able to generate that debt.

Speaker Change: Margin accretion on a year over year basis, and that is margin accretive accretion that we talked about at 22, 5%. That's despite unfavorable FX on a year over year basis. So you can tell some of that debt margin accretion that we're talking about but it's all about driving productivity through volume that you have and.

Speaker Change: Inspired about the other investments that you're making.

Speaker Change: Great. Thanks, so much.

David Saxon: Thanks, David.

Speaker Change: Our next question.

Speaker Change: Our next question comes from the line of Jeff Johnson from Baird. Your line is open hey.

Jeff Johnson: Hey, Thanks, Hey, Joe how are you good afternoon, guys. So.

Jeff Johnson: Look we're all dancing around kind of this <unk> trying to understand that relative to the rest of year one.

Jeff Johnson: One thing I haven't heard maybe I just missed it but you guys are talking about a 200 basis point headwind for the year from currency I think that is pretty much flow through to AFP as well about a two point headwind to asps for the year as well.

Speaker Change: Clear aligner side, but I Havent heard you quantify Q1, my math and my currency math is terrible, but my math would put currency. It at almost a 335 point headwind in <unk> to both Asps and.

Jeff Johnson: Global revenue might close on that is it bigger than <unk>.

Jeff Johnson: Yes, that's the right way to phrase it Jeff It is bigger just based on what the dollar was doing last year compared to this year. So.

Jeff Johnson: There is a bigger currency effect in Q1 than that on average for the year.

Jeff Johnson: Ballpark in my close on that 335.

Jeff Johnson: And then just my other question is really kind of the same kind of FX question, but on the gross margin side or I'm, sorry on the company margin side on the operating margin side.

Jeff Johnson: Youre guiding to 70 basis points of year over year improvement at the op margin line on a non-GAAP basis, how much is currency weighing on I don't care, if it's gross margin or operating margin. However, you want to provide the answer but how much is currency Wayne there and then how much of the incremental direct fab.

Investments potentially Wayne this year on gross or overall margin just it seems like this could have been a year if currency neutral.

Jeff Johnson: And you didn't have the direct fab incremental investments that we really were starting to see a recapture back towards those pre COVID-19.

Jeff Johnson: Numbers, so just trying to understand all those moving pieces. Thank you yeah.

Jeff Johnson: Jeff when you when you talk about the FX impact on op margins over a point youre right. Its two points at revenue on a year over year basis falls to just over a point on an op margin basis sell a large part of that fall through so youre right, calling a 70 basis point improvement year over year that's the.

Jeff Johnson: Spite having.

Jeff Johnson: A point of of Op margin pressure from an FX standpoint, and then of course all of the other things that we're doing to invested so there's some offsets to that in terms of scaling up our growth platforms and so on but that's all in the number that we have at 22, 5%. So if FX was <unk>.

Jeff Johnson: Any other way you would see EBIT, even more margin accretion and we will see how that foreign exchange plays out as we go through the rest of the year.

Jeff Johnson: Understood. Thank you guys.

John: Thanks, John.

Jeff Johnson: One moment for our next question.

Speaker Change: Our next question comes from the line of Brandon <unk> from William Blair. Your line is open.

Jeff Johnson: Thanks.

Jeff Johnson: Guys. Thanks for taking my question.

Speaker Change: Joe maybe for you on the IP side, I think we're a little bit over a year after the launch of that product now.

Speaker Change: So if you could comment on maybe two things one what's the adoption curve looking like relative to your expectation now that we're about a year and then too.

Speaker Change: Is this a product that could maybe be a catalyst within the teen market to let you get that next incremental leg of adoption given that thats kind of its third year.

Speaker Change: End market that you guys are underpenetrated in.

Yeah.

Speaker Change: I ran a first of all I mean the.

Adoption curve has been good as I mentioned in my script that falls Invisalign first.

Speaker Change: <unk> first is what we call a dental expansion product, it's kind of moving your teeth, but it's not moving bone in that sense.

Speaker Change: In this case with IP, removing bone and so that's why the regulatory things and all that I mentioned that we have to go through each region in order to move that through I feel really good about it it's such a breakthrough product and a different product. It takes doctors of why a while in a number of cases to become comfortable with it.

Speaker Change: We have a wonderful feedback from patients and the sense of the comfort of the product line and many of the patients or parents had gone through the high Rex device in the ranch and those kinds of things.

Speaker Change: That makes parents, a little more susceptible to wanting invisalign palate expander too so.

Speaker Change: Feel good about it we've had some things too on the release, we didn't have full visualization from a scanning standpoint. We first started there were some attachment pieces that we had to improve in a sense of.

Speaker Change: You attach and then there's also some just where ability aspects about how long you're aware of this but we've come over those in.

Speaker Change: We're making good progress in essence, so I'm very optimistic about it and it's great to see it really go from a from a regional standpoint to a global standpoint now.

Speaker Change: But we have a great one two punch in that marketplace with Invisalign first.

Speaker Change: And that's also worth mentioning too we're seeing many doctors as they do the upper palate expansion. They use invisalign first on the bottom in order to expand the team to be to make sure that they are in line with a sense of the bases are setting in their upper arch. Two so it's good to see a synergistic effect on those two products I hope I'm answering your question, but thats.

That's the momentum that we're talking about.

Speaker Change: Yes.

Speaker Change: Maybe as a quick follow up on a separate note. The international has been more durable for you guys in the Americas. These days.

Speaker Change: Is that simply.

Speaker Change: The result of just being earlier in the adoption curve and so things are doing a little bit better there or is macro international just doing a little bit better than the American I'm, just trying to understand how durable international outperforming should be as we go into 25, even if macro in Americas stays relatively muted. Thanks yeah.

Speaker Change: It's hard to be discreet on that answer.

Speaker Change: Overall, Brendan I would say there are certain areas, where obviously, it's your initial penetration of our product line a certain area, but I certainly wouldn't say that about Latin America, we've announced for many years and we see continued growth in that sense.

Middle East Africa in those areas to some of the places of Africa or new when they will hit a certain inflection point.

Speaker Change: But overall I feel like we faced better economies in those regions they didn't necessarily I think.

Speaker Change: Overextend their economies the way we saw in the western World and which has affected.

Speaker Change: Large part of Western Europe, and also in United States, and specifically in Asia outside of China. The other countries in Asia, just came back out of Covid and better position on or before but some of those countries are penetration. Some of those countries are just expansion too. So I think overall it was just a good mix there Brandon and not unlike that it's good to have and then as you.

Speaker Change: Rollout these new technologies remember that offers new opportunities in those countries to that expansion piece can continue.

Speaker Change: Thanks, Brandon Hey, operator, we want to try and get to the covering analysts that are still on the line so and if I can ask the.

Speaker Change: Folks to limit to one question. So we can get through everyone's questions. Please.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Jason Bednar from Piper Sandler Your line is open.

Jason Bednar: Hey, good afternoon, thanks for taking the questions I'll try and buy just purely route.

Speaker Change: Hey.

Speaker Change: I want to ask on just maybe the thematic we reducing frictions and im sorry, Trillium and it kind of a combo in here, but this is is there a way to reduce friction within the teen channel and really address what is been a maybe a bit of a challenge or sluggish ortho environment.

Speaker Change: Anything that you can do from a marketing initiative to really create better demand pull effect and then.

Speaker Change: Also on the friction side, you know maybe help with the business rationale of removing that 10% to $15 processed neutralizing out with price increases as that.

Speaker Change: You had pushed back on the processing fees is this pause friction with doctors that you are trying to remove thank you.

Speaker Change: Yes, I guess, that's a good question first of all the friction of teen channel is.

Speaker Change: A lot of it has to do with the economics and an orthodontist office today, we talked about the orthodontics offices in United States haven't really North America haven't seen really any substantial growth in the last three years and so again there are individual practices and I think theyre trying to maximize our bottom line as much as they can and so I think there'll be a very cautious from a busy.

Speaker Change: Standpoint.

Speaker Change: The friction you talked about with our our processing fees and all of those are real.

Speaker Change: Pushback not as much in Asia, we had pushed a lot of pushback in in Europe, and the U S on that end.

Speaker Change: We decided to roll that back with that aggregate.

Speaker Change: Price increase and we have good response from our doctors in order to do that and that is a friction piece and it was.

Speaker Change: It was it was annoying to the sales team to have to kind of fight through that when they have to talk to doctors and either joining what we were doing or having been with us for a while and explaining those things. So I think that's very helpful. Jonathan we want them to be I mean in the air.

Speaker Change: And we want to focus on driving this business driving this category driving our our products do and less about some of the other.

Speaker Change: Minor things like this with with processing fees and so on so this is a good opportunity to kind of put this together get it in the right place and talk about the future of the business versus some of the other past expenses like this yes.

Speaker Change: Yeah. Thanks, Thank you.

Jason Bednar: Thanks, Jason.

Speaker Change: One moment for our next question.

Speaker Change: Our next question will come from the line of Steven Valiquette from Mizuho. Your line is open.

Thanks, Hello, everyone. Thanks for taking the question. So obviously, there's a lot of puts and takes related to the evolving tariff situation, but one area I was just hoping to get your thoughts on is given that there is a large competitor.

Speaker Change: Chinese base of some investors are watching closely as that competitor tries to establish a larger market share in the U S market really with this new political backdrop for the next four years under the New administration I'm wondering whether some practitioners in the U S. Maybe a little more hesitant.

Speaker Change: Want to bind to the ecosystem really any competitors that are headquartered are based.

Speaker Change: Outside the U S. Just given the heightened risk of trade wars et cetera, So perhaps that could play into your hands favorably at least in the U S market, which I think is still your biggest market. So just at a high level just curious to get your thoughts on that potential.

Speaker Change: Potential dynamic thanks.

Steven Valiquette: Hi, Stephen It is just to confirm the U S is still our biggest market in the world in that sense.

Steven Valiquette: Remember I just talked about the orthodontic market not really growing for the last three years too. So we have had competition. Obviously, we know that your comments really refer to angel align or maybe some other Chinese suppliers coming in I think overall your first win with customer service New Women's technology, you went with relationships and that's what our sales force is really talking about.

Steven Valiquette: We felt that the Chinese have come in an unsustainable prices. When you look at we kind of know the prices you have to charge in order to have a decent return.

Steven Valiquette: That always takes care of itself, one way or another and we've seen that with other competitors in the marketplace. Also so I don't I can't really speak for 10000 or those with GPS that are around the United States and how they feel about international politics or anything they do but our job is to make sure that we keep our heads down we deliver the best technology best productivity the best brands.

Steven Valiquette: All of those things that make sure we win in the marketplace.

Steven Valiquette: We'll let that other piece decide for itself.

Steven Valiquette: Okay got it thanks.

Steven Valiquette: One moment for our next question.

Speaker Change: Our next question comes from the line of Kevin Caliendo from UBS. Your line is open.

Steven Valiquette: Thanks for the question.

Steven Valiquette: This is Dylan on from Duncan Lai on for Kevin.

Steven Valiquette: Thanks for the question a quick question on direct fabrication on you guys previously talked to.

Steven Valiquette: Potentially commercializing products. This year I believe starting with a retainer product so any update there on commercialization of products and maybe detail on the P&L too into both revenue and.

Steven Valiquette:

Investment into constancy, the manufacturing capabilities that you can call out.

Steven Valiquette: Okay first of all I'd say.

Steven Valiquette: Our IP devices three D printed but it's not the excuse me care process.

Steven Valiquette: The resin that will use the cubic for process so as I.

Steven Valiquette: And in my script, we will begin to just with limited release and Invisalign first retained or Invisalign first retainer is a very complicated it has to have a high modulus. It has to have a huge amount of variability in a sense of how how you structure that depending on where that person's arches at that point in time and it's the perfect.

Steven Valiquette: Fit for us as we try to ramp up when we ramp up our our new cubic your process with our new resin to so again like I mentioned Youll see just the beginning of that in the first half of this year in the second half of this year, we should begin to.

Steven Valiquette: Get ourselves more ready for general release in third and fourth quarters of that product line Thats. The beginning after that we'll move into what we call mandibular advancement, but any kind of a liners that have auxiliary types of things that you would have to have printed on those are difficult cases, where wall thickness is need to be different some way so.

Steven Valiquette: Yes, we're really excited about the efficiency of that particular technology, but also the design.

Steven Valiquette: An incredible design capability and design freedom Orthodontists will have in order to do that so that's about as well as I can do for you know thanks next question. Please.

Speaker Change: One moment for our next question.

Speaker Change: Our next question from the line of Michael Riskin through Bank of America. Your line is open.

Speaker Change: Hey, Thanks for squeezing me in guys. Just one quick one from me hopefully John I. Appreciate the commentary you had on tariffs Mexico unrealized theres still lot of moving pieces, but that's one of the extra understood that just a comment on transfer prices.

Speaker Change: On overhead and freight costs treatment planning not being included.

Speaker Change: Should we think of that as a percent of your Cogs I think if you just go through the P&L with something like $375 Cogs per case roughly.

Speaker Change: As a transfer like how much would be impacted as 50% to 75% of that and just walk us through the transfer price math, just so we can.

Speaker Change: Sure.

Speaker Change: No. It's a good question and you're.

Speaker Change: You are right I tried to give a perspective of look you start with Cogs and then there is some art to Cogs.

Speaker Change: Nothing to do with what we're doing in Mexico freight and <unk>.

Speaker Change: And treatment planning and other things.

Specifically the value add and the work that's being done there then that net transfer price that I guess to put it in perspective in terms of.

Speaker Change: There's been a lot of it.

Speaker Change: People thinking about what this could be just just based on your question and so on.

But like on an average month at that tariff, if it's at 25% might impact us $4 million to $5 million of cost or that might be.

Speaker Change: Cost perspective of this so that gives you an idea of like how this kind of fits into this this is something as I said in my prepared remarks look if it if it at that amount of tariff to about 25% if that ever was implemented it's not a big enough cost.

Speaker Change: On tariffs for us too to switch some of the manufacturing.

And move from perhaps manufacturer in Mexico too.

Speaker Change: Poland, but we'll evaluate that as we go forward, but I just wanted to kind of size that for you. We'll evaluate as we go forward we'll understand more.

Speaker Change: As these days come about we hope there's not anything but we have a perspective in terms of what it means from a cost standpoint, and we will make decisions based on that and that will impact us what we do in the short and long term.

Thank you.

Speaker Change: Thanks, Operator, we'll take one last question.

One moment for our next question.

Operator: And our last question comes from the line of Erin Wright from Morgan Stanley. Your line is open.

Great. Thanks for squeezing me in just a follow up on that last one just to clarify there's no buffer kind of embedded in your guidance as it stands today from a tariff perspective, then and just on China, just the environment, they're not necessarily from a tariff perspective, it gets more different demand trends land, even in China from a competitive standpoint, I guess expectations for the balance.

Operator: For the year and if you could touch on that thanks.

Speaker Change: Oh, that's great Aaron I'll take the first one on <unk>, so were not in our forecast and what we've given for guidance at that op margin of 22, 5%. There is no additional new tariffs that we've contemplated in that number so we'll see how things come about but in the framework. If there is a tariff and it should be.

Speaker Change: 25% for Mexico to the U S, it's $4 million to $5 million dependent on volume.

Speaker Change: Per month from an expense standpoint.

And then on China, I don't know if you want to give Joe any other perspective on kind of the market there.

Speaker Change: The China market, we were pleased with the third quarter. The fourth quarter, obviously is always less in China with the third quarter was there was nothing in that quarter that made me think that anything was different in China insensitive trajectory of the business from what we've seen so overall I'd call China stable right now.

Speaker Change: Thank you.

Speaker Change: Youre welcome.

Speaker Change: I will now turn the call over back to Shirley Stacy for any closing remarks.

Speaker Change: Well. Thank you everyone for joining our call today. We appreciate it if you have any follow up questions. Please reach out to Investor Relations. We look forward to seeing you at our next industry events, including the Chicago Midwinter dental show coming up here.

Speaker Change: Later in February I hope, everyone has a great day.

Speaker Change: Okay.

Speaker Change: This concludes today's conference you may now disconnect. Your lines at this time. Thank you for your participation and everyone have a great day.