Align Technology Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 30, 2025
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Operator

Good day and thank you for standing by. Welcome to the Align Technology First Quarter twenty twenty five Earnings Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Please go ahead.

Shirley Stacy
Shirley Stacy
Vice President, Corporate Communications & Investor Relations at Align Technology

Good afternoon, and thank you for joining us. Joining me on today's call is Joe Hogan, President and CEO and John Maricci, CFO. We issued first quarter twenty twenty five financial results today via Business Wire, which is available on our website at investor.alliantech.com. Today's conference call is being audio webcast and will be archived on our website for approximately one month. As a reminder, the information provided and discussed today will include forward looking statements, including statements about Align's future events and product outlook.

Shirley Stacy
Shirley Stacy
Vice President, Corporate Communications & Investor Relations at Align Technology

These forward looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and at sec.gov. Actual results may vary significantly and Align expressly assumes no obligation to update any forward looking statement. We've provided historical financial statements with corresponding reconciliations, including our GAAP to non GAAP reconciliation, if applicable, and our first quarter twenty twenty five conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'd like to turn the call over to Align Technology's President and CEO, Joe Hogan.

Shirley Stacy
Shirley Stacy
Vice President, Corporate Communications & Investor Relations at Align Technology

Joe?

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Thanks, Shirley. Good afternoon, and thanks for joining us today. On our call, I'll provide an overview of our first quarter results and discuss a few highlights from our two operating segments, Systems and Services and Clear Aligners. John will provide more detail on our financial performance and comment on our views for Q2 and full year 2025. Following that, I'll come back and summarize a few key points and open the call to questions.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

I'm pleased to report first quarter revenues, operating margin and earnings in line with our outlook. Fiscal twenty twenty five is off to a good start with Q1 clear aligner volumes up both sequentially and year over year, reflecting strength in both the teens and adult patient segments across all regions, driven year over year strength across the Asia Pacific and EMEA regions and growth in North America. It's also worth noting that Q1 was the highest year over year growth rate for both adult and teen patients since 2021. From a channel perspective, Q1 clear aligner volumes in the orthodontic and GP dentist channels increased year over year with a record number of total submitters and utilization for GP dentists for first quarter. For our systems and services business, Q1 revenues were down sequentially, reflecting Q1 seasonality, as well as unfavorable foreign exchange.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

On a year over year basis, Q1 systems and services revenues were up slightly, reflecting continued adoption of iTero Lumina scanner platform, as well as the launch of iTero Lumina with restorative software at the end of month. On a year over year basis, Q1 clear aligner volumes grew 6.2%, driven primarily by continued strength across the EMEA and APAC regions, as well as growth in North America, offset by lower volumes in Latin America region. For North America, Q1 year over year increase in clear aligner volumes reflects continued adoption of Invisalign First for teens and kids, Invisalign DSP touch up cases, and Invisalign comprehensive three and three. On a sequential basis, Q1 North America clear aligner volumes primarily reflect growth from Invisalign DSP touch up cases, Invisalign pallet expander system, as well as Invisalign comprehensive three and three. For the EMEA region, Q1 year over year clear aligner volume growth primarily reflects strength across the region in both the ortho and GP channels across teens, kids and adult patients.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

On a year over year basis, Q1 EMEA volumes reflect continued adoption of Invisalign non comprehensive cases, primarily driven by Invisalign moderate, Invisalign DSP touch up cases, as well as the initial launch of Invisalign pallet expander across EMEA region in Q1. On a sequential basis, Q1 EMEA growth was driven primarily by Invisalign DSP touch up cases. For the APAC region, Q1 year over year clear aligner volume growth reflects increased utilization in submitters in both ortho and GP channels across teen, kid and adult patients in nearly all country markets. On a sequential basis, Q1 growth reflects strength from China and many of our emerging markets led by India and Korea. From a product perspective in Invisalign First, Invisalign standard and adult products drove Q1 growth in APAC, both on a year over year and sequential basis.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

For Q1, we had over 85,000 doctor submitters worldwide for a record total for first quarter, primarily reflecting a sequential increase in clear aligner volume for teens, kids, and adults in both non comprehensive and comprehensive cases. In the teen and growing kids segment, approximately two hundred and twenty six thousand teens and kids started treatment with Invisalign clear aligners during the first quarter, an increase of 4.5% sequentially and an increase of 13.3% year over year, reflecting growth across regions, especially from Invisalign First in the APAC and EMEA regions in North America, as well as growth from the Invisalign Pallet Expander System in North America. For Q1, the number of doctors submitting case starts for teens and kids was up 2.1 year over year, led by continued strength from doctors treating young kids and growing patients. During the quarter, we continue to commercialize Invisalign Pallet Expander system with continued momentum for doctor submitters and shipments. In Q1, we announced that Align's Invisalign Pallet Expander system was commercially available in Turkey and today we received confirmation of regulatory clearance in China.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Along with Turkey and China, the Invisalign Pallet Expander is available in The US, Canada, Brazil, Australia, New Zealand, Hong Kong, Japan, Singapore, Thailand, EU, UK, and Switzerland, and is expected to be available in additional markets following regulatory clearances. This month, we announced the commercial availability of Invisalign system with mandibular advancement featuring occlusal blocks designed specifically to address class two skeletal and dental correction by simultaneously advancing the mandible while aligning the teeth. Class two malocclusion is one of the most common orthodontic issues characterized by a discrepancy in jaw alignment, where the lower jaw is positioned too far back relative to the upper jaw. It represents approximately thirty to forty five percent of malocclusions globally. Left untreated, this condition can lead to functional aesthetic and other challenges for patients.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

The Invisalign system with mandibular advancement featuring occlusal blocks is a direct response to the needs of orthodontic practices and underscores Align's ongoing commitment to innovation in orthodontics that enhances clinical outcomes and the patient experience. By integrating occlusal blocks into the mandibular advancement feature, we are providing doctors with a powerful new tool that they have asked for to effectively treat growing patients with class two malocclusions while maintaining the aesthetic and comfort benefits of clear aligner therapy. Invisalign system with mandibular advancement featuring occlusal blocks is available to Invisalign trained doctors in The United States, Canada, Australia and New Zealand. It was just launched in most of major countries this week and we expect to be introduced in additional markets through 2025 pending regulatory clearance. Along with the Invisalign palate expander system and Invisalign First, the latest innovation supports the commitment to establishing a unique and differentiated portfolio that supports growing patients throughout their continuum of care.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Dental service organizations or DSOs continue to present one of the fastest growing channels in digital dentistry as they recognize the practice and patient experience benefits of digital workflows enabled by our portfolio of products and services that make up the Align digital platform. This includes increased practice efficiency and profitability, as well as delivering a shorter treatment appointment cycle times for their patients. In short, DSOs are a force multiplier for practice growth and Invisalign adoption. For Q1 Clear aligner volume from DSO customers worldwide increased sequentially and year over year, reflecting growth across all regions. Q1 iTero scanner sales growth was also strong with DSOs as they continue investing in their member practices and end to end digital workflows.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

The DSO business growth continues to outpace that of our retail doctors, driven primarily by some of the largest DSOs in each region. Turning to systems and services,

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

for Q1 year over year revenue growth primarily reflects scanner and wand revenue driven by iTero lumina, wand upgrades, partially offset by lower scanner revenues and the impact of unfavorable foreign exchange. For Q1, we delivered more scanner systems and wands in a quarter than ever before. On a sequential basis, Q1 systems and services revenues were down reflecting capital equipment seasonality, partially offset by higher iTero Lumina Scanner one upgrades. In Q1, we launched a new restorative capabilities and our next generation iTero Lumina inter oral scanner and a new iTero Illumina Pro dental imaging system with iTero Neri technology to enable efficient restorative and multidisciplinary workflows and support the diagnosis of interproximal caries above the gingiva. The new restorative capabilities of iTero Lumina improves GP dentists' ability to diagnose and develop treatment plans that deliver exceptional clinical outcomes, while concurrently helping GPs collaborate more effectively with their restorative labs, deliver incredible precise custom fitting restorations, and reach new levels of practice efficiency and growth.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

The iTero Lumina inter oral scanner with iTero multi direct capture or MDC technology sets a new standard with effortless scanning and superior visualizations and feedback from doctors, labs and other stakeholders regarding our Lumina portfolio has been positive. Its intuitive design and ease of scanning is appealing, is making everyday scanning more viable, especially when compared to other scanners. Like any breakthrough technology, it's important to ensure that doctors and their staffs are properly trained on scanning. Even the most experienced iTero users may need to unlearn previous scanning techniques. We're working closely with our teams to offer follow-up training for our customers and their staff.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

The iTero Lumina interaural scanner delivers faster scanning speed, higher accuracy, superior visualization, and a more comfortable scanning experience. The iTero Lumina solutions include superior three d and two d visualizations that augment and amplify oral health assessment and patient communication using the Align oral health suite designed to increase patient engagement with greater visual understanding of their oral health conditions. Following regulatory clearances in applicable countries, starting earlier this month, existing iTero Lumina scanner owners began upgrading to the new software, which includes restorative diagnostic capabilities. We're excited about the continued technology evolution we deliver with iTero Lumina system, and the depth of tools and features it offers for imaging, diagnostics, treatment planning, visualizations, restorations, and so much more. ITero has always been much more than a PDS replacement.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

And with iTero Lumina, it has truly become the gateway to digital treatment for orthodontics and any type of GP practice, from family dentistry to high end aesthetic practices. With that, I'll now turn the call over to John.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Thanks, Joe. Now for our Q1 financial results. Total revenues for the first quarter were $979,300,000 down 1.6% from the prior quarter and down 1.8% from the corresponding quarter a year ago. On a constant currency basis, Q1 revenues were unfavorably impacted by approximately $21,400,000 or approximately 2.1% sequentially and were unfavorably impacted by approximately $31,100,000 year over year or approximately 3.1%. For clear aligners, Q1 revenues of $796,800,000 were up 0.3% sequentially, primarily from higher volumes, partially offset by the impact of unfavorable foreign exchange.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Unfavorable foreign exchange impacted Q1 clear aligner revenues by approximately $17,900,000 or approximately 2.2% sequentially. Q1 clear aligner average per case shipment price of $12.40 dollars decreased by $25 on a sequential basis, primarily due to the impact of unfavorable foreign exchange. On a year over year basis, Q1 clear aligner revenues were down 2.5%, primarily due to unfavorable foreign exchange of 25,800,000 or approximately 3.1% and lower ASPs due to product mix shift to lower priced products and discounts partially offset by higher volumes. Q1 Clear Aligner average per case shipment price of $12.40 dollars was down $110 on a year over year basis, primarily due to higher discounts, product mix shift to lower priced products and the impact from unfavorable foreign exchange, partially offset by price increases. Clear aligner deferred revenues on the balance sheet as of 03/31/2025, decreased $9,300,000 or 0.8% sequentially and decreased $74,700,000 or 5.8% year over year and will be recognized as additional aligners are shipped under each sales contract.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Q1 systems and services revenue of $182,400,000 were down 9.2% sequentially, primarily due to lower scanner systems revenues and unfavorable foreign exchange. This was partially offset by increased scanner wand revenues, mostly due iTero Alumina Wand upgrades. Q1 systems and services revenue were up 1.2% year over year primarily due to higher iTero Lumina scanner Wand revenues, partially offset by lower scanner systems revenues and unfavorable foreign exchange. Foreign exchange negatively impacted Q1 systems and services revenues by approximately $3,500,000 or approximately 1.9% sequentially. On a year over year basis, systems and services revenues were unfavorably impacted by foreign exchange of approximately $5,300,000 or approximately 2.8%.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Systems and services deferred revenues decreased $11,300,000 or 5.1% sequentially and decreased $37,200,000 or 15.2% year over year, primarily due to decline in deferred revenues due in part to shorter duration of service contracts applicable to initial scanner system purchases. Moving on to gross margin. First quarter overall gross margin was 69.5%, down 0.6 points sequentially and down 0.5 points year over year. Foreign exchange negatively impacted the overall gross margin by 0.7 points sequentially and 0.9 points on a year over year. Clear aligner gross margin for the first quarter was 70.5%, up 0.4 points sequentially due primarily to lower manufacturing costs and lower restructuring expenses, partially offset by unfavorable foreign exchange of 0.6 points.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Clear aligner gross margin for the first quarter was down 0.3 points year over year, primarily due to unfavorable foreign exchange, partially offset by lower manufacturing spend. Foreign exchange negatively impacted Clear aligner gross margin by 0.9 points year over year. Systems and services gross margin for the first quarter was 64.7%, down 4.7 points sequentially, primarily due to lower Wand ASPs and unfavorable foreign exchange, partially offset by manufacturing efficiencies. Foreign exchange negatively impacted the systems and services gross margin by 0.7 points sequentially. Systems and services gross margin for the first quarter was down 1.2 points year over year, primarily due to lower scanner and wand ASPs and unfavorable foreign exchange, partially offset by manufacturing and services efficiencies.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Foreign exchange negatively impacted the systems and services gross margin by one point zero points year over year. Q1 operating expenses were $549,000,000 down 0.7% sequentially and up 1% year over year. On a sequential basis, we saw a 3,800,000 decrease in operating expenses, primarily due to lower restructuring and other non recurring charges in Q1, which were partially offset by consumer marketing spend. Year over year, operating expenses increased by $5,300,000 primarily due to our continued investments in R and D activities. On a non GAAP basis, excluding stock based compensation, restructuring and other charges, and amortization of acquired intangibles related to certain acquisitions and legal settlement loss, operating expenses were $500,700,000 up 5.5% sequentially and down 1.1% year over year.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Our first quarter operating income of $131,100,000 resulted in an operating margin of 13.4%, down 1.1 points sequentially and down 2.1 points year over year. Foreign exchange negatively impacted operating margin by approximately 1.1 points sequentially and 1.4 points year over year. On a non GAAP basis, which excludes stock based compensation, restructuring and other charges, amortization of intangibles related to certain acquisitions, and legal settlement loss, operating margin for the first quarter was 19.1%, down 4.1 points sequentially and down 0.7 points year over year. Interest and other income expense, net for the first quarter, was an income of $9,300,000 compared to an expense of $3,400,000 in Q4 'twenty four, driven by favorable foreign exchange movements, partially offset by lower interest income and gain on investments from last quarter. On a year over year basis, Q1 interest and other income and expense were favorable compared to income of $4,300,000 in Q1 twenty twenty four, primarily driven by favorable foreign exchange movements partially offset by gain on investments in the first quarter of the prior year.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

The GAAP effective tax rate in the first quarter was 33.6% compared to 26.3% in the fourth quarter of last year and 33.7% in the first quarter of the prior year. The first quarter GAAP effective tax rate was higher than the fourth quarter effective tax rate primarily due to the tax expense recognized related to stock based compensation and the release of uncertain tax provision reserves in Q4 of twenty twenty four, partially offset by a one time deferred tax adjustment in foreign jurisdictions in Q4 of twenty twenty four. The first quarter GAAP effective tax rate was roughly in line with the first quarter effective tax rate of the prior year. Our non GAAP effective tax rate in the first quarter was 20%, which reflects our long term projected tax rate. First quarter net income per diluted share was $1.27 down $0.13 sequentially and down $0.13 compared to the prior year.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Foreign exchange negatively impacted our EPS by zero eight dollars on a sequential basis and $0.12 on a year over year basis due to foreign exchange. On a non GAAP basis, net income per diluted share was $2.13 for the first quarter, down $0.31 sequentially and down $01 year over year. Moving on to the balance sheet. As of 03/31/2025, cash and cash equivalents were $873,000,000 down sequentially $170,900,000 and up $7,200,000 year over year. Of our $873,000,000 balance, dollars 133,100,000.0 was held in The U.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

S. And $739,900,000 was held by our international entities. During Q1, we repurchased the remaining $72,100,000 of the $275,000,000 open market repurchase initiated in Q4 of twenty twenty four. In Q1, we initiated a new plan to repurchase the remaining $225,000,000 of our common stock under our January 2023 approved stock repurchase program of $1,000,000,000 through open market repurchases. As of 03/31/2025, we had repurchased $129,000,000 Once completed, this open market repurchase will complete our $1,000,000,000 stock repurchase program approved in January of twenty twenty three.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Q1 accounts receivable balance was 1,062,000,000 up sequentially. Our overall days sales outstanding was ninety seven days, up approximately seven days sequentially and up approximately eleven days as compared to Q1 last year and primarily reflects flexible payment terms we have extended as part of our ongoing efforts to support Invisalign practices. Cash flow from operations for the first quarter was $52,700,000 Capital expenditures for the first quarter were $25,300,000 primarily related to investments in our manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations minus capital expenditures, amounted to $27,400,000 Before I turn to our Q2 and fiscal twenty twenty five outlook, I'd like to provide the following remarks regarding The UK VAT and U. S.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Tariffs as of April 30. As previously disclosed in our Q4 'twenty four earnings release and conference call, we anticipated receiving a ruling regarding the applicability of Vat to our clear aligner sales in The UK. On 04/24/2025, we received a favorable ruling in which the tribunal determined that our clear aligners are dental prosthesis for the purposes of VaT in The UK, which is a key condition to be considered exempt from VaT. This outcome reaffirms our commitment to enhancing patient access to oral health, leveraging digital technology. HMRC has until June 19 to appeal the tribunal's ruling.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

HMRC may also attempt to challenge the applicability of that on a different basis. Moving on to tariffs. Align Technology has clear aligner manufacturing operations in Mexico, Poland, and China. For The U. S.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Domestic market, we currently manufacture clear aligners in Mexico prior to shipment to The U. S. Align does not currently ship clear aligners from Poland or China to The US. We currently manufacture clear aligners for the Chinese market in China. Our clear aligners and intraoral scanners made in Mexico that are imported into The U.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

S. Compliant with The United States Mexico Canada Agreement As noted in President Trump's executive order dated 04/02/2025, USMCA compliant goods are exempt from tariffs under the executive order. However, The US Mexico tariff situation remains fluid and we are unable to predict whether USMCA compliant products will remain exempt, whether there will be other changes to the announced executive order, or if other tariffs will be imposed in the future. We expect an incremental tariff, if implemented, to be applied to the transfer price on goods shipped from Mexico. With respect to our clear aligners made in China, all manufacture for China takes place in China.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

We have assessed the potential impact of China's retaliatory tariffs and believe that we are able to mitigate most of the tariff exposure through adjustments in our supply chain. Based on the current situation, we do not expect a significant impact to our costs from these retaliatory tariffs. We have also assessed the potential direct impact of additional US tariffs on China on our business and currently do not expect to realize a significant impact from these retaliatory tariffs. Our intraoral scanner manufacturer primarily occurs in Israel, with scanners shipped from there to worldwide locations. We produce a small number of scanners in China, primarily for the market.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Regarding tariffs on Israel goods imported into The US, at the current 10% baseline tariff, we estimate the average monthly potential impact to be approximately $1,000,000 which we have considered in our guidance for Q2 and fiscal twenty twenty five. Moving on to 2025 business outlook. Assuming no circumstances occur beyond our control, such as foreign exchange, macroeconomic conditions, and changes to our currently known tariffs that could impact our business. We expect Q2 twenty twenty five worldwide revenues to be in the range of $1,050,000,000 to $1,070,000,000 up sequentially from Q1 twenty twenty five. We expect Q2 twenty twenty five clear aligner volume to be up sequentially and Q2 twenty twenty five clear aligner ASPs to also be up sequentially due to favorable foreign exchange at current spot rates, partially offset by the continued product mix shift to non comprehensive Clear Aligner products with lower list prices.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

We expect Q2 twenty twenty five systems and services revenue to be up sequentially as we continue to ramp up iTero Lumina scanner with restorative software. We expect Q2 twenty twenty five worldwide gross margin to be up sequentially primarily from higher ASPs and clear aligner volume. We expect our Q2 'twenty five GAAP operating margin and Q2 'twenty five non GAAP operating margin to be up sequentially by approximately three points for each GAAP and non GAAP operating margins. For fiscal twenty twenty five, we expect 20 20 five clear aligner volume growth to be up approximately mid single digits year over year. We expect twenty twenty five clear aligner ASPs to be down year over year due to continued product mix shift to non comprehensive Clear Aligner products with lower list prices and continued growth in our emerging markets where those products may carry lower list prices.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

We expect twenty twenty five systems and services year over year revenues to grow faster than clear aligner revenues. We expect 2025 year over year revenue growth to be in the range of 3.5% to 5.5% at current spot rates. We expect fiscal twenty twenty five GAAP operating margin to be approximately two points above the 2024 GAAP operating margin and we expect 2025 non GAAP operating margin to be approximately 22.5%. We expect our investments in capital expenditures for fiscal twenty twenty five to be between $100,000,000 and $150,000,000 Capital expenditures primarily relate to technology upgrades as well as manufacturing capacity in support of our ongoing business. With that, I'll turn it back over to Joe for final comments.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Joe?

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Thanks, John. I'm pleased with the results of our first quarter, the strength of

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

our clear aligner business, including the return to stability in The United States and the response to our recent innovations such as Invisalign Pallet Expander System and iTero Aluminum. All of us are aware of the global economic uncertainty and the headwinds that tariffs or changes in consumer sentiment might bring. Align is focused on what we can control. As I mentioned last quarter, that means building on the innovations introduced in 2024 that drive efficiency and growth for our customers' practices while delivering the best customer and patient experiences in the industry. First,

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

through

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

our digital scanning technology, while iTero has long been valued in orthodontic and GP practices as much more than a replacement for PVS impressions, our next generation iTero Lumina solution with comprehensive dentistry capabilities provides transformative solutions for GP dental practices to enable diagnostics, restorative, and multidisciplinary ortho restorative workflows, including Neri technology and the iTero Lumina Pro dental imaging system. With iTero Lumina, we truly have a gateway to any type of digital orthodontic and dental treatment. Second, driving practice transformation to fully digital practices must address two key variables, doctor and patient efficiency. Less patient share time and fewer patient visits increases practice profitability. We're helping customers drive efficiency and create more time and capacity in their practices with our digital treatment planning software, delivering ClinCheck in minutes for most treatment plans.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

The latest innovations in the ClinCheck Signature experience combines automation of each doctor's clinical preferences with AI powered tools that deliver customized treatment plans in near real time. Based on doctors' building personalized treatment preferences or pre populated templates, a doctor chooses our almost touchless digital workflows, ClinCheck-in minutes technology, which is revolutionizing treatment planning for doctors and enabling chairside treatment planning, improving patient conversion and getting patients started in treatments within days. Next, we're building on the world's most advanced clear aligner system to make it even more effective and efficient for all patients. With innovations such as the Invisalign system with mandibular advancement featuring occlusal blocks that expands Align's class two treatment portfolio for growing patients with a comprehensive solution for treating growing patients in class two malocclusions caused by mandibular retrusion. Finally, we're delivering on the promise of three d technology that is part of Allianz DNA with direct three d printed orthodontic devices, demonstrating our commitment to pushing the boundaries of digital orthodontics.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

The first example is Invisalign Pallet Expander System, a series of removable devices that expand a patient's palate without traditional metal expanders and screws in a way that is both effective clinically and comfortable and easy to use for kids and parents. This is the first direct three d printed appliance alliance commercialized. With others in development, we believe direct three d printing will give doctors new levels of precision in appliance fit and shape and deliver the best possible outcome for patients. As we celebrate twenty eight years of digital innovation this year, we're also proud to be grateful and highlight we've met a significant milestone with over 20,000,000 Invisalign patients treated globally, representing 20,000,000 smiles, 20,000,000 stories and 20,000,000 lives transformed, a testament to the passion and purpose of our employees, our doctor customers and their patients. With that, I thank you for your time today.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

I look forward to speaking with you at our Investor Day meeting next week. Now I'll turn the call over to the operator for questions. Operator?

Operator

Thank you. Our first question will come from the line of Brandon Vasquez from William Blair. Your line is open.

Brandon Vazquez
Research Analyst at William Blair & Company, L.L.C

Hi, everyone. Thanks for taking the question and congrats on a nice start of the year here. I thought maybe just to start, I was pleasantly surprised that kind of the strength in the quarter and the strength of the guide given historically we've relied a lot on and we've talked a lot about the ties of consumer sentiment and to the dental space. So again, kind of a nice surprise in this quarter. I was hoping you guys can just spend a little time talking.

Brandon Vazquez
Research Analyst at William Blair & Company, L.L.C

We saw consumer sentiment come down, but it seems like the business is doing well. So talk a little bit about maybe why that's decoupling and what kind of confidence that gives you in the guidance on a go forward basis, even though in April we were seeing sentiment go down. Thanks guys.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Hi, Brandon, it's Joe. Thanks for the question. And we saw good volume. It's great to see North America grow again. It's been a while, as I mentioned.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

We have good strength in APAC overall, including China and Europe, really across the board in Europe, we saw good demand also. Obviously the Lumina scanner coming out now, you know, with restorative capability gives us a tailwind in that sense too. And what I would love also was a teen, you saw teens grow, but you also saw adults grow also. So what I just end that comment by saying we saw breath in the sense of the growth, whether it was product line or whether it was by country or region, and also by our different segments, including iTero.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Vic Chopra from Wells Fargo. Your line is open.

Vik Chopra
Vik Chopra
Analyst at Wells Fargo

Good

Vik Chopra
Vik Chopra
Analyst at Wells Fargo

afternoon. Can you hear me? Good afternoon. Thanks for taking the questions and congrats on a nice quarter. Maybe just two for me.

Vik Chopra
Vik Chopra
Analyst at Wells Fargo

I appreciate all the color you provided on the on the tariff front. But can you just talk about plans to potentially mitigate this by moving production, you know, to different locations or putting in some price increases? And then I had a quick follow-up. Thank you.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Nick. It's Joe. Look, I, you know, obviously, we're, I think, pretty well situated right now when you look at how the tariffs would affect us. You know, we're we're in China for China. And as John said, there's, you know, some material movements and all that will take care of it.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

We don't see much of an impact there if anything. We're good with Mexico right now. We feel pretty solid on that and our Poland plant is fully operational and working well in Europe. I guess the only issue we really have is iTero, a lot of the shipments are coming out of Israel, but we have some plans, we'll be able to address that. But as you can see in our forecast, we're planning on holding our margin that we've committed to, and so we think we'll be able to mitigate that.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Overall, I feel fortunate. I think we positioned ourselves as a truly a global business, meaning we have global supply lines in each one of those specific regions that we can maximize and work through. So we we feel good about the situation right now. But, you know, as I mentioned in my comments too, it is there's a lot of volatility out there, but we feel we're well positioned in the sense of what we've seen so far.

Vik Chopra
Vik Chopra
Analyst at Wells Fargo

Got it. That's super helpful. And, you know, you're hosting a much anticipated investor day next week. I'm just wondering if you can just provide some insights as to what we can expect next week. Thanks so much.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

I think what you can expect is we'll give you a good portfolio look at the company, a good demand, what we think the next few years look like in a sense of how we're positioned overall from a technology standpoint and also a commercial standpoint. It's been a while since we've been with our investors, so we're really excited to share with you. We've developed a lot since the last meeting and we look forward to the time in New York.

Operator

One moment for the next question. Our next question will come from the line of Jon Block from Stifel. Your line is open.

Jonathan Block
Jonathan Block
Managing Director at Stifel Financial Corp

Thanks, guys. Hey, Hey, guys. The first one, Jon, I'll ask some sort of detailed questions on the 2025 revenue guidance. So I think I've got it right. You raised it from low single digits to 4.5% at the midpoint.

Jonathan Block
Jonathan Block
Managing Director at Stifel Financial Corp

The language around ASPs didn't change. I'd still expect it to be down low single digits year over year. The clear aligner language didn't change. The vol is still expected to be up mid single digits year over year. So maybe this is a pretty straightforward question, but like any more color on the ASPs?

Jonathan Block
Jonathan Block
Managing Director at Stifel Financial Corp

Are the ASP thoughts basically, call it unchanged from three months ago, but now we should be thinking like down one and the prior was down three that both fits the LSD narrative with that 200 basis point delta sort of specific to just updating for the spot rate. And let me know if that came across well.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

That is accurate the way you phrased that, John.

Jonathan Block
Jonathan Block
Managing Director at Stifel Financial Corp

Okay. That was an easy one, concise. So I'll get another one. Joe, I'd love to spend time on teen. I mean, this was always sort of like the holy grail and it went to the moon during COVID and then you had some tough comps and here you are with new products and the double digit growth of 13%, it was a pretty good beat on teen versus where we were the two year stack is mid-20s.

Jonathan Block
Jonathan Block
Managing Director at Stifel Financial Corp

It wasn't up against an easy comp. So the 13 off to 12. Maybe just elaborate on that, like what are you seeing with IPE clearly that's helping the bottles, but are you seeing the IPE to alignment pull through, which I think we would still be in the early stages of that. And maybe I'm getting a little bit aggressive here, but can we think about teen as this low double digit plus grower going forward as long as the innovation continues to step up and you got MA with occlusal blocks first hitting the market? Thanks.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Yeah. Hey, John, first of all, I like the breadth of what you saw in Teams. We saw it across each geography too. Obviously, IPE is a big part of that, but it combines well with Invisalign First. We see that.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Some doctors specified immediately, some in sequence, but overall, that's just a great, we call it kids product, we have it in a teen segment, but those two products function very well together. You're right about mandibular advancement with occlusal blocks. It addresses the twin block kind of a system that's been out there for years. It's kind of an invasive system. We've done that before with mandibular advancement, but not to the extent that these strong occlusal blocks will be able to address the class II, like I mentioned before.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

I feel good about our distribution capability in each geography to take that kind of technology forward. There's a lot of specificity in stuff like IPE and obviously occlusal blocks that you need a great distribution team to be able to explain and help to integrate in doctor's offices. So I hope I have answered your question, John, but overall, it's not just like one region and one product, it's really good synergy in our portfolio across the different regions.

Jonathan Block
Jonathan Block
Managing Director at Stifel Financial Corp

Thank you.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Thank you.

Operator

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

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Hey,

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Jeff.

Jeffrey Johnson
Managing Director, Senior Research Analyst at Robert W. Baird & Co

Good afternoon, guys. Hey, Joe, how are you? So let me ask, I guess, John's ASP question, but let me kind of dig down a little bit more.

Jeffrey Johnson
Managing Director, Senior Research Analyst at Robert W. Baird & Co

If I can ask one question about ASPs this quarter and then one question about ASPs going forward. Hopefully, that's all blended and counts as one question. But John, I think ASPs were down 8.2 year over year, not sequentially, 8.2% year over year this quarter. Can you just remind us how much the VAT, the price discount you had to give to normalize that VAT impact to The U. K.

Jeffrey Johnson
Managing Director, Senior Research Analyst at Robert W. Baird & Co

Docs, How much that contributed out of that 8.2? And how much FX contributed as a negative headwind? I think that was 200 basis points by my math, but just trying to confirm that.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Yes. The FX is that impact that we have on a year over year basis, so we have unfavorable FX. Mean, on a year over year basis, the FX on the overall company is 3.1 points. And then remember, we started the VAT withholding the VAT a year ago in Q1. So on a year over year basis, it's already in the baseline numbers from last year.

Jeffrey Johnson
Managing Director, Senior Research Analyst at Robert W. Baird & Co

Okay. And then on going forward, currency should switch to a positive contributor to ASPs. You mentioned the $310,000,000 I thought that was the top line impact, but just is that the flow through impact ASPs as well, the $310,000,000 headwind in the first quarter? But going forward, FX switches to a positive tailwind. Any at spot rates, can you just kind of put us in the ballpark there?

Jeffrey Johnson
Managing Director, Senior Research Analyst at Robert W. Baird & Co

I can do my math later tonight, but I would love to hear your opinion there. And then if HMRC doesn't appeal, can you reraise those UK prices? Would that actually be a contributor? Or do you stick at these prices? You just don't have to pay that VAT or the providers don't have to pay that VAT tax?

Jeffrey Johnson
Managing Director, Senior Research Analyst at Robert W. Baird & Co

Guess, does that could that potentially switch to an ASP tailwind? And then lastly, just MAOB, the mandibular advancement blocks, I think I was hearing that that's going to be $100 add on charge. If we start mixing more and more MA cases, does that theoretically then drive a little bit of ASP tailwind the way IPE and DSP has created a little bit of ASP headwind right now? Thank you.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Okay. Let me try to take these three ASP questions, Jeff, So MAOB, yes, slightly higher price. That would help our overall ASP as we sell more of that premium product on our comprehensive cases and we'd add to that for the MAOB pricing on that. Regarding The UK, we have to hear back on whether HMRC will appeal and what they do. We have a lot of flexibility to that if we win, either they don't appeal or win an appeal, we can always make changes to our discount and not discount as much and if we do that, then that gives us a benefit in ASP going forward.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

That has not been contemplated in our forward looking ASP. I'm just kind of taking The UK VAT impact completely out from a forecast, but it does give us flexibility depending on what HMRC decides to do or if it works its way through. And then regarding overall FX, yes, it turns into now at current spot rates a slight benefit on a year over year basis, and then you still have what we've talked about before, just that list price, lower list price products which would be comprehensive, as well as some of the other growth in certain countries just at a lower list price. But gross margin, as you know, is in many cases favorable as a result of those lower stage products because the cost to serve for us is less. That's how the dynamics shape up for ASPs.

Jeffrey Johnson
Managing Director, Senior Research Analyst at Robert W. Baird & Co

Appreciate it. Thank you.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Thanks, Jeff.

Operator

Thank you. One moment for our next question. Next question will come from the line of Michael Cherny from Leerink Partners. Your line is open.

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

Afternoon, and congrats on a really nice quarter and the guidance. I just want to make sure we have all the pieces right. I'm not going do as much mental math as Jeff. I'm still slower there. But in terms of the margin uptick that you now expect, nice margin expansion of the year, How much of it do you would you accrue to kind of better revenue expectations on an organic basis for operational changes?

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

I know we've spent a lot of time talking with the ASP regarding the impact from FX there, but anything else you can allude to relative to the operating margin drop down? How much of it has been within your control versus how much is market conditions? It would be great. Thanks

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

think when you look at our margin expansion and like I said in the prepared remarks, that's still net of 70 basis point improvement in op margin from 2024 to 2025 with the known tariff impact that we would have now. And where we're seeing the expansion improvements is, you know, continue to improve our manufacturing efficiencies with volume, with material savings, logistical savings, things that we talk about from an innovation standpoint when we do touchless ClinCheck, a lot of less activity for us, as well as some of the new products that we have that are at good margins, some of them higher ASP like we talked about with MAOB and so on. So it's really a host of initiatives that we have, it's what we continue to do in the business and with this forecast, we're pleased to report that as we know tariffs now, can still get to our margin targets that we have because we're seeing productivity in other areas.

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

Got

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

it. Just one really quick last follow-up. Did you give the DSP number for the quarter? I apologize if I missed it in the slides or anywhere else.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

No. We did not give the DSP, but as we've said in our prepared remarks and what we see is, you know, this helps grow the low stage part of our portfolio. It's rolling out in other areas and we're pleased with the performance.

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

Got it. Thanks so much.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Thank you.

Operator

One moment for our next question. Our next question will come from the line of Jason Bednar from Piper Sandler. Your line is open.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Hi, Jason.

Jason Bednar
Jason Bednar
Senior Research Analyst at Piper Sandler Companies

Hey, there. I wanted to first start on two financing topics. We saw higher rates, credit denials were an issue over the past year or so. You've got a new preferred financing partner in HFD. Just curious if you're seeing that help resolve any of the challenges with consumers early on in that relationship.

Jason Bednar
Jason Bednar
Senior Research Analyst at Piper Sandler Companies

And then on the provider side, John, I think you said that you attributed the rise in DSOs to extending financing or better favorable terms to practices. I just want to understand what's going on there, if you can double click, just to be blunt, it's a pretty big increase in DSOs for a policy you've had in place for multiple years. Just wondering what's changed just in the last few months that would materially shift that line higher.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Yeah, I think, really, you highlighted kind of the components about how people pay in general. So you have some patients that just pay directly and they pay the 100% of the cases that the treatment that they want. So that happens in many markets and that continues. Maybe it's less of that because of some of the pressures that they might be facing. The other two ways that essentially patients will pay is some will utilize some of the doctor financing, so they'll kind of pay as you go through the doctor, That's where really it helps to have favorable terms with those doctors so that we can provide a little bit longer time for them to pay and we continue that effort so that those doctors can take a little bit more time to pay us back so that they can use their balance sheets or their working capital to help kind of that patient financing that they'll provide.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

And then the third way is external and HFE is one of them. There's many different companies that provide this, but we're seeing a good combination of finding the right way to get to HFD, meeting the requirements that they have or others that are providing this and getting those potential patients into financing. So we're seeing a good combination of this, but we know that how much things cost and how much they have to pay over a monthly basis is important and this is a good way to offset that.

Jason Bednar
Jason Bednar
Senior Research Analyst at Piper Sandler Companies

Okay. All right. Understood. And just maybe real quick on some of the tariff dynamics and not necessarily as it influences what you have to pay, but more so from a competitive standpoint. It seems like you might have some competitors that may get dislocated or may have maybe facing higher costs as they have to import or reconfigure their supply chain.

Jason Bednar
Jason Bednar
Senior Research Analyst at Piper Sandler Companies

It seems like this is a good opportunity to lean in with your business. But I want to ask, are you seeing any dislocation with doctor customers? Is that happening where you're now, call it, relatively more favorable from a cost perspective than maybe what you were pre tariffs?

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

It's Joe. I'd say we haven't seen anything material in that sense of change so far. And I can't really speak of our most of our competitors supply lines. It's a lot of intricacies in the sense of manufacturing, whatever. Obviously, some of them are going to be very disadvantaged.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

We don't know to what extent, but we just continue to operate in the marketplace, focus on what we can focus on, like I mentioned, our product capability, our digital platform, iTero Lumina, and just the efficiencies that we really can gain with doctors. We'll let the tariffs kind of take care of themselves. We'll see how that goes, but we really feel good about our position and we'll continue to execute.

Jason Bednar
Jason Bednar
Senior Research Analyst at Piper Sandler Companies

Right. Thanks, Jeff.

Operator

One moment for our next question. Our next question will come from the line of Steve Valiquette from Mizuho Securities. Your line is open.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Hi, Steve.

Steven Valiquette
MD & Senior Equity Research Analyst - Covering Health Care Technology & Distribution at Mizuho Securities

Thanks. Good afternoon, Joe and John. Yeah, thanks for taking the question here. So one of my questions was just answered on the tariffs.

Steven Valiquette
MD & Senior Equity Research Analyst - Covering Health Care Technology & Distribution at Mizuho Securities

I think I'll just hold off on that one. But one of the things that you mentioned, you said that you assessed the potential impact of China's retaliatory tariffs and you believe you're able to mitigate the tariff exposure through adjustments in your supply chain. I guess my high level thought was that if you're manufacturing in China for the Chinese market, you would essentially have zero impact from tariffs. But so I'm not sure if I'm reading too much into your wording there, but just hoping that you can provide a little more color on the dynamics on making adjustments to your supply chain. Thanks.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Yes, you're right, Steve. From a product movement between China and U. S. And vice versa, there is no movement across it. There are some raw materials that for our China manufacturing location, there are some raw materials that come from US as well as other places.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

That's the piece that we're adjusting from a supply standpoint so that it should not impact us from a tariff standpoint.

Steven Valiquette
MD & Senior Equity Research Analyst - Covering Health Care Technology & Distribution at Mizuho Securities

Got it. Okay. Alright, that's it for me. Thanks.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Okay, thanks Steve.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Elizabeth Anderson
Senior Managing Director & Research Analyst at Evercore

Guys. Good afternoon. Thanks so much for the question. So, I see what you're saying about the 2Q guidance, and I understand what you've been saying, in some of the math about the FX flip and things. You're talking about in the 2Q guidance, Keith's volume being up sequentially.

Elizabeth Anderson
Senior Managing Director & Research Analyst at Evercore

Can you sort of you know, but obviously a lot of the 1Q results happened sort of BT before tariffs. Can you sort of talk about how the demand are you starting to see any impacts on demand? Would you characterize the demand since sort of the tariff announcements, as broadly stable? Like, I guess, any sort of color you could help provide on that, would be helpful just as people kind of put through the puts and takes of the current macro choppiness? And then I have a follow-up.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Yeah, Elizabeth, hi, this is John. Look, we are pleased with our volume and our performance in Q1 despite some of the choppiness that people allude to and so on. When we look at how we're guiding and what we're using, you know, it's a normal process that we go through to be able to come up with guidance, and we're showing that we expect that sequential improvement from Q1 to Q2. I think I would just remind everybody that it's a global business. There's a lot of different parts to our business and various products as well that I think sometimes gets a little bit lost.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

I think that you look at the global breadth of our business, the strength that we saw in EMEA and APAC and the stability that we saw in The Americas, there's always something about tariffs and some of the noise around that, but we're guiding for that increase and it's based on the data that we see.

Elizabeth Anderson
Senior Managing Director & Research Analyst at Evercore

Got it. And as a follow-up, obviously you've launched the restorative iTero So, I would assume that there's almost no benefit in the first quarter from that. Can you just sort of help us think through sort of the uptake for that and sort of how you expect that based on sort of prior launches to come across as you sort of launched the new products like the with the Lumina ortho version last year.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

The second version is a restorative, you know, scanner, obviously, as you know, Elizabeth, and so it's, broadly in a GP segment we're focused on right now. You know, obviously we'll deliver to our channels, so it will deliver globally. We feel really good about some of the capability of that from a restorative standpoint. We're seeing images right now that, you know, most of these images will go to labs and it's a restorative procedure. And we're pretty excited about the degree of detail and specificity that Lumina has because of its multi projection type of a system.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

So can't tell you what the exact growth is going to be. I can tell you we'll take it to the marketplace, we'll take it from a lab side and the GP side, and we feel really good about our competitive positioning. Much stronger, we feel, in the restorative way than some of our scanners in the past. I hope that helps.

Elizabeth Anderson
Senior Managing Director & Research Analyst at Evercore

Yep. Thank you so much.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Yep. Sure.

Operator

One moment for our next question. Our next question will come from the line of Evan Wright from Morgan Stanley. Your line is now open.

Erin Wright.
Erin Wright.
Senior Healthcare Equity Research Analyst at Morgan Stanley

Great. Thanks for taking my questions. I'll ask them both upfront here. On Teen, I guess any metrics that you have on the actual conversion rates of Invisalign First and Palate Expander and how you're seeing that translate into growth there? I know it was asked earlier at a more higher level, but curious if we are hitting that inflection point and what some of those metrics may be, and maybe it's just too early.

Erin Wright.
Erin Wright.
Senior Healthcare Equity Research Analyst at Morgan Stanley

And then the second question I have is just on direct FAB and your latest thoughts on contributions, you're at with sort of the initiative and how that should progress, and maybe we wait for Investor Day on that, but the potential contributions there. Thanks.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

First of all, from a team conversion standpoint, I wouldn't say we're hitting critical mass or something like that. But I mean, what you see is in that pre teen or kid stage, we do have a very strong portfolio and that phase one area that orthodontists talk about. Obviously, they're excited about it because it's a group of products that are much simpler from a patient standpoint, a lot less painstaking, I'd say, than before. And so we see really all over the world, a good uptake and interest in those product lines, as we expected. And I'd say that includes vestibular advancement.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

So it'll take time for that penetration piece. You know, there's nothing about this market that moves really quickly in the sense it's an individual doctor's office piece by piece all over the world, but we certainly feel really good with that momentum of those three products in general in kids. You know, overall from a, you know, when look around the world right now, I just think from a, we have good momentum, like I mentioned before, in every region that we've had. We haven't seen this since 2021. The teen growth overall being double digits is terrific.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

So the penetration rate is improving, but I think we have to take this thing quarter to quarter and report to you on it. I hope that helps.

Operator

Thank you. One moment for our next Our next question will come from the line of Mike Risking from Bank of America. Your line is open.

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

Hey, thanks for taking the question, Appreciate you squeezing me in. A couple small ones, just kind of following up on prior points people brought up, so I'll shoot them real quick. You talked about tariffs, you talked about China. I kind of want to talk about the indirect impact of tariffs, the trade war. There's a lot of thoughts of maybe indirectly China will try to punish American companies by sort of pushing people towards local brands even more, the question how much they can really do that.

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

But just from that perspective, are you seeing anything, obviously you've got a local competitor there. Just thoughts on that and what have you kind of assumed for rest of the year if that trade war continues to escalate?

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Yeah, Mike, on what we saw in the first quarter, obviously, we're looking for that. There's some kind of consumer backlash. We haven't really experienced that at all. We had a good quarter in China across the board, you know. And so as far as, you know, where we stand today, we haven't seen that that kind of a of an issue.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

And again, I think we're an in China, for China type of company there too. And then obviously we're a Western company, but we don't deliver from a Western sense. We deliver within that country, the technology, the manufacturing, the treatment planning and all those things. So it's very local in the sense of how we operate there.

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

Okay, great. And then you talked about FX on revenues and ASP. What about on margins? I mean, it's just a pretty big swing in terms of how rates have gone. Is there any impact on margins?

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

I see that you're keeping your full year non GAAP op M the same. So just anything we should keep in mind in terms of how that flows through the P and L?

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Yes, there's a with the FX favorable FX, just slight improvement our op margin as a result of that, but we have that as well as being able to offset some of the tariffs and so on. So that's the components that show up in op margin, but we're pleased with the start of the year in terms of our op margin, we're showing guiding to sequential improvement into the second quarter and if FX rates stay stable as they are now, will end up with a good accretive op margin for 2025.

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

Okay. And then a quick one, if I could squeeze in

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

a third, just sort of

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

a technical question. Some of the disclosures, you mentioned you're giving DSP anymore. It looks like unless I'm missing it, you're not giving Americas versus international clear aligner net revenues. Is it just sort of the new disclosure going forward? Is that something we'll find in the 10 Q or just sort of what's the rationale behind that?

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

We're always looking to simplify and provide information. We get a lot of feedback that we provide so much information and gets a bit confusing as to what's really driving things, so we try to give the best information that helps you and others be able to understand and analyze the business and, you know, we look to make changes that make the most sense to help provide more clarity to the business.

Michael Ryskin
Michael Ryskin
Managing Director at Bank of America Merrill Lynch

Alright, thank you. I appreciate it. Thanks.

Joseph Hogan
Joseph Hogan
Director, President & CEO at Align Technology

Thanks, Mike.

Operator

Thank you. One moment to our next question. Our next question comes from the line of Kevin Caliendo from UBS. Your line is open.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Thanks. Thanks for getting me in. I appreciate it.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Of course.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Hi, Hi, guys. I I wanna go back to the ASP question. Yeah. It was down eight 3% FX, I I I think is how to think about it, which would imply that between discounting and mix, it was down sort of five. Right?

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

And I I don't think that any of your expectations are going forward that ASPs are gonna decline 5% to perpetuity. So what gets better in your minds between either mix, either customer mix or product mix or discounting programs? Or are you anticipating and, yeah, I don't know that I I've contemplated this until right now. But, you know, is there it used to be every July there would be price increases. Are you thinking that you have the ability to do that, broadly speaking, and that and that helps?

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

And I guess it's it's a short term question, but it's also sort of a long term question when we think about the ASPs. Because if we're gonna get back to sort of, you know, the kind of growth that we think the business can do it, we don't want ASP to be a huge overhang in that on the clear aligner side.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

Yeah, I think you have to look at it when you think about it, Kevin, where we're growing. Certain countries grow faster, they're just at a lower list price product that they have there or some of the product growth that we have is lower and we certainly saw some of the shift where we, you know, starting this year have introduced, you know, DSP in several markets and other new products with IPE and, you know, some of the other close that we've had, whereas we didn't have those in the past. So I think some of it's just the products and the locations that impacts the mix. And then you see as doctors, we sell to more and more doctors, record number of first quarter doctors that we sell to. Many of these doctors that come in are just, they are at an ASP product, a list price that are maybe not the comprehensive and they are lower list price type products, but that's the expectation that you have.

John Morici
John Morici
CFO & EVP, Global Finance at Align Technology

We have things that we can be able to mitigate with some of the new products we have, some of the additional pricing like we have on MAOB and others to be able to get us to that stability in ASP. And then of course, as you work your way down the P and L, we're very mindful of making sure that gross margin is accretive and being able to drive the gross margin and ultimately top margin and that's what we look at as we work our way down the P And L.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Great. Thanks, guys.

Operator

Thank you. I'm not showing any further questions in the queue. I would now like to turn the call back over to Shirley for closing remarks.

Shirley Stacy
Shirley Stacy
Vice President, Corporate Communications & Investor Relations at Align Technology

Thank you, and thank you everyone for joining us today. As a reminder, we are hosting an Investor Day meeting, next Tuesday, May 6 in New York City. If you would, like more information about that or to register, you visit our website, aligetech.com, or you can contact Investor Relations. If you have any other questions, we look forward to hearing from you. Thanks and have a great day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Executives
    • Shirley Stacy
      Shirley Stacy
      Vice President, Corporate Communications & Investor Relations
    • Joseph Hogan
      Joseph Hogan
      Director, President & CEO
    • John Morici
      John Morici
      CFO & EVP, Global Finance
Analysts
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Key Takeaways

  • Align reported Q1 revenues of $979.3 million and clear aligner volumes up 6.2% year-over-year—the highest annual growth rate for adult and teen patients since 2021—driven by strength across Asia Pacific, EMEA and North America and record first-quarter submitters in both orthodontic and GP channels.
  • Systems & Services revenue was slightly up year-over-year, fueled by continued adoption of the iTero Lumina scanner platform and launch of new restorative software, despite sequential seasonality and unfavorable foreign exchange.
  • Align expanded its product portfolio with broader commercial availability of the Invisalign Palatal Expander and launched the Invisalign system with mandibular advancement featuring occlusal blocks to treat class II malocclusions, now available in major markets including the U.S., EU, China and Turkey.
  • Dental Service Organizations remained a fast-growing channel, with clear aligner volumes and iTero scanner sales up sequentially and year-over-year as DSOs invest in Align’s digital platform to boost practice efficiency and patient throughput.
  • For Q2 FY25, Align expects revenues of $1.05 billion–$1.07 billion with sequential increases in clear aligner volumes and ASPs, and full-year revenue growth of 3.5%–5.5% plus operating margin expansion of roughly two points over 2024 despite FX headwinds and potential tariffs.
A.I. generated. May contain errors.
Earnings Conference Call
Align Technology Q1 2025
00:00 / 00:00

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