Align Technology, Inc. (ALGN) Earnings Call Transcript & Summary

Well, look, I don't think we kind of talk about specifics around numbers of people, but it all starts with segmentation, right? That is the basis of how we build the strategy. So really understanding where we can group like-minded customers and really develop programs that deal with their individual needs. So 360 and ADAPT are orthodontic programs. We don't do those currently with GPs. We have different programs for GPs because their needs are different, and their journey is very different. If you've got a busy restorative practice that you do in Invisalign, we need to take different factors into account. So the difference between 360 in simple terms is 360 tends to be really at the beginning of the journey. So the doctor, maybe in our Advantage program are Bronze, Silver Gold, right? So there are relatively lower share of chair and therefore, they need that support, maybe they're not convinced clinically, they're not convinced from an economic point of view. And really, it's really supporting the staff to get used to the workflows and the approach. So that's where we don't really need us. We've got very capable salespeople who can tap into the resources that we've got in iPro and clinical, et cetera, that can help customers through that journey. 360 is where our customers really made that decision -- well, actually not really made that decision. They have to have made the decision that they want to make that shift towards digital. And so that's where, I say it's a fee-for-service opportunity. It's a 12-month program. We have a console that goes in there and really dives into that business, and looks at all the analytics, watches workflow observes what the staff does. And we really develop a really great kind of analysis for the doctor and really zeroing on opportunities what they've got to fix to enable them to make that shift. The doctors absolutely love it, right, because it really talks to their business, their employees, but also how they can enhance the consumer experience. So it's a really very comprehensive program. As I say, we've been able to deliver very consistent results, really great experience for the doctor. Sometimes a bit of pain from the change, right? If you're trying to move a whole practice, you've got to really kind of convince the different stakeholders. But the number one, the most important thing is the doctor needs to be committed to make that change. But as in 360, it's not about that. It's about -- they're interested in using a little bit more Invisalign. So it's a start out in that journey.

As the loop on these support programs like ADAPT. What has been sort of the average volume lift that you see from a practice that goes through an ADAPT process relative to where they were before? And are you aware of like any of the competition that comes close to being able to offer sort of these types of support services?

Well, I think from an orthodontic perspective, I've not heard anything in the market. So I don't think I'm kind of qualified to comment on that. But look, I think what I've always loved about that, Brandon, is we have learned so much about the challenges that our customers face, not just with Invisalign, but on a day-to-day basis in that practice. And so what we've been able to do is to use a lot of our kind of know-how and expertise to really shape a program that fits that customer. And kind of process that we go through really is it's very bespoke, right? You can walk into some practices, and they may have a group of employees that are optimized, that are really bought into it. And then it's about tweaking some other elements of how they manage ClinCheck, how they improve the consumer experience, et cetera. Whereas others, the doctor may run into kind of roadblocks where their employees really aren't bought in, don't really understand what they're trying to achieve. So we can really zero in on one of the key barriers to getting them there. And so we started looking at this 4.5, 5 years ago, when I was in Europe. I remember the first work that we did, and it was a real eye opener to me to really understand the world of our doctors, but also what it really opened up was just tremendous opportunity. Because I think one of the beauties of the program is it really optimizes capacity. Then it gives a doctor a choice, right? So the doctor can work more efficiently and decide actually, they maybe want to work less, right? Or they actually create this capacity that they can fill with more consumers. Fortunately, most of them choose the latter. But we see pretty quickly above kind of 50% growth in these accounts, really quickly, and that kind of continues. So I'm not saying it's the perfect program at the moment, but we've got an absolutely amazing team of consultants who really understand the business of orthodontics, and then they can pull in other specialists in the organization that can really support the doctor and make sure that it's kind of lowering the risk in the mind of the customer that making this move when they get to the other side that they're going to have a profitable business, we see an increase in profit. More revenue, we see more revenue; increased profitability, we see that; happier employees, we see that. So we can paint that picture, but more importantly, we can deliver that to the doctor. And we support them through the ups and downs that you go through. So I'm a big fan, as you can tell, because I think it really gets us closer to that customer.

Yes. And the other thing that -- just to build on what Simon said is we also see a very strong correlation with teen cases. So there is this halo effect across the ADAPT accounts. Now that makes sense for orthos, obviously. But when you look at our business historically, even amongst our highest volume doctors, sometimes, we had lower share of their teen cases, but with ADAPT that's not the case.

Got you. Okay. I'd like to drill down on Americas ASPs. In the first quarter, they were flat sequentially, but down about 9% year-over-year. You help us unpack the components of that trend between sort of mix, promotions and any other factors. And what are your expectations for ASPs kind of over the balance of the year in the Americas?

Yes. I'll hop on, and Simon can certainly talk about the different factors that drive the business. I think, Brandon, you're familiar with the fact that ASPs have lots of things to your point to come into it, especially if you're looking at it on a blended basis. And we're really trying to hopefully help folks think about the overall business, focus on revenue drivers, obviously. But we're probably not going to be able to give you the specifics you want in terms of unpacking. I think that you can see what our price/mix is between comprehensive and non-comp. I think that's an important thing for folks to think through and to focus on, and both of them are important because they drive different aspects of the business. And we kind of give as much color as we're going to give on the earnings call around ASPs. I think Simon can certainly talk about the business and driving kind of the pricing. We didn't take any pricing action this year, as you know. But I think that more importantly, it's really about driving adoption. And you saw the revenue growth, you see the business there. There's lots of different factors that impacted. Non-comp is growing faster than comp. That's obviously on a blended basis, going to pull down your reported ASP. And then we're always happy to trade price for volume, right? So there's a number of initiatives we have going on in terms of our Advantage Program and rebates and the different things that we do to drive adoption. And then I think, obviously, as the DSOs continue to grow and become a bigger piece of the business, you also have on a blended rate that can play into ASPs. But Simon, I don't know if there's other things you wanted to comment on.

I think you've covered it really well, Shirley, I think all the different variables. I think Shirley kind of alluded to this as well, Brandon, is gross margin percentage is also important. When I'm looking at the business, clearly, we look at ASP, gross margin enhancements. And that mix change actually is great for us from a gross margin perspective. So that's one thing. But as you've seen as our utilization increases, we also get customers who move up the Advantage tier. So they kind of benefit to Shirley point to increase volume and a better price. So I would say we're focused on this enormous opportunity, right? And the volume that we believe is really kind of the -- really at the forefront of what we're trying to capture. So that's really our focus.

Yes. Okay. I think that's very clear. Do I say, a bad thing. There's multiple components to it, a lot of which are good themes. I'd like to pivot just to the scanner side of the business. Can you help us sort of understand the runway in the Americas for the scanners business? Where is penetration today? And if you look at an iTero doc versus a non-user, how many more cases a quarter or a year, whatever, will that doctor who has iTero do in terms of Invisalign versus a non-user?

Do you want me to kick off, Shirley? Or do you want to start?

No, no, feel free to. I mean, obviously, it's a huge market, and I think that you've got lots of demand drivers for iTero.

Yes. I think we look at the scanner market in the same way that we look at the Clear Aligner market, Brandon, as far as how low the penetration is. The difference, I suppose, the slight difference is, obviously, with Clear Aligners, we're taking wise and bracket share, where with scanners, it's about really new doctors who have -- are invested in a scanner and haven't had one historically. So whether it's the orthodontic space, but particularly the general dental space, we have a scanner that -- it's not an Invisalign impression machine, it's a fully loaded restorative scanner. We brought in during COVID. We got FDA approval on the 5D technology, which adds a really strong diagnostic tool, is a real practice grower as well. So I think COVID kind of enhanced this kind of focus on digital. We've got this restorative market, which is huge in the U.S., across the world. And having a product like iTero not only service the Clear Aligner business, but also is a fantastic restorative scanner and a diagnostic scanner. Means that we sell a lot of scanners to doctors who don't use Invisalign because they're restorative only doctors, and they buy into their technology in the software and the diagnostics that we sell to them. And as far as the comparison, I don't think we kind of published exact numbers. But what I'd say is we do -- we see a significant uplift from doctors who use iTero versus those that don't. To my earlier points, it just makes the workflow a lot easier. I also think iTero is a great conversion mechanism. So when you scan a patient and now you can show them, obviously, the IO SIM or you can show them the malocclusion corrected within the ClinCheck 6.0. That really enhances the ability for a doctor to show the patient what the final result is going to be and convert that patient. So I think for those reasons, workflow, ease of use, visualization and just the whole experience to the patient, that's why you see those doctors really growing. And if you're buying a scanner and it's for Invisalign, and the likelihood is that you're more bought into that being part of your practice.

Yes. I don't know if you saw the press release this morning on the iTero workflow 2.0 software and the IO scan for intraoral images. So continued great progress in terms of really leveraging that technology, not just for Invisalign, but obviously for restorative as well.

And that's a really cool piece of technology, Brandon. So taking the scan, being able to stitch those images and the color scans together and then submit that with a case has a huge workflow improvement, whether you're an orthodontist or a general dentist. So I think -- I think there's going to be quite a lot of excitement about that because that's really adding value to the overall kind of reason to invest in a scanner.

Super. Well, unfortunately, we're out of time. So we'll have to leave it there. Simon, Shirley, thank you both so much for being here. And everyone on the line, have a great day.

Thanks, Brandon. Thank you.

Brandon. Thanks, everyone.