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

Thanks for joining us. My name is Mike Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team. And for next session, I'm excited to host Align Technology. We're joined by Frank Quinn, EVP and Managing Director of the Americas region, and we also have Shirley Stacy from Investor Relations on board. Frank, Shirley, thanks for being here.

Thanks for having us.

Maybe just to kick things off, sort of high-level intro question. You reported 1Q results recently. Better-than-expected, steady results to start the year. If you could talk about sort of the key moving pieces of the quarter, how that played out relative to expectations and how things played out?

Yes. I think the breadth of it was great because both ortho, GP growth and regionally as well. And then you look at both teen and adult grew. So it was a good combination of things that drove good quarterly Q1 results.

Broad-based in terms of international as well, right? So across all the regions.

Okay. And then the other major update was you had your Analyst Day last week, I think, a week ago today. So first Analyst Day in a number of years, provided a lot of updates. Maybe just talk about what you thought were the key takeaways from that and what the reception of that has been?

Yes. No, it's good, actually. I mean we try to do investor activities every year. So usually at one of our orthodontic or GP summits. But this is the first time I think we've been back in New York for a while. But it was good. It was a pretty broad-based update across -- coming off of earnings that allowed us to talk about innovation across the board, whether you're talking about our digital scanning and software or 3D printing. And so it allowed us to bring in the technology teams and talk about from a -- you think about the front end of the system, our scanning technology with the Lumina launch and now both ortho and restorative software on that platform, which is, we think, really critical to kind of digitizing the orthodontic practice. In terms of software and treatment planning, we spent a fair amount of time talking about both clinical opportunity from an orthodontic and from a GP perspective and what those customers are looking for in terms of solutions. A lot of innovation focused on our treatment planning and the tools that we're bringing to market and ClinCheck Signature, which is very kind of personalized treatment planning, the ability through Invisalign personalized plans and Flex Rx and other aspects of allowing the doctors to have more control, if you will, but a lot of automation, leveraging AI and machine learning and our very large database of patient data. And then from a kind of global perspective around how those tools are coming to market through the channels. You heard from each 1 of the regional leaders, including Frank, I talked about a lot of the go-to-market opportunities in the growth programs. And then finally, of course, from an operations and manufacturing perspective, how we're continuing to really drive global operations and manufacturing for our existing 3D printing, which is an indirect process today, right? We produce 1 million aligners every single day around the world. And how we're through the acquisition of Cubicure. And we showed actually, I think, some really great video of the innovation around how we're looking at 3D printing direct fabrication of appliances and going to market to scale that. But both processes continuing for some time. And then, of course, John and Joe kind of brought it all together in terms of what that looks like from a midterm to longer term, look at our model. Happy to dive in anywhere you like.

Yes, of course, a lot there. I want into all those ones, maybe I'll pick up on the last point you just made, Shirley, the new LRP, the new growth profile. First update you've given, first change you made to the LRP in a number of years. Now it's sort of 2025 guide is what it is. You're talking about '26 to '28, being in that 5% to 15% range and then 15%-plus in 2029 and beyond. Can you talk us through at a high level what underpins that? And then especially if you compare that to what's been going on in the market over the last 3 to 5 years? So like where is the acceleration coming from? What are the various factors driving that?

I think Shirley hit it before, too. It's the innovations that have come into the market. I think we showed a road map of what's coming next. And the way I would look at the way Joe framed it even in the 3 decades of this company, right, starting it in the first 10 years, figuring out how to move teeth with plastic, identifying -- needing a new polymer and approach and scaling manufacturing treatment planning. And then now you're into this touchless place that we're moving into from a digital orthodontics perspective. So the underpinnings in there are the innovations, right? We've expanded our capabilities for, let's say, growing kids and teen, right? The launch of the Invisalign Palate Expander, which is custom-made appliance, removable, has an option to replace those fixed appliances that have been used for probably, centuries. So it gets us into that 6- to 7-year-old category we've had first for quite some time for mixed dentition and growing kids, can do dental expansion. And then MAOB, which is the occlusal block, which is a common thing used for Class II, which is roughly 35% to 40% of malocclusion in teenagers. Those teenagers represent 75% of the starts in the Americas, right? So roughly 8 million orthodontic starts per year, 70% to 75% of them are teen and 40% of those teenagers show up with a Class II malocclusion. So having something for the doctors to use for that is really critical. And then obviously, the things that are coming with direct fab are -- we're piloting right now our [ 3D Vaber ], which is for growing kids, fully customizable appliance. And the advent of what we're working through on scaling the direct fab and having both the indirect and direct fab as options as we go to the market and putting the ultimate level of control in the customer's hands and their decision-making on the best ways they can treat their patients. So I think those -- obviously, Lumina is a big part of this, and then there's other enablers that are in there as well like Virtual Care, creating a high level of efficiency at the practice. So you can do a 12- to 18-month treatment plan and have minimal visits to the practice because you're tracking as they're changing their aligners as they go. So it's just that seamlessness across the all the innovations and getting implementation done correctly at the practice level.

Yes. And then hopefully, what came through also is it's -- the product and the innovation is really critical. But also, it's about expansion into emerging markets, existing and emerging markets. And so those products and technologies that Frank is talking about are important for us to expand in every demographic. In every geography, you need a portfolio, a pretty broad portfolio of products for kids and teens and adults and different price points. And so hopefully, that came through.

Yes. And I want to follow up on a lot of that innovation. But first, just on the LRP. The other question we had sort of that came up was the range for the next couple of years, the 5% to 15%. I think there were some questions on how much does macro matter or not matter for that. So could you just talk about sort of what your expectation is or what the underlying assumption is for just the broader market?

Yes, the underlying market. Yes. And hopefully -- so when John showed that 1 slide that shows kind of the current 2025 and then the -- what you call maybe the near term, '26 to '28 and then '29 and beyond, I think it was pretty clear that we're focused on what we can do to drive adoption and utilization globally with or without the market, meaning we're not assuming any change from this point, right? So what we have is what we get. And hopefully, I think folks have seen at least more recently, the resilience of the business to really kind of drive execution and adoption. I think '29 and beyond, if you looked at the way he was talking about how you build up the kind of the growth drivers, that is assuming at some point, post '29, there starts to be some impact from the underlying market, but that's not the expectation in the near term.

Okay. Okay. And then let's -- maybe let's dig into some of that innovation. Things like -- maybe let's start with occlusal blocks in the [invasalign ]. Frank, maybe if we think about what that could do to teen growth and what they could do for teen market expansion, especially if you look at something like the Americas, like the U.S., which is a little bit more of an advanced market or just sort of further along in an aligner penetration. Do you think that's something that could sort of unlock the next level of growth in those markets? Is that something that's been holding back growth?

Yes. I mean we're very early, right? We just launched. So ideally, we're innovating to address a need in the market. Primarily, it's driven by Dr. Feedback, right? It always comes back saying, if you could, would you add this? Can you do that? So building the occlusal block, which is very unique because it's a solid format as opposed to the hollow ones that sometimes are used in other clear aligners that crush because your jaw is very strong. So having something solid, we believe it addresses the need in the market, and it's really based on customer feedback. So it's still early, but we're feeling very positive about the launch.

Feedback -- and it's been in pilot for a fair amount of time. Customer feedback has been really, really good.

And then similarly on Lumina and the restorative versus ortho workflows, what's been the feedback over the last couple of months as you've expanded that?

It's been really good. It comes from interesting places, too, right? So what you see primarily doctors are excited about it, right? The speed, the size of the wand and the field of view, the accuracy of the image, all of the restorative workflows opened up. But when you hear from labs that come back and ask, where did this image come from? This is amazing. That's pretty telling to me. The labs that work with not only analog type of things that come from practices like impressions and pours, but they see a ton of scan data. And so we're really getting some great positive feedback from the labs as well, highly complex click cases, all on 4 type stuff, implants with high level of accuracy, great color. So they're -- we're really getting great feedback there.

We've always thought about -- it's not a true razor-razor blade model between the iTero and the aligner, but it is sort of symbiotic or synergistic in that sense where it should drive increased adoption and utilization over time. Do you think Lumina again, continues that trajectory and takes that to the next level?

Yes. If you think about what happens in a GP practice, right? That's a very hygiene driven practice. You come in every 6 months, your insurance has to get your cleaning. Ideally, they're doing oral health scans. A lot of the doctors in the GP space are using the scanner as another diagnostic tool beyond X-rays. And so as you're scanning patients, whether it's every 6 months or once a year, you're keeping a very close eye through the Align Oral Health suite on your permanent dentition in your teeth, your soft tissue, occlusion, how are you biting. So if you're hitting too hard, you're inevitably going to have oral health issues. So really getting that runway to scanning often, getting that oral health component in place, all the diagnostics that come with that, also adding in AXI, which is our X-ray inside. So you really have this full package, including CBCT, and then you have this oral health report that the patient leaves with. So they may not start Invisalign that day, but they are now very much aware of what is happening in their mouth and how they can address it through orthodontic treatment and fixing their bite in occlusion. And then secondarily, the impact will have less removal of permanent dentition, right? I think [indiscernible] shared this, the hardest component in your body is your enamel on your teeth. So save that, protect it as much as possible, get your teeth in the right position and do minimally invasive restorative. On the ortho side, it's great because I think you probably saw on Investor Day, you've got 3 years of pressure on starts in the orthodontic space, which has never happened in the history of it being measured. So maybe a little lower foot traffic in exams, but the primary focus is convert. If you're getting the [indiscernible], you've got to convert to the highest level. So utilizing the tools that come with Lumina like Outcome Simulator Pro. And the Smile video, I think we demoed this in the cafe at Investor Day, where you can actually see what you're fixing, what your current view is of your mouth and your bite and your teeth. If you just did orthodontics, what it would look like. And then if you did post orthodontic restorative work, those are the things that are really helping to -- and a video with it where you're speaking with what your teeth would look like after. Those are really great conversion tools that the Lumina lends itself to in both channels. So yes, I think there's an opportunity there.

Okay. And then I want to touch on direct fab as well. Something you've talked about for some time, you mentioned Cubicure. Could you remind us, like you said, I think it's still in relatively early stages of implementation now. But how should we think about timing of rolling out because we know what the end plan is, but just sort of what the road map will look like?

Yes. I think we really want to focus on both our existing indirect kind of processes for SLA and producing 1 million aligners a day. We really see -- and when you think about what Frank just talked about, our ability to do touchless ClinCheck. Joe talked about 20% this year of our cases being touchless, right? So coming through using our software and our tools to allow that. And then if you think about the combination of our existing manufacturing process, that's, we think, a pretty competitive differentiator for us. So don't anticipate that is something that we're moving away from. We will leverage that competitively. The opportunity though, with direct fab is a really good one, we think, to scale. And there was a couple of slides in our presentations in both Srini's presentation and Emory, where they showed examples of the products that we're looking to move to direct fab. And the first one Frank just referenced is the retainer that's in pilot right now with Cubicure. And then over time, how do we move other appliances that are really optimized for direct fab. And so think about MAOB, the occlusal block that Frank just talked about in terms of that design and how that could be optimized for that technology. So as we scale, what John talked about is kind of post '27 is when we start to see some contribution -- positive contribution on margins.

And in terms of in terms of the impact of the model, you talked about margins, COGS component is pretty straightforward. Is there a benefit from direct fab to volume growth? Or I mean, I guess it would be in terms of what you can make with direct fab that maybe you can't do with traditional 3D printing? Like is there...

Yes, the -- there are some design -- there are some new appliances that we haven't really talked about yet that would be optimized for the design freedom you get from direct fabrications. So that's certainly an opportunity that as we kind of get through milestones, we certainly want to talk to those. We're probably not going to signal everything just yet. But yes, I mean, you should anticipate -- I mean, 1 of the beauties, aside from the fact that you get rid of the molds, which we do think is important over time. But really, it's the design freedom, and it's the capability to bring new innovation, we think, to market in terms of better efficacy and faster treatment times and a whole host of other things, we think.

Okay. And at doctor discretion, too, right? So with direct fab, you could have variable thickness on kind of a single aligner on the lower or the upper however they determine they would like to treat, which is very difficult to do in a vacuum form indirect type scenario. So it just creates a tremendous amount of opportunity for the doctor to pick and choose how they would like to treat a case with clear aligners. Okay.

Just another degree of freedom.

So it's customization.

Yes. Customization.

Frank, I want to spend a good amount of time talking about Americas specifically given your role there. So I mean, maybe at a high level, if we could talk about sort of the United States versus sort of the LatAm, Mexico, Canada markets, just starting with the U.S., what have you seen over the last couple of quarters? How has that market evolved and between both ortho and GP, independent of the innovation we talked about? So what do you think -- what are your thoughts for the rest of the year there?

Yes. I think what we've said over the last 2 quarters is that we've seen stability from our perspective. There's obviously a ton of uncertainty going on in the macro market that may have been new news. I missed today even. Who knows. But we've seen stability, submitter base utilization. We shared at Investor Day, we've got a really nice mix of -- by channel, GP and ortho, we see really doctors diving in into the new technology and innovations and starting to use it. So early -- getting early adopters that start driving utilization as well. And the things that we're really focused on, it may sound simple, but it's really surrounding the customer in every aspect of the journey. And we do this through the use of what we call clinical pathways or growth programs. So these programs are uniquely designed by doctor to help them move from what the current state of their business is to the future state. And some of those instances, maybe I want to treat more complex cases or I'd like to go down into the growing children category and treat at a younger age in Phase 1, and then really designing these clinical pathways that are anchored in clinical education. I'd say that's probably the thing I would say -- I talked about it. It's a foundational component in any health care business. You really have to focus on the doctors. And the peer-to-peer and community building is critical, and that is all anchored on education. So we'll do, in the Americas and pretty heavy up in the U.S., over 500 live education events that are -- some of them are smaller, 25 to 50 doctors and treatment planning workshops. Some of it's like buttonology about how do you get the most out of your ClinCheck setups? How do you set up your Flex Rx and your templates or you're getting your ClinCheck back in minutes with Live Update. You're basically sending it right in the manufacturing. And then other ones are really like on the GP side called CDI, it's comprehensive dentistry. How do you implement the fully digitized workflow from scanner to design, to pre ortho -- pre-restorative ortho, leveraging OrthoCAD connection to labs. All of those things. How do you actually implement a fully digitized practice. And we also do the same thing on the ortho universe, too. So anywhere from 200 to 300 doctors attending maybe larger regional events. And so we've seen great attendance, really great engagement and doctors wanting and willing to learn more and apply it. And that's where our focus is in the U.S.

Okay. And then from a competitive landscape perspective, again, kind of let's stick with the U.S. for now. You've seen some changes here, too, over the last couple of quarters, last couple of years. Some exits, especially. So is that an opportunity to pick up some incremental share? So how have you seen that part of the market evolve?

Yes. I mean it's -- there may be some dormant opportunity out there, if you will, because if you're talking about the exits of DTC. And I think the beauty in that is our portfolio has such breadth to it. So DSP is a great example. It's our subscription plan, and it includes both retention and what we call Touch-Up, so up to 14 stage cases. So a lot of those folks that are out there that may have been attracted by the DTC can be certainly treated, doctor directed in the practice with products like that. So it's minimal tooth movement. Somebody who has occlusion and a bite they want to fix is a much more comprehensive case. If they want to straighten their social six, you don't need a comprehensive case to do that. So yes, I think there's opportunity and the portfolio is designed to address all of those things.

Okay. Any questions from the audience, anyone wants to jump in? All right. We'll keep going. And then I wanted to ask about other parts of the Americas, if you want to talk about LatAm, what's happening outside the United States?

Sure. Canada is quite similar to U.S., some nuance there as well. It's more of a GP-driven business model up there. So you have a lot of GP orthos is what we call them. They're fairly deep in the curve with treating orthodontic at a GP level, great ortho community there. So a lot of similarities there. In Latin America, you have some unique -- it's a unique environment, and that they -- I was joking before that. That culture, they'll buy a T-shirt and pay it on equal payments over 12 months for a T-shirt. So you've got to approach the market with affordability options as well so that patients can get started. But there's a fair amount of orthos and general dentists in Latin America. And what's unique there is that there's a lot of multidisciplinary type practices where it may be a GP owned and led practice, but the specialties are working within the practice. So it could have an ortho, perio oral surgeon, whatever the case may be. So we've reoriented the way we go to market and approach to ensure that we're capturing the multidisciplinary option as well. Lumina has been great for that, too, because that scanner can be used in any 1 of those specialties or disciplines. And then not to beat a dead horse here, but education is key. It's critical in those markets.

Can you talk about -- sort of if you think about Brazil, other parts of the LatAm, which of those markets are the most exciting to you from a growth opportunity and sort of accretive to total company growth?

Yes. I think Brazil is a great market, very great population, highly aesthetic market as well. So even when you look at our consumer work down there, it's different than what you would see in North America. It's got some aesthetics to it, improve yourself type scenarios, right. Would be your best self type things, which it works in Brazil. So obviously, tremendous opportunity. We've been in business down there for quite some time, and our leader down there does a great job. Mexico, unique opportunity as well. We're in [CALA] also. And so each market is unique from each other. And so really making sure that we're closest to the customer, identifying any of the problems to solve that they have for conversion. And so we're highly focused on those markets, and they're each really good opportunities for us. So...

And still far behind the U.S. in terms of sort of where you are in the evolution of that market adoption and technology?

Yes. It's -- how long have we been open down there?

We've been there actually for many years. So more of an emerging market from that perspective, but still a good contributor to the business.

Yes. And a strong submitter base, too, primarily Ortho and [CALA]. But those practices are different. So those are much smaller practices, almost like EMEA, Europe, actually. You may have an ortho and a practice that does 100 starts a year. Which is very common in Brazil, let's say, where average in the U.S. or North America could be 275 to 300. It's just a different practice design, but there's a lot more orthos down there, too. So -- but -- so yes, I think they're contributing. There's a growth opportunity there for sure. And I think the team is highly focused on working with the right customers at the right time. And then the same thing enrolling and education pathways.

Okay. All right. We've got a couple of minutes left, I want to hit a couple of items, kind of rapid fire. One was tariffs. There was a lot of concern on this topic earlier in the year, given the Mexico manufacturing base. But I think what you commented on the 1Q call was that USMCA protects you from a lot of that. And really, the only tariff impact is iTero come out of Israel and very manageable on a cost basis in terms of total company. Is there any risk of that changing? Is there anything in your -- sort of you see in the horizon where that could reverse where Mexico tariffs could again come into play? Or is that -- do you feel like that's pretty safe?

Well, not that we're aware of. I mean, if things were to change from a tariff situation, certainly, I mean, things can change. But right now, based on everything we know, no, I mean that's the exposure we've got is about $1 million a month iTero coming in from Israel. And we're in China for China, right? So we have treatment planning in China. We have manufacturing in China. And any kind of marginal costs associated with some things from a supply perspective that we might import, we think we can manage.

In between Mexico and Poland and China, like you said, you're developing more of in region, for region, and that was the direction you were moving in any way long before tariffs?

Yes, exactly. We've been in Poland, and we've been in China for a long time.

Yes. So no change from that perspective. Okay. There's no questions in the audience. I'll go to my customary closing question, sort of what's most misunderstood or underappreciated about Align?

Yes. I would say when I actually had the benefit of leaving for 2.5 years and got to hear from customers not as an Align person, which was always surprising to me. But we are all for the doctor, right? All of our 20 million cases were because the doctor trusted Align and Invisalign to get the outcomes and treat their patients. And so yes, we are really excited about driving consumer awareness and brand awareness and demand into the practices. But it really is about the doctor, everything and all the things that we design and do, there's feedback from the doctor on ways to improve how to be easier to do business with, all of those things. So I would say it's probably my own personal insight from having been out in the wild for 2.5 years and hearing from customers like why didn't you tell me this when I was here the first time, but it really is framing that the doctor is the hero. If the doctor trusts us and feels confident in using our appliance and our workflow, that's exactly what we're focused on doing.

Okay. And I remember that was a little bit of a point of contention years ago when sort of the move between ortho and GP and some of the consumer work that was -- but it seems like it's been a focal point of Joe's to address that over the years.

Absolutely.

The message is resonating.

Yes. And when you think about it, the GP referral is still really important for the ortho. So the greatest thing about having digital and Invisalign with iTero is the ability to collaborate. So if -- like I said, in the practice, the hygienist is scanning every patient, you're identifying a lot of opportunity for treatment for the ortho as well. So that's the way the motion is supposed to work. And we make that as clear as possible.

Okay. Great. On that note, that's all the time we have for today. Thanks so much. Frank, appreciate it. Thanks, everyone.