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

Good morning, everyone. My name is Mike Sarcone. I'm an analyst on the U.S. Medical Supplies and Devices team, and welcome to day 1 of Jefferies 2025 New York Healthcare Conference. This is a track for Align Technologies and from the company. We've got Simon Beard, EVP and Managing Director for the EMEA region, also joined by Shirley Stacy, who is VP of Finance, Corporate Communications and Investor Relations. And we also have Madelyn Valente, who is here as well. So thank you very much for joining us today.

Thanks for having us.

So just figured we can kick off high-level, Align recently held its Investor Day. I was hoping maybe you could start with some of the key takeaways from the Investor Day more broadly, and then we can drill down and focus on some of the exciting things going on in the EMEA region.

Okay. So good morning, everyone. I think, Michael, broadly, if you look at kind of how we shaped the Investor Day, we focus very much on the kind of the phase change that we're bringing from an innovation perspective. So if you look at the market that we operate, we essentially have created this market and driven the majority of the innovation over the last kind of 25 years. We're entering a phase now where we are really starting to see some kind of game-changing technology. And when I talk about that, I talk to things like our ClinCheck software, which essentially has been manual process between technicians and doctors, with the use of our kind of algorithms and AI technology, that's moving to what we call a touchless kind of phase now. So huge productivity gains there for both the clinician but also ourselves, things like direct printing, so -- which is kind of the holy grail of our industry. So if you look at the current product, the Invisalign product we make, it's a kind of a vacuum formed manufacturing process. With direct printing, you remove the need to do vacuum forming, you directly print the plastic. So once again, hugely exciting. And then -- if you look at some of our other technologies, last year, we introduced a brand-new scanning technology, multidirectional capture. So that once again opens up a whole new kind of phase of kind of development that we can bring. And then essentially, how we had kind of position that is if you put that all together, you're talking about kind of 3 kind of game changers in software, appliance and scanning that really kind of put us kind of in a kind of a different direction and pace for us as a company. So that was number one. So there's a lot around innovation. I think the other thing that I certainly kind of took away from it is how our business has truly become a global business. over the last few years and you look at the kind of the breadth and depth that we have within our business. So we've seen, obviously, strong growth in Asia Pacific, in EMEA which obviously, I look after. So it is a kind of a more balanced kind of view that we've got. And also you're seeing, obviously, across GP and ortho specialists and generalists. And then the last thing, which was I think a lot of people in the room were kind of waiting for was our kind of medium- to long-term growth model. We made some, obviously, adjustments. They talked more about medium term kind of 5% to 15% -- and then longer term, kind of over 15% as we kind of navigate through. But Yes. So it's a great opportunity we do, obviously, every couple of years, but we felt as though everything that we've been invested in, in the last 5 or 6 years really has come together for the next -- kind of the next push.

Sounds great. Thanks for the overview. So it sounds like a key focus on innovation, geographic expansion, supporting some of that growth acceleration. Maybe we can dig into your region, EMEA. Maybe you can just level set us on how you view the opportunity there and provide some color on how the market looks relative to the Americas, U.S. And then maybe you can talk about the similarities and differences.

Okay. There's quite a few questions. So look, I think EMEA is -- it's a fantastic opportunity there. We're still -- we're still obviously expanding the region into new geographies. But even in geographies where we've been present for the last kind of 20 years, we're still relatively underpenetrated based on the opportunity that we've got. So I'm kind of excited when you put together kind of new market expansion, you look at, obviously, the customer channel opportunity and then the new innovations that we're bringing through that, we're in a good place, but we're really excited about that opportunity. If I talk to kind of the differences between, say, the kind of the North America market, Europe, I've managed both. So I've kind of seen this firsthand. I think, first and foremost, the similarities; there are a lot of similarities. Essentially, our business is providing support and digitizing doctors within their practices. And they obviously treat patients using both analog and digital tools that exists everywhere. So very, very kind of similar. So some of the go-to-market can be replicated across multiple geographies. But then I think there are some kind of obvious differences clearly, when you talk about Europe, Europe is in a country. It's made up of many different countries. And so across that landscape, what you find there are different kind of regulatory hurdles that we need to kind of navigate. There are different laws around advertising. So for example, there are a number of markets in Europe where we can't advertise to consumers. And actually, there are even markets where doctors can't advertise their services as well. So it just means that we -- our marketing mix has to be kind of slightly altered. We're more dependent on that kind of doctor interaction and their recommendation. And then there are also some kind of structural differences. So if you look at the kind of North American market, you kind of have this very clear divide between the location of general dentists and orthodontists. They have individual offices. They run individual businesses. We have a number of markets where that doesn't exist. You have those specialties but they operate in the same location. They're called multidisciplinary or interdisciplinary. So we have to think about how we approach those different customer types within kind of one location. So -- those are the differences. They're not insurmountable. It just means that you just need to tweak and adjust you'll kind of go to market.

And just a followup there. For those European markets where you may not be able to advertise directly to the consumer. I mean, is it a longer ramp or it takes a little bit more time to penetrate that market? Or do you find it's when you adjust and you target the docs directly, it's kind of just as efficient?

No, I haven't seen any evidence where that's the case. I think I always think that if you're in a market where you can advertise, then everybody's advertising. And if you're in a market that doesn't, then nobody is advertising. So it kind of levels the playing field. I think in some of our markets where you can't advertise Invisalign, we've actually been as successful, if not even more successful in markets where we are because I think it kind of hyper focuses the organization on the clinician. So no evidence of that.

Okay. Helpful. And then I think at the Investor Day, you also mentioned Europe, U.K. and Ireland are a bit different from other parts of Europe because they're dominated by the GP side rather than ortho. Just curious on what structurally drives that difference?

Well, I know a little bit about the U.K. I think -- well, first of all, there are a couple of things that I think kind of level set the difference. First and foremost, I think you look at it numerically, -- if you look at markets like Italy or Spain or France, roughly those population size is slightly less than the U.K., but you've got 3x the number of orthodontic specialists. So there's actually quite a low number of orthodontic specialists in the U.K. So for them to be able to manage that kind of demand of people looking for orthodontic treatment is going to be a struggle. I think the second one is historical. By nature, U.K. doctors tend to be a little bit more conservative in some of the treatment choices that they make. And so -- and this is what I've kind of learned from kind of the history of the company in that country is when we launched Invisalign there, it was kind of [ poo pooed ]. It wasn't seen as a kind of a serious treatment choice or option. But at the same time, we created a huge amount of interest and demand from consumers and these general dentist saw that opportunity and actually stepped in. So really from the very early days, they were trying to fulfill a need or a demand from patients and that's really stayed within that market ever since, a, because there are more general dentists, it's more of a way to go. And then secondly, because of the lack of them. The other thing as well which is -- which the U.K. shares with Germany is it's also a reimbursed market. So there's an expectation within that culture that if you're going to get any kind of medical treatment, the government pays for it through the NHS. And so once again, that tends to focus the orthodontic specialists on doing reimbursed patients, not necessarily private patients, whereas the general dentists tend to look at more of the private market.

Understood. Okay. That's helpful, Simon. And then you talked about 5% to 15% volume growth through the LRP period and accelerating past 15% after that. How do you think about growth expectations for the EMEA region? And then maybe can you speak to your confidence in the outlook there?

Confident. Yes. Yes. I think I've been around this business for nearly 11 years now, and I've been around the EMEA region for over 7 years. So I understand the market dynamics, I understand the customers, but more importantly, I understand the opportunity. And when you then kind of base that around specific market but also overall opportunity, look at the innovation that we're bringing through. Yes, I think we've got a -- we're in a good place as an organization. We've got a lot of -- we've got a lot of experience. We've got a lot of know-how in the business. We've got great customers there as well. So yes, I'm really committed to kind of driving the region as hard as we can.

Got it. And then on to specific ways to drive that growth. You did touch on EMEA being heavily skewed toward orthodontists. And at the Investor Day, you talked about a heavy emphasis on the peer-to-peer program. So maybe you could just elaborate on your efforts there and talk about how that's going?

Yes. When we're looking to work with doctors, we try and take what we call a very programmatic approach because we know that over the years, we've learned what are the barriers and what are the things that most of our doctors need to kind of make that shift from kind of an analogwise and brackets process to a digital clear aligner process. And so peer-to-peer really is based on a lot of learnings, and it was actually invented by our leadership team in Italy. And essentially, what that does is we take our best customers. So we call them mentors and we pair them with 10 to 15 mentees. These are inexperienced clear aligner orthodontists. And what that enables us to do is to ensure that those doctors are getting kind of almost kind of real-time support from a peer. And we know that when doctors are able to teach doctors, it's more kind of credible, it's more kind of consistent because they speak the same language, they understand each other's issues. There's more trust there, obviously, because these mentors are highly experienced. They treated a lot of patients, they can do complex cases and so we run that program over 12 months, and they get 4 or 5 kind of formalized kind of education sessions with each of the mentors. And then in between that, when they're actually putting treatment plans together for patients, they can share those treatment plans so that their mentor can just check and say, yes, that's the case, it is set up right. Or if they are having a situation where a case is not tracking, they get that kind of real-time clinical support. So it just gives them the confidence to really step out there and start moving. So there's a big clinical element to this which we've learned in our business is so important, right? If you're a specialist, you want to be the best clinically. And then the second thing is just the general advice they're able to give around, how do you implement technology in your practice. So how do you set up the workflows differently? How do the roles change with the new practice? How is your kind of reception is still your orthodontic assistant. How is their life going to change? And how do you manage it through that? So that's kind of a big element. And then there are business changes, right, how they charge patients, how they run their business also changes as well. So we found this to be really well received. I say we started in Italy. We've now introduced this across every market in the region. And the great thing is that we're seeing similar feedback, similar results. And so yes, it's been a really successful.

Yes. That sounds pretty interesting. I guess, can you share any examples or anecdotes where you can quantify for a doctor who becomes a mentee, what type of volume increase could you see when they complete the program? Is there some type of metric you track there?

Yes. Well, I think based on our kind of like our general growth rates, we see kind of like a 5 or 6x increase in growth. But more acutely, we see kind of 9 to 10x increase in the kind of kids and teen side. And that's obviously a specific interest to us is that that's the big -- that's the largest market segment for us. So yes, we've seen a really -- if you look at the cohort in general, that's kind of the general multiplier that we get from this program.

Got it. And I guess, are there ways to incentivize some of your doctors to be mentors or do they just generally are very supportive of the product?

Yes, we -- well, I wouldn't call it incentivize. I'd say a lot of the specialists, a lot of the doctors that we've worked with over a number of years are always willing and generous around educating their colleagues. They love to teach, that's the background they come from. So giving them that opportunity, they love that. So you're running an orthodontic practice having a kind of an escape from that where you're teaching peers and colleagues is good. So that has to be a general motivation to do that. And then we do reimburse them for their time. yes, under kind of fair market value rules. So if they spend an hour or two teaching, then they get renumerated for that. But it's not going to replace their day-to-day income, right? It's not that lucrative.

Sure. Okay. That's helpful. And then I just wanted to pivot to innovation. You talked about some of that earlier. Can you talk about some of the newer products that you're launching in EMEA, like the palatal expander, the MAOB? I think you're pretty early on in both launches, but would just like to get an update on how they're being received.

Yes. Well, there was -- I think we had 3 major launches in Q1. One was palatal expander, one was the mandible advancement with occlusal block and then the Lumina restorative came right at the end of Q1. So we're obviously a little bit behind. We didn't get MDR approval. So we're about a year behind North America. So I was actually there when we launched it. So it's good to do it a second time around. So we've had a really good response to the Palatal Expander. The way we launched it in February. So general release was February. We had a few customers using the product in kind of January. But now, I think one of the kind of the really key things about the Palatal Expander is, if you look at traditional devices, this is the first appliance that's been introduced to rapidly expand the palate for over 50 years. So there's been really nothing new in this area. And when you first talk to a doctor and ask them, Well, you're going to use, obviously, a nylon polymer to essentially separate the jaw, they look at you in disbelief that this is not going to be possible. So it's been really great to see doctors sharing cases. They're astonished with how consistently the product works. But then added to that is just a different experience for the child and also the parent. They're not having to turn a wrench every night. It's more comfortable, it's more hygienic because they can remove it to brush their teeth. So overall, really great response in a number of markets, but we have 3 or 4 months in. The MA product, we only launched last month. But we've done a kind of a limited release a couple of months before that. The difference between that and the Palatal Expander is -- the Palatal Expander you see the results in 30 days. With the MA, it takes sometimes 5 or 6 months before you see the results. So we're seeing early feedback from doctors very promising. They're actually seeing the product work. It's advancing the mandibular, but we're not at a stage where they're really at the end of that kind of first phase of, have you corrected the jaw line. But we're seeing kind of a similar adoption that we saw with the Palatal Expander. And then Lumina resto, once again, early days again, but a very good market response. We had a good response to Lumina in general from that technology, the speed of scanning, the efficiency, the photo realism. Now I've been in the -- obviously, the restorative side. We've had a lot of customers who have obviously upgraded to the new kind of software so that they can do the kind of crown and bridge work, et cetera. So very, very good response.

Got it. And can you speak to how quickly you roll that out across the different countries in the region? Do you just kind of pick a few key areas and then expand from there.

Yes. So what we tend to do, and it kind of links back to just that conversation we had about peer-to-peer. We would tend to go to doctors who are kind of mentors and they would get, I suppose, earlier access. And we learn a lot from those doctors around. There are always different kind of workflow or clinical tips that they've got that we can then kind of learn from, so that when we go out, we can be more comprehensive in how we educate the wider clinician base. So we usually start with a few hundred. And then once -- if we have regulatory approval across all of our markets, then we'll go to general release. And then that really is down to the individual market leaders and teams to drive adoption. But we do the usual thing. We ran kind of EMA kind of online launch events that people could access and then the countries will run smaller events where they bring clinicians in so they can spend more time actually talking through how to use the product. So yes, but so far, so good.

Great. Understanding you just launched 3 of these products very recently. But on this side of the fence, we always get greedy with the information requests. So what's up next for innovation and product launches in EMEA?

I suppose the second half of the year, obviously, it takes a good 12 to 18 months to really ramp these kind of new innovations. But we've started to really move to kind of the next generation of ClinCheck. So this has been a labor of love really over the last 5 years, where we totally reimagined the treatment planning experience for our customers. So let me just ground this in what it used to be like. So I remember when I joined, doctors sometimes would do a physical impression and not a scan. They would then go into this backwards and forwards with a technician who is located somewhere in the world, usually Costa Rica to modify the treatment plan. And that could take some time anywhere from, if you were lucky, 2 weeks to up to 6 to 8 weeks. So you think about that lag between actually finalizing, then you had to make the product, ship the product and then -- so you look at it 2 to 3 months before a patient could start treatment. What we've done now is using just this incredible kind of database that we've got, the algorithms that we can build. We've obviously been using AI as a company for a number of years. We've been able to essentially offer doctors a choice where we can actually code their protocols and their preferences. So their treatment philosophy inside the computer. So when they submit a case, the case comes back very quickly. And ultimately, it will come back almost within 5 minutes because he doesn't have to touch a technician. So you're taking a 2- to 3-month process almost down to less than a 15-minute process. So almost becoming chair side. So what you'll see in the second half of the year is really starting to roll that out. So we've doctors can either do this what we call IPP, which is individual -- Invisalign Personalized Plan, which is where they code. They can take a global template, which we've been introducing. So this is based on 20 million patients treated, all the data are in there. So these are what's required? And then they can use -- they can take that template, either use that global template or they can actually edit that template to make modifications so that they can set the coding up in their own way. So that's going to be a big element of the second half of the year. And so clearly, that has obviously ramifications for us, but more importantly, for our customers, it's going to create huge kind of productivity and efficiency gains. And I'll just mention one. So if you think about -- if you're a doctor and you're creating a treatment plan for a patient, and then that patient leaves and then the treatment plan doesn't come back for, say, a week, you've then got to go back and think about that patient, what is it we discussed, what was it there looking for? What were the nuances in there? So that's inefficient, right? Because you have to spend time thinking about it before you do it. If you can do it almost real time, it's there, it's present. The patient might even still be in the practice. So the fact that you can show them the treatment plan, you can reduce an additional visit potentially. So doctors can really think about how they can really optimize the treatment plan and actually show a patient there and then this is what I can do for you. So it's hugely exciting.

Yes. That sounds very exciting. Can you talk about the learning curve there? And is it going to take time for the doctors to ramp up on the next-gen software -- it's pretty easy to learn.

Yes, because the software isn't always perfect straight away. So they sometimes have to go through a few cases to kind of modify their protocols a little bit. But we have a number of like general templates out there as well as global template as well as individual doctor. Well, there'll be 85% to 90% of cases will be right first time. So a huge efficiency gain.

Okay. Great. I know we only have a few minutes left. So I did want to switch to how you're addressing the GP opportunities. So maybe you can just give us a brief overview of the various ways you're looking at targeting that opportunity?

Yes. Look, if you look at my region, the GP channel is really dominated by U.K. Ireland, Nordics. We have businesses, obviously, in France, Spain, Italy, Germany, that's -- those are the predominant markets for us. Once again, linked back to what I talked about in the beginning about the U.K. market structure. Look, we really made a lot of changes the end of last year. I've kind of been around that GP business for a while. The 1 thing we've learned with the general dentists is iTero really does play an absolutely critical role. So where we have general dentists that use our scanner and use the tools on that scanner, it really lends itself to optimizing the workflow around using clear aligners. Because we know GPs are busy. They do lots of different procedures. They're not like orthodontists. They're not just doing tooth movement. They're doing crowns, bridges, veneers, bonding, implants, diagnostics, drilling and filling, right? So we need to make it as efficient as possible. So what we did -- so now that when we certify a new doctor, we don't certify them immediately with Invisalign. We actually train them with iTero. So they get half a day, and we train them on how to use the tools because what we're trying to do with them is to get them to do a digital consultation, not the consultation where they bring a mirror and a probe and look in your mouth and shout out all these numbers that nobody understands, they can actually scan and then have a conversation with the patient, and they can see what's going on in that moment. So that's been -- so the initial focus is scanning. How many scannings you do in a day, how many scans you do in a week? And then once they've done that for about a month, we then certify them with Invisalign. And so they've got the workflow in place. So we get the workflow in place and then they can use the tools and have the right conversation with the patient. So we launched that around February in a number of EMEA markets. We're just about to come up to the time when we'll start kind of measuring. But if you look at the early signs around number of scans that are happening, number of cases that have been submitted, we're seeing a really dramatic improvement. So really excited about that. The second side is, that is for new doctors. We've got obviously a large volume doctors out there, general dentists who do a small number of cases a year. And a lot of the time is because they're inefficient. When you don't do many, you're inefficient, they're not as confident. So we're looking at treatment planning services, so both partnering with third parties but also utilizing our own kind of resources to really give them that ClinCheck support so that they have to do as little as possible in setting up a case and making sure that they're confident to approve that case and start treatment. So that's the second one. And then the third one is we've got a really big push around what we call ortho-restorative. So if one of you in this room went in to see a dentist and ask them to improve your smile, often they all go straight to restorative, which is they'll either do some bonding on you, some whitening. They might use implants or veneers. What we're saying and what is shown is that like 50% of those cases, you need to move the teeth; the teeth are in the right position. And actually, the reason your teeth are chipped or they failed is because they're not contacting in the correct way. So we've got a big push at the moment. We're building a kind of a longer-term strategy around how we can get more dentists driving that kind of ortho restorative approach.

Awesome.

Long answer, sorry.

No, that was great and we are out of time. So thank you very much, team, for joining us today and for the audience. Thanks for your interest.

Thank you.

Thanks for having us.