Align Technology Aktie

Go ahead and get started here. Welcome to the 2026 Goldman Sachs Healthcare Conference. Not quite kicking us off, but close enough as the second session. I'm very pleased to welcome John Morici, Chief Financial Officer of Align. Clearly, want to make this as interactive as possible. So please feel free if you have a question to raise your hand, we'll get a mic over to you as I believe this is being webcast.

So John, thank you. I appreciate your coming. We'll kind of start maybe zoom-out and zoom-in a little bit on the business. But maybe let's sort of start with the outlook. 5% to 15%, pretty wide range. Help us understand kind of just the basis for the outlook and what informs kind of the low-end and the high-end of the range?

Yes. I think when we look at that guidance that we've given from a long-range standpoint, we look -- first start with the underpenetrated market. Vast majority of cases are done with wires and brackets, and that applies to everywhere across the globe, including in the U.S.

And when we see the opportunities that we have where we're training more doctors, trying to increase that utilization with many of the new products, and we can talk about that, that we have to be able to help take the products to those opportunities, training doctors to be more clinically capable to be able to treat patients on a digital orthodontic basis versus the analog.

And then all the different things that we're doing to go-to-market, we actually see a good double-digit growth in many markets as we look at international, broadly that we see now growing and which is about 55% of our business, growing double digits. We talk a lot about our dental service organizations, and we can get into that as you wish. But those dental service organizations, even in the U.S. are growing double digits.

It's really more the North America retail that we've seen some of that sluggishness, and that's what's kept us at some of the growth rates that we have. But when you look at our business, the opportunities there, the products that we have to be able to go to those markets and then the capabilities that we can bring to our doctors to be able to treat those patients, we feel good about that long-range growth.

And for much of the market that we operate in, we're at that level already. And what you've seen over the last few quarters is getting into that 6%, 7%, 8% growth, and we feel good about the progress we've made, knowing that we have a lot of other things that we can do to try to continue that.

And I want to jump into some of the market growth. But maybe before we go into some of those details, you -- talk a little bit about the Technology Day you hosted last 2 weeks ago, I believe. Maybe what are some of the highlights that you wanted to take away from that? What are the products that you're most excited about that can really move the needle on growth?

Well, on that, and so that Technology Day was really focused around some of the products that we have that are either in the market or just in the market and ones that are coming. So first off, some of the products that we have on the orthodontic side, we've talked a lot about this comprehensive with no refinement. It's a comprehensive product that we have over a 3-year treatment period. But many of our doctors want to have flexibility in terms of what type of refinements that they want to purchase in advance.

And so it's products like that where we have a comprehensive without refinements. We saw work in our DSOs and our large dental or ortho buying group where they were able to see some of the effectiveness on this. And if doctors need additional refinements, they can use it. So we see some of the products, that capability. And it's really a testament to the fact that we have technology that allows doctors to be able to treat these patients in the most effective way.

So when we think about the orthodontic side, some of it's the existing products configured in a way that those doctors want to use our products and continue to use them, and we've seen good uptake on products like that, not just in the U.S., but also in Europe and APAC as well.

In other cases, it's some of the new products that we've had that we're seeing good adoption with when we think about Phase I treatment where a child, 6- or 7-year-old needs to have his or her upper palate expanded for permanent teeth to come in. We've introduced that product, in many cases, just a year or in some cases, 2 years ago, where we've seen good uptake on that and you continue to find that utilization that those doctors have.

So working through the existing portfolio of products that we have. And then when we talked about our Technology Day, as you think about that orthodontic utilization kind of with the existing technology, there's a whole host of opportunities that we have with some of the direct fabricated products. So what we're talking about here on some of these products that I mentioned, they're more on the -- the product is made traditional manufacturing where you vacuum form on top, the same type of thickness of the material for some of the products that we have.

And in this case, we can directly fabricate the product, don't need a mold, directly fabricate the product. And now you have design flexibility. You can design the product in a way that orthodontists or dentists can add material in the back to move molders or make things thinner or thicker and have a lot of customization that they can provide.

So we talked a lot about some of the new technology that we have where we're starting to see where we had to create resin that was unique for this product and also a manufacturing process that was unique. Once we combine those 2 together, which we feel we have a path forward, now it's about new products coming out and trying to increase the utilization for those new products.

We started -- and we talked a lot about the direct fabricated attachments that we need that those doctors use to attach on the teeth to be able to move teeth with the aligners. And then we also talked about some of the new products coming with retainers -- retainers that are being tested now, and we'll start to see the increasing utilization there.

And then ultimately, aligners. We want to be able to have aligners that provide that direct fabricated capability. And those aligners would be -- it start with maybe with products that are more difficult for us to manufacture, very manual to manufacture like the attachments where we have buttons and others or occlusal blocks that -- there's a manual process that has to go into fabricating that product and direct fab will be able to help alleviate that.

But you then start to see the scale up. And once we see that scale up, again, it's a product capability that it brings, but it's also productivity, a lot less material and so on. So we talked a lot about kind of that orthodontic and direct fab benefit that we can bring.

And then at the Technology review, we talked about some of the capabilities that we can bring to our general dentists and the labs that support them. So we talked about exocad ART or Invisalign ART, where we can provide the advanced restorative technology so that we can have doctors as they're moving teeth or in some cases, just restoring teeth first without moving, how do we teach those general dentists through labs to be able to move teeth before you do the restorative work.

So it's really just an expansion of capabilities. But in the end, for the market, we -- there's 2 million general dentists, and we only sell to about 100,000 of them. So this capability gives us -- gives them more opportunity.

And that's U.S., the 2 million number?

No, the 2 million is global. So there's many -- most general dentists do -- general dentists are doing restorative. So those general dentists do restorative. And many times, they don't have a lot of orthodontic procedures that they do. So this gives them capability. This gives them some of that information through digital technology, they scan, they're able to provide some visualization to their patients.

And then we can find solutions for them to be able to move teeth before you do restorative. So we talked a lot about -- really brings a lot of tech together. It's the visualization, it's the treatment planning, it's the manufacturing. It's using our distribution network to be able to get to those potential doctors.

And it's a huge opportunity because majority of cases that are done on a restorative basis do not include any ortho. And we're trying to bring that to the market and give some capabilities. We think that going through labs is a way to bring those capabilities.

Great. I think I didn't interrupt. Can I get the clock updated and running, so we make sure I keep us on track here. The -- maybe just jump into the geographic dynamics here because there's obviously just an overwhelming focus on the U.S. And you talk about double-digit growth in some markets, but there's still -- as you know, the stock trades on the consumer sentiment data. There's a tremendous amount of focus on that North American business.

So maybe just give us some perspective on like what you're seeing year-to-date, what -- how you kind of framed the guidance assumptions around this business, and then we'll kind of go into some of the details.

You're right. Much of the data comes out of North America. And I think when you look at the overall market, it's about the same that we've seen for a number of quarters now. It might oscillate a little bit. I'm talking about consumer sentiment. It might oscillate a bit one month to the next. But you're in the 40s, mid-40s to low-50s. That's not a good consumer sentiment, and that's been that way for a number of quarters. What we've been able to do is operate within that environment.

It's about the same -- when we talk about stability and so on, that's about what we've seen for the last number of quarters now going back to the middle of next year. And what we do is find ways to operate within that environment. I mentioned that majority of our market is outside the U.S. And I also mentioned that we have within the U.S., even within a poor consumer sentiment, the DSOs are operating in double digit.

So the last part of what we brought to the Technology Day and talked about is what are we doing in that market, [ down ] to educating doctors about different products that we have, different technologies, whether it's on the ortho or GP side. In many cases, especially in that tougher market, it's what you do with those potential patients to be able to get them into the practice.

And then we do a lot of education to educate both the potential patients as well as the doctors so that they can think about external financing. Are there ways that they can get that potential patient to use external financing to try to get them to overcome some of the challenges. So some of the partners that we work with like in HFD and others, they're able to, for low money down, get those potential patients into treatment, sometimes at a lower FICO score and then have no interest for a couple of years to be able to get those patients.

And we find that 50% or more of some of those patients going through general dentists will want some external financing. So I think really starting to midyear last year, we found a lot of good ways to be able to get external financing and ways to be able to help drive that conversion. So a challenging market, yes, but we are doing things, again, going back to it's an underpenetrated market. Those potential patients want to go into treatment. They see the benefit of it. It's just a matter of helping them drive the conversion.

And that's what we call more of the active conversion that we work towards. And like I said, I think we feel good about how we've operated in that environment for the last few quarters. And we'll update how we did in Q2 after the end of the quarter.

Okay. On to the retail versus dental service organization side. What are -- as you kind of do your market research, like what are the real underlying drivers that's supporting the divergence in trends across the 2 segments? And what can you do to sort of better stimulate the retail side?

Well, on that retail side, it comes with -- if you're on the orthodontic side, some of those orthodontists, if they don't have a lot of traffic to their practice, they might -- if they haven't digitized their practice as much, they might revert back to wires and brackets because that upfront cost is cheaper than it is for Invisalign. We provide them capability to help them treat the entire -- the entire treatment. So there is a lot less labor, but there is -- we're more expensive than wires and brackets to start.

So what we've learned from the DSO side, like I talked about the product portfolio where you have -- maybe they don't need the comprehensive unlimited or even the 3 and 3, that's 3 years of treatment with 3 refinements. We introduced that 3.5 years ago. And what we've seen is that's our #1 product now. So we took that further through the DSOs, and now it's being launched across the regular retail side is a comprehensive without refinements.

And that just gives doctors more capability where they can treat that patient. They don't have to pay for the refinements upfront. So the upfront cost to them is less. And then we get the benefit from the ASP as they need additional refinements going forward. But it gives that doctor the flexibility to choose the product that he or she wants. We talk about when that patient is going to go into treatment, it's one or the other, wires and brackets or Invisalign, we want to be able to kind of win those gray areas. And this helps us do that.

So that's a product that -- it was kind of born into the DSO type of organizations, and now it's gone into the mainstream. The other part is, when we think about what's happening on the general dentist side, those general dentists, those DSOs that are winning are -- and they're growing double digit even in the U.S. What are they doing? They're scanning every patient. They -- someone comes in for treatment or some type of restorative work, they scan those patients, get whatever work that they're going to get done there.

And then at near the end of the treatment, the doctor will come in and say, here's a scan, here's how you look right now with your teeth and your smile and here's what you would look like with treatment, orthodontic treatment. And they might even show that before they do restorative. So you have the -- as is the ortho and then the ortho restorative. And what it does is, it gets that potential patient excited about treatment. And then it comes down to what's that pricing for that doctor to that patient.

And if it's competitive pricing and then as I mentioned, if it turns into a type of financing that's attractive for that patient, usually sub-$100 a month, then you can drive that conversion. That's what's happening within the DSOs. We are working to try to take that further.

So there's work that we can do product-wise and capability-wise on the ortho side. and there's things that we can do from a workflow standpoint to help on the GP side. And those are ways that we're going to market in this environment. And like I said, we've seen this for a number of quarters now. We're seeing some traction here, and we want to continue that. And as the market gets better, great, that's a tailwind for us. We think we can operate in this current environment.

And do you think that, for lack of a better way to put it, down-trading from aligners to wires and brackets, like where are we in that down-trade cycle? Is it stable, intensifying, moderating?

I would say, when you look at -- it's hard to get an aggregate amount of data in terms of some of the surveys that get done and so on. But what we see is, I think it's much more stable. You see some of that happening. We would have seen that maybe in the past, I don't know, 6 to 12 months ago. And what I would see is it's much more. So I think what helps is the product capabilities that we're bringing, where it helps stabilize that trade that doctors have. But it's how they run their practice.

We have to be able to operate within how they want to run their practice. But the key is just like all of us as consumers, you want to have options. You want to be able to consume in a way that you want to. And orthodontists and dentists are no different from that. But I think what's key is, we have products in our portfolio that allows them to -- allows us to go-to-market with choices.

10 years ago, when we introduced the comprehensive unlimited, that was 5 years of treatment, unlimited refinement. It was more a reflection of the product capability. We had products that maybe could get to 60%, 70% of the cases. And so we had to convince orthodontists to be able to use this product. And up until 3.5 years ago was our #1 selling product that was 75% of the market. Then I mentioned we have the 3 and 3 and some of these other more moderate products.

Now that comprehensive unlimited is not our #1 selling. And what's moved up in its place is options that orthodontists and general dentists have migrated to. And again, that's the capability that they have. So we're bridging the gap between wires and brackets and Invisalign from an upfront pricing standpoint and really trying to suit the needs that those orthodontists and general dentists have.

And it's a simple saying, but we talk about it a lot is just sell the way the customers want to buy. And that's what our product portfolio has gone to and it gives us many more options, not just in the North America market, but across the globe as well.

So on that point, like why as you generate margin expansion in your business, why not in this environment, share some of that with your customer and cut price?

Well, it's not just about cutting price on the existing product, and we've been able to have some stability in our ASPs as a result. It's just the product itself. So if you have a product that has fewer refinements, lower treatment time and so on, it's just at a different price.

And you see that a lot, when I talk a lot about ASPs. The ASPs for our business are driven really by 2 parts to this. One is if you expand it internationally, especially in some markets where you just have a lower list price. It's Latin America or it's Turkey or it's India, the list prices are lower, just to be able to serve those markets. But you also have product differentiation as well. Some products are just at a lower list price. It might be a touch-up case that you do and it might be $500 or $600 for that case, because it's only a few sets of aligners.

And the gross margin rate is great. Anything that we have on a product that has a lower amount of refinement is better gross margin for us. So we see the gross margin rate better and you can look at last few quarters where you start to see more mix of these comprehensive without refinements or even noncomprehensive without refinement you start to see some of the gross margin rate benefit. And we're very pleased to see how we started the year, but that's a reflection of some of that product mix that we have.

It's also a reflection of some of the productivity things that we do. But we want to manage both. We want to be able to manage our pricing, but on a product level and kind of country level, you're going to get mixed. You're going to get some countries going faster. Some countries have certain products that they use and the ASPs are different, but we manage that.

But it's -- the equation that we have and we continue to drive for the business is, you've got to get submitters. You got to keep your submitters active, sell to more doctors, keep the ones that you have from churning out and then ultimately get them to increase their utilization.

So actively lowering price to stimulate demand in this environment is not a direction you're...

Well, that's what much of our competition has done. And I think what it's caused them to have to do recently is raise price. It's leading with price. I think that's just trying to grab market share. I think that's what our competition on the clear aligner side has done. We go at it with technology that we bring to those doctors and apply it to the products that they use.

So we can be at a lower list price for, like I said, with the comprehensive but no refinements, but it's a reflection of the technology that we've put into it. If they -- that doctor needs a refinement, great. They'll buy a refinement from us in the future, but they don't have to pay for it upfront. That difference in that mindset of whether you buy something with service upfront versus later is kind of that mind shift, but it's something that it helps us win in those gray areas.

Again, our focus in this business is to go after the wires and bracket. The orthodontic case starts that happen every year is 22 million orthodontic case starts, 17 million or 18 million of them are done with wires and brackets. So it's less about share shifting to try to -- from a competitive standpoint, it's more about how do we increase the utilization for those doctors. So selling to more doctors who are going to be part of that 22 million orthodontic case starts and how do we get them to do more and more cases.

And I want to talk about the second quarter specifically in a second. And -- but maybe sort of you talk about OUS. How do you get visibility on the growth there? Because I think we all get -- there's a boatload of people, it's underpenetrated, but you also have like a ton of local competition and a lot of some of these more attractive markets, namely China. Like how do you -- what metrics are you looking at? And like how do you get clarity and visibility on the sustainability of growth?

Well, you look at China to start with, most of our business is private. So 85% of our business there is private and there's -- the out-of-pocket is that somebody is going to have to pay for that treatment. And so what we find is there's a huge population of people who need treatment and are willing to pay for it. So our business in China has been double digit for a number of quarters. We feel very good about what we're doing to go-to-market.

In China, as an example, we have -- our sales team is all local there. We've got treatment planning is local, manufacturing is local. So we're in China for China, and we feel that gives us a competitive advantage there to be able to go-to-market. But when I think about international, it starts with underpenetrated market. We've got a direct sales force to be able to go after that market, training new doctors, trying to minimize churn so that you can get those doctors to continue to do cases.

International growth has been double digit for a number of quarters. If I just look back at first quarter, it was strong double digit across all places. But it starts with the underpenetrated market, how do we go-to-market with our direct sales team and so on. We're very local in terms of treatment planning, being in the time zone, the language and so on. So we've really set this to be able to grow globally. And international has been a big part of our growth.

Okay. I want to just pause to see if there are any questions from folks there. Go ahead. I can repeat the question, too.

Is consumer financing an opportunity ex-U.S. as well as it is within the U.S.?

What we find is consumer financing is an opportunity everywhere. Every market has this opportunity. Not every market is as far along as maybe the U.S. is. But that is, one, when we think about the last mile to try to get that potential patient into treatment, consumer financing is a big piece of it. Those patients don't want to pay a lot upfront, and they don't want to pay interest and pay a lot as they go forward. So that consumer financing is -- potential is everywhere.

We're working with some of the local banks and other organizations to be able to help drive this in other markets. But it's something that we see as an opportunity. And our doctors tell us that is the one big piece that we can bring. And so we love those opportunities. It's not something that's on our balance sheet. So we're just kind of the facilitators of that.

And -- but it is one where it gives many opportunities to be able to help drive that conversion. And we're actively looking kind of country by country where we can make sense of this, look with local providers to help give that -- those options to those potential patients. And we feel that we're just scratching the surface on this. This is one where we think will help every country.

Maybe we could just turn to the very near-term dynamic. If you look at your second quarter, you've guided to about 1% sequential growth compared to Q1. I think historically, you've been a little higher than that in the 2% to 3% range over kind of a multiyear period. Talk us through some of the factors that went into your guidance as you thought about the second quarter? And what are kind of the upsides and downsides relative to that baseline?

Well, like I said, our typical cadence that we have from 1Q to 2Q is up, say, 3-plus percent from a revenue standpoint, just kind of talking. And you say why is that? Well, one, you go up in iTero. We talked about Q1 is kind of seasonally low as you come out of Q4, which is a bigger equipment business. Q1 comes down, Q2 comes back up just based on the seasonality of things.

And then you also go from 1Q to 2Q, you get into ortho season. So it's bigger in the U.S. You start to see this in Western Europe as well. So you start to see that sequential improvement. And what we wanted to do just kind of at the Middle East and everything else going on at the time, we said, look, let's put to what we call more of a prudent look to our numbers to make sure that we put that out there, and it was a 1% at the midpoint. And that's just to reflect some of the uncertainty that we have in the market.

We're doing everything we can to be able to continue to grow and achieve that. But those are -- that's just from a guidance. Same way from a margin standpoint, there's -- we essentially put flat from an op margin standpoint on a non-GAAP basis from Q1 to Q2. Typically, you'd see some sequential improvement. But with uncertainty around oil prices, logistics costs and so on, we wanted to be able to give those -- that guidance at that point. And then like I said, we'll work our way through the second quarter and be able to report on our progress.

And I think the data points a lot of us are sort of living with both in your direct categories as well as, I think health care consumption more broadly is that you did see enhanced seasonality in Q1, but February is better than January, March better than February, April is better than March. What did you see in your business? And what was kind of -- what was you had April behind you when you issued guidance almost like what were you seeing at that point in time?

Well, look, we don't give -- I don't give out the monthly in terms of where our progression is. But I think you would say that we gave typically Q1 to Q2 goes up by 3%, and we guided to 1% at the midpoint. We just talked about all the different things that we're doing to drive conversion, whether it's product related or as we go-to-market or some of these conversion opportunities with financing so on and that we've been able to operate in that. If you look back at last year, even the challenges that we had in Q2 sequential was 3%. So I'll leave it at that.

Okay. I think if you look at the P&L, you're guiding to about 100 basis points of margin expansion. You did go through sort of a cost restructuring last year. How should we think about kind of the shape of the P&L between gross margins and operating expense leverage?

So we want to be able to maximize our gross margin and also our op margin. So there's really 2 aspects to this. One is the product portfolio that we talked about where you have a lot of products that come through just at a better gross margin rate. Some of these lower refinements, whether on the comprehensive or the non-comprehensive side, gives us a better gross margin rate.

We also see on the gross margin side, a lot of cost opportunities that we've started to continue to execute from last year, some of the restructuring in terms of retiring some extra equipment or upgrading some of the equipment to be able to put the latest in, reduces our material costs, reduces some of the labor costs. And we also find that we're able to move closer to our customers to reduce our freight costs. All that helps our gross margin.

We saw that as we exited last year with some of those activities, and we certainly saw it in the first quarter. I mean we were up ex FX, up 200 basis points in gross margin. So really good growth drivers from some of those.

But then as you work down to op margin, we're always looking at our OpEx to be able to make sure that we have the right structure, do we have the right span of control? Are we able to kind of pivot as we need to? Especially on the R&D side, we've spent a lot on the R. Now it's moving to the D side of the R&D. And we start to see efficiencies there where now you have products that are coming to market, some of the prefab attachments, some of the retainers and so on. So you spend less on the R&D and more you get the benefit of the revenue that comes through. So we get that leverage as well.

So when we talk about what we're thinking about for the year and how that -- that's why even with some of the scale-up of some of the direct fab and others that might hurt on that per product basis, we look at our overall expansion and up that 100 basis points. But we are very focused on driving volume, driving revenue in the business.

And above this 5% the last few quarters in kind of the mid- to upper single-digit growth. We want to continue that, but also do it at a way that is profitable. We want to drive to the bottom line. When you look at other companies that are in our space, whether they're a pure-play or a part of another company, they're losing money on an op margin basis. We've got that focus of grow and drive that volume and revenue, but also do it on a profitable basis.

And I'll just open up for any other questions for -- I have a couple more, but all right. The -- as you look at the environment today and you talk about some of those efforts from margins, it's just -- it's really tough. Obviously, we can see the direction of raw material input costs continue to move higher. At what point does -- do these efforts become running faster to stand still versus give you air cover to continue to expand margins?

I think we've always -- being the company that we are to be able to expand in the market, we've got to do it in a profitable way. So we've got to be able to have initiatives to be able to drive productivity, to be able to meet the customer where they're at. Sometimes it's product related. Sometimes it's other ways to be able to help drive that conversion. We've got to look at this holistically. We've been around for almost 30 years. We created this market, and we want to be able to continue to drive.

In the end, it's a wires and bracket market, sadly, still after 30 years. But we're going to do everything we can from a product standpoint, from a go-to-market financing, all the different ways to be able to help drive increased conversion here. And you have strategies to be able to do that and then you execute it on a quarterly basis.

And maybe I'll just close with any comments on capital allocation. Like this is a very dislocated equity market now. You have cash, you generate cash. Like how are you thinking about use of the balance sheet here, whether that's internal reinvestment, buybacks, M&A, et cetera?

Well, we first start out with a model that is cash. So it's a good to have that we can still grow in the business, grow volume, grow revenue, but do it on a profitable basis that we just talked about and generate the op margin that we do. We're also fortunate to be a company that doesn't have debt and being able to not have to take that on.

Our cash, much of it is outside the U.S., and we're working to try to make sure that the allocation is right to bring it back to the U.S. where we can. Obviously, then we can use that for our buybacks and so on. But what we have is a market opportunity to be able to grow as much as we can, use our capital for that. We generate healthy free cash flow, but then any excess goes back to buybacks.

So we're actively looking at -- we've got an open market repurchase in the market now. We're executing on that. When we look at other opportunities that we have to be able to bring back cash, to be able to put that back into the market. But we strongly believe in our business and what we can bring to the business. And we'll do the capital allocation that reflects that, but also balancing that, we haven't had debt. We've gone this long without debt. What's the right time or is there a right time to do something different than that?

We think that we're driving that cash generation and putting that back to our shareholders in terms of buybacks. I mean if I look at my almost 10 years here now, I think I started and we had about 82 million shares outstanding. And right now, we're under 72 million. So I've been committed to being able to use those buybacks to be able to reduce our share count. And we've reduced our share count maybe 15% or so in total over those 10 years. So we want to be mindful of that, but we also want to be mindful of the cash that we can generate to help drive the business.

Excellent. That's a great place to wrap up. John, thank you for making the trip to Miami, and we look forward to another update here in July and August.

Great. Thanks, Nate.

Okay. Good morning. We'll kick this off. Welcome to Jefferies Global Healthcare Conference. I'm Mike Sarcone. I'm an analyst on the U.S. Medical Supplies and Devices team, and this is a fireside chat session with Align Technology. From the company, we've got John Morici, CFO; and we've also Madelyn Valente here, who is part of the IR team. So John, thank you for joining us today.

Of course.

I guess just to kick it off, high level, just on the macro side, I'm sure you get a lot of questions there. Can you just give us an update on what you're seeing on the macro front in terms of patient demand? I know you've talked about continued stability in North America, but we are seeing rates increase, inflation go up. So just give us an update on how things are trending?

Yes. So we've seen, as we've gone the last several quarters, some of that macro that's similar to what it is now. You still have higher inflation on things even prior to some of the things going on in the Middle East, and we've been operating in that environment.

When we look at our business, and we've got double-digit growth outside North America. International growth has been strong for us, whether it's APAC or EMEA or Latin America. North America, even when we look at DSOs, the DSO dental service organizations, they've been growing double digit. Where you see some of that pressure has been on the U.S. and North America retail side, those doctors. But we've been doing and operating in that environment for several quarters.

Where you have to go and really try to drive that conversion is be much more active, work with those doctors to be able to help nurture those patients and get them from being interested in treatment to actually going into treatment. And we can talk a lot about the different tools and tactics that we have to be able to help our doctors. But it's been a similar environment that we've been in for a number of quarters now.

Got it. And I do plan to get into some of those tools for the docs. But can you remind us what kind of assumptions you've got baked into your outlook for this year from the macro standpoint?

So when we expected -- from a macro standpoint, we guided to 3% to 4% for the overall year and 100 basis point improvement in our operating margin. It's a reflection of things that we're doing even in a challenging market to be able to help drive growth, and we see that and do it in a profitable way. We've taken a lot of cost actions from last year and into this year to drive and improve our productivity, and we're seeing good results of that. We saw 250 basis point ex-FX basis point improvement in op margin in the first quarter, and we're very pleased with that in this environment. And we have a lot of other cost actions that we continue to take to drive productivity.

As we increase volume, we get the benefit of that operating margin leverage from that. And so we feel good about how we've positioned this year, especially in light of the first quarter where we feel like we delivered in an uncertain environment, but we have a lot of things that we have in place that are executing.

Great. And just last question on the macro front. On the 1Q call, you did mention the conflicts in the Middle East. You're expecting them they could have some impact on 2Q. I mean have things played out as you expected there? Or anything you can share?

No, when we look at the framework when we go from 1Q to 2Q, if you looked at our business, if you go back last year, year before, in several years, typically, we go from 1Q to 2Q and we increase revenue, say start with the top line 3% to 4%, sometimes more. And that's a reflection as North America gets into teen season. As you get Western Europe and others, they really start to increase some of their volume as they go from 1Q to 2Q. And you also have the sequential improvement when you go on the Systems and Services side. First quarter seasonality is a little bit lower. It builds as you go to second quarter.

So typically, you have that. And when we wanted to talk about prudent guidance or I get a lot of questions regarding that, we put it at the midpoint of 1%, and so when we go from 1Q to 2Q. It's a reflection of that. We're executing and doing the things that I mentioned in an uncertain environment. We look forward to getting to the end of the quarter to be able to update people.

Okay. Great. I did want to shift into the Comp Zero AA offering. I know you started rolling that out in 2025, and you're continuing to ramp that through 2026. So can you talk about what you've seen in some of the earlier accounts that have adopted that, particularly among the DSO customers and what that's done for utilization?

Yes. So the products that we have, so when you think about the evolution of some of the products that we have, the earliest product that we had from a Comprehensive standpoint, that was really the start of that was over 10 years ago where we put out the Comprehensive with unlimited refinements over 5 years. And really, that was a testament to try to be able to make sure that our doctors would feel comfortable using our products and giving them the confidence that no matter what they could get the final outcome. And so we had 5 years with unlimited refinements.

But it was also a reflection of the fact that maybe our products back then 10 years ago, they couldn't maybe finish all the cases. They were 60%, 70% effective. Now with a lot of technology and other innovation that we put in, we have products that with a Comprehensive, they can go and you don't need refinements or you might need one refinement. And so, so much of that technology has really enabled us to increase our portfolio to have a product like this, the Comprehensive with no refinements.

And so what we've been able to do working with our DSOs, our dental service organizations, they've been able to essentially test this across a wide variety of doctors. And what they're seeing is good results. They're seeing that doctors now start to utilize those types of products more and more. And that increase in doctor usage and that utilization is a benefit. And so we see that playing out more and more because that product, specifically with no refinements is designed to go to an orthodontist who looks at a patient and says, "Do I put that patient into wires and brackets or do I put them into Invisalign?"

And typically, there's a big price gap where if a doctor might -- from a material standpoint, might pay $300 or $400, they say $350 for wires and brackets, it would be a higher price for Invisalign with the Comprehensive Unlimited. Now as you bring that price down to reflect what that product is, that cost to serve is much less, now doctors look at that price and say, "Oh, now maybe we'll use Invisalign because that price is a little bit closer." And what I call that product and what it's doing in the marketplace is kind of winning those gray areas. When that doctor then says, "I understand that I'm going to get benefits from Invisalign because of the digital technology versus the analog wires and brackets", they sometimes choose that. And when they do, that increases our utilization.

And the added effect that it has as well is it's very competitive from a price standpoint. So it's not designed necessarily to go from a clear aligner pricing standpoint to be as competitive with other clear aligner companies, but it's turning out to be because it's -- like I said, it drives the utilization versus wires and brackets, but it's also very price competitive, and we're seeing customers come back to us as well. So it really has a great effect, and we want to continue rolling that out. It's gone through the DSOs and now further into more and more doctors, and we're pleased with the results.

So it sounds like you've seen some good price elasticity of demand in those DSO accounts. Do you expect that should or could translate onto the retail independent side?

Yes. We look at what we see in the DSOs where they're looking for the efficiency. And they come -- when we think of what DSOs look for from us, it comes down to usually 3 types of factors that they look at for. They want us to be able to drive the technology, the newest technology like a comprehensive with no refinements, very latest technology to give them confidence that they can finish the cases.

Second part is the operational scale to be able to scale the business and be able to provide product to them in days versus weeks, and then they leverage our marketing. You bring all that together with some of these products that we just talked about, it's a great combination. The gross margin that we have on our DSOs is equal or better than what we see with our -- even our retail doctors. And certainly, from an op margin, it's better because there's a lot of things that go on within those DSOs that we don't have to do. They'll do some of the local marketing. They'll do some of the treatment planning services across their DSO that we don't have to do.

So there's other aspects of it that they're taking the initiative to do to help drive their business. And in the end, it's -- we're driving to more and more doctors that we sell to across those DSOs and increasing utilization. And that's a good trend, and we want to see that continue.

So you are seeing some early signs of utilization increase in the retail accounts that have adopted?

We are seeing that it wins the gray area, and that is a positive for us. And anything that we can do -- because remember, on a wires and brackets basis, most regions, 80% of the cases are still done with wires and brackets. And on the teen side, which is -- this is really what it tries to help, sometimes the wires and brackets in a region might be 90% of the cases.

So even in a tougher economy, those wires and bracket cases were going to happen anyway. I mean teens go into treatment regardless of what's happening from an economy standpoint. If we can help our doctors win those cases so that they were going to go into treatment and instead of wires and brackets, they go into Invisalign, that's a win for us, and we start to see that utilization benefit.

Great. Are there any key markets where you haven't rolled this out yet?

Various -- it's really -- various versions are out everywhere. So we see it in North America. Now doctors need to adopt this. It's one of those where you want to make sure doctors understand that if they don't -- if they have a lot of refinements, maybe they need to ease into products that don't have as many refinements because in the future, they'd have to pay for them. And so we want to make sure that, that is right for them. But we see this rolling out in North America. There's versions of it in Europe and APAC as well. And look, for our business and in success, we'll continue to roll things out.

I don't know if you've kind of given the time line here, but do you expect by the end of this year, you'll have it pretty broadly...

Yes, I would expect. I mean you look at how we've done like -- a product that was really the precursor to this, we had the Comprehensive Unlimited. The product that's kind of in the middle is what we call the 3 & 3. It's 3 years of treatment with 3 refinements. We introduced that 3.5 years ago, and it quickly became our #1 selling product.

And the takeaway for something like this is many doctors, just think about it as a consumer, you want to be able to purchase things the way you want to. And sometimes if you buy a product, you want a service plan. Other times, you don't want a service plan. I think giving these doctors the flexibility to add service at the beginning or maybe as you go, gives them that flexibility. And what we're seeing is when you give them choices, they respond in the right way.

And when we look at products like this, don't think of, "Hey, different pricing is going to affect ASP and so on." The way we defer our revenue, we're really indifferent for products like this because you're just going to get the refinements later. And also from a gross margin standpoint, products that have less refinements like this comprehensive with no refinements has some of the highest gross margin rate that we have because there's not a lot of back and forth. They follow a template. It's ship the product and then you're done. And then if there's refinements, we charge them for that going forward. So it's really a good combination of driving utilization and doing the things that are right with the doctor, but then also driving what's right for our business, which is improving our margin.

Makes sense. And I did want to pivot to some of the other things Align has been doing to help the docs. You recently hosted the TechTalk, the Tech Summit. I thought that was really helpful. And one of the things you talked about was the HFD partnership and the Smile Advance program, and I think it's something like $99 down payment for the patient, 0% APR for 24 months. I think you even disclosed you have over 6,000 offices enrolled here. So what types of benefits are you seeing among those adopters? And could we start to see this play out in terms of growth acceleration?

Well, we already are seeing it play out with HFD and other financing in this market where it's been this more challenging market. And really since the middle of last year, we've kind of leaned into ideas like this where if we can help our doctors to be able to try to drive this patient conversion in their offices, that's definitely a benefit.

So what an HFD or other type of financing is to be able to provide those potential patients with low down payment options. They don't want to pay a lot of interest or any interest. Ideally, maybe a 2-year, and then also those FICO scores that people are concerned with. And HFD has done a really good job of having a very high acceptance rate without much money down and then getting the payments over time.

So it's good for a patient standpoint. It's also good for a doctor standpoint because they're getting a lot of patients through. They're getting much of their cash upfront. So HFD or others give a certain amount of money upfront, and that helps from a working capital standpoint. And then they do all the collections. So there's an added benefit for doctors to be able to partner with this. And our role really in this is to be kind of the broker of all this, making sure that even though it's not on our books, this is not our financing that we're doing, we're arming our sales reps to be able to go into those doctors' office to give them alternatives and say, "Look, have you thought of this? Have you introduced this program? HFD and others have salespeople or kind of field people that come and help with this as well."

But this is an environment where you've got to win those gray areas. And I look at this as winning those gray areas. You want to be able to give flexibility to those potential patients to be able to go into treatment. And people get concerned with inflation and so on. If you have these strategies to be able to help drive the conversion, it can make a big difference. And it's another type of tool that we've learned with our DSO involvement because they're seeing the success. We look at our big DSO partners, they're all doing this.

And so this is another learning, just like we talked about the Comprehensive with no refinements. We learned in the DSO it's -- you start to see how it scales within those practices, and then we take it quickly to the rest of the organization. So we're looking for these types of ideas really country by country. It's kind of how you have to go to this. And again, it's not on our books, but we are one that is trying to help facilitate this. And again, when you talk about winning the gray areas, this is one that helps.

Do you see difference -- a difference in kind of the decision to bring on a program like this between DSOs and retail? Like is it just as easy a sell?

DSOs can go faster because you have maybe more of a top-down approach. They can put that out. Heartland has got 2,000 doctors that they can push that to, and it's maybe faster. But the opportunity is there. The opportunity is there with those retail doctors, and we'll do everything we can, whether it's product related that we spoke about or in this case, when we think about winning that last mile, this is a great opportunity.

Do you ever get pushback from -- if you're pitching this to an independent practice, like is there any like standard pushback that you might get from a doc or a reason why they wouldn't want to sign on for something like this?

Something like this, they look at and we actually -- they hear about it, and they actually want us to come there and help. Now it's also maybe a little bit difference between the type of doctor. A general dentist, this is much more normal. You get a restorative procedure, you get something else and there's a certain amount of out-of-pocket, they'll finance it, and there'll be payments over a period of time, and you get more of it happening there.

Whereas on the ortho side, many times it's pay as you go. They kind of have their own internal financing where you come back and then you get a certain payment that you make each time. So it's maybe more prevalent on the GP side versus the ortho side. But if they're looking for the same type of opportunities, if they -- if we can help them drive conversion in their practice, if they get people there -- because really, when they see the benefit of -- they scan every patient, talk maybe more general dentists, if they scan every patient, they -- we do a lot of things to help them visualize.

So people get really excited, "Oh, wow, this is what my teeth would look like straightened and with restorative and so on." So they're very excited in the moment. If you can then close that with here's the pricing and here's the monthly payment, it brings it all together. And that's a way that you can drive when we talk about being active around conversion, this is a way to do it.

Got it. And then you also touched on ways to drive practice and workflow efficiencies for these dentists. And one of the things you talked about at the Tech Summit was integrating with practice management platforms. And you provided that example with Greyfinch, and you saw some pretty good results. Can you talk about the key learnings from that first implementation? And then I think you have a pipeline of other practice management softwares?

We want to integrate as much as possible because as you have that patient journey where somebody is interested in getting treatment and they start with coming to our website or they have interest that they have, it's being able to nurture that interest into actually driving. So if it -- if you're integrating with some of the practice management systems that they have, where you can then get appointments scheduled, you could get follow-up scheduled, you can again be a part of this and be integrated in.

So somebody goes from being interested in this, they look for a doctor in their area that provides Invisalign. Well, if we can help them connect them to getting an appointment and then they show up to it, then you can take them through this journey that I was saying. They get scanned, they get a visualization, ultimately maybe go into financing and get preapproved and so on. There's a lot of things that we're trying to do, and it makes it very sticky within our doctor network so that they know that we are bringing them potential patients and it's more of an integrated approach.

So when we can work with other DPMSs and different doctors because they all use different types and some -- like a DSO might use across their DSO, but most of these doctors are kind of that retail side that it's kind of a one-off. And we want to be able to integrate as much as possible, again, to nurture that potential patient so that even in tougher economies, we can still execute and deliver and be able to help drive that conversion.

And when you work -- when you complete that integration like you did with Greyfinch, do you see kind of an immediate benefit? Or is there kind of like a learning curve for...

It gives immediate benefit. You see -- because now you're integrated in. And that patient flow and the traffic that you see, you just have less handoffs. It's more integrated in, and I think that's key in this environment because sometimes you have a reluctant potential patient. And if you can take them through this journey through the apps that we have and some of the online characteristics, you can help drive that conversion.

I think you had a slide for the TechTalk where you had maybe 7 or 8 other practice management softwares on the list or in the pipeline. Do you expect those to be largely integrated? I think it's [ AlignLink ] is what you're talking about by the end of this year?

Yes. It's on our road map to be able to integrate in, and we're going to keep going system by system to be able to help that integration. But again, if we can do anything that we can do to help nurture that potential patient to be able to go into treatment, big benefit for that conversion. But it's also a benefit for our doctors. They know that we're a partner that's going to give them with our brand and what people know about Invisalign, we want to be able to leverage that name, leverage that brand. And if we can integrate into that practice with those doctors, that's a good thing. And that will -- we see that impact almost immediately because they start to get more and more patients flowing through. And then they have a chance to be able to get them into treatment through some of the active conversion methods that we talked about.

And given that kind of immediate benefit you see, assuming you continue to roll through these integrations successfully, like is that a case for maybe some growth acceleration? Or like how do you think about contribution in 2026?

It's all the things that we're doing to be more active about driving, whether it's product related, we want to give choices to our doctors, integrated in some of these systems here. We know that the more seamless that it becomes, the higher growth that we can see. But we are doing all these aspects to be able to help drive the improvement in our conversion and -- because those potential patients are there. Some of them are there because they're on the ortho side and they're going to go into treatment, and they're going to go on treatment either way. So if we can get them to use Invisalign, that's a win for us.

The other side is on the general dentist side. This is part of the 600 million-plus potential patients that are out there who have a malocclusion and they want to get maybe some treatment. If you can get them to kind of hit them in the moment where they're getting something done already in that dental office and you can show them what your teeth are looking like now and what they could look like or the other part of it, and we talked about it at the TechTalk last week was how do you integrate into the labs and some of the other restorative work that's being done and leverage the labs that are already working with these general dentists to provide restorative outcomes? How can we work with the labs to help with the alignment first?

And we've talked a lot about this, but when you think about the restorative and the ortho restorative work that you have, if you can align the teeth first and get them into proper position before you do restorative, you're going to save much more of the tooth mass that is healthy. Align them first and don't have to remove as much because some of the traditional ways that are done on the restorative side is they'll grind the teeth and you see some of these pictures where so much of the tooth is ground down and then they'll put a veneer or something over it. It might look good on the surface, but then underneath, you have a tooth that's been shaved down. And our view is move them first and then do the restorative.

And that's pilots that we have with some of our labs, and that's something that we're rolling out to every region because there's so many -- when you think about the general dentists in the world, there's a couple of million general dentists, and we might sell to 5% of them. So this helps us access many more doctors that otherwise we wouldn't have seen.

And I do want to dig into that lab pilot, but we have about 5 minutes left. I did want to see if there's any questions from the audience?

Okay. Yes. On the lab side, right, you've rolled out this pilot and you're actually getting labs to help sell into those GPs that wouldn't be doing the aligner cases. Can you talk about kind of the underlying economics to the extent you can and like what the incentive is for both parties on the lab side to participate in this and then to get the GP...

So the lab, look, they're always looking for revenue opportunities just like any practice has. So they essentially become a distributor for us, think of it that way, where there's a charge for the actual case that we have. But then on top of that, they have a markup that they'll provide for the services that they're providing because they're doing a lot of the treatment planning and education and so on with their doctor network that they had.

So distributors are excited about this because there's a revenue and margin opportunity for them. The doctors are excited about it as well because many of these doctors now working with these labs, they weren't selling Invisalign at all. And it's a revenue opportunity that they can have because again, when you're chairside and you think about how you're nurturing patients, just like all of us, we want to be able to have an active role as to our health care. What's happening, how do we visualize it and so on.

So right there, chairside, those doctors could show that patient and say, "Look, it's going to take maybe 4 months longer. I'm going to move your teeth first, but this is what it's going to save from a healthy tooth standpoint." And the time and money that, that patient would spend, it's well worth it. They'll see it, and they see the benefit. So that doctor gets a little bit more of revenue because they're moving the teeth first and then doing the restorative. And then obviously, from a patient standpoint, they're getting better health care.

And so it's a win all across. It's good volume for us. But again, this is -- this helps leverage what we're already doing. We're already doing this on a smaller scale with many of these general dentists. But if we can use the labs to be able to -- because the commonality across this is every general dentist uses a lab. It's just everywhere in the world. That's how they get their restorative price. If we can leverage those labs who already have those relationships, and why we can get in and get the benefit. 6 years ago, we bought exocad that is really good at CAD/CAM side type of view that they can provide in the tooth and proper positioning and so on. We leverage those relationships, be able to get to the lab, find the right ones and be able to see good volume growth.

So we're -- in some of those labs that we've worked with, it's really, really high conversion. And again, it's a volume that we never had before.

Right. So these are GPs that are -- these have not done aligners?

They have not done or maybe they did 1 or 2. And so you can -- there's over 30,000 labs across the globe, and -- but they all have these relationships, and they trust their labs. And if we can work with those labs, it's not every lab that's going to want to do this, but every lab might service dozens of different general dentists. And in many cases, like I said, 95% of those general dentists, we don't really sell to. And if we can expand that out and make this more the standard of care that you move teeth before you remove, we think that we have a great benefit here. And we feel like we're the only company who can really provide this integrated solution to the dentists and then ultimately, their patients.

Yes. It sounds like a great opportunity to pick up incremental revenues. Given that you are kind of using the labs like a distributor, can you talk about what the margin impact is to align or how it stacks?

To us, it's a moderate case. So we -- really, it's -- when we look at the -- because it's usually 26 stages or less. So it's kind of just a more moderate movement, sometimes a minimal movement. So margin for us is -- and it's no refinements. So that's a nice part of [indiscernible]. So again, going back to our earlier discussion, when you don't have a refinement, gross margins great for us.

So we're happy to do this. We're happy to be able to help educate those labs because there is some work to integrate those labs in and then have them expand out. But from a margin standpoint, this is incremental for us. So we're very happy with that. And I think the labs that we've worked with are looking at it that way, too. It's kind of a found revenue source that they just didn't have before.

So even with the fee that the lab is getting from that case, like there's no impact?

No, because we'll charge -- we'll have a moderate case that this falls into. The markup really comes from the lab providing the service to those doctors. So they mark that up. So I don't have to discount that down to -- from a starting point, they're marking up for their service. And again, that doctor looks at it as this is a really positive benefit for their patients.

Great. Well, I think that's all the time we have. So John, thank you so much for joining us today.

Of course, thank you.

William Blair analyst covering medical devices, dental and animal health, where I am required to tell you for a complete list of research disclosures and potential conflicts of interest, please visit our website at williamblair.com. We're excited to have with us Align Technology this morning. We'll have Joe Hogan, President and CEO; and John Morici, CFO, going through a corporate presentation. If we have a little bit of time, I might do a Q&A here. If not, we will go out to the breakout room is Maher after this for a follow-up breakout session. Thanks.

Good. Yes. Thanks, Brandon. So to start off, this is our -- kind of our platform page overall. But when you think about aligners and how we go to the marketplace, I think it's best to think it's not just about clear aligners because obviously, we have a lot of competition out there from a clear aligner standpoint. It's like what kind of platform do we stand on. If you just walk through the slide quickly, on the Connect piece, we really have the only brand in the orthodontic or dentistry market that consumers really understand. So we do a lot in that first part of Connect is connecting that consumer with a doctor.

And then secondly, Scan and Scan has come up now, 95% of our cases are scanned versus 10 years ago, only 5% are scanned. Once you have that digital image, you diagnose, you plan, you treat, monitor and then retain all the way up to treat now in the plan and treat side. We can do these within 20 minutes of a patient being in a chair for about 20% of our patients. So the technology has really advanced that far in this platform. And you'll see us continue to work in different parts of this platform over time, so we can improve speed, improve the confidence of our doctor base and also the consumer piece, too. Overall, when you look at it, 75% of malocclusions globally, that's a fancy name for people's teeth are crooked overall.

The market breaks up into 30% adults and 70%, 75% teens. Our business is actually completely reversed in that. We're about 73% of our total are adults and 23% teens. We can get in -- that has nothing to do with clinical competency or efficacy of our product line. That has to do with orthos choosing to use wires and brackets over digital over time. We have found that as we work the teen marketplace, the most compliant part of the teen market is what we call the tweens or young children before they reach a teenage. And this is where bone is most malleable and you can move it. The traditional devices like we're showing down below, braces and also that palate -- that Hyrax appliance that's shown below have been the traditional devices that have been used in orthodontics for Phase I treatment when patients are young and their teeth are not coming in properly.

We've introduced 2 products. Our most successful one has been Invisalign Teen, which is for early intervention, expands the palate and lets those teeth come in. For very severe cases, we have an Invisalign Palate Expander, removable device, first 3D printed medical orthodontic device in the world that does that in about the same period of time, but just a lot better way for a patient to be able to experience that than a patient going into someone's room every night and turning a screw in some way as what you have with the old Hyrax device in some way. So we've seen great use of these product lines. And this is the most compliant group of patients that we appeal to are the younger patients. They're actually still listening to their parents at these age before they hit the teenage.

Invisalign system for all ages and cases. So down below, you can see that horizontal line. It shows the ages that we're working through anywhere between 5 up to 8 years old for palate expansion, then teen. Our teen product will give you 5 millimeters of expansion when you look at the Invisalign palate expander can go up to almost 7 millimeters of expansion. So a doctor just makes looking at where that child is, they'll take a CBCT, understand how much expansion is needed and figure out the device. In between that 10 and 11, you see that Invisalign, Vivera retainer piece. That will be our new 3D printed retainer. And you see the kind of odd construction of that. You need a combination of thickness and strange geometry to be able to hold kids' palates at that age.

And you can only do that with 3D printing. And you'll see that product begin to hit the marketplace in the third and fourth quarter this year. And then Phase II treatment, I think we all know is based on our normal product and then our mandibular advancement product for Phase II, which is when you have a chin that's being recessed and you want to move that forward. You have to catch that patient in a bone growth era when that's going on. And if we do, you can -- when you look at the Class II, probably 60% of our cases are in Europe. It's almost -- it's like a genetic aspect like Class III would be in mainly Asia. John, you can hit this piece.

Yes. So with the portfolio that we have in terms of the products that Joe talked about, but really having a ClinCheck. This is the AI version of what we have where we've been able to -- with our doctors, 23 million-plus cases that we've been able to do. We learn a lot about how to treatment plan, what tendencies that doctors use and then we repeat that. So if they scan, we can get them that treatment that doctor would like for that particular case that they have. And many times, right when they're having a conversation with the potential patient right there. So you're kind of hitting them in the moment so that they can visualize, have that conversation and then do the other technologies to be able to make sure once they go into treatment, are they tracking to what they thought with some of the Virtual Care and other AI tools that we have and then ultimately getting them into retention. So a lot of technology that's gone in, both on the appliance side itself, the actual product and then the treatment planning, and it's really a testament to all the cases that we've been able to help with and what we've learned from those cases.

So ClinCheck software enables scale. This is just a chart to show you what's happened in 5 years. We went -- when you look at 2021, that was our first year that we really got off of individual computers and ended up being able to do ClinCheck on servers and do ClinCheck in the cloud. And since that period of time, we've had -- put a lot of technology into being able to incorporate whether it's a ClinCheck Live, which is you do the ClinCheck, you immediately understand where that patient would be, how many aligners it would take to finish that at some point in time, all the way when you look at like plan addition and ClinCheck software, you can make those changes. I call that almost like Photoshop, where ClinCheck will come up, the treatment plan will be done. The doctor can make some teeth adjustments or tooth adjustments that they might want to compensate from what wasn't covered in our algorithms in some way.

You can send that on to manufacturing and again, about 20%, 25% of our cases are done live that way today. We talked about these global clinical preferences. This is used a lot in the general dentistry community, meaning that we've done 24 million cases. We scan a patient. We've seen that case before in some way. We understood how it comes out.

We'll tell the GP in that sense, you should run this play, you should run these algorithms in order to make this work. Again, in 20%, 25% of those cases, they just flow through and it works. So that's -- you see a tremendous amount of automation since 2021 of using the cases that we have done and using advanced algorithms in order to put these cases together. 3D face scan today, which a lot of doctors, particularly orthos want to understand the bone structure and how when you change your teeth, how it's going to really change your overall physical appearance, both chin and cheeks. And you can do that with incorporating CBCT scans and 3D face scans and then ClinCheck Live plan, which is you scan, you basically get a case. They're based on your protocols as a doctor or protocols that we suggested that you would give to other doctors or 2. You can check ClinCheck Live and it can go right to manufacturing without any kind of back and forth.

Remember, if you flash back like 2021, most of these ClinCheck cases took 2 weeks. Today, it's odd to see them take over 3 days or 2 days. Most of them are done in a day. John, go ahead.

And to further that, many doctors and dentists and orthodontists that we have, they want their own ClinCheck. They want their own technique and an idea where they have the plan. We were able to incorporate that plan into that treatment plan that comes right to them. So it's very personalized for these orthos and dentists. And it just makes it much easier for them to be able to get that treatment plan back, how they want it kind of in that moment when they're thinking about that patient. And many times, when that patient is right there, the potential patient is right there, they can be able to get a treatment plan based on the preferences that they want. And that's something that we've been able to build over time. And as Joe said, it used to take us days, sometimes weeks to have this. Now you're down to minutes, and you're able to give chairside view of a clinical experience to that potential patient.

And it's kind of an ortho workflow, too. That's the way they think when they're doing wires and brackets. They're actually thinking through what that treatment plan is going to be. And so this kind of mimics the normal workflow that an ortho would have. Patient compliance, digital engagements, monitoring and support. So we have a product called Virtual Care today, where we can track through AI algorithms every week, you take a picture of your teeth as you're going through treatment. We can tell if you're on plan, if you're not on plan. If you are, we tell you to advance to the next piece. It takes about -- now it's about, what, 30%, 35% fewer trips that a patient has to go to a doctor because you have this kind of advanced technology that can see the patients outside and be able to flag if there's going to be some issue in some way.

Remember if you're an ortho and you're doing wires and brackets, 35% of your day is emergencies. Patients running in because a wire came loose or something came down or whatever. You go to a digital plan like this, you go broadly digital, you change, you cut your real estate in half, you cut your staff in half to make that work if you really adopt this digital technology. Profitability, John, that's [indiscernible].

As Joe was saying, I mean, there's fewer office visits. When you have digital technology and you really encompass a very predictable, reliable way to be able to treat patients, you don't have the emergencies as you would have with wires and brackets. You have fewer doctor visits, it's just what it is. You have a certain set of aligners, you stay on track with some of the monitoring tools with Virtual Care and so on. You just don't have to have the staff and because you just don't have as many visits. So it's really a benefit on the doctor side where you can staff that appropriately. But think about it as a patient or as a parent where you don't have to take your child or yourself to the dentist's or orthodontist's office because you don't have the emergencies that you don't have as many office visits that you need, you get done faster. There's a lot of benefits that from a time standpoint that the patient or the patient's parents get, but also on the doctor's side from a profitability standpoint.

GP opportunity is a big one for us because in general, GPs aren't taught in dentistry school how to move teeth. That's changing in some universities today. But obviously, we bring those skills to them through our sales force and our training programs and our key opinion leaders overall. And when you look at this the GP opportunity overall, again, that 75% is every -- 75% of the people in this room, if you haven't had your teeth treated, you have some kind of malocclusion that should be treated, not because of aesthetics because your teeth are wearing. If they're not going to match an occlusion in some way, your teeth are wearing every day. And there's a big push more and more about oral health and the vector of oral health from a teeth standpoint and someone's overall health through their lifetime.

So maintaining your dentition through life, a big part of that upfront is the right hygienics, but to make sure that your teeth aren't eroding themselves because they don't have the right occlusion in some way. The other side is comprehensive dentistry. And comprehensive dentistry is when you're doing implants or particularly I'll show you on the next slide when you're doing aesthetics or whatever, we can use our product line too to help to move teeth to save enamel that normally would be ground off in some way in those procedures. And we'll show you a few pictures overall. But when we talk -- say if you were going to do an implant and you had missing a tooth for 6 to 12 months, those teeth that are next to it have closed. So when you put the implant in, you're going to shave off the enamel of the adjacent molders to put that new implant in.

When we talk about Invisalign Art and we'll walk you through it and those kinds of things, and this is why we made significant investments in these areas. You can save that enamel on those teeth, you can save the lifetime of those teeth, if you just take another 2 or 3 months, move the teeth apart to insert that piece. When we talk about art, it's restorative treatment that we're trying to move into the mainstream of dentistry.

Before you had digital, you can never think this way. You'd never do that with wires and brackets. But obviously, with obviously, plastic aligners in a digital kind of a footprint. You can make changes like this in dentistry that weren't available before. Global trends toward preventative health, patients and consumers, dental professional societies, government and health care systems, that's a piece that they're talking about. It's not just aesthetics. It's about how to make sure that your teeth are a vector for health and how do you take care of those teeth. Go ahead, John.

So when you think about the oral health, it fits into our overall workflow, the digital workflow that we have, where you get that scan, you're able to start to get an idea of what is the overall health of your dentition? Your teeth moved in the right places? Do you have carries or other cavities or other restorative things that you might need, but really trying to make sure that when you look at the comprehensive treatment, it starts from the beginning of getting some identification of people who might need to go in for some type of treatment and then working them through that journey to get to that ultimately to provide better oral health.

And that's a big push that we have when you think about the comprehensive dentistry and what we're trying to go to. Many of these patients, they're in those dental chairs on a regular basis. Do they understand their overall oral health? And these capabilities that we bring to those dentists give them that capability to say, "Hey, this is a problem. This is clashing here. This is how your teeth are wearing. This is what you would look like with treatment and improving the overall oral health." These are really very good visualization tools that we help doctors with.

That diagnosis piece is really important. If you're going to a dentist today and that doctor is walking in the room saying, you know what I see back in your third molar or whatever, you know you're in the prehistoric days, right? There should be a screen in front of you. You should be looking at your teeth. They should be pointing at those teeth and saying, here's where the issue is and what are we going to do next or whatever. That's modern day dentistry. And honestly, in your personal lives or whatever, you should be looking at that because it's a completely different world when we have somebody kind of explaining to you. And you think in medical, John and I grow medical devices, too. I can't imagine with a CT scan or MRI, when you your knee hurts, you want to see it, right? You want to see if your ACL is separated. You want to see what is lost instead of some doctors saying, I think this is what you have, right?

So visualization in dentistry is what's coming. We're really leading that when you think about the diagnostics that we offer with iTero and what we're doing. One integrated solution for comprehensive exam. So have an overview what your tooth health, not teeth health, but individual tooth health overall. Gum health is huge. We'll be able to read that the diagnostic to say, here's where your gums were 6 months ago off an iTero, here where they are today. You have a certain amount of recession somewhere, do less of this, do more of this overall. What's your bite, that's your occlusion? Is it inclusion or not inclusion and what's the alignment overall. So this is the digital platform that we talk about. These are the different components of it, but it really is the road to modern day dentistry and I think how we'll be treated and the tools that we're bringing to dentistry overall. Go ahead, John.

Yes. This is some of the treatment planning and the personalization, just another slide of that. Just every dentist, every clinician, people within, they have preferences that they want to follow. We look at the cases that they've done, be able to give them treatment plans in real time that follows the overall journey that we have. And again, getting those doctors to be able to have those treatments in the moment. While that patient is there, it increases the conversion tremendously. When -- as Joe said, you can show them exactly and you're really taking that potential patient along for the journey to say, "Hey, this is what's happening. Let me show you this. Let me show you what your treatment would be and help them visualize." They can see themselves before and after.

They can see themselves before ortho, after restorative and get to the end result that visualization is very powerful and it's very powerful when you put it into a treatment plan that the doctor will follow. The video piece is a key piece of the conversion, not only just a static view of like before and after treatment, what we started with really. Now you get into this where you have a video. Somebody is talking and they're talking and when they're talking, they're showing their upper and lower teeth just as they're talking about whatever it was before.

Now as they take a scan, it goes into that plan that, that doctor has in terms of how they want to treat the patient, then it shows up in that smile video as after treatment. So that person can see what they're clinically going to look like with a treatment and they see side by side before treatment, after treatment, and it's very powerful and it helps doctors close a lot of these cases. So we've been able to develop this more and more, and it gets potential patients very excited about their treatment.

It's like a 50% higher close rate if you show the video. And it's because, like John said, you can see the bottom teeth. Just for entertainment sometime, get a Netflix, find a British movie like 1950s and watch it, okay? You'll see a huge amount of opportunity, okay? A comprehensive dentistry, we have a program called Art. We have a business we bought over in Germany back in John, we held hands on that one in 2020 in exocad. The idea always is how do we do comprehensive dentistry, right? How do we actually move teeth out of harm's way in order to -- that the dental treatment would be less invasive in some way. So that's what the purpose of the exocad acquisition was.

I hate even showing this chart, but when you talk about the Social 6, that's your upper 6, what has been normally done around the world for aesthetic treatment is you see up on top is the initial smile. What they do is they -- a dentist will grind those teeth down to those pegs that you're looking at on the bottom right-hand side of that screen. they'll order caps and crowns from a local lab and then temporarily give you almost like a plaster cast to put over these. So you live with that for a couple of weeks or a week and then you put the caps on. What we're talking with Invisalign Art, John and I will get into it is you don't have to do that. We're going to spread those teeth out, so you don't have to grind them and then you can use veneers over top of those teeth without losing all that enamel and losing all that tooth life that you'd have. So if you're talking about this to your friends, family or yourself and looking at that and some aesthetic dentist says, I'm going to fix that, you don't have to go that route.

You might get instant gratification if that is, to get those veneers put on or something, and that's what it is. But you just look at the size and just the dentin that's there and just how it's going to last, you're going to need something later on those other teeth, whereas if you move them, you're keeping your healthy dentition that you have, yes, you still need to do some restorative or whatever else, but you're starting from a much better position. It takes a little bit more time, but I think if you go back to taking that patient along for the journey of some type of treatment, I think all of us would look at that and say, well, okay, what does that take in time? How much more does it cost? If those are reasonable and they are, I think most people would choose for give me the right solution.

And this is what we call advanced restorative treatment. That's Invisalign Art. We won't go through each one of these pieces, but we're basically talking about the 6x6, which would be your top 6 teeth and bottom 6 teeth of how you can move those out of harm's way and use veneers and other things rather than grinding those teeth down and having caps and crowns. And we do that through a lab more than we do it through a doctor or through an ortho in some way because labs are the ones that basically set up those restorative treatments for the general practitioners overall.

So we use the exocad program that all those many labs around the world are using, and we embed in that the tooth movement that we have in ClinCheck so that they can make those corrections and send it back to the doctor with a choice of, hey, do you want to take another 2 or 3 months and move those teeth or you want us to grind them down to give the patient that option in order to do it. And here's what the pricing outcome would be of both.

Continuous evolution of breakthrough technologies. And this is just -- there's -- this business is a really interesting and fun business. It's an incredibly large software business and how you do ClinCheck, how you do diagnostics, iTero, all these issues. But it also has a big material science and production piece with the 3D printing that we do and the kind of plastics that you need. And so what this basically shows is just a lot of just breakthroughs that we've had over the last several years along the way. And so I don't want to go through each one of these, but the truly huge breakthroughs coming through, obviously, is machine learning and AI that we've done in 24 million cases in order to be able to project and much better in the sense of where these cases are going to end.

And the material science and the 3D printing piece where we're moving into direct 3D printing rather than making molds. It gives us much more control over the wall thickness and the shape of these aligners and then as a result, their clinical efficacy and efficiency on what they do. And so -- but along the way, this takes a huge amount of R&D and time in both software and hardware and now in processing technology in order to do that, which John is so painfully aware of right now. If you look at this chart really on the right-hand side of the chart, it's about customer experience and clinical effectiveness. And on the left-hand side of the chart, the kind of technology we brought to bear in order to change dentistry and to make digital dentistry a reality out there in digital orthodontics. Go ahead, John.

Yes. I mean different types of movement that we have that we've introduced in a chart that Joe just showed a SmartForce moving teeth in the right manner, positioning things the right way based on a lot of the cases that we've done, having the right material, the SmartTrack that we use now, soon to be additional with some of the direct fab material and so on. And then how you move teeth in terms of the staging, what tooth moves first and how you change things and anchor as you want to move -- be able to move the teeth. But again, based on what the clinical preferences are for that particular doctor.

And properties need to align material, deliver gentle forces. I want to go through this. But we started off where we used to do displacement. Every aligner would basically represent what the next stage looked like. What we do now is we actually program energy into those aligners. So it's not exactly a replicate of where it's going to be. It actually drives these teeth through how you place that energy inside that plastic aligner when you form it. This is a material science equation, though, but all plastics aren't the same. And you have to find the right plastics. In this case, you need ductility, you need rigidity. And so that's why you have to do multifaceted plastics, which are layered plastics of polyester in this case and polyurethane in order to take those forces and be able to translate those forces into teeth.

And our teams are expert in the sense of understanding what materials can do that and how you configure those materials. Innovation at scale always. Look, this is what we do is across the board, we're always driving innovation in this business because it needs innovation and there's opportunities for innovation in this business more than really any other business that I've been in. Go ahead, John.

And when we think about what we're able to try to bring, it's innovation around the products, what we provide from service and treatment planning and so on, but also business models, working with our doctors, our customers to be able to help drive conversion, be more active about the conversion and tools, especially in this environment, in this economy around the globe, those doctors that take more of an active approach. We see it with a lot of our DSOs, our dental service organizations, they're really trying to nurture those potential patients through and drive that incremental volume.

Go ahead, John.

So when you look at some of the things that we have, you're able to come up with different innovative business models to be able to help those doctors who want to be able to drive potentially more traffic to their practice. They want to digitize, be as efficient as possible and then how do we partner. And that's why it lends itself well to work with dental service organizations because they're leveraging aspects of our company that are unique, aspects around scale, the efficiency that we can bring, aspects around technology, what we're just talking about with a lot of the digital technology as well as the product technology and access to our brand, being able to leverage what they want to do at their practice plus leveraging our brand.

So when you see some of the models that we have, this is a doctor subscription program. That's essentially saying a doctor wants -- they want to have a commitment of a certain amount of cases or a certain amount of aligners that they need. Some of those aligners are then going to be used for retention over a period of time. Some will be used for what we call like touch-up cases, cases that they just need to do minor movement and so on, but they want to be able to have flexibility. Maybe in some cases, you want to do a full case, and that's how they purchase the product. In other cases, they just want a certain amount of aligners that they can commit to and use over a period of time. But giving them that flexibility, especially in this market has been great, and this is one of our most successful programs.

Go ahead, John.

Yes. And then so financial friction is a big piece, financial friction at the potential patient level. You hear a lot about consumer confidence and what people are seeing from inflation or oil prices or whatever is on their minds. You've got to be able to get to a patient financing, not on our books. We don't take the end risk for the financing, but partnering with many other companies, and this is a global issue that we work through where those external financing companies are finding ways to be able to finance potential patients because patients don't want to put a lot of money down and they certainly don't want to pay a lot on a monthly basis.

Yes.

So HFD is a great example. You hear us talking a lot about that. It's very high approval rates, many times prequalification. It's great for the practice because the practice then gets more of their cash upfront, and they don't have to bother with the collections. HFD, in this case, we will do that. And it integrates into many customers that we have. So when we think about the last mile, what we're trying to do to help conversion, financing with the external patients is a key way.

It's a big deal. Yes.

And so you can see some of the benefits that we have. Products that we have is another way to go after try to drive utilization, you don't -- we used to have -- and we still have a product called Comprehensive Unlimited, but that's 5 years with unlimited refinements. In this product, it's saying, look, it's still a comprehensive product, but you don't have any refinements. You don't have any "service" built into the product initially. If they need service or need a refinement later, they can purchase it. But again, it's giving those customers of ours flexibility in how they want to purchase.

Maybe they purchase a service plan upfront, maybe they don't. And what we see is when they don't, the pricing is a little bit better for them, and it helps drive utilization. So this is more of that is basically rolling out to different areas. It really started with our dental service organizations. They really like that, having that flexibility. But again, we have a product portfolio that has really evolved through technology to be able to give them this type of product. So that's a quick snapshot of all the different things. I don't know, Joe, do you want to?

No, I think that's our story, and we're sticking to it, okay?

But it's an evolution. I mean we are pushing things forward, really trying to help drive conversion, especially in this environment. It's a lot of technology, a lot of breakthroughs that we've had, and we're winning in those places. We just have to be active about driving that conversion piece in this market.

Especially in the U.S. right now.

Can't wait for people to say, yes, I'm going to wait for something in the future. You want to hit those potential patients in the moment and drive that conversion. And ultimately, it's going to drive more throughput for those doctors.

We didn't leave you much time there, Brandon.

All right. We will go to the Maher breakout room now.

Good morning, Jon Block at Stifel, and welcome to day 2 of the 2026 Stifel Jaws & Paws Conference. We've got another really good day. We've got 13 total panels across both public and private companies. We have a couple of dental physician panels as well and also our conversation with IDEXX's former CEO, Jon Ayers, around the middle of the day. I'm happy to kick it off with Align Technology, John Morici, CFO; Shirley Stacy, Vice President of Finance, Global Communications; in Investor Relations. Guys, thanks for coming back and being at Jaws & Paws again this year.

John, I'm actually going to start a little bit differently than I normally do. You guys had an Analyst Day or sort of meeting yesterday where you talked about some initiatives in innovation that Align has been working on. And I think some of these initiatives might help spearhead growth or drive growth even in an ongoing modest macro environment. But let's start there. Tell us a little bit about what went on yesterday. And if you had to highlight 2 or 3 initiatives, what would you call out?

Yes. Thanks, Jon. We had a technology update that we provided yesterday. And like you said, we wanted to just give an update as to important things that we're working on. And really, when you think about some of the products that we've had, it's really moving from just the product to more solutions that -- what we are able to bring such that you've got Invisalign Palate Expander that would expand the upper palate, but making changes to that so that it can also have hooks and buttons and other features to it.

So it really can help address some other skeletal issues and products like mandibular advancement with the occlusal block that moves teeth, but also adjust the jaw and adjust some of the skeletal issues at the same time. So you see really more of an evolution of some of the product portfolio moving from just a product to a solution and direct fab really helps enable that. It really starts to be able to make things easier for doctors to treat multiple issues with especially teenagers at the same time. So you see some of that evolving.

The other part that we really wanted to emphasize at this technology review is really some of the active conversion opportunities that we have and maybe we will touch on it later as we go through this. But things that we've learned from some of our DSO partners or other big doctors who are able to take more of an active conversion to drive volume in a tougher market, such that you're working with outside financing companies like an HFD and others to be able to not only provide affordable pricing for those potential patients, but then put them into financing options that are favorable for them where there's a high acceptance rate to get them into treatment and be able to see that they can benefit from treatment. So it's a wide variety of updates that we gave, but it's really around some of the new technology and how it can benefit those doctors and then some of those conversion techniques that I spoke about.

Okay. That's really helpful. And I know nothing sort of turns on immediately or overnight. But do we think about some of those financing initiatives maybe gathering momentum into next year? I think there were some ortho restorative initiatives as well that might bring in the labs. These are things that should hopefully slowly build as we think about coming quarters. Is that a fair assessment?

That's right. I mean what we do a lot when we're trying these new initiatives is pilot and learn from the pilot of what's working, how do we tweak things and so on. So when we think about some of the ortho products that we have, you start with a pilot, you see the adoption and then you can go more of a general release. Some of the things that you just said about labs and how we can get labs kind of in the ecosystem to help us with our ortho restorative initiatives that we can bring.

Those are pilots that we've tested and start, and then you start to bring those out. Same way with the financing. So I would say we've learned a lot as we've gone through last year. Many of them have been piloted. And now it's a matter of that rollout. And we've seen that rollout starting last year and certainly into this year.

Okay. Very helpful. So I'll stick with thematically innovation and I'll talk about direct fabrication. Just help us sort of benchmark when I think about gross margin implications, this has been dilutive. I think it's still dilutive to gross margins here in 2026. Is it neutral next year and then accretive in '28? Or does it take sort of longer to get there?

No. The framework that you have is broadly how we think about it. When you have some of the direct fabricated products, they come out and there's some dilution in margin. And it really comes down to the amount of products that we put out because when you have that resin that you're scaling up, the new resin that we have for the direct fabrication as well as the utilization of the equipment until you get to more scale over 10%, over 15% of your volume for products like that, then you can start to get at least be neutral, like you said.

So if you think about this year, some of the products coming out being negative, and then next year, more of that neutral that you said. And then certainly, as you start to reduce the material cost because that's the big piece of this where you have less material when you direct fabricate something versus the traditional manufacturing, which you have to make the negative and then essentially throw that out. This allows us to see that material savings that really starts to come with scale.

Okay. And so 10% or so, give or take, is what allows from a scale perspective, you to get to neutral from GM implications then when do we start to see a broader rollout of some of these directly fabricated products? We talked a little bit about it last night. But when I think 10% of volume, it can't just be like an Invisalign First retainer with all due respect. It's got to be more like retainers, aligners. And can you sort of walk us through that pathway a bit?

Yes. So the initial is to some of the products that we talked about when you have attachments and then some of these specialty retainers because that's just about trying to get the scale, making the resin and the utilization of the equipment. But you're right, you need to get more in the "mainstream," which would be more wider variety of retention and then into aligners. And that will be something that as you go through some of the scaling this year, you'll start to get into more of the mainstream products next year and then ideally, aligners on a more regular basis. really into later part of next year.

Okay. And one more here, and I should probably know this, but I don't. Are these -- do these need FDA approval, right? It's a different manufacturing process. Do you need FDA approval for direct fab retainer, a direct fab aligner? If you do, where are you in sort of that process?

You'll need it for direct fab on the aligner side. And so we're in the process of going through that. But the biocompatibility and the other effects that we need are well along. So we don't see that as an issue. It's really more just the scale-up of the process that we have, both on the resin side as well as the manufacturing.

Okay. Very helpful. And guys, I usually have my head down, but if you have a question, throw up your hand and obviously, I'll get to it. That was great on innovation. I'm going to pivot a little bit to the business, and I'll try to keep this somewhat structured. So the U.S. John, what are you experiencing in the U.S.? Everyone is usually fixated on consumer confidence. Michigan hit an all-time low last Friday. So just what does that mean or not for U.S. trends?

Well, look, obviously, the U.S. gets a lot of the visibility. I think just a lot of the surveys and so on, and it's over 40% of our business. We still have a lot outside of the U.S. But when we think of the consumer confidence indices and so on, we look at that. And we've been operating in that environment, roughly in that environment for a number of quarters now. And so that was minor changes that happened. It's it's not really an impact to our business. This is an operating environment that we've been in for a number of quarters now.

And we feel good about how we've been operating in the last several quarters just in terms of being able to understand what's happening in the market and then do everything we can and we can get into more of those conversion opportunities that we have to be able to get to some of those reluctant potential patients to be able to go into treatment, whether it's getting the right pricing that they need or some of the financing and other things. So I would say it's really been what we've been experiencing for a number of quarters now.

Okay. So, when Michigan goes from 50% to 46%, it's like it hasn't been good for so long. We don't feel...

It goes from 50% to 80%, that's a great thing. If it goes from 80% down to 50%, that's -- there's is a [indiscernible]

[indiscernible] you can operate in that current environment?

Yes. And the ups and downs that you have on these, every couple of weeks that it comes out, those are the minor changes that are very similar to what we've been operating in.

Okay. So you mentioned U.S. about 40% of the business. I think you and I have discussed LatAm, maybe 10% or 12%. And then obviously, we know international or outside of Americas, pardon me, the other 48%, call it. Let's stick with Americas or the U.S., pardon me. Is it still, call it, the tale of two worlds between the DSOs and the independents, and are you seeing any thawing of the independents as you try to bring some of these conversion tools to the forefront with them?

Yes. Because when you look at our business, and you characterize it the right way, especially in the U.S., you have maybe some that are part of -- doctors that are part of DSOs, they're just much more of an active approach to driving conversion. And so you look at DSOs that are in the U.S., they're growing double digits. You're seeing that double-digit growth. And in the same environment, you talked about the Michigan index and so on, you have some doctors that take an approach, many times pushed from the overall DSO where they're scanning every patient. They're providing visualization of what your treatment would look like. They couple that with better pricing in many cases and then HFD or other financing opportunities to get those low monthly payments down to those potential patients. They're winning. They're seeing double-digit growth.

The other doctors who are taking maybe some of the retail approach where there's much more passive, they kind of take the patients as they come and they're not as aggressive about driving conversion, they haven't grown as much. And -- but I think what we're seeing is, over time, they're less negative, which is good on the retail side. And certainly, as we push with the DSO as well as those retail doctors to help them provide that active conversion, we're seeing improvements there. And against a tough comp in Q1, we were about flat in North America, which was good to see that we've seen that improvement coming from a point last year where it was much more negative.

So actually I was going to go down that road. I think you guys called out slightly negative 1Q, but that was against your most difficult comp, right, a year ago, you're bringing some new initiatives, the financing, et cetera, the comp eases, is the hope we could see even with this backdrop, U.S. pardon me, North America return to growth?

That's the expectation that we have the initiatives in place to be able to help drive that. We're seeing some improvement there, and we want to continue that. Obviously, there's a macro that everybody faces with inflation or concerns that they have and so on. But it's that active approach to be able to help drive that conversion that hopefully sets us apart.

Okay. That was great. Let's pivot to international. And this has been certainly a solid place for the company, double-digit growth, EMEA, double-digit growth APAC. I thought Joe referenced APAC might have been a little bit stronger when we think about double digits last quarter. But break those down for us, John. This APAC momentum, has it continued? And any choppiness on the EMEA side when we think about Middle East?

Really, when you look at our business and when we started with what we're talking about now, just North America, North America retail has been our challenge. And that's the things that we're trying to do to help offset that. But when you look outside of North America, you're right, we do see double-digit growth. And we've seen it for a number of quarters now in APAC, double digits in EMEA and also in LatAm.

And those markets -- it's not every country, but the bigger countries are really driving that. We have an underpenetrated market, so a huge opportunity to be able to grow in those markets. We've got a direct sales force that is really working to try to get more and more doctors. There's a big push to keep more and more doctors into our ecosystem, so training doctors, keeping doctors from a churn standpoint and then increasing utilization. And we're seeing a really good mix there, where some are double digit, but some are very strong double digit, where we've seen growth in Turkey and India and Eastern Europe and Southeast Asia and so on. So it's really good to see how broad it is outside of that. And then like I said, the challenge has been in North America, but North America just is, in some ways, is offsetting that, but there's really, really good performance outside.

Okay. And maybe just to sort of filter that down into overall. There's been a lot of questions on prudent and what that does or does not mean. Maybe talk to us how you feel currently about the level of prudence that you built into the 2Q '26 guidance. Is there any reference points that we can think about when we look at what sequential growth was last year versus what you embedded in this year's guidance?

Well, typically, when we go from 1Q to 2Q as a business, from a revenue standpoint, it's up 3% to 4%. If you go back even last year where we had some challenges in Q2, it's still up 3% to 4%. When we guided the prudent guidance that we wanted to be able to give for Q2 this year at the midpoint is up about 1%. So we wanted to reflect uncertainty that we have on a geopolitical standpoint that affects these potential patients and so on. So that's what went into our numbers for Q2.

And like I said, we've been in this environment for a number of quarters now, whether it's higher inflation or people making decisions about whether they want to go into treatment or not. We've been operating well in that environment, and we reflected more of a prudent guidance for Q2 that was at that 1% at the midpoint.

Okay. And I just -- I'll worry about my own model in a way, but for others, if you're guiding 0 to 2 case volumes, 1 at the midpoint and flat ASPs and you take your total guidance range, I think the Street is a little bit off on systems and services. That's my comment, not yours, but I will just throw that out there for others maybe to think about.

Let's pivot margins. Company is expecting 100 bps of margin expansion this year. That is benefiting from the restructuring. So I'm not asking for guidance, but just walk me forward, like how do we think about future years? You talked about gross margin from direct fab, it's dilutive and maybe that gets to neutral. But are there opportunities in both gross margin and OpEx leverage outside of the restructuring as we move forward?

Yes. So as we think about -- starting with maybe our product portfolio, when we talk about products like the no refinement type products, no AA products, those come with a higher gross margin. It's one where there's a template that many doctors will follow. We set up treatment planning that is more or less touchless, very efficient for us. And then you make the aligners and ship them without refinements, better gross margin for us. We see that. We see that as a higher percentage of our products that we have, and it shows up in our results. We've seen good gross margin improvement as a result of that.

If you look at our overall manufacturing, there's a lot of productivity that we still bring, not just the restructuring that we did to be able to retire some equipment, move equipment to be closer to our customers to improve our freight, but a lot of initiatives that we have to take cost out of our existing manufacturing, whether it's resin or labor or freight costs that we have and so on. So we've got a lot of productivity opportunities that we're still executing on that more than offset what we see from a direct fab standpoint on a gross margin standpoint.

And then the OpEx that we have, we're always trying to be very smart about making sure that we're getting the return on investment that we need to and looking at span of control and layers and other things to be able to make sure that we're as efficient as possible. And we get that overall operating leverage as we move forward with increased volumes. So we saw good performance even ex FX in the first quarter of 250 basis point improvement on an op margin basis, 200 basis point improvement in gross margin. So we're seeing some of those effects early on this year, we're excited about other opportunities that we can have to really not only grow the business and really push on that top line, but grow in a profitable way.

And so just to also push on margins a bit. I mean you mentioned, hey, direct fab is less of a drag. No AA will help, right, because of the way it's structured and the lack of refinements. Talk to me a little bit about R&D as a percent of revenue, right? You guys were leading the industry at 6% and change percent of revenue and then you went to 8%. And there was a lot there last night that looks like it's on the cusp of moving forward and getting to commercialization. Is it like, yes, John, that goes to commercial, but there's this whole tranche behind it? Or do we see that R&D as a percent of revenue maybe normalize a bit over the next couple of years?

We'll see it start to normalize for two reasons. One, we start to deliver these products and that R turns into more D and you're kind of in that, okay, you finalize some of the development and goes to market. And so you don't have to spend as much. Examples would be as you're creating the resin, which we had to create for the direct fab, as you've created it, now you have it. It's not like I need to spend on that particular aspect of it, and you can start to pull down some of that spending.

But then you also get the revenue benefit where now you start to have products coming to market and your denominator increases there. So you end up with that percent coming down over time. So we feel good about the investments that we're making, what we're seeing in the marketplace. We'll make sure that we have the right amount, but we will start to see some of that R&D operating improvement as well.

Okay. We got about 10 minutes left, a handful of topics to hopefully get to. ASP dynamics for the ASP, we obviously got the 1Q, you guided to 2Q. So 1H '26 ASP is supposed to be flattish year-over-year. That's somewhat aided year-over-year by HMRC, FX. If ASP is down 2% on the year, it does imply a big step down specific to 2H. So is a little nuanced, but are the thoughts that we're down closer to 1% this year because of FX and the HMRC tailwind and then maybe going forward, it reverts back to that 1% or closer to 2%, right?

Yes.

Because we don't know where FX is going to land. You mentioned some of those growth vectors for clear aligners or some lower ASP markets, but maybe just help us out?

That's the right way to look at it. I mean, typically, take FX out of it, you've got some mix effects that impact ASPs, and we talked about 1 to 2 points related to that. And really, that mix is around country mix, where you grow in certain countries that have a lower list price, that's an ASP impact. And then you grow with certain products that have a lower ASP like DSP and some of the other IPE and other products that we have that are at that lower list price. And I think for this year, you've got that FX benefit, HMRC with the U.K. VAT benefit as well, and it's a little bit less than that 2%, closer to that 1% that you talked about.

Okay. For '26.

Yes, that's correct.

Okay. And then let's go to new offerings, zero AA, do I have a branded correctly? No AA, zero AA...

Zero AA is one, but it's really a product that is a comprehensive product or in some cases, moderate products, but don't have refinements built in. And that's how we'll call it.

Help us out with the pace of the rollout. I actually thought it was going to be more of it's not there and then binary and then it gets rolled out. But it seems like it's a little bit more of a step process. So who's getting that first orthos before GPs, high volume versus low volume? Walk us through the evolution.

It kind of goes region by region. And so some regions, like I'll use U.S. as an example, it's available and it's a matter of available to orthos or GPs. And it's a matter of that sales -- our salespeople working with those doctors to say, okay, is this product right for you? Because if they're doing a lot of refinements, there might not be a product that they necessarily want.

But if they're not doing a lot of refinements or if those doctors -- their mix of products because really the no AA product and really what it's designed for is to go after those doctors who still do a lot of wires and brackets. And typically, when they might order wires and brackets and they have that material cost of $350, it's a big gap to go from $350 to depending on their discounts, they might be paying $1,300 for Invisalign.

But now you go with the no AA product depending on their discount, they might be in the $700 or $800 range. And so it's much closer, still more expensive, but much closer. And what it's doing as we've introduced this product, we're starting to win in those gray areas. We're winning in the areas where doctors are looking at it and say, okay, it's a little bit more expensive, but I know I'm going to get some digital benefits from this. I'm going to start to put more and more of my patients into the no refinement type product.

And really, what it means for those doctors is it's a less upfront cost. And if they need refinements, they just purchase them. And if you're in the U.S., it's $170, and you purchase it as you go. And it forces that doctor focus in on that treatment plan, getting that right treatment plan being really hands on and then being able to decide if they need refinements or not. And that flexibility, I think we all look at that in our lives and say, sometimes you order something with a service plan and sometimes you don't. And I think a lot of people nowadays don't order a service plan. That's exactly what this is.

And I think our technology has really improved over the years such that we can have a comprehensive product that is a one and done. That patient can pretty much get to where they need to or if they need to do a refinement, maybe that's one refinement. We wouldn't have been able to offer this type of product 10 years ago. Our product that we had was the comprehensive unlimited 5 years with unlimited refinements.

Patient's go and get a lot of refinements.

But it was just due to the product capability.

So you alluded to maybe the benefit relative to wires and brackets and it helps the doctor from sort of a cash out perspective. I think about two potential wins. One is the share of chair with wires and brackets. The others might be some of the GPs or even orthos that are opting for a lower cost competing clear aligner for a really simple case. Are they like simple but comprehensive, you get 12, 14, 16 stages. You actually think the bigger one is going to be in the share of chair? Or do you think it might help claw back some of the defectors to other...

I think you get the combined benefit. The first purpose of the product is to increase our share. We want to be able to go after that wires and bracket group that we want to be able to get more and more volume from that, expand the market for us in that clear aligner market. What we will get and what we do see as an added benefit is many doctors who will ship based on price, I've now said, well you're much more competitive.

Sharing of [indiscernible]

You're actually lower than the competition. And what we've seen with competition going the other way, they've actually increased price, and we haven't. So I think the combination of what we're trying to do to be to kind of get that share of chair with wires and brackets at that price and then being able to have the added benefit of win backs. That's what we're seeing and what happened with that.

Okay. I think investors in the Street and myself included, were in the near term, curious about 2Q '26 and the balance of the year. But I do want to talk about the algo for next year, right? Because at a high level, the Street does have the rate of growth accelerating in '27 versus '26, and you do provide a reported revenue number. So if I think about your guidance this year of 3% to 4%, let's take the midpoint of 3.5%, HMRC and FX is about a little over 1 point, maybe depending on currency. So that gets you, let's even call it 2.5%, maybe slightly below that.

And I think Street is closer to 5%, maybe 4% and change to 5% next year. So outside of macro, right, because we don't know, and we haven't known or it hasn't improved for a number of years. Outside of macro, John, and we sort of started the conversation this way, but talk to some of the accelerants that you see in this business for next year because even with systems and services, my mind goes to like a Lumina product cycle that was really successful, but a little bit more aged in that regard. So what drives that acceleration?

So some of the products that we talked about when we have like the no AA, no refinement type products, we're seeing good utilization there, more and more doctors using those. You start to see some of the growth opportunities there. And that's really -- in large part when we talk about North America, especially in the North America retail, that helps with that. Because when you look at our business, as we started the conversation, double digits everywhere except that North America piece. So we are growing double digits, and we're seeing that across and we expect that to be able to continue in -- outside the U.S. from a market standpoint.

It's continued investment in -- with our DSO partners to be able to help them grow because they're growing at that double digit as well, and we've seen that. And then doing these active ways to be able to drive conversion, partnering with financing companies and others to be able to get those financing options and solutions to those doctors' offices because when they have that financing options and they have different ways that they can help convert those patients, they're seeing great success as well.

So it's not a one-one silver bullet there, but it's continuing growth on the international side continue to partner with DSOs, continue to come up with innovative ways to get that win the gray area with those no AA products and then do conversion opportunities to be able to help drive growth. Those are all things that we're seeing good growth with, and we want to be able to continue that. And get through the Q2. We're excited about getting through the first half, and then we'll lay out what it means for second half of next year.

Yes. One thing I would build on that John just said, in addition to the technology is just the continued expansion outside of the United States, right? The emerging markets are still very, very fertile opportunity.

Okay. But that built up, to your point, Shirley, where they're no longer insignificant. Like if they're executing and they're growing, you're starting to see them have some sort of an impact on the numbers.

Okay. Maybe last couple of questions for me. DSOs, John, I'm getting more and more questions. So in the Americas, it's about 35% of your volume.

Yes, in North America.

In North America and outside of North America?

About total globe from about 25%.

Total worldwide?

Total worldwide.

Okay. And broadly speaking, do we think about it as lower gross margin, higher op margin because cost to serve is lower?

When you say gross margin. I mean, gross margin is very comparable to the rest of the business because they have -- they do a lot of work, the DSO partners, they create the templates with us to be able to have the product that they want based on the protocols. So the treatment planning, some of the back and forth is not there. They've really migrated to mainly some of these more lower AA type products. And so for us, from a gross margin standpoint, we feel good about the work that we've had with the DSOs.

And certainly, when you get down to op margin in terms of the work that they're doing, the training that they provide, some of the efforts that they have from the local marketing and so on, that's something that they're driving, and we're not having to spend on. So it's a really good partnership that we have with our DSO. They really take the approach that we can bring where we bring scale, we bring technology and we bring brand. And all of our DSOs are taking some aspect of what we bring to the business and being able to see that outsized growth.

So just to conclude sort of positive mix shift from a margin perspective as well. If they continue to -- I'll be happy if independents leapfrog them and go to 15% growth, but...

Yes. We will see [indiscernible] that. But look, those are -- they are a force multiplier for us. We see that benefit through those partners, and we want to continue that.

Okay. Fantastic. Any last minute questions? Align team. Thank you very much. Great to see you.

Thank you.

Greetings. Welcome to the Align First Quarter 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Shirley Stacy, with Align Technology. You may begin.

Good afternoon, and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's conference call is Joe Hogan, President and CEO; and John Morici, CFO.

We issued first quarter 2026 financial results today via Business Wire, which is available on our website at investor.aligntech.com. Today's conference call is being audio webcast and will be archived on our website for approximately 1 month.

As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events, product outlook and financial expectations. These forward-looking statements are only predictions and involve risks and uncertainties that described in more detail in our more 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 have posted historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our first quarter 2026 conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'll turn the call over to Align Technology's President and CEO, Joe Hogan. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us today. On today's call, I'll start with an overview of our first quarter 2026 results, discuss performance across our two operating segments, Clear Aligners and Systems and Services. John will then walk us through our financial results and outlook for Q2 and 2026. After that, I'll come back to highlight a few key takeaways before we open the call for questions.

We're pleased to report another better-than-expected quarter in Q1. Clear Aligner volumes from both the GAAP and non-GAAP operating margins exceeded our outlook. These results reflect continued execution against our strategic priorities and the resilience across our global business.

We delivered first quarter revenues of $1.04 billion, up 6.2% year-over-year driven primarily by high Clear Aligner volumes and increased ASPs. Clear Aligner shipments reached a record 686,000 cases, increasing 6.7% year-over-year, reflecting double-digit growth across our international businesses, and continued stability in North America. Growth was broad-based across customer channels with shipments to orthodontists up 7.4% and GPs up 5.6% year-over-year, along with solid momentum across adult, teen, and growing kid patient categories. Dental and orthodontic service organizations continue to be force multipliers in every region, driving global double-digit Clear Aligner volume growth during the quarter. We remain encouraged by how naturally our digital platform fits with DSO operating models and how it continues to benefit customers and patients and support both Invisalign adoption and increased iTero scanner utilization.

Q1 highlights the continued strength in Invisalign demand across age groups and geographies, even amid varying macro conditions. For Q1, 449,000 adults were treated with Invisalign aligners, up 7.8% year-over-year, reflecting strong growth across both orthodontists and GP channels in all regions, led by EMEA, APAC and Latin America. Teens and growing kids continue to represent the largest orthodontic patient opportunity globally. In Q1, 237,000 teens in kids started Invisalign treatment, up 4.8% year-over-year, led by China and Latin America. Growth was supported by continued adoption of Invisalign First, the Invisalign Pal expander and mandibular advancement with occlusal blocks, reflecting broader use across growing patient indications.

A clinical study by researchers at the university of in Serbia in Italy, found that Invisalign palate expander or what we call IPE, was shown to effectively widen the upper jaw by opening a natural growth seam in the palate, achieving bone and bite changes similar to traditional metal expander. IPE also delivered more controlled and predictable results in Hyrax. When further considering the greater ability to maintain hygiene and the simplicity many parents desire compared to Hyrax device, these findings supported the use of IPE as a reliable option for growing patients and highlights its role as an important step towards fully digital orthodontic care.

For imaging systems and CAD/CAM services, including iTero, exocad and x-ray insights software, Q1 revenues totaled $184 million, up 1% and year-over-year and declined sequentially, reflecting expected first quarter capital equipment seasonality. Q1 Systems and Services year-over-year revenue growth reflects continued adoption of iTero Lumina Full systems, service revenues and CPO sales, along with the continued mix shift towards lower-priced scanner offerings included PC-based configurations, leasing and rental units.

These offerings provide greater affordability and flexibility to doctors in certain markets and practice models. In addition, the number of scanners sold to new doctors increased double digits year-over-year. For Q1, the total installed base of active scanners exceeded 125,000 globally. In addition, during the quarter, over 12 million iTero digital scans were performed supporting Invisalign, restorative wellness and numerous other digital workflows and applications. Exocad delivered double-digit year-over-year revenue growth, reinforcing our strategy to integrate orthodontics and restorative dentistry within a customer and patient-centric digital platform.

Following the success of our inaugural Invisalign Advanced restorative treatment or ART pilot in EMEA, we recently began an Invisalign ART pilot in the United States with labs and doctors beginning training in several markets. Invisalign Art integrates with exocad enabling clinicians in labs to plan tooth alignment ahead of restorative work within the exocad environment without changing the tools doctors and labs already use. We're very excited about this opportunity to enhance the goal of preserving patients' natural dentition as much as possible. ART allows us this by incorporating the prior alignment of teeth into the overall restorative treatment plan as opposed to the removal or grinding them down before minimally invasive restorative work. It allows us to further expand our reach and offer existing and new products to the large and growing restorative market through lab-based channels.

Clear Aligner revenue in Q1 was $856 million, increasing 7.4% year-over-year and 2.1% sequentially. Q1 Clear Aligner volume reached a record 686,000 cases, up 6.7% year-over-year and 1.3% sequentially. On a year-over-year basis, our clear aligners revenues reflected double-digit volume growth in EMEA, APAC and Latin America, along with overall stability in North America. Importantly, growth was primarily driven by both submitter expansion and higher utilization across the orthodontists and GP channels and across adult, teen and growing kid categories.

During the quarter, more than 88,000 doctors submitted Invisalign cases globally a year-over-year increase of 3% or an additional 3,000 orthodontists and GP driven primarily by increases in APAC and the Americas, led by Latin America. Doctor utilization also increased year-over-year by 3.4% led by EMEA, Latin America and APAC. These metrics illustrate the continued adoption and penetration of the Invisalign system through our strategic geographic growth efforts as well as the meaningful addition opportunities in the large untapped demand for digital orthodontics, both in gaining share in the existing 22 million annual orthodontic case starts and expanding access to care to the more than 600 million potential patients that our digital technology can serve through GP dentists globally.

Our DSO channel continue to be meaningful full growth driver. In Q1, DSO Clear Aligner volumes grew double digit across all regions and represented approximately 1/4 of total global volumes. The retail channel continued to be mixed, particularly in the United States, where our doctor customers reported less patient traffic during the quarter. To drive adoption and utilization across channels, we expect to continue to expanding targeted initiatives focused on affordability, patient conversion, clinical confidence and practice efficiency. These initiatives are beginning to show traction with GP, dentists, orthodontists and DSOs, helping to drive increased engagement and directional growth and case volumes.

These initiatives include the doctor subscription program, or DSP. We continue to see strong growth from our DSP program, which includes retention and touch up or relapse cases. DSP touch-up cases continue to grow double-digit year-over-year across regions. DSP was originally launched in the United States in 2023, expanded into EMEA in 2025 and is expected to launch in APAC in Q2 of this year. North America DSP is also supporting early momentum with orthodontic groups and DSOs, helping drive reengagement among competitive and historically lower utilizing doctors as pricing simplicity and bundled value resonate across accounts. Patient financing in the United States, Healthcare Financial Direct or HFD is now live in over 4,000 offices, enabling patients to prequalify for financing before their first appointment. allowing doctors to see these patients directly within our Invisalign Doctor site. We saw particularly strong adoption in Q1 among the American Academy of Clear Aligners or AACA member practices, where we expanded access to patient financing is helping improve affordability, increase patient conversion and drive meaningful directional growth in case starts.

Beyond AACA, adoption continues to expand across independent practices, multisite groups and DSOs. Practices report that HFD simplifies their front office workflows and reduces complexity and payment discussions and increases staff confidence when offering financing during consultations and special patient events. -- prequalification and flexible monthly payment options are helping practices broaden access to care, in many cases, providing affordable options to patients to increase scope and types of treatment, including Invisalign clear aligners.

Feedback we've received from offices highlights that the speed of approvals, clarity of options and prompt funding are shifting conversations away from price and back toward delivering treatment options that match patient needs. While also easing administrative burdens for staff and operating teams. These benefits are proving particularly impactful in multi-practice environments where consistency, simplicity and scalability are critical. Invisalign Pay, which is available in Brazil, with further expansion planned across Latin America continues to improve affordability and treatment conversion and serves as a proof point for how patient-centric embedded financing can complement our clinical and digital workflows.

In Brazil, Invisalign Pay is now used in a majority of Invisalign cases, reflecting strong doctor endorsement and patient adoption. Providers report that financing helps optimize cash flow, reduce friction for patients and supports reactivation of lower utilizing providers, reinforcing financing as a meaningful lever for sustained growth across the region. Peer-to-peer mentoring, on the clinician-to-clinician mentoring programs, Connect Doctors over a structured 12-month period to build clinical confidence in drive engagement and treatment conversion.

These programs are especially effective for accelerating adoption of new technologies, increasing confidence treating kids, teens and more complex cases. Peer-to-peer programs are active across all regions, and we expect to expand them over the year. These efforts complement our broader engagement strategy, particularly with GPs and competitive orthodontic accounts that benefit from hands-on clinical support and shared best practices.

Treatment planning services or TPS. TPS addresses one of the largest barriers to adoption, low clinical confidence and uncertainty around treatment planning, particularly among GP dentists. TPS provides case assessment and treatment planning support through a combination of internal TPS and external TPS partners, enabling doctors to submit cases with confidence. TPS has emerged as a direct go-to-market engine with materially higher utilization among TPS users versus nonusers and strong adoption across regions in markets such as Canada, TPS adoption among participating GPs continues to increase with TPS users consistently outperforming nonusers and contributing to low double-digit year-over-year growth in case starts.

From a regional standpoint, Americas Q1 Clear Aligner volumes increased year-over-year, reflecting very strong double-digit growth in Latin America, partially offset by a modest but stable year-over-year decline in North America. Latin America delivered record first quarter shipments driven by increased submitters, higher utilization across both orthodontists and GP channels, along with strength across adult teen and growing kid categories. In EMEA, Q1 Clear Aligner volumes grew double digits year-over-year, reaching record first quarter levels, led by increases in Iberia, Italy, Nordics, U.K. and also Turkey. Growth was driven primarily by utilization gains across both GP and orthodontic channels and continued strength from adult and growing kid patients.

In APAC, Q1 Clear Aligner volumes also grew double digits year-over-year with record first quarter shipments for APAC led by China, India, Korea and Japan. In addition, APAC markets had record first quarters, including China, Japan, Korea, India and Taiwan. Growth was broad-based with a teen and growing kid patients growing double digits alongside continued growth among adult patients. Overall, while the operating environment remains uneven in some markets, our Q1 results illustrate the resilience of our global business and we continue to see orthodontics and oral health and digital dentistry as durable long-term growth categories. With that, I'll turn it over to John.

Thanks, Joe. Now for our Q1 financial results. Total revenues for the first quarter were $1.041 billion, up 6.2% from the corresponding quarter a year ago. On a constant currency basis, Q1 revenues were favorably impacted by approximately $44.9 million year-over-year or approximately 4.5%, in line with our Q1 expectations. Q1 Clear Aligner revenues were $856 million, up 7.4% year-over-year, primarily due to higher volume, favorable foreign exchange price increases and lower net deferrals, partially offset by higher discounts and a mix shift to lower-priced countries and products. Favorable foreign exchange impacted Q1 Clear Aligner revenues by approximately $38.2 million or approximately 4.7% year-over-year.

Q1 Clear Aligner average per case shipment price of $1,250, increased 1% or $10 per case on a year-over-year basis, primarily due to favorable foreign exchange, price increases and lower net deferrals, partially offset by higher discounts and mix shift to lower-priced countries and products mentioned previously. Clear Aligner deferred revenues on the balance sheet as of March 31, 2026, decreased $77.2 million or 6.4% year-over-year and will be recognized as revenue as additional aligners, also noted as refinements are shipped.

As we continue to scale our 0 additional aligner configuration and introduce other streamlined configurations with limited or no additional aligners which do not require revenue deferral because there are no future performance obligations, we expect the overall Clear Aligner deferred revenue balance to decrease over time. This reflects earlier revenue recognition and cash conversion rather than any changes in free cash flow economics. Q1 Systems and Services revenues of $184.1 million were up 0.9% year-over-year, primarily due to favorable foreign exchange, higher scanner systems and sales and nonsystem sales, partially offset by lower scanner on sales. Foreign exchange favorably impacted Q1 Systems and Services revenues by approximately $6.7 million year-over-year or approximately 3.8%. Systems and Services deferred revenues decreased $22.4 million or 10.8% year-over-year due in part to the shorter duration of service contracts selected by customers on initial scanner system purchases.

Moving on to gross margin. First quarter overall gross margin was 70.8%, up 1.4 points year-over-year primarily due to operational efficiencies and higher Clear Aligner ASP. Q1 overall gross margin was unfavorably impacted by foreign exchange of 0.4 points year-over-year. On a non-GAAP basis, which exclude stock-based compensation, amortization of intangibles related to certain acquisitions, depreciation expense on assets disposed of other than by sale, gain on assets held for sale and restructuring and other non-GAAP charges, gross margin for the first quarter was 71.8%, up 1.6 points year-over-year.

Clear Aligner gross margin for the first quarter was 71.6%, up 1.1 points year-over-year primarily due to higher ASP and operational efficiencies. Q1 Clear Aligner gross margin was impacted by unfavorable foreign exchange of approximately 0.5 points year-over-year.

Beyond mix and cost actions, margin expansion is increasingly driven by lower refinement rates, improved treatment predictability and higher manufacturing throughput benefits that scale with volume and data over time. Many of our lower price product configurations, such as COMP 3in3 and DSP Touch-Up include fewer or no additional aligners and require less manufacturing production which supports gross margins and improved cash conversion despite lower upfront pricing. Because of the clinical capability of the Invisalign system, we are able to offer configurations such as Zero AA products that give doctors the ability to use and scale with the Invisalign system and deliver on patient expectations and enable us to more effectively compete with traditional wires and brackets and Clear Aligner suppliers that we believe primarily compete based on price. Over a year ago, we expanded the Invisalign portfolio to include Comp Zero AA configuration primarily with U.S. DSOs that began piloting in the retail channel in Q1. It's still early, but given results from DSO partners showing Comp Zero AA drives adoption by supporting improved efficiency, utilization and overall practice economics for doctors, we see interest and momentum building around this offering and anticipate expanding it over the year.

Systems and Services gross margin for the first quarter was 67.2%, up 2.5 points year-over-year, primarily due to operational efficiencies, partially offset by lower ASP. On a year-over-year basis, foreign exchange had no significant impact on Q1 Systems and Services gross margin. Q1 operating expenses were $594.6 million, up 8.3% year-over-year. Year-over-year operating expenses increased by $45.6 million, primarily due to legal settlement costs and higher employee compensation. On a non-GAAP basis, excluding stock-based compensation, restructuring and other charges, amortization of acquired intangibles related to certain acquisitions and legal settlement costs, Q1 '26 non-GAAP operating expenses were $523.1 million, up 4.5% year-over-year. Our first quarter operating income of $142 million resulted in an operating margin of 13.6%, up approximately 0.3 points year-over-year. Operating margin was unfavorably impacted from foreign exchange by approximately 0.1 points year-over-year. On a non-GAAP basis, which excludes stock-based compensation, restructuring and other non-GAAP charges, amortization of acquired intangibles related to certain acquisitions, legal settlement costs, gain on assets held for sale and depreciation of assets disposed of other than by sale, operating margin for the first quarter was 21.5%, up 2.5 points year-over-year.

The Q1 '26 6 GAAP effective tax rate was 24.3% compared to 33.6% in the first quarter of 2025. The first quarter GAAP effective tax rate was lower than the first quarter effective tax rate of the prior year primarily due to change in our jurisdictional mix of income, lower tax expense related to uncertain tax provisions, lower tax expense recognized related to stock-based compensation and a decrease in U.S. taxes on foreign earnings. Our Q1 2026 non-GAAP effective tax rate was 20%, which reflects our long-term projected tax rate.

First quarter net income per diluted share was $1.57, up $0.31 compared to the prior year. Our EPS was favorably impacted by $0.01 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.58 for the first quarter, up 21% year-over-year.

Moving on to the balance sheet. As of March 31, 2026, cash and cash equivalents were 1,059.8 billion, up $186.8 million year-over-year. Of the $1,059.8 million balance, $206.6 million was held in the U.S. and $853.2 million was held by our international entities. Align maintains a disciplined capital return program. In August 2025, we announced our intention to repurchase $200 million of our common stock under our previously authorized $1 billion stock repurchase program from April 2025. Between August 2025 and January 2026, we repurchased approximately 1.4 million shares at an average price per share of $143.85, completing the $200 million repurchase plan. As of March 31, 2026, $800 million remains available for repurchase of common stock under our repurchase program. Today, we announced that we expect to repurchase up to an additional $200 million of our common stock over a 6-month period beginning on or about May 1, 2026. We believe this action reflects our conviction that Align shares remain attractively valued, supported by improving underlying business fundamentals.

Q1 accounts receivable balance was $1.1251 billion, our overall days sales outstanding was 97 days, flat as compared to Q1 of 2025. Cash flow from operations for the first quarter was $151 million. Capital expenditures for the first quarter were $30.8 million, primarily related to investments in our manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations minus capital expenditures amounted to $120.3 million. Our financial priorities are centered on disciplined execution and long-term value creation. Through restructuring actions and ongoing efficiency initiatives, we believe we are strengthening Align's cost structure and positioning the business for improved operating leverage as we grow returns. We remain focused on managing input cost pressures, investing for long-term returns and maintaining balance sheet flexibility to support sustainable margin expansion over time. We also continued to return capital to shareholders in Q1 through disciplined share repurchases, supported by our strong balance sheet and cash flow generation.

With Q1 2026 results as a backdrop, we remain focused on executing our strategic growth initiatives and building on the recent quarterly results. At the same time, there is uncertainty and the potential for adverse impacts on patient traffic, consumer demand and shipping and freight resulting from ongoing military action in the Middle East. With respect to the Middle East, we continue to monitor developments closely while our doctor customers in EMEA have noted some impact on patient traffic and conversion. The overall effect on our EMEA results was immaterial in the first quarter. Given the ongoing uncertainty, we have taken a prudent approach in our second quarter outlook by assuming some impact on both Clear Aligner and scanner demand. Beyond the second quarter, it becomes increasingly difficult to predict how the conflict in the Middle East will affect our business, particularly in the event of further escalation, sustained constraints on oil and gas supplies or broader softening in consumer and patient sentiment.

As we look to Q2 and the remainder of 2026, assuming no circumstances occur beyond our control, such as additional ramifications as a result of the aforementioned military action in the Middle East, beyond what we have already assumed, adverse foreign exchange fluctuation, changes to currently applicable duties, including tariffs or other fees that could impact our business, our outlook is as follows. We expect Q2 2026 worldwide revenues to be in the range of $1.040 billion to $1.06 billion, up approximately 3% to 5% year-over-year. We expect Q2 2026 Clear Aligner volume to be up sequentially and year-over-year, and Clear Aligner average selling price to be flat sequentially and year-over-year.

We expect Systems and Services revenues to be up sequentially. We expect our 2026 GAAP operating margin to be approximately 16.4% and non-GAAP operating margin to be approximately 21.5%. For fiscal 2026, we remain confident in our outlook that we provided previously and reaffirm our full year fiscal 2026 guidance as follows. We expect 2026 worldwide revenue growth to be up 3% to 4% year-over-year. Our full year 2026 revenue guidance continues to assume a benefit from foreign exchange that is consistent with the assumptions underlying our initial full year outlook. We expect the impact of foreign exchange to moderate in remaining quarters, trending toward the full year assumption of approximately 100 basis points. We expect 2026 Clear Aligner volume growth to be up mid-single digits year-over-year. We expect 2026 GAAP operating margin to be slightly below 18% and an approximately 400 basis point improvement over 2025, and non-GAAP operating margin to be approximately 23.7%, a 100 basis point improvement year-over-year, consistent with our previous guidance.

We expect our investments in capital expenditures for fiscal 2026 to be $125 million to $150 million. Capital expenditures primarily relate to technology upgrades, additional manufacturing capacity as well as maintenance. As we consider our full year 2026 guidance, we want to be clear about our approach. While we are encouraged by our first quarter performance and the outlook for the second quarter, we are maintaining a prudent stance with respect to the full year. The macroeconomic environment remains uncertain, and we believe it's appropriate to maintain the guidance framework established at the beginning of the year. We remain focused on disciplined execution in a dynamic environment, and we will provide updates as visibility improves over the course of the year. As mentioned, we expect to repurchase an additional $200 million of our common stock over a 6-month period commencing on or about May 1. With that, now I'll turn it back to Joe for final comments. Joe?

Thanks, John. Stepping back, we're pleased with our Q1 performance and consistency of execution we're seeing across the business. Growth this quarter was broad-based across regions, patient segments and channels, supported by record submitters for our first quarter and a higher utilization within our existing customer base. We also continue to see strong momentum from our doctor subscription program with Invisalign Touch up and retention products growing double digits year-over-year. We continue to observe the dental needs we address such as orthodontics, restorative, diagnostics, oral health and digital dentistry and durable consumer demand, which we expect will continue to drive our long-term growth expectations. Importantly, teens and growing kids remain a central driver of Invisalign demand and long-term opportunity. In Q1, we saw continued strength in teens, kids across key international markets, supported by adoption of Invisalign First, palate expansion and mandibular advancement. These products are helping doctors treat a broader range of growing patients with Invisalign aligners and allowing us to compete more effectively against traditional wires and braces at earlier stages of treatment. We have moved forward in 2026, our focus is on maintaining discipline as we invest strategically in innovation and growth opportunities. That includes advancing digital dentistry through the Align digital platform, scaling our iTero Lumina ecosystem, expanding internationally with localized strategies and continuing to build differentiated portfolio for teens and growing kids.

While macroeconomic conditions remain dynamic, we continue to benefit from long-term investments in AI-enabled treatment planning and integrated digital workflows that improve predictability, efficiency and scalability across the business. These capabilities are designed to increase planning consistency and throughput and support more predictable outcomes for doctors helping us operate more efficiently across volume environments.

A key part of strategy is expanding the role Align plays in oral health and restorative dentistry. Increasingly, doctors are using our platform not just to align teeth, but to identify oral health issues earlier and integrate orthodontics into comprehensive treatment plans by connecting iTero, exocad and Invisalign through digital workflows. We're helping doctors deliver better long-term oral health care outcomes for patients, especially as they transition from orthodontic to restorative care. Our vision is to make tooth alignment using Clear Aligner therapy the standard of care. By revolutionizing traditional treatment modalities, appliances, tools, practice workflows and businesses and go-to-market models across the dental industry. By focusing on oral health and the benefits of tooth alignment as part of orthodontic restorative treatment, we're developing products and technologies that are helping doctors deliver the best treatment experiences and clinical outcomes for their patients.

To date, nearly 23 million patients worldwide have been treated with the Invisalign system, including approximately 7 million teens in kids. Every case adds to our proprietary clinical data set generated within our integrated digital platform. This data set continues to fuel our innovation and ability to scale across orthodontics, oral health and change lives for our doctors, customers and their patients. Innovation remains central to our strategy, but always with a clear purpose, helping doctors deliver better outcomes, improving efficiency and enhancing the patient experience. Looking forward, that includes continued progress in direct fabrication, which we are advancing deliberately and in phases with quality and reliability as our guiding principles. While still early, direct printing unlocks new design flexibility, strengthens our long-term cost structure and allows us to operate more cost effectively.

We began initial limited market releases of direct 3D printed attachments and retain our products. In Q1 and look forward to updating you further as direct printing programs progress. Our objective is as straightforward to keep earning trust through clinical leadership, thoughtful innovation and consistent execution quarter after quarter. With that, I thank you for your time today. And now I'll turn it over to the operator. Operator?

[Operator Instructions] Our first question comes from Daniel Grosslight with Citi.

Congrats on another strong quarter here. I wanted to focus on the cadence of profitability for the remainder of the year. Obviously, a very strong beat this quarter. 2Q looks about flattish sequentially, which implies a fairly significant step-up in the second half. Can you just comment on the underlying assumptions for the cadence of profitability this year, particularly I know there's a lot of uncertainty around the Middle East, but how much impact around the conflict are you assuming in 2Q? And kind of what are the assumptions around the second half?

Yes. Dan, this is John. So we're pleased with our profitability and what we saw in the first quarter. It's really a reflection of what we've been able to do is a lot of the restructuring and other changes that we made last year both from a COGS standpoint and OpEx standpoint, really starting to take hold in the first quarter. So we're pleased with that. We expect that profitability and the productivity to continue as we go through the year. And that's typically the cadence that we have as we go quarter-over-quarter, we see that profitability and especially as volume increases as well, we see that profitability come through as well. So good start to the year, and we look forward to the rest of the year playing out as expected.

Our next question comes from Daniel Grosslight with Barclays.

Just two quick ones for me. Joe, I want to touch on this Middle East situation. I know you guys don't break it out specifically, but we sort of place it in the mid- to high single-digit range with respect to revenues. Can you confirm, is that in the right ZIP code? And I'm just kind of curious if there's been any impact on the iTero manufacturing facility there. And if you have any insight on how that business trended in April because I think that would be helpful for us sort of assessing the balance of the year. And then I just have a follow-up on share repurchase. It's kind of interesting to me as you completed the $200 million in January, and you said you're going to start on the next $200 million over the next 6 months. But I'm kind of curious, given the transient nature of the conflict, like why wouldn't it make more sense to kind of lean in here more heavily through that $800 million in 1Q, for example, given you have over $1 billion in cash on the balance sheet. And so any thoughts on the timing of your share repurchases would be helpful.

Yes, Glen, I can start with answering some of these questions. This is John. On Middle East, you're right. It's in the Middle East part of our numbers to the company is in the single digits. And so there's some impact that we saw, but it was pretty minimal in March, and our reflection is in the second quarter and kind of beyond based on that. And in terms of iTero, Joe, you want to...

On the iTero side, Glen, honestly, we haven't -- we didn't have any disruption from a production or shipment standpoint. That team is very rigorous over there. We understand when the move equipment well and whatever. And so I'm not saying that's always perfect, but the team has responded well, and we didn't have any really impact on the business in the first quarter.

And then on the share repurchase, you're right. We saw the $200 million that we just completed and now an additional $200 million. Remember, it comes down to U.S. cash, and about 20% of our cash is in the U.S. versus out of the U.S. So we have that constraint as well. But it's part of our overall plan that we have. We want to grow the business as fast as we can use our cash to be able to help do that. We have a good business model that generates a lot of cash. You saw that reflection in the first quarter. And then we do the buybacks to be able to put cash back to our shareholders. So that's been the plan that we have. And it's a disciplined approach that we've taken, and we've seen that investments made back in the business that way.

Our next question comes from Brandon Vazquez with William Blair.

Congrats on a quarter here, good quarter here in uncertain macro. I want to follow up on the Middle East question, but actually, not like the specific exposure to the Middle East, but you guys have kind of called out some prudence around the guidance just for the uncertainty around the Middle East situation. I assume you guys are talking about potential like impacts to consumers, things like that. Maybe just talk us through what are the potential risks, what is the prudence that's being baked into the guidance just so we understand if we do have a prolonged situation in Middle East, what's the wiggle room within guidance and where you guys would expect across the P&L, there could be an impact, right, because it could be in revenue? And then maybe the other one I'll ask on margins related to this is like are you guys exposed to resin costs that we keep seeing headlines about rising from the Middle East?

Yes, Brandon, this is John. So there's a minimal direct impact. Like I said, the Middle East part of our business is actually relatively small in the single digits as a result -- as a comparison to the rest of the business. It's really just the higher fuel prices that you see that every country is seeing now as a result of this and what it means for their inflation and what they have to be able to purchase other products, including ours. We've done a lot to be able to help drive that conversion. So much of what we talked about was helping potential patients with financing and helping doctors to be able to provide financing and so on, and we'll continue those efforts. But it's really more around something that's prolonged with higher inflation and higher share of wallet that goes to other places that puts us from a forecast standpoint, just trying to be as prudent as possible.

Our next question comes from Jon Block with Stifel.

Two for me. Maybe I'll break them off. But just on the first one, Joe,

John, can you speak up. Okay, that's better.

All right, sorry about that. Two questions. I'll try to break them up. So I was saying, Joe, trends are always really important, but certainly top of mind with investors with, call it, the current state of the globe and what's going on. So I'm wondering if you can give us any color just how things trended or call it closed in the first quarter, call it, more the month of March? And then any early 2Q trends to call out for the first month that you experienced in the month of April?

John, look, I mean, overall, when I look at the quarter and I look at it globally and all, it was pretty consistent across the board when we look month-to-month. Obviously, iTero is kind of back-end loaded, obviously, in the way capital equipment purchases go. But when we look at Invisalign, we felt good about Invisalign, all country and country and the consistency of what we saw. So -- and no, I would say overall pockets of weakness that was different than what we experienced in the fourth quarter. So overall, we felt good about that. And we felt good is how we entered the second quarter, too. So John, anything to add?

No. I mean there's going to be puts and takes as you go through any quarter. But on balance, we kind of take a balanced view of that from a guidance standpoint and reflect that.

Okay. And John, maybe the second one, and hopefully, you can hear me okay. Just a follow-up. So you mentioned Zero refinement or no AA, and it seems like that rollout is going to broad. And you talked about seeing some good proof points with some of the accounts that had like notably the DSOs. So what's the assumption in 2026 guidance? Have you built out any, call it, like incremental contribution from Zero refinement as that rolls out more broadly for the balance of the year and the tack on to that, but certainly related is in the wording on the 2Q guidance, you mentioned prudence due to what's going on in the Middle East, for 2Q. To be clear, have you seen it yet as and in the month of April? Or are you building that in in case it's on the come.

Yes. So when we see the Zero refinement, it's really not in a big way in our forecast for the year. So we're very pleased with what's happening and how this rollout happens. Again, doctors have to get comfortable with these products. They want to see results for themselves. They want to get that clinical confidence so that they can increase adoption. So it's a rollout, but what we do see is doctors started to utilize it more and more. So we're pleased with that, but we're not expecting much just because of the time nature of the rollout for this year. And then when we look at the overall that we see, we're pleased with that. And I think from a guidance standpoint, we've been able to see the puts and takes of the first quarter and you factor that into April, and that's what's gone into our guidance. So I would say it's a balanced view of all those puts and takes. I wouldn't say it's overly cautious. It's just a reflective of what we expect and from a guidance standpoint for Q2 and then the reflection of maintaining our overall for the year. .

Our next question comes from Elizabeth Anderson with Evercore ISI.

Maybe a two-parter from me. One, can you go into a little bit more detail about your sort of like change in ASP view. It just seems a little bit more positive than what you're saying. So just to like parse through that in a little bit more detail in terms of like mix or FX and that kind of thing. And then two, as you think about the margin opportunities in 2026, would you see any changes in those buckets versus sort of what you were thinking about later last year? Are there any incremental opportunities? Any more details on that would also be helpful.

So Elizabeth, on the ASP, you're right. There are moving pieces certainly that we called out foreign exchange and we talk a lot about country mix and product mix. And certainly, those play through our ASPs. But on an overall basis, when we look year-over-year, it's a $10 increase, which was good. It was as expected. And even on a quarter-over-quarter basis, $10. And that's kind of how when we look forward, you're still going to have that country mix and product mix, but A lot of times things are offsetting, and we see that as a result. So ASPs stable. It is when we see some of those lower-stage products that we talked about with the NOAA or some of the moderate products, they come at a higher gross margin. And we see that coming through. And first quarter is a good example of that. As you increase your NOAA products, as you increase your moderate with NOAA, the cost of service is just less. And we end up with being able to see improvements in gross margin. So as we go through the year, we should expect to see that in terms of our product mix. Improvements in gross margin. We should continue to see productivity. We made a lot of cost actions at the end of last year. We're seeing good effects of those cost changes, whether it's getting closer to our customers, in some cases, it's just equipment that's more efficient, drives productivity. And certainly, as we have more volume, we get that leverage as we go through. So that's how we expect things to play out this year and so far in the first quarter, it was a good start.

Our next question comes from Jeff Johnson with Baird.

So Joe, I wanted to start maybe two questions, but let me start just on kind of your North American case growth. I think you mentioned it was down a little bit year-over-year. every other market, I think up double digits, although correct me if I'm wrong on the every other market comment, part of that. But what do you think the difference is in the U.S. or North America versus rest of world? Is it just all consumer? Is it competition? What is driving such a stark contract? I know that's not really different over the last several quarters or handful of quarters. But just what's your updated thought on how we get that kind of North American number back to something that can be contributing at least to the double-digit elsewhere.

Yes. That's a good question, Jeff. First of all, I'd say the competition aspect hasn't changed. And just to take off on John's question a second ago, that NOAA allows us to play offense out there, and we're playing more offense in that sense, and we feel good about it overall. I'd say broadly, I was actually anticipating this question, Jeff, is that it's broadly a macro of the way I look at it versus here in the rest of the world. And it's almost like you put the macro in Asia being the best. Secondly, in Europe, spotty. Europe is a lot of different countries. But you can see that the countries we highlighted like Iberia, U.K. and different parts of EMEA is growing pretty well. And then when you look at the Americas, which includes Latin America, did extremely well. We've seen some improvement in Canada right now and some improvement in the U.S. So overall, I feel good overall, but that variable you're looking for, Jeff, has been U.S. macro as far as I can tell.

All right. Fair enough. And then maybe just a two-parter around NOAA. One, I think last quarter, you had talked about going into 2Q being pretty complete with the rollout of Zero AA across most markets. It sounds like maybe that has a little extended launch timeline now. Just wondering if anything has changed there. And then on some of the LMR, the limited market release you did of NOAA last year, any early evidence of whether these docs who are using NOAA are still doing 1 or 2 refinements in an a la carte way? Are they using DSP to pay for it? Just how to think about kind of years months through year 2 of those NOAA cases, do additional revenues come in over time or not on those -- on that product?

John, why do you see...

So on the NOAA, when we look at -- it's been available to many doctors. It's just a question of, do doctors want to utilize it and start to utilize it right away. So there's a roll up based on the doctor's preference in terms of how much they want to utilize and that ramps up. And in success, when doctors start to see the benefits of it, their clinical confidence that they can treat patients even on complicated cases with no refinements or maybe one refinement, then they continue to do more and more. And that's what we've seen in our data as we've gone. And now as it's been out for over a year in many markets, now you see doctors saying, okay, they need to purchase a refinement or they might be -- they might have something that they need to to add to the case to make sure it can finish properly and you start to see some of the refinements come later. So that was our expectation when we started this, that there would be an adoption, and those doctors then start to use it. They want to see what refinements they need, and now we're starting to see some refinement, but it really helps doctors be able to keep that initial case cost lower for them so that they can fit that into their practice and see those patients as they would want. So good adoption that we've seen across the globe, you're starting to see refinements come in, but it's pretty much as expected. We just want to keep rolling this out and getting doctors more and more options.

Jeff, I think just to add something what John said, I think one is, over the years, the doctors have gotten more and more confidence in our product lines. I talked about TPS in my script and different things that we do to train doctors. And I think it gives us much more confidence to go out there with NOAAs. Secondly, is it aligns doctors' economics, along with our economics, too. And so it helps to bring the two of us together in a much better way.

Our next question comes from Michael Cherny with Leerink Partners.

I know we've been talking a lot about macro. Obviously, not something you can control, but you can control some of the reaction to macro. So as we sit here, wondering what's going to happen with the Middle East. I appreciate all the color in terms of what's baked into the guidance on the top line as well as the COGS side. How are you thinking about the OpEx spend in the push and pull to make sure that the appropriate level of demand is being stimulated, and especially in a world where you do have a broader product portfolio. Is there any color you can give us in terms of the scenario analysis that could lead to ongoing margin upside?

So Michael, this is John. So we're constantly looking at understanding the macro and then our investments into that macro. And it's not one size fits all. some countries, there's maybe not as much awareness and we're at different points in the overall journey of Invisalign there. You make different investments compared to maybe the bigger markets like you see within the U.S. But we're very attuned to making changes and being able to reflect what's working and what might not be working, what macro is happening in certain markets versus not, and we'll make adjustments to that. Ultimately, wanted to get the best return on investment. And when we take that approach, we can manage that in the short term to be able to hit our -- the expectations we have. Then of course, we want to be able to drive the category and grow, and that's something that we make maybe on a more longer-term basis. But we're really looking at what's happening kind of market by market and even within the market. Whether you advertise at the high level or more at the customer level, and we're making those trade-offs and doing this active conversion that we've talked about to really help doctors.

Our next question comes from Jason Bednar with Piper Sandler.

Nice start to the year here. One to follow up, I think, on Jeff's question earlier on focusing on here in the U.S. Good to see a lot of the record quarters in the international side. The U.S. market seems like maybe it's had some green shoots at least in some of the data that we look at, maybe more focused on the orthodontic channel. Is that consistent with what you're seeing to. I'm just -- sorry if I missed it but you seeing any differences in your business when you look across that teen-focused U.S. ortho channel relative to more of the retail adult-oriented U.S. GP segment?

Just deciphering your question, Jason, I'd say when you look at like a DSO approach versus a retail approach, we obviously get a broader signal on a DSO because we're looking at a lot more patients and doctors. And the DSO traditionally they have really good skills to go out and recruit, finance in different areas. On the retail doctor side, when I talked about HFD and those different things, those are types of systems that we're bringing together to address things that we feel hurt our retail doctors at times and an ability to be able to finance or to make quick decisions and financing with patients in different areas, how we go about that as a business overall. So I'd say the macro is there, but I feel good about what we've been offering from a product standpoint, we do from a financing standpoint and delivering it from a -- we changed our organization to move to the call on both orthodontists and GPs going forward. That's given us more coverage out there to be able to deliver this kind of message and support to our doctors, too.

All right. Got it. And just as a follow-up, shifting over to different side of the globe. China to us is a bit of a surprise, a good surprise, double-digit growth, record first quarter you referenced. Are you comfortable saying demand is returning to normal across China? And can you remind us what's embedded in your full year guide for China volumes and revenue this year?

I think anybody in the business has to be careful of using the word normal in China, okay? It's just -- I think you take that business almost on a year-to-year, sometimes quarter-to-quarter basis. We have a great team there, Jason. They execute well. Jude Ho that ran that business has been moved and he runs all of Asia right now. We have a great team there that helps to drive that. It's a very dynamic marketplace. We're well positioned with our manufacturing, well positioned with what we offer over there. But I would never say it's always business as usual in China. It's the most competitive market in the world.

Our next question comes from Steven Valiquette with Mizuho Securities.

This question has been, I guess, sort of half asked so far, but just wanted to get a little more color around this 2Q guidance. It seems probably stronger than what probably most people were expecting, which is certainly positive. But as far as just kind of the geographic mix across that, should we assume generally the same trends stronger in international than maybe America is a little more -- I guess you're characterizing as stable in particular. And also, I think for just North America, in particular, last year, you talked about this ratio of patients getting scans versus patients starting treatment kind of being off a little bit. Have you been able to at least kind of close the gap on that across a lot of geographies, especially on the back of some of the patient financing programs you have in place.

Yes, Steve, when we think about Q2, I think the growth that we've seen is pretty consistent or our expectation is pretty consistent to what we've seen. We would expect international to grow faster for many of the reasons that we spoke about. We've seen that for a number of quarters now compared to North America. So that would be our expectation for Q2. And I would say just on the conversion piece of it, that dislocation we saw in the second quarter of last year. And some of that, as it played out went through the quarter, we saw that dislocation, it really has more or less returned to normal really since that second quarter. So we haven't seen some of that dislocation as we've gone through, which is good. We want to be able to drive our volume, get with more more -- sell to more and more doctors and increase the utilization, and we want that conversion to be as active as possible. We're trying to make that happen, and therefore, more as predictable as possible. And we've been able to see that and the expectation as it continues.

Our next question comes from Erin Wright with Morgan Stanley.

Another question on sort of the North America or U.S. market, but what are you seeing in terms of the Gaidg data like when it comes to the broader growth trends and then what you're seeing in terms of growth across brackets and wires versus clear aligners in the market, just more broadly? And then a follow-up on Zero AA or NOAA. I guess when could this move the needle for you? It sounds like you're not expecting much this year or maybe you're just leaving up for upside in the guide, but I guess, can you remind us the economics for you? And can you quantify also that relative margin profile for the offering?

Maybe I can start with the AA or the product Zero AA product. It continues to ramp, as we said. We started more on the DSO side. Now it's getting more and more retail doctors, and we'll play that up. Look, as that adoption happens and it drives incremental cases, that would be upside compared to what we've expected for the year because, again, it's a slow gradual adoption. And if doctors adopt faster and that's what they want to use then great. And then in terms of the revenue recognition, we don't have to defer revenue on that. So it's basically revenue neutral kind of in that current period. Of course, there's additional refinements that come later that we'll get that revenue as that comes later. But when we think of those lower or NOAA product, the gross margin is excellent for us. It's accretive for us as a business. We're starting to see that in more and more of our results. If you look back the last couple of quarters, including this first quarter, you start to see some of the benefits in there, and it's very efficient for us because it's one set of treatment planning, one manufacturing, one shipment and you're kind of done with it unless there's a refinement that's needed. So -- and then the most important part of it is it fits with how a doctor might want to practice where they don't want to pay as much upfront. They kind of -- they want to look at it maybe paying as you go and and an NOAA product gets to that.

And back to your question, it's Joe, on the U.S. marketplace, particularly wires and brackets and ratios with clear aligners. I tell you, you got to be careful with the data that you gather out there today and where it's coming from. We find there's a pretty big delta in that data overall. What I'd say is I feel good about our team play overall because -- advancement with the plus blocks, Invisalign First that I referenced in my script and also IPE, we're doing better and better on that preteen area because what we're offering is so much better than what the traditional kind of appliances were to be able to do that, and we see good progress in that area. But overall, I don't -- I wouldn't say a whole lot of change over the quarters in the U.S. orthodontic market wires and brackets versus aligners, except for what we're seeing in the preteen side has been pretty substantial.

Our next question comes from Kevin Caliendo with UBS.

I have two, if I can. First one is with all the questions around resin and oil, can you just remind us what percentage of your COGS are resin? And what would be the impact on direct fab in terms of reducing those costs, like the potential opportunity there? Just trying to think about this as an overhang. And then the second question is more, I just want to make sure I understand the commentary broadly about your guidance. In essence, what you're doing is you're taking the trends that you've seen in 1Q and into April. You're sort of running those through for the full year, but then adding on some kind of undisclosed amount of prudence with regards to the macro and the war and everything else. Is that a fair way to describe it?

That's a fair way to describe it, Kevin, in terms of the guidance. It's like you got puts and takes as you go through the quarter. We net those together, put that into Q2 and total year. So that's an accurate way to view that. And then in terms of oil prices, there's really two effects that can affect our business from that standpoint on a direct basis. One is the actual material costs, say about 25% of our COGS is kind of the resin plastics. There's a lot of contracts that we have where we have fixed amounts that there's not a lot of room for negotiation in terms of inflationary effects that we take. So we feel we're pretty protected on that. The other piece might be on freight and logistics. And again, we're pretty controlled on that as well. So not to say that there's not some impact that we've seen from higher costs related to some inputs, but it's been manageable and we managed it in the first quarter and expect to be able to manage it going forward. .

Kevin, Joe, on the direct fab side, I mean you called out, I mean, there's an obvious aspect when you direct print, you don't have a 95% kind of scrap base that you used on our current vacuum forming piece. So that's always there. And our feed stream is more of a natural feed stream. There's not really a feed stream from a petrochemical standpoint, so it helps isolate you overall. But remember, I mean -- that play is a great thing about that on direct fab is it will help us significantly in a sense of efficiency in that way, but how you can make an aligner and the flexibility to make it in variable wall thickness and being able to be able to design aligners to each individual cases to an extreme. We could never do before, still a primary driver, but you do have these ancillary areas that really help in the sense of how the resin is obtained and how it's used.

Our final question comes from Michael Ryskin with Bank of America.

I'll try to be quick. One is just following up on, I think, Elizabeth's question on ASPs. In the past, I think you talked about a 1% to 2% decline in ASPs for the year. Your 1,250 in 1Q, I think you pointed to around 1,250 in 2Q implies still a little bit of a step down in 3Q, 4Q. Is that still in the guide? I think it is, but I just want to confirm you didn't call out the full year ASP dynamic.

Yes, Michael, 1% to 2% decrease on a year-over-year basis is is our expectation. You're going to have that mix that we talk about, whether it's product or country mix that plays out each quarter and throughout the year.

Okay. And then a quick follow-up, if I may. Another question earlier asked sort of about U.S. versus OUS and some of the U.S. not quite at the same level as the other as you talk about the macro. I'm going to ask it in a different way. The DSO versus retail channel, is that some of the same dynamics? I know retail has obviously been weaker DSO has been a strong point for a while. So it's nothing new. But just is that sort of the same answer of macro and just harder to push that through? Or is there anything new that it back in that channel?

Yes, no change to what we've seen, Michael. We're very pleased with the DSO growth, and it continues to be, in many places, double-digit growth. And that's a reflection of of really those groups taking a lot of the tools that we offer and bring together, whether it's the scale, the technology and the brand, and they do a great job of bringing all together and really being much more active to try to drive that conversion with their potential patients. So that plays out, and that's the force multiplier that we talk about. You just don't see that as much, at least on a consistent basis on the retail side. we're working to try to get those retail doctors to operate more like some of the DSOs. But broadly, it plays out as we've seen. And it's up to us to try to get after those retail doctors with our sales force, with the technology, with the marketing and so on to try to get them more active.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Shirley Stacy for closing remarks.

Great. Thank you, everyone, for joining us today. We look forward to meeting you at upcoming conferences and industry meetings, including the AAO meeting in Orlando this Friday. If you have any follow-up questions, please contact Investor Relations. Have a great day.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good morning, everyone. Thank you. Why don't we get started. Thank you for joining us today. For those of you who don't know me, I'm Glen Santangelo, I'm the analyst at Barclays that covers Align technology. We're very excited to have from a line with us, John Morici. He's the Executive Vice President of Global Finance and the Chief Financial Officer for the company. I think many of you have probably known John for some time. So, we're obviously very excited to host the presentation here this morning. So, John, welcome. Why don't we get started?

All right. Excellent. So, I think a good place to start the conversation, might back up to the recent 4Q results. I mean it was a pretty extraordinary result, right? 5% sort of revenue growth on a sequential basis and year-over-year. And it just sort of feels like to us -- well, I'll let you start and sort of give your take on '25 and how it sort of progressed and how you closed the year and set the table for '26, and then we'll jump right in.

Yes. That's fine. So, as we went through last year and really, as you said, into third and then fourth quarter, we saw stability broadly across the markets. And that allowed us to be able to operate in that stability, to be able to deliver the results that we said we had some of the volume -- year-over-year volume growth close to 8%, revenue at 5%. And getting some of that growth back. We saw it across the board, really, when we saw North America stability. We saw DSOs growing double digits. We saw some of the international growth with Latin America, double digits and APAC and Europe at double digits. So, that was really good to see.

Our DSOs, the Dental Service Organization, is growing double digits even in North America. So, it was really broad-based that we saw. Teens up 7%, adults up 8%. So, that was good results that we finished the year with. And it really reflected some of the operating environment that we're in with some of that stability. But then a lot of initiatives that we have to be able to drive that conversion. Some of it's new products that were introduced with the pallet expander and some of the touch-up cases that we have in various regions, that went well for us. And then we saw good execution across the business to be able to drive that growth. So, we exited in the year that started out more challenging. But as the year progressed, we felt better and better about our results and left year in a good position.

Yes. Certainly a strong exit. And I would also point to -- and I'm sure this is not lost on you, but if I look at all your publicly traded sort of dental peers, all of your reported better results in that fourth quarter. And it certainly felt like something changed or evolved from where we were in September to where we sort of closed out the year in December. And so, for whatever reason, it feels like the end market certainly got healthier and Align sort of executed well. But how do you sort of characterize that transition and maybe where we are today sitting here in the first quarter. Does it feel like we did see some improvement and that we continue to be stable at these levels?

I think the stability is key. I think when you're -- for our products, in the end, there's a need, especially on the teen side, where at that certain time, people want to go into treatment. You want to have that stability there so that people looking for treatment can afford it. I mean there's a certain amount of reimbursement, but in many cases, it's out of pocket. So, people have to realize, okay, I've got to either save up for this or I finance it and so on. So, people have to make those decisions.

But I think what we're trying to do is help our doctors really drive what we call more active conversion. And I think we saw more of that in the second half where, when a patient comes in, making sure that they get iTero Scan, they could help utilize what their treatment would look like before and after, get them excited about it. The customers that we have that are very good about that active conversion at a good price for those potential patients and then usually followed up with some type of financing to get them into treatment. We're seeing more and more of that. DSOs are doing that at scale. They're able to do that in a way to drive this conversion, what we would call more active conversion.

And that's why they're growing like they are. They're in the double-digit growth. Pretty much across the globe, we're seeing that. We need to be able to apply that to the one-off doctors that we have that maybe aren't so used to that type of selling, and when we do that more and more, we see them getting good results.

Okay. Maybe you just indulge me, I just have one more question on the macro, and then we'll sort of dive into the businesses. I think sort of coming into the year, I think a lot of investors, we're sort of focused on the tax refunds and maybe the benefit that, that would have to the consumer. Then we've seen this AI trend maybe starting to manifest itself in some corporate layoffs and maybe that's an offset to some of the benefit. And 2 weeks ago, I don't think 90% of us could have pointed to the Strait of Hormuz on a map, and now that seems to be starting to dampen sentiment. Like how would you sort of assess kind of where the consumer maybe is today with some benefits on the tax side versus maybe some of the other macroeconomic offsets and how they're thinking?

Broadly, we still see that stability. There's going to be things that come up in this dynamic environment where something is happening in the world, people get nervous about or talk about and so on. But for the most part, it really -- that stability continues across the globe. We're able to navigate even from a supply chain standpoint, out of the Middle East and beta, things might get delayed a little bit, but we're able to navigate and make sure that we keep our people safe and we can supply where we need to across the globe.

So, we've got that managed I think when you look at the overall environment for this year, we didn't plan for a benefit of, as you mentioned, tax refunds. I think that does help in the end, you get some early indication that people are getting potentially a higher amount of refund, which, in general, is good for us being somewhat discretionary, especially on the adult side, when people have more money in their pocket, we certainly saw that going back to the days of COVID where people had stimulus money, they had time as well, but they wanted to get something done for themselves.

We think that's a good thing, not baked in. I think that would be a tailwind. But we'll see how that plays out. But overall, we want to maintain and see that stability and be able to build off of that. And some economies, it's better than stable. It's -- they're actually growing very nicely. So, we want to be able to manage that in this changing environment.

Okay. Sort of diving into the aligner market. When I go back to the fourth quarter results, I mean, 7.7% growth year-over-year, and that was very impressive. But I thought it was even maybe just as impressive was the balance, 8.9% growth in ortho; 5.3% in GP; 8% in adults; and 6.9% in teens. So, you're seeing balance across all the different quadrants of your business. I mean is that what you expected? Or did that surprise you? Anything you'd point out related to that? That balance?

We want to -- look, we want to grow adult and teen. It's an underpenetrated market that we have. It's really even more on the teen side. Typically, teen goes faster for us because you've got millions of case starts that happen on a regular basis that most of them are done with wires and brackets. And we're the biggest share of the clear aligner, but majority of cases for adult and teen are done with wires and brackets. So, we have a huge opportunity. And I think what we're doing is with the product portfolio that we have to be able to suit the needs of our customers.

This active conversion that I talked about, where you're advertising locally and getting those patients in and then driving some of the visualization and the right financing to be able to drive that conversion. We saw more of that in the second half of last year and as we exited. And like I said, it was broad. I mean, we've seen some growth in areas that we haven't seen in a while, like I would say, Western Europe maybe better than we've seen. We've seen some areas where in China, double-digit growth. And some of these markets that have been kind of challenged and you hear things happening, we're able to work our way through.

And it fundamentally comes down to the fact that it's an underpenetrated market, and we've got a way to go after that market to be able to drive growth.

Competition is always an issue in your business now. And I think we get a lot of those questions around ASP and how that competition will impact that ASP number. Could you talk about the growth that you your recent growth and maybe the impact that ASP sort of had on those growth numbers?

I think overall, the competition, as we've said before and what I said just earlier is our competition is wires and brackets. The vast majority of cases are still wires and brackets. You see some competition in the clear aligner side. They mostly compete on price. They try to come in, maybe at a lower price. What we've seen across the industry pretty much across those companies is they've had to increase price because we knew those prices aren't sustainable and they've increased.

And I think that will play out as it is. I think when we look at our ASP, there's two factors that impact our ASP as we grow. We're growing in many countries that have a lower list price. You grow faster in India, you grow faster in Brazil, you grow faster in Turkey than your average, those list prices are lower. That's what it is in that market. The second is we see an ASP impact on some of the products that we have. If we grow faster in, let's just say, touch-up cases that we're doing where it might only be five sets of aligners, that might only be $500 from an ASP standpoint.

But the key is we're growing, getting new doctors. We sold to more doctors than we ever had in the fourth quarter. We're driving utilization. That's a great thing for them. And many times, you have new doctors, they don't start with the most complicated cases. They're studying with what they know or what they can get into initially. So, that's the dynamics that we have. I would say this, when we sell to those doctors, especially those lower acuity type of cases that don't have a lot of refinements they're at a very high gross margin for us. So, we see the gross margin rate. You saw that in the fourth quarter. It also translated to op margin well. So, that's the dynamics that we have from op.

And so, when we think about the 3-year growth algorithm, we should expect that to continue. Some of these emerging markets may be growing faster at a lower price and the mix. So, we should maybe expect some continued modest headwind on the ASP side due from the geographic and mix issues.

The geographic and product mix are the ASP drivers. There is not -- if I look like-for-like in markets there's not anything abnormal in terms of the pricing that we're doing. In some cases, we've increased price, but it's mostly due to some of the currency changes. But others is just we have that stability and price, our customers expect that. And then as they choose products that have maybe a lower list price, that's their discretion as we offer.

Can we just talk about the competitive landscape? And I know you believe your primary competition is brackets and wires. We get a lot of questions around Angel Aligner and some of the other players. And so, could you maybe -- and I think you sort of commented that you're maybe happen to see some of that competition happen to raise their prices, right, for probably a host of different reasons. But could you just give us an assessment of the clear aligner competitive market and any trends that are worth calling out?

Yes. Like I said, most of the competition comes in on price. They'll go to certain doctors and try to try to look at price to -- as a way to make a change. Like we said, some of the reasoning for switching, I think, has changed many times as a doctor, you don't know if a product is going to get you to what you need. Is it going to finish the case properly? That might take 6, 10, 12 months to be able to understand. I think that's cycling through. Maybe some customers are not happy with the results that they're getting after they switch. And now they're compounding that with some of the price increases that they're taking from that competition.

But in this business to be able to make money. And really, we're one of the only -- really the only company that I see that makes money in this business. You've got to make money by having a scaled business being able to produce what we produce over 1 million unique parts a day and do that day in and day out and drive the scale and benefits of that. Be able to bring technology like we do, we spend a lot on R&D, but it benefits our customers and their patients. And you have to be able to bring that. And we're the only one who's trying to expand the category from a marketing standpoint.

And I think once you bring those three together, many doctors realize the benefits of it. And I would say why we're growing so fast with our DSOs, they recognize that. They recognize they come to us because we bring scale, we bring technology and we bring a brand and all of those intersect with that business.

Can you give us an update on any sort of legal -- outstanding legal issues? I think in September, the company filed a complaint with the International Trade Commission aiming to sort of block imports of Angel Aligner and they bound you citing patent infringement, they bound to sort of defend themselves. Is there any other sort of litigation that's outstanding that's even worth talking about?

It's what we put out. It's going through the process now from a litigation standpoint against Angel. It's multi-jurisdictions. So, you see this in U.S. and Europe we won a preliminary start in Europe, where they had to pull back on some of the live updates, some of the software changes that they have. It's also in China as well. But look, we feel that from a technology standpoint, for what we spend and the intellectual property that we have thousands of patents on our technology, the clear leader in this space. There's going to be companies that find their way into using our technology that we think we've created.

In Angel's case, it looks like they created their product based on our road map and our technology, and that will become clear as it plays out.

Okay. All right. Can we shift gears maybe and talk about the DSO partnerships. I think the company has sort of commented that it represents 25% of your business on a volume basis. For DSOs that aren't working with you, is there anything specific that's holding them back? Or you think it's just a matter of time? Or is there anything contractual? Like how should we think about the company's ability to grow that business within DSOs?

Well, it's a growing trend within the dental space. There's consolidation that's happening where you have practices that are by themselves, maybe they want to change in their career or how they practice and so on, and they're looking to perhaps sell or sell part of their business and kind of become part of the DSO. So, that's happening as it stands. We're being able to capitalize on that consolidation by bringing the three things that I spoke about that give us the benefit with them.

We bring scale. We can we can turn around cases and the getting cases because we're so regional, you can get that turnaround in days from a manufacturing standpoint, and they appreciate that. They want technology. They want to be able to have technology that helps them finish cases and do it efficiently. So, a lot of productivity around software and updating things so that they can really standardize their operations with our technology. And then when they advertise and bring people, especially on a local basis, they're using our brand or leveraging our brand. And so, there's a lot of co-marketing and other benefits that we could bring with those DSOs. So, I would say DSOs, what -- we're pleased with the growth. I think there's a lot more growth. I think there's growth that's going to happen within the industry in the consolidation.

And I think there's a lot of ways that we can partner with. And I think DSOs are -- we call them kind of a force multiplier in terms of taking our technology and taking our brand and bringing things together and partnerships that we have like with the Smile Docs or Heartland and now a growing amount of DSOs that are consolidated within Europe and also Asia. Is it really a way for us to extend some of the growth that we see there and be able to grow that channel, while still recognizing that the vast majority of doctors are still on the independent and we have to grow those as well. But we're seeing a good blueprint of how to do it through those DSOs.

Okay. Can we shift gears maybe and talk about the Systems & Services businesses. We get questions around the Lumina upgrade cycle. It feels like we're a fair way into that sort of upgrade cycle. Maybe if you can just give us a sense for where we are in that adoption curve and maybe how much more opportunity do you see as far as that's concerned?

There's a continued -- we introduced that scan a couple of years ago and then modifications to it about a year ago. And there's upgrades that are happening in the industry to be able to upgrade that technology to the latest scanner. It's going from what was confocal to now a camera-based imaging, and it gives a lot more flexibility. It's a smaller one, faster gives a lot more data to those practitioners. So, it's a really good upgrade, we're continuing to evolve this, making some of them more portable and different options that give different pricing flexibility and so on.

We still have the Confocal, the 5D that we have that's kind of now become more the midpoint if doctors don't want to buy the most recent. And then we also have scanners that have come in that have been traded in that now go back out from a certified preowned. So, we have a product portfolio that has the latest technology with Lumina to the kind of the mid-tier that we have with Confocal to the certified pre-owned and then we offer a lot of financing options as well. Some might buy it straight out, great. Some might finance it, some might lease it and some might rent it. And some markets are really evolving very quickly. If you're in Brazil, you almost don't buy a scanner anymore, you rent it. You lease it, same in China.

And I think we have the portfolio of products to be able to accommodate that, and we can offer a lot of the financing options. Because ultimately, we want those doctors to be able to use a scanner. And it's becoming more and more, it digitizes their practice, but we see the direct correlation. They have a scanner, we'll see more Invisalign cases. they add another scanner, we'll see even more Invisalign cases, and that's a good combination.

And you sort of touched on this a little bit, but is there any sort of upcoming innovations or anything else on the imaging side that we should sort of be keeping our eye on that might continue to support the durability of the growth that you've seen?

We see innovations around better margins and better understanding of, especially on the restorative side, some improvements that you'll see. So, it's an everyday scanner. You'll see some more around diagnostics and other parts of that scanner that will just become an everyday scanner. What I spoke about earlier, especially with some of the DSOs, they're scanning every patient. We want to be able to use that scanner to be able to provide a lot of diagnostic and other restorative information back to those general dentists who majority of what general dentists do is restorative. And if we can make that scanner more part of what they're doing on a regular basis, it will lend itself into more business.

When you think about this equipment, like how do you assess sort of the practices willingness to spend in the current environment versus maybe a year or 2 or 3 years ago?

I think interest rates are a big deal for them. They want to keep -- they don't want to necessarily finance things or pay interest on it. I think once they feel a bit more comfortable about the demand equation that they have in their practice, are they getting patients in? Is there a continued flow and so on. That helps what people have. They might be in the past, more reluctant to upgrade some of the capital that we have. But like I said, I think our product portfolio is diverse enough that people can get some of these scanners at a relatively low price. And then they're looking for more certainty on a monthly basis. And I think that's all in price of -- like this is essentially how much it costs to rent a scanner. I think those choices have been well received, and we're seeing more and more doctors take us up on those choices even in tougher environments.

Maybe just a couple of financial questions as we're coming close on time. Anything macro related with respect to tariffs. I know it's been a little bit of a moving target over the last year. A current assessment of the recent Supreme Court decision, how that might evolve or change anything?

We'll see how that -- there's a lot of speculation on rebates or not rebates. We're essentially taking about $1 million a month from a tariff. It's really a product coming from Israel for the scanner with USMCA in between U.S. and Mexico, there's no tariff on products coming out of Mexico. So, we continue to operate in that environment, we're staying really active to make sure that we understand any impact, but it was manageable for all of last year, and we expect it to be manageable as we go forward.

Okay. All right. The balance sheet in great shape, we got $1.1 billion in cash. Obviously, a great position to be in. I think you have $831 million remaining on the $1 billion authorization. If I'm not mistaken, because you want maybe give people an assessment of your capital deployment priorities and maybe the appetite to be buying back stock and relative to that authorization?

Well, buying back our stock has been an important use of our cash. I mean, first and foremost, we want to use our cash to help fund the business and grow. So, as we go to market and want to try different things, we want to be able to fund in that. There's not really acquisitions. We've done some smaller ones. The biggest one that we did was back a few years ago with exocad. We've been able to use our cash for that, like you said, not having debt in this environment is helpful for us in being able to generate a lot of cash. Free cash flow has been excellent for us. So, we want to be able to maintain that buybacks then on excess cash.

We've done -- we've been buying back over $0.5 billion of our shares over the last couple of years. That's important for us. You can only do it from a U.S. cash standpoint, as you know. So, being able to get that cash back efficiently is important for us. So, we're working strategies to make sure we have that. Of that $1.1 billion, 80 -- over 80% of it is OUS. So, being able to find the right efficient way to bring that cash back to be able to put that cash to work in an excess way to buy back shares has been useful for us.

Just really quickly, you want to touch on the guidance for 2026? I think you laid out 3% to 5% revenue growth in 1Q, 3% to 4% for the year and clear aligner volumes in mid-single digits. Sort of any high-level commentary around that? Or any sort of update or anything related to that, that's worth mentioning?

I think when we looked at the year, we said that this is a starting framework of what we expect to be able to operate in. We're assuming stability continues broadly stable. We expect some of the -- as I said, the international markets to grow faster. We expect that as our product adoption continues to grow, we drive more doctors and increase that number of customers we have as well as increase the utilization. That's a framework that we laid out for the year. We want to take it quarter-by-quarter in this dynamic environment, but we think we're well positioned to operate.

All right. That's great. Well, congrats on the recent progress. Listen, we're out of time, but I want to give you the final word. I don't know if there's anything that we didn't discuss that you think is worth mentioning. Any final words you want to leave with the investors. I'll give you the last word.

I think we're in a business where there are changes and challenges that you have. But I think the fundamental when we think of the company, it's a vastly underpenetrated market. Most cases are done with wires and brackets. We think we bring technology, we bring scale and we bring a brand to this space that helps us drive and helps our customers win from an active conversion standpoint. Sometimes potential patients are reluctant to spend money, that activity when you bring it all together, helps them drive conversion, and that's what we're focused on doing as we go through this year.

Okay. John Morici, CFO of Align. We'll leave it there. Thank you very much. Excellent.

Good morning, everyone. Welcome to this session of the Leerink Global Healthcare Conference. I'm Mike Cherny, the health care tech distribution analyst. It's my absolute pleasure to have the Align Technology team here. CFO, John Morici; and Madelyn Valente from the IR team in the audience. I'm happy to say that they brought no slides. So we just have a nice fireside chat, we'll dive right into.

But maybe, John, building off last quarter, starting with North America, we saw pockets of strength that saw sequential improvement over the last couple of quarters versus what you'd have. You talked about the dynamics of the market being more stable than what you had. Can you give us a little bit on what that means in terms of practicality, what you're seeing from your customers, from individuals on where that level of stability is starting to dive in?

Yes. It's -- what we've seen as we went through last year, really that stability, meaning that there weren't as much unknowns within the market where people were transacting. And I think people understood that there was still some volatility around tariffs and kind of inflation and other things. But I think people were getting more and more used to that from a consumer standpoint and they were transacting based on that environment. Of course, there's things that happen. We've seen with some of the conflicts and other things that happened that people are aware of. But I think broadly in North America, it's been -- that stability continues, and it's good to see. And from that standpoint, we do everything we can do to be able to help drive the conversion. So we do things to continue to advertise, train more doctors, try to sell to more and more doctors, increase the utilization, do things in this environment from a relatively stable standpoint.

DSOs, maybe a little bit more active conversion, and they're able to capitalize on that. Some of the other doctors that we talk about, some of these more retail orthos and GPs that just are a little bit more passive. They kind of get the patients through as they come. But in an overall stable environment, we want that to continue. And then we want to try to drive as much active conversion, be very much around driving local advertising, doing things to be able to help drive that conversion with those doctors.

And what does the strategy look like on the conversion side on a typical DSO versus typical individual practitioner? How does Align go at it to make sure that you're getting for your clients, the customers, the right metrics, the right returns on the push for conversion?

So DSOs, when you think about those enterprises, they're looking for benefits that we can bring to them. And it's usually around some operational scale. So they're looking for a quicker turnaround in terms of the products that are being provided to their patients. They're looking for technology, what's the best technology to be able to help move teeth in a predictable, reliable way and usually something around brand, being able to have a brand that really drives those potential patients to those practices and then ultimately drives that conversion. So when we work to find some of those metrics, it's being able to make sure that those DSOs take that active approach by local advertising, get those potential patients just to their doors, whether you're an ortho or GP. Once they get to the door, doing scans to be able to make sure that they have an iTero scan to be able to help visualize and almost simulate what their teeth are going to look like before and after treatment, get people excited.

And the DSOs or even regular retail doctors, those that take that last mile approach help drive conversion. That last mile is usually around -- especially in this environment, is usually around get the right pricing, get decent pricing to those potential patients. And then if that patient is still reluctant to put that money forward initially, if they can have some type of financing to be able to help and put it to a monthly payment that they can afford, that's that active conversion. It's a journey that those patients go through from getting the awareness to seeing what they're going to look like with treatment to understanding kind of the pricing and financing piece of it. And if you take that active approach, those are the doctors that are ultimately powering through a relatively stable environment. Doctors who don't take that approach, they just don't have as high of a conversion.

Their utilization is a little bit lower. And it's up to us to be able to work with DSOs because they are leveraging the benefits that we bring, but then also work with those other retail doctors who maybe don't have that approach, but there's things that we can do to help them.

And sticking on the DSO side, there's a logicality in my mind on where you've been able -- because they're professional organizations, because they typically have business offices where the conversion opportunities would tend to work better. But you're also empowering them to be better through, obviously, iTero and Lumina launch, which I'm sure we'll touch on a little more, but also the workflow enhancements that you're making. As you think about your DSO market as a whole, how do you think about the optimal DSO customer? And how many of your DSOs are truly optimized on workflow solutions on the right level of iTero scanners versus where there's incremental opportunity for them to continue to be better organizations, better businesses partner with you?

So DSOs are at various levels. Some are -- you could think of it as DSO where just a few practices together, and they're still relatively small and trying to grow. And you're right, those DSOs are really trying to optimize their profitability just to try to drive that return on investment. Most DSOs, let's face it, in the U.S. for sure, are private equity owned or investors, and they're looking for that return on investment. So some DSOs are more equipped. They have infrastructure. They do all the things I just said about trying to drive that active conversion and they take it even further. They have treatment planning services. They monitor refinements. They use products that don't have a lot of refinements upfront and then really manage refinements and time for treatment and profitability that they have. Those DSOs have evolved. We've invested in them. That's like a Heartland or Smile Doctors and so on.

But there's other DSOs that are middle level and lower level where they're trying to grow too. But they're all on that journey to be able to help digitize, help drive efficiency to ultimately drive that conversion. But we have special teams that work with those DSOs no matter what level they're at, and we want to continue to help them train their doctors that they have in their practices and ultimately drive a higher, higher utilization. But it's certainly the way things are going. It's DSO revenue for us is in North America is about 1/3 of our revenue. And it's consolidating that you see. We think we're properly positioned there because, again, they're looking for scale. They're looking for technology and they're looking for a brand. And we bring all 3 of those together and really help them be more efficient and grow in their space.

And along those lines for DSOs, one of the things I think I hear you saying and something I believe in is the idea of standardization and the fact that they want one system, one solution. The more that they can do with you, the better it is for them. How do DSOs play into the competitive environment relative to the Invisalign brand in the U.S.? And how important is that role of not only the brand, but also the entirety of the workflow and ensuring that you're driving better same-store sales with your DSO?

They're equally important because those DSOs are looking for that efficiency. They're looking -- if you're a general dentist, a majority of what you do is not orthodontics. The majority of what you do is restorative. So we fit into that workflow where they're scanning every patient, but they're doing whatever restorative or hygiene that they need and then they start to visualize and we fit right into that. And then while that person is in the chair, they can look at the treatment plan and be able to say, yes, that looks good. I like to see that. or we have smile video where you can have a patient talking. And it would be -- on one side, it's a normal video of them. And then one other side, it's with orthodontic or orthodontic and restorative.

So there's a part of that workflow that we want to be a part of. And I think that really helps standardize across. There's a model that they can follow that it's working for these DSOs. It's driving a higher conversion. And it really goes to show that even in a tougher environment, you can still see this volume benefit. And that applies to U.S. and North America, but that's also what we're seeing, even though DSOs are a little bit more -- they're just not as big in some of the other markets in Europe and APAC, but that same play that we're talking about in North America applies to other regions as well.

And maybe turning to product launches. You recently launched zero refinement cases rolling out in various different forms. Maybe talk to us what's been the early feedback from not only your customers but also patients relative to the new offering?

So early feedback is -- I mean, what we started with our DSOs, and they have been using this for a number of quarters now. And what I think those doctors like and maybe ultimately the patients like is flexibility. When you buy something, you don't always have to buy a product that has essentially a service plan because that's what those refinements are. You're providing additional refinements to be able to have that patient get the completed care that they want. And with no refinements, it just offers flexibility. And it's really an evolution of our portfolio. When we introduced -- if I rewound the tape 10 years ago, our main product was the Comprehensive Unlimited, which was 5 years of treatment with unlimited refinements. And that was at a time where we're trying to drive utilization, especially on our comprehensive products, but we had technology that maybe wasn't as good as it is now.

So we had to offer 5 years. We had to offer refinements. We've evolved in terms of putting more technology into the product such that you can have a comprehensive case, maybe you don't need a refinement or maybe need one refinement. But let's let the doctor decide that they want to do a refinement because they didn't get the exactly right and then the doctor pays for it. And what it does is it reduces the upfront cost to those doctors. They still might do a refinement or 2 or 3 later. We just -- they kind of pay as you go, and it gives a doctor much more flexibility. And I think with the product evolution that we have with the doctor capability, remember, 10 years ago, majority of cases they didn't even use it in iTero. They were using PBS impression in it and it was kind of an old kind of digital, but it wasn't -- really wasn't as elegant as it is now. Now 90-plus percent of the cases go through a digital scan through iTero. So the quality is better, the products are better, and we really improved things so that you don't need to have that.

And I would say as a side note to that, when we had the Comprehensive Unlimited, it used to be our #1 product. 3 years ago, we introduced the 3 and 3, which is this comprehensive over 3 years with 3 refinements. That's our #1 selling product. And now as you give more options to doctors, I think you're going to see a portfolio. Some still might take the comprehensive unlimited because they like that security. Some might do 3 years or 3 refinements, some might do zero. But we just want to give that flexibility in the marketplace. And I think doctors appreciate that. And I think patients appreciate that, too, because they know that they're getting quality of care in whatever level of treatment that they need, but ultimately let the doctor decide.

And I appreciate you brought up the 3x3 dynamic because I think we're all looking for corollaries on what something like a zero refinement rollout looks like and penetration looks like. How do you measure the success of the new product rollout? Or maybe do you set targets for yourself of where you want zero refinements to be as a percent of your overall share?

It's not so much of a target. What we're looking on that one is we -- especially on the ortho side because I think that's where this plays the most, where an ortho now is making a decision, do I put this patient into wires and brackets or do I use Invisalign? And I think when you have the comprehensive unlimited pricing compared to wires and brackets, a big gap. Comprehensive Unlimited, doctor could be paying $1,500 for and wires and brackets, they might pay $300 for the material, big gap. Now when you look at the comprehensive with no refinements, that might be $800 to that doctor, still more because there's the digital aspect and the workflow and the time savings it has, but it's now closer and it closes that gap.

So I'm really looking at this as certain doctors, how do you see their utilization play out? Do they -- can we get a higher share of chair for the comprehensive with no refinements? Can we increase that utilization, get it into doctors who maybe were making the switch or hesitating to make the switch because they saw the pricing. So we'll see that evolution, but it's not so much of a target. But if I went back again 3 years ago, before -- just when we launched the comprehensive with the 3-year through that was zero because we were just launching it and 70% of the cases were done with the comprehensive unlimited.

Now 1/3 of our cases are done with the comprehensive, the 3 and 3. So I would expect it's going to increase. I don't know if it will be our #1 selling product, but it will certainly take away from some of that. But we're really looking at this as an evolution of the portfolio because of the technology is there to be able to make sure we get this done in the right way and also drive incrementality. We should be able to see higher utilization, especially amongst those orthos who would have normally used wires and brackets versus Invisalign.

And along those lines, I would love to just dive in for a second on price. I think you've been very helpful in talking about the mix dynamics and the fact that you're selling a zero refinement case, the math on the ASP is going to obviously bring it down. But how do you feel on a product-by-product basis, your pricing power currently sits right now? It's not about comparing the price on zero refinements versus Comprehensive Unlimited because obviously, they're 2 different products. But how do you feel within your -- especially your key product categories, where your price sits currently in the market?

I think when you look at our pricing, it's really -- when you think about ASP, the 2 dynamics that hit ASP the most is, one, where do we sell the product. So if you're selling a product in Turkey or Latin America or India, it's a lower ASP. It's just that list price is lower there compared to our overall average. And it happens to be that we grow the fastest in some of those areas. So you have this mix effect that hits ASP. The other part to our ASP mix effect is around the products, as you said. So if you're selling into markets like that, that maybe they just -- they want to moderate or they just want the touch-up cases that we have, that's only 5 or 6 or 7 sets of aligners, that ASP is lower. And the reality is it's lower just because that's what it costs for a product like that.

Now when we see that mix effect, especially on the product side, what we're seeing is most of those products that doctors are picking do not have refinements. And for us, refinements impact our gross margin in an unfavorable way. When we sell a product like that doesn't have refinements, that ASP might be low. It might be a $500 ASP product, but that will also be an 80% gross margin product for us. So we look at it as, look, we want to sell to as many doctors as we can, increase the number of doctors and then also increase the utilization. To get to that, you have to meet the doctor where they're at.

In some cases, they're going to want to have a product that just to suit their needs, doesn't have as much refinements. That's fine. We still get a higher gross margin rate on that. And we have to be able to manage the gross profit dollars in terms of what's that cost to serve to be able to get to that. But I would say our product portfolio has just evolved. It's evolved based on technology and based on the fact that we're reaching more and more doctors. And those doctors have different behaviors, and we want to be able to sell to them the way they want to buy, and we're doing more and more of that.

There's been some moving pieces in the U.S. about potential for consumer-oriented relief. Obviously, we have last year's tax reform and the One Big Beautiful Bill that could unlock some personal consumer spending. It looked like we may have had tariff dividends. Now it looks like we won't. Supreme Court decision. But within your guidance, what are you baking in relative to the, call it, financial health of the consumer?

We're really not forecasting that in. So our guidance is a reflection of kind of what we've seen and not taking that future. Now to be clear on that guidance, though, it's -- I want stability, I want overall stability. If there's -- we know that if there's stimulus, if you call that stimulus, if people get more of a tax refund, look, in the end, a large part of what a potential patient pays for is out of pocket. There's not as much reimbursement, some reimbursement. And so that discretionary piece, especially on the adult side, it certainly can help from a tax refund. We're not factoring that in. But if people get more of a refund, they'll spend it on many things, but we think they'll also spend it on some type of treatment. And if that helps us down the line, that would be great.

Maybe shifting a bit geographically. I think North America stood out because of the improved stabilization, but it was still a fair call, the slowest growing geography for you in 4Q, which means that the other segments are clearly doing better. Starting with Europe, like there's a lot of seemingly macro uncertainty across various different parts of the continent, yet you're outgrowing in Europe. So maybe talk about some of the characteristics that have underpinned that level of growth.

So Europe has been great for us. I mean we've seen good growth across Mainland Europe, U.K. and Nordics. Spain, Italy and so on have been very good growth for us. And then if I broaden out EMEA and get into Turkey and Middle East and so it's been very strong growth for us. I think that's just a reflection of the underpenetrated market. It's digitizing with iTero. We've got a direct sales force training more and more doctors, getting them to understand what treatment options they could bring and then ultimately driving utilization. We've seen good growth there because there's been new products that have really hit there, especially last year, Invisalign Palate Expander, some of the DSPs, some of those doctor subscription program, which have those touch-up cases, and that's been good adoption there. So I think it starts with Europe. It's has been an underpenetrated market where we have opportunity. And then you have some of the new products that have come there. We've seen good double-digit growth across Europe.

And as you think about I hate to use the baseball analogy but I'm going to use it. How would you compare what inning we're in for North American penetration versus EMEA penetration?

Look, I think we've been in North America the longest. Really, we started out more as a U.S. focus and then expanded out from there. So I would say when you think of U.S. and North America, I mean, you're in the middle kind of third or fourth inning. I think in Europe, I mean, it's early. It's earlier than that because you have so many -- just the utilization difference that you have between doctors and orthos and GPs. And I think also the DSO is a little bit younger in Europe, and it gives us a lot of opportunity to continue to grow there. So I think in both regions, it's -- we're not the standard of care yet, wires and bracket is. So I would always say we're not even like to the -- we're certainly not to the seventh inning stretch type. We're in the earlier stages in both markets. Europe a little bit earlier because of the underpenetrated market. And I would say the DSO is just younger compared to North America.

And just to make sure we're touching on the current news environment, you have a manufacturing facility in Israel. I hope everyone is okay there. Any dynamics we should be thinking about relative to shipment availability anything tied to the current Middle East?

Yes, it's a good question. And everybody is safe and able to manage in a difficult environment, and it's a testament to that team and what they continue to have to go through. But we've got a global supply chain where some of the manufacturing is there, some of the technology comes out of there. But we're very good. They're very good about shipping it to the regions that need the product. So we have hubs in all different regions that are outside of Israel, and the teams have done a really good job of getting the products to where they need to be to those hubs. And then as that customer needs an iTero, they pull from those hubs. So our supply chain is pretty well established. Sadly, they've had to establish it in this way because of these unforeseen events, but they've been able to manage, and I don't see any issue from an iTero standpoint in terms of supply chain for the quarter.

That's helpful. And then maybe shifting wrap up the world to Asia. Obviously, a tale of, I would say, 2 areas, China versus non-China. How are trends progressing between the 2 areas? And maybe I'm just bad at tracking this, but have we heard anything more about how the VBP process is going to roll out at this point in time?

Well, APAC has been double-digit growth for us. So we've been -- we feel really good about that. And that includes China as well as the rest of APAC. So when you roll it all together, it's been very strong for us. Again, underpenetrated market, some of the new products of kind of the Europe play, very underrepresented from a DSO standpoint. So there's opportunities to continue to grow just like Europe would be. So if you were talking innings, I would say the innings, it's even a little bit earlier than EMEA in terms of what APAC can bring.

VBP, it's been talked about several times. It was supposed to start last year. Maybe it hits this year. Typically, it goes into the public kind of sector first. 85% of what we sell to in China is private. So it's a little bit different there. Not to say it won't go to private. It usually does. We have a product portfolio that can help manage through this and sales team, and we're very local within -- I think if you -- if we were kind of an outside company coming in, you'd have more of a challenge. And I think companies have had that challenge. I think for us, we've got a sales team that's local. We've got treatment planning local. We've got manufacturing that's local, and we'll be able to manage as we go through. But I think our product portfolio will put us in the right spot there and keep us in that right spot. And we'll see what comes out of the government actions as we go forward.

And along those lines, I mean, I appreciate the commentary on the local presence. There's obviously China bread manufacturers [indiscernible] both your direct and indirect comments over the last, who knows how long, you seem to be taking share in China. So how much of that is the balance of local versus local in terms of the way your business is aligned no pun intended, versus the idea of having that product quality, product availability, breadth of product portfolio.

And that's the key within China because, look, there's not much reimbursement, really no reimbursement in China. So there's a lot of potential patients and people willing to pay, and they pay for quality. They pay for better cases that from us where there's product capability to be able to move teeth in a predictable, reliable way. Doctors want that. They want that premium brand. They advertise and co-market and other things. So there's that premium piece of it that we bring as well as that local manufacturing and treatment planning that we bring. So look, we feel we're properly positioned within China.

We've been able to grow within China. We think in the end, we're kind of taking share back. But in the end, it's going after the wires and brackets. If you look at China broadly, 85-plus percent of the cases are done with wires and brackets. And on the teen, it's even worse. 90-plus percent of the cases are done with wires and brackets. So there's some share shifting that goes on. It's less about that for us. It's more about how do we grow the overall market. And China is a huge opportunity. A lot of people and a lot of people who want to ultimately pay for good quality products like ours.

We've basically spent most of this discussion on the revenue line, but there's a lot going on to the positive below the revenue line as you drive towards margin expansion. In your guidance, you have 100 basis points of expected margin expansion this year. Can you walk us through some of the puts and takes on what gets you to that number? And how much of it is offensive opportunities you can control versus just the general nature of the market, general nature of mix?

So we took a lot of actions in the second half of last year, some of the restructuring that we've talked about, and that was really focused on the cost line, the COGS line where we wanted to improve our productivity, some of the equipment that we needed to upgrade and go to more productive equipment. Some of it is around getting closer to our customers, so we could minimize freight and some of the logistics that we have. We've taken those actions, and we feel good about how we exited from a cost standpoint. There's a lot of initiatives that we have to be able to reduce our resin cost and reduce our labor costs and other things that across our business, when you're making over 1 million unique aligners a day, vastly larger than anything else in the market. If you can take $0.01 out of a product, it goes a long way. And so we're seeing more and more of that productivity show up on the cost side from the actions we take and the actions that we continue to take for productivity.

And then we've done some things on the OpEx side to -- around layers and span of control and other things to be more efficient there. So we feel like we're in a good place from a structure standpoint to be able to drive this 100 basis point improvement. And that overall improvement is despite scaling up the direct fab manufacturing. So we want to make sure people understand that there is some inefficiency when you scale up some of that direct fab manufacturing. You've got to get some more scale there, both on the resin side as well as on the processing and manufacturing side. But as you scale that, that becomes more productive. But initially, you need all these other cost improvements to be able to help offset that. But we feel like we've taken the actions in place. Once you drive more volume through all the sites that we have, that drives a lot of productivity, like I said, getting more throughput out of those sites lends itself to a lot of productivity.

And you laid out a lot of the time line of the direct fab opportunity at the Investor Day last year. How are you tracking on those metrics? And how is it progressing relative to where you hoped it would be at this point in time?

Yes. It's -- we talked about having products this year, kind of middle part of the year where you start to have some retention. And these retainer type products are going to be, especially for children that need their upper palate expanded, and we have products to be able to help with that. But then after that product is used, they need some type of retainer to be able to hold that upper palate in the space that they've created. And so we'll have products that will actually go to that. So some of the retainers, some of the more challenging products that we make like mandibular advancement with occlusal blocks where the -- right now, it's a very manual process that we have to do to actually like ultrasonically weld the blocks on or we'll have other products that have buttons where you actually have to stick those buttons on and so it's very manual. That will come -- start to come through some of the direct fab.

So we'll start to see that in the middle part of this year. We'll work to try to scale that, and we want to get to more and more scale. And then into next year, we'll have more and more commercial products that, again, initially, it's unproductive. Then you get to kind of neutral when you get a certain amount of volume through. And then ultimately, it's more productive on the direct fab because now you're just making the product. Our traditional manufacturing, the majority of the material that we use is essentially thrown away. It's the negative. You make the negative, you make the mold and then you vacuum performance plastic on top of it. So going forward, we won't need that as much material and resin costs, which will help us going forward.

We're out of time. John, thank you so much for being here, give us update.

Of course, Thanks, everyone.

Greetings. Welcome to the Align Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Shirley Stacy, with Align Technology. You may begin.

Good afternoon, and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO; and John Morici, CFO. We issued fourth quarter and full year 2025 financial results today via Business Wire, which is available on our website at investor.aligntech.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. 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 have posted historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our fourth quarter and full year 2025 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. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us today. On our call today, I'll provide an overview of our fourth quarter and full year 2025 results and discuss performance of our two operating segments: System and Services and Clear Aligners. John will provide more detail on our Q4 financial performance and comment on our views for 2026. Following that, I'll come back and summarize a few key points and open the call to questions.

I'm pleased to report fourth quarter results with better-than-expected revenues and Clear Aligner volumes as well as non-GAAP gross margin and non-GAAP operating margin, both above our outlook and the highest non-GAAP operating margin since 2021. Q4 revenues were a record $1.048 billion, up 5.3% year-over-year and 5.2% sequentially.

For the full year, 2025, total revenues were a record $4 billion, up 1% year-over-year. Systems and Services revenues were $790 million, up 2.7% year-over-year. Fiscal 2025 Clear Aligner revenues were $3.2 billion, up 0.5% year-over-year on a record Clear Aligner volumes of 2.6 million cases, which were 4.7% year-over-year.

For the year, a record 936,000 teens and kids started treatment with Invisalign Clear Aligners, up 7.8% year-over-year. For fiscal 2025, total DSP Touch Up cases shipped were over 136,000, up 36% compared to 2024. We also delivered fiscal 2025 non-GAAP operating margin of 22.7% above our 2025 outlook.

In terms of major milestones, as of December 31, 2025, over 296,000 active Invisalign-trained doctors have treated over 22 million people worldwide, including over 6.5 million teens and growing kids with Invisalign Clear Aligners and Invisalign Palatal Expanders. For Clear Aligners, Q4 revenues of $838 million were up 5.5% year-over-year and up 4% sequentially.

Q4 Clear Aligner volume was also a record 677,000 cases up 7.7% year-over-year and up 4.5% sequentially. On a year-over-year basis, Q4 Aligner volume growth was driven by strength in EMEA, Latin America and APAC, with stability in North America. Q4 Clear Aligner volume growth reflects strength from adults and teens and growing kids patients as well as growth in both the GP and ortho channels. On a sequential basis, Q4 Clear Aligner volumes reflect strong growth from the EMEA region, driven primarily by adult patients as well as continued strength in Latin America from teens, growing kids and adult patients.

For Q4, 88,000 doctors submitted Invisalign cases globally, a record high for fourth quarter, driven primarily by a record number of orthodontist submitters. Dental service and orthodontic service organizations, DSOs or OSOs remain one of Align's most important and scalable strategic growth channels and a major catalyst to making digital dentistry the global standard of care. As DSOs continue to outpace growth rates of traditional retail practices globally, they are becoming one of the most influential forces shaping digital dentistry. In many respects, their scale, operational discipline, and need for consistent tech-enabled workflows make them ideal partners for accelerating adoption of the Invisalign system, iTero scanners and fully digital workflows across large networks of general dentists and orthodontists.

This practice consolidation trend strengthens brand preference and utilization as DSOs increasingly prioritize efficiency, clinical predictability, improved patient experience and importantly, in scale. Align has proven its leadership as the world's most sophisticated treatment planning and 3D printing manufacturing operation and our ability to scale and meet the patient needs, speed and rigor of those rapidly growing DSOs is unmatched globally.

Over the past year, we continue to make strong progress with DSOs across all major regions. In the Americas, we deepened partnership with top DSOs, building on our successful Heartland and Smile Doctors relationships, our top 10 DSOs in the Americas grew double digits year-over-year and retention was up double digits in the Americas. These gains helped to offset broader orthodontic market softness in North America retail chain where consumer sentiment and patient inflow remain pressured. North America DSO performance remained very strong, delivering double-digit year-over-year growth led by strength in the adult category.

In EMEA, DSO performance was equally strong with double-digit growth year-over-year and triple-digit growth among our top 10 DSOs in the region. DSOs continue to drive expansion in both Invisalign Case volume and iTero scanner penetration. Across all regions, DSOs remain high-growth, digitally forward partners to amplify Align's reach and impact. Their continued adoption of Invisalign and iTero reinforces the strength of our digital platform as DSOs help move more of the industry toward a fully digital standard of care.

In the Americas, Clear Aligner volumes were up year-over-year, representing one of the best growth rates since 2021. This was led by double-digit growth in Latin America, which delivered record quarter shipments driven by more submitters and higher utilization across both the orthodontist and GP channels, with strength across adults, teens and kids. We also reached a major Invisalign milestone in Q4 by surpassing 1 million patients treated with Invisalign and Latin America. In North America, we focused on driving adoption of Invisalign and saw encouraging results across our portfolio.

Our year-over-year performance reflects higher utilization across all channels. We continue to see that practices taking an active approach to conversion, scanning every patient, using chairside visualization tools and offering patient financing are performing better than those that don't. While DSOs are leading the way in North America, we're helping retail doctors adopt similar business methods through localized marketing, outside patient financing and tools that help doctors attract and convert patients.

Affordability also remains a priority. Our partnership with the health care financing platform, HFD continues to grow, and doctors and DSOs enrolled in HFD are seen as incremental lift in Invisalign treatment, with meaningful room for expansion. And by offering more portfolio flexibility, including streamlined configurations with no additional aligners, doctors have more options to meet patients' needs and drive adoption.

In EMEA, Clear Aligner volumes grew double digits year-over-year, reaching record Q4 levels. We delivered double-digit growth year-over-year across almost all markets with Iberia, the Nordics and the U.K., all delivering double-digit growth. During the quarter, we surpassed key patient milestones reaching over 1 million patients treated in both the U.K. and Iberia.

In APAC, Clear Aligner volumes grew double digits year-over-year, achieving a record number of Q4 shipments by China, India and Korea, with strength across teens and growing kids. Growth reflected increases in both submitters and utilization in the GP channel as well as an increase in ortho submitter utilization. Invisalign First, continued to grow and adoption of the Invisalign Palate expander system began in the region during the quarter. Retention performance remained strong year-over-year, supported by increased utilization across both channels.

Regarding China's volume-based procurement process or VPP, there continues to be implementation delays and early phases are expected to begin within the public hospital system before expanding more broadly. As a reminder, over 85% of our business in China is in the private sector. While timing and scope remain fluid, we believe we are well positioned to navigate eventual pricing changes through our established local footprint including local manufacturing, regulatory and commercial infrastructure and a product portfolio designed specifically for China's clinical and economic environment.

In Q4, over 230,000 teens and growing kids started treatment with Invisalign Clear Aligners, an increase of 7% year-over-year. This growth was driven by strong performance in APAC, led by China, along with EMEA and Latin America, partially offset by continued softness in North America. Sequentially, case starts declined 9.8% as expected, following an exceptionally strong Q3 teen season.

From a product standpoint, Invisalign First, the Invisalign Palate Expander and MAOB, Mandibular Advancement with Occlusal Blocks, continued to fuel year-over-year growth across all regions. Invisalign First is used for patients ages 6 to 10, addressing Phase 1 needs such as crowning, spacing, narrow arches and erupting teeth. Our Palate expander system, the first direct printed orthodontic appliance and the only FDA-cleared removable Palate Expander remains a strong driver of early intervention adoption globally.

Doctor engagement in the teen and early intervention category remains solid. In Q4, the number of doctors submitting cases for teens and growing kids increased 6% year-over-year, supported by continued strength in Invisalign First, Palate Expander and MAOB. The Invisalign system continues to demonstrate broad clinical applicability across younger patients and adults, reinforced by our global scale and exceptional product portfolio, with more than 22 million patients treated worldwide, including over 6.5 million teams. Our treatment planning platform is powered by a robust evidence-based ClinCheck live plan, which can generate initial doctor ready plans in about 15 minutes, leverages AI-driven planning tools and integrated digital workflows to reduce cycle times, enhance chairside experience and help doctors convert patients more efficiently.

Our portfolio strategy, including products with lower upfront cost options is expanding access for doctors while maintaining healthy margins. These configurations give providers more choices around refinements and pricing that continue to support adoption. We're also advancing direct fabrication, transitioning from thermal forming to 3D printing of Clear Aligner appliances. Direct fabrication will unlock new design flexibility and over time, reduce waste and lower cost although early production has some dilutive margin impact until scale. We remain on track for a limited market release of Invisalign First - Direct 3D-Printed Retainers and Invisalign Specifics - 3D-Printed Pre-Fab Attachments in 2026, with more complex products expected to follow in 2027.

The Invisalign specific attachment system is a direct 3D-printed accessory indicated to bond attachments and engagement features. Over the past year, it has advanced through technical design assessment and has been used successfully to treat over 1,000 patients. Feedback from participating doctors has been consistently positive, demonstrating strong clinical adoption and market validation.

For imaging systems and CAD/CAM services, which includes iTero solutions and exocad software, Q4 revenues were $209 million, up 4.2% year-over-year and up 10% sequentially driven by higher volumes across all regions and continued adoption of iTero Lumina scanner. Lumina represented approximately 86% of full systems units in the quarter, and we continue to drive utilization through full systems installations.

During Q4, exocad delivered sequential year-over-year revenue growth. We continued piloting Exocad ART, stands for advanced restorative treatment in several European markets with broader rollout plan for this year. ART extends a digital platform deeper into restorative and lab workflows, increasing software-driven reoccurring revenue and enhancing efficiency for doctors and labs. Exocad's strong footprint in dental labs provides a critical connection point between restorative dentistry and digital orthodontics, helping integrate restorative planning more tightly with iTero scanning and Invisalign treatment.

As GPs and labs, we are developing across solutions that streamline restorative workflows, improve communications and increased predictability. From single-tooth restorations to full-arch cases, these advancements support broader digital adoption and create more opportunities to incorporate iTero scanning, and were clinically appropriate Invisalign treatment as part of comprehensive care.

Our growing suite of digital diagnostic tools, including Align Oral Health Suite and Align X-ray Insights, or AXI helps doctors identify conditions earlier and deliver clearer, more informed treatment recommendations. When combined with the restorative capabilities of exocad and the visualization strength of iTero, these tools support better long-term oral health outcomes and naturally connect straightening, function and restorative care with a unified digital platform. By strengthening our capabilities across diagnostic, restorative and orthodontic workflows, we're increasing our relevance in everyday oral health care and positioning Align, iTero and exocad as essential partners across the GP and lab ecosystem.

With that, I'll now turn it over to John.

Thanks, Joe. Now for our Q4 financial results. Total revenues for the fourth quarter were $1.0476 billion, up 5.2% from the prior quarter and up 5.3% from the corresponding quarter a year ago. On a constant currency basis, Q4 revenues were unfavorably impacted by approximately $3 million or approximately 0.3% sequentially and were favorably impacted by approximately $14.8 million year-over-year or approximately 1.4%.

Q4 Clear Aligner revenues were $838.1 million, up 4% sequentially, primarily due to higher volume and mix shift to higher-priced countries and products, partially offset by higher discounts, higher net deferrals and unfavorable foreign exchange. Unfavorable foreign exchange impacted Q4 Clear Aligner revenues by approximately $2.3 million or approximately 0.3% sequentially. Q4 Clear Aligner average per case shipment price was $1,240, a $5 decrease on a sequential basis, primarily due to higher discounts, higher net deferrals and unfavorable foreign exchange, partially offset by a mix shift to higher-priced countries and products.

On a year-over-year basis, Q4 Clear Aligner revenues were up 5.5%, primarily from higher volume price increases, lower net deferrals and favorable foreign exchange, partially offset by higher discount and mix shift to lower-priced countries and products. Favorable foreign exchange impacted Q4 Clear Aligner revenues by approximately $12.4 million or approximately 1.5% year-over-year. Q4 Clear Aligner average per case shipment price was $1,240, down $25 on a year-over-year basis, primarily due to higher discounts, mix shift to lower-priced countries and products, partially offset by price increases, favorable foreign exchange and lower net deferrals. Clear Aligner deferred revenues on the balance sheet as of December 31, 2025, decreased $33.9 million or 2.9% sequentially and decreased $61.4 million or 5.1% year-over-year and will be recognized as revenue as additional aligners are shipped.

Q4 Systems and Services revenues of $209.4 million were up 10.3% sequentially primarily due to higher scanner system sales and non-system sales, partially offset by lower scanner on sales and unfavorable foreign exchange. Q4 Systems and Services revenues were up 4.2% year-over-year, primarily due to higher non-system sales, favorable foreign exchange and flat scanner system sales, partially offset by lower scanner on sales. Foreign exchange unfavorably impacted Q4 systems and services revenues by approximately $0.7 million sequentially or approximately 0.3% on a year-over-year basis. Systems and Services revenues were favorably impacted by foreign exchange of approximately $2.5 million or approximately 1.2%. Systems & Services deferred revenues was flat sequentially and decreased $24.6 million or 11.2% year-over-year due in part to the shorter duration of service contracts selected by customers on initial scanner system purchases.

Moving on to gross margin. Fourth quarter overall gross margin was 65.3%, up 1.1 points sequentially primarily due to operational efficiencies, impairment on assets held for sale in the third quarter, excess inventory write-off in the third quarter and lower restructuring and other charges, partially offset by higher depreciation expense on assets disposed other than by sale. Gross margin was down 4.8 points year-over-year primarily due to higher depreciation expense on assets disposed rather than by sale, partially offset by operational efficiencies and lower restructuring and other charges. Overall gross margin was unfavorably impacted by foreign exchange of 0.1 points sequentially and favorably impacted by foreign exchange of 0.5 points on a year-over-year basis.

On a non-GAAP basis, which excludes stock-based compensation, amortization of intangibles related to certain acquisitions, depreciation expense on assets disposed of other than by sale, restructuring and other non-GAAP charges, gross margin for the fourth quarter was 72%, up 1.6 points sequentially and up 1.2 points year-over-year.

Clear Aligner gross margin for the fourth quarter was 64.2%, down 0.7 points sequentially primarily due to depreciation expense on assets disposed of other than by sale, partially offset by operational efficiencies. Foreign exchange unfavorably impacted Clear Aligner gross margin by approximately 0.1 points sequentially. Clear Aligner gross margin for the fourth quarter was down 6 points year-over-year, primarily due to the depreciation expense of assets disposed of, other than by sale and lower ASP partially offset by operational efficiencies. Foreign exchange favorably impacted Clear Aligner gross margin by approximately 0.5 points year-over-year.

Systems and Services gross margin for the fourth quarter was 69.6%, up 8.4 points sequentially primarily due to excess inventory write-off in the third quarter, partially offset by lower ASP. Foreign exchange unfavorably impacted the Systems and Service services gross margin by approximately 0.1 points sequentially. Systems and Services gross margin for the fourth quarter was up 0.2 points year-over-year, primarily due to operational efficiencies partially offset by lower ASP. Foreign exchange favorably impacted Systems and Services gross margin by approximately 0.4 points year-over-year.

Q4 operating expenses were $528.3 million, down 2.7% sequentially and down 4.4% year-over-year. On a sequential basis, operating expenses were $14.6 million lower, due primarily to lower restructuring costs, partially offset by slightly higher advertising and marketing and technology spend. Year-over-year operating expenses decreased by $24.5 million, primarily due to lower restructuring costs.

On a non-GAAP basis, excluding stock-based compensation, restructuring and other charges and amortization of acquired intangibles related to certain acquisitions, depreciation expense on assets to be disposed of, other than by sale and other non-GAAP charges, operating expenses were $480.9 million, up 3.8% sequentially and up 1.3% year-over-year. Our fourth quarter operating income of $155.3 million resulted in an operating margin of 14.8% up approximately 5.2 points sequentially and up approximately 0.3 points year-over-year. Operating margin was unfavorably impacted from foreign exchange by approximately 0.3 points sequentially and favorably impacted by foreign exchange by approximately 0.2 points year-over-year.

On a non-GAAP basis, which excludes stock-based compensation, restructuring and other charges and amortization of intangibles related to certain acquisitions, depreciation expense on assets disposed of other than by sale and other non-GAAP charges, operating margin for the fourth quarter was 26.1%, up 2.3 points sequentially and up 3 points year-over-year. Interest and other income and expense net of the fourth quarter was an income of $21.3 million compared to an expense of $1.6 million in Q3 of 2025, primarily due to gain on investments. On a year-over-year basis, Q4 interest and other income and expense was favorable compared to an expense of $3.4 million in Q4 of '24, primarily by favorable foreign exchange movements and gain on investments.

The GAAP effective tax rate in the fourth quarter was 23.1% compared to 40.1% in the third quarter and 26.3% in the fourth quarter of the prior year. The fourth quarter GAAP effective tax rate was lower than the third quarter effective tax rate, primarily due to the release of uncertain tax position reserves partially offset by deferred tax adjustments from tax rate changes in certain foreign jurisdictions and additional taxes accrued on foreign earnings. The fourth quarter GAAP effective tax rate was lower than the fourth quarter effective tax rate of the prior year primarily due to the release of uncertain tax position reserves and lower U.S. taxes on foreign earnings partially offset by deferred tax adjustments from tax rate changes in certain foreign jurisdictions. Additional tax accrued on foreign earnings and change in our jurisdictional mix of income.

Our non-GAAP effective tax rate in the fourth quarter was 20%, which reflects our long-term projected tax rate. Fourth quarter net income per diluted share was $1.89, up $1.11 sequentially and up $0.50 compared to the prior year. Our EPS was unfavorably impacted by approximately $0.05 on a sequential basis and favorably impacted by $0.03 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $3.29 for the fourth quarter, up $0.68 sequentially and $0.85 year-over-year due to higher revenue and lower operating expenses.

Moving on to the balance sheet. As of December 31, 2025, cash and cash equivalents were $1.0949 billion up sequentially $90.3 million and up $51 million year-over-year. Of the $1.0949 billion balance, $166.3 million was held in the U.S. and $928.6 million was held by our international business.

During Q4 2025, we repurchased approximately 0.7 million shares of our common stock at an average share price of $142.87. These repurchases were made pursuant to the $200 million open market repurchase plan announced in August 2025 and were completed in January of 2026. During 2025, we repurchased 2.9 million shares of our common stock at an average per share price of $162.09 for a total of $465.9 million. As of December 31, 2025, [ $831.2 ] million remains available for repurchases of our common stock under our $1 billion stock repurchase program announced in April of 2025.

Q4 accounts receivable balance was $1.1018 billion, up sequentially. Our overall days sales outstanding was $94, down approximately $7 sequentially and up approximately 4 days as compared to Q4 of 2024 and primarily reflect flexible payment terms that are part of our ongoing efforts to support Invisalign practices.

Cash flow from operations for the fourth quarter was $223.2 million, Capital expenditures for the fourth quarter were $35.9 million, primarily related to investments in our manufacturing capacity and facility. Free cash flow, defined as cash flow from operations minus capital expenditures amounted to $187.3 million.

Before I turn to our outlook, I'd like to provide the following remarks regarding U.S. tariffs as of December 31. Currently, we do not expect a material change to our results of operations as a consequence of the latest U.S. tariff actions, and we refer you to our Q1 of 2025 press release and earnings materials as well as our Q2 2025 webcast slides, which includes specifics regarding potential impacts on U.S. tariffs.

Now turning to our outlook. Assuming no circumstances occur beyond our control, such as foreign exchange, macroeconomic conditions and changes to our currently applicable duties, including tariffs or other fees that could impact our business. We expect Q1 2026 worldwide revenues to be in the range of $1.01 billion to $1.03 billion, up 3% to 5% year-over-year. We expect Q1 '26 Clear Aligner volume to be up mid-single digits year-over-year. We expect Q1 2026 Clear Aligner average selling price to be up sequentially from favorable geographic mix. We expect Systems and Services revenue to be down sequentially, consistent with our typical Q1 seasonality. We expect our Q1 2026 GAAP operating margin to be 12.4% to 12.8%, down sequentially and Q1 2026 non-GAAP operating margin to be approximately 19.5%, consistent with Q1 seasonality.

For fiscal 2026, we expect 2026 worldwide revenue growth to be up 3% to 4% year-over-year. We expect 2026 Clear Aligner volume growth to be up mid-single digits year-over-year. We expect the 2026 GAAP operating margin to be slightly below 18%, approximately 400 basis points improvement over 2025 and non-GAAP operating margin to be approximately 23.7%, 100 basis point improvement year-over-year as communicated during our third quarter earnings call. We expect our investments in capital expenditures for fiscal 2026 to be $125 million to $150 million. Capital expenditures primarily related to technology upgrades, additional manufacturing capacity as well as maintenance.

Q4 was a good finish to the year with results that came in better than expected and reflect the continued strength of our business fundamentals. As we enter 2026, we are executing with focus and discipline, and we're encouraged by the progress we're seeing across the regions and key customer segments. Our confidence is grounded in the actions we're taking to actively manage the business and drive growth through our core strategic priorities: expanding international adoption; increasing orthodontic utilization, particularly among teens and kids; accelerating GP engagement, including restorative dentistry; and strengthening consumer demand conversion with greater emphasis on local last-mile marketing.

While the macro environment remains dynamic, we are cautiously optimistic with a strong innovation road map, disciplined operational execution and a global team committed to delivering for doctors and their patients, we believe we are well positioned to deliver growth and value in 2026 and beyond.

With that, I'll turn it back over to Joe for final comments. Joe?

Thanks, John. In summary, I'm pleased with the fourth quarter results and strong finish to 2025. We delivered sequential and year-over-year growth in Clear Aligners, saw improved stability in North America and delivered solid performance in imaging systems and services. International markets and our DSO partners continue to show encouraging momentum and we're tailoring regional-specific strategies supported by local manufacturing and product offerings to unlock meaningful, still untapped demand.

Across DSOs and GP dentists, we strengthened clinical training, expanded AI-enabled tools and broadened financial partnerships to support utilization and improve access to Invisalign treatment. Our localized data-driven marketing programs are beginning to improve retail conversion in targeted markets and our evolving product portfolio designed around affordability, flexibility and predictability is resonating with doctors. The teens and growing kids category remain a major long-term opportunity, supported by unique solutions like Invisalign First, Invisalign Palate Expander System and MAOB.

We continue to invest in innovation across AI-driven treatment planning, integrated digital workflows and direct fabrication capabilities. Key areas highlighted in Investor Day that improve predictability: increase speed, strengthen our cost structure and enhance margins over time. These investments support our broader priorities, consistent execution, improved operating leverage, stronger conversion and disciplined capital allocation. At the same time, we remain grounded in the realities of the current environment. Our opportunities are significant but sustained momentum in 2026 will require disciplined execution across regions, channels and product lines, particularly strengthening North America, improving conversion throughout the funnel and scaling internationally.

Looking ahead, we're cautiously optimistic. Our strategy is clear. Our competitive advantages are strong, and our innovation road map is aligned to the needs of doctors, patients and our partners globally. Realizing the full value of these assets will require continued focus and consistent performance, we remain committed to expanding access to Invisalign treatment, accelerating conversion and advancing our next generation of digital orthodontics powered by the world's largest orthodontic data asset, real-time ClinCheck planning and the only fully integrated digital ecosystem spanning Invisalign, iTero and Exocad. Together, these capabilities position us to broaden adoption, strengthen utilization, improve efficiency and drive long-term value for customers, patients and shareholders as we move into 2026.

With that, thank you for the time. I'll turn the call over to the operator. Operator?

[Operator Instructions] Our first question comes from the line of Elizabeth Anderson with Evercore ISI.

Congrats on a nice quarter and outlook. I was wondering, Joe, if you could maybe parse apart and maybe conceptually, if you can't do it numerically sort of how we think about this improved volume performance? Do you think it's sort of underlying market trends accelerating? I noticed you also -- there's a big emphasis, it seems like on the sales force towards higher growth channels. So I'm just trying to understand how much of you think is market-driven and how much you think is perhaps a different sales strategy or marketing strategy that you guys are adopting?

I'd say stability when you look at the markets and what we've really worked through, Elizabeth recently, I'd say on top of that stability, you see us executing well in the sense of -- we talked about the DSOs all around the world and really, honestly, incredible growth they've been able to drive over the last really several quarters for the business.

I think our portfolio, like we talked about with young patients, again, you think about Palate Expander, MAOB, those things, Invisalign First, are great products. There's also a strong attachment rate we're seeing with -- when you have IPE along with Invisalign First, those things, 40% of the time will evolve into Invisalign First case. So that's a nice part of that early teens marketplace that we're helping to grow that marketplace overall. And then DSP and Touch-Up cases and all are really a big growth area for us, too.

Got it. And then maybe, John, one for you. As you talk about sort of the positive ASPs perhaps in the first quarter. Anything you could do to help us put a little bit more of a parameter around what you would consider sort of that positive growth?

Yes. I think when you look at the mix that we have, as we've grown in certain countries, and we've talked about this, certain countries give us more of a favorable ASP mix, and we expect that as we grow in some of these regions that have a higher list price, and that will help us. And then also balancing the product portfolio where we have some of those products that are more comprehensive and we see some of that growth coming through. So there's a multitude of things that we see from an ASP standpoint, but manage it closely, understand what it means from an ASP all the way to gross margin, and we see a good combination there.

Our next question comes from the line of Brandon Vazquez with William Blair.

Maybe first, Joe, can we spend them on another minute. It sounds like things are stable in end markets. Just talk to us a little bit about what that means. And in part, I'm asking because I think the next question then becomes like what is the assumption as you think about the 2026 guidance? What are you guys kind of assuming both on the international side or the Americas side for end markets?

Brandon, it's Joe. I'll open up with this and let John jump in as -- I'd say we're projecting what we experienced in the second half of the year, the execution we've had obviously, from a global standpoint, the good penetration and growth that we've seen there, again, leveraging the early teens, like I talked about before with Elizabeth, in those areas. And so we continue to run the plays and we've been running from an execution standpoint and a product standpoint not just globally, but in Americas and North America too. John?

And so just on that, Brandon, we're not expecting -- our forecast is saying, look, we expect the markets to behave like they are. No change in terms of what we've seen. It's about us driving that active conversion approach that we have, some of it on the products and the portfolio that we have. Some of it is in terms of how we go to market, some of the last minute or last mile efforts that we have to be able to help those customers drive that conversion. So it's just taking that mindset and building that forward. but really not expecting the markets to be anything different, and that's what's included in the forecast.

Got it. And then -- that's helpful. Joe, the comments you're making around DSOs are really interesting. I know this has been a strong point for you guys for a while. I think this is the first time I've heard you say some of the DSOs grew triple digits. And I guess the question is, can you just talk to us a little bit like how early you are in this adoption curve in the DSOs? I'm trying to get a sense of how many of these can continue to grow in the double digit or even some of them in the triple digits as you go through 2026?

Yes, I think there's two parts to that. The answer to that question, Brandon. One is the continued DSO penetration is they move to a larger percentage of the markets that they participate in. Now behind that, we've recruited and been recruited by other DSOs to help join that. So our penetration in DSOs around the world has increased too.

As I said in my script too, we are a natural partner because we do -- we can scale on so many dimensions with them. And it's -- some of these DSOs have worked with some competitive suppliers. And when they look at us, they understand that we can scale treatment planning. We have local kind of distribution. There's just so many areas that we can help them with a broader product portfolio, all those things.

So I would say we're still good growth parameters in that business. And I'd say -- Also, you're going to see DSOs continue to expand around the globe, and we'll continue to take advantage of that, too.

Our next question comes from the line of Jeff Johnson with Baird.

I wanted to start maybe on your adult business. That 8% number really stands out to me. Not only is it your best number since 2021, I think you said that on the call. but you guys haven't even sniffed a 5% number in the last 3 or 4 years. So that's materially higher and especially it came against a generally tough comp of 4% last year in the fourth quarter. So is that early traction with NOAA, is it some HFD tailwinds? Is it ClinCheck live early traction? Just what's really driving that improvement on the adult side, especially given that macro doesn't seem like it's really supporting an improvement in adult spending on discretionary items?

I think you named three really good variables, Jeff, that's helping to drive that. Honestly, a lot of it comes through DSOs too, which really helps, particularly on the GP side, we see, but the OSOs grow well in that area, too. So it's those variables you just talked about ending with financial credit that really helps in these times, particularly in North America, where we know patients are challenged that way, too. So a broad portfolio scanning every patient that walks in the door, then we talk more and more about -- that's the key. If you want to go digital, you want to convert patients you normally wouldn't convert is get this thing into a digital format in a pictorial format, you can show before and after results while that patient is in that chair. That's what the DSOs do so well and the retail accounts we work with do that well, too. John, anything you'd add to that?

Yes. Maybe one follow-up -- yes, Joe, just one follow-up. It might be a similar topic or answer from you, but I think last quarter, when we kind of backed everything out, it looked like your North American retail business or your non-DSO business, I guess, is how we think about it was probably down maybe pushing double digits year-over-year? I know you guys told me that was a little aggressive, but somewhere in that ballpark. You mentioned, I think, at your very end comments there of the prepared remarks that the retail business got a little better. Just any kind of commentary or any kind of color you can provide to flush that U.S. retail business or North American retail business out in the period?

Jeff, the word I use is more stability there. We're standing, I think, on a better platform in that sense. The team has been executing better around there. I wouldn't call the economic situation in the United States, better in any way in the sense of driving volume in that way. I'd just say the team is more focused. Our portfolio is a little broader as we talked about. And obviously, the DSOs are helping a lot in that sense too.

North America was -- we got better due to some of the retail wasn't as negative and the DSOs growth. That combination brought North America to be better on a year-over-year basis than it was in Q3. And when we talked about it on the overall Americas, when you add in Latin America, it grew at the fastest rate or one of the fastest rates since 2021. So we're encouraged by that. And it's all the things Joe talked about to help drive that conversion.

And our next question comes from the line of Jon Block with Stifel.

John, I'm going to get -- try to get pretty granular. I know you gave some color on 2026 Clear Aligner volumes and overall worldwide revenues for the year. But I just want to try to drill down on price or ASP. So should we think about Invisalign ASP's down call it, 2% year-on-year. I'm thinking FX is probably a plus and that full year is probably a plus. But maybe any detail you can give us there? And the follow-on would just be -- I think ASPs were supposed to be up a little bit, 3Q to 4Q, they were down a little. Maybe just talk to that. Was it intra-quarter FX? Was that just geo mix? Any color there?

Yes. No, two good questions. So overall, your first question, Jon, yes, expect ASPs to kind of model maybe 1% to 2% down overall. So it's kind of in that range that you talked about on a year-over-year basis for 2026 for all the things that we talked about, country mix as well as product mix, kind of the non-comprehensive versus comprehensive. And when you look at it on a quarter-over-quarter basis, when you look at our fourth quarter, they would have been flat had we not had FX changed slightly. We got a little bit worse from a quarter-over-quarter in FX. And then you also had some of the country mix. We had really, really good growth and some of the countries that are in Latin America and Turkey and India and so on that have a lower list price. So the combination of that country growth on a quarter-over-quarter basis plus slight impact on the FX side of things from a currency standpoint caused us to be down slightly.

Got it. Great color. And then just a follow-up. Joe, I'm just curious like what you're hearing, if anything, regarding these tax receipts or stimulus. Did you build anything into 1Q? Just how you think that may or may not play out? And then the tack on of that and Italy sort of different question is, we're sitting here in February, is NOAA officially out there? Are you going to sort of hit the go button all at once? I know it's been with the DSOs for a while, or is this going to be more [ drip drip ] by geography, just really how you refine the rollout of NOAA and your thoughts there in '26?

Yes, Jon, on the taxes, again, I'd describe it as I did before. We just looked at North America as stable as we go into the first quarter. We understand some of the projections on taxes and what consumers. We look at that as a possible upside, obviously, but we didn't plan necessarily around that, we just planned on how we have to execute in the way we did in the fourth quarter and carry that over. As far as the zero AA products, they mix and match all over the world, Jon, it's kind of a different kind of a profile of what we have in the United States versus what we have in Europe and what we're doing in APAC in general.

But as John said in his comments, the customers out there like this options, especially ones that have a lot of confidence in our product line, know how to use the product, understand the perfection aspect of 5 x 5 that they think are worried about before over the years, I think they've gained more confidence in themselves through our product line and what it can do. So it's not like it all starts right now. We have some of these things that will roll out in APAC, some different variations of rollout and in Europe. But I'd say by the end of the first quarter, into the second quarter of this year, we'll have that pretty much lined out by geography.

Our next question comes from the line of Michael Cherny with Leerink Partners.

Maybe just on the margin side, great to see the -- talking about the 100 basis points of opportunity. As you think about where you were in 3Q versus the guidance now, any changes in terms of how you think about getting to that margin? Any positive surprises, anything relative to the revenue drop down on the better case starts? How should we think about the dynamics, especially the strategic nature of the dynamics in terms of the potential for growth.

Yes. Michael, this is John. So when you think about the product portfolio we have, we have the mix shift that we've been talking about, it gets noted in ASP. But what that means is when we don't have refinements and we have some of this lower stage product, it's more profitable. The margin rate is higher. And so you see some of that from a mix standpoint, it shows up in our gross margin.

You're also seeing many of the effects of some of the productivity improvements that we have. We talked about some of the equipment that we had and maybe upgrading some of the equipment and seeing some of this, we're starting to see early stages of that benefit as well.

So it's our products that we have and how we're going to market with those. And then it's also just driving productivity. We want to be mindful of getting that adoption, growing our business and then volume helps, DSP and others that don't have refinement, but then driving productivity, and we saw good results from a gross margin standpoint, like we saw in Q4 that we haven't seen -- honestly, we haven't seen since close to 2021. So that's good to see, and we want to continue that as we go into 2026.

And just one follow-up, and I apologize if I missed the nuance relative to the DSO commentary. This is more tied back to the pull-through on Lumina. You're obviously now a year-plus past the launch. How is it behaving acting in terms of your conversion opportunities relative to the placements and what that's doing in terms of some of the volume dynamics. Is it hitting the targets that you want is outperforming? Anything more you got on the experience there would be great.

We feel really good about that platform overall, Michael. It's been well accepted in the marketplace, both from a GP standpoint, who do a lot of restorative procedures as well as the orthos obviously, they are dedicated to orthodontics in that way. We know that having Lumina in those accounts and the more Luminas you have in those accounts, the better off you do. And we continue to emphasize that at accounts and the uptake seems to be good.

I think to answer your question, you have to kind of go all over the world. But in general, I think the foundation of your question is, can you keep growing Lumina? Will you keep growing that platform? We feel good about that platform. It's a multi-structured light. We'll obviously have iterations on that platform as we go forward. So I feel really good about not just the market performance of Lumina over last year, but what we're positioned to do in the future with the technology too.

Our next question comes from the line of Vik Chopra with Wells Fargo.

Congrats on a nice quarter. Maybe a couple for me here. on the guidance range, you said 3% to 4% revenue growth for 2026. Maybe talk about some of the other variables behind that guidance range. And do you think that 3% to 4% range is conservative? Or do you think you can deliver above that level of growth in '26?

Yes, Vik, this is John. So look, we guide as we always do. We look at kind of how we see the numbers the actions that we're taking to be able to help drive performance with new products and go-to-market activities and so on. So that's the range that we give at this point to be able to grow off of 2025 at the 3% to 4%.

It goes back to things that I talked about that are really strategic for us. We want to grow internationally. We're seeing good growth. We want to continue that. We want to continue to drive orthodontic utilization, so that's products that NOAA product that comprehensive helps there. Some of the new products that we have with Invisalign First and MAOB and others, those will help us grow that utilization for those doctors.

And we're really excited about how GPs fit into this. They're doing a lot more of scanning every patient, visualizing, really tying in financing and other things to get that sometimes reluctant patients to decide to go into treatment.

And then, of course, we want to leverage our brand to be able to make sure everybody is aware of our product and how we can differentiate and so on. So it's really a continuation of our strategies around those major aspects that give us the confidence to be able to guide in the way we have. And as we go quarter-by-quarter, we'll update as needed.

Got it. And just a quick follow-up for me. Given the strong growth you called out among the DSOs, maybe just remind us what percent of your sales are coming from the DSO channel and how you plan to further expand these partnerships?

Yes. DSOs for us, Vik, about 25% of our business on a volume basis and we want to continue to expand. They share -- many of these DSOs are becoming more of a digital orthodontic mindset. We share that digital orthodontic mindset with them and they want the scanners. So they have Luminas, they're scanning every patient, they're providing a lot of visualization and growing, and we think that's a natural benefit. When a DSO is looking to scale, we can help provide that scale through our technology and our operations, sharing and leveraging the brand as well. So it's a great partnership. We want to continue on that, but also make sure that we're also helping our retail doctors grow as well. So we're not forgetting because there's a large amount of retail doctors as well, but we're very pleased to what we see in DSOs.

Our next question comes from the line of Jason Bednar with Piper Sandler.

Congrats on the results here today. I'm going to follow up on Mike Cherny's operating margin question, [indiscernible] to start. And the focus of the question is, are there things that need to happen or fall into place in order to hit that 100 basis point margin expansion target. And you've got a variety of scenarios that could obviously play out with product mix, geographic mix, channel mix. I did all that, but are there scenarios where you see that 100 basis points at risk? Or is that piece of your guidance you feel fully within your control?

Yes, Jason, when we think about that, look, we have to execute. We have to better outgrow the business so much of what we see and especially on that -- the productivity that we have is based on volume. We have to execute on our volume and get that to come through our manufacturing. We see volume benefits, volume leverage when we have that. But we've made a lot of changes kind of exiting kind of in the second half of last year to improve some of the productivity, getting closer to our customers and so on. So we've made some of those structural changes to be able to help drive and improve that productivity. So we feel good about that from a guidance standpoint, I wanted to continue talking about the 100 basis point improvement and as we execute, just like our overall revenue guidance, we'll update as we go forward.

Okay. Fair enough. I want to move over to China VPP real quick. And I appreciate all the comments you made in your exposure more on the private side of the market. I guess, can you help us a bit more with what you're seeing competitively in advance of that VPP rollout, understanding it's delayed. But what kind of pricing assumptions are you making in that down 1% to 2% guide for your global ASPs for the year? How much is China impacting that? And then are you similarly making assumptions around the volume uptick post VPP implementation? Just any help there on those factors would be great.

Jason, it's Joe. First of all, I'd say there's an uncertainty around that implementation next year. Secondly, you have to think 3 and 4 area hospitals are the biggest focus in that area. We don't really participate in that to any broad extent. And that's where it would be hit first. And it's kind of what I covered in my comments.

We're 85% private, we're primarily in one or two cities. Now we know from the medical device industry and other parts of the orthodontic industry and the dental industry that, that might change in the sense of how VPP affects it. But we've pretty much taken a status quo look at our business in China as we go into the year. Like I mentioned, I feel we're well positioned in the sense of the products that we would position there if that does go through. And so right now, we're not expecting any major disruption for China on year-to-year based on VPP.

So our guidance, to be clear, Jason, does not include any VPP impact, whether it's on the volume side or ASP side given how Joe positioned.

Our next question comes from the line of Michael Sarcone with Jefferies.

Just first one on the system sales. I think you had talked about previously, you were going to end of life, some of the older IOS systems. Maybe with that in mind, can you talk about how you're thinking about growth in '26 between kind of replacement cycle versus de novo placements?

Michael, I mean there are some old element iTero scanners that we have a clause on right now in the sense of what we'll service and what we weren't servicing. We're doing our best to work with doctors to get them over the line into a new product like Lumina overall. I can't give you the specifics in the sense of how we look at our overall services business next year and scanner business and tell you specifically what that is. But I don't feel that transitions a major variable in the equation of our success next year.

Yes. We're always looking to have those scanners, especially the older ones like we've seen, Element 1s and 2s to position those out of the market, offer a trade in allowance and then get that doctor to the newest scanner, Lumina. And once they see the difference, it usually kind of goes and it's an easy transition. But it's more efficient for them to use Lumina and it's better for us. It captures more images better and so on, so we want that transition. So just like everything else, we want to work with them to make that happen.

Our next question comes from the line of Steven Valiquette with Mizuho Securities.

I guess, just separate from the discussion on your own ASPs and your own pricing. Just curious to maybe get a little more color on your thoughts on just overall Clear Aligner pricing trends across the broader global marketplace. There are seemingly some positive news in relation to price increases, a few key competitors. I'm wondering maybe just if tariffs or other factors are maybe just driving higher prices across the competitive landscape in a way that might help you and is that material enough to where that was like a factor in your guidance? Or do you think you would have guided for like your volume trends kind of regardless of what's going on in competitor pricing front?

Yes, Steve, this is John. I don't think that specific what they're doing is factored into our guidance. Our guidance is based on what we can do to be able to help drive the business and drive adoption and take this active conversion approach. But it is noted, I mean, we watch things closely to see what competition does. We hear it in the field and so on. And you're right, many competitors for various reasons. I think in terms of tariffs or maybe it's profitability or other reasons that they look at changing their pricing. And I think it stands to reason that some of the pricing that initially offered, they've had to increase and -- it's probably a good thing in the long run to do. It certainly helps us, I think, going forward, but it's not contemplated in our guidance, but I think it's the evolution of the business as it goes forward.

Our next question comes from the line of David Saxon with Needham & Company.

I'll just keep it at one. So just on the direct fab, as you roll more products through direct fab, how should we think about the magnitude of that impact on gross margins and kind of the cadence of how that hits the P&L?

Yes, David, it's Joe. Let me think -- we've been pretty clear that , that will be somewhat margin dilutive in the sense as it begins to roll out in 2026. We'll scale that. We have to scale in the millions. And so as we get into 2027, you'll see us really being able to scale out. And I think as you enter the second half of 2027 and you get into 2028, we expect we move into margin accretion in that period of time.

Okay. But for '26 do you expect gross margin to be down or?

The margins will be -- we're pretty much projecting the margins that we have.

So we've got oddly specific direct fab, direct fab that is margin dilutive. But when we talk about the 100 basis point improvement on op margin, that includes whatever impact that we might have from the direct fab. So we're contemplating that in terms of our overall guidance. But on direct fab itself, like Joe said, you need to scale that resin and drive utilization on the actual manufacturing. And until you do so, it's margin dilutive.

Our next question comes from the line of Michael Ryskin with Bank of America.

Great. I'll keep it to one as well, it's just a follow-up. On the Scanners and Services segment for '26. You gave us a lot of the moving pieces between volumes and you talked about ASPs earlier. It just sounds like you're guiding to Scanners and Services being roughly in line with total company revenue growth, give or take a couple of points. I was thinking that in '25, you guys had a really tough comp from prior year of [ 60% ]. So that was -- it did a little bit slower. But since you're still in aluminum ramp, I'm just curious why you wouldn't see some upside there and sort of what's holding you back from giving a more aggressive outlook on scanners?

Yes, Michael, this is John. So in total, you're right. Systems and Services, when we think about kind of the company average in terms of the guidance that we gave, the 3% to 4% Systems and Services kind of falls into that on a year-over-year basis. So a lot of new things that we still have to be able to grow with our Systems and Services business, some of the upgrades that we talk about, some of the trade-ins, other ways to be able to grow, but we think broadly, it grows equal to or about at what Clear Aligners grow.

Our next question comes from the line of Kevin Caliendo with UBS.

This is Dylan filing on for Kevin. I'll keep it to one. Going back to John's commentary on the question on the NOAA and kind of where that stands today. How is that contemplated into the 1% to 2% ASP decline that you're forecasting for the year? And I mean, is that product going to be rolled out in a meaningful way? And any additional aligners, whatever? Would those be incremental to what you've guided for? Or are there assumptions in place for what to get in additional aligners?

Yes, Dylan, I can take that. So we expect to -- in success, as we pilot things, we expect to roll things out from a no refinement type product, the NOAA product. So we're seeing good uptake on the comprehensive with NOAAs. We're seeing this and have tested in various markets and we're seeing success. So that continues to roll out in Q1. And like Joe said, it'd be mostly fully rolled out into 2Q. Our guidance reflects that. So we have that.

Don't think of an ASP impact with that type of product either though, because remember, we don't have to defer revenue on a no refinement type of product. So we can recognize all the revenue upfront. The refinements will come over time as doctors need those refinements and we just get that over time. And -- but it's not an initial ASP impact when we have that. And that's what's been contemplated in the volume that we gave as well as the ASP.

Final question comes from the line of Erin Wright with Morgan Stanley.

So in the ortho segment, how is broader Clear Aligner growth across the industry, particularly in the North American market, comparing to brackets and wires? And just based on some of the gauged data that you track on that front? And then across kind of the teen segment, any metrics on conversion rates or anything like that from an Invisalign First or Palate expansion standpoint and how that's tracking. Is that moving the needle?

Erin, it's Joe. On the ortho segment, wires and brackets and Aligners, I would say there's -- between the fourth quarter and what we saw the rest of the year, I don't think it's a big difference in the sense of the conversion we've seen on particularly teens with wires and brackets and our product line overall. Now where we have seen a difference, obviously, in the younger patients. And that's not really a wires and brackets competition. Those are different devices that we're going about and we saw great growth in that area.

Conversion rates, again, I think conversion rates if I hit this right on your question, Erin, it has a lot to do with how these doctors convert. Do they scan upfront first? Do they show visualization? Like our Smile products and different things like that. And so workflow becomes extremely important in a sense of what those conversion rates are. But I haven't -- when you think holistically or generically in the industry, I don't think the conversion rates in the orthodontic community have changed dramatically at all during the year.

Thank you. And we have reached the end of our question-and-answer session. I will now turn the call back over to Shirley Stacy for closing remarks.

Thanks, everyone, for joining us today. We look forward to meeting with you at upcoming investor conferences at industry events and Chicago mid-winter in the next couple of weeks. If you have any follow-up questions, please contact Investor Relations, and have a great day.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

I'm Elizabeth Anderson. I am the health care services and dental analyst here at Evercore. Very excited to be joined by John Morici, one of the CFOs that I've worked longest with in my career, and Madelyn Valente is here too in the audience. So thanks for joining us today, John.

Of course.

So as we get started, you've continued to evolve the product portfolio in many ways on the Aligner front. And this year, I think -- and as we finished up 2025, you've talked about introducing the 0x3 product suite. Maybe just for those people not in the weeds, let's talk about what that is. And then sort of how do you think about that rollout in terms of 2026?

Yes, it's a good question. As we look at our product portfolio and just the evolution of our product portfolio. I mean, if you went back 10 years ago, we had a product that was the comprehensive unlimited -- was 5 years, unlimited refinements. And it was really a reflection of making sure that we could get to especially orthodontists and give them the confidence to finish a case and give them the understanding that, okay, over 5 years with the unlimited refinements, you're going to get to that final position. And 3 years ago, we looked at that product and introduced a product that said, look, it's a 3-year product. It doesn't need all the refinements. We're going to keep it at 3. And based on the technology that we put in, the advancements that we put into the products, we think we can help you finish this case over this period of time. So that was introduced almost exactly 3 years ago. And now it's our #1 selling product. And so doctors like it.

They are able to finish cases and feel comfortable that with those refinements, they can get to that. So the evolution now has come to -- look, as we spend hundreds of millions of dollars to improve predictability and reliability so that doctors can help finish cases, we have a product that we've been using in some of our DSOs, and they've been very successful with it. It's a 3-year product. They can get refinements over that 3 years, but it doesn't come with a refinement, no refinements to build in. And we'll price accordingly to be able to get to that. So it's an evolution of our technology that we put into the products. It's really the most important part of it is giving doctors, giving our customers the ability to choose what they want. They can continue to use, and it's still a popular product, the 5-year unlimited refinements. It's higher priced, but if that's what a doctor wants. They use the 3 and 3 that -- like I said, that's been off for 3 years.

And now they can use the no refinements over 3 years and give doctors choices. And think of those refinements as almost an insurance policy. Do you want to buy the insurance policy to make sure that if a case goes off track or if it's not getting to the outcome that you want, you can have a refinement and you can build that in. And of course, in all those scenarios, they can just purchase refinements and have that. And the way we've set the accounting, the deferral -- deferred revenue that we have on those -- the 3-year, it will match what's at the no refinement product. It will just be a difference in cash flow, whether you get the cash upfront or not. But really from an accounting standpoint and the purchasing behavior of the refinements, it just will come later, and we'll account for that way. And like I said, we've used it with various customers that we've had, some of the larger customers, they love the flexibility. Not everyone uses it across their groups, but they love the flexibility in this product line.

And how do we think about the sort of ASP differential? Like how do you find the right fit between sort of the value you're obviously providing to the practice and then allowing them to capture some of that?

Yes. So from an ASP standpoint, when you have the no refinement, there's no future obligation from a revenue standpoint. And we book all the revenue upfront. Now if they need a refinement in the U.S., it's at $180 per refinement. They would just pay for that as they went. So the case -- the original case is always the volume that we have. The refinements then become part of ASP, but it's just on a future basis. So it really just gives doctors more flexibility. And I think the basis from it really comes down to the technology that we put into the product. Some doctors can finish in no refinements. Some doctors need 1 or 2 refinements. Some doctors that are new or maybe taking on complicated cases want more refinements. And I think that's the product evolution that we have in our portfolio. It's just making changes and giving flexibility to these doctors.

Okay. That makes sense. And remind me, you're doing it in the U.S. first starting in the beginning of '26. And then when does the rest of the world?

You'll see different versions of it coming out in Europe and APAC as we go through the year. But we'll have North America set, like I said, some of the DSOs, some of the larger organizations that we sell to have been doing this. We've seen good uptake and traction, and it will be out broader in the first quarter in North America.

That makes sense. And is that -- do you see also as you move to like the 3x3, you're seeing more uptick in the DSP program, too? Is that sort of -- do you think of that as like an accompaniment to that as well?

That's a good combination because you can always do a refinement on something like this. But the DSP, which is our doctor subscription program, and that gives the doctor the ability to just purchase aligners at a set price. They commit to a certain amount of aligners that they're going to use for that year. and that's a price per aligner. Most of that is for retention, but there are some touch-up cases that would be there. Maybe they don't need to purchase a full refinement, they need 4 or 5 sets of aligners, and they can use their DSP allotment of aligners to be able to supplement that. So that's another part of the portfolio evolution where we didn't have that 10 years ago. We didn't have that 3 years ago. DSP has been more recent and it's very popular. That was introduced in North America a couple of years ago. And now it's been released in Europe and very successful in other parts of the world soon to come.

That makes sense. So given sort of that roll-up and the mix in some of the new countries that have had higher growth and FX, how do you sort of -- which is always hard to say, but how do you sort of think about the ASP trend? I think that's been something that there's been some worry about, but I think you've been talking about it sort of being very focused on that kind of low single digits based on the mix forecast.

Yes. So when you think about ASPs for us, there's 2 major mix factors that hit our ASPs. When we have country growth in certain countries that we're in, the list prices are lower. So you grow fast and we're growing very fast in India and Turkey and Latin America and parts of Southeast Asia, Eastern Europe, the list prices for our ASPs are lower. And so you get that country mix. It's almost kind of in a small way, what happened when go to the -- go from the second quarter to third quarter, China becomes bigger. It's a lower list price. You see that ASP impact. It reverses when you go from third quarter to fourth quarter. China is not as big. Europe becomes bigger at a higher ASP.

So there's going to be this mix effect that you have within. And -- but that doesn't mean the gross margin rate is impacted like that. It really comes down to the fact that it's these countries. The other part of the mix is product, what you were describing with like a DSP type touch-up product or even Invisalign Palate expander, those might be ASPs that are $500, $600, $700. They're less cost to serve. They're just kind of a one and done. That's what the doctor needs to be able to help finish a case or just do a minor movement that they need. Lower list prices, that will impact our ASPs. But when you think about the gross margin on all those types of products, the gross margin is great, 75%, 80% gross margin because many of those -- the doctor set up templates and we've worked with them to get their preferences in.

We know exactly how to treatment plan it. There's not much back and forth, if any. And then it goes from the case accepted to manufactured and shipped out and is very, very efficient. So ASPs will be impacted by that. The other part of ASPs, as doctors do more and more cases and they work their way if they're on the Advantage program, they get a bigger discount as they do more cases. And -- but it's really designed to drive that utilization anyway. So that's a part of that. So when we think about ASPs just in the near term, 1% to 2% decrease related to that. You're going to have new doctors coming in. We sell to more and more doctors. They come in at maybe not as complicated cases. You have advantage tier changes that impacts and then you have the country and product mix that's a part of that. But in all cases, we have to make sure that we're managing the gross margin, the gross margin rate on that. And everything I've described there is set up to be able to help us improve our gross margin.

So we should think about that as having some -- a little bit of upward trajectory...

In gross margin, our expectation, and we talked about next year, 100 basis point improvement in our op margin. Some of that is related to the gross margin improvement that we expect in this product portfolio and the kind of the evolution of that. And some of it is some of the restructuring that we've done to really kind of rightsize our business, get closer to customers, improve some of the equipment and really the next-gen equipment to be more efficient with our current manufacturing. We wanted to make sure that we got in front of that, and we've made a lot of good changes this year that we'll see those benefits as well.

Nice. Okay. That makes sense. And then maybe switching to the U.S. to talk about that a little bit more specifically. What have you learned in 2025 about how to support clear aligner demand in the U.S.?

Well, U.S. is -- gets a lot of attention. Obviously, it's a big part of our market. What we see in the U.S. and in certain markets, but I'll stay with the U.S. that to get in this environment, which I would classify as more stable now, it's definitely we've seen some stability. It's not a great consumer market in terms of purchasing our products because it is somewhat discretionary, maybe not as much for teen for adults, it's somewhat discretionary. But in this environment, with -- when you have higher inflation, you have interest rates that are higher and so on, you've got to do a good job of being active with those potential patients. And so we use the word active versus passive.

So what do we mean by active? And our DSOs are doing a good job about being active. So active with a potential patient is when they come in, you're scanning them. You're giving them visualization. You're showing them the tools to say, hey, this is how your bite is misaligned. Here's where your teeth are colliding. Here's where a chip that you might have. Here's how your teeth looked like now with your face and teeth. And then with that same -- with your face and a simulation as to what your teeth will look like with treatment, both on just ortho treatment and ortho restorative and giving that potential patient a visual of what's actually happening. And if that doctor, whether it's a GP or ortho is also price conscious as well in some cases that -- not necessarily that we're funding, but they fund, they go back to that patient and say, look, if you go into treatment now, we'll give you $500 off. We'll give you $750 off.

They'll do something to really entice that potential patient to say, hey, it looks really good. I like what I see, but I'm also going to get a discount. The last mile that we've seen, especially in the U.S. and where we're seeing good traction is if they can pair everything I just described up with financing, get some external financing, keep interest rates low, maybe they can be more aggressive on some of the FICO scores and so on, so that, that potential patient can get into a monthly payment, ideally sub-$100, they can get into treatment. That's a winning combination. So in the U.S. really North America, but U.S., it is about doing all of that to drive activity. And the ones that do that are winning. And DSOs are a great example. Even in the U.S., as we go through this year, our DSOs are growing double digit. And so in a tougher environment, by taking that active approach, they can win.

We'll help with products to be able to help, as we described at the beginning on giving them more of a product portfolio and options that we'll also help with customer marketing. If there's local marketing that we can do, we found that we'll spend a lot, and we still want to create that awareness and brand differentiation and so on at the high level. But if we can take that down also to the customer level, help them with local advertising, help them attract patients who bring in -- who bring their potential cases in and ask for Invisalign by name and create that solid conversion there, that's money well spent. So -- and it's not incremental on our side. It's just changing it where you spend. Do you spend at the high level, we spend there and awareness, but we also can spend at the lower level. And if we do both, we're finding that we're getting that good conversion. But again, it goes to being active about that conversion versus passive.

Yes. No, that makes a lot of sense. One thing I think there's also been a lot of talk about, and that is a little bit speculative at this point is there are stimulus checks next year. Could that be something that helps to kickstart demand? And obviously, last time we had the stimulus checks during COVID, that was probably helpful. Just could you help us think through that? And I know that's probably -- it's a little bit speculative at this point, but just sort of any comments you have there.

Yes. I think, as I said, there's a discretionary nature to our business. There's a purchase that some patient has to spend, sometimes $6,000 or $7,000. And so they have to decide, can they afford this now? Do they -- is it the right timing financially? What's the share of wallet that they're competing with against and so on? A stimulus check or maybe they get a better tax refund or something that comes to them that they might not have been expecting that is a benefit. That certainly benefits our business. And when we correlate that back to, I guess, the latest ones that were out in 2021 coming out of COVID and some of the things that happened, there was tremendous demand from potential patients who had more money, and they spent money on things that they might not have spent otherwise. And it did give some of that benefit.

So I think it just really comes down to the, in some ways, the health of the consumer, how -- what do they feel about some of the purchasing that they want to do. You still want to be active that I described earlier in trying to drive that conversion. But getting either a tax refund or stimulus check or something else would only add to that the amount of money that, that potential patient has, which would be a good thing.

Yes. No, that makes sense. Maybe going back to your DSO comment and sort of the double-digit growth you're seeing there. How do we think about that sort of as a share gain activity? I mean those DSOs tend to have higher volumes and growth in general. But are there sort of still new logo opportunities at this point? Or is it really about pushing utilization within practices that you're already working with? How do we think about that?

Yes. Our DSOs -- and really, the way we're working with DSOs and why it's a good partnership is the DSOs are really -- they're looking for productivity and profitability. Many of them are private equity owned, and they have that focus, which is great. They -- the DSOs that we're working well with and actually more and more DSOs that we're continuing to work with share this digital orthodontic mindset. They have that shared vision of how they want to treat patients. They want to improve productivity. They want to help standardize things across the practices. They want to be able to leverage some of the marketing and other spend that they have and really make this as efficient as possible. That's exactly what we want. When we think of DSOs, we look at them as a force multiplier. I mean the tools that we have, they embrace.

They're doing treatment planning and setting up templates and creating workflows that really are conducive to exactly how we think of digital dentistry and how we want to move things forward. So it's a good match. We have more and more DSOs that we work with. The DSOs that we have are really taking this to the next level, and it's helping drive growth. It shows up -- it's maybe more visible in the U.S. But we're doing this -- it's the same type of approach that we're doing in APAC and EMEA as well. So that approach is becoming bigger and bigger. And for us, it's something that it helps drive the business. And also when you look at that, the gross margin, very good gross margin because of the productivity that it drives. And we don't have to do as much that the DSOs are taking more of that -- some of that work that we would otherwise do. And certainly at the op margin level, they're training the doctors. They're working through workflows and so on. And therefore, we're not doing as much.

So at an op margin level, these are accretive to our business. And like I said, it really is a good proving ground to be able to make sure that what we're trying to do and what we're doing go-to-market you've got, like I said, that force multiplier across many doctors to see how things are working.

That makes sense. Maybe sort of switching geographies. How would you characterize the current demand trends in the major European markets?

Overall, Europe has been good for us. We're starting to see some of the signs of recovery. We saw it first actually in kind of Eastern Europe, Middle East and so on, where that volume has been double digit and strong for us. Now our presence there is -- there're smaller businesses. So there's that room to grow that we've seen, but that's been very solid for us for a number of quarters now.

We're starting to see Europe with the activities that we have, some of the new products that we've now just put there with IPE and DSP and so on as well as working with DSOs and the like in Europe, you're seeing some improvement there, Italy and even parts of Western Europe that are stronger for us and really starting to see some traction there. So we want to continue that. We want to continue to grow there and doing everything we can with our doctors, adding new doctors there, which has been good through training and so on. So we feel that Europe is on a good track. And like I said, the Eastern Middle East Europe has been on a really strong track. It just gets sometimes overshadowed by everything else, but it's good to see Western Europe in its path that it's on.

And maybe one more from a regional perspective. David Carr has been running Asia for a bit more than a year now. How has the company's strategy changed over that time?

I think he's brought a good focus to the business to say, looking at it from a holistic standpoint business-wise from revenue all the way down to margin and saying, okay, what's the right levers that we want to pull to be able to drive volume, be profitable revenue and make sure that our cost to serve all the way down, including iTero, make the most sense. So we've seen good improvements in some of the smaller regions like we've seen in Europe, where you're in some of that Southeast Asia that we've seen double-digit growth. His focus has been how do we get growth in ANZ, how do we get growth in Japan and China. Those are the big markets there. And every market is different in terms of what we're trying to do, but it comes down to some of the basics training doctors, get more and more doctors to be able to use Invisalign.

He's making good progress with that, and the team is engaged. Then once we have those doctors trained, how do we get them to do more and more cases. And so driving that utilization. And the team is good. It's separated. We got a full operation there, treatment planning in various countries. We have treatment planning in China and in Japan to be able to work with the local language and time zone and so on. And operations, obviously, manufacturing in China. So we're in China for China and really taking that approach as we go forward. But every country is different in terms of what we're trying to do, but the basics are there. Get more doctors to use Invisalign. And once they do, increase that utilization. That's driving the volume benefits there.

That makes sense. And I know obviously not a huge component in your business, but have you heard any updates on the ortho [ VBP ] rollout because that still seems stalled from...

Yes, it's delayed. I think you'll see this next year. It will start in the public hospitals first within China. Our business that we have in China is really small from a public standpoint. It's 85% is private. So it's a different dynamic. It will eventually, I think the pricing will get -- will make its way into private. But it remains to be seen how this will be implemented because you still have this difference between how it affects wires and brackets because it affects that as well compared to clear aligners and Invisalign. Remember, in China, the difference is, especially on the private side, doctors pass on extra cost for Invisalign or clear aligners in general.

So they might charge $3,000 for wires and brackets and $5,000 for Invisalign. So it's just -- there's a different dynamic there. It's not your traditional [ VBP ] where if you got a hip replacement, it's government is paying a certain amount. So they're going to push back on the cost and so on. So you don't have that same. But I think the takeaway for China for us would be is we're in China for China. We've made that decision years ago to have manufacturing, treatment planning, sales, customer support, all the operations that we need to kind of self-contain within China. So as that cost and other cost changes happen, we're in a position to be able to help manage that because we're there. We're not importing and having to deal with other restrictions that might come with that.

So we feel like we're properly positioned. We want to grow as much as we can within China. And look, if this helps reduce the gap that you end up with either to the consumer or the doctor between clear aligners and wires and brackets, we think that's a good thing because when you look at China's opportunity, 85-plus percent of the cases that are done with wires and brackets. Clear aligner is small, even after being there for a dozen years, this is still a relatively small piece of that overall pie. So if this helps us push the market through doctors or through end patients and get them to use more clear aligners, and we can help with that, I think that's a good thing in the end because I also feel that, that cost structure will help us be able to navigate that in the right way.

Yes. No, that makes sense. Every year for the past couple of years, maybe switching topics, you've rolled out a new direct fab product in terms of moving your evolution of that. And obviously, you've talked about your longer-term goal of doing the aligners via direct fabrication. What do you see coming down the pipeline for 2026 in that regard?

So the direct fabrication is an important part to our business. Again, the current manufacturing, you make the mold, you make the negative and then we have SmartTrack material, proprietary plastic that gets vacuum formed and then laser trimmed and then that makes the aligner. That's how most -- pretty much everybody manufacturers, and that's what we put out over 1 million a day under that process. The direct fabrication essentially will eliminate the mold and you're going to actually print the aligner itself. And to be able to print the aligner itself, you've got to do it in a way that is going to give the properties to the aligner so that it can move teeth in a predictable, reliable way. It has to be performance plastic.

And typically, when you direct fab something, it's usually prototype. It's just make it kind of one and done and you're not using it for what we need and to have that performance plastic. So we've had to scale up and first develop and now trying to scale up the resin. It's a resin that has never been used before, and it's a proprietary that we've created, biosourced actually to be able to make that resin and is very high viscosity. It's almost like -- it's not like the water that you would have or the liquid that you would have on normal 3D printing. This is almost like a butter at room temperature, very high viscosity. And that creates some of the performance plastic that we need to go into the aligner. And to actually print that, there's not a lot of companies.

We worked with a company that we've worked for a long time. We ended up buying the company called Cubicure a couple of years ago. That is really specialized into printing with high-performance plastics, this high viscosity plastics. And so that combination is what we've been able to use. And now we're starting to test and get to a point where we can now start to scale up. So the answer to your question is next year, we'll have our first retainer that will be -- it's a very specific retainer, especially for young children where say they use our IPE, the palate expander and they want to expand that upper palate. And as that happens, it always gets followed up with a retainer. You want to hold that position so that the bone can grow and give that child that upper palate that he or she needs. Same with like Invisalign First to expand the arch after that happens, you want to be able to hold that arch to be able to allow the permanent teeth to come in and so on.

So there's retention that's needed there. We don't sell at all nowadays. And when we create these -- the directly fabricated aligners, the doctor will have ultimate design flexibility to make that specific for that child, hold it in the right way, make it thicker or thinner in some places, maybe open when there's a permanent teeth coming in, but to be able to have this flexibility. You start with retainers and be able to -- be able to give this design flexibility. And then as you -- it will allow us to be able to scale up and we'll be able to start making more and more resin, you start making this on our machines and you start to be able to scale up such that you can then get to products, especially aligners that are maybe more complicated to make. We introduced a product called mandibular advancement with occlusal blocks. And it's a great product. And -- but for us to manufacture it, you make the aligner, the vacuum formed aligner and then you have to ultrasonically weld the occlusal blocks to it.

And it's manual or if you put buttons on, some doctors want to put elastics on their aligners and those buttons that Elastic attaches to, you have to manually put on. And so they'll evolve from retention next year to starting to do products that are maybe more complicated, time-consuming under the current manufacturing start to do them on direct fab. And that will play into 2027. And like I said, once you get to then manufacturing of aligners, that's been our holy grail. That's when we want to be able to give on a more mass basis, those doctors flexibility to make the aligner how they see fit. So from that standpoint, unlike the current manufacturing where it's basically the same thickness on everything. Now the doctor will have flexibility. They could put -- maybe put more plastic on molars and cut it differently and do whatever is the best to be able to move teeth in a predictable, reliable way, that gives those doctors that opportunity, and it opens up a lot of opportunities for us to be able to manufacture in the future.

And as we've scaled this up and you think about under the current technology where you throw away 80-plus percent of the material that you make because that's the negative, in the current manufacture -- or the new manufacturing, you won't have that negative. You just print the aligner. So you save yourself a lot of material costs. And as we scale up, you not only get the design flexibility that I described, but you also get some of the material and labor savings that we'll have, which will end up being cheaper than our current manufacturing. So you get that productivity as you scale up. So there's various steps to go through. And remember, we make over 1 million aligners a day under the current manufacturing. So you want to titrate this the right way, but it starts with retention, then gets into more complicated products that we currently make. We'll use this new manufacturing and then you start to get more mainstream aligners. And as you get to that, you see that productivity benefit as well.

That makes sense. And how do we think about the CapEx investments needed to roll that out?

Yes. So the Cubicure we own, so that's -- they make the machine. So we'll be scaling those up. Really, when you think about it, we're adding CapEx on a regular basis, mostly for equipment to meet our current demand. So that will shift from current manufacturing to future manufacturing. For the most part, to start, the manufacturing will be in our current manufacturing locations, so Poland or Mexico. So you don't need to build a different building or just modify kind of where you're at. So we'll be able to leverage some of the assets that we already have to be able to scale this up. And then some of that manufacturing capacity, we're always adding. So we'll have this. So I don't expect a dramatic change in terms of our profile that we have. We're kind of spending in the 3%, 4% of revenue. That should be something that we need as we scale this up as we go forward. And right now, that's kind of how we see the trajectory for CapEx.

That makes sense. Your margins in the third quarter took a nice step up from the benefits of the cost plan that you previously announced. As we sort of sit here at the end of 2025, how do you think about the opportunities and sort of what was easier to do shorter term? And now as you move into some of the sort of medium-term things, how would you -- what are the opportunities there?

Well, some of the benefits get to the products that we have. The gross margin that we have in the products that we talked about, when you don't have refinements, either 0 refinements or low refinements, it's better gross margin for us. So we see that. We also see some of the productivity that we've restructured and done some things in the third and fourth quarter, and that's playing out. You saw some of that in the third quarter where we had some capacity that we had in certain areas that we didn't need, accelerated that depreciation, moved to some equipment that drives more productivity. That starts to play out really the second half of this year, but then in a full way next year. The U.K. VAT has gotten a lot of visibility, but that's $30 million or $35 million of pure price that we were giving to HMRC for that lower court rule, we didn't have to do that. That went away in August of this year. That continues to benefit at least on a year-over-year basis so that we don't have that.

So there's multiple ways. Some of it's product. Some of it is just leveraging our facilities. When we have more and more product coming through, we get that return on the assets that we have. That shows up in productivity and then some of the one-off things that we have with the U.K. VAT and others that we have. But we're committed to being able to grow the business, grow the volume and revenue, but do it in a profitable way, being able to generate gross margin improvement, and we want to be able to show that and then also deliver the op margin and earlier said, the 100 basis point improvement. That's despite the scale-up that I talked about with the direct fabrication because the scale up initially, there is that direct fab itself as you -- before you've reached kind of a critical mass of production, it is negative from a gross margin standpoint. You just -- you need scale to be able to see that productivity. But despite that, there's a lot of other things that we'll do that will net us out to positive gross margin improvement as well as op margin improvement.

That makes sense. And then longer term, how do you think about what the right operating margin is for the company if you're growing at the low end of your long-term guidance of 5% to 15% versus the higher end?

So as we continue to grow and like I said, all the initiatives that we have, we want to be into our long-term model. And that 5% to 15%, we think that, that can still generate op margin leverage. And so that's our expectation for next year, some of the cost actions and other activities that we have. But we want -- we're really committed to our long-term model, the opportunity is there for both on the ortho and GP side and the efforts that we have to be able to grow, sell to more doctors. We were really pleased with the fact that we sold to more doctors than we ever had in the third quarter, 88,000, but there's 2 million doctors across the globe. So there's a lot more opportunities to sell. There's a lot more opportunities when you think of 80 plus -- 80% of the patients in the world for orthodontic treatment are done with wires and brackets.

So we want to grow volume. We want to do it in the right way to generate the revenue benefit. But when we think about the productivity and the other margin improvements, we want to get things right. We want to make sure that our cost to serve is right. That's what some of that restructuring was on the variable side. It was also done on the OpEx side, looking at layers and span of control and so on so that we can generate that op margin benefit. Because in the end, what we're doing with that op margin, it generates a significant amount of free cash flow for us. We've got no debt, $1 billion on our balance sheet of cash. We're able to use that cash to fund the business. That's first and foremost, some of the CapEx that we described, but then excess cash goes back to our buybacks. And we've committed to that, and we saw a fair amount of that this past year. And and we'll look to the future to see how much more we can do.

That makes sense. And maybe also ties into my next question. How has your approach to M&A changed in the past couple of years? Historically, for good reasons, you haven't wanted to do growth dilutive deals, but the sort of the industry growth rate has maybe changed a little bit and your growth rate has changed a little bit. How does that present additional opportunities that maybe previously wouldn't have worked out?

Our focus is clear on where we would do an M&A. It's got to be M&A around moving teeth. We move teeth. We are a digital orthodontic business that moves teeth that way. That's how we were set up almost 30 years ago, and that's our focus. When we add in companies that we had or make investments, it's all around that. When we bought Cubicure, they're making our printers that are going to be for the direct fab. When we bought exocad a number of years ago, they had the lab interface and a lot of the visualization that we're now enjoying the benefits of with Smile Architect and some of the other restorative tools and so on that they brought to it. But it's all around kind of that ecosystem of moving teeth, doing that digital approach to things.

So that's our focus. There's not a lot of companies that are kind of in that space that would fit that overall. But if it's the right company or the right partnership that we could have, that's around moving teeth in the digital way that we do, that's something that we would look at. But it's really staying focused on what we have. We have invested in some DSOs and others who share that like digital orthodontic mindset. That's something that's done well for us, but it's very limited in terms of what we do within the market. Don't look to us to surprise some of you or anybody else on we're going to do something that's just in the dental space. It's got to be very specific to our business.

Got it. No, that makes sense. Maybe in the last couple of minutes, like if we're sitting here in 2026 in December, what are you, a, going to have been most excited about that you accomplished over the course of the next 12 months? And then sort of what are you going to be looking forward to as you go into '27 at that point?

That's a good question. When I look at what we're trying to do now and into next year is basically assuming that the markets kind of stay where they're at. There's -- economies are kind of where they're at. Maybe there's some tailwind that happens as you talked about stimulus or taxes or maybe just inflation gets better and so on, maybe that happens. But our plan for next year is it stays as it is. And with that, we should be able to do things that drive this active conversion approach.

We should be able to help our doctors with products, the product portfolio that we have to give them choices to help them with some of the customer marketing and co-marketing to be able to drive demand and drive demand to their practice that leverages our brand and our products and so on so that it increases Invisalign volume and therefore, revenue, but really get -- so that what we're seeing in DSOs and what we're seeing with some of our larger doctors gets to the mainstream, regular doctors, what we call like these retail doctors on the ortho and GP side so that they can really start to embrace more of the digital technology, show the productivity that they get and not only the productivity that they can get the profitability that comes from that. So really just getting more and more doctors to see this and to believe this and see it firsthand. And if we can make -- get more and more doctors to do that, we can control our destiny.

We can control our destiny into next year. And if we fast forward to 12 months, I'd love to be able to have made progress on that. Maybe the economies get better in certain areas, great. That's a tailwind for us, and we could be talking about even more growth as a result of that. And then as we're sitting here in 12 months, I'd like to also be able to talk about some of the success that we've had with our directly printed products, retention, the features that doctors are using, the excitement that would be around that and to be able to make sure that we're building that up and starting to scale that up so that we're actually doing aligners and being able to talk to the first aligners that are going to be coming out, maybe the more complicated products. But it's run the core business, be active about that conversion and then start to scale up some of the direct printing. If we're doing that in 12 months from now, that will be a good 12 months.

Got it. And then for that demand side, what would you advise investors who are looking at the company externally to sort of focus on to sort of check up on progress on that?

Yes. I think you'll look to see some of the volume that we're driving. Can we drive the volume? Can we get into some of the longer-term models that we have? Where are we seeing that volume across geographies between DSOs and not. Obviously, North America gets a lot of attention. We want to be able to see that stability there and be able to grow against that. I know a lot of external metrics get there with Michigan index and so on. I would say don't be as concerned about if it changes by 1 point or 2 points here or there. It's really the more significant changes that affect our business. And like I said, right now, in a stable environment, a 1- or 2-point change is not going to be as much of a difference. So -- but I think it's just looking for our volume growth, looking for us to sell to more doctors.

As we sell to more doctors, they should be able to use the products and increase the volume that they have, increase their utilization. Those are key metrics that we have, selling to those more doctors, getting a higher volume and then seeing where that growth is, getting some stability in North America and then seeing some of that growth that we talked about international as well as DSOs those will be key metrics that we want to be able to talk about as we go forward.

Sounds great. Well, I think that's a great place to leave it. So thank you so much.

Thank you.

Good morning. Thank you all for coming. Clock just ticked to 8 a.m. So let me be the first person to welcome you to Piper's 37th Annual Healthcare Conference. If you are in this room, you are a client of our firm. So obviously, they're not all here. But I'd like to thank you very much for your business and your partnership. We obviously couldn't do it without you.

It's my pleasure to introduce John Morici, the CFO, and Align Technology and Jason Bednar as Senior Analyst and Managing Director at Piper Sandler. Gentlemen?

Thanks, Jim. Yes, welcome everyone, and glad to have you all here. I'm really happy to kick off the the conference here with John. John, we were just talking and we've had a lot of interactions here just in the last 24 hours at the dental conference yesterday and also dinner last night. I think I'll start probably the same way I started each of those this time we talked with, I think, what's very pertinent for a lot of investors right now, the U.S. consumer. It's probably a very common question you get.

The recent consumer confidence numbers didn't look great. I think we're also going to have a little bit of a vacuum just with government data here. But what are you seeing? I mean do you think that consumer right now is stable. Is the consumer under pressure? How are you seeing things with respect to the U.S. macro environment and the consumer you're selling into?

Yes, it's a good question. And you're right, we do get this a fair amount. When we look at the data that we see and kind of how the consumer is behaving, especially when it comes to our Invisalign and coming to doctors and so on, we would say it continues to be stable. We saw this in the third quarter. It really has stabilized, and that's kind of how we look at what's happening within the U.S.

Obviously, there's puts and takes in different geographies and so on. But overall, we would say that stability is there. And I think when you put that against some of the consumer metrics that are there, Michigan and others that people use slight changes, it's not really that noticeable. There's dramatic changes, then there's an impact maybe one way or another. But I think when you look at some of the indices that are there, you haven't seen a broad dramatic change, and that's good for our business. We want that stability. We want to be able to operate in that environment, especially in the U.S., like you said, North America, big markets for us. And when you have that stability, coupled with the things that we're trying to do and we can get into a lot of that to drive that conversion, it's a better environment for us.

Okay. Pretty controllable environment you characterize it as for yourself?

That's how we would look at it because there are -- the work that we have, we do with our doctors to be able to help drive active conversion and there's a lot of new products that we have to get people interested in different types of treatment. There's marketing and co-marketing that we'll have with our doctors and our dental service organizations and others to try to create that activity, keep people interested in treatment, couple that with visualization and if the right pricing is there for that potential patient they'll transact. But it really starts from having a stable environment to be able to do that.

Are there any green shoots that you'd characterize as seeing in the U.S. specific income bands, geographies, adults versus teens DSOs, I'm sure you'd say DSOs, the DSOs versus private practice. Where are you seeing maybe some better performance within your business in the U.S. and then we can talk about the outside of the U.S. as well.

Well, certainly, within the U.S., when we talk about the dental service organizations, whether on the GP side or on the OSOs on the orthodontic side, they're doing a good job of what we would describe as active conversion. They're doing a great job of scanning every patient, showing them the visualization of what your teeth will look like before treatment and after treatment with a lot of in-phase and video visualization.

They'll provide in many cases, great pricing that they'll fund to try to get that potential patient excited about treatment and then usually follow it up with some type of financing, so that per month payment is acceptable to that potential patient.

So DSOs and OSOs are doing a great job with that. I would say if you looked at other parts within the U.S. we're seeing good uptake in some of the various products that we have. So when you think of the teen adoption of products like IPE, the palate expander, products that have mandibular block. They've really taken off, and we see better and better utilization as doctors get more familiar with those types of products.

So that's helping us. That will help us on the team side. And then as we go and really try to be selling to more doctors and driving that utilization, we're taking that active conversion approach with our doctors. And the retail doctors are the most -- the predominant number of doctors you have in the U.S. and many of them individual practices, individually owned. And so taking products as well as the active conversion approach to help with co-marketing, help with helping drive patients in taking some of those activities to try to turn those potential patients into patients.

So it's a ground game that you need. It starts with products. It's way to go to market. DSOs are a force multiplier for us. They take all the tools and all the products that we have and be able to help drive that conversion. But that's what we want to continue to do within the U.S. and other markets that we have. Once we can do that, we can be able to grow the business.

All right. When we touched on international yet, but we can maybe in this question. When we think about your business taking a step forward, I think we're all trying to wait to see if we can get back to that in the low end of that LRP that you put out there earlier this year, plus 5% to 15% on revenue growth.

In order to get there, do you see that happening more with the U.S. getting better and some of these active conversion efforts helping? Is that the bigger impact? Or is it more international taking a bigger step forward than what it already has?

I would say it's both because when you look at our business, over 50% of our business is outside the U.S. So when we think of all the things I just described in the U.S., we want to be able to -- we start with the stable environment and then all the active conversion ways that we go, including the DSOs, that gets us some improvement there. And then when we build outside the U.S., which we have seen good growth where places like Southeast Asia, Latin America, Eastern Europe, really other parts of Europe, India and Turkey and so on, those places are growing double digits.

We're at that double-digit growth. You're seeing good adoption of the products, a lot of the new products that I talked about. You've seen good adoption of things that we have to go to market with some of the products like doctor subscription program where the touchup cases and others, which really helping drive a significant amount of volume for us.

So when we think about growing as a company, we want to continue the growth that we've seen in international. That's come back faster for us, certainly since COVID, we want to continue to grow there. And then as we build back in North America with the active conversion approach. DSO, a big piece of that, but then all the work that we're doing on the retail side.

Right. Do you think you have enough, call it, demand forecasting ability to say we can sit here today and say what the U.S. is -- we see path to U.S. getting better from where we're at right now as we look ahead through the coming quarters?

That's the plan. I mean we're not guiding for next year yet, but the plan is that we want to continue to see incremental improvements and if you looked at the year so far, you've seen that. I mean, first half, much different than I think what you're seeing in our second half, some of the volume, some of it that revenue improvement that we see on a year-over-year basis. It comes from having stability in the various markets, but we want to be able to push to try to drive growth, both in North America as well as outside.

Okay. And maybe the last question is on this macro topic. Can we do all of that and wrap it back together with where we started. Can we do all of that on the improvement and driving active conversion if the U.S. macro simply stays stable?

That -- we're not planning for -- when we think about our overall plan. If macros get better, that's a tailwind for us. We're expecting that based on what we see now, it stays the same. If there is some improvement in macro or some benefits that they see inflation gets more in check in certain countries or interest rate changes, and that helps stimulate demand. That's a good thing. That's a positive for us, but it's something that I would look at that as a tailwind. We're not factoring in.

Okay. All right. Perfect. Maybe transitioning over to some of your international markets, some of your bigger international markets. Those have been better Europe has been doing pretty well, as I say, across all the dental. It seems like just from our conversation last night, I thought you sounded pretty good on the overall China market and the demand environment as it stands right now.

So maybe just to revisit some of those points, where are you seeing some of the investments pay off the most in Europe? And then when you focus on APAC, let's bring the [indiscernible] on having a more positive view or rosier view on China relative to other parts of med tech where it's a little choppy right now.

Well, when you look at our international business, just as a whole, when we think about even comparing it to North America, our international business is very under penetrated. In many cases, as we've gone direct and we're working our way through those markets. There's just a vast majority of cases are done with wires and brackets.

So we start with that, where we think that as we come in, be able to come in with new products, training doctors, getting them to understand the digital orthodontic process that we bring, scanning every patient, visualization, helping them with ClinCheck to be able to help these doctors get through these cases and then build confidence to do more and more cases. That's the model that we've run and internationally, there's a lot of run rate for that.

So when you look at markets that are relatively new to us, but we're seeing tremendous growth even in places like India, where we were almost nowhere just a few years ago. Now it's a significant part of our business and growing strong double digits. You look at Korea and other places that we've been for a while, but this underpenetration of the market gives us huge opportunity, same way in Brazil, same way in in Turkey, Eastern Europe.

You mentioned other parts of Europe. We're seeing great growth there. It's coupled with some DSOs that we have there as well. But then it's also really the introduction of a lot of new products there that they've just started with IP, just started this year, DSP, our touch up subscription program just started this year. And as they get further and further adoption, it accelerates case growth. So great opportunities there in some of the newer markets that we're in because of just the newness of that and the underpenetration. And then even in markets that we are as we introduce new products and work with DSOs and so on, we're seeing an acceleration there.

With China, China is -- it goes to the fact that the vast majority of cases, over 85% of the cases there are done with wires and brackets and less than 15% are done with clear aligners. We're the biggest within the clear aligner, but it's one where there's -- there's not a lot o reimbursement especially on the private side. People pay for brands. They pay for quality. And in many cases, it's out of pocket. So the majority of our business within China, 85% of our business is private. On the private side, we're usually in Tier 1, Tier 2 cities. So doctors end up charging more for Invisalign compared to other types of treatment and people pay for it. And so we're a little bit insulated from that in terms of how we go to market. But in China, we've been in that market for a long time.

Even before COVID, we had manufacturing, we had treatment planning. We've got a direct sales force. We've got our entire China business contained within China.

So when we see the dynamics that go on and what you have within that market, we're able to navigate because we're there. We've made those investment decisions and the growth opportunities that we've had there for a long period.

All right. Maybe double clicking on China and the whole VBP conversation that's very topical for investors right now. As you're going through your own strategic planning, budgeting process and thinking about the puts and takes about potential VBP hitting the orthodontic industry, Braxton Meyers and Clear Aligners. How are you, I guess, planning for that today, knowing that it's probably coming at some point next year?

You're right. It will, at some point, it was delayed a little bit this year. The expectation, just like most VBP plans that they have in China hits on the public side first and then usually makes its way to the private side.

Like I said, most of our business is private versus public. So maybe it takes a little bit longer. But it's an interesting one because when you think about. There's a big difference between the cost to a doctor to provide Invisalign or any Clear Aligner treatment compared to wires and brackets, a big gap in terms of what we're providing wires and brackets might be $100 or $150, maybe and Clear Aligner might be $800 in China.

So you're at a big difference in terms of the cost of the doctor. VBP will affect some of those prices. It will actually shrink the gap between wires and brackets and Clear Aligners and say, for Invisalign. So the expectation is, and I think what happens a lot with VBP is the products that get their cost impacted the volume goes up and you'll see that benefit in. And I said at the start of the China discussion. Vast majority of cases are done with wires and brackets.

So if this gets us to a higher utilization, more doctors wanted to be trained. We've seen that within China, record number of doctors that want to be trained and signed up for things because I think they understand the changing landscape and so on. If it gives those doctors and then ultimately, patients more access to Clear Aligners and therefore, Invisalign, we think that's a good thing.

On the private side, it's still going to be paid usually externally anyway. So it will kind of remain to be seen what doctors do in terms of how they pass things on or not. But also the fact that we're there kind of with our manufacturing and cost kind of contained within China.

As the volumes change and cost change, we think we're properly positioned. If we weren't in China and we didn't have the footprint that we had there, I'd be more concerned with it. I think given the fact that we've made these decisions and we've been operating in China as a stand-alone basically there for a number of years, we think we have the right position.

So the glass half full view of all that is there might actually be opportunity to accelerate the conversion from Braxton wires to clear aligners because post VBP that dollar gap between the, call it, the cost to acquire each of those for the doctor is going to be narrower than where we're at today. Even if they both come down the same percentage, it's just the way the math works.

The math will work if you take take 50% out of both of those examples, $100 versus $800, okay, still 50% impact on both sides, but the gap is closer. And in the end, if this could help drive utilization and get doctors to do more cases and ultimately pass that on to the patients if your costs are positioned properly, that's not a bad thing. That our name of the game for the company, what we're trying to drive with Invisalign is to make this a standard of care. And there's different ways to do that. That's maybe more of a top-down approach that the government takes. But ultimately, we want to be able to make Invisalign the standard of care, digital orthodontics versus the analog process that mostly exists today.

All right. When we use this VBP conversation a segue a little bit into pricing. How are you thinking about -- you've got a lot of moving parts with that factor in the pricing. We hear them every quarter, but VBP could be a new one, maybe a new headwind next year depending it goes into effect and what the actual terms look like.

I guess how does that factor into your thoughts on the pricing that you be talking to all of us about here soon. I think you've been mentioning down low single digits, down 1% to 2% is the right way to think about ASPs for Invisalign for the business over the long term.

Does that still hold next year even with something like VBP coming into play?

That's the expectation. And that down 1 or 2 points on a year-over-year basis is -- I would look at that as purely mix. And there's 2 types of mix that hit our business. One is the geographical that you're just talking about China would be a good example of that. You're going to have -- there's countries that we operate in that are growing tremendous growing over 20% year-over-year that just have a lower list price for the products.

You're in India or you're in China or you're in Turkey or Latin America and so on, the list prices are lower. It's just what that go-to-market is, what that market will bear. As they grow faster, you have that country mix. You see that play out, and I talked about it in the third quarter where China was so much larger than say, on a year-over-year -- quarter-over-quarter basis than even Europe.

So Europe was down in volume on a sequential basis, it impacts ASP. You see the reverse of that on the country mix going from third quarter to fourth quarter where China is less as a part of the business and Europe is more. That's exactly what plays out on an annual basis as well. You have different growth rates for countries that have the different list prices.

So that's one part of that mix that affects ASP. The other part is product mix. When you think about some of the new products that we have with palate expander and some of the touch-up cases that we have, they might be an ASP of $600 or $700 or $800.

Now the cost to serve on that is also very low for us as well. So the gross margin on those products might be 75%, 80% because it's really almost touchless in terms of the AI that's used to be able to create that case and then the manufacturing, there's no refinements and so on. It's very straightforward for us.

So the gross margin rate is better for us. But that's what the market is. The market is shifting in a way to be able to doctors want to have. Sometimes they don't want to have all these refinements built in. They want to have just maybe it's a simpler case or maybe as you train new doctors, those new doctors aren't going to do more complicated cases to start. They're going to start with more of the mild cases, and those are just lower list price products for us.

So it's not -- the change in ASP is not through the discounting on a like-for-like product. It's really the doctor's behavior that operates within certain countries as well as the product portfolio that they choose.

All right. That's also a perfect segue. And the next thing I wanted to touch on, we're down to a few minutes here. So portfolio evolution, this has been constant at Align. I do think we might be on the cusp of one of the bigger evolutions in the portfolio as move down this path of fewer or zero refinements and fewer additional aligners.

Am I wrong on that? Do you think this really shakes up the industry? And I ask it that way because I'm convinced others can't follow you in doing exactly that and drop -- effectively dropping the price in you're not dropping like-for-like, you're dropping the price moving doctors to a certain product that I don't think that other competitors can follow you to. So am I right on that? Or is that -- would you refine any parts of that characters?

No, it's a good starting point. And just so everybody understands where we're coming from when we came up 10 years ago, we had a product that was the comprehensive unlimited, the ultimate, where it was 5 years unlimited refinement. And why did we do that? We wanted to drive orthodontists, especially but all of our doctors give them the confidence that they can finish a case, 5 years, you have 5 years to finish a case, unlimited refinement and getting doctors to say, "Yes, I'm going to use Invisalign to try to finish this case, and we were going to show it. 10 years ago, and you think about how many hundreds of millions of dollars we spend in investments to make our products better and better. As that has improved over the years, what we're finding is that we can help doctors finish cases faster.

Good example of that, 3 years ago, we introduced a product that -- it's a comprehensive, but it's now instead of 5 years, it's 3 years. And instead of unlimited refinements at 3 refinements over those 3 years. That's our #1 selling product right now. And what it does is it gives doctors confidence to be able to finish cases, it reflects the technology that we put into the product and they're able to finish faster.

Now as the products evolve and giving doctors more options, we'll have a product that will be 3 years. It's a 3-year treatment, but it's no refinement. And if they want a refinement, then they can pay for it as they go. So think about it, it's a -- these are products, they're still comprehensive products, but it's giving doctors a choice.

Do I want essentially a service plan that I want to buy upfront. That would be the comprehensive unlimited, unlimited refinement that will help you finish the gate or do you just want to buy the product and do this and finish the case, maybe you don't need to refinement. If you do need a refinement, then you end up having a -- to pay for that as you go. And we think and we've seen this as we've tested that, that gives doctors choices.

And when they have choices, especially when they're comparing them to wires and brackets. And again, that initial cost that they have, that gives them the ability to use more cases. And if we can help -- if this can help drive that utilization and therefore, get doctors to do more and more cases and move from the share of care where they're at to something higher we think that's a good thing. And this is just an evolution. It's a technology that's gone into the product to make them better, to give doctors more confidence to finish cases in a predictable and reliable way. And we think it's something only we can do given the technology that we put in. And so it's just part of our portfolio. You're not retiring something else. You're just adding to the portfolio to give doctors more choices.

All right. Quick one-word answers here in the last 30 seconds on 2 different things. So hopefully, I'm not opening up a can of worms. But when do we end up seeing zero refinements rolled out across the globe. And then a separate question, direct fab, what does that look like in 2026?

So 2 quick ones. In terms of the zero refinements, it's already rolled out to some of our DSOs that we have in North America and other places. We'll see it broader in North America starting in the first quarter and we'll see what that uptake looks like. But again, giving those doctors options.

Direct fab, we continue to work through scale-up. We'll start to see some of the first products coming out in the middle of next year that start with retainers and maybe more of the complicated retainers to start. They give doctors some unique ability to hold some of the spaces that they need in patient's mouth. And that as we build from retention, it will get into some of the more complicated products that we have to manufacture like mandibular advancement with theclusal blocks and some of these other manual processes that we have to do to Aligners now. We'll start direct fabbing those later next year and then start our scale-up process on Aligners into 2027.

All right. Excellent. Thanks so much, John. I appreciate it. We're out of time.

Great. Thank you.

I'm an analyst on the U.S. Medical Supplies and Devices team, and this is a session for Align Technology. From the company, we've got Joe Hogan, President and CEO; John Morici, CFO; and we've also got Shirley Stacy here as well. So thank you all for joining us today.

Of course.

Thanks for having us.

I guess just to start off, Joe, can you just talk about how you think Align is positioned strategically in the clear aligner market? And what are the key areas of focus over the next few years?

Yes. I feel good about Align from a strategic standpoint. We've been at this almost 30 years, obviously. There's no company in the world that knows how to move teeth better than us. When you look at our assets, the way they're spread right now, strong plant in China, Poland and Mexico, we have the different poles covered extremely well. The breadth of our technology has gotten better now with IPE and mandibular advancement and some different products. We can do 100% of the cases that are out there today.

There's really no competitor that can really talk about that, too. And we could talk about also the 3D printing and the next stages of 3D printing and also touchless kinds of ClinCheck. We can move cases faster with more predictability. So I think from an overall global standpoint, from a technology standpoint, from a logistics and manufacturing standpoint, I feel really good about our position.

Great. Thanks for saying that up. I guess I did want to start with kind of 3Q results in the U.S. market. You saw some improved year-over-year growth, but some challenges remain. So I guess can you elaborate on those challenges and just talk about are there any efforts that Align can be outside of an improvement in macro backdrop that can reduce those challenges and help us accelerate growth in the U.S.?

Yes. Mike, I'll start and let John jump in. First of all, we felt good about the third quarter overall. Obviously, we beat guidance and following a disappointing second quarter overall. We felt good about Asia and the strong growth in Europe also in Latin America. North America was the one we pinned down. Obviously, that's still a challenge. But you contrast that with our DSO business, it's growing double digits, some over 20% which is a significant part of our volume now with more of a sluggish retail business.

And look, we're not going to wait for the winds to blow again and tell you what are we doing? We're trying to obviously solidify and grow our DSO base work with financing and some other tools that we know that can help retail base, too. We have a good sales force, and we feel we can make some progress in that sense. And John, what would you add?

Yes. When we talked about of our top 10 markets in the third quarter, 9 out of 10 got better on a year-over-year basis compared to the second quarter. So that was good to see, including the U.S. As Joe said, it's not a great economy in many places. But when it doesn't get worse and it doesn't change, we have a better operating environment to be in. And I think the key that we talked about, and it's true is that active conversion or helping drive that active conversion really makes a difference. And it's being able to work with our customer base, whether it's the aggregators like some of the DSOs or even individual doctors to be able to help them drive patients to their practice. They scan every patient. They show a lot of the visualization and then it's usually followed up with sometimes a discount or financing that, that doctor provides.

That's what's driving conversion. That's what you see with the DSOs where they're taking that active approach. And many of our doctors are doing that so that they can operate in a challenging environment and be able to drive conversion. When the consumer gets better and maybe some of the economies get a little bit better, that should give us a tailwind. But even in this environment, that activity is driving results.

Yes. That's helpful. And I did want to drill down there. You've talked about the U.S. retail accounts recently and in the past and moving downstream from a marketing standpoint. And I think you've also mentioned and you can correct me if I'm wrong, DSOs are about 25% of the business.

Overall.

So with retail accounts,accounting for the vast majority. I guess, how do you think about time lines for some of these efforts going downstream to actually bear fruit?

Well, I think we're seeing it now. I mean we talk about marketing going downstream. So we use our brand, which, obviously, it's one of the major assets that we have. But we're moving close to certain ZIP code areas. We advertise aggressively for the doctors that we have in that particular area. And we've been trying that out over the last couple of quarters, and we've had good success in that sense. So we're going to have -- we're getting better at it, and you'll see us do more of it.

And some of it's product related, too. We talk a fair amount about some of the products where if we don't have to offer products with refinements, and that's what DSOs are doing a lot of. They're taking the product said, look, they want a comprehensive product and they don't want to maybe have unlimited refinements. They just want to pay for the product. And then as they need to do refinements, they pay for them going forward. We're perfectly fine with that. That's driving increased utilization with DSOs.

In addition to what Joe said, that activity that they drive and that go-to-market is bearing fruit, but then also giving products to those doctors. That give them a way to purchase. Sometimes you don't need to purchase this extra service, which is what refinements turn into, just purchase the product, that acquisition cost is lower. That's a good way to go against some of the wires and brackets because that upfront price is still higher than wires and brackets, but it's closer. And that gap that some of those doctors who haven't digitized as much might be more of an incentive. And we see that with our DSOs.

And can you remind us where we are in the rollout of some of those products with the lower upfront cost?

So some doctors are already using that we've seen with some of the DSOs that we have and more of that rolling out to more of the retail side. So by early next year, we'll have more of a product assortment. It's still -- it's a continuation of really our strategy. As we put more technology into the products and really have them so that they can move teeth in a faster, more predictable way and really give doctors those tools. This is just a further evolution of that.

And because those products have gotten better, if you give those doctors different choices so that they might want to do a refinement or they might not, but they don't have to pay for it upfront. That is a good evolution of our portfolio and something that we've tested for over a year now with some of the larger accounts. We think we can apply it to some more of the smaller accounts and retail accounts and we think that will drive utilization and we should see some benefit early next year.

What John and I worry about sometimes too, we don't want the market to think we're somehow dumbing the product down in that sense. Remember, we sell a comprehensive product, a comprehensive product back in 2015, 2016 when I started, and we did the 5-year additional Aligner kind of a play. We had to do that because doctors, orthos and GPs didn't have the confidence that they could finish those cases and they wanted to guarantee in insurances.

Today, we average like, what, John, 1.6 refinements per -- the algorithms are much better. Material has been better obviously. And what we're able to do is similar or better margin rates to just say, look, by the AA if you ever need it, and that puts in line with the patients need the doctors needs are with us and it helps us see our technology has really evolved in the sense that the doctors have much more confidence. They can close these cases and they don't need 5 years to do it.

Yes. That makes sense. And John, you mentioned you're seeing this resonate with the DSOs. Like I guess, what's the feedback from some of the retail accounts? And is there some element of elasticity of demand with the lower...

They like the options. They like the flexibility to say, look, I'll pay just for the niche case front and they like the flexibility to say, look, if I want to buy the product with extra service or extra confidence, I can buy that product, the 3 and 3, the 3 years with 3 refinements or the comprehensive unlimited, which is unlimited refinements over 5 years. And a couple of the case histories that we see where just 3 years ago, we put out a product, the 3-year with 3 refinements. And because before that, it was comprehensive unlimited. Now 3 years later, our best-selling product is just 3 years with 3 refinements. And it just goes to show you're selling to doctors the way they want to purchase, give them that flexibility.

This is another further example of if they want to have a product that is -- has a 3-year life on it with no refinements built in, that's fine. And then they'll just pay for them as they need them going forward. So I think it's the product capability that we've seen benefits on and then also the offering to give that flexibility to those doctors. That's what the retail doctors are coming back to us and saying that should be an effective way to go to market.

But the last part of your question, too, on the price elasticity piece. We know there's a big price elasticity curve in this business. And it gives doctors more freedom to be able to address that with their patients, too. So that's part of the deal.

Got it. That is helpful. And then you're coming down on the upfront price. Can you just remind us, have you incorporated that into your LRP guide? And I think we've spoken about this in the past. You mentioned the 1.6 additional aligners. Is the way to think about it, basically, assuming that 1.6 additional aligners hold, it gets us kind of to the price where we are today on an upfront basis?

Yes, because remember, the way we calculate ASPs, I mean, when you have refinements that are in future deliverable, we have to defer for that revenue. So when you have a product that you don't have future deliverable, you recognize all that revenue upfront. So it's accounted for the same and essentially, you're indifferent to whether you have one product or another. The cash is a little bit different. You get more of the cash on a comprehensive unlimited upfront versus later.

But from an accounting wise, you can see that benefit, and that's contemplated in our ASP. So don't think of this as, hey, this is some price change that's going to turn into an ASP or impact and so on. This is helpful from an ASP standpoint in terms of our numbers, and it's certainly helpful from a gross margin rate standpoint.

So when you think of our portfolio, when we have less refinements, less future deliverables, that's a higher gross margin rate on those products. So think of some of these products that are even comprehensive like this at 75-plus percent gross margin because you don't have to do all this additional treatment planning and then the manufacturing, the shipping that can happen several times later. This one is, in many cases, you could just do that initial shipment, and that satisfies and it does the case. If they need refinements, they pay for them later, but the gross margin rate on these is excellent.

Great. And I did want to ask about 2026, not asking for you to give any guidance here. But how do you think about the growth levers you can pull to maybe accelerate from the low single-digit kind of total revenue growth we're expecting in 2025?

I look at from a regional standpoint, we felt good about growth in Europe and growth in Asia, particularly China and different parts of Asia overall, Latin America. So we look at that continuing. We think some of the items we talked about today that we'll be able to address more of a latent retail market in North America. We'll push -- continue to push our DSOs. Our portfolio expansion, when you look at IPE, when you look at mandibular advancement, those new products too, they'll have a whole full year of being distributed all throughout the world, too. And that will be another tailwind for us from an expansion standpoint, too.

We'll leverage the work that we're doing in DSOs and continue to grow that, but really take that active conversion approach that we still need to spend that consumer marketing and getting that awareness. But if we can work with our customers and get lower down to try to drive that conversion at their practices, we think that's a good use of our spend, and that will be something that we continue next year. And it also makes it sticky too, where someone comes in, they want Invisalign, they actually get Invisalign that they want. And having that activity at the lower level at those practices, we think is beneficial.

Got it. And I did want to ask on the iTero side. I believe you've mentioned in the past that you're ending servicing support for some of the older element systems at the end of this year or maybe starting in early '26. And I think you've said there's about 4,000 kind of earlier elements out there. Can you give us a framework for how we should think about a potential replacement cycle? And do you think macro conditions could maybe mitigate any impact of a replacement cycle in 2026?

I mean we will officially end-of-life those in January 1, 2026. We have good line of sight on where they are, what they do, how much Invisalign they produce. And we have a lot of options besides Illumina and our 5D Series to be able to back them up. So I don't think, Mike, there's any I mean, you go through end-of-life things all the time in different equipment businesses or whatever. The trick is always to make sure that you understand where those are that you take care of those customers as much as you can. And you'll see us -- we'll do a good job in the next 12 months to be able to switch most of those out to...

Yes. And we're actively -- we have promotions and opportunities for our doctors to switch those and trade it in, get a new scanner. Some of them may be still even don't want to purchase a new scanner, there's ways that they can lease or rent and so on. So there's multiple options. That 4,000 is less now because many doctors have decided to do that. But we want to give them the best digital experience possible and having a newer scanner gets them to as it's more integrated into our systems. And -- but it's part of the cycle that you go through where you have existing equipment that's in the marketplace.

Got it. And also on the iTero front, more recently launched the Illumina with restorative capabilities. Can you give us an update on latest and greatest trends there?

Yes. Feedback has been good. I mean, it's in the fourth quarter, we had some issues on margin things for restorative kind of procedures and all that doctors weren't quite satisfied with. 5D Plus was fine, but Illumina had -- and there's different technologies we call white light and different things that we've leveraged with our algorithms. And the initial feedback, as we start to roll it out, doctors feel really good about it. So form factor on Illumina is good, speed is really good, breadth and depth of scan and all those things, making sure it's targeted at that restorative piece and they're comfortable is key. And I feel as we exit the fourth quarter, we're in good shape.

Okay. Great. And I did want to use that to segue maybe into your efforts on driving uptake among GPs. I guess, can you talk to us how you're thinking about your efforts there? What's the strategy? And is that kind of resonating?

Yes. It's a multifaceted strategy with GP and you can somewhat regionalize it. But in general, GP as you start them out and you move -- they need confidence that they can do these cases. And so we offer TPS kinds of activities through doctors, meaning if GP doesn't necessarily want to take that full responsibility on themselves. They can hire or we help to hire an ortho or another GP to help them to the cycle, Dr. David Galler and [ Brian Moller ] are good examples of that, too. We also have what we call a GCP product, where we've done enough cases now. We have enough AI engine to say we've seen that before. And we can tell them exactly what that case should look like, and we'll back that case, too.

And so if you go to the years on how we work with GPs, it's about how do you gain confidence with them that they want to -- that we can move teeth. And with TPS, things like GCP, using AI on the 20 million cases we have done, we can really address that now much better than we could 2 or 3 years ago. And I think that's why you see our GP business continue to grow and doctors gain confidence with.

Sure. And when you think about it internally, I guess where do you think you would see an asymptote in terms of the amount of practice time that a GP would dedicate to teeth movement?

Yes. I think it won't settle around one common mean with -- I think it will be a broad standard deviation. We know that doctors that work with someone like [ Brian Moller ] and David Galler, they'll move their GP practice to almost 50% of the revenue will come from Invisalign. And then they'll do other root canals and different things and drill and fill types in or applications.

Other doctors just want to maybe leverage their adult patient base to a certain extent, they want to sell -- they don't want to have it completely take over the action. So we see a wide variation in that. But as they gain confidence and they see that there's a lot less touch on those kinds of case, I feel like you'll see them doing more and more. They will because they just have more confidence to do it. And we have more tools to build that confidence with those guys.

It also allows them to keep more of the healthy dentition. So if they move the teeth first and get them in a proper position whether it's an implant or veneer or others, you can keep that healthy teeth by moving them in the right position and then some of the restorative work is more minimal.

John makes a really good point here. So we have a product you'll see us rolling it out, it's called exocad ART. And so we bought exocad, 4 years ago or so the idea there was that we could leverage labs to do ortho-restorative procedures, meaning instead of if you're going to have a Social 6 in your front teeth capped, usually you might lose 30% of your enamel on your teeth because doctors will grind that down to make room for the caps. Actually, what we do on ortho-restorative through exocad and lab is we actually take a case and move those teeth out of harm's way. So you save all that enamel. It might take 3 months more, but it helps you to guarantee that you're going to have that dentition for life then. And so we're seeing that we're just -- we're launching it now through the labs. And it is a good uptake on it, too. And also, when you do implants, often, if like it's a back molar or something teeth move closer together, you have to shave off the adjacent enamel, you might only need 5 aligners to move those.

You can save them on those adjacent teeth. So we call it exocad ART. It's a primary reason we bought exocad. We'll work that through the labs. And like John talked about, we also have an over Invisalign art piece that works if a doctor wants to do that themselves and now have to work it to the lab, they can do it as a GP also.

Yes, I attended the GP Summit in September. And I was kind of upside surprise there was a lot of buzz around kind of minimally invasive dentistry. I guess you talked about building confidence on the GP side. Are there any other impediments kind of broader adoption to call out? And if so, how are you addressing them? You talked about also the technology that you're improving.

I honestly think our key luminary doctors like Moller and Galler and different people here in the U.K., we have some terrific people that work with us on all. They are the key in the front lines for us to behind that, obviously, from our sales force standpoint, the products that we offer, or whatever, Mike. But it's -- so thing about dentistry, it's very fragmented. And when you're in the retail segment, there's a lot of different ways that doctors want to practice. And as John said, we want to sell and provide services the way that they want us to do that. And so a multitude of options about how to use our product line comprehensively or targeted wise, just if you want to save enamel, not necessarily worry about aesthetics, but worry more about functionality and maintaining people's dent issue. Does that make sense?

It does. It does. And that was actually the first time I saw Dr. Galler presents but his character has got [indiscernible]

Have to pay for that...

Every room was packed. I did want to transition to margins. You've talked about at least 100 basis points of operating margin improvements in 2026. I guess can you just kind of refresh us on the moving pieces there?

Yes. So some of it is related to products. When we have, like I said, products that don't have as many refinements of products themselves help drive improved gross margin. And then some of the other activities that we've done around some of the restructuring really on both sides of that spend. Some of it on the COGS side, where we're able to move some of the equipment and get closer to our customers, in some cases, saves a lot of freight for us, and that's a benefit, a large part, that's been done in the second half now as well as retiring some of the equipment that's maybe not as efficient.

There's still a lot of efficiency that we can drive in terms of whether it's the material costs or labor costs on some of the equipment, been able to get a lot of that changed out and in a better position as we exit this year. And then also on the OpEx side, looked at structures, panic control, doing things so that we're as agile and as efficient as possible.

So when we look at the 100 basis point improvement next year, some of it comes on the more variable side, gross margin side and then some of it comes on the OpEx side. But we feel good about how we're exiting these changes are being made now, and we'll be out of this year with these changes and really position ourselves for well into next year to be able to achieve the 100 basis points.

And I don't know if you're providing this level of detail, but what's kind of the rough split of that 100 between growth?

50-50, but maybe even a little bit more on the gross margin side.

Okay. And yes, I was surprised to learn when you shared some info around the cases that get shipped out of Mexico for Europe. So I guess, can you talk about what the opportunity is like and the time to get to maybe supplying the vast majority of European cases out of Poland?

Some of that is scale up of Poland, and we have some of that. Some of it is you just -- you have some of the VAT rules that you have to follow in terms of manufacturing, where you're manufactured and so on. So we have to do that. But yes, it's a savings more that we can service out of Europe with -- by Europe. That's a benefit for us, just like we do with the Americas shipping out of Mexico.

So you want to be as close as you can save us a lot of the freight. So we're on a good path for that. We've utilized -- we're utilizing our facilities more and more in those regions, and we'll continue to see productivity as we go into next year and really beyond because even we'll have this type of manufacturing for years to come on the thermal form. Direct fab will add to this, and we'll have some more of the direct fab manufacturing, but those have come out of those locations as well, and it will be for those customers in those regions.

That was going to be my next question on the direct fab. Could you kind of remind us where we stand today and where we're going over the next 2 or 3 years?

Yes, I'd say we are -- our resin is in good shape in the sense of we have to scale up a resin, we've talked about before, Mike, and it's a resin never been used before. It's a different source. And we made really good progress on knowing we can scale that and then we have the materials. It's not a petroleum-based product that's made from natural substances. So we've confirmed that we have enough supply of that, that we can make that work. And the product is consistent and stable in the sense from a reactor standpoint and when we use it.

Secondly, the process with Cubicure. We're scaling it up books in our labs and also in Mexico to start with. We've made good progress on it. Remember, we have to -- we're aiming to get to 1 million of these take time in order to get there. But our first product will be next year, you'll see us. We'll come out with the Invisalign first retainer we've been talking about. And we'll start trialing that in the first quarter of next year. Also preformed attachments, which are 3D printed attachments that we'll use that will give you much more exactness and predictable movements on T2 in the way they're placed. So I feel really good about where we are on both the process side and on the resin side. It's just time and distance now to keep us moving.

Okay. Great. I think we've got a minute left. So I guess maybe just quickly, can you touch on how you're thinking about capital allocation and what are the near-term priorities?

Yes. We talked about -- as we drive the business, we want to make sure we have our cash that we use and what we generate helps drive our business. The OpEx that we spend and just the operating expenses that we have. That's, first and foremost, to be able to drive volume, drive revenue. And as we look at some of the CapEx spend, it's been -- we talked about $100 million or so this year because even as we have some of the new equipment that we need for some of the direct fab and so it goes to our existing facilities, and it's kind of made within. So it's not a huge capital expenditure that we have. And there's no other spend that we have that's really outside of our business.

We've invested in some -- with some of our partners to help them grow more, and that's been worked out well for us. And then everything else has gone back to buybacks. And we've put as much capital into buybacks as we can. And remember, it comes down to U.S. cash, 80% of our cash is outside the U.S., but as soon as we've had that U.S. cash, we've been able to put that back into buybacks and currently have a buyback working now that $200 million will be done by the end of January, and we'll assess what we need to do for next year.

And the only other thing I'd add is we won't ever surprise our investors. We move teeth. We're not looking at any kind of diversification acquisitions or anything like that.

All right. Great. Well, thank you very much. That's all the time we have. So Joe, John and Shirley, thank you for joining us today.

Thank you.

Thanks, Mike.

Good afternoon, everybody. I'm Kevin Caliendo, Healthcare IT distribution, Dental Analyst for UBS. And we are very happy and proud to have John Morici, Chief Financial Officer from Align Technology with us. John, thank you so much for coming down and making it your flight. Going across the country these days is not an easy thing. So we really do appreciate it. I don't know if you wanted to make any opening comments or you want to get right into it.

No. Right into questions.

Okay. Sounds good. The third quarter, you highlighted strong growth in EMEA, APAC, Lat Am in the Clear Aligner volumes, in particular. I really want to unpack that a little bit. Were you -- is this being driven -- there's a lot of variables that can drive your growth? It could be new doctors that you're signing up. It can be utilization going higher, it could be new products that you've launched. And I think you mentioned all 3 of those. But can we impact that a little bit and just sort of understand where it's coming from more? What are you seeing in the individual markets because we do a ton of checks in the United States. We can do some checks in Asia and China. We can do some checks in Europe, but some of these markets, it's really hard for us to get good KPIs. And so any more detail you can provide would be great.

Well, great. Yes, when we look at the second quarter to the third quarter, what we saw and what we highlighted at earnings was of our top 10 markets, 9 out of 10, we actually saw a year-over-year improvement going from the second quarter to the third quarter. So very broad from an improvement standpoint. Only Canada was worse on a year-over-year basis in the third quarter compared to the second quarter.

So we saw good growth. Like you said, outside the U.S., it really continues to grow. We've seen good growth in Southeast Asia, even China. We saw good growth in Eastern Europe and even parts of Europe where we've had some challenges actually look better for us into the third quarter.

And in places that like Latin America, India and other places have been really strong growth for us. Some of it is a combination of things that we're doing going to market, and I can touch on that. Other things are the various products. We've introduced several new products this year, one of them being the Palatal Expander and also mandibular advancement with the occlusal blocks. So we're seeing good uptick there and that's helping us grow as well. Some of that contributes to the team growth that we saw, up 8% on a year-over-year basis in the third quarter.

So it's really -- it was a broad improvement that we've seen. In the U.S., obviously, the biggest market, we saw that year-over-year get better. And so there's still challenges there, and we can get into some of the nuances within the market, but I would say broad improvement and really driven by some of the things that we're doing from a go-to-market standpoint as well as in new products.

So let's talk about the go-to-market because I think this is where we -- in the past, when you were going to market, it was -- you had great line of sight on it. You could always fill in the gaps to hit your targets and the like. Is it different now? Or the go to new markets smaller. It's just a law of -- you guys have been doing this for so long. But talk about the opportunity set there in some of these markets. And again, we're trying to understand is, the growth coming because you're creating new demand in places where it wasn't or is utilization picking up in same-store basis? Or is it again, these new products that you haven't sold before that, hey, this is incremental for us?

That's a good question, Kevin. So it's a combination of some of the things that you talked about. In some cases, it's growing in new markets you want to sell to more doctors. So we sold to the most doctors that we've ever sold to ever at 88,000 doctors. So in new markets, it's expanding out whether your GP -- selling to GPs or orthodontists, and that contributes to growth. Sell to a new doctor, get those doctors that you have, whether they're new or existing to do more cases, and that's fueled by some of the new products and other things that we have to be able to drive things.

In other places, you have to work with the markets that you have. And the key part that we talked about on the script and we're seeing more and more, it's kind of that retail doctor versus those doctors that are either part of DSOs or are part of taking more of an active approach. And that's a good way to differentiate the marketplace that we see right now with doctors. There are doctors that take an active approach to conversion and then some of the doctors take more of a passive approach.

So what's an active approach? An active approach is doctors that are doing local marketing, trying to drive that initial demand to come to their practices. They scan every patient that comes in to be able to show them what their teeth look like before treatment and what they look like with after treatment. Those are the same doctors that many times they offer a discount. They'll try to say, look, if you sign up now and go into treatment, we'll give you $300, $500 off.

And usually, that last mile that helps out is providing some type of patient financing. Sometimes they do it internally, sometimes they use an external. But in the end, a potential patient is going to look at what does it actually cost them on a monthly basis. And if you string all that together and have that set up in that type of active approach, they're seeing stronger conversion.

So that's exactly what the dental service organizations are doing. They're taking that approach to drive that activity, they're seeing double-digit growth. The doctors that are big doctors that we have that take this approach as well, they're seeing double-digit growth. The doctors that are maybe more passive waiting for people to come in, not offering discounts and so on. they struggle. They don't grow as fast or they'll revert from Invisalign to wires and brackets because then they don't see as much top line revenue, they don't see that volume. And then they find ways to cut other costs and they'll cut some of that Invisalign and pushed to wires and brackets.

But it's really that active conversion that's driving a difference and we're seeing that more and more, and we want to continue that. So we want to then take it to those doctors who have taken more of a passive approach. They're not part of a DSO or anything else, they are retail doctors. Those are the majority of doctors that we have. We take them different ways that they can grow, do some co-marketing and other things to better drive traffic. We've come up with different products that maybe you don't have to pay for as many refinements upfront. You just want to buy the product to buy the comprehensive. And so we're giving them ways that they can buy the products, utilize the products that we have, drive some of the local marketing and other initiatives that they have to be able to help them with conversion.

Do you, as Align, have the infrastructure to go after those individual passive doctors? Meaning you can do it. Is there a cost benefit it's much easier to get a DSO and they help you with the process, right? They're there to grow that way, whereas passive that this group which might be more independent, as you said, what's the cost benefit? How do you think about the investment in the time to get them to convert and move up. Like I never really thought about this until you just mentioned it, but it seems like it's a different sales pitch to a certain extent. Because it's on a one-by-one basis. Do you have the infrastructure in place to do that? Is it harder to do that? Is it -- like what's the return?

It is -- we have the sales team. We have a large sales force with marketing to be able to drive this. It's a difference in terms of the funnel. The funnel of opportunities you can market at the high level and drive awareness and hope that somebody goes on Google and searches and then ends up on our website and maybe find the doctor, schedule an appointment and it even shows up at the doctor. So that's kind of a passive approach or we can leverage the resources that we have, both in people as well as money that we spend and actually help doctors right at that lower level and start with that, some of that local marketing and advertising, drive that awareness that's needed there.

You still want to keep some at the high level to keep your brand and other things, other parts of the business where people are aware of. But you want to get closer to those customers, be able to drive that local traffic, be able to help them because sometimes these doctors who are starting to do more and more cases, they need help with treatment planning. And that's where DSOs are good to work with. They have many times this internal treatment planning service that they provide to their doctors to be able to help them take on more and more cases. So we'll help that as well.

But doing things around the product, around the local marketing, doing things to be able to help drive that conversion. We're seeing that play out, and we're seeing the proof of that when we see the DSOs in terms of what they're doing. They're showing us how to do that.

Now you're right, the resources that we don't have to provide, they're helping provide. We'll provide, obviously, the product and the digitization of orthodontics and so on, we can help with that. But they're a force multiplier. They're doing a lot more of that to be able to help drive that conversion and they're winning in the marketplace.

You mentioned the 88,000 docs. It's an all-time high for the company. We can track in some markets, primarily in the United States, the number of registered docs. That's something that's publicly accessible that we can scrape for a lack of a better term. I'm guessing internally, you know exactly how many doctors out there registered that can use your product. How has that trended in terms of the numbers that have actually being sold to versus the number that are registered.

And I asked this question because we can't see it, you can. And I'm just wondering, again, how expansive can you get in terms of the number of docs? How does that grow versus because I know some of these docs are going to do 1 case a year, right? Like they don't really -- I don't say they don't matter, but they're not driving your business. So how do you think about that trend, and I want to go for the...

Well, we had a lot of registered doctors. I guess when you look at it in total, coming out of COVID or kind of during COVID, a lot of doctors wanted to digitize, but you're right, some doctors will revert back to wires and brackets or nothing. Many doctors just do nothing. They're general dentists and they essentially know how to treat with Invisalign, but they just don't do a lot.

So we're constantly looking at those. I think when you look at our sales force, we have a sales team that sells to orthos and the sales team that sells to GPs, mostly across the globe. So you're constantly working with these doctors that do a lot of cases and you reach out to other doctors who don't do a lot of cases. We've been able to reach them and reengage them through selling iTero, now with Lumina to help them digitize their ecosystem. We've done things with new products that we have to reengage them. And now they can see some of the latest products that we have that can help their portfolio and their practice there. We'll do other things to help with local marketing to be able to kind of co-market and say, okay, how do we reengage? How do we get more?

So in general, you always have doctors that you're training initially, they're new or they were out of the system for a year and now they come back in through training. You have some that just fall out and we call that churn. You have new doctors older. The net-net is we want to be able to grow more new doctors, of course, but we also want to keep those doctors there, even if they're doing 1 case a year, I still want to keep that 1 doctor because if you can keep them engaged, especially through the digital ecosystem, so maybe that 1 doctor or a doctor that does 1 case a year, maybe they don't even have a scanner that they're using. How do we get them a scanner? Can they demo one? Can they rent one? Can they lease one? If they don't want to put much money into it or they can maybe use a certified pre-owned, get them that scanner they'll do more than 1 case with the scanner. If we can -- as they start to grow and really start to scan more and more of their patients and so on with some of the tools that we have, we know that they'll end up doing more cases.

So it's a scalable model. We've been able to build this infrastructure to do this. We sell to 88,000 doctors, but there's 2 million doctors in the world. So the vast majority we don't even sell to or have even trained. But we know the equation that works for our business, and it comes down to basics. We have to sell to more doctors and get those doctors to do more cases. It sounds like a no-brainer, but that submitter plus utilization equals our volume, and that's how we grow our business.

We used to try to figure out scanner placements and then try to project the growth going forward based on the number of scanners placed. And there is a -- how do you guys view that? It's still obviously a vital part of the business. But how do you model your forward demand or your expectations? Is it still based on the number of docs? Is it based on the number of scanners placed? Is there some kind of algorithm? I know you're not going to give me the explicit X plus Y equals Z. But how do we -- we're trying -- because it's such a hard company to try to project, right, given all the KPIs that we don't have and do. But the ones that you give us, scanner placements are always a predictor of future growth. it's been harder to see that because there's more moving parts in the revenue line now. But how should we...

It is. I mean, when you look at the number of doctors that are available and then how do we reach those doctors with the scanner. So we look at -- we have over 100,000 scanners in the market. That installed base continues to grow, fueled most recently by Lumina and the launch of that product. And so we want to be able to sell to these doctors and have a scanner that's part of their everyday use that they need. Some will use it for mostly restorative. Great. Let them use restorative.

And now we can help teach them to say, look, maybe move the teeth first before you do restorative. So there's a lot of efforts around working with these general dentists to get an everyday scanner in that Lumina can provide, they can help you with your bread and butter what you do in caps and crowns and implants and so on, but then also working with those doctors to help them move the teeth first. And then you don't have to shave off as much healthy dentition. You can save that. It adds a little bit time in treatment time, but it saves the healthy dentition. It helps that doctor, especially when they show the patient, here's what you could do if you just did restorative. And here's what you do when you have ortho plus restorative and they could see the difference. Most patients say, it's worth the extra cost, it's worth a little bit more time to save the healthy teeth and be a part of that. And I think when you have that scanner there, it just lends itself to that visibility and that the views of that.

So it's getting those scanners in, getting to sell as many doctors as we can. And then leveraging the benefits that we can bring with Invisalign treatment with those scanners. Because we know if they have a scanner compared to if they do a PVS impression, they're going to do more cases.

If we put another scanner in there, it's like a 4x improvement. They will do significantly more. And you say, why? Because they're scanning every patient, they're giving themselves an opportunity to be able to show those potential patients what treatment would look like. And once they have that opportunity, even in a more challenging market, if they couple that visualization with the right price and financing, they're seeing that conversion. And we just need to get more doctors to see that.

You answered my follow-up question to a certain extent. But of those 88,000 dentists that you -- doctors that you have, how many of them have iTero scanners?

Over 90%.

Over 90%. And the ones that do, I'm guessing versus your -- on your -- what's the utilization for those who have 1 scan or 2 scanners versus ones that don't?

It's significantly higher for the more than 1 scanner. If you have more than 1 scanner, and some doctors have scanners at every chair that they have. So they have 3 or 4 chairs. They'll have a scanner at each. They will drive more because they're scanning every patient, helping that patient visualize. There's a lot of technology that we have. There's a lot of other diagnostic abilities that we're putting on that scanner so that you can almost get a score of how your dentition is and some of the wear and other characteristics of how things look in your teeth and being able to -- be able to drive that score in terms of your dentition health as well as what it means from an Invisalign standpoint. It's very powerful when it's combined together. And many doctors, especially on the general dentist side, have that figured out.

Does it -- something popped into my head, but does it make sense if somebody has 1 scanner and they're starting to do cases that you heavily incentivize a second and third scanner into the practice, meaning like there's the math, even if you gave it away, I don't know what the rate...

We don't give it away, but there is rental and leasing in other ways or certified pre-owned. And I think that's added to our portfolio where we have many different ways. If somebody doesn't want to buy a brand-new scanner, they can get a pre-owned or if they don't want to -- they want to see if they're really going to drive that uptake and they want to rent it from us or they want to lease it. We'll give them those options. So therefore, not much of an expense on a monthly basis, and they could see if they can get 1 or 2 more cases. And pretty much in all cases, we know that they'll drive incremental volume, and they want to keep that scanner. They just need to sometimes see it directly.

I'm just saying the math from your perspective, I have to think, renting a scanner, even if it doesn't incrementally make you a lot of money, the math for the company probably works really well.

I'll take that trade all the time because that is one where if that scanner is there, it's going to lead to more Invisalign. We know that we'll do that. We want the scanner, the systems and services business to stand on its own, and it is a great stand-alone business, big business for us, great gross margins. So we're not giving things away, but we're really being able to provide those digital solutions to those doctors and not only helps them on a day-to-day, in this case, restorative, but it's also helping them with the orthodontic side.

I want to switch over a little bit to pricing. I know you said before, you used the term discounting, which whenever you said -- and I know it's not your discounting, I want to make that clear to everybody. You were saying that dentists are discounting to drive volume that doesn't affect your price because you're not setting that price. I wanted to...

No, and that's an important point because when we say we are providing products -- choices to our doctors. And in some cases, those doctors, those choices might be a lower-priced product. And it's just because that's the lower-priced product. There's not amount of refinements. There's not other things that are available. So the pricing is just less. But that gives a doctor ability to then price how he or she wants to in the marketplace. And in those cases, where a doctor is offering a discount to potential patients that's part of that driving that active conversion.

Understood. It used to be every year, we could count on a price increase from Align. Sometimes it would be in July. We've done some in January. It's not something we talk about a lot anymore. It's not like a topic of conversation, but there's a narrative out there that there's competitive pressures greater on you guys. There's more competitors, there's Angel Align, there's clear -- there's more, even though some of the DTC guys are gone, there's more competition. Do you guys still have the ability to price on the Clear Aligner side, at least like is that part of the strategy going forward? Or is it your mix is changing and that's really more important, just broadly speaking...

I would say it's a combination. I mean, there are certain markets that they have super-high inflation and other things, then we'll price that accordingly, Turkey and other places, Brazil. But on an overall basis, we'll introduce products that give us a better gross margin rate. So when you have products that they might be at a lower ASP, and in many cases, they are. So like our -- when we had our 3 and 3, which is the -- it's a comprehensive product with 3 years of treatment and 3 refinements. That was introduced 3 years ago. And now it's our biggest selling product we have and that's at a very high gross margin rate, but it's a lower ASP compared to the comprehensive unlimited that it essentially has replaced.

So we'll introduce products that have a very good gross margin rate to be able to help us from an overall margin standpoint, we think that drives additional cases. So when they see some of these lower-priced products, again, not at a lower gross margin rate. It might be less gross profit dollars, but it's able to drive incremental volume and meet our customers' needs. We'll make those trade-offs.

So you'll see some of that coming through from an overall pricing standpoint. We're still the premium pricing in the marketplace. We see competition coming in on the Clear Aligner side. Every time they come in, it's at lower price. And we've seen this play before you mentioned DTCs. They were maybe the first to kind of come and go, and they've gone. And now you see it in other companies. Most of these Clear Aligner companies that come in, they're not making money. They're losing money on an op margin basis. And it's not a surprise because just the pricing isn't reflective of what this business entails and what's needed from an overall business standpoint.

But I think what you'll find from us is introducing products that are relevant to our customers, doing it in a way that is very mindful of our gross margin and our gross margin rate. But ultimately, we want to sell to more and more doctors. We want to increase that utilization, kind of the equation that we talked about. And sometimes to be able to do that, you're going to sell products that maybe they just need a touch-up case. They need 5 sets of aligners. That might be a $400 to $500 product. It's okay. The 80% gross margin for us, it's just -- it just means that you got to sell others as you go through this. But to be the standard of care, we have to continue that.

And in the end, our focus is -- it's less about the share shifting that goes on with other Clear Aligner. This is about the fact that 80% of all worldwide cases are still done with wires and brackets. Our focus is to drive and go after that market. I want to shift from wires and brackets to Invisalign, whether you're on the ortho side or the GP side. And we think that what we're trying to do from a go-to-market standpoint and technology and products and so on will help lead to that.

Why do you think this narrative appeared a handful of quarters ago, a couple of quarters ago that wires and brackets were taking share back really for the first time, right? We were all trying to -- we saw there's some data. You guys even referenced it, I think, at 1 quarter and you hurt the sentiment around your stock a lot because it became, oh, well, wait a minute, aligners aren't growing as fast as wires and brackets like, wait a minute, this whole idea is different. Why do you think that happened? Do you think it's -- is it continuing? Like you're still seeing this time? I mean I think in the third quarter, you said it sort of went back to -- reverted back to normal. Can you talk about like -- now you're looking back, why do you think this happens? And where are we? And how should we model this going forward if we're modeling the orthodontic market?

I think when you look at again, it kind of goes back to the passive versus active doctors. I think if you are an active -- if you're actively driving conversion, like the DSOs I was talking about or the bigger doctors we have, they're not reverting back to wires and brackets. In fact, we're gaining share. They're doing less wires and brackets and more Invisalign because they've digitized their practice. They know that it's more efficient, it drives more profit to them, and they're making that approach.

I think it's more of a commentary on those passive, whether they're orthodontists or general dentists who maybe aren't actively trying to convert. And so they have a fixed amount of volume that they're going to do, fixed amount of revenue that they're going to have. Because remember, in the U.S. most orthodontics still charge the same for wires and brackets and the same for Invisalign. So there's no end pricing difference to those patients.

So if they're not growing their practice, they'll revert, they'll push them back to wires and brackets and say, look, I can save some of that cost, that upfront lab bill and spend $300 or $400 on wires and bracket material compared to $1,200 for us. So you see that happening? And so I think the more that we could be active pushing activity on our bigger customers, that activity on other customers that we have and be more active about the conversion, they're going to see the benefits. They're going to see what we already see with the DSOs at scale. We're going to see this at the smaller practices. And I think you'll see less of that reversion.

And especially as the economy improves or if, at least, it doesn't get worse, I think you see some of that benefit. Even to those passive doctors who didn't really actively trying to drive conversion coming out of COVID, the water rose, everybody had more time and money, they spent it. And even those doctors who didn't do as much activity to drive conversion, they still benefit it when the market is tougher and the economy is tougher. Those doctors have to do a little bit more effort to be able to drive that conversion. We want to be partners with them to help drive that co-market, come up with the right products that help drive that, do things to help them train and provide treatment planning services, do things to create that active conversion.

That's helpful. It sounds to me if I'm just listening to your tone and trying to read the tone, do you think this is not a permanent shift back? Like you didn't have an inflection that we're going to revert back at some point...

You see some that some teens or parents maybe they think of it as, well, it's kind of a -- everybody went through braces or something in the past if they were older and they say, okay, my kids should do that. You see some of that. But I think in the end, when you really explain the benefits, especially the parents to say, your treatment time is faster with Invisalign. There's half the office visits that you need, no emergencies, better comfort, no white spot lesions, all these other things that you go through and that parent says, what's the downside? Well, you say, it's the same price as wires and brackets. If you really go through all the steps and explain the differences, I think people understand it more.

The same price as wires and brackets used to not be the case, though, right? I mean...

It used to be more Invisalign used to be more.

It used to be more.

And in some countries, it still is.

Yes. It's just that, that narrative is not the same. I think the perception still for investors and people who don't have kids is that Invisalign costs more. But you're telling us it doesn't -- your price...

No. And for us, yes. So when you look at that -- and that's where I think, as a potential patient and a parent, it's just a matter of us educating. And that's what you'll see. So you'll see us educating at the high level in terms of the differences or at least the benefits of Invisalign, but then really taking it down to the more of the local level to help drive that conversion.

One more on the market stuff is that the perception is the United States is a mature market. That's like -- I don't want to say fully penetrated, but it's penetrated as the market is going to get in terms of digital and the growth there is where you're struggling incrementally. And that's what's going to happen like, hey, the U.S. is a mature market. And so this is what the demand will look like once the green shoots that you mentioned a year ago here played out. Is that a fair assessment? Or is there something specifically happening in the United States that's incrementally worse than what it should be? I know you talked about the retail, all the things you've talked about here are really what's happening in the U.S. But how do you answer that question of, is the mature market, the U.S. really what the mature market globally will look like at some point in the future?

Well, the U.S. is certainly more mature than the others. We've been around almost 30 years, and the U.S. was kind of the starting point. So certainly a lot of doctors, there's patients that come through and so on. But I think what you find, what we've seen in the U.S., especially of late with the higher inflation and interest rates and so on, it's much higher than many other places across the globe. In fact, you've got deflation in some cases, outside the U.S. I think when we go after the market and with products and capabilities kind of on a go-to-market standpoint to help drive that conversion, we're going to do everything we can to help drive that.

When we look at the improvements in the economy, which will happen because you have to remember, we are -- to that patient, it's a high price, not much reimbursement, somewhat discretionary type of product, even for teens. And you have to be active to be able to help drive that conversion. But I think in the U.S., the market opportunity is there. You might have more patients that have used Invisalign in the U.S., but I think once they do, I think you'd be hard-pressed to have a teenager go through treatment with Invisalign and then be old enough to have a child and then put them back -- to put them back to wires and brackets.

I think once you have that experience and you see it first hand, even as an adult, you would say, why couldn't my child have this? Tell me why they couldn't. And usually, when you go through the reasons, it will come down to, will that child wear their aligners? And if that parent can stay and work with that child to make sure that they're wearing their aligners and we find that compliance is super high for children to wear their Aligners, whether they're growing children or older teens, if they're wearing their aligners, their teeth are going to move. And we're going to get that result, you're going to get faster results, and you're going to get less pain and less visits and other things.

So I think the U.S. is a good example of how to grow this market. And I think we could further grow this market. Teens is a big focus. We want to grow teens because there's a huge market opportunity, and that market opportunity leads to faster growth. Almost every quarter, you'll see us teens post a faster growth than adults because of that opportunity. But we think with -- especially with the new products and what we're trying to go to market even in the U.S., we can grow. And we're seeing it right now. You see DSOs growing double digit. Some DSOs are in the 20% year-over-year. They're able to do it. It's just how active you want to be able to drive that conversion.

Fair enough. I got a couple of quick hitters in our last couple of minutes. Just some clarifying numbers questions. The benefits to ASP from the U.K. VAT issue, the VAT issue. Your pricing went up I think, roughly 20% in August, right? So did you see 2 months of benefit in the third quarter, so we get 1 month of benefit in the fourth...

We will get a full quarter of benefit in the fourth quarter, and we got about 2/3 of the benefit in the third quarter.

Okay. I just wanted to make sure we had that right. How did some of the products that you launched in teen? You mentioned them before mandibular, the Palatal Expander. How did those track versus your expectations? Is there -- how should we think about that impacting growth going forward? Like you've had some experience now?

Yes. It adds to our portfolio. So when you think about trying to grow especially growing patients, many of the new products that we have really get at helping a 6-year or 7-year-old, 8-year-old who needs her upper pallet expanded for those new teeth coming in, permanent teeth coming in. So those products are helping doctors be able to treat in different way, a way that helps that child's dentition, mandibular advancement with occlusal blocks where some doctors just didn't like the wings that we had on the mandibular advancement, but with these blocks, they're seeing the actual jaw advancement that they need.

So I think these products are really designed to fill out the portfolio of products that the doctor needs. That's why when we introduce products that have shorter treatment times like this 3-year, 3 AA or not having unlimited refinements, they don't need unlimited refinements. You don't need to have a child in treatment for 5 years with unlimited refinements and coming back and forth to get scanned and so on. I think the qualities that we put into our products, whether they're new products or helping develop improvements to our existing products are allowing doctors to treat patients faster, more predictable, better results and adding to the portfolio has really -- has given us that opportunity.

This one is not an easy one to answer. But I think one thing that's made investors a little weary is that, you've said publicly your own visibility into the business is harder now than it used to be. Like you don't have as much. It's not as easy for you to forecast. And I understand that. You have a lot more doctors, a lot more markets. The market is more macro than maybe it has been before. How do you get better -- like when does that -- when does things crystallize for you such that you can be more confident, more convicted in an outlook, are you -- come February, are you going to be able to tell us we have visibility for 6 months or 9 months a year, whatever it might be. In the past, maybe it was easier to grow, and you had more flexibility around that growth. Is there something that you need to see and understand to get that? Because I think that's the one thing that would help a lot of the people hear...

No, I think having stability, we talk a lot about what we're growing off of, like having macro stability certainly helps. And when we had that prior to COVID or even coming right out of COVID, there was more stability. And then you get into some of the economic pressures, inflation, interest rates and so on or even tariffs and some of the others, that creates instability and it becomes more of a challenge. Because we're a flow business, we're a real-time, customized product that comes through and majority of the patients that we -- our doctors see, they start and finish within the quarter. They start treatment and -- or they get scanned and they go into treatment in that quarter, and they weren't a backlog or anything else from before.

I think for us, it starts with doing what we're doing on a local market standpoint. Not every market is the same. So we're seeing some that are growing more and more. I think working with GPs and getting them as part of the practice that they have, working more with DSOs because they provide some of that stability of 25% or so of our business is through DSOs nowadays.

So doing things to be able to drive some of that stability that we can control, whether it's new products, selling to more doctors, doing that local marketing and advertising and other things to be able to stimulate demand and ultimately convert that, working with our DSOs and big customers, there's always going to be some of that retail piece of it that doctors they might do 1 or 2 cases. And does that happen within the quarter or not? It starts to add up. But there's a lot that we can do in this marketplace to be able to drive growth into this 5% to 15% volume and revenue growth that we're trying to be at. If the economy improves a bit in certain places, especially the U.S., that just will determine how fast or how far into that 5% to 15% will be.

Sir, thank you so much, this is super helpful. I appreciate it.

Of course. Great, thank you.