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 2023 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 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 statements. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our fourth quarter and full year 2023 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 President and CEO, Joe Hogan. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us. On our call today, I'll provide an overview of our fourth quarter and full results and discuss a few highlights from our 2 operating segments, Systems, Services and Clear Aligners. John will provide more detail on our Q4 financial performance and comment on our views for 2024. 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 earnings. As of the end of Q4, we achieved several major milestones, including 17 million Invisalign patients treated, including 4.7 million teens, plus 4 million Vivera Retainer cases and over 100,000 iTero scanners sold. And for the full year -- fiscal year 2023, total revenues exceeded our prior outlook, and we delivered fiscal 2023 non-GAAP operating margin above 21%. For Q4, total revenues were up 6.1% year-over-year, reflecting increased Systems and Services revenues. Strength in Clear Aligner volumes for teens and international doctors as well as continued growth from Invisalign touch-up cases, under our Invisalign Doctor Subscription Program, or DSP. Our Q4 Systems and Services revenues were up year-over-year, primarily due to increased services, CAD/CAM and nonsystems revenues, including scanner leasing and rental programs and certified preowned scanner sales. Q4 total Clear Aligner shipments were slightly lower year-over-year. On a year-over-year basis, Clear Aligner volumes were down for the Americas and EMEA regions and were up for the APAC region. For Q4, Clear Aligner shipments include approximately 20,000 Invisalign DSP touch-up cases, primarily in North America, an increase of more than 60% year-over-year from Q4 '22. DSP continues to be well received by our customers and is currently available in the U.S. and Canada, Iberia and Nordics and most recently, the U.K. We're excited that DSP…

Thanks, Joe. Now for our Q4 financial results. Total revenues for the fourth quarter were $956.7 million, down 0.4% from the prior quarter and up 6.1% from the corresponding quarter a year ago. On a constant currency basis, Q4 '23 revenues were impacted by unfavorable foreign exchange of approximately $12.8 million or approximately 1.3% sequentially and were favorably impacted by approximately $13.8 million year-over-year or approximately 1.5%. For Clear Aligners, Q4 revenues of $781.9 million were down 1.6% sequentially, primarily from lower volumes. On a year-over-year basis, Q4 Clear Aligner revenues were up 6.9% and primarily due to higher ASPs and non-case revenues slightly offset by lower volumes. For Q4, Invisalign ASPs for comprehensive treatment were up sequentially and up year-over-year. On a sequential basis, ASPs reflect higher additional aligners, partially offset by the unfavorable impact from foreign exchange, higher sales credits and higher discounts. On a year-over-year basis, the increase in comprehensive ASPs reflect higher additional aligners, price increases and favorable impact from foreign exchange partially offset by higher discounts in product mix to lower ASP products. For Q4, ASPs for noncomprehensive treatment were down sequentially and up year-over-year. On a sequential basis, the decline in ASPs reflect the unfavorable impact from foreign exchange, a product mix shift to lower ASP products and higher net revenue deferrals, partially offset by price increases and lower discounts. On a year-over-year basis, the increase in ASPs reflect price increases, the impact from favorable foreign exchange and higher additional aligners, partially offset by a product mix shift to lower ASP products and higher discounts. Last quarter, we announced about a 5% global price increase for some Invisalign products across most markets effective January 1, 2024. Invisalign Comprehensive Three and Three product is available in North America and certain markets in EMEA and APAC,…

Thanks, John. In closing, while I'm pleased with our better-than-expected fourth quarter results and start to the year, I'm even more excited about Align innovation in 2024 and our next wave of growth drivers. When I spoke to you about a year ago, I discussed the innovations that we are planning to bring to market that we continue to revolutionize the orthodontic and dental industry and scanning software and direct 3D printing. We are delivering on that promise. With the introduction of iTero Lumina powered by Multi-Direct Capture technology, we are pushing the boundaries of what inter-oral scanners can do. iTero Lumina is a combination of years of research and development to offer visualization capabilities that support doctors, clinical decisions while also enhancing their patients' comfort and overall treatment experiences. Building on more than 20 years of expertise in revolutionizing imaging technologies, the iTero Lumina scanner elevates the standard in digital scanning to achieve exceptional clinical outcomes and increased practice efficiency. The iTero scanner is at the forefront of digital dentistry. With the closing of our acquisition of Cubicure, a pioneer of direct 3D printing solutions for polymer additive manufacturing, we will enable the next generation of 3D printed products, helping to create more unique configurations for aligners that are more sustainable and also efficient solutions. We also expect it to extend and scale our printing materials and manufacturing capabilities for our 3D printed product portfolio, which now includes the Invisalign Palate Expander System. And with the introduction of IPE, we have expanded the clinical applicability of the Invisalign system to nearly 100% of the orthodontic case starts. The ability to direct 3D print, IPE will eventually lead to other direct printed products with the goal of direct 3D printed Invisalign Clear Aligners, which we hope to achieve in the…

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

Congrats on the quarter. I was wondering if you could walk us through the components of the mid-single-digit guide. I got -- for 2024. I understand what you said that like Systems and Services and Clear Aligners would be in the same range. I guess I'm just sort of thinking about like how to think about that. It seems like maybe it's like low single-digit ASP improvement and then sort of low to mid-single-digit case growth. Is that the right way to think about it? Like what else can you -- is there anything else you can sort of clarify on that? And sort of how do you expect at least currently, the sort of pacing of the year to progress.

Yes. Elizabeth, this is John. You haven't framed the right way. We're looking at the segments up mid-single digits and then ASPs because of the price increase. We have some offset due to some of the lower-stage products that we have, including the DSP touch-ups and so on, that you would expect then a little bit lower of ASP impact year-over-year.

Got it. That makes sense. And then separately, how has the volume in sort of market in China been progressing across the fourth quarter and maybe into the first quarter so far as you can comment.

Elizabeth, it's Joe. We felt good about China last year. But remember, we had year-over-year comparisons that were really favorable because of the COVID shuts down over there last year. But overall, as we exited the year, we felt good about our performance there, and we feel good about as we move into 2024 about our competitive position there in -- a China market that I think is a little more predictable because it's not the overhead that we've seen with COVID over the last, really, several years.

Got it. And sorry, maybe one last one for me. Can you just remind us the sort of 1Q dip in the operating margins and then how it sort of steps up across the year. I understand the guidance you gave for the first quarter of the year, but just why that first quarter has a sort of different perspective than the rest of the year?

Yes. So we wanted to give to prior year because in that prior year, when you start the year, you have certain expenses that you incur right at the beginning, payroll, taxes and other things that you incur initially some of the investments that you make that you then get leverage on as you go through the year. So it's similar to how we position things from last year in 2023.

Our next question comes from Jeff Johnson with Baird.

Can you hear me out there?

Yes. We hear you fine.

John, maybe I want to -- I'll follow up on Elizabeth's margin question there beyond just the 1Q. Let's say, you hit your guidance this year on operating margin is up nominally from 2023 level. It'd be 3 years in a row kind of in that low to mid-21% range. I think pre-COVID you were up in the 25% range or so. What's it going to take to get those margins moving back towards those pre-COVID. You've taken price increases 2 years in a row. It feels like your R&D should be coming down a little bit. Obviously, with Cubicure and that, I know you're continuing to invest aggressively, but IPE is out, Lumina now out, things like that. So just help us understand when could we start to see a path back towards getting those margins maybe up a few points from where they've settled in the last few years?

Yes, Jeff, this is John. Really, when you start to get some of that volume leverage, we're positioned as having our manufacturing and the organization that we have that's really set to drive more growth. And once we get some of that volume leverage, we should see that benefit showing up in our numbers. And it's really what we saw as we went through the quarters last year where you see some of that volume benefit. You get that benefit as well when you go through the year, but really looking to try to drive as much volume as we can and you'll start to see some of that leverage that shows up in our numbers.

All right. Fair enough. And then, Joe, I think we've talked for many years now how iTero is carved out such a commanding, strong competitive position. You've sold a ton of iTeros over the last 5, 6 years or so. They're all probably getting, I don't know, close to their end of their useful life or so. Lumina for the first time feels like that kind of product with a better form factor, especially things like that, that could really cause some of these docs to say, I got to get rid of this big iTero and go back down to this much smaller one, and things like that, just things that would actually matter to the docs, and I'm sure the technology does this, too, I don't want to just put it on the size. But just thinking there, is this the kind of product that can finally kick off that multiyear upgrade strategy or path in iTero that we've kind of been waiting to see?

Jeff, the easy answer and the quick answer is yes. I mean it's just a brand-new platform. Now we set up -- I mentioned in my script about we have 100,000 units out there that we've sold so far. About 1/3 of those are 5D pluses, which are upgradable by just wand switch out. This is the way we've designed Lumina. And so that part's easy. Also, we've been really aggressively upgrading our installed base between E1 and E2 out there too to better position it for this kind of a move. So as we develop Lumina, we had exactly in mind what you just questioned, and we think we're in a good position to do that.

And if you switch out that wand from the 5 to the Lumina, there is a fee there, right? It's not like, hey, you bought this knowing that you could always upgrade at no charge to Lumina?

There's no charity here at Align. There will be a charge.

I like to hear that. God bless capitalism.

Our next question comes from Jon Block with Stifel.

So Joe, maybe this one's for you. Video 1Q '24 IPE some markets today, but more in the common IPE should have longer term with team, docs might take a little bit of a wait-and-see approach. You talked about the new scanner. In your opinion, like is innovation are we seeing that in the '24 guide? Or is that more of like a ramp in the '25? And maybe even to take that a step further, John, for you, is there a way to sort of quantify out of that mid-single-digit revenue growth, what can you attribute to these new products coming on board in '24? I'm just trying to think about the impact of '24, is this more the ramp or the slope in the '25 for the innovation hitting?

Jon, I like the way you set that up. It's a ramp, it really is. But we feel good that we can play offense with these product lines. Now we still have to scale IPE. We have a great team that knows how to scale, and we'll get through that. Obviously, Lumina is a completely different set of outside of the computer itself. The wand itself is we feel good about the scale part of that as we sell through the marketplace. But overall, I think the way you described it is a ramp of this new technology really beginning in 2024 is a good foundation for that kind of thought process.

And any way to quantify what's in there from the current guide or no? Is that just too difficult to tease out?

It really is just too...

Okay. Okay. So second one is maybe a multipart. But just first on the CapEx, $100 million. I mean I was really surprised on how low that number was for this year. It's $400 million in '21, $300 million in '22 million, and I was maybe even more surprised when I think about the direct fabrication initiatives. So I know the slides say hoping to print Invisalign Clear Aligner "next couple of years". Do we still think retainers 2H '24, 1H '25? When do we feel like you proved it out, so to say? And do we start to see gross margin benefits from this as early as next year, turning accretive in 2025. And then admittedly just a jump to another question. For the guidance, can you just help us what's embedded in there? And I bring that up because we've seen this big move in U.S. consumer confidence. Europe still seems very choppy. So when we tie back to your guidance for the year, what are you extrapolating out, if you would, for the current macro?

I'll start with that, Jon, in terms of the current guidance. Look, we're looking at the environment that we're all in. It's not a great economy, most places, but it is more stable, and we're building off of that. And then as Joe said, we're doing things to play offense. New products that we have with Lumina and IPE and so on, which we think, can help us grow in this environment.

Jon, your question about the ramp up, the margin piece or part of that, what's that mean in 2025 or whatever. Look, we feel confident, and as you know from our discussions and our analyst presentation last year is 3D printing is foundationally, it can be less expensive as we scale. And so I mean, we'll start to see that come through as we scale that. But we need time to scale this. No one's ever had this polymer before that has a scale. No one's ever used the Cubicure system to the degree that we need to use it. Now we did this with 3D systems years ago because we basically scaled those systems through our team and team knows how to do that. I just can't tell you specifically within those in the next 1 to 3 years, with this being the first year, exactly when that really hits that hyperbolic side.

And just to close on the CapEx, those prior years, that was -- a lot of that was -- it was equipment. Of course, we are always adding capacity, but a lot of that was very much unique for buildings, adding buildings for our locations, manufacturing and so on. And when we add some of the capacity that we're adding for our manufacturing, it will go in existing buildings. So we don't have to add another building in most cases for this. So that's why the CapEx is where it is.

Our next question comes from Brandon Vazquez with William Blair.

On the guidance, maybe one other way I wanted to ask you and see if I could tease out a little bit of color on what's assumed here. If I kind of go back to some old sequentials in the teen side, assuming that's a little less susceptible to macro headwinds, you can probably kind of get to a low single-digit volume growth, I think, for the entire Clear Aligner business already, but probably not even including some DSP. So is that -- am I thinking about this correctly that really out of adults on a year-over-year basis for full year '24, you're really assuming kind of flattish, maybe even down depending on how teens and some of the DSP cases are doing?

I would characterize it, Brandon, this is John, that both teen and adult are positive on a year-over-year basis, expect maybe adults to grow faster as we've seen compared to -- teens grow faster than adults as we've seen in the past, but I would expect both of them to be up and show our numbers that way.

Okay. And then can you just reiterate maybe both for IPE and for Lumina exciting. It seems like they're going to ramp over the coming quarters. Are there any like key quarters and catalysts that we should think about that might take that up. You're talking about a ramp, but we get to the next level on the ramp on any of those when they go from maybe a limited launch to full market relief, anything like that?

Brandon, Joe again. On the Lumina side, remember, our restorative scanner for GPs comes out in the third quarter. But as like John indicated, we indicated, we feel we can sell that into the market now with the capabilities it has, but that will ramp in -- that will probably be more hinged to the regulatory approvals we have to get around the world. Right now, as I mentioned, we only have the United States and Canada and ANZ. Secondly, on IPE, it's the same thing is we're regulatory constrained. We still have to go through Europe. And as I mentioned, IPE will come out in the second quarter in Australia and also. And as we gave that, obviously, we'll be scaling IPE too and understanding the dynamics around that. So it's more of a ramp, as I mentioned a few calls ago than anything.

Our next question comes from Jason Bednar with Piper Sandler.

I'm going to pile on here on the guidance, just to focus there first. You mentioned noncomprehensive mix as being an offsetting factor to ASPs. I know you've got that DSP factor. I had thought maybe originally you were signaling adults growing better than teens, but doesn't seem like that's the case just given your comments there to Brandon. But I guess, regardless on adults, are you seeing this market getting its footing back, it sounds like it, but if you are, what's giving you the confidence? Or what are you seeing that kind of the day-to-day or month-to-month that's showing adults are coming back into the office for treatment. And then sorry to load a few in here, but should we expect this faster noncomprehensive mix also to have gross margin benefits for the year as well? I think it typically does, but I don't think we've gotten kind of a gross margin cadence outlook for '24.

Jason, I'll take the first part of your question and hand the rest off to John, is we feel we're on a more stable, I'd call it, economic platform than last year. And so the adult and teen question that you had is we expect that to carry through in 2024, as we indicated with our guidance, too. So when I look back, everybody has a clear vision backwards than forward, we look back to last year, a pretty unstable platform that we experienced for the year and the third quarter was a tough one in that sense. But I think we all see it right now, we have more confidence that at least we're dealing with stability from an economic standpoint in most parts of the world from what we see.

And on the noncomprehensive and gross margin questions and related to that. Look, as we have the mix that shifts through and you might have an ASP lower on some of the non-comp DSP and others that fall into that. Those are our highest gross margin products from a rate standpoint. So they're helpful for us as a business. It's really what that customer wants for him or her to run their practice and that's how we balance things out. But overall, we expect that we would see benefits in gross margin just like we're talking about op margin year-over-year benefits, we should see a benefit as well in gross margin.

All right. That's helpful. And then for the follow-up here, I'll ask on teens. It does look like you're back to gaining share against brackets and wires. It looks like the kind of the second consecutive quarter of that. I'm curious if you could talk maybe bigger picture, what's changed to what you think has changed over the last 3 to 6 months versus maybe the 12-plus months that preceded that. But do you think the share gains you're seeing versus brackets and wires, does that have to do with changes you made to that Teen Guarantee program middle part of last year? Or are there other items at the practice level or associated with your go-to-market activities that are driving that shift?

You can always say that at Align, there's no single variable equations. And this is another one. The Teen Guarantee, we think is some of it, obviously, our portfolio and how we put that together, our DSP programs, the uniqueness of Invisalign First. All those things really help. And from an adult standpoint, with the firmer economic platform I talked about, I just think there's more confidence out there that we're starting to see lead through.

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

I want to start with DSP kind of where you left off really successful, obviously, and you had great growth year-over-year for the whole year. But it's kind of moved in sort of like a step function. If I just look at the numbers, 6,000, 7,000, 9,000 and then you're kind of like an 11,000, 12,000 range. Now you're in the 18,000, 19,000, 20,000 range. Is there another step function coming next year? Is there -- could you dig into a little bit into what's driving that? And just sort of where do you see that going over the next couple of years?

Michael, this is John. I would say as we look to expand this out, it's been successful, every place that we've done, we've seen, as you said, North America starts with this. So you see some doctors start and then we have more and more doctors that sign up for the program. And then as the doctors sign up for the program, then they end up doing more and more volume with us. We've taken that same approach to other countries, and now we've introduced this in EMEA and other places. And the same thing happens. More and more doctors sign up for it. They start to see the benefits of it, and then they utilize it more. So it's really just a matter of now scaling this to other parts of the world because we find that this is really a nice way to supplement how a doctor wants to run their practice.

Okay. And then maybe a follow-up on a few questions that were asked on Cubicure and Direct 3D printing earlier. Really exciting technology that you unveiled late last year, and definitely see the opportunity. But could you help walk us through the road map a little bit sort of like what should we be looking for as sort of goal post 6 months out, a year out, 2 years out, just to sort of track progress and see how it -- see how it's progressing?

Michael, it's Joe again. I think the best way to describe it to you, it's -- like I said in my script, it's a 1- to 3-year journey. And obviously, we'll -- we know how to make these aligners now. We understand how to do it. It's just a scalability of resin in the Cubicure process and that takes time. And we'll obviously report on it quarter by quarter. So you really understand where we're going and what the hurdles are and what the opportunities are.

Okay. Maybe if I could just tweak that a little bit. Is there -- just help us understand, is there anything in terms of -- when you talk about scalability of the resin and the polymer, if you're looking at comprehensive, noncomprehensive, you talked about retainers and being able to put those. Is there anything in terms of your portfolio that makes some products more amenable or would be amenable earlier than others? Or is this just going to be all or nothing?

I mean obviously, the scale, you look at retainers first because units of one. And that's why you'd end up with comprehensive full cases in some way. And that's basically how we'll ramp.

Our next question comes from Nathan Rich with Goldman Sachs.

I wanted to ask on the Systems and Services revenue guidance for 2024. This looks low to me just given -- I think growth in '23 was basically flat, up slightly. With the Lumina launch, we thought it would maybe be up more than it was in 2023. So I don't know if you could just maybe elaborate on what you're expecting for that segment?

Nate, this is John. We're looking at, like we said, this year, you're kind of in that mid-single digits. We do have Lumina, which helps, but there's also unknowns about the macro economy. We were very pleased with what we saw in the fourth quarter with doctors buying and actually doing better than what we had really guided to. So we're pleased with the performance of Q4, but we just want to make sure that as we ramp up Lumina that we're properly positioned there, and we'll update as we go along.

Okay. Great. And then just going back to the margin cadence, I guess are there any either upfront or onetime costs associated with either the launches of Lumina or IPE that impact the margin in the early part of the year just as we think about cadence and sort of what the right baseline is.

There is some of that in Q1. We're ramping that up. So it's not a big, huge splash where there's a lot of expenses and kind of hits all in 1 quarter. But there is some ramp up, but that's factored into our guidance. So when we say that we expect the year-over-year in the first quarter to be slightly up, it's factored in -- those expenses are factored in.

Our next question comes from Ann Wright with Morgan Stanley. You may proceed.

You mentioned at the end of the call, some of the DTC customers that you are tailoring some of the offerings to. I guess, was this material at all in the quarter? Maybe it's not large enough at this point, but any sort of contributions in 2024 as we think about picking up some of that business? And then also, DSO relationships, has there been any changes there in terms of the relationships on that front? How would you characterize those at this point? Are you seeing any greater traction there? Do some of these new products really move the needle on some of those relationships or conversations you're having?

Ann, on the DTC customers, we've always argued that, that wasn't our marketplace in the sense of the price point and all. But I mean, obviously, these patients will pursue treatment. Now probably more so for doctors than DTC. And we're just doing what we can in order to support those customers going forward. But again, as I was clear in my script, we're a doctor-focused client company, and we'll keep it that way. But we do see this as being a certain opportunity. It's just hard for us to quantify right now. On the DSO relationships, I'd say this has gotten stronger all around the globe. Two to call out would be Heartland and [indiscernible] being more new ortho side and Heartland being more on the GP side. But we have really good relationships and we leverage our portfolio well with them to help them grow and we grow with them. So I feel good about our position with DSOs, and we have good strong relationships out there with them.

Our next question comes from Brandon Couillard with Jefferies.

Joe, given the positive macro shift we've seen in the last few months with consumer confidence coming back, any chance you can comment on what you've seen in case starts in January an inflection? And then with respect to the '24 growth outlook. Any chance you could break that out between Americas and International.

Yes. I can't -- I really wouldn't break it out between Americas and International because we felt good about the geographies in general as you went across the world for especially latter half of the fourth quarter of last year. As we go into this year, as I talk about, we're looking at, I think, a stable economic platform. Some of the data that you cited would support that overall. And we feel good about our new products. We think we can play offense. And that's what we're focused on right now.

Okay. And then one housekeeping one for you, John. The fourth quarter operating cash flow was pretty weak. Can you just unpack any of the moving parts that might have been onetime in the quarter. It looks like there was a spike in prepaid expenses on the balance sheet. But anything you would call out?

Things that related to like tax payments and things. It's just some timing as things go through the year. But we feel great. I mean, it's a great model. It generates a lot of cash. It gives us a lot of flexibility, and we were able to use that cash, that $350 million buyback that we did last quarter.

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.

Thank you, everyone. We appreciate you joining us today. We look forward to speaking with you at upcoming financial conferences and at industry meetings such as Chicago Midwinter. If you have any questions or follow-up, please contact our Investor Relations. Thanks, 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.