Greetings. Welcome to the Align Technology Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now like to 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 second quarter 2024 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 second quarter 2024 conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I would 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 on our call today. I'll provide an overview of our second quarter results and discuss a few highlights from our two operating segments, System and Services and Clear Aligners. John will provide more detail on our Q2 financial performance and comment on our views for the third quarter and for 2024 in total. Following that, I'll come back and summarize a few key points and open the call to questions. Overall, I’m pleased to report solid second quarter results. Total Q2 '24 revenues of $1,028.5 million were up 3.1% sequentially and 2.6% year-over-year, reflecting growth in both Clear Aligner volumes and Imaging Systems and CAD/CAM Services revenues. Q2 '24 total revenues were unfavorably impacted by foreign exchange of approximately $11.6 million or 1.1% sequentially and unfavorably impacted by approximately $18.1 million or 1.7% year-over-year. For Clear Aligners, Q2 '24 volumes increased 6.2% sequentially and 3.2% year-over-year, driven by growth from adult patients, and strong teen case starts across the regions, led by strength in Asia Pacific, EEMA, and Latin America. Our Q2 results also reflect a record number of doctors submitting cases, and record doctors shipped to for the quarter. Q2 '24 Clear Aligner ASPs were down sequentially and lower than anticipated in our second quarter outlook, due in part to greater impact of unfavorable foreign exchange across multiple currencies, especially the Japanese yen, Euro, and Brazilian real, as well as discounts, and product mix shift to lower ASP products. As a result, total Q2 revenues were slightly below the expected range for our Q2 quarterly revenues. Notwithstanding these factors, non-GAAP operating margin for the second quarter was 22.3%, up 2.5 points sequentially, and up 1.0 point year-over-year. For Imaging Systems and CAD/CAM Services, Q2 '24 revenues increased 9.2% sequentially and 16.1% year-over-year reflecting continued adoption of our next-generation iTero Lumina scanner, which made up the majority of our equipment sales, iTero Lumina wand upgrades, iTero Element scanner trade-ins, as well as increased iTero scanner leases. For Q2 '24, adult patient case starts were up 5% sequentially and 1% year-over-year, reflecting our highest number of adult shipments in 8 quarters, driven by strength in the GP channel, led by North America and APAC dentists. In the teen and growing kids’ segment, over 216,000 teens and younger patients started treatment with Invisalign clear aligners during the second quarter, an increase of 8.8% sequentially and up 8% year-over-year, reflecting growth across regions, especially from Invisalign First in the EMEA and APAC regions. In Q2, the number of doctors submitting teen or younger patient case starts was up 8% year-over-year, led by continued strength from doctors treating young kids, also known as "growing patients." The response from doctors and their patients to the Invisalign Palatal Expander System continues to be positive. We believe that Invisalign Palatal Expander System is a better option for expanding a growing patient's narrow palate compared to traditional appliances used today. The Invisalign Palatal Expander System is currently available in the U.S., Canada, Australia, and New Zealand. We expect it to be available in other markets pending future applicable regulatory approval. Non-Case revenues include our Vivera retainers, which include retention aligners ordered through our Doctor Subscription Program or DSP, as well as clinical training and education accessories in eCommerce. Q2 Non-Case revenues were up 3.5% sequentially and up 5.1% year-over-year, primarily due to continued growth in retainers and DSP. For Q2, total Clear Aligner shipments include approximately 25,000 Invisalign DSP touchup cases, a record high quarter of 37% year-over-year. DSP continues to drive growth and is currently available in North America and certain EMEA countries. During the quarter, we extended DSP into more countries in Europe and we anticipate expanding into additional markets going forward. DSP is also now available in 14-stage touch-up aligner offering across all markets where it's available. As a result, Touch-Up cases increased significantly in Q2. Q2 '24 Clear Aligner volume and DSO customers increased sequentially year-over-year reflecting growth across all regions. DSOs represent a large and growing opportunity to help drive adoption of digital technology across the dental industry. We have well-established relationships in many DSOs globally that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the digital platform. Including increased practice efficiency and profitability, as well as delivering a better patient experience from shorter cycle times and customer proximity. Smile Docs and Heartland Dental are two of our largest DSO partners. We are continuously exploring collaborations with the DSOs that can further the adoption of digital dentistry. Each DSO has a different strategy and business model, and our focus is working and encouraging DSOs aligned with our vision strategy and business model goals. Today, Invisalign is the most recognized orthodontic plan globally, and Invisalign Clear Aligner treatment is faster and more effective than traditional metal braces. Yet the underlying market opportunity remains huge and untapped. We continue to invest in consumer marketing and demand creation initiatives that raise awareness and drive potential patients to Invisalign practices globally. In Q2, we had more than 17 billion impressions and 50 million visitors to our websites globally. Below are additional highlights from Q2, and more information is available in our Q2 '24 earnings webcast slides. To increase awareness and educate young adults, parents, and teens about the benefits of the Invisalign brand, we continue to invest and create campaigns on social media platforms such as TikTok, Instagram, YouTube, Snapchat, and WeChat across the markets. Reaching young adults as well as teens and their parents also requires the right engagement through Invisalign Influencers and creator-centric campaigns. In the Americas, our influence in social media campaigns featured Olympic athletes such as Rebeca Andrade from Brazil, Andre De Grasse from Canada, Jordan Chiles from the United States, and Paralympic athlete Lizzi Smith from the United States. To bolster teen demand, we launched new activations with teen high school sports, social media platform, Over Time, including several programs focused on showcasing elite high school athletes across boys' football, girls' basketball, and girls' soccer. We highlighted why they chose to transform their smile with Invisalign aligners and showcase their results. In the EMEA region, we partnered with influencers to reach consumers across social media platforms, including TikTok and Meta, and launched our global consumer campaigns for teens and parents. In APAC, we continue to invest in consumer advertising across the region and expanded our reach in Japan and India via Meta and YouTube and partnered with key social media influencers. Finally, the adoption of my Invisalign consumer patient app continued to increase with over 4 million downloads to date and over 384,000 monthly active users, an 8% year-over-year increase. Usage of our other digital tools also continued to increase. ClinCheck live update was used by almost 50,000 doctors on more than 692,000 cases, reducing the time spent and modifying treatment plans by an average of 16.3%. The Invisalign practice app is increasing in its adoption with 85,000 doctors who actively use the app, and 5.9 million photographs were uploaded in Q2 via the Invisalign practice app. Year-over-year growth in Q2 system and services revenue was up 16.1%, reflecting higher scanner ASPs and non-system revenues driven by iTero Lumina wand upgrades increased service revenues on a larger basis, scanner sold. On a sequential basis, Q2 systems and services revenues were up 9.2%, reflecting higher scanner volumes, higher scanner ASPs, and higher non-system revenues driven by iTero Lumina wand upgrades. The iTero Lumina is new multi-direct capture technology that replaces the confocal imaging technology in earlier models and has a 3x wider field of capture and a 50% smaller and 45% lighter wand, delivering faster scanning speeds, higher accuracy, superior visualization, and a more comfortable scanning experience. Lumina is currently available with orthodontic workflows as a new standalone scanner or as a wand upgrade from iTera element 5D Plus scanner. During the second quarter, we had a record number of competitive trade-ins demonstrating the continued success of the iTero Lumina Scanner in the marketplace. We're also seeing a halo effect with Invisalign scans. We're pleased to see more doctors coming into the digital ecosystem with an increase in first-time Invisalign case submitters, as well as the return of lapsed submitters. Overall, Q2 we are very pleased with the continued uptake of the iTero Lumina Scanner with ortho workflow and response from customers. We're looking forward to a limited market release for the restorative software on Lumina in Q4, followed by full commercialization in Q1 '25. Today we introduced the iTero design suite, offering doctors an intuitive way to facilitate designs for 3D printing of models, bite splints, and restorative treatments in practice. This software innovation is designed to help doctors increase their practice efficiencies and elevate patient experiences by shortening the time to treatment through an intuitive way to design for in-practice 3D printing. The Align digital platform provides an innovative portfolio of customer-focused technologies that enable seamless end-to-end workflows for dental professionals. The iTero Design Suite is now available through an early access program. Doctors using an iTero scanner can submit their interest via their scanner or my iTero portal. Software is expected to be available later this year in selected markets. With that, I'll turn it over to John.

Thanks, Joe. Now for our Q2 financial results. Total revenues for the second quarter were $1,028.5 million, up 3.1% from the prior quarter and up 2.6% from the corresponding quarter a year ago. On a constant currency basis, Q2 '24 revenues were impacted by unfavorable foreign exchange of approximately $11.6 million or approximately 1.1% sequentially and were unfavorably impacted by approximately $18.1 million year-over-year or approximately 1.7%. For clear aligners, Q2 revenues of $831.7 million were up 1.8% sequentially, primarily from higher volumes, partially offset by lower ASPs. On a year-over-year basis, Q2 Clear Aligner revenues were flat, primarily due to higher discounts. A product mix shift to lower ASP products and the unfavorable impact from foreign exchange offset by lower net revenue deferrals, higher volumes, and price increases. Q2 '24 Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $9.5 million or approximately 1.1% sequentially. On a year-over-year basis, Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $14.7 million or approximately 1.7%. For Q2 Invisalign ASPs for comprehensive treatment were down sequentially and year-over-year. On a sequential basis, the decline in ASP primarily reflects higher discounts, a product mix shift to lower ASP products, and the unfavorable impact of foreign exchange. On a year-over-year basis, the decline in comprehensive ASPs primarily reflects higher discounts, a product mix shift to lower ASP products, and the unfavorable impact from foreign exchange, mostly offset by lower net revenue deferrals and price increases. For Q2, Invisalign ASPs for non-comprehensive treatment were down sequentially and year-over-year. On a sequential basis, the decline in ASPs reflects the unfavorable impact from foreign exchange, higher net revenue deferrals, and a product mix shift to lower ASP products partially offset by price increases. On a year-over-year basis, the decrease in non-comprehensive ASPs reflects higher discounts, a product mix shift to lower ASP products, the unfavorable impact of foreign exchange, and the unfavorable impact of a price adjustment in the UK to make the recently mandatory application of VAT to our aligners cost-neutral to customers. Our Invisalign comprehensive 3-in-3 product and anticipate adoption will continue to increase is available in North America, EMEA, and certain markets across APAC. We are pleased with the continued adoption of the Invisalign comprehensive 3-in-3 product and anticipate an adoption will continue to increase. Comprehensive 3-in-3 provides doctors the flexibility they want while allowing us to recognize more revenue upfront with deferred revenue being recognized over a shorter period compared to our traditional Invisalign comprehensive product and benefiting us with a more favorable gross margin. Clear Aligner deferred revenues on the balance sheet decreased $7.8 million or 0.6% sequentially and decreased $5.2 million or 0.4% year-over-year. Ambo will be recognized as the additional aligners are shipped. Q2 '24 systems and services revenues up $196.8 million were up 9.2% sequentially, primarily due to higher volumes, higher ASPs, and non-system revenues mostly related to upgrades. Q2 '24 systems and services revenues were up 16.1% year-over-year, primarily due to higher ASPs, increased non-system revenues, mostly related to upgrades and our leasing rental programs, and higher service revenues. We are pleased to be able to leverage our operational and financial capabilities to provide different types of go-to-market models for our customers such as leasing and rental options. In the end, we are focused on selling the way our customers want to buy. Q2 '24 systems and services revenues were unfavorably impacted by foreign exchange of approximately $2.1 million or approximately 1% sequentially. On a year-over-year basis, systems and services revenues were unfavorably impacted by foreign exchange of approximately $3.4 million or approximately 1.7%. Systems and services deferred revenues on the balance sheet was down $20.4 million or 8.3% sequentially and down $43.4 million or 16.2% year-over-year, primarily due to the recognition of service revenues, which are recognized ratably over the service period. The decline in deferred revenues both sequentially and year-over-year primarily reflects the shorter duration of service contracts applicable to initial scanner purchases. As our scanner portfolio expands and we introduce new products, we are increasing the opportunities for customers to upgrade and make trade-ins. In addition to our scanning, leasing, and rental programs, developing new capital equipment opportunities to meet the digital transformation needs of our customers and our DSO partners is a natural progression for our equipment business with a large and growing base of scanners sold. The structural programs we have implemented across both of our operating segments benefit our customers by providing them with more options to choose what they need. In some cases at a reduced price that may impact our ASPs, but the cost of service for us is lower, and the benefit is then reflected in our gross margins. Moving to gross margin. Second quarter overall gross margin was 70.3%, up 0.3 points sequentially and down 0.9 points year-over-year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.3 points sequentially and unfavorably impacted by approximately 0.5 points on a year-over-year basis. Clear Aligner gross margin for the second quarter was 70.8%, down 0.1 point sequentially due primarily to lower ASPs, partially offset by lower additional aligners, and leverage manufacturing spend. Clear Aligner gross margin for the second quarter was down 1.7 points year-over-year due primarily to lower ASPs and higher manufacturing spend as we continue to ramp up the Poland manufacturing facility and the impact of unfavorable foreign exchange. Systems and Services gross margin for the second quarter was a record 68.2%, up 2.3 points sequentially, primarily due to higher ASPs and manufacturing efficiencies. Systems and services gross margin for the second quarter was up three points year-over-year for the reasons stated above. Q2 operating expenses were $575.6 million, up 5.9% sequentially and 6.3% year-over-year. On a sequential basis, operating expenses were up by $31.9 million due primarily to about $31 million in legal settlements year-over-year. Operating expenses increased by $33.9 million, primarily due to legal settlements and higher employee compensation, partially offset by lower outside services, advertising, and marketing expenses. On a non-GAAP basis, excluding stock-based compensation. Amortization of acquired intangibles related to certain acquisitions, restructuring, legal settlements, and other charges, operating expenses were $499.5 million, down 1.3% sequentially and down 1.1% year-over-year. Our second quarter operating income of $147 million resulted in an operating margin of 14.3% down 1.2 points sequentially and down 2.9% year-over-year. Operating margin was unfavorably impacted from foreign exchange of approximately 0.6 points sequentially and unfavorable impacted by 1.2 points year-over-year. On a non-GAAP basis, which excludes stock-based compensation, amortization of intangibles related to certain acquisitions, restructuring, legal settlements, and other charges, the operating margin for the second quarter was 22.3%, up 2.5 points sequentially and up 1 point year-over-year. Interest and other income expense net for the second quarter was an expense of $3.2 million, primarily due to unfavorable foreign exchange compared to an income of $4.3 million in Q1 of '24, and an expense of $0.3 million in Q2 of '23. Recall that Q1 '24 included a non-recurring gain on our equity investments. The GAAP effective tax rate in the second quarter was 32.9% compared to 33.7% in the first quarter, and 34.8% in the second quarter of the prior year. The second quarter GAAP effective tax rate was lower than the first quarter effective tax rate, primarily due to discrete tax events recognized in Q1 of '24 that did not reoccur in Q2 of '24, and that benefit was partially offset by an increase in non-deductible expenses. Our non-GAAP effective tax rate in the second quarter was 20%, which reflects our long-term projected tax rate. Second quarter net income per diluted share was $1.28, down sequentially $0.11 and down $0.18 compared to the prior year. Our EPS was unfavorably impacted by $0.11 on a sequential basis, and $0.17 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.41 for the second quarter, up $0.27 sequentially and up $0.19 year-over-year. Moving on to the balance sheet. As of June 30, 2024, cash, cash equivalents and short and long-term marketable securities were $782.1 million, down sequentially, $120.4 million, and down $251.7 million year-over-year. Of our $782.1 million balance, $140 million was held in the U.S and $642.1 million was held by our international entities. During Q2 '24, we repurchased approximately 0.6 million shares of our common stock at an average price of $250.73 through $150 million of open market repurchases. As of June 30, 2024, $500 million remains available for repurchases of our common stock under the January 2023 big purchase program. During the quarter, we completed a $75 million equity investment in Heartland Dental, a multidisciplinary DSO with GP and Ortho practices across the United States. Q2 accounts receivable balance was $1,020.1 million, up sequentially. Our overall day sales outstanding was 89 days, up approximately 3 days sequentially and up approximately eight days as compared to Q2 last year. Cash flow from operations for the second quarter was $159.8 million. Capital expenditures for the second quarter were $53.5 million, primarily related to our continued investments to increase aligner manufacturing capacity and facilities. Free cash flow, calculated as cash flow from operations minus capital expenditures, was $106.4 million. Looking ahead, assuming uncontrollable circumstances, we provide the following business outlook for Q3 and fiscal 2024. For Q3 2024, we anticipate worldwide revenues between $980 million and $1 billion. We expect Clear Aligner volume to decrease sequentially due to Q3 seasonality, and Clear Aligner average selling prices to fall sequentially mainly because of foreign exchange and product mix. Additionally, we foresee a sequential decline in systems and services revenues attributed to Q3 seasonality. Our Q3 2024 GAAP operating margin is projected to be lower than the GAAP operating margin for Q3 2023, while the non-GAAP operating margin for Q3 2024 is expected to be flat compared to Q3 2023. For fiscal 2024, we forecast total revenue growth of 4% to 6% year-over-year, partly due to lower Clear Aligner average selling prices from ongoing unfavorable foreign exchange and product mix. Furthermore, our updated revenue expectations incorporate the anticipated commercial launch of iTero Lumina with restorative functionalities in Q1 of 2025, delayed from 2024. We expect the fiscal 2024 GAAP operating margin to be slightly below that of 2023, while the 2024 non-GAAP operating margin should exceed the 2023 non-GAAP operating margin. We plan approximately $100 million for capital expenditures in fiscal 2024, primarily for construction and improvements as well as manufacturing capacity to support ongoing expansion. With that, I'll turn it back over to Joe for final comments, Joe. Thanks.

Thanks, John. In summary, I'm pleased with our overall performance for Q2 and the growth we delivered across the business for clear aligner volumes as well as strong revenues from scanners and services. Notwithstanding the impact of unfavorable foreign exchange on our revenues, we believe the end markets are stable overall, and we're committed to supporting our doctor customers in the future of digital innovation. Our purpose is to transform smiles and change lives with the goal of being the standard of care in orthodontics with Invisalign Clear Align of treatment. Clinically, we believe that we can treat the vast majority of orthodontic cases today. From the simplest to the most complex clinical efficacy is no longer a question. We now focus on the treatment experience for patients and on efficiency and growth for our doctor customers. The orthodontic case start market is vastly underpenetrated, and there are millions of consumers who would benefit from digital orthodontics. We continue to evolve to better meet the needs of doctors and potential patients who increasingly seek convenient, elevated digital experiences. Our digital platform of integrated technologies, software, and services has helped improve orthodontic treatment for millions by delivering seamless workflows and dental practices on mobile devices and through remote monitoring, and are designed to help doctors and patients realize the benefits of a truly seamless end-to-end digital workflows and patient experiences. But the journey from analog to digital has proven difficult for practices. The orthodontic practice of the future requires full digital transformation to truly realize the promise of digital. And there is no other med tech company in the world that can help practices meet this challenge. With that, I thank you for your time today. We look forward to sharing our continued progress as we move the industry forward through digital orthodontics. Now I'll turn the call over to the operator for your questions.

Our first question comes from Michael Cherny from Leerink Partners. Please go ahead with your question.

Good afternoon. Thank you for taking all the questions. Maybe if I can just dive in a little bit on the guidance change and some of the moving pieces. In particular, I want to get a sense from you of what you view as within your control versus outside. Obviously, FX is something that management can't control, but you think about the guidance in particular on the ASP side, how do you think about the flow through of what isn't within your control on mix? Is there something you do on promotion? Is there anything else that can come from a pricing competition that you should be worried about? Just want to dive a little bit more into that number given that it seems to be the biggest fulcrum point relative to the guidance change.

Yes, it's a good question, Michael. This is John. Look, when we looked at the total year and based on what we're seeing now, we see the unfavorable foreign exchange impact. We saw it in Q2, and we continue to see and project that that will continue for the rest of this year. So that's in our outlook. Just over a point of our reduction in our total year is related to foreign exchange. The mix effect that you talked about, that's really the way our customers want to buy. In some cases, they're buying lower-priced products; it's part of our portfolio. We see that as incremental in cases like the doctor subscription program. They're just at a lower ASP. But what we end up seeing then is a better gross margin. Our cost to serve in many cases is lower than that, but it really is a reflection of what doctors want to do with the cases that they buy.

Okay. Thank you.

Thanks, Mike.

Thank you. And our next question comes from the line of Elizabeth Anderson from Evercore ISI.

Hi guys. Thanks so much for the question. I was wondering if you had just regarding the guidance, if you had any insights that you could share on whether any of the iTero restorative scan revenue was originally contemplated in the 2024 guidance and now with the push out on the launch, if that was sort of an impact on the guidance as well? And then as a follow-up, if you could talk a little bit more about the acceleration in the teen revenue, or sorry, in the teen cases, which accelerated off a tougher comp, that would be helpful to also get some more additional perspective there. Thanks.

Yes. Hi, Elizabeth. Yes, you're right. The Lumina restorative that we expected to launch in the fourth quarter, now the full launch into next year. That revenue was expected for this year. So that's part of the reasoning for taking down our overall guidance, in addition to the FX as I said on the previous question. And then your question on teen, look, we're pleased with our teen growth. We saw good over 8% growth on a quarter-over-quarter basis, 8% growth on a year-over-year basis. We saw good adoption in many places around the world, and it's a further reflection of the various products that we have, the adoption that doctors have. A lot of new doctors coming into the ecosystem to get trained and then actually become customers of ours. So we're pleased with the progress that we're seeing within teen.

Great. And any chance you want to quantify that iTero restorative contribution change or no?

Yes, we're not getting it directly, but it's less than a 1%, slightly less than a percentage of the total.

That's helpful. Thank you.

Thank you. And our next question comes from the line of Jon Block from Stifel. Your question please.

Hey, Joe, good afternoon. Yes, where to start? Everyone was nervous about cases and then you come in and you beat cases handling, and obviously the focus is going to be on the ASP. So John, maybe let me know if I have these numbers right. But it looks like the aligner ASP was down roughly 4% Q-over-Q. The FX hit was about a 1%. So can you talk in detail as much as possible, the other 3% decline in the ASP Q-over-Q, if I've got that right, it seems like a big deviation from where your head was at 3 months ago. How much of it was mix versus discounts? And if it was a lot of mix, why did mix become so pronounced over the past 3 months? And maybe we can start there please.

Yes, Jon, when you look at mix that we have, we see doctors utilizing DSP more and more as a record amount of DSP that we had in a quarter that's at a lower ASP. We saw a lot of GP growth. We talked about adult cases being up, and the best volumes that we've seen in several quarters, and many times that's lower stage products; that we end up seeing come through. And so when we see the ASP, it's just a reflection of the different products that are being sold and those doctors are taking those up at that. But you also know, and we've talked about, where margins in many cases are better at those lower stage products, and we end up seeing this as a benefit to be able to show up in gross margins and also op margins.

Okay. So I guess to maybe just as a follow-up to that, are you saying that discounts weren't more aggressive, call it in 2Q '24 than maybe what we've seen historically? And just tack on to that follow-up, you brought down the midpoint of the rev guide from about 7% to 5%. You said FX was a 1%, you said the GP restorative push on Lumina was slightly less than 1%. I mean, are you sort of implying that clear aligner revenue by and large for 2024 is somewhat unchanged or maybe down a smidge? And then I'll ask my quicker follow-up. Thanks.

Yes, Clear Aligner revenue down a little bit for the total year because of the ASPs that we spoke about not necessarily due to any volume changes. Like you said, we are pleased with the Q2 volume that we have. But that’s how we look at the change – mostly the FX for the total year as we’ve described, and then some mix, but then the rest of it due to iTero changes from this year to next year.

Okay. And last question for me. I guess online, just John, if I've got this right, it looks like the revenue comes down a little bit, the midpoint, but I believe the non-GAAP EBIT margins came up slightly, I think before it was like flat to slightly up, and now you're saying slightly up. So maybe just talk through the dynamics where you're able to arguably increase the non-GAAP EBITDA margin assumption for '24 even off the more modest revenue base. And thanks for the time, guys.

Yes, it's a good question. When we examine the margin on our products, particularly with the lower-stage products, we actually achieve a better margin. Our cost to serve is reduced, which positively impacts gross margin and contributes to operating margin. As demonstrated this quarter in terms of operating expenses, we are very conscious of the levers we can adjust in this environment. Our goal is to maximize volume and revenue while also being mindful of the operating profit that we need to achieve.

Thank you. And our next question comes from the line of Jeff Johnson with Baird. Your question please.

Hey Joe.

Hey, Jeff.

Hey, Joe. Good afternoon, guys. Wanted to start maybe on your doctor ship-to number in the quarter. You shipped to a little over 86,000 docs this quarter. I think for 3 straight years you've kind of been in that 82,000 to 85,000 range. So maybe not a big breakout, but at least some of these underlying numbers on utilization is doctors ship to and that are starting to perk up a little bit. So I guess what I'm trying to understand on that doctor ship-to number, are you starting to see some benefits of some of the investments Jon has been talking about the last couple quarters on getting that doctor prescribing base to expand? Is it expanding that base? Is it slowing the outflow of that base? As we know you've had some competitive losses here over the last couple of years. Just maybe help us understand the inflow and the outflow rates and what's moving between those two pieces. Thanks.

Hey Jeff, Joe. First of all, we're pleased with that. It's good to see a utilization go up. It's also great to see the doctors go up too. And obviously, there's a strong concerted effort. We talk about that underserved marketplace out there, and we know there's still a lot of doctors to train and there's still doctors that do a lot more cases. So it's a big focus for the business. When you ask that question, are we losing fewer or gaining few? There's always a mix and a change in those kinds of things, Jeff. But overall, you can see here that we're gaining; it's not saying that we don't lose some docs sometimes, but you know, we often bring them back too. The whole story with what we've been through as competitors have entered the markets, sometimes we'll lose some doctors; they often come back, and one of the things about our business too, sometimes it takes 18 months for doctors to figure out if those competitive cases are actually going to work. And obviously, I think we’re making good progress in the sense of convincing doctors to move ahead with us. And this growth in doctors and utilization occurred across the globe, which is great. It wasn't like it just came out of one region.

Yes, understood. All right. And then maybe just a follow-up on the manufacturing side. We saw the news maybe a couple months ago of Emory's new role leading Direct Fab. He's going to stay in that role it sounds like through 2026 when he's going to ride off into the sunset. So does that tell us anything about timelines on Direct Fab? I mean, Emory just doesn't seem like the kind of guy that would want to walk away in the middle of something. So is that kind of drawing a line in the sand that by 2026 you should be up and running fairly well, fairly maybe not efficiently, but fairly completely in getting that Direct Fab plans all put together and rolling out some of that 3D printed stuff in a bigger way?

Hey Jeff, it's a good question. We have a lot of faith in Emory. He's been here for so long, and he's the only guy that's ever scaled aligners to the point that he has. And so it's really fun to have him in this role because he gives us great feedback in a sense of where we are. Jeff, the best I can say what we've talked about with the analysts is we're looking at 2 to 3 years on this scale. And don't think of it as a linear line. This is one where you have to do a lot of equipment work at first to get the efficiencies, to have this equipment work 24/7. And then secondly, this is a brand new resin; it's never been sourced before. And so finding the source of the resin, making sure you have the reactor capacity, all those things take time. So I look at over the next year, we do a lot of that groundwork, and then you'll start to see products and different things that will roll from that. So, but it's best to fix in your mind that it's a 2 to 3-year kind of a rollup.

Understood. Thank you.

Okay.

Thank you. One moment for our next question. And our next question comes from the line of Brandon Vazquez from William Blair. Your question please.

Hi everyone. Thanks for taking the question. I'll ask two upfront because it's kind of guidance-related. One, a little near-term, which is basically, I think if you do the sequentials and the implied numbers on the guidance that you've given us, there's maybe like a high single digits revenue increase going into Q4. I think, correct me if I'm wrong, but that's kind of like pre-COVID levels of seasonality, back when the business was a little more normal. So the question near-term being, given the uncertainty in the market, what kind of gives you the confidence that you guys can kind of return normal seasonality within this year? And then the follow-up to that on kind of a long-term guidance question is like, okay, we look three years out, what's kind of the growth expectations of this business sort of growth algorithm? Any color you can give us around that, assuming that we're, it seems like we're stuck in somewhat of an uncertain end market stable, but not exactly where you want it. So talk about the opportunity to accelerate, if even possible, in an end market like this over the couple plus three plus years. Thank you.

Yes, Brandon, this is John. I could take the question kind of on the remaining part of this year and so on. So we've guided to what we can see, based on how the quarter played out. We actually saw in the second quarter. I mean, I'm not saying it's a return to normal seasonality, but it was much more seasonal in the second quarter in terms of how our volume progressed and how it changed quarter-over-quarter to more normal seasonality. And so our reflection of what we tried to do for the rest of this year based on what we see. In terms of volume, take out FX and some of that noise that gets caught into Q2. But from an underlying volume standpoint, we saw more normal seasonality. And as we play out the rest of this year, we expect that to continue with teen season that comes in, that we're in now. China in the third quarter is a strong quarter for them because of team season, Europe, not so much. We expect that to play out more normally as it moves from Q3 to Q4. When we think of the total and looking out into three years, and so look, we're in an underpenetrated market, and we've talked a lot about that. We think we have the products and the go-to-market capabilities to really move this market forward. And it's up to us to be able to help drive this market forward. And when we look out and we look out in our long-term model, we believe in the opportunity revenue growth is 25% plus percent and up margin 25% plus. And that's how we are positioning things for growth, for whether it's Direct Fab, and the growth opportunities that we have there and the efficiencies that we can drive as well as the standard production that we have now. That's how we're building from an investment standpoint. We're mindful of changes that can happen short-term and economy and so on, and that's why we give you kind of the guidance that we have at least now in short term, but in longer-term we believe in our model. And that's how we’re investing in the future.

Thank you. Our next question comes from Jason Bednar from Piper Sandler. Please go ahead with your question.

Good afternoon everyone.

Hey, Jason.

I wanted to highlight a near-term issue regarding the third quarter guidance, particularly some expenses that have already been mentioned, which are clearly lower than what you might have projected internally three to six months ago. It reminds me of the same period last year, where expectations were higher than the actual results. I'm curious how much that experience from last year has shaped your perspective on volumes and product mix compared to the recent trends and macro data points you've observed over the last few months. Also, if you could discuss how you see the teen season progressing, as we are currently in that phase.

Yes, Jason, I can take that on Q3. Some of those specifics, certainly we look at last year, we look at the 2022, you know, you got into those COVID years; they're tough to call, and then you have to jump before COVID. So now you're talking almost 5 years ago. So, you look at what you see at the time knowing that most recently you have, we know we have Europe, which has a summer kind of shutdown, that comes back into September. We want to be able to see in September that they do come back. The USS is in teen season, China to get into the teen season as well. And we want to see how that plays out. So we call based on what we expect, both from a volume standpoint, and we are really trying to give the foreign exchange that we see that started the quarter, in July, where that FX is and not make an assumption as to whether things are going to get better or worse. We want to put that out there and really try to give you more of the underlying performance for the business. Joe, you want to talk about purchase?

Yes, on the teen side, Jason, as I said in my script, and we were pleased with the teen growth. It was over 8%, which is great to see. A lot of that was supported by Asia and also Europe when you really got to get into teen numbers. Again, IPE is part of that. We look at that as obviously pre-teen, and we watching the ramp up of that, that is obviously pre-teen and we were watching the ramp up of that and the acceptance in the marketplace. So hope I'm answering your question, but overall, we feel good about the team now. There's a big teen season in China in the third quarter, we're watching it closely. We expect to be able to perform in that side too. So I'm optimistic as it stands.

Okay, great. Then just for my follow-up, I'm going to pack a few in here. Maybe bigger picture, if we step back and look at some of the recent developments. I know there's a lot of initiatives, different initiatives, marketing programs, menu expansion, customer incentives, so on and so forth. Those all help contribute to expanding that utilization line, improving doctor productivity. You've got the Costco relationship that's been discussed. We uncovered what looks to be one of the larger changes to your advantage program in at least a few years. So I'm curious how you'd have us think about these in the broader context of your commercial efforts. Would you consider things like the Costco and Advantage changes, either are both more impactful than what you typically do? Have you seen any change maybe in doc behavior, just in response to these advantage changes? And then what's the right way to think about each of these influencing that ASP line that's now coming to focus more significantly with today's results? Thank you.

That's a great question, Jason. To address it from a couple of angles, the advantage you mentioned reflects our efforts to add some structure to our Advantage program. We're aiming to attract new doctors by providing a clear pathway for earning discounts as they increase their case volume, which in turn boosts utilization. This approach benefits both new and existing doctors. The changes to the Advantage program are intended to introduce more structure moving forward, ensuring that we are effectively refreshed in our approach while focusing on driving utilization and encouraging doctors to handle more cases. Our initiatives, such as the pilot program with Costco, are focused on increasing conversion. We recognize that potential patients are out there shopping for services amidst economic challenges, and our goal is to connect them with our quality offerings through our doctors. The Costco test is one such effort aimed specifically at enhancing conversion rates.

Thank you.

Thank you. And our next question comes from the line of Michael Ryskin from Bank of America. Your question please.

Hey, thanks for taking the question, guys. Joe or John, I want to follow up on a point that you touched on a couple of times already in terms of the ASPs. You talked about part of it is the mix shift and a lot of it is how your customers want to buy, whether that's different products within portfolio, whether or DSP, things like that. But what I want to get at is, are you concerned by that trend itself at all? Is that that customers want the lower products? I guess that gives you the option to still meet them in the air and that still drives the volume, but is that something that you expected? This shift down? As you say, the market's still very unpenetrated. It's a big untapped market, so you'd think that you wouldn't be seeing the demand elasticity-type price that you are. So is this temporary because of the current macro environment and consumer sensitivity, or does it say something deeper that the rest of the market that's out there really doesn't exist at that 1,300 plus ASP maybe it's lower and lower and lower.

Hey Michael, it's Joe. The ASP aspect is important to explain; we're always focused on margins to ensure they're healthy. Globally, we notice that different regions have distinct product preferences. For instance, in India, customers may request a different product than those in the United States, with variations like a 5x5 or 3x3. These differences lead to different products for various applications, including those needed by general practitioners. We're observing a range of ASPs as a result, but our margins have actually improved. This indicates that the market isn't solely driving prices down; rather, we're adapting to diverse customer demands worldwide and ensuring we meet those needs effectively. Notably, we had 25,000 cases flow through DSP, which are the cases that doctors utilized to create molds in their offices. Now they're purchasing several of our products, which provides us strong margins in that line, although it results in a lower ASP due to the DSP program. Overall, we are responding to market conditions. It's a positive market with varying levels of pricing and value, and we will continue to adapt to stimulate growth in the market.

Okay. And then much quicker follow-up hopefully, sorry if I missed it, but did you call up why the Lumina restorative was pushed out to 1Q '25? Was this a commercial decision or something on the development side?

Yes, Michael, there are several key areas within restorative that we need to excel at. Honestly, we've made significant progress in most of these areas, but we decided to take a bit more time to ensure everything is right. It's important to us to involve the doctors who will be using the product, as well as the influential figures in the field who can help promote it, to ensure they are comfortable with it too. We believe it is prudent and responsible to take a few more months and plan to launch it in the first quarter, so we can offer the best product available.

Okay. Thanks. Makes sense.

Thank you. And one moment for our next question. And our next question comes from the line of Erin Wright from Morgan Stanley. Your question please.

Thanks for taking my question. So did you see any recent changes, for instance, in the adult case volume dynamics throughout the quarter? And just what are you seeing so far in the third quarter in terms of adult cases? I guess, has anything changed in terms of your view on the macro environment for the remainder of the year? And I hate to belabor this, but also for the Americas too, but on the macro question, are you generally expecting stability in your guidance or are you anticipating a range of outcomes from a consumer and macro environment standpoint for the remainder of the year?

Aaron, we expected stability, although we can't predict exchange rates. If we could, we would be in a different field. Overall, we believe we are operating in a stable market environment. It's important to note that we have a very global business. The Japanese yen and Brazilian real indicate substantial growth, and we experience a level of stability that extends across different regions.

And that adult piece we saw growth. We saw the highest quarter in many quarters. So we're pleased with it. I think it's a reflection of our GP business, growing GPs, growing with DSOs and so on being able to get some of that volume through. Like Joe said, it's more of a stability that we're seeing, but we're pleased with that adult growth. And some of that contributes to some of that lower ASP product. It's great if that's how doctors want to buy to be able to treat those adults; we're happy to sell it to them. And as Joe said, it's a better margin for us.

And you mentioned China too and the key market there, but just generally speaking, can you give us an update on kind of China, the underlying demand trends and market dynamics there?

It's Joe again, Erin. China performed the way we wanted China to perform, just as we predicted. Overall, I mean, the market is challenging. I think that Tier 3 and 4 cities are actually challenged more than the private and one and twos. But overall, there's no surprise; we have a good team there. Juno is a great leader for us there and we like the results, and we're looking forward to a good team quarter there, which is third quarter is always the biggest quarter for China.

Okay. Thank you.

You're welcome.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Shirley Stacy for any closing comments.

Thank you, operator, and thank you everyone for joining us on the call today. We look forward to speaking to you at upcoming financial conferences and industry events. If you have any questions, please follow up with our investor relations team. Have a great day.

Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.