Earnings Call Transcript - ALGN Q1 2026

Operator, Operator

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.

Shirley Stacy, Vice President, Corporate Communications and Investor Relations

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 one 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 are 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?

Joseph Hogan, President and CEO

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 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 and 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 palate expander and mandibular advancement with occlusal blocks, reflecting broader use across growing patient indications. A clinical study by researchers at a university in Italy found that the 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 a traditional metal expander. IPE also delivered more controlled and predictable results versus 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% 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 including 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 and 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 to do this by incorporating the prior alignment of teeth into the overall restorative treatment plan as opposed to removing 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 Aligner 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 GPs 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 additional 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 continues to be a meaningful growth driver. In Q1, DSO Clear Aligner volumes grew double digit across all regions and represented approximately one quarter 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 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 in 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 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, 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 and increasing 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 programs connect doctors over a structured 12-month period to build clinical confidence and 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, 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, the Nordics, the 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 teens 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, oral health and digital dentistry as durable long-term growth categories. With that, I'll turn it over to John.

John Morici, Chief Financial Officer

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 zero-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 system sales and non-system 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 excludes 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 Comp Zero AA 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 2026 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 a 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 million, 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 six-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 $1,125.1 million, 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 six-month period commencing on or about May 1. With that, now I'll turn it back to Joe for final comments.

Joseph Hogan, President and CEO

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 and 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 a 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 business 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 and 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 and 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 retainers in Q1 and look forward to updating you further as direct printing programs progress. Our objective is 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, Operator

Operator instructions: Our first question comes from Daniel Grosslight with Citi.

Daniel Grosslight, Analyst

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. Q2 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 Q2? And kind of what are the assumptions around the second half?

John Morici, Chief Financial Officer

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: a lot of the restructuring and other changes that we made last year both from a COGS standpoint and OpEx standpoint really started 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.

Operator, Operator

Our next question comes from Glen Santangelo with Barclays.

Glen Santangelo, Analyst

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 six 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 Q1, 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.

John Morici, Chief Financial Officer

Yes, Glen, I can start with answering some of these questions. This is John. On the Middle East, you're right. 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...

Joseph Hogan, President and CEO

On the iTero side, Glen, honestly, we haven't had any disruption from a production or shipment standpoint. That team is very rigorous over there. They move equipment well and respond effectively. I'm not saying that's always perfect, but the team has responded well, and we didn't have any real impact on the business in the first quarter.

John Morici, Chief Financial Officer

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 and 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 reflected 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. It's a disciplined approach that we've taken, and we've seen the investments made back in the business that way.

Operator, Operator

Our next question comes from Brandon Vazquez with William Blair.

Brandon Vazquez, Analyst

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 impacts to consumers and 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 the Middle East, what's the wiggle room within guidance and where you guys would expect across the P&L there could be an impact, because it could be in revenue. And then the other one I'll ask on margins related to this is: are you guys exposed to resin costs that we keep seeing headlines about rising from the Middle East?

John Morici, Chief Financial Officer

Yes, Brandon. So there's a minimal direct impact. The Middle East part of our business is actually relatively small, in the single digits as a percent of the company. The bigger impact is really the potential for higher fuel prices and broader inflation that every country is seeing as a result of this, and what that means for their purchasing power for other products, including ours. We've done a lot to help drive conversion, such as financing and programs, and we'll continue those efforts. But from a forecast standpoint, our prudence is about something that's prolonged with higher inflation and a higher share of wallet going to other places, which is why we're conservative in our assumptions. Regarding resin costs, there's some exposure, but we've managed contracts and logistics; the impacts have been manageable so far.

Operator, Operator

Our next question comes from Jonathan Block with Stifel.

Jonathan Block, Analyst

Two for me. Maybe I'll break them off. But just on the first one, Joe, trends are always really important, but certainly top of mind with investors with 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 closed in the first quarter, more the month of March? And then any early Q2 trends to call out for the first month that you experienced in the month of April?

Shirley Stacy, Vice President, Corporate Communications and Investor Relations

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

Joseph Hogan, President and CEO

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

John Morici, Chief Financial Officer

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

Operator, Operator

Our next question comes from Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson, Analyst

Maybe a two-parter from me. One, can you go into a little bit more detail about your change in ASP view? It just seems a little bit more positive than what you're saying. So just to parse through that in a little bit more detail in terms of 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 what you were thinking about later last year? Are there any incremental opportunities? Any more details on that would also be helpful.

John Morici, Chief Financial Officer

So Elizabeth, on the ASP, you're right: there are moving pieces that we called out, including foreign exchange and country mix and product mix. These factors play through our ASPs. On an overall basis, when we look year-over-year, it's a $10 increase, which was as expected. Even on a quarter-over-quarter basis, it's $10. When we look forward, you'll still have country mix and product mix, but many of those factors offset. So ASPs are stable. Regarding margin, some of those lower-stage products that we talked about, like NOAA or certain moderate products, come at a higher gross margin because they require less cost of service. First quarter is an example. As you increase NOAA products or other streamlined configurations, manufacturing requirements are less and gross margin improves. We should continue to see productivity from cost actions and equipment efficiencies and leverage as volume increases, so that's how we expect things to play out this year. The first quarter was a good start.

Operator, Operator

Our next question comes from Jeff Johnson with Robert W. Baird.

Jeffrey Johnson, Analyst

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 was up double digits, although correct me if I'm wrong on the every other market comment. Part of that, 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 contrast? I know that's not really different over the last several quarters. But just what's your updated thought on how we get that North American number back to something that can be contributing at least to the double-digit elsewhere?

Joseph Hogan, President and CEO

That's a good question, Jeff. First, I'd say the competitive landscape hasn't changed materially. The NOAA products allow us to play more offense and we're doing that. Broadly, my view is that it's macro-driven: U.S. macro has been more muted relative to several international markets. APAC has been very strong, Europe has pockets of strength in specific countries, and Latin America performed extremely well. We've seen improvement in Canada and some improvement in the U.S., but the variable you're looking for has been U.S. macro as far as I can tell.

Jeffrey Johnson, Analyst

All right. Fair enough. And then maybe just a two-parter around NOAA. One, I think last quarter, you had talked about going into Q2 being pretty complete with the rollout of Zero AA across most markets. It sounds like maybe that has a slightly extended launch timeline now. Just wondering if anything has changed there. And then on some of the limited market releases you did of NOAA last year, any early evidence of whether these doctors who are using NOAA are still doing one or two refinements in an a la carte way? Are they using DSP to pay for it? Just how to think about months through year two of those NOAA cases: do additional revenues come in over time or not on that product?

John Morici, Chief Financial Officer

So on NOAA, it's been available to many doctors; it's a question of how quickly doctors choose to utilize it. Adoption ramps based on each doctor's preference and clinical confidence. As doctors see benefits, they may start with NOAA and sometimes later purchase refinements if needed. That was our expectation: adoption ramps, doctors then see what refinements they need, and we start seeing some refinements come in later. NOAA helps doctors keep initial case cost lower and fit treatment into their practice economics. Good adoption globally; refinements are starting to come in but broadly as expected. We want to keep rolling this out and give doctors more options.

Joseph Hogan, President and CEO

Jeff, I would add that over the years doctors have gained more confidence in our product lines, and programs like TPS and peer-to-peer mentoring have increased clinical comfort. NOAA aligns doctor economics with our economics, which helps adoption. That alignment and increased clinical support are helping adoption grow.

Operator, Operator

Our next question comes from Michael Cherny with SVB Leerink (now Leerink Partners).

Michael Cherny, Analyst

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, especially in a world where you do have a broader product portfolio. Is there any color you can give us in terms of scenario analysis that could lead to ongoing margin upside?

John Morici, Chief Financial Officer

We're constantly looking at the macro and our investments market by market. It's not one size fits all: some countries need more awareness and different investment levels depending on where they are in the adoption curve. We make adjustments based on what's working and what's not, optimizing for the best return on investment. We can manage those investments in the short term to meet expectations, while focusing on long-term category growth. We're actively shifting resources and tactics to markets and customers that provide the best returns.

Operator, Operator

Our next question comes from Jason Bednar with Piper Sandler.

Jason Bednar, Analyst

Nice start to the year here. One to follow up, I think, on Jeff's question earlier focusing on the U.S. Good to see a lot of the record quarters internationally. 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 too? I'm just 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?

Joseph Hogan, President and CEO

When you look at DSO approaches versus retail, DSOs provide a broader signal because they cover more patients and doctors and often have strong capabilities around recruiting and financing. On the retail doctor side, programs like HFD are designed to address financing and front-office friction that can limit adoption. We've reorganized to focus more systematically on both orthodontists and GPs, which gives us more coverage to deliver support, financing and product offerings. So yes, we see differences, and our offerings are targeted to address those gaps.

Jason Bednar, Analyst

All right. Got it. And just as a follow-up, shifting over to China, to us it's been a bit of a surprise, a good surprise, double-digit growth and record first quarter that 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?

Joseph Hogan, President and CEO

I would be careful using the word 'normal' in China; it's very dynamic. We have a strong team there, and we've executed well. Jude Ho now runs all of Asia and leads a great team. We're well positioned with manufacturing and product offerings, but China remains extremely competitive and variable quarter-to-quarter. We continue to watch it closely.

Operator, Operator

Our next question comes from Steven Valiquette with Mizuho Securities.

Steven Valiquette, Analyst

This question has been sort of half asked so far, but just wanted to get a little more color around this Q2 guidance. It seems probably stronger than what most people were expecting, which is certainly positive. But as far as geographic mix across that, should we assume generally the same trends: stronger internationally than maybe America a little more stable? And also, for North America in particular, last year you talked about this ratio of patients getting scans versus patients starting treatment being off a little bit. Have you been able to at least 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?

John Morici, Chief Financial Officer

When we think about Q2, the expectation is pretty consistent with what we've seen: international growth outpacing North America for many of the reasons we've discussed. Regarding conversion, the dislocation we saw in Q2 of last year has more or less returned to normal since then. We want to drive volume, sell to more doctors and increase utilization, and we're seeing conversion normalize as we continue those efforts.

Operator, Operator

Our next question comes from Erin Wright with Morgan Stanley.

Erin Wilson Wright, Analyst

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

John Morici, Chief Financial Officer

On the Zero AA product: it continues to ramp. We started mainly on the DSO side and now it's getting more retail adoption. If adoption accelerates beyond our expectations, that would be upside to the guide because the rollout is gradual. Revenue recognition for the core NOAA product does not require deferral, so it is revenue-recognition neutral in the current period. Additional refinements are recognized as they are purchased later. For NOAA and other lower-refinement products, gross margin is excellent and accretive because they require less manufacturing and fewer refinements. You're essentially one treatment plan, one manufacturing run, one shipment, and you're done unless a refinement is needed. That's efficient for us and aligns with how some doctors want to practice and how patients may prefer lower upfront costs.

Joseph Hogan, President and CEO

On the U.S. market more broadly, be careful with external data sources as they vary. What I can say is we are seeing notable progress on preteen treatments driven by Invisalign First, palate expansion and mandibular advancement. Those products are giving doctors better options earlier in treatment and are making a difference in adoption. Overall, the wires-and-brackets versus aligners dynamic hasn't changed dramatically quarter to quarter, but our headway with preteen indications has been meaningful.

Operator, Operator

Our next question comes from Kevin Caliendo with UBS.

Kevin Caliendo, Analyst

I have two, if I can. First, with all the questions around resin and oil, can you remind us what percentage of your COGS is resin? And what would be the impact of direct fabrication in terms of reducing those costs—the potential opportunity there? Second, just to make sure I understand your commentary broadly about guidance: essentially, are you taking the trends you've seen in Q1 and April, running those through for the full year, but then adding some amount of prudence regarding the macro and the conflict? Is that a fair description?

John Morici, Chief Financial Officer

That's a fair description on the guidance. We net the puts and takes from the quarter, factor in April and then add prudence for macro risks, which is how you should think about Q2 and the full year. Regarding resin and input costs, about 25% of our COGS is resin or plastics. We have many contracts with fixed terms that provide protection against inflationary impacts, so we're fairly well protected. The other area is freight and logistics, which we also manage closely. There has been some impact from higher input costs, but it's been manageable and we managed it in Q1 and expect to manage it going forward.

Joseph Hogan, President and CEO

On direct fabrication, beyond the resin benefits, the biggest advantages are the efficiency gains: you eliminate the high scrap rates associated with vacuum forming and get much more design flexibility—variable wall thicknesses, tailored designs by case, and so forth. That improves product capability and will help long-term cost structure and efficiency, but we are advancing direct fabrication deliberately to ensure quality and reliability as we scale.

Operator, Operator

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

Michael Ryskin, Analyst

I'll try to be quick. One is following up on ASPs. In the past, I think you talked about a 1% to 2% decline in ASPs for the year. Your $1,250 in Q1—and I think you pointed to around $1,250 in Q2—implies still a little bit of a step down in Q3, Q4. 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.

John Morici, Chief Financial Officer

Yes, Michael, a 1% to 2% decrease on a year-over-year basis is our expectation for ASPs. You'll see quarter-to-quarter variation driven by product and country mix, but that's the overall expectation for the year.

Michael Ryskin, Analyst

Okay. Quick follow-up: on DSO versus retail channel, is the difference in performance similar to what you've described earlier—DSOs stronger, retail weaker—or is there anything new going on in those channels?

John Morici, Chief Financial Officer

No change to what we've seen. DSOs continue to deliver double-digit growth in many places and act as a force multiplier by bringing together scale, technology and brand to drive conversion. Retail is less consistent. We're working to get retail doctors to operate more like DSOs through sales, technology and marketing efforts to increase adoption and utilization, but broadly the dynamics remain the same.

Operator, Operator

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.

Shirley Stacy, Vice President, Corporate Communications and Investor Relations

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.

Operator, Operator

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