ALGN
#Good afternoon and thanks for joining us
On our call today, I'll provide some highlights on the quarter, and then briefly discuss the performance of our two operating segments, clear aligners and scanners
<UNK> will provide more detail on our financial results and discuss our outlook for the third quarter
Following that, I'll come back and summarize a few key points and open up the call to questions
Our second quarter results were better than expected across all key financial metrics, including revenue, volume, margins and EPS
Q2 revenues increased 32.3% year-over-year, driven by strong Invisalign case shipments across all channels, and especially in the teen segment
Solid execution of our strategy and key investments continue to deliver strong growth across the board, with record Invisalign volume in almost every geography
Q2 also had all-time high of nearly 5,000 newly trained doctors in a quarter for the first time ever
And our iTero scanner business also performed well this quarter with revenues up 36.7% year-over-year
For Q2, North American Invisalign case volume was up 10.3% sequentially and 27.6% year-over-year, reflecting strong year-over-year growth from both orthodontists and GP dentist channels
Continued uptake with teens drove Invisalign growth in North America and contributed to another record quarter for ortho volumes, up 34.5% year-over-year, and an utilization up to 13.6 cases per doctor
Q2 volume for North America GP dentist increased 18.9% year-over-year, primarily reflecting continued expansion of our GP customer base and utilization growth, which increased to a record 3.3 cases per doctor
Q2 was the first quarter we offered Invisalign Lite in North America and we saw solid uptake, especially among GP dentists
Invisalign Lite includes up to 14 stages of aligners and is intended to treat simple to moderate cases
Q2 Invisalign volume for international doctors was up 13.6% sequentially and 37.4% year-over-year, driven primarily by new customers in both EMEA and APAC regions
In EMEA, Q2 volumes were up 33.2% year-over-year
All five of our core European markets showed record growth rates led by Spain and the UK
Expansion markets also had record volume with over 50% year-over-year growth led by Central and Eastern Europe and the Benelux
In Asia Pacific, Q2 volumes were up 44.4% year-over-year led by China where we trained over 1,000 doctors for the first time, followed by growth from Southeast Asia, Japan, and ANZ
Turning to the teen markets, over 55,000 teenagers started treatment with Invisalign clear aligners in Q2, up 12.6% sequentially and 37.6% year-over-year, reflecting continued acceleration above adult case volume growth
North America ortho teen cases increased 11.6% sequentially and 42.1% year-over-year compared to adult cases of 9.8% and 30.5%, the third consecutive quarter teen growth rate that has been above adults
International case shipments to teen patients increased both 13.7% sequentially and 40.5% year-over-year as well
In Q2, we expanded commercialization of Invisalign treatment with mandibular advancement to select countries in EMEA and APAC
MAT (05:29), as we call it, is the first clear aligner solution for Class II correction that advances the mandibular while moving teeth at the same time
While we're still very early in adoption cycle to-date, we're pleased with the initial update and expect to see continued ramp-up over the course of the year Invisalign treatment with mandibular advancement is not available in the U.S
yet where it's pending FDA approval
The Invisalign brand and our consumer marketing campaign programs continue to be key factors in raising awareness and creating demand for Invisalign treatment
In Q2, we continued to benefit from our investments in new programs as well as optimizing online spending and media mix for existing programs
, we launched our new teen-focused marketing campaign in May that aims to educate teens and their parents, moms especially, about the benefits of teeth straightening with Invisalign clear aligners
It also works to ensure that teens know Invisalign treatment is the best option for their lifestyle
The new program contributed significant growth in consumer demand during the quarter that helped drive Invisalign teen volume
Our teen campaign expands to the Invisalign Made to Move campaign that we introduced in March and we continue to see positive impact from the overarching campaign and consumer interest as well
Specifically, in Q2, we saw 23% year-over-year increase in unique visitors to our website and achieved significant growth year over year in doctor locator searches
We also saw continued uptick in adult male patients as compared to females as a result of our changing consumer targeting approach
In EMEA, early results show the Invisalign Made to Move campaign is resulting in higher engagement with consumers across digital display, PPC and social channels
During the quarter, we piloted new social media formats that delivered exceptional results, Pinterest, Facebook Canvas and Instagram, all outperforming benchmarks
Social media remains a key driver delivering 200% more users
Although we also saw a significant increase in the number of smile assessment completions, plus 22%, and total leads, plus 30%, and we'll continue to roll out the Made to Move campaign across the remaining countries in EMEA in Q3. In the Asia Pacific region, our Q2 customer marketing campaign is focused primarily on Australia and New Zealand where we saw momentum from our Summer Campaign featuring Invisalign Ambassador, <UNK> (sic) Jason Dundas, a well-known TV host and personality in Australia
The campaign shares Jason's personal journey of how Invisalign treatment helped transform his smile and his career along with a call to action for consumers focused on their New Year's resolution to improve their lives by getting the smile they've always wanted
We also continued driving Invisalign website doctor locator visits by reaching out to potential patients who engaged with our ads and banners in Q1. And in India, where we're just getting started, we participated in Beach Fashion Week, where the Invisalign brand was their Beautiful Smile Partner
In Q2, our scanner revenues increased 36.7% year over year and 26.9% sequentially
In May, we announced the new iTero Element 1.5 software upgrade, which includes two key features, TimeLapse and 1 minute scans
TimeLapse compares a patient's prior 3D scans to their most current scan and gives doctors an enhanced visualization assessment and communications tool that can help them provide additional treatment recommendations
1 minute scans enable practitioners to complete a full arc scan in less than a minute, with the same accuracy and reliability practitioners have come to expect from iTero scanners
The use of our iTero scanners for Invisalign case submissions in place of PVS impressions continues to expand, remains a positive catalyst for Invisalign utilization
In Q2, total Invisalign cases submitted with a digital scanner in North America increased to a record 59%, up from 47% in Q2 of last year
In the doctor-directed, at home channel, Q2 was our second full quarter supplying clear aligners to SmileDirectClub or SDC
Q2 shipments to this new channel was strong and nearly tripled sequentially off a small base
As their exclusive third-party supplier, we produced roughly one-third of SmileDirectClub's clear aligner volume and they manufacture the remaining amount
In Q2, SDC continued to invest significantly in consumer marketing, including TV advertising, print, online media, including social media, which we believe has a positive effect on both SDC and Invisalign demand
We also opened several new SmileShops in the U.S
, which are continuing to ramp
Overall, we're excited about the long-term potential for the at home, doctor-directed market; remain pleased with our investment and supply agreement
Today, we also announced that we have purchased an additional 2% of SmileDirectClub for $12.8 million, which brings our total ownership to 19%
We've extended SDC's line of credit from $15 million to $30 million
Finally, before I turn the call over to <UNK>, I want to provide a brief update on our operational expansion plans
In June, we opened a new treatment planning facility in Chengdu, China which services and supports our customers within China
It also serves as a clinical education and training center for all of our customers across Asia Pacific
We have been steadily migrating Chinese Invisalign cases to Chengdu and are continuing to train new technicians and improved lead times
We'll also open a treatment planning facility to support our EMEA customers in Cologne, Germany in Q3. With that, I'll turn it over to <UNK>
Thanks, <UNK>
Overall, we're pleased to see the first half of the year off to such a strong start
Many of you already recently think of a question about us being at a tipping point and I'm sure we'll get that question following today's call
Frankly, we think it's too early to tell
The growth we're seeing in our business is better than we expected and reflects progress in several areas, including clinical efficacy, sales coverage and support models, customer engagement and demand generation and patient capture
We believe it also reflects a healthy underlying market with solid patient traffic and a significant increase in direct to consumer programs by us and others
There's still a lot of work ahead as we move toward our goal of replacing metal braces and making Invisalign the standard-of-care in orthodontics
We know there will be challenges and we aren't drawing a straight line up and to the right at this point
But we're confident in our ability to drive this industry forward and transform it from an outdated analog process to a fully digital system
Thanks for your time today and we look forward to your questions
Question-and-Answer Session
Bob, from a teen's standpoint, overall, I'll just focus on North America for a second
We mentioned last year when we put our plan together that we would have a strong focus on teens as we go into the second quarter this year, because this is the teen season for North America
What we started that program off with is we had several programs in North America just to get doctors ready for this program overall, next-level partnership, a program we call IMOP (23:50), some specific things that really focused on teen to get that base ready
And then we started to really unleash the communications part of this, the $14 million or so that we're moving in consumer advertising to do that
So I think when you look at the first half and those two kind of simultaneous actions, that's been really one of the biggest underlying drivers in North America to make that really go
That along with our ad campaigns and everything else we've put in place that are much more specific these days in the sense of how we go to market
You see how we're working both at teens channels and the moms channels from a marketing standpoint also
It's just a much cleaner, more specific approach to teens that includes a real sales effort with our doctors and a real strong customer patient facing piece with moms and teens
Yeah
I'd say two major variables, Bob
One would be just media spend
We've had a significant increase in media spend itself and we have seen a strong correlation between media spend in the U.S
and the GP increase
And then secondly, like our Lite product that we introduced in the second quarter with the GP segment, we're more and more targeting that segment with easier products that are more simple for them to deliver to the marketplace
So I'd say media spend in some specific products have really helped in that sense
Thanks
Hi, <UNK>
Well, you know what, we mentioned in my briefing that we're doing one-third of their cases right now
It's still not material in that sense, <UNK>
We just wanted to give you just an idea of where we stand overall
They do still two-thirds of their volume
As far as the percent equity, it was just an opportunity we have
We work closely with David and his team at SDC
And that equity was available
We're pleased with the relationship and we thought that was just a great next step for us in that sense
Thanks, <UNK>
We haven't had – <UNK>, it's Joe
We haven't had terrific conversion rates in that sense, but we've learned a lot and we tweak that model all the time is the patient to SmileDirectClub service, they have a certain price point in mind
They usually have a simple kind of an approach that they want in the sense of correcting their smile
And they need to be dealt with really quickly
In other words, when those patients are interested, moving them into an orthodontist in this case or a GP that wants to do that, it has to be done quickly and concisely, because these patients are – they're just different than the normal patients that we work with
So we keep honing that model
We've had some success and we keep building on it, but we think in the future, as we put this thing together, we'll have a much better yield
I'll go back to India again this year
What we do when we go into a country like that, <UNK>, is you really do this by city
You go in a city and you recruit doctors and you just begin to ramp up in those specific cities
You find great doctors in the sense of peer-to-peer being able to – one doctor teach another
And so, you look at this as almost the city-by-city effort in India
We'll take obviously the biggest and the most prosperous cities first and we work out from there
We're really in our second year of this in a big way
We're reaching our goals
The businesses has been growing pretty rapidly in that sense and this is a model we really follow all over the world
It's just when you get to India, you just have to make sure that you approach it in an Indian way
And here is an example what's an Indian way is
They often don't want to buy our scanners
So what we have is a scanner that's up in a few of them in a city on a truck, just they rent and we move them in almost daily into different offices
They line up patients to do scans
And so we just acclimatize, to use that word to the marketplace, and keep working that
So we're excited about it and we feel very confident of our long-term trend there
Thanks, <UNK>
Thanks, <UNK>
Data filing is 20 years
There's some multi-layer material
We do have patent protection on it now
The vendor that we use on it has a certain amount of restrictions in the sense of dentistry and where it can be used, but also has patents on process and all and how this is put together, not an easy material to doing that way
So yeah, I mean, just look at it as from data filing and all, we have a significant number of years that SmartTrack continue to be an Invisalign material
We'll both be on a beach by then, so
Hi, Jon
Joe again, on your question on third quarter, fourth quarter
I think the best way to take what we're saying is we're not calling a step-down in the fourth quarter
We're just doing and giving you a good clarity on what the third quarter is
That's what we have clarity on now
Yeah
Hey, Jeff
No, I'm not trying to give you any kind of warning or anything like that, Jeff
I have all the confidence in the world, like I said in my final comments, that we'll complete this mission of eliminating wires and brackets with a digital system, with plastic
I think, I get questions all the time as you can guess when you see these kind of growth rates about the tip – that we're at a tipping point in this business
I think we all know about the whole term tipping point, and what it would mean
And all I was trying to get across is I don't think you can take two quarters and draw a line towards the tipping point, but don't mistake in anything at all that there is something that we see that would in some way shake our confidence in what we think we can do
Okay, Jeff
<UNK>, on the scanner penetration, you have to look at it as almost two separate markets, the orthodontic market and the GP market
I'm not sure exactly how far penetrated we are in the orthodontic side, but, let's say, what you have to look at is often when a doctor starts to do more and more Invisalign they want an iTero scanner per chair
And so you really can't look at it as a unit per doctor in that sense
You've got to look at it as a unit in the sense of number of chairs in that office
And so I'd say, obviously, we have a higher penetration rate right now on the ortho side than we do on the GP side, what's like <UNK> quoted a moment ago at 150,000 GPs in the United States
We haven't really even begun in that sense
And that type of scanner has a good balance between Invisalign and being able to do restorative applications too
So if you're worried about kind of a max out on penetration that's not necessarily in the way that we're thinking certainly on a yearly basis
On the SDC volume piece, I don't think we've given out that data and I don't think we necessarily want to do that both for our sakes and SDC's too
<UNK>, first, I think your question is a great question
It's just from a penetration standpoint how do you drive more of it, and what you do
TFM is one of it
I mean, we've really rolled that out strongly in North America this year
Our numbers are tremendous in the sense of when you have a customer who wants to dedicate time to really learn
So again think of TFM as kind of the learning curve, as you have primarily an analog process and your whole office is worked around gluing wires and brackets and adjusting emergencies to people's teeth and what's it look like when you go do more of a digital format
And at the front end of the digital system, how you work with ClinCheck
And these are doctors that come forward and say they want to devote 90 days, 120 days of just learning, spending time to learn how to really ramp up in a digital format and it works well
But it's self-selected in that case, because doctors come forward
They really want to do that and spend their time
I'd also say the other thing I've learned in this job over the last two years is how important peer-to-peer is from a growth standpoint
It is having really good strong doctors that can communicate to other doctors about how to use Invisalign
We see this not just in North America
And we've ramped up new programs like IMOP (42:47) and some other things that just really helped in that sense, both across the orthodontic community and also across the GP community to do it
So those are the two big programs I'd say we use to address the question that you have about how you ramp-up doctors
<UNK>, I call than an IQ question, kind of, okay
And the way I'd answer that is we're in the clear aligner business and anything that help us to sell more clear aligners directly, it doesn't have to be explained, would be in our wind – our range
So, that's why we have a scanner business
We have a scanner business not from a diversification standpoint
We have a scanner business because it allows us to sell more clear aligners
And so, just you're not looking, I don't care how much cash we have
We're not looking to be a diversified dental company
I think, Zach, the best way to think about that is if we take a step back from this whole thing
Our approach to GP channel more and more is we make it easy and efficient
And Go is a product like that
It's a product where you can adapt quickly from a GP standpoint
It does simple cases
Most Gos are less than, I think, 15 aligners or so
We've adopted the protocols to make it simpler for doctors to do also
So, I would say, don't just take Go
We'll have a series of more simple kind of products and systems that we'll introduce to GPs to get through
iGo is just the first one of those
That's not to down-sell iGo, but as we learn from iGo, we continue to iterate on that product line and make new and new offerings
But it's a big part of our GP strategy overall, is having the right product and the right kind of system that have feature that make it really simple for the GP docs
No material impact and you usually don't see material impact in that for 18 months or two years really, so
Next year this time is a great time to ask that question, Zach
