Align Technology Inc 2026 Global Healthcare Conference
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All right. Good afternoon. Why don't we get started? My name's Jeff Johnson. I'm one of the Senior Medical Technology Analysts at Baird, and our next presentation this afternoon is from Align Technology, a leading manufacturer in the $6.5 billion global orthodontics market with Invisalign. Its system of clear aligners designed and manufactured by the company. Long explanation there. I'm just going to cut that. With us today from Align, we're happy to have Chief Financial Officer, John Morici. John, thanks for joining us. I don't know if you have 30 seconds of prepared remarks or anything you want to say to open the afternoon, but we can go straight into Q&A whenever you're ready.
Yeah. Happy to go into Q&A.
Yeah. All right. Well, let's start. Topic came up at dinner last night, and it definitely is something I get from investors, is just around the U.S. growth rate. I think a point of conversation last night was if I look at pre-COVID to today, your U.S. case volumes or America's case volumes, however we want to look at them, have grown at a compound annual growth rate, probably 5%, 6%, 7%. Globally, I think a little higher than that, but the Americas, somewhere in that 6%, 7% range. But if I look off 2022, which was that really, 2021 and 2022 were those heightened years, post-COVID, everybody sitting at home on Zoom deciding to get their teeth fixed. Case volume hasn't grown since then. Is the U.S. and America still a growth market? Are there still growth opportunities?
Have we hit just some ceiling of you can only do 1.3, 1.25, whatever million cases a year? Just how to think about the next few years in growth opportunities in the U.S. from a clear aligner perspective.
Well, when you look at the U.S., the opportunities that we have. You start with the backdrop of the overall market, and it has been challenged from an overall economy standpoint. You have higher inflation. You have maybe a reluctant patient to maybe want to go into treatment. That trickles into how the doctors view things and what they invest in and how they want to grow their practice. What you have in the last couple years here, really 18 months or so, you have had a challenged economy, but it has been relatively stable, meaning this is the environment that we have been in. This is something that we, as a company, are trying to push against. To do that, you have to be able to recognize that the predominance in the market is still wires and brackets.
We have a huge opportunity to grow in U.S., just like the rest of the world, to get clear aligners, to have Invisalign. To be able to have that Invisalign and be able to make a difference in a market like the U.S., you have to give your doctor options. That options could come from different types of products in our portfolio. We push against that in terms of the economy to say, "Let us offer varying types of products that don't have as many refinements," and therefore, leave the upfront cost to be a little bit lower. That doctor then can look at, "I am going to use wires and brackets," or, "I am going to use Invisalign." The upfront price is closer. You don't have to have them make some of these tougher decisions from an economic standpoint. Same way, offering flexibility to the potential patients.
I think in the past, patients would come, maybe they had financing alternatives, maybe they didn't. What we have been able to do and really help with the overall market is to have more financing options to those potential patients. Give them an ability to see what their teeth would look like with treatment, whether you are on the ortho side or GP side. Then as it eventually gets to the end idea of whether you are going to go into treatment or not, they want to see that the financing is affordable for them. I think even in the challenging market that we are in, you make changes like that can affect the doctor, the ortho or GP around products and what we do to go to market with them, as well as their potential patients. You can help overcome that, and that is what we are focusing on trying to drive.
Okay. As I think about in the U.S., and this is true globally as well, but in the U.S., you have launched DSP, IPE, some of the Invisalign First stuff that is going back several years now. But you have been launching a cadence of new products. This year at the start of the year, No-AA has launched. You have the Smile Advantage, I think, program from Healthcare Finance Direct on the financing side as you were alluding to there. I guess in spite of all those efforts, the U.S. hasn't grown. Should we look at it as with those things in place, as the macro improves, now you have all these things that theoretically make you a better company and a better opportunity when the macro improves to get that growth back?
Well, I think it is twofold. I think we are doing things to offset even the current macro, and we are seeing improvement. You are seeing that the business, certain parts of it can grow, and we can get some of that back. We need the overall business, especially on the retail side, for all the changes we are talking about to be able to help that grow. But I think we can see improvement even in the current environment. Then you are right. If there is maybe not as much headwind in the overall economy with inflation or concerns about fuel prices and so on, there is things that we can do that we are doing now that will become a benefit in the future if some of those headwinds Yeah move away.
But we are focused in on helping our doctors at the point of sale that they have, what products and capabilities that they have, and then also translating that to the patients that they are seeing and finding that right combination to drive the conversion.
Yeah. There has been some pressure on your stock just over the last several weeks. An independent data source that is out there talked about a weak July for ortho demand. You guys gave your third quarter guidance, though, in late July. So I guess, regardless of what the market did in July based upon that data source, which by the way, has been variable and all over the place, and it is one of the reasons we do not actually buy the data. But would you argue that your visibility through July at least, you are still comfortable with that third quarter guidance?
Look, we gave guidance at a point in time, based on all the conditions that we see, whether it is the U.S. or the rest of the globe. Obviously, we have the benefit of several weeks into the quarter and understanding where things are at. I think you rightly said that some of the data, it becomes very much what subset of doctors and orthos are they using? What is the period in time? Whether it is July or August, I think it is less to do about some of these monthly fluctuations that comes through some of the data and survey. The reality is, from an overall macro standpoint, we have been in this environment for 6, 7 quarters, and it is just the reality that we are in.
But it's what we do as a company to drive that initial demand generation, marketing and advertising, being able to arm our doctors with various types of tools to help their patients visualize what treatment's going to look like, and then really partnering with them so that they can find the right financing. And what you do see during this time, over the last five or six quarters, you start to see much more of financing playing a big part. And that affects the U.S. You see it with HFD and other lenders that come into it. We're also seeing that shift in Europe and in other places, where that last mile that you have to overcome sometimes is around that financing, where you can get that monthly payment that's maybe more affordable for those potential patients. And if you drive that right combination, you can see good results.
Yeah. Fair enough. You talked about Europe. I think if I look at your European numbers, your EMEA numbers, I guess to be more precise, and your Asia-Pacific numbers, I think in those two markets, you've grown double digits now four quarters in a row. One, what's different about those markets? How much has something like IPE helped case volume growth in those markets, given that does count as a case in your case volume calculations in that? So what's different about those markets, and how much has been new product driven versus the end markets themselves?
It's really a combination. And in those markets, they're more under-penetrated. Much more wires and brackets are done compared to even North America, which is still under-penetrated. 75% of the cases in North America are still done with wires and brackets, when you include teens and adults together. So, under-penetrated market. They've responded well to new products, so you have IPE and some of the touch-up cases. We expanded that into Europe. Now we've expanded that into APAC. Very receptive to new types of products that really fit with the types of cases that they do. But if you take just on a broad basis, you say 55% of our business is outside of North America, and as you said, has been growing double digits. And even if I looked at North America and say 45% of our business, a third of that is DSO.
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