Q3 2024 Summary
Published Jan 31, 2025, 4:49 PM UTC- Investing in Key Technologies for Future Growth: Align is heavily investing in critical future technologies such as 3D printing and the next phases of the Lumina scanner, which they believe will revolutionize the orthodontic industry and position the company for another growth cycle when the market rebounds.
- Strong Adoption of iTero Lumina Scanner: Despite economic challenges, the new iTero Lumina scanner has captured doctors' attention, leading to strong sales and providing a foundation for future growth, especially with the upcoming restorative software release in Q1 '25.
- Significant Growth in International Markets: Align reported strong growth in markets like China and the Asia Pacific region, with record teen case starts driven by products like Invisalign First and the Palatal Expander, indicating underpenetrated global markets and substantial future opportunities.
- Align Technology announced a global reorganization and restructuring, including headcount reductions, which may indicate cost pressures and challenges in the business.
- Investments in new technologies like 3D printing are expected to be dilutive to gross margins in fiscal year 2025, suggesting near-term margin pressure before benefits are realized in 2-3 years.
- Reduced R&D spending (down 4% year-over-year) and significantly lower CapEx spending could signal a reduction in investment towards future growth initiatives.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Worldwide Revenue | Q3 2024 | $980 million to $1 billion | $977.872 million | Missed |
Systems and Services Revenue | Q3 2024 | Expected to be down sequentially | $191.0 million(Q2 2024 was $196.8 million) | Met |
GAAP Operating Margin | Q3 2024 | Expected to be below Q3 2023 GAAP operating margin | 16.6% vs 17.3% in Q3 2023 ([162,298 / 977,872]Vs [166,346 / 960,214]) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
International expansion | Consistently highlighted: Q2 (China performed as expected, challenges in Tier 3/4 cities ), Q1 (stable environment, ongoing expansions ), Q4 (positive sentiment in China, more predictability ). | Strong performance in China, with teen segment success and expansion of products like Invisalign First; seen as a key growth driver. | Continues to be recurring and positive across periods. |
Margin expansion or pressure | Q2 (margin improved in some areas, facing FX headwinds ); Q1 (slight operating margin gains amid strong dollar, investments ); Q4 (seasonal expense dips, volume leverage mentions, macro uncertainties ). | Committed to operating margin expansion in 2025 despite short-term pressures from 3D printing and macro conditions; restructuring enables room for year-over-year margin accretion. | Remains recurring, with sentiment oscillating between cautious and optimistic. |
Product innovation | Q2, Q1, Q4 calls consistently emphasize Invisalign enhancements and iTero innovations as a core growth driver. | Emphasis on Invisalign Palatal Expander, record teen adoption, and iTero Lumina scanner with next-gen features; investments in 3D printing and rapid ClinCheck illustrate commitment to R&D. | Remains central to growth, with ongoing enhancements and scanner improvements. |
Restructuring measures | Not mentioned in Q2 or Q1; Q4 had a $14 million restructuring charge but did not reference Q3 2024 changes. | Newly announced global reorganization impacting ~700 positions, aiming to fund key tech investments (e.g., direct 3D printing) and drive margin accretion. | New in Q3 2024, focusing on cost optimization and future investments. |
Direct 3D printing | Q2 references a 2–3 year rollout. Q1 & Q4 mention the Cubicure acquisition and 3D printing as key to next-generation aligner manufacturing. | Highlighted as transformative, with initial higher costs but anticipated margin benefits over 2–3 years; integral to long-term innovation strategy. | Emerging technology with potentially significant future impact. |
Return of experienced leader | No mention in Q2, Q1, or Q4 about this leadership change. | Return of Frank Quinn to strengthen doctor relationships and drive growth; viewed as a strategic shift at the executive level. | New in Q3 2024, indicating a potential strategic realignment. |
DSP and iTero Lumina | Q2: High DSP case growth, iTero Lumina adoption. Q1 & Q4: Both cited as important growth drivers. | Both still highlighted: DSP retainer adoption grew; iTero Lumina adding restorative software in Q1 2025 despite a challenging capital market. | Continues to be central, with ongoing product updates and market expansion. |
Weakness in U.S. market | Not specifically highlighted in Q2, Q1, or Q4 calls. | Prominent slowdown attributed to economic factors, consumer confidence, and sluggish dental demand; not tied to competitive shifts. | New negative sentiment in Q3, affecting U.S. orthodontic and dental channels. |
Long-term guidance/targets | Q2: Reiterated 20%+ revenue growth and 25%+ operating margin as a long-term ambition. Q1, Q4: No explicit additional updates. | No specific mention or update on long-term goals in Q3. | Recurring theme but no Q3 update, indicating cautious stance. |
Teen and adult adoption | Q2: Positive growth in teens & adults. Q1, Q4: Stable or growing adoption trends. No explicit shift to competitor concerns, though market environment is watched closely. | Teen segment remains strong globally, but U.S. orthodontists see lower close rates. Adult segment also affected by weak consumer sentiment; concerns are more macroeconomic than competitive. | Stays central, but U.S. slowdown tempers earlier bullish outlook. |
-
Restructuring and Margin Outlook
Q: What's the nature of the restructuring and its impact on margins?
A: Align is undergoing restructuring involving a reduction of about 700 employees, approximately twice the size of last year's restructuring. This move aims to create room for investment in key growth areas like Direct Fab, 5-minute ClinCheck, and Lumina restorative, while also delivering year-over-year operating margin accretion in 2025. The restructuring will help fund these initiatives and position the company for future growth. -
Macro Conditions and US Market Softness
Q: How is the macro environment affecting the US market versus international?
A: The US market is facing challenges due to low consumer confidence and economic concerns, impacting patient throughput and case acceptance rates. Both the orthodontic and dental channels are equally pressured. In contrast, international markets, particularly China and parts of Europe, have shown better performance. -
Operating Margin Expansion and Investments
Q: Are you committing to operating margin expansion in '25 despite investments?
A: Yes, Align is committed to year-over-year operating margin accretion in 2025, even while investing in initiatives like Direct 3D Printing Fabrication, 5-minute ClinCheck, and Lumina. The restructuring provides room to make these investments while still improving margins. -
3D Printing Initiative and Gross Margin Impact
Q: How will the 3D printing initiative impact gross margins?
A: Initially, the Direct Fab 3D printing will have a higher cost until scaled up, which may dilute gross margins in 2025. However, as production scales over the next 2 to 3 years, Align expects significant improvements in productivity and reduced material costs, positively impacting gross margins. -
Top Line Growth Expectations in 2025
Q: What are your top line expectations for 2025?
A: While not providing specific guidance, Align indicates that starting from the fourth quarter is a good baseline. Future growth will depend on economic conditions, with additional contributions expected from new products like Lumina restorative. More details will be provided as 2025 approaches. -
Teen Market Dynamics
Q: What's your assessment of the teen market performance?
A: Internationally, especially in Asia, the teen market showed strong performance with products like Invisalign First and Invisalign Palatal Expander. In the US, orthodontic customers are challenged, with lower close rates among teens due to economic pressures, leading some practices to revert to wires and brackets to maintain profitability. -
iTero Scanner and Lumina Rollout
Q: How is the iTero growth progressing with Lumina rollout?
A: Despite pressure on capital equipment sales, the Lumina scanner, a brand-new platform, has captured doctors' attention, resulting in strong sales even in a traditionally slower third quarter. The restorative workflow is expected to launch in the first quarter of next year, further supporting growth. -
GLP-1 Medications Impact
Q: Is demand for GLP-1 drugs affecting Invisalign sales?
A: While some speculate that spending on GLP-1 medications might impact discretionary spending on treatments like Invisalign, Align hasn't quantified this effect. They believe the broader economic environment and low consumer confidence are the more significant factors affecting demand. -
China Market Performance
Q: Can you elaborate on the positive performance in China?
A: China showed strong results during the teen season, with increased sales to more doctors and higher utilization. There was good adoption of products like Invisalign First, contributing to the strong performance in this market. -
ASPs and Factors Affecting Them
Q: What factors are affecting ASPs, and what's the outlook?
A: ASPs have been impacted by factors like VAT in the UK, which will anniversary at the beginning of next year. Currency headwinds have also played a role. Looking ahead, Align expects ASPs to be flat to slightly down, with percentages in the range of 1.1% down year-over-year. -
Costco Partnership and Financing Initiatives
Q: What's the status of the Costco partnership and financing initiatives?
A: The Costco partnership has had some success but is not yet material to the business. It's part of a brand strategy to leverage the strong Invisalign brand. Align is also working on financing initiatives to help consumers who are financially challenged, aiming to increase case acceptance rates.