Align Technology (ALGN) Q3 2026 earnings call transcript

Good afternoon. Thank you for joining us. I'm Shirley Stacey, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO, and John Marici, CFO. We issued third 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 most recent periodic reports filed with the Securities and Exchange Commission, available on our website and at sec.

gov. Actual results may vary significantly, and a line expressly assumes no obligation to update any forward-looking statement. We've posted historical financial statements with corresponding reconciliations, including our gap-to-non-gap reconciliation, if applicable, and our third-quarter 2026 conference call slides on our website under quarterly results. Please refer to these files for more detailed information.

With that I'd like to turn the call over to Align Technologies president and CEO Joe Hogan. Joe?

Thanks Shirley, good afternoon and thanks for joining us. On today's call I'll review our third quarter performance and the growth priorities we're executing across Align. John will then discuss our financial results and outlook for Q4 and fiscal 2026. Before Before we start, I'd like to note that we announced our CEO succession plan earlier today. I'll return to this topic at the end of the call. For now, let's focus on our third quarter results. We delivered a solid third quarter results with record doctor submitters, record third quarter clear liner shipments, improved utilization, and broad-based international growth. Worldwide revenue was $1.015 billion, up 1.9% year-over-year, or 2.4% at a constant currency, in line with our outlook. Clearliner shipments increased 6.6% to 691,000 at the high end of our expectation for mid-single-digit growth in Q3.

In systems and services, revenue was $175.5 million, down 7.6 year-over-year, and generally consistent with the guidance we provided at Q2. Reported revenue continues to reflect a shift toward lower-priced scanner configurations and more flexible acquisition models and stable ASP on a like-for-like basis, while our installed base and customer footprint continue to expand. From a profitability perspective, non-GAAP gross margin was 70.4%, modestly below our expectation, reflecting higher fuel-related transportation costs.

Lower clear aligner ASP and the impact of geographic and product mix. Disciplined expense management and productivity improvements contributed it's a non-GAAP operating profit margin of 24.4% above our outlook. Overall, Q3 demonstrated our ability to execute in a challenging environment, delivering continued clear aligner growth, expanding our digital platform and consumer footprint, and improving profitability. We remain focused on continuing to drive growth and building on this progress across several key areas.

We continue to drive adoption utilization across customer channels. That includes increasing utilization among orthodontists, expanding Invisalign adoption among GP dentists, and growing with DSOs and strategic accounts. During Q3, a record 91,000 doctors submitted Invisalign cases, up more than 3% year-over-year, while overall utilization increased 3.4%. We are expanding the patients and clinical needs that we address. Younger patients remain one of our largest growth opportunities, and we're, again, an important contributor to our Q3 performance. Younger patient shipments increased at a double digit rate in international markets with strong teen performance across APAC and EMEA.

Our growing patient portfolio, including Invisalign First, Invisalign Pallet Expander, and Manoebler Advancement with Occlusal Blocks, enables doctors to address younger and more complex patients while expanding the range of orthodontic needs that can be addressed with Invisalign treatment. Affordability and patient conversion continue to be important focus for us. Our zero additional aligner offering, providing doctors with a greater treatment and pricing flexibility, while patient financing and commercial programs are designed to help practices convert more prospective patients.

Worldwide, zero AA volume increased triple digits year over year during Q3. We're also continuing to expand the value of the Align Digital Platform. The opportunity goes beyond clear aligners or scanner placements individually. We are connecting iTero, scanning diagnostics, AI, enabled treatment planning, Invisalign treatment, ExoCAD restorative workflows, and practice applications to create a more integrated digital workflow for doctors and patients. This also represents a growth opportunity beyond traditional orthodontics.

Through dental laboratories, we can reach GP dentists more broadly and enable digital workflows that integrate tooth movement with restorative treatment and planning. Invisalign Advanced Restorative Treatment, or ART as we refer to, is a compelling example of a line expanding its role in comprehensive dentistry, creating new clinical use cases, strengthening ecosystem connectivity, and increasing our long-term opportunity across the broader dental marketplace. Importantly, this approach also aligns with a growing focus on oral health by helping clinicians plan treatment more holistically, recognizing the relationship between tooth position, function, restorative outcomes, and long-term patient care.

These growth opportunities reinforce one another, expanding our doctor-customer base, increasing utilization, addressing more patients and clinical needs, improving affordability and conversion, and deepening adoption of our digital platform. Together, they give us multiple pathways to drive growth across the line.

With that context, let me turn to our regional performance and the commercial priorities we're executing to drive growth. In the Americas, clear aligner shipments increased approximately 1.5% year-over-year, reflecting different performance trends across North America and Latin America. For the first time in six quarters, North America total orthodontist shipments increased year-over-year, supported by growth from DSOs. North American DSO shipments increased a double-digit rate overall, including growth across both orthodontist and GP customers. While the broader retail channel remains pressured, particularly for GP customers, orthodontist retail shipments improve sequentially in Q3, with teen orthodontist retail shipments also increasing year-over-year.

We view the return to year-over-year orthodontist case growth, strong DSO performance, and sequential improvements in orthodontic retail as an encouraging indicator, particularly given continued consumer softness. These early signs of improvement in North America reflect our focus on what we can control, strengthening commercial execution, sharpening our go-to-market strategies, and deepening key partnerships to help drive conversion. Through sustained efforts to further this progress, we believe we will return North America back to growth. Our collaboration with HFD, Healthcare Finance Direct, integrates patient financing options into the Invisalign workflow to give patients greater payment flexibility and reduce administrative function for practices.

We're seeing encouraging early traction with these offerings and are evaluating additional financing opportunities, including our new care credit pilot. Patient interest in Invisalign remains strong, but affordability can be a barrier to starting treatment. These initiatives are part of our broader effort to address that barrier and convert more patient interest into treatment starts, rather than waiting for consumer environment to improve.

During the quarter, we launched the Shift Happens campaign to consumers to increase adult consumer awareness and Invisalign consideration. Our commercial focus is on helping practices convert that interest into consultation and treatment starts. In Latin America, clear aligner growth remained strong across channels, was up double digits year over year. DSO shipments increased significantly year over year, while retail also grew, including positive performance across both GP, dentists, and orthodontists. Our Latin American priorities are centered on affordability and digital adoption, including expanding DSP availability, advancing Invisalign pay initiatives, and broadening iTero access through additional partners, financing alternatives, and scanner configurations.

Turning to EMEA, clear aligner shipments increased a double-digit growth rate year-over-year, supported by strong utilization across orthodontists and GP dentists and double-digit DSO growth. retail was also an important contributor and may a retail shipments increased 8% year-over-year with growth across both orthodontist and GP dentist customers in a Mayo we are focused on orthodontist utilization teen and growing patient treatment in clinical education especially class 2 we're working to expand the GP engagement through digital workflows and broader treatment opportunities including art with DSO as we continue to focus on improving conversion and scale adoption across practice locations.

And systems and services, our focus is on expanding Illumina PC, targeting competitive and legacy iTero scanner users, and expanding submitters through ART and third-party partnerships.

In APAC, clear liner shipments were up double digits sequentially and increased year-over-year, driven by record doctor submitters and strong younger patient demand. Teen shipments increased double digits year-over-year, led by China. Retail was the primary channel growth driver in APAC during Q3. APAC retail shipments increased 16% year-over-year, with double-digit growth across both orthodontist and GP dentist customers. In APAC, we are focused on expanding adoption, improving conversion, and strengthening the customer experience.

This includes expanding private distributor coverage in China, increasing penetration in lower-tier cities, and activating DSOs and accelerating tween and teen treatment. We're also focused on improving patient conversion in Japan through orthodontist growth programs as well as driving iTero initiatives. Across the rest of Asia, our focus is on building on the momentum and higher growth markets including India, Korea, and Taiwan.

Customer experience is also an important growth lever across APAC. We're focused on clinical support, customer service, simplifying commercial processes, and improving the digital experience. Together, these actions give us multiple avenues to expand growth across orthodontists, GP dentists, retail practices, DSOs, younger patients, and digital workflows. We continue to see a significant opportunity to expand the Invisalign adoption among GP dentists by connecting orthodontic treatment more closely with restorative and broader oral healthcare workflows.

GP performance remains variable by market and channel. North America GP retail remains pressured, while EMEA and APAC GP retail both delivered positive year-over-year growth, and North America GP DSO grew double digits. These results reinforce our view that GP adoption can expand through clinical education, affordability, digital workflows, and broader restorative treatment opportunities. ART is one example of how we are connecting alignment and restorative treatment planning.

Along with iTero, ExoCAD, and our broader digital platform, these workflows help us engage GP dentists across a wider range of treatment options and create new opportunities to incorporate Invisalign into restorative patient care.

Turning to systems and services, Q3 revenue was $175.5 million, down 7.6% year-over-year. The difference between reported revenue and underlying adoption remains important. This reflects a deliberate strategic shift toward flexible acquisition models rather than weakening demand. Revenue continues to reflect a greater mix of lower-price configurations as well as flexible acquisition models, including leasing, financing, rentals, and certified pre-owned systems. The mix of iTero leased units continues to grow and was up double digits again year over year.

These customer-focused solutions are designed to lower the initial barrier to adoption, expand our customer footprint, and give doctors more ways to access our digital technology. Our focus remains on expanding iTero's reach, and in Q3, the number of scanner units placed, including leased, rented, and certified pre-owned systems increased double-digit year-over-year to more than 157,000 systems globally. In a limited pilot, 11 DSO location practices integrating ITERA Lumina with Invisalign practice staff increased new patient exam capacity by approximately 15% without adding staff or extending operating hours. Nearly three-quarters of participating locations improved productivity.

The long-term value of systems and services extends beyond the initial scanner placement. A larger, more engaged, and trained installed base creates opportunities to expand adoption of restorative workflows and generate reoccurring software and services revenue.

Before turning the call over to John, I want to briefly update you on our strategic initiatives we discussed last quarter. Following our constructive and ongoing discussions with Elliott Management, The first of our three independent directors joined Align board in August. Quentin Blackford, president and CEO of iRhythm Technologies, is an accomplished global healthcare and medtech leader, and we're pleased to welcome him to Align. Our strategic and operating model review is progressing with work focused on commercial effectiveness, organizational scalability, operating efficiency, and resource allocation. We're particularly focused on ways to improve performance in North America, identifying additional margin expansion opportunities without compromising growth. We are incorporating early observations into our planning and operating process, and we'll provide additional detail as objectives are finalized, and we can quantify their expected impact.

The operating improvements we are already delivering also reflect broader work across manufacturing, productivity, automation, treatment efficiency, and disciplined resource allocation. Our goal is straightforward, drive profitable growth while building a more efficient and scalable business.

With that, I'll turn the call over to John.

Thank you, Joe. Before turning to our results, I'd like to express my sincere gratitude for your leadership and partnership over the years, as well as your many contributions to Align. Your impact will continue to benefit the company and help shape our future success. Total revenues for the third quarter were $1,014,000,000, up 1.9% year-over-year and in line with our Q3 expectations. On a constant currency basis, total revenue was 2.4% year-over-year. Q3 Clear Aligner Revenue was $839.3 million, up 4.2% year-over-year, primarily reflecting higher volume, price increases, lower net deferrals, and higher non-case revenue, partially offset by geographic and product mix, higher discounts, and unfavorable foreign exchange. On a constant currency basis, Q326 Clear Aligner Revenue was up 4.7% year-over-year.

Clear Aligner revenue per case shipment was $1,215, down 2.3% year-over-year, or 1.8% at constant currency, consistent with our expectation, primarily due to mixed shift to lower-priced countries and products and higher discounts, partially offset by price increases and lower net deferrals. Q3 Systems and Services revenue was $175.5 million, down 7.6% year-over-year. Revenue continued to reflect the mix towards lower-priced scanners and flexible acquisition models. On a constant currency basis systems and services revenue was down 7 year Importantly like scanner pricing stabilized during the quarter Moving on to gross margin Third quarter overall gross margin was 68 percent up approximately 4.5 percentage points year-over-year, or 5.3 percentage points at constant currency. Performance primarily reflected operational efficiencies and the absence of significant prior year charges, partially offset by lower ASP, restructuring and other charges, and unfavorable foreign exchange.

Importantly, the lower ASP is primarily due to product and geographic mix rather than change in pricing discipline. On a non-GAAP basis, Q3 gross margin was 70.4%, flat year-over-year, and approximately 0.7 percentage points higher at constant currency, but modestly below our outlook of approximately 71%. The variance primarily reflected lower clear aligner ASV, product and geographic mix, and systems and services mix, partially offset by manufacturing productivity, automation, and lower refinement rates.

Q3 clear aligner gross margin was 69.3%, up approximately 4.4 percentage points year-over-year, primarily reflecting operational efficiencies and lower depreciation expense on assets disposed of other than by sale, partially offset by elevated freight costs, restructuring costs, and lower ASV. On a constant currency basis, Q3 clear liner gross margin was up 5.2 percentage points year-over-year. Q3 Systems and Services gross margin was 66.2%, up approximately 4.9 percentage points year over year, primarily due to lower restructuring, COGS efficiencies, and lower U. S. tariff rates, partially offset by lower ASV. On a constant currency basis, Q3 Systems and Services gross margin was up 5.5 percentage points year over year. Third quarter operating income was $169.2 million, resulting in an operating margin of 16.7%, up approximately 7 percentage points year-over-year, or 8.5 percentage points at constant currency.

On a non-GAAP basis, Q3 operating margin was 24.4%, up approximately 0.5 percentage points year-over-year, and approximately 1.4 percentage points at constant currency. Disciplined expense management and continued productivity improvements allowed us to exceed our non-GAAP operating margin expectations despite the modest gross margin shortfall. Our Q3 gap effective tax rate was 20.6%, compared with 40.1% in the third quarter of 2025, primarily reflecting the prior year impact of restructuring charges in our jurisdictional mix of income and lower U. S. taxes on foreign earnings in the current quarter.

Our Q3 non-gap effective tax rate was 20%. Third quarter diluted net income per share was $1.90, up $1.12 compared to the prior year. On a non-GAAP basis, Q3 diluted net income per share was $2.80, up 7.3% year-over-year. GAAP and non-GAAP EPS were each unfavorably impacted by approximately $0.24 year-over-year from foreign exchange. As of September 30th, cash and cash equivalents totaled $1,145,000,000, up approximately $140,000,000 year-over-year. Cash flow from operations was $183.2 million.

Capital expenditures were $45.1 million. And free cash flow was approximately $138 million. During Q3, we repurchased approximately 627,000 shares and an average price of $164.73 per share, returning $103.3 million to our shareholders. Year-to-date, we have repurchased $200 million of common stock. For fiscal 2026, we expect to repurchase approximately $500 million of common stock, up from $466 million repurchased in 2025, and reflecting the conviction of our board and management in a line's long-term value.

Now turning to Q4 and fiscal 2026, I am pleased to deliver third quarter revenue and clear aligner volume in line with our outlook while improving year-over-year profitability. Consistent with our first and second quarters, these results were achieved against a challenging market backdrop. As demand across the dental and orthodontic industry continue to be affected by a softer environment for discretionary health care spending and capital equipment investment, those conditions persisted through the third quarter and our fourth quarter outlook reflects what we continue to see across the broader market. Our updated 2026 guidance reflects a reduction in expected reported revenue versus our prior outlook provided at Q2, driven by two main factors.

First, our Q4 systems and services revenues outlook is lower than our prior guidance. Although we expect scanner volume growth and saw scanner ESPs stabilize on a like-for-like basis during Q3, product mix continues to shift towards lower-priced scanners and more flexible acquisition models, which resonates well with customers amid a more challenging environment for capital equipment purchases.

Second, we have slightly lowered our clear aligner volume as well as ASP assumption, largely driven by product and geographic mix in addition to foreign exchange.

Assuming no circumstances occur beyond our control that could impact our business, for Q4-2026, we expect worldwide revenues to be in the range of $1 billion to $1 billion and $20 million. dollars. We expect Q4 clear aligner volume to be up low single digits year over year. We expect clear aligner ASP to be down approximately 1% year over year. We expect systems and services revenue to be in the range of 170 to 180 million dollars. We expect worldwide GAAP gross margin to be approximately 71% and non-GAAP gross margin to be approximately 72%. We expect GAAP operating margin to be approximately 20%. We expect non-GAAP operating margin to be approximately 26%. For Q4 2026, we expect to reach repurchase up to 300 million dollars of our common stock.

For fiscal 2026, we expect 2026 worldwide revenue to be approximately 4.1 billion dollars to 4.13 billion dollars. We continue to expect 2026 Clear Aligner volume and revenue growth to be up approximately 5% to 6% year-over-year. We expect 2026 Clear Aligner ASB to be slightly below 2025. We expect 2026 Systems and Services revenue to be $715 to $725 million. We expect 2026 GAAP operating margin to be approximately 16.2%, up approximately 2.7 points year-over-year. We expect 2026 non-GAAP operating margin of approximately 23.7%, representing approximately 100 basis point improvement year-over-year, consistent with our previous guidance. We expect capital expenditures of approximately $125 to $150 million.

We expect to repurchase approximately $500 million of our common stock during 2026. As we look to 2027, we believe we are well positioned to deliver another year of revenue growth and margin expansion. Importantly, our preliminary planning assumes an operating environment broadly consistent with current conditions and does not require a consumer recovery. We expect to continue driving Invisalign volume growth in 2027.

Record doctor submitters, improving utilization, and the growth initiatives discussed today support that confidence, with additional initiatives under development. We also continue to expect a broadly stable, clear aligner pricing environment with ASB slightly down, driven primarily by product and geographic mix. For systems and services, 2026 has been a transition year for revenue. We expect solid unit growth and continued expansion of our installed base, and we expect stable ASBs positioning systems and services for revenue growth in 2027.

On profitability, we continue to target at least another 100 basis points of non-GAAP operating margin improvement in 2027, building on the approximately 100 basis points we expect to deliver in 2026. Our focus is on improving efficiency while preserving investment in the initiatives that support sustainable revenue growth. Share repurchases should provide an additional benefit to earnings per share growth as we continue to view buybacks as an attractive use of capital at prices that we do not believe reflect a line's long-term value creation potential. We will provide our full 2027 outlook when we report fourth quarter results following the completion of our strategic and operating model review with Jen leading the business.

With that, I'll turn it back to Joe. Joe?

Let me close by bringing together what you've heard today. We delivered solid Q3 performance with record third quarter clear liner shipments, record doctor submitters, improved utilization, continued expansion of our Tero customer footprint, and stronger operating performance varied by market and channel. But we also saw important areas of traction, including overall orthodontist growth, strong DSO performance in Latin America, broad-based growth in EMEA, and strong retail performance in APAC in America. While the external environment remains challenging, our results continue to demonstrate that we have meaningful opportunities to improve performance through execution, regardless of the pace of the macroeconomic recovery. We're focusing on increasing utilization among orthodontists, expanding Invisalign, adoption among GP dentists, growing with DSOs and strategic accounts, extending our leadership in kids and teens, improving affordability and patient conversion, and increasing adoption of our digital workflows.

systems and services our priorities are to expand the iTero customer footprint increase utilization and connect scanning more deeply with diagnostics treatment planning restorative workflows and Invisalign treatment across the aligned digital platform we also have a significant innovation pipeline ahead of us across digital treatment planning AI enabled capabilities growing patient treatment restorative workflows scanning solutions and CAD can software we're We're investing in technologies that can expand clinical applicability, improve the customer experience, and make our business more productive at scale.

We continue to be excited about our next-generation direct fabrication 3D printed materials platform, what we call NXT technology. NXT unlocks greater control, consistency, and precision across appliance. Its designs enables an entirely new level of Invisalign performance and personalization. Building on the Invisalign palette expander, our first direct 3D printed orthodontic appliance, we are broadening the application of 3D printing across the Invisalign portfolio, as well as expanding it into new categories.

Invisalign Specifics Attachment Systems launched this year expands our 3D printing capabilities beyond aligners and appliances into attachment system itself. By connecting digital treatment planning, manufacturing, clinical delivery, it represents another step toward a fully integrated digital workflow. This week, we will begin a U. S. pilot of a new product category, Sports Mouthguards, powered by our 3D printing technology and material science capabilities.

Sports Mouthguards represent a large and growing market opportunity and then growing awareness of concussion risk and contact sports. There is also significant overlap with kids and teens, as we expect it to drive awareness and utilization of Invisalign treatment through Invisalign doctors while providing incremental revenues. The Invisalign Sports Guard is a custom direct 3D printed sports mouth guard made from an iTero digital scan. It comes in multiple thickness options and will be available through participating Invisalign providers.

Invisalign Sports Guards are customizable for each athlete's unique needs for comfort and sport, optimized for high performance, specific to the activity, thanks to the power of high performance polymers and unique 3D printed designs. expected to offer over time a broader set of diagnostics and other sensing capabilities. These are important steps in a broader roadmap that includes additional orthodontic applications and the opportunity to apply direct fabrication technology more broadly to aligner treatment. We will continue to advance the roadmap as we scale the technology and validate each application.

What gives me confidence looking ahead is that we are not dependent on any single growth driver, geography, or customer segment. We have opportunities to increase orthodontist utilization, expand GP adoption, grow with DSOs, extend our leadership in kids and teens, improve affordability and patient conversion, and increase adoption of the Align digital platform. Before we open the calls for questions, I want to briefly address my decision to step down and the planned CEO succession announcement we made today.

Leading a line has been a tremendous privilege, and this is a meaningful and amazing decision for me as we move forward. The process has been carefully planned for some time. It reflects a thoughtful, long-term focus. As announced, our board has appointed Jennifer Davis as a line's next CEO. Jen will join us on November 2nd as CEO-elect and a member of our board. She will assume the CEO and president's role on December 31st of this year.

Jen brings 33 years of leadership experience, including leading Procter & Gamble's global healthcare business, with global experience across innovation, digital transformation, brand building operations, and customer development and oral health. Jen will be joining the company with powerful innovation platform, a talented global team, trusted relationship with doctors around the world, and significant opportunities across orthodontics and digital dentistry. I'm extremely proud of Align, the strong foundation we've established, and the relentless contributions of every member of our board, management team, and organization. I am confident in this transition plan, and I'm looking forward to working closely with Jen over the coming months.

I strongly believe she is the right leader to build on that foundation and lead Align through the next phase of growth and value creation. My focus remains squarely on driving the business, executing the priorities we discuss today, and continue to advance the growth, innovation, and operating initiatives underway across Align. I remain confident in the opportunities ahead for Align and the team executing our strategy and in our ability to continue to build long-term value for our customers, shareholders, and employees.

Thank you for joining us. Operator, we'll now open for questions.

Thanks, Michael. We felt great about our third quarter performance. We see a challenged market really across the globe in so many countries. And as I mentioned in the script, and John mentioned his script too, we felt really good about being able to deliver in that kind of environment. As we look at the fourth quarter, we see continued challenge consumer overall, and that's a common theme we see across the board.

I mean, obviously with our systems and services business, we have a reorientation that you saw in the third quarter and you've seen this year, and that's reflected in our go-forward statement too. So this is not a singular type of variable that we're discussing here. This is a broad-based, I think, reticent consumer that we sense not just in North America, but different parts of the world, and that's being reflected in our guidance.

Thank you.

Hey, John, a great question. Look, when I started, obviously, Sleep Napoli was on a table, and I shot that because I felt the technology was diversionary. I thought it was a channel we didn't understand overall, a reimbursement system we had not a prayer of understanding and being able to sell in front of a customer. And it was also an item that is very difficult to be able to manufacture and do it in scale like we have to do. And so I just thought it was a diversion in the sense of what the company would focus on. As I look at mouth guards, John, I can tell you that almost every orthodontist we have out there is asking for mouth guards.

They feel that's a leader product for them in that team market, especially with schools and different, you know, kind of demand profiles with schools and kids in those specific zip codes. The reason I wanted, I thought it was time to do this is we have a unique resin we've developed. that has significant advantages over resins that are used for mouth guards today. It's 3D printed. So the first mouth guard that you can make specifically for certain sports, certain configurations in the way people speak and how they present themselves, it gives you a huge amount of flexibility in the sense of how you can go after that marketplace.

Sports mouth guard business is anywhere between $6 to $8 billion in how you look at it. It's primarily a boil and bite kind of a marketplace. It means non-exact kind of manufacturing science that's used around it. So, John, why? In this case, unique technology, very unique from a consumer standpoint, right in line with our channels of distribution.

Our orthos want to have it. GPs want it too, but orthos also, so we can sell it through our current channels without any kind of friction. So I look at it as 180 degrees versus sleep apnea devices.

Great color. Thank you.

Yeah, thanks, John. I'll start with ASP. ASPs were about what we expected. We had a little bit of favorable effects. We get the continued country and product mix. So two of the reasons driving some of that ASP kind of sequentially down, really the growth that you see in many of these markets that just have a lower list price. So you see India and China and others that are, you know, sequentially and year over year growing. That shows up from an ASP standpoint, as well as introducing DSP and some of the touch-up cases that we have. We do see that. It's just a low-list price product that ends up showing up in ASP. But it was able to help us, you know, in the end drive volume, as we said, and ultimately deliver the margin that we needed.

And that's how we look at that. But I would say when we think about the exit rate and, you know, we're factoring in, you know, in our guidance what we saw in Q3, we factor in what we see in October, and that's what we use to inform our guides. So no change in terms of how we do it or what we look at. It's just a reflection of a continued challenging market and things that we're doing to try to help offset it.

Thanks, guys. Thanks, John. Thank you.

Yeah, Bernie, good question. Let's start with the U. S. where you started with, too, in North America. I mean, we felt good about Latin America and our performance there was great. I was happy to see that we had positive orthodontic growth for the first time in I think it's the six quarters that we've had in the U. S. , which is really positive. On the GP side, obviously, we saw continued erosion.

That's a larger bucket of doctors we have to call on. There's challenges across keeping up with those doctors and pushing those doctors, the consumers that we talked about being a little less reticent, especially in that GP channel to convert. So I feel, as I mentioned in the script too, I feel good about our ability to really push on the GP side. You see our DSO business there continues to grow. It's that retail segment that's challenging, in particular GPs that are doing less than 10 cases a year.

But I feel we've arranged our workforce properly to be able to go after that. We have good early warning signals right now where we might be losing GPs in different places that we can move our sales force in in that way. So I see a challenged market, a challenged consumer, but I feel good about our product base and I feel good about our ability to address it. The products that are really starting to take hold, we talked a lot about the no AA or reduced amount of AA type products. They're growing and across the globe growing at a triple digit rate, which is great. That's really helping win with doctors, especially in that gray area with that upfront cost.

And then we also talked a lot about, and we're seeing more and more, especially in this challenge environment, where those potential patients are turning to financing to be able to help them afford that treatment. And you see our partnerships with many finance companies, not just in North America, but it's really now become more across the globe. And that's helping win those gray areas as well with those patients.

Yeah, Brandon, this is John. So VBP, we'll participate in. It's going through its process. I would expect that as things open up into the fourth quarter in terms of products that will be entered into it, we'll participate in. As you know, it's been well documented. It usually starts on the public side. We don't have a lot of exposure on the public side. Only about 15% of our business in China is public. Most of it's private.

But we'll participate in that. We think that it helps grow in this market where, like we said, from a company standpoint, most of our product is on the private side. But the vast majority of cases done in China are done with wires and brackets. So if VBP allows more exposure, more people to be able to use clear aligners that will help participate and help drive, We feel that with our operations there, our treatment planning, our sales force, everything that we have on a go-to-market standpoint really will help us as we navigate through that process.

Yeah, I could start with that, Vic. We have a lot of productivity and efficiency programs in place. Obviously, we know how to manufacture and manufacture at scale and better drive productivity. So many of the actions that we've been doing for the last several years are coming to fruition, and we're driving that improved productivity. We're seeing that this year. We see the gross margin improvements that we've had in the business. Some of it's product-related where you have that less dependence on these complicated products that have multiple refinements and we go to fewer refinement type products, that drives a lot of productivity in our business. So some of it's at the product level, some of it's at the initiatives that we have to be able to help drive improvements in productivity.

Of course, we're going through this strategic review and understanding where we can save money, where we can invest to be able to drive growth and do it in a profitable way. So we feel good about the efforts that we have up until this point. We'll continue to make refinements to it. And then at the end of Q4 here, we'll be prepared to talk about what that means for 2027. But we hold to the fact that the op margin improvement next year that we've committed to, that at least 100 basis point improvement is progressing well. And we'll update more about what that means for the rest of the P&L next quarter.

Thank you.

Well, you're right. There are a lot of moving pieces to it, Jeff. And I think when you look at it as, you know, if it gets, it will get to private. As it goes to private, the real question will become is what doctors do with those price differences. Do they pass them on to the potential patients? We hope they do because that will drive an increased amount of utilization and adoption of clear aligners. So we hope that that's where it ends up going. But we see increased volume that will come through. That's typically what happens with BVP. We think we're properly positioned in China to be able to kind of in China for China to be able to manage the cost.

And I think when you look at it overall from a net revenue standpoint, to us it's neutral to positive. Just from the standpoint, you're going to drive a lot of volume, I think, as it works its way through the system. and you will have some price, but I think the volume helps offset it. And as long as that product portfolio that we have is in place, as well as some of the in-China operations we have, we think we're properly positioned.

You're right from a stack standpoint. The stack is very similar to the two-year stack that we've seen, you know, at Q3 and then kind of the implied guidance for Q4. So you get to that, Jeff. I think what you see is, you know, continued consumer that's challenged across many markets. You've got to do a lot of things to try to motivate them to go into treatment when they have that challenge, financing some of the product portfolio and other things that we're trying to do to help with the go-to-market efforts. So, you know, slight tweaks that we've made based on what we're seeing on a global basis, but in that overall revenue that we're talking about for the year of that 5% to 6% and similar amount from a volume standpoint for Clear Aligner.

So, overall, that hasn't changed too much from a total year standpoint, but just adjusting slightly for Q4. Thank you.

We see the installed base up double digits. So we're getting good adoption of our scanners, and we're very pleased with that. It's a great scanner, great portfolio we have, being able to get to those doctors. Some still want to have the latest and greatest, Lumina, all the bells and whistles, great, and that comes through as equipment sell through.

Some doctors are like, I don't need the full system. I'll do more of a flex model where they just hook into a laptop and it fits their needs. Some doctors are looking at maybe the certified pre-owned. Any which way they want those units, we're happy to sell. It's just whatever fits their needs. The added component that we've seen is a lot more leasing, a lot more rental. And those doctors are like, we want the scanner. I just don't want to pay for it up front. So we're seeing those placements happening. You're starting to build up more of that rental income because it's from previous quarter or rental revenue. That's from previous quarters. That's now building up into whatever current quarter you're in as well as leasing and so on.

So that's an evolution that continues to happen within the business. What we saw as we went from second quarter to third quarter, we saw relatively stable pricing on an overall equipment standpoint. So that was a good sign for us that it's kind of more bottomed out there from a price standpoint. And we feel good that we can build off of that for Q4. And more importantly, as we look into 2027, we build off of that to 27 such that we expect systems and services to grow next year because the pricing has stabilized. because of the trade-offs that are happening between equipment sale and leasing, so that when we look at 2027, it's much more stable.

And as we've said in the past, as we've talked about, you get about the same growth between the equipment side of our business as well as the clear liner side, and that's what our expectation would be for next year.

Yeah, what you see is you see doctors who might not have wanted to go and use our scanner. What we see, we talked about a record number of submitters that we have in the quarter. Some of that is helping by being able to get a scanner that they might not have gone to before. The acquisition cost is less because they're leasing it. It's just this monthly fee that they pay. And then it starts the front end of the digital ecosystem. They're starting to use Invisalign and digitized so that it helps them grow their business in a digital orthodontic way. So we like the combination of being able to help them digitize their practice and really be as efficient and beneficial for their patients as possible.

Yeah, when we look at 2027 framework, first off, we're not expecting much of a change in the overall consumer. The consumer will be what it does. It's a challenging environment for inflation and other inputs that those potential patients have. So we're not expecting really a change from that. What we are pushing and helping drive is how do we go to market with various products and combinations to be able to get to our doctors, to be able to help them start cases, ultimately do more cases. You couple that with financing to those potential patients, really trying to get those reluctant patients to actually get into treatment. So that's how we're building throughout this year in this challenging environment and what we would expect for next year.

As we think about our growth and what we've seen from a growth this year and our expectation for next year is, look, you're going to see some of those markets where we've had great growth on the international side. We expect those to continue. India and China and Latin America and others, they're going to continue. Those are great growth opportunities for us. that continues. They come at a lower list price. It's just what the market is. You're also going to see some of these products like the DSP, touch-up cases, and so on that will end up, you know, we end up growing faster too. Those two combinations, geographic plus product mix, take our ASPs down, and what we've been seeing, you know, is that one to two percent.

This year, it'll be down about one percent, but I think from a planning standpoint, through that geographic and product mix about 1% to 2%.

Yeah. You know, think about it, Jason. We've got, from a new product standpoint, we've certainly seen some of that price shifting. And we started seeing this in the first quarter, really played out in the second quarter. It was stable in the third quarter, meaning that pricing was about equal. And this is really across the globe. So what we also see is strong demand. There's demand for this product. That install base growing like it is. The product is well-received. All the products that we have are well-received. It's just that in some cases it's at a lower price, but we think that's stabilized. And then when you look at the leasing and rental, some markets have shifted to that.

It is in all markets, but in some markets it's shifted to that. and what you do is you just forego as much, you know, you don't get as much revenue up front, but you get that revenue later on. The key for us is we want those doctors to be able to have that scanner at their practice, help them digitize and lead to more use of digital orthodontics. And we think that's a good thing and we're expecting to build on that as we go into 2027.

Look, I think – Steve, this is John. So when you think of what we're trying to do, we're expecting a challenging macro environment. I don't know if it magically gets better into next year. So given that, the work that we're doing from the product portfolio and what we're doing to go to market, as well as some of that consumer and other financing options to be able to help with those potential patients to go into treatment. It served us well this year when we think about our clear aligner revenue and volume, as we talked about for the full year, that 5% to 6%. That served us well in 2026.

We'll give more details about what it means for 2027 in light of all the efforts that we have going on. But we feel good about what we're trying to do to try to drive that utilization and adoption go to market. Because the underlying overall market hasn't changed. The vast majority of cases are still done with wires and brackets. And we have the opportunity to grow in this space. It's just that macro that we have to work against. And that's why we want to make sure that we can continue to grow.

Yeah, I think what I want to emphasize, too, and just support John's comments, because there's a lot of questions on 2027. We're not predicting 2027 is going to fall off in some way. Just like John said, we expect – we can't predict what the economy is going to look like. We feel good about our ability to execute in a difficult situation from a consumer standpoint, and we'll continue to execute that way.

May I start with some of the financing? We're seeing many countries and many regions adopting financing, using external financing that really haven't done it before, and we're helping lead the way and do it in a way where we're working with some of these these financing companies, being able to get them into those offices through our sales team, be able to talk about the financing options. More and more in this environment, people are looking for ways to be able to afford things. And that gets ultimately down to a month-by-month basis. So I would say, Aaron, you're seeing this much broader across the U. S. , and it's helping us win those gray areas with those potential patients.

And what I'm really encouraged about is we're solving some of these in Europe that we never really thought we could get through these finance companies are now much more willing to partner with us and and be partners with us to be able to help provide financing solutions to consumers so it's early that we're seeing this but it's good progress and we feel good about this as being a differentiator to help especially in this economy to be able to upgrow the business and in your second part of your question, Aaron, about wires and brackets and how we're doing. Remember, the majority of the cases we do are adults still. From a teen standpoint, you hear more and more about wires and brackets and different things.

But as I mentioned in my script, we really feel good about the early intervention that we have. When you look at Invisalign first, you look at IPE, mandibular advancements, those products are growing at double digits for us right now. And it gives us really good access into that teen and tween marketplace overall. So we'll keep pushing those products, and we'll keep driving adults too. And that's our shift happens piece is aimed right at that to help the orthodontist grow their adult side and then also with the GP side also. So I feel good about our go-to-market both in product and also from a marketing standpoint.

Yeah, it's a good question. First of all, we won't be selling it directly to consumers. That's not the game. We have the channels that we want to work it through with orthodontists really asking for this product line because of their strong team marketplace. And I know parents are very concerned in that way, and we think our GP channel will do it too. So we will keep with our channel strategy and not go outside that from an OEM standpoint.

It is a premium product overall. When you look at it from a retainer standpoint, it won't hurt the retainer business at all because it's just completely different functionality overall. It is very unique, as I mentioned. It's really the only truly 3D printed mouth guard that we know with this kind of unique resin. And we have a lot of, obviously, design flexibility in order to make it as comfortable and as functional as we possibly can for athletes. And we like the idea that they can kind of design the mouth guard that they want, and we'll stay, you know, within those protective procedures for that particular sport. So I see this as just right in line with our channel strategy.

It's right in line with our technical strategy with 3D printing. It's a big opportunity for us overall.

You know, Kevin, I have two answers to that. One is we can 3D print that. We can make it any way you want to. So if you want to have a strap on it that snaps, we could do that. But secondly, we plan to make these things so comfortable that kids aren't going to want to take them out of their mouth. A lot of times, what our research basically says, they take it out because they can't speak.

Oftenly, they can't swallow properly, and they have to pull that out. They lose it on their helmet. So that's, again, why we like this technology. we can design this in a different way because it is a higher performance resident and a much more capable design criterion than what you could go with boil and bite and form and fill kind of mouth guards now.

Yeah, you're welcome.

Thank you, everyone, for joining us today. We look forward to meeting and speaking with you at upcoming investor conferences and industry meetings. If you have any follow-up questions or need more information, please contact Align Investor Relations. Thanks, and have a great day.