Good morning, everyone. Thank you. Why don't we get started? Thank you for joining us today. For those of you who don't know me, I'm Glen Santangelo. I'm the analyst at Barclays that covers Align Technology. We're very excited to have from Align with us John Morici. He's the Executive Vice President of Global Finance and the Chief Financial Officer for the company. I think many of you have probably known John for some time, so we're obviously very excited to host a presentation here this morning. John, welcome. Why don't we get started? All right. Excellent. I think a good place to start the conversation might back up to the recent 4Q results. I mean, it was a pretty extraordinary result, right?
5% sort of revenue growth on a sequential basis and year over year. It just sort of feels like to us. Well, I'll let you start and sort of give your take on 2025 and how it sort of progressed and how you closed the year and set the table for 2026, and then we'll jump right in.
Yeah, that's fine. So as we went through last year and really as you said into third and then fourth quarter, we saw stability broadly across the markets, and that allowed us to be able to operate in that stability to be able to deliver the results that we said. We had some of the volume year-over-year volume growth close to 8%, revenue at 5%. Getting some of that growth back, we saw it across the board really when we saw North America stability. We saw DSOs grow in double digits. We saw some of the international growth with Latin America double digits and APAC and Europe at double digits, that was really good to see. Our DSOs, the dental service organizations growing double digits even in North America.
It was really broad-based that we saw, teens up 7%, adults up 8%, that was good results that we finished the year with. It really reflected some of this, the operating environment that we're in with some of that stability, but then a lot of initiatives that we have to be able to drive that conversion. Some of it's new products that were introduced, you know, with the palatal expander and some of the touch-up cases that we have in various regions. That went well for us. Then we saw good execution across the business to be able to drive that growth.
We exited in a year that started out more challenging, but as the year progressed, we felt better and better about our results and left the year in a good position.
Yeah. It was certainly a strong exit. I would also point to, you know, and I'm sure this is not lost on you, but if I look at all your publicly traded sort of dental peers, you know, all of you reported better results in that fourth quarter. It certainly felt like something changed or evolved from where we were in September to where we sort of closed out the year in December. For whatever reason, it feels like the end market certainly got healthier and Align sort of executed well. You know, how do you sort of characterize that transition and maybe where we are today sitting here in the first quarter?
Does it feel like, you know, we did see some improvement and, you know, that it, you know, we continue to be stable, you know, at these levels? Is that a-
I think the stability is key. I think you know, for our products, you know, in the end, there's a need, you know, especially on the teen side, where at that certain time people want to go into treatment. You wanna have that stability there so that people looking for treatment can afford it. I mean, there's a certain amount of reimbursement, but in many cases it's out of pocket, so people have to realize, "Okay, I've got to either save up for this or I finance it," and so on. People have to make those decisions. I think what we're trying to do is help our doctors really drive what we call more active conversion.
Yeah.
I think we saw more of that in the second half where, you know, when a patient comes in, making sure that they get a iTero scan, they can help visualize what their treatment would look like before and after, get them excited about it. The customers that we have that are very good about that active conversion set a good price for those potential patients and then usually follow it up with some type of financing to get them into treatment. We're seeing more and more of that. DSOs are doing that at scale. They're able to do that in a way to drive this conversion, you know, what we would call more active conversion, and that's why they're growing like they are. They're in the double-digit growth pretty much across the globe, we're seeing that.
We need to be able to apply that to the one-off doctors that we have that maybe aren't so used to that type of selling. When we do that more and more, we see them getting good results.
Okay. Maybe you just indulge me. I just have one more question on the macro, and then we'll sort of dive into the businesses. I think sort of coming into the year, I think a lot of investors were sort of focused on the tax refunds and maybe the benefit that that would have to the consumer. We've seen, you know, this AI trend maybe starting to, you know, manifest itself in some corporate layoffs and maybe that's an offset to some of the benefit. You know, two weeks ago, I don't think 90% of us could have pointed to the Strait of Hormuz, you know, on a map, and now that seems to be, you know, starting to dampen sentiment.
Like, how would you sort of assess kind of where the consumer maybe is today with some benefits on the tax side versus maybe some of the other macroeconomic offsets and how they're thinking?
Broadly, we still see that stability. You know, there's gonna be things that come up. In this dynamic environment where something's happening in the world, people get, you know, nervous about or talk about and so on. For the most part, it's that stability continues across the globe. We're able to navigate, even from a supply chain standpoint, out of the Middle East and be able to. Things might get delayed a little bit, but we're able to navigate and make sure that we keep our people safe, and we can supply, where we need to across the globe. We've got that managed. I think when you look at the overall environment for this year, we didn't plan for a benefit of, as you mentioned, tax refunds. I think that does help in the end.
Yeah.
You get some early indication that people are getting potentially a higher amount of refund, which in general is good for us, being somewhat discretionary, especially on the adult side, when people have more money in their pocket. We certainly saw that, you know, going back to the days of COVID, where people had stimulus money, they had time as well, but they wanted to get something done for themselves. We think that's a good thing, not baked in. I think that would be a tailwind. We'll see how that plays out. Overall, we want to maintain and see that stability and be able to build off of that. In some economies, it's better than stable. It's. They're actually growing very nicely for us.
Hmm.
We wanna be able to manage that in this changing environment.
Okay. Sort of diving into the aligner market. When I go back to the fourth quarter results, I mean, 7.7% growth year-over-year, and that was very impressive, but I thought was even maybe just as impressive was the balance, 8.9% growth in ortho, 5.3% in GP, 8% adult, and 6.9% in teen. So you're seeing balance across all the different quadrants of your business. I mean, is that what you expected, or did that surprise you?
No.
Anything you'd point out related to that balance?
We want to. You know, look, we wanna grow adult and teen. It's an under-penetrated market that we have. It's really even more on the teen side. Typically, teen grows faster for us because you've got millions of case starts that happen on a regular basis that most of them are done with wires and brackets. We're the biggest share of the clear aligner, but majority of cases in this were for adult and teen are done with wires and brackets.
We have a huge opportunity, and I think what we're doing is, with the product portfolio that we have, to be able to suit the needs of our customers, this active conversion that I talked about, where you're advertising locally and getting those patients in and then driving some of the visualization and the right financing to be able to drive that conversion. We saw more of that in the second half of last year and as we exited. Like I said, it was broad. I mean, we've seen some growth in areas that we haven't seen in a while, like I would say Western Europe, maybe better than we've seen. We've seen some areas where, in, you know, China, double-digit growth.
Some of these markets that have been kind of challenged and you hear, you know, things, happening, we're able to work our way through. It fundamentally comes down to the fact that it's an under-penetrated market, and we've got a way to go after that market to be able to drive growth.
Competition's always an issue in your business now, and I think we get a lot of those questions around ASP and how that competition will impact that ASP number. Could you talk about your recent growth and maybe the impact that you know, ASP sort of had on those growth numbers?
I think overall, the competition, as we've said before and what I said just earlier is, our competition is wires and brackets. The vast majority of cases are still wires and brackets. You see some competition in the clear aligner side. They mostly compete on price. They try to come in maybe at a lower price. What we've seen across the industry, pretty much across those companies is they've had to increase price because we knew those prices aren't sustainable, and they've increased and I think that will play out, as it is. I think when we look at our ASP, there's two factors that impact our ASP as we grow. We're growing in many countries that have a lower list price. You grow faster in India, you grow faster in Brazil, you grow faster in Turkey than your average.
Those list prices are lower. That's what it is in that market. The second is we see an ASP impact on some of the products that we have. If we grow faster in, let's just say, touch-up cases that we're doing, where it might only be five sets of aligners, well, that might only be $500 from an ASP standpoint. But the key is we're growing, getting new doctors. We sold to more doctors than we ever had in the fourth quarter. We're driving utilization.
Hmm.
That's a great thing for them. Many times you have new doctors, they don't start with the most complicated cases. They're starting with what they know.
Right.
Or what they can get into initially. That's the dynamics that we have. I would say this, when we sell to those doctors, especially those lower, you know, acuity type cases, that don't have a lot of refinements, they're at a very high gross margin for us.
Hmm.
We see the gross margin rate. You saw that in the fourth quarter. It also translated to op margin as well. That's the dynamics that we have from op.
When we think about the three-year growth algorithm, we should expect that to continue. Some of these emerging markets may be growing faster at a lower price point.
That's the plan. You would see that.
The mix. We should maybe expect some continued modest headwind on the ASP side due to the geographic and mix issues.
The geographic and product mix are the ASP drivers.
Yeah.
If I looked like for like in markets, there's not anything abnormal in terms of the pricing that we're doing. In some cases, we've increased price, but it's mostly due to some of the currency changes. Others is just we have that stability in price. Our customers expect that. Then as they choose products that have maybe a lower list price, that's their discretion, as we operate.
Can we just talk about the competitive landscape? I know you believe your primary competition is brackets and wires. We get a lot of questions around Angel Aligner and some of the other players. I think you sort of commented that you're maybe happy to see some of that competition happen to raise their prices, right? For probably a host of different reasons. Could you just give us an assessment of the clear aligner competitive market and any trends that are worth calling out?
Yeah. Like I said, most of the competition comes in on price. They'll go to certain doctors and try to look at price as a way to make a change. Like we said, some of the reasoning for switching, I think is changed. Many times as a doctor, you don't know if a product's gonna get you to what you need. Is it gonna finish the case properly? That might take six, 10, 12 months to be able to understand. I think that's cycling through. Maybe some customers are not happy with the results that they're getting after they switch, and now they're compounding that with some of the price increases that they're taking from the competition.
In this business, to be able to make money, and really we're the only company that I see that makes money in this business. You've got to make money by having a scaled business, being able to produce what we produce over 1 million unique parts a day and do that day in and day out, and drive the scale and benefits of that. Be able to bring technology like we do. We spend a lot on R&D, but it benefits our customers and their patients, and you have to be able to bring that. We're the only one who's trying to expand the category from a marketing standpoint.
I think once you bring those three together, many doctors realize the benefits of it. I would say why we're growing so fast is with our DSOs, they recognize that.
They recognize they come to us because we bring scale, we bring technology, and we bring a brand, and all of those intersect with that business.
Can you give us an update on any sort of outstanding legal issues? I think in September, the company filed a complaint with the International Trade Commission aiming to sort of block imports of Angel Aligner, and they vowed. You know, citing patent infringement, they vowed to sort of defend themselves. Is there any other sort of litigation that's outstanding that's even worth talking about or?
It's what we put out. It's going through the process now from a litigation standpoint against Angel Aligner. It's multi-jurisdiction, so you see this in U.S. and Europe, where we won a preliminary injunction in Europe where they had to pull back on some of the live updates, some of the software changes that they have. It's also in China as well. But look, we feel that from a technology standpoint, for what we spend and the intellectual property that we have, thousands of patents on our technology, the clear leader in this space. There's gonna be companies that find their way into using our technology that we think we've created.
In Angel Aligner's case, it looks like they created their product based on our roadmap and our technology and that'll become clear as it plays out.
Okay. All right. Can we shift gears maybe and talk about the DSO partnerships? I think the company has sort of commented that it represents 25% of your business on a volume basis. You know, for DSOs that aren't working with you know, is there anything specific that's holding them back, or you think it's just a matter of time, or is there anything contractual? Like, how should we think about the company's ability to grow that business within DSOs?
Well, it's a growing trend within the dental space. There's consolidation that's happening where you have practices that are by themselves, maybe they want a change in their career or how they practice and so on, and they're looking to perhaps sell or sell part of their business and kind of become part of a DSO. That's happening as it stands. We're being able to capitalize on that consolidation by bringing the three things that I spoke about that give us the benefit with them. We bring scale. We can turn around cases, and they're getting cases because we're so regional, you can get that turnaround in days from a manufacturing standpoint, and they appreciate that. They want technology. They want to be able to have technology that helps them finish cases and do it efficiently.
A lot of productivity around software and updating things so that they can really standardize their operations with our technology. When they advertise and bring people, especially on a local basis, they're using our brand or leveraging our brand. There's a lot of co-marketing and other benefits that we can bring with those DSOs. I would say DSOs, what we're pleased with the growth. I think there's a lot more growth. I think there's growth that's gonna happen within the industry and the consolidation, and I think there's a lot of ways that we can partner with. I think DSOs are. We call them kind of a force multiplier in terms of-
Taking our technology and taking our brand and bringing things together and partnerships that we have, like with the Smile Doctors or Heartland Dental, and now growing amount of DSOs that are consolidating within Europe and also Asia, is really a way for us to extend some of the growth that we see there and be able to grow that channel while still recognizing that the vast majority of doctors are still independent, and we have to grow those as well. We're seeing a good blueprint of how to do it through those DSOs.
Okay. Can we shift gears maybe and talk about the systems and services businesses? We get questions around the Lumina upgrade cycle. It feels like we're a fair way into that sort of upgrade cycle. Maybe if you can just give us a sense for where we are in that adoption curve and maybe how much more opportunity you see as far as that's concerned?
There's a continued, you know, we introduced that scanner a couple of years ago and then modifications to it, about a year ago. There's upgrades that are happening in the industry to be able to upgrade that technology to the latest scanner. It's going from, you know, what was Confocal to now a camera-based imaging, and it gives a lot more flexibility. It's a smaller wand, faster. Gives a lot more data to those practitioners, so it's a really good upgrade. You know, we're continuing to evolve this, making some of them more portable and different options that gives different pricing flexibility and so on. We still have the Confocal, the 5D that we have, that's kinda now become more the midpoint, if doctors don't wanna buy the most recent.
We also have scanners that have come in that have been, you know, traded in that now go back out from a certified pre-owned. We have a product portfolio that has the latest technology with Lumina to the kind of the mid-tier that we have with Confocal to the certified pre-owned. We offer a lot of financing options as well. Some might buy it straight out, great. Some might finance it, some might lease it, and some might rent it. Some markets are really evolving very quickly. If you're in Brazil, you almost don't buy a scanner anymore. You rent it. You lease it. Same in China. I think we have the portfolio of products to be able to accommodate that, and we can offer a lot of the financing options.
'Cause ultimately we want those doctors to be able to use a scanner. It's becoming more and more, it digitizes their practice, but if we see the direct correlation, they have a scanner, we'll see more Invisalign cases. They add another scanner, we'll see even more Invisalign cases, and that's a good combination.
You sort of touched on this a little bit, but is there any sort of upcoming innovations or anything else on the imaging side that we should sort of be keeping an eye on that might continue to support the durability of the growth that you see in the business?
You'll see innovations around, you know, better margins and better understanding of, especially on the restorative side, some improvements that you'll see. It's an everyday scanner. You'll see some more around diagnostics and other parts of that scanner that will just become an everyday scanner. What I spoke about earlier, especially with some of the DSOs, they're scanning every patient. We wanna be able to use that scanner to be able to provide a lot of diagnostic and other restorative information back to those general dentists who majority of what general dentists do is restorative. If we can make that scanner more a part of what they're doing on a regular basis, it'll lend itself to more Invisalign.
You know, when you think about this equipment, like how do you assess sort of the practice's willingness to spend in the current environment versus maybe a year or two or three years ago?
You know, I think, interest rates are a big deal for them. They wanna keep. They don't wanna necessarily finance things or pay interest on it. I think once they feel a bit more comfortable about the demand equation that they have in their practice, are they getting patients in, is there a continued flow and so on, that helps, where people have, you know, they might be in the past more reluctant to upgrade some of the capital that we have. Like I said, I think our product portfolio is diverse enough that people can get some of these scanners at a relatively low price.
They're looking for more certainty on a monthly basis, and I think that all-in price of like, this is essentially how much it costs to rent a scanner. I think those choices have been well-received, and we're seeing more and more doctors take us up on those choices, even in tougher environments.
Maybe just a couple financial questions as we're coming close on time. Anything macro-related with respect to tariffs? I know it's been a little bit of a moving target over the last year. You know, a current assessment of the recent Supreme Court decision, how that might evolve or change anything?
We'll see how there's a lot of speculation on rebates or not rebates. We're essentially taking about $1 million a month from a tariff. It's really a product coming from Israel for that, the scanner, with USMCA between U.S. and Mexico. There's no tariff on products coming out of Mexico. We continue to operate in that environment. We're staying really active to make sure that we understand any impact, but it was manageable for, you know, all of last year, and we expect it to be manageable as we go forward.
Manageable. Okay. All right, the balance sheet in great shape. You got $1.1 billion in cash. You know, obviously a great position to be in. I think you have $831 million remaining on the billion-dollar authorization, if I'm not mistaken. Could you maybe give people an assessment of, you know, your capital deployment priorities and maybe the appetite to be buying back stock and relative to that authorization?
Well, buying back our stock has been an important use of our cash. I mean, first and foremost, we wanna use our cash to help fund the business and grow. So as we go to market and wanna try different things, you know, we wanna be able to fund in that. There's not really acquisitions. We've done some smaller ones. The biggest one that we did was back a few years ago with exocad. We've been able to use our cash for that, like you said. Not having debt in this environment is helpful for us and being able to generate a lot of cash. Free cash flow has been excellent for us. We wanna be able to maintain that.
Buybacks on excess cash, we've done, you know, we've been buying back over half a billion dollars of our shares over the last couple years. That's important for us. You can only do it from a U.S. cash standpoint, as you know, so being able to get that cash back efficiently is important for us. We're working strategies to make sure we have that. Of that $1.1 billion, over 80% of it is OUS. Being able to find the right efficient way to bring that cash back, to be able to put that cash to work, in an excess way to buy back shares has been useful for us.
Just really quickly, do you wanna touch on the guidance for 2026? I think you laid out 3%-5% revenue growth in 1Q, 3%-4% for the year in clear aligner volumes in mid-single digits. Sort of any high-level commentary around that or any sort of update or anything related to that that's worth mentioning?
Yeah, I mean, when we looked at the year, we said, "Look, this is a starting framework of what we expect to be able to operate in." We're assuming stability continues, broadly stable. We expect some of the, as I said, international markets to grow faster. We expect that, as our product adoption continues to grow, we drive more doctors and increase the number of customers we have, as well as increase the utilization. That's a framework that we laid out for the year. We wanna take it quarter by quarter in this dynamic environment, but we think we're well-positioned to operate.
All right. That's great. Well, congrats on the recent progress. Listen, we're out of time, but I wanna give you the final word. I don't know if there's anything that we didn't discuss that you think is worth mentioning. Any final word you wanna leave with the investors? I'll give you the last word to sort of close it out.
No, I appreciate that. I think, you know, we're in a business where there are changes and challenges that you have, but I think the fundamental, when we think of the company, it's a vastly under-penetrated market. Most cases are done with wires and brackets. We think we bring technology, we bring scale, and we bring a brand to this space that helps our customers win from an active conversion standpoint. Sometimes potential patients are reluctant to spend money. That activity, when you bring it all together, helps them drive conversion, and that's what we'll focus on doing as we go through this year.
Okay. John Morici, CFO of Align. We'll leave it there.
Thank you.
Thank you very much. Excellent. Great job.