Align Technology, Inc. (NASDAQ:ALGN) Q4 2023 Earnings Call Transcript

Operator: Our next question comes from Michael Ryskin with Bank of America.

Michael Ryskin: I want to start with DSP kind of where you left off really successful, obviously, and you had great growth year-over-year for the whole year. But it’s kind of moved in sort of like a step function. If I just look at the numbers, 6,000, 7,000, 9,000 and then you’re kind of like an 11,000, 12,000 range. Now you’re in the 18,000, 19,000, 20,000 range. Is there another step function coming next year? Is there — could you dig into a little bit into what’s driving that? And just sort of where do you see that going over the next couple of years?

John Morici: Michael, this is John. I would say as we look to expand this out, it’s been successful, every place that we’ve done, we’ve seen, as you said, North America starts with this. So you see some doctors start and then we have more and more doctors that sign up for the program. And then as the doctors sign up for the program, then they end up doing more and more volume with us. We’ve taken that same approach to other countries, and now we’ve introduced this in EMEA and other places. And the same thing happens. More and more doctors sign up for it. They start to see the benefits of it, and then they utilize it more. So it’s really just a matter of now scaling this to other parts of the world because we find that this is really a nice way to supplement how a doctor wants to run their practice.

Michael Ryskin: Okay. And then maybe a follow-up on a few questions that were asked on Cubicure and Direct 3D printing earlier. Really exciting technology that you unveiled late last year, and definitely see the opportunity. But could you help walk us through the road map a little bit sort of like what should we be looking for as sort of goal post 6 months out, a year out, 2 years out, just to sort of track progress and see how it — see how it’s progressing?

Joseph Hogan: Michael, it’s Joe again. I think the best way to describe it to you, it’s — like I said in my script, it’s a 1- to 3-year journey. And obviously, we’ll — we know how to make these aligners now. We understand how to do it. It’s just a scalability of resin in the Cubicure process and that takes time. And we’ll obviously report on it quarter by quarter. So you really understand where we’re going and what the hurdles are and what the opportunities are.

Michael Ryskin: Okay. Maybe if I could just tweak that a little bit. Is there — just help us understand, is there anything in terms of — when you talk about scalability of the resin and the polymer, if you’re looking at comprehensive, noncomprehensive, you talked about retainers and being able to put those. Is there anything in terms of your portfolio that makes some products more amenable or would be amenable earlier than others? Or is this just going to be all or nothing?

Joseph Hogan: I mean obviously, the scale, you look at retainers first because units of one. And that’s why you’d end up with comprehensive full cases in some way. And that’s basically how we’ll ramp.

Operator: Our next question comes from Nathan Rich with Goldman Sachs.

Nathan Rich: I wanted to ask on the Systems and Services revenue guidance for 2024. This looks low to me just given — I think growth in ’23 was basically flat, up slightly. With the Lumina launch, we thought it would maybe be up more than it was in 2023. So I don’t know if you could just maybe elaborate on what you’re expecting for that segment?

John Morici: Nate, this is John. We’re looking at, like we said, this year, you’re kind of in that mid-single digits. We do have Lumina, which helps, but there’s also unknowns about the macro economy. We were very pleased with what we saw in the fourth quarter with doctors buying and actually doing better than what we had really guided to. So we’re pleased with the performance of Q4, but we just want to make sure that as we ramp up Lumina that we’re properly positioned there, and we’ll update as we go along.

Nathan Rich: Okay. Great. And then just going back to the margin cadence, I guess are there any either upfront or onetime costs associated with either the launches of Lumina or IPE that impact the margin in the early part of the year just as we think about cadence and sort of what the right baseline is.

John Morici: There is some of that in Q1. We’re ramping that up. So it’s not a big, huge splash where there’s a lot of expenses and kind of hits all in 1 quarter. But there is some ramp up, but that’s factored into our guidance. So when we say that we expect the year-over-year in the first quarter to be slightly up, it’s factored in — those expenses are factored in.

Operator: Our next question comes from Ann Wright with Morgan Stanley. You may proceed.

Unidentified Analyst: You mentioned at the end of the call, some of the DTC customers that you are tailoring some of the offerings to. I guess, was this material at all in the quarter? Maybe it’s not large enough at this point, but any sort of contributions in 2024 as we think about picking up some of that business? And then also, DSO relationships, has there been any changes there in terms of the relationships on that front? How would you characterize those at this point? Are you seeing any greater traction there? Do some of these new products really move the needle on some of those relationships or conversations you’re having?