Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total Q2 '24 revenues of $1,028.5 million were up 3.1% sequentially and 2.6% year over year.
- Clear aligner volumes increased 6.2% sequentially and 3.2% year over year, driven by growth from adult patients and strong teen case starts.
- Record number of doctors submitting cases and record doctors shipped to for the quarter.
- Imaging Systems and CAD/CAM services revenues increased 9.2% sequentially and 16.1% year over year.
- Non-GAAP operating margin for the second quarter was 22.3%, up 2.5 points sequentially and up one point year over year.
Negative Points
- Total revenues were unfavorably impacted by foreign exchange of approximately $11.6 million sequentially and $18.1 million year over year.
- Clear Aligner ASPs were down sequentially and lower than anticipated due to unfavorable foreign exchange and discounts.
- Operating expenses increased by $33.9 million year over year, primarily due to legal settlements and higher employee compensation.
- Q3 2024 revenue guidance is lower than expected, with anticipated sequential declines in Clear Aligner volume and ASPs.
- Fiscal 2024 total revenue growth outlook revised down to 4% to 6% year over year, partly due to lower Clear Aligner ASPs and delayed commercial launch of iTero Lumina with restorative capabilities.
Q & A Highlights
Q: Can you elaborate on the guidance change and the factors within your control versus those outside, particularly regarding ASPs and FX impacts?
A: John Morici, CFO: The guidance change reflects the unfavorable foreign exchange impact we saw in Q2, which we project will continue for the rest of the year. Over a point of our reduction in total year guidance is related to FX. The mix effect is driven by how our customers want to buy, often opting for lower-priced products. This results in a better gross margin for us, even though ASPs are lower.
Q: Did the pushout of the iTero restorative scanner revenue impact the 2024 guidance? Also, can you discuss the acceleration in teen revenue?
A: John Morici, CFO: Yes, the delay in the iTero Lumina restorative launch to next year did impact our guidance. Regarding teen revenue, we saw over 8% growth both quarter-over-quarter and year-over-year, driven by strong adoption globally and new doctors entering our ecosystem.
Q: Can you explain the 4% sequential decline in aligner ASPs, and how much of it was due to mix versus discounts?
A: John Morici, CFO: The decline in ASPs is primarily due to a mix shift towards lower-priced products like the Doctor Subscription Program (DSP), which had a record number of cases this quarter. While discounts did play a role, the mix shift was more significant.
Q: How are you able to increase non-GAAP EBIT margins despite a more modest revenue base?
A: John Morici, CFO: The increase in non-GAAP EBIT margins is due to better margins on lower-stage products, which have a lower cost to serve. Additionally, we are mindful of operating expenses and are pulling levers to maintain profitability.
Q: Are you seeing benefits from investments in expanding your doctor base, and how is the inflow and outflow of doctors affecting your numbers?
A: Joseph Hogan, CEO: We are pleased with the increase in both utilization and the number of doctors. While there is always some churn, we are gaining more doctors than we are losing. This growth is occurring globally, not just in one region.
Q: Does the appointment of Emory as head of direct fab indicate a timeline for the rollout of 3D-printed products?
A: Joseph Hogan, CEO: We expect the rollout of direct fab to take two to three years. The initial phase involves significant equipment and resin sourcing work, followed by product launches.
Q: Given the uncertainty in the market, what gives you confidence in returning to normal seasonality for Q4?
A: John Morici, CFO: We saw more normal seasonality in Q2 and expect this to continue. Our guidance reflects this, along with the impact of FX. We are also seeing strong teen season performance in China and expect this to contribute positively.
Q: How do recent initiatives like the Costco partnership and changes to the Advantage program fit into your broader commercial strategy?
A: John Morici, CFO: The Advantage program changes aim to drive utilization by providing structured discounts for new and existing doctors. The Costco partnership is designed to drive conversion by connecting potential patients with our product and doctors.
Q: Are you concerned about the trend of customers opting for lower-priced products, and what does this say about the market?
A: Joseph Hogan, CEO: We are not concerned. The variation in product pricing reflects different needs across global markets. We are responding to these needs while maintaining strong margins. The market remains underpenetrated, and we are well-positioned to grow.
Q: Why was the launch of the iTero Lumina restorative pushed to Q1 2025?
A: Joseph Hogan, CEO: We want to ensure the product meets our high standards and is well-received by doctors. Taking a few extra months allows us to refine the product and ensure it is the best in the market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
